As a followup to our recent post on the implications of the PREP Act for government contractors working to respond to the COVID-19 outbreak, this post will provide an overview of the Defense Production Act—including its key powers that the federal Government might invoke to counter the pandemic.
Congress first enacted the Defense Production Act (“DPA”), 50 U.S.C. §§4501 et seq., during the Korean War in order to provide the President with various authorities to regulate American industry for the purpose of assisting with the national defense. The DPA, which was modeled after similar World War II-era predecessor statutes, confers various authority on the executive branch to “shape national defense preparedness programs and take appropriate steps to maintain and enhance the domestic industrial base.”
“National defense,” it turns out, is quite broad—even potentially covering efforts to minimize the threat of the COVID-19 outbreak. In addition to encompassing military-, energy-, and national security-related activities, it also encompasses emergency preparedness activities under the Stafford Act. And although the DPA has not broadly been invoked in response to a public health emergency, the Stafford Act has commonly been applied in this context—including with respect to COVID-19.
Although the headline-grabbing authorities in the DPA are those which could be used to control domestic resources and production capabilities, the DPA also provides for several additional authorities which can provide encouragement and funding to develop and promote critical national infrastructure. The primary “control” authorities are explained in more detail below, followed by the most relevant “encouragement” authorities.
DPA Control Authorities
Priorities. The executive branch may apply a priority rating to its contracts, which would require them to be prioritized over any competing obligations, including prior commitments to commercial partners.
Allocations. The executive branch may allocate or control materials, services, and facilities in any manner deemed necessary or appropriate to promote the national defense. This authority is quite broad and can even cover technical data that may be necessary for technology transfer.
The allocations authority may only be used for wage or price controls if accompanied by a joint resolution of Congress. And while the U.S. Department of Defense regularly uses the priorities authority in the defense context with the DPAS system, the allocations authority has not been invoked since the Cold War.
DPA Encouragement Authorities and Selected Other Provisions
Purchases and Purchase Commitments. The executive branch may create, maintain, protect, expand, or restore domestic industrial base capabilities essential to the national defense through a variety of mechanisms, including purchasing or making purchase commitments of industrial resources or critical technology items; making subsidy payments for domestically-produced materials; and purchasing and installing equipment for government and privately owned industrial facilities to expand their productive capacity.
Loan Guarantees and Direct Loan. The President may issue loan guarantees and direct loans to reduce current or projected shortfalls of industrial resources, critical technology items, or essential materials needed for national defense purposes.
Defense Production Act Fund. The Defense Production Act Fund is used to carry out the above two authorities and is capped at $750 million in any given year. Budget authority for direct loans and guarantees must be included in an appropriations act passed by Congress, and industrial base projects that cumulatively cost over $50 million typically must be authorized by an act of Congress.
Experts. The President may employ additional experts outside of normal processes and can establish a reserve of personnel who can be called on to fill executive positions in the U.S. Government when needed.
Industry Agreements. The President may authorize voluntary agreements in private industry to, for example, cooperate in the manufacturing and production process.
Liability Protection. The DPA also provides for protection from liability for acting or failing to act in compliance with imposed obligations, even if the obligations are later determined to be invalid.
It is important for contractors that do business with the government—or companies that may previously have chosen not to do business with the government, but that may be in a position to assist with COVID-19 efforts—to keep in mind the two sides of the DPA. Although the priority and allocation powers may be receiving the most attention at present, the productive capacity and supply authorities can provide compelling financial benefits to businesses that commit to working with the federal Government and assisting with its COVID-19 response.