DPA's Effects on Contracts
The Trump Administration on March 24, 2020, announced it will use its powers under the Defense Production Act (DPA) to procure 60,000 COVID-19 test kits to be used across the country. The Federal Emergency Management Agency (FEMA) administrator, Peter Gaynor, also indicated that “DPA language” will be added into existing mass contracts for 500 million masks.
The DPA was enacted in 1950 during the Korean War and recently was reauthorized until September 30, 2025, through Section 1791 of the John S. McCain National Defense Authorization Act for Fiscal Year 2019 (NDAA). Title I of the DPA authorizes the President to prioritize the performance of contracts and allocate the materials, services and facilities “necessary or appropriate to promote the national defense.” “National defense” includes emergency preparedness activities, such as those related to the COVID-19 (a.k.a. coronavirus) pandemic. President Trump announced in an executive order on March 18, 2020, that he planned to invoke the DPA in order to obtain the “health and medical resources needed to respond to the spread of COVID-19, including personal protective equipment and ventilators.” The Department of Health and Human Services (HHS) has been delegated broad authority by the President to determine the proper prioritization of contracts and allocation of health and medical resources in respond to the pandemic.
Persons, including businesses and corporations, may be required to fulfill contracts deemed necessary to the national defense that have received a priority rating from the government. Rated orders are identified by the symbols “DO” and “DX,” with DX ratings having the highest level of priority. Businesses that receive contracts or purchase orders with priority rating must promptly respond to the order or risk criminal violation of the DPA. The order will include the level of priority (DX or DO), details of the order and a signature and certification statement of the individual authorizing the order. Businesses may respond to the order by accepting or rejecting it. If the business accepts the order, it will be required to prioritize it above other commercial obligations. A business may be required to refuse the order if the business is unable to meet its requirements, and businesses may have the ability to reject the order for various reasons including the inability of the person placing the order to meet the business’s payment terms or if the order is for an item not supplied by the business.
The President is further authorized under Title III of the DPA to provide financial incentives that support the resources, technology and materials needed for the production capabilities or supplies essential to the national defense including the assistance of loans, loan guarantees, purchases and purchase commitments, and the procurement and installation of equipment in privately owned industrial facilities. In addition, the DPA states that preference for contracting with small businesses located in areas exhibiting high unemployment and economic difficulty should be considered by the President where appropriate.
Should you have any questions regarding the Defense Production Act’s effects on contracts, please contact Mr. Bluhm.
Anna L. Crisp, a law clerk with Eastman & Smith who is finishing her third year at The Ohio State University Moritz College of Law, contributed to this article.
At the date of publication the above information was correct. It is quite possible the information above has changed as COVID-19 is a rapidly evolving situation.
The article in this publication has been prepared by Eastman & Smith Ltd. for informational purposes only and should not be considered legal advice. This information is not intended to create, and receipt of it does not constitute, an attorney/client relationship.