President Invokes Wartime Production Law to Require Commercial Businesses to Prioritize Manufacturing & Delivery of Goods to Combat Coronavirus Pandemic

Alston & Bird

At a news conference this morning, March 18, 2020, President Trump announced he was invoking the Defense Production Act of 1950 (“DPA”) to thwart the Coronavirus pandemic. Among numerous broad powers, this 1950 law authorizes the President to force commercial entities to prioritize and accept contracts for materials and services deemed necessary to promote the national defense. While initially passed to ensure the nation’s wartime readiness following the Korean War, Congress has greatly expanded the scope of the law to include – within the meaning of “national defense” – emergency declarations under the Stafford Act. (The President declared the Coronavirus pandemic a national emergency under the Stafford Act on March 13, 2020.)

Earlier, Congressional leaders called on the President to invoke the DPA to prioritize the manufacture of ventilators, personal protective equipment and other necessary medical supplies that are in short supply. This authority stems from the “priority” and “allocation” authority vested in the President in Title I, Section 101(a) of the DPA, which provides:

The President is authorized (1) to require that performance under contracts or orders (other than contracts of employment) which he deems necessary or appropriate to promote the national defense shall take priority over performance under any other contract or order, and, for the purpose of assuring such priority, to require acceptance and performance of such contracts or orders in preference to other contract or orders by any person he finds to be capable of their performance, and (2) to allocate materials, services, and facilities in such manner, upon such conditions, and to such extent as he shall deem necessary or appropriate to promote the national defense.  

By Executive Order, the President has delegated some of this authority to agency secretaries.  See Executive Order No. 13603.

The “priority” performance authority requires “persons” (which includes commercial businesses) to both accept prioritized orders (called “rated orders” under the DPA) and give such rated orders priority over any competing orders.  There are limited instances where a commercial company can reject a prioritized order. For example, Department of Health and Human Services (“HHS”) regulations require a recipient of a rated order to reject it where the recipient cannot fill the order by the required date (though the recipient must inform HHS of the earliest date the order can be filled).  See 45 C.F.R. § 101.33(b)(1). A rated order also must be rejected where delivery by the required date will conflict with or prevent delivery of other rated orders.  Id., § 101.33(b)(2), (3), (4). A recipient may reject a rated order where the item no longer is supplied by the recipient or if the ordering agency cannot or is unable to meet the recipient’s regular terms of sale. Id., § 101.33(c).

Relatedly, the “allocation” authority vested by the DPA allows the President (or his designees) to control the distribution of materials, services and facilities to maximize the production of goods needed for the national defense.

While the authority to place rated orders rests with the President and certain agency heads, e.g. HHS, Energy, DHS, Agriculture, etc., direct recipients of rated orders may issue rated subcontracts and supply contracts to fulfill a rated government order. The priority rating must be included on each successive order placed to obtain items or services to fulfill a rate order throughout the entire procurement chain. As such, companies engaged in the manufacture and distribution of medical supplies, food, construction services and supplies and any other industry reasonably able or likely to provide goods and services capable of stemming the Coronavirus pandemic should be on the lookout for rated orders from government agencies and upstream commercial customers. Rated orders generally are designated as such and are given a “DO” or “DX” rating or otherwise reference “DPAS”.

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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