On September 26 President Obama signed a bill (H.R. 4809) amending and extending the Defense Production Act (“DPA”) through September 30, 2019.
The DPA (Pub.L. 81–774) was originally enacted in 1950 as part of a broad civil defense and war mobilization effort in response to the Cold War. As discussed in a recent post, the implementing regulations, the Defense Priorities and Allocation System (“DPAS” at 15 CFR Part 700) were recently expanded to also cover homeland security, emergency preparedness, and critical infrastructure protection and restoration activities.
The DPA gives the President the authority to use domestic industry for national security purposes in several important ways. Title I authorizes the President to require businesses to sign contracts or fill orders deemed necessary for national defense and to allocate materials, services, and facilities as necessary to promote the national defense. Title III allows the President to provide incentives such as loan guarantees to create, maintain, expedite, expand, protect, or restore production and deliveries or services essential to the national defense. Title VII offers a “safe harbor” from antitrust prosecution if companies engage in what would otherwise be considered collusive discussions and agreements in the process of complying with DPA requirements. Title VII also provides the authority for the President to review, and possibly suspend or prohibit, certain corporate mergers, acquisitions, and takeovers, because of national security concerns. This is the so-called Exon-Florio Amendment, which designates the Committee on Foreign Investment in the United States (“CFIUS”) to carry out these responsibilities.
In reauthorizing the DPA, Congress imposed modest limitations on the President’s powers. Rather than authorize “sums as may be necessary” to carry out the Act, Congress imposed a fixed $133 million annual spending cap beginning in fiscal year 2015. (According to the Congressional Budget Office, this represents the average annual appropriations for DPA purchases over the past five years.) For the first time, the DPA now also requires Congressional authorization for certain activities aimed at correcting an industrial resource shortfall that would cost more than $50,000,000.
The reauthorization does not impact the portions of the DPA that are most often used by the Department of Defense and other U.S. government agencies today. Those provisions allow the U.S. government to issue what are known as “rated orders” in support of national security. Contractors who receive a rated order and all subcontractors and vendors that provide materials or services to support the rated order are required to prioritize that order above all other non-rated orders (including all commercial orders).