On August 14, 2014, the U.S. Commerce Department’s Bureau of Industry and Security (“BIS”) issued a final rule clarifying the existing standards and procedures for, and expanding the reach of, the Defense Priorities and Allocations System (“DPAS”) regulations – the “rated order” system.  Specifically, the final rule proposes new standards and procedures for such prioritization with respect to contracts or orders for emergency preparedness activities and provides new standards and procedures by which BIS may allocate materials, services, and facilities to promote the national defense.

Under the priorities component of DPAS, certain “rated” government contracts and subcontracts are required to be given priority over a contractor’s or subcontractor’s other contracts (including its purely commercial operations) to facilitate expedited deliveries in promotion of the U.S. national defense.  Under the allocation component, materials, services, and facilities may be allocated by the government to promote the U.S. national defense.  The final rule adopts a proposed rule that was issued on January 31, 2014.

The final rule’s changes include following:

• Expands the scope of rated orders to include homeland security, emergency preparedness, and critical infrastructure protection and restoration activities;
• Authorizes agencies to require acceptance or rejection of rated orders for emergency preparedness activities in as little as 6 hours after receipt of an order in response to a hazard that has occurred (e.g., a natural disaster or terrorist event), or 12 hours if the order is to prepare for an imminent hazard (as compared to the 10 to 15 working days allowed for responses to other rated orders);
• Requires a contractor’s written confirmation that an order will be delayed to be transmitted within one working day of the contractor or subcontractor providing verbal notice of the delay (versus five days under the previous version of the DPAS regulations);
• Provides a procedure for requesting assistance in obtaining rated items or priority rating authority for homeland security, emergency preparedness, and critical infrastructure protection and restoration assistance programs within the United States; and
• Permits allocation orders to be issued by constructive notice through a publication in the Federal Register (which may refer generally to all manufacturers of a specified product and is not required to name every manufacturer of that product).

Congress had required federal agencies with priorities and allocations authority to work together to develop a consistent and unified federal priorities and allocations system.  Thus, BIS worked with the Departments of Agriculture, Defense, Energy, Health and Human Services, Homeland Security, and Transportation to develop common provisions that can be used by each Department in its own regulations.

The final rule will become effective on September 15, 2014. In the interim, contractors should review their policies and procedures related to the handling of rated orders to, among other things, ensure that they are prepared to respond to rated orders in the new compressed timeframes outlined above.