On February 24, 2021, President Biden signed the Executive Order on America’s Supply Chains aimed at strengthening the resilience of America’s supply chains in the near future and long term. The new Executive Order stems, in part, from a recent shortage of critical supplies such as computer chips, which are required to produce cars, smartphones, televisions, radios, medical diagnostic equipment, and several other production items. While signing the Order, the President highlighted that even small failures at one point in the supply chain can cause impacts further up the chain. Notably, the “resilience” part of the policy means that the United States will seek to increase production of goods and materials domestically and with allies to mitigate these challenges.
The Executive Order states that, as a matter of policy, the United States needs resilient, diverse, and secure supply chains to ensure economic prosperity and national security. The rationale behind the policy is that resilient American supply chains will revitalize and rebuild domestic manufacturing capacity, maintain America’s competitive edge in research and development, and create well-paying jobs. Future efforts in this area are expected to include close cooperation with allies and partners with the purpose of fostering collective economic and national security as well as enhancing the capacity to respond to international disasters and emergencies. The policy goals behind this recent Order align with the objectives of the January 25, 2021 Executive Order on Ensuring the Future Is Made in All of America by All of America’s Workers, which Dentons covered in this previous client alert.
Government contractors, subcontractors, and suppliers should be aware of two crucial aspects of the Executive Order that will advance the Administration’s policy goals. The first involves the short term mandate that the federal government, within 100 days of the Order, review supply chain risks and the causes of such risks in reports that will be sent to the President through the Assistant to the President for National Security Affairs (APNSA) and the Assistant to the President for Economic Policy (APEP). To prepare these reports, federal agencies must review, among things: (a) the critical goods and materials (defined under statute(s) or regulation(s) as “critical” materials, technologies, or infrastructure) and other essential goods and materials underlying the supply chain(s) in question, and (b) the manufacturing or other capabilities necessary to produce these goods and materials. Rare earth elements, pharmaceutic ingredients, semiconductors and high-capacity batteries are among the items specifically called out in the Order.
The second aspect of the Order involves longer term planning. Within a year of the Order, agencies must conduct Sectoral Supply Chain Assessments, and for these specific assessments, the order requires the following from specifically named agencies:
- Department of Defense is to submit a report on supply chains for the defense industrial base that identifies areas where civilian supply chains are dependent upon competitor nations, as determined by the Secretary of Defense;
- Department of Health and Human Services is to submit a report on supply chains for the public health and biological preparedness industrial base;
- Departments of Commerce and Homeland Security are to submit a report on supply chains for critical sectors and subsectors of the information and communications technology (ICT) industrial base, including the industrial base for the development of ICT software, data, and associated services;
- Department of Energy is to submit a report on supply chains for the energy sector industrial base;
- Department of Transportation is to submit a report on supply chains for the transportation industrial base; and
- Department of Agriculture is to submit a report on supply chains for the production of agricultural commodities and food products.
These federal agencies are also required to address the defense, intelligence, cyber, homeland security, health, climate, environmental, natural, market, economic, geopolitical, human-rights or forced-labor risks or other contingencies that may disrupt, strain, compromise, or eliminate the supply chain. This includes risks resulting from the elimination of, or failure to, develop goods and materials domestically. Moreover, federal agencies must, in consultation with Secretary of State, address whether there are possible avenues for international engagement with allies and partners concerning the goods and materials mentioned in the Order.
In implementing a new domestic supply chain framework, the Biden Administration intends to seek input from American labor and industry leaders, policy experts, scientists, farmers, engineers, and others working with critical goods and materials. As a result, the federal agencies preparing supply chain risks reports in the next 100 days likely will request information from industry as to the nature and extent of these risks, particularly on government projects, and particularly as they related to the COVID-19 pandemic. Industry organizations and contractors should anticipate requests for additional information regarding potential supply chain risks, shortages, and failures concerning critical goods and materials, and manufacturing and production capabilities.