The Defense Production Act and COVID-19

This article originally posted on TTI’s MarketEye blog

By Kevin Sink, Vice President, Total Quality, TTI

Recent discussion in the news about the president’s invocation of the Defense Production Act has spurred an influx of questions, interest and priority invocations – both legitimate and not.  This article (Part 1) explains the salient aspects of the law in its amended form as it exists today.

History

The Defense Production Act (DPA) of 1950 is the provision of specific authorities to the Executive branch in response to the outbreak of the Korean War, as similar authorities under the War Powers Acts of World War II had expired.

As the law is based upon the need to support national defense, the applicability of the law in other areas has come largely thorough the expanded definition of “national defense” and includes efforts to “enhance and support domestic preparedness, response, and recovery from natural hazards, terrorist attacks, and other national emergencies” [1]

Because the law includes sunset provisions and because new realities have emerged in the subsequent 70 years since it was originally passed, it has been renewed and amended over 50 times [2]. Today, three of the original seven major sections (titles) remain.

Title I: Priorities and Allocations

Title I allows the President to require persons (including businesses and corporations) to prioritize and accept contracts for materials and services as necessary to promote the national defense. [3]

Until 2012, when President Obama issued Executive Order 13603, this was implemented only within the Department of Defense who created the Defense Priorities and Allocations System (DPAS).

Title I also allows the President to allocate or control the general distribution of materials, services, and facilities. No allocation action has been taken by the President since the end of the Cold War. [4]

While multiple departments within the Federal government can invoke a Priorities and Allocations System, only the Department of Defense uses it with regularity. It is so common to defense contracts that almost every defense contract has a DPAS rating.

While there are nuances to the regulations that implement the DPAS, the most important aspects are:

• the Contract must have a rating from the Federal agency supporting it; and
• a firm dock date must be presented to the contractor for consideration

Also, there are specific rules around when a contractor must accept a rated contract and when it is obligated to respond differently. The most important rule here is that the contractor must be able to meet the delivery date requested. If not, the contractor must provide a date it can meet for consideration by the government buyer.

These rules are important as they are (largely verbatim) the same rules employed by the Health Resources Priorities and Allocations System (HRPAS) from the U.S. Department of Health and Human Services (HHS), the primary federal department managing the COVID-19 response.

Title III: Expansion of Productive Capacity and Supply

Title III allows the President to “incentivize the domestic industrial base to expand the production and supply of critical materials and goods.” [5]

While this authorizes the use of loans and loan guarantees to suppliers, these aspects have not been used in over 30 years. Today, most programs supported by Title III are handled through Section 303, which authorizes direct funding to support work in critical areas with insufficient domestic production. Through this means, Congress apportions money annually and the departments pay directly for the programs.

The priority elements of Title I and Section 303 of Title III are the primary elements used by the government today: “Title I authorities help ensure that the government has priority access to goods that are already being produced by domestic industries, Section 303 authorities help create a sufficient supply of these essential goods in the interest of national defense.” [6]

Studies are mandated under Title III and give guidance to the Executive branch and Congress around areas where the U.S. may have insufficient domestic production of critical items for national defense. These studies inform the bases for expenditures from the Title III fund ranging from $35 million to $225 million USD each year. [7]

Title VII: General Provisions

This section includes key definitions and defines specific authorities, including the authority to block proposed or pending foreign corporate mergers, acquisitions, or takeovers that threaten national security.

Congressional Oversight

The DPA lies within the legislative jurisdiction of the House Committee on Financial Services and the Senate Committee on Banking, Housing, and Urban Affairs. [8]

Part 2 of this analysis will explore the use of the Act and a related executive order in the fight against COVID-19.

References

[1] Congressional Research Service (CRS). “The Defense Production Act of 1950: History, Authorities, and Considerations for Congress,” p.i Updated March 2, 2020. Retrieved from fas.org.

[2] CRS, p.2

[3] Ibid.

[4] Ibid.

[5] CRS, p.i

[6] CRS, p.11
[7] “The Defense Production Act of 1950, As Amended,” 50 U.S.C. § 4501 et seq. Retrieved from www.fema.gov.

[8] Ibid.

Originally published by Kevin Sink on LinkedIn.