Type: Law Bulletins
Date: 03/25/2020

The Defense Production Act Has Been Invoked — What Does This Mean For Your Business?

On March 18, 2020, the president invoked the Defense Production Act (DPA) in response to the COVID-19 crisis. For the moment, the Executive Order invoked the DPA for government contracts only for personal protective equipment, ventilators and other medical products. The act, and its implementing system, Defense Priorities & Allocations System (DPAS), allow the Federal Government to “cut the line” when ordering from businesses through a process called a “Rated Order.” As the government’s response to COVID-19 expands or extends, it is likely that the White House will expand the scope of contracts subject to DPA coverage.

As we discussed previously, it works in the following way:

Prime contracts, subcontracts or purchase orders in support of an authorized program are given a priority rating (DX, DO, unrated). A DX rating takes priority over a DO rating, which takes priority over an unrated order. Rated orders take priority over unrated orders and orders from a contractor’s commercial customers, even if those orders were placed before the rated order.

When a contractor, subcontractor or supplier receives a rated order it must either accept or reject it, in writing, within a certain time period—15 working days for DO rated orders and 10 days for DX rated orders. Prime contractors are responsible for extending the received contract rating to their entire product supply chain, to the lowest level, so it can fill the rated orders or obtain replacements of inventoried items.

Although the government will not compensate contractors for costs associated with loss of work resulting from performing a rated order, DPAS does protect a contractor from breach of contract claims when it is unable to meet the obligations of its unrated orders. The General Services Administration (GSA) has also issued additional guidance on DPAS orders.

The invocation of the DPA also allows the federal government to “allocate materials, services, and facilities in such manner, upon such conditions, and to such extent as [the President] shall deem necessary or appropriate to promote the national defense.” 50 USC § 4511(a). The administration has not, as yet, invoked the allocation provisions of the DPA. According to a recent interview with the Federal Emergency Management Agency (FEMA) Director, however, this option is on the table in the event voluntary production efforts are not meeting government demand.

Declaration of National Emergency

Earlier, on March 13, 2020, the president declared a national emergency under the Stafford Act, 42 USC §§ 5121-5207. This declaration allows use of the “emergency preparedness” measures of the federal government. Those include “all those activities and measures designed or undertaken to prepare for or minimize the effects of a hazard upon the civilian population, to deal with the immediate emergency conditions which would be created by the hazard, and to effectuate emergency repairs to, or the emergency restoration of, vital utilities and facilities destroyed or damaged by the hazard.” 42 USC § 5195a(a)(3).

Additionally, “major disaster” declarations have been made for New York (March 20), California and Washington (both March 23). This declaration opens up additional financial and other support from FEMA and other federal agencies responding to the crisis. It is anticipated that the president will declare other states major disaster areas as COVID-19 cases increase.

Importantly, the invocation of the Stafford Act does two primary things: it enables the federal government to utilize emergency procurement flexibilities to acquire goods and services in a more rapid manner, and it opens up federal funding to state and local governments to aid in their response efforts.

Emergency Procurement Flexibilities

On March 20, 2020, the Office of Management and Budget (OMB) issued a memo summarizing the measures the federal government was taking to speed procurement efforts during this crisis. As we discussed previously, these measures include: leveraging special emergency procurement authorities under the Federal Acquisition Regulation (FAR) and agency supplements; enhanced use of telework to the extent feasible; and emergency increases to the Micro Purchase Threshold ($20,000 domestic and $30,000 outside the U.S., up from $10,000), the Simplified Acquisition Threshold ($750,000 domestic and $1.5 million outside the U.S., up from $250,000) and the threshold for use of simplified acquisition procedures for commercial items ($13 million, up from $7 million).

These expanded capabilities will minimize the bureaucracy and formality normally required for the federal government to purchase large quantities of goods and services and allow it to more quickly respond to the crisis.

What if you’re not currently a government contractor?

The federal government is rapidly requesting new products and services in its response to the COVID-19 crisis. Many of these needs may be filled by companies which have not traditionally done business with the federal government. To find these opportunities, anyone can go to beta.SAM.gov and search “COVID-19” in the search box. It will provide a listing of currently open solicitations (or requests) for products and services needed by the federal government at this time. Examples of these opportunities, as of this writing, include providing personal protective equipment (PPE), construction for conversion of hotel rooms into temporary hospital rooms, testing services and many more.

Once you’ve identified an opportunity you want to pursue, the first step is to register your company at SAM.gov (the System for Award Management). Once you are registered, the SAM website has a Disaster Response Registry that enables a contractor/company to input its areas of expertise. This registry allows government agencies to reach out and request proposals from registered companies that can meet certain areas of need.

If a company does not routinely do business with the federal government, but receives a contract that is “Rated” under DPAS, it still needs to consider the steps described above to determine whether it can perform the rated order within the time frame identified. Regardless of how many or how few contracts a company performs with the government, it still needs to accept or reject each order within the specified time mentioned above. If accepted, that order will take precedence over all others, based on the priority assigned to it.

Note that government contracts contain requirements that are not typically found in commercial contracts. Taft’s Government Contracts team can help explain the unique contract terms encountered when doing business with the government.

In This Article

You May Also Like