Specifically, Subchapter I of the Act (Priorities and Allocations) allows the President to require businesses to accept new government contracts for essential goods and services to maximize national defense. These contracts are known as “rated orders.” The Act also allows agencies to demand that its current rated order contractors accelerate performance, prioritize their rated orders before non-rated orders, and push non-government commitments to the back of their manufacturing queue.
Rated orders allow the federal government’s needs to take priority in manufacturing production lines. Subchapter II (Expansion of Productive Capacity and Supply) of the Act allows the President to incentivize domestic businesses to expand the production and supply of critical goods and services to fulfill rated orders. Those incentives include loans, purchase commitments, and the authority to install equipment in private facilities. Further, Subchapter III (General Provisions) gives the President authority to establish voluntary agreements with private businesses, block proposed or pending foreign corporate mergers and acquisitions that threaten national security, and require businesses to employ persons with applicable experience.
We envision the President’s invocation of the Act to impact the United States manufacturing and production industries. Given the reported dearth of personal protective equipment and hospital supplies, the President may require U.S. businesses to quickly produce such equipment, antiviral medications, vaccines, and attendant goods deemed necessary to mitigate against further outbreak of COVID-19.
The federal government will employ its rated order categorization procedures per the Act to obtain the equipment and supplies it needs to combat COVID-19. Current government contractors reading this advisory likely have rated orders. The DPAS categorizes orders as either “DO” or “DX,” the latter carrying a higher priority. Orders categorized as DO have equal priority with other DO orders and take preference over any unrated orders. DX-rated orders, on the other hand, are of the highest national priority and take preference over DO-rated orders and unrated orders. It is important to note that a contractor that performs a DPAS-rated order does not forgo its right to recover the costs of performing additional work under the Federal Acquisition Regulation’s (FAR) Changes clause (FAR 52.243-1 through -4).
We suggest that readers of this advisory consider the following recommendations. Contractors that perform DPAS-rated order should familiarize themselves with the rules applicable to the resolution of priority conflicts of rated orders (see 15 C.F.R. § 700.14(c)) and the rules applicable to acceptance and rejection of rated orders (id. at § 700.13). Businesses that do not ordinarily perform government contracts may be called upon to perform DPAS-rated orders. To that end, all businesses should know that DPAS-rated orders may not be used to obtain a greater quantity of any item than that reasonably needed, nor may they typically obtain items required for plant improvement, expansion, or construction. Id. at § 700.18. Of particular import, the DPAS system states that contractors “shall not be held liable for damages or penalties for any act or failure to act resulting directly or indirectly from compliance with any provision of [the DPAS].” Id. at § 700.90. However, the Supreme Court has held that the Act does not entitle contractors to indemnity from the government for tort claims resulting from DPAS-rated orders. See Hercules Inc. v. United States, 516 U.S. 417, 430 (1996) (“Congress does not implicitly agree that, if liability is imposed notwithstanding that defense, the Government will reimburse the unlucky defendant.”).
Pillsbury’s Government Contracts team will continue to analyze these issues and keep you informed. We are hosting a COVID-19 webinar tomorrow that is at full capacity. If you would like to receive a recording, please let us know by contacting Eloise Repeczky. Please stay safe and let us know if we can help.
