With the rapidly changing circumstances surrounding COVID-19, there is no doubt that life sciences companies will be an active part of the solution, either by developing effective treatments and vaccines or by providing the medical supplies and devices needed to treat the expected influx of patients. Having already declared a National Emergency, U.S. President Trump invoked the Defense Production Act yesterday and issued an executive order delegating authority to the Secretary of Health and Human Services (HHS) as the lead Federal Department tasked with emergency procurement of health and medical resources. HHS had already taken action to declare COVID-19 a Public Health Emergency and issued a PREP Act declaration to facilitate expanded contracting to meet critical needs. Federal agencies are leveraging these new authorities to enhance access to needed medical items, and state and local governments are following suit.
Federal contracting
Government needs are expanding rapidly and we expect they will continue to do so throughout this pandemic. Solicitations for products, services, and research and development efforts can be found at beta.SAM.gov using the search term COVID-19. In particular, the Biomedical Advanced Research and Development Authority (BARDA), which serves as the point of entry for product and technology development submissions pertaining to COVID-19, has posted an expedited request for submissions.
To facilitate purchasing during the pandemic, the government has begun to utilize some of the tools at its disposal for emergency purchasing:
Defense Production Act (DPA)
The President invoked the DPA for health and medical items, and by executive order designated HHS as the lead agency in carrying out the necessary contracting and allocation efforts under the statute. The DPA is the President’s primary authority to mobilize resources and expedite acquisition of critical industrial items for national defense and emergency preparedness requirements.
The DPA authorizes the Federal government to issue “rated orders,” which are required to be prioritized. These orders can be issued against existing government contracts, but they also can be issued to companies that do not have government contracts in place. Commercial businesses generally are required to accept these orders and are not permitted to discriminate in any manner against the procuring agency, such as by charging higher prices or by imposing different terms and conditions than for comparable commercial orders or non-rated Federal ones. Companies receiving rated orders must also provide preferential scheduling and must ensure delivery of all needed production items or services in a timely manner to satisfy contract requirements.
The DPA also authorizes the Federal government to issue “allocation” orders, which may be placed when there is insufficient supply of a material, service, or facility to satisfy national defense supply requirements. There are three types of allocation orders:
- Set-aside. An official action that requires a company to reserve materials, services, or facilities capacity in anticipation of the receipt of rated orders;
- Directive. An official action that requires a company to take or refrain from taking certain actions. A directive can require a halt or reduction in production of an item; prohibit the use of selected materials, services, or facilities; or divert the use of materials, services, or facilities from one purpose to another; and
- Allotment. An official action that specifies the maximum quantity of a material, service, or facility authorized for a specific use.
Orders and allocations can be postponed or adjusted in certain limited circumstances, but need to be addressed on a case-by-case basis. Given the expansive reach of the DPA into commercial business activity, its use can raise a wide variety of legal concerns, implicating regulatory, commercial, and intellectual property considerations.
Increased purchasing thresholds
Federal Acquisition Regulation (FAR) Part 18 and FAR 13.500 provide contracting agencies with tools to expedite delivery of goods and services to support responses to emergency situations. Agencies may increase both the micro-purchase threshold and the simplified acquisition threshold, which allows for more streamlined procurement for higher dollar value acquisitions. In addition, agencies can simplify procedures for commercial items acquisition and even treat certain non-commercial items as commercial for purposes of procurement. Exercising this authority, earlier this week the Department of Veterans Affairs (VA) issued a memorandum increasing the micro-purchase threshold from $10,000 to $20,000, the simplified acquisition threshold (SAT) from $250,000 to $750,000, and the threshold for use of simplified acquisition procedures for commercial items – including drugs, medical devices, and supplies – for use in response to a national emergency to $13 million. We expect that other agencies will be taking similar steps.
Non-competed solicitations
Under the Competition in Contract Act (CICA), Federal executive agencies cannot contract without providing for “full and open competition,” unless a statutory exception applies. FAR Subpart 6.3 provides that the government may waive competition requirements where there is an unusual and compelling urgency, for national security reasons, and when waiver would be in the public interest. Additionally, under the waiver rules, the government can issue a contract to a single source where that source has submitted a proposal for an innovative product, service, or concept that is not otherwise available to the government.
Application of rules of origin
Country of origin (COO) rules typically place restrictions on Federal procurements that operate to limit the ability of an offeror to supply foreign end products. These rules and any accompanying restrictions on procurement of non-U.S. items, can be waived under certain circumstances, including for national security purposes. Both the Buy American Act (BAA), which generally applies to purchases between $10,000 and $182,000, and the Trade Agreements Act (TAA), which applies to procurements over $182,000, may be "waived" upon a finding that the product being procured by the government is not available from TAA “compliant” countries in sufficient quantities to meet the government’s needs. It is also worth noting that Trump administration officials have signaled that additional “Buy American” incentives and, potentially, restrictions will be applied in the near future. It is possible that these will limit existing flexibility in procurement COO regulations.
PREP Act
The Public Readiness and Emergency Preparedness Act (PREP Act) enables HHS to issue declarations that provides Federal contractors immunity from claims resulting from the administration or use of countermeasures to address public health emergencies. On February 4, 2020, HHS issued a PREP Act declaration for medical countermeasures against COVID‑19. “Covered countermeasures” include “qualified pandemic or epidemic products,” or “security countermeasures,” or drugs, biological products, or devices authorized for investigational or emergency use. The purpose of this declaration is to encourage the development, testing, manufacture, and distribution of measures designed to combat the spread of COVID-19.
State and local government purchasing
As the Federal government readies its procurement tools to optimize its response to the COVID-19 pandemic, state and local governments have been directed by President Trump to do the same. These governments may contract using their own vehicles or, in times of emergency, may access certain federal contracts, such as the VA Federal Supply Schedule (FSS) contracts.
Two separate FSS contract provisions provide for state and local government access to certain FSS contracts in emergency circumstances. First, based on the Secretary of HHS’s declaration that COVID-19 is a Public Health Emergency, state and local governments were permitted to access FSS contracts held by contractors that opted to participate in expanded contracting efforts for emergency/disaster recovery. Additionally, when President Trump declared a National Emergency under the Robert T. Stafford Act, state and local governments were provided access to all FSS contracts. While there is some limited basis to reject orders, as a practical matter manufacturers may not have the ability to do so, because these orders generally are placed through third-party distributors and thus manufacturers will only learn of these sales after the fact. It is also worth noting that additional state/local government terms and conditions may apply to these transactions. And, manufacturers of innovator drugs should keep close track of FSS sales data and consider implications that these sales may have on government pricing (GP) calculations.
For companies selling to state and local governments outside of the FSS contract, it is important to understand that the various state and local governments have their own unique procurement processes, terms, and conditions. Despite the urgency of these purchases, companies should ensure that they closely review contract terms and understand associated obligations.
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