March 24, 2020 - Coronavirus

A Summary of the Defense Production Act

FCALast week, the President announced that he was invoking a Cold War-era law called the Defense Production Act (DPA), 50 U.S.C. §§ 4501 et seq., to ensure the Nation is able to acquire the “health and medical resources needed to respond to the spread of COVID-19, including personal protective equipment and ventilators.”  While some authorities of the DPA are used regularly by the defense industry or in regulating foreign investment in U.S. companies, much of the DPA is unfamiliar to U.S. industries.  To bring you up to speed, we have prepared a short summary of the DPA below.

When passed in 1950, the DPA originally included seven titles outlining the President’s authorities to influence domestic industry in the name of national defense, including military readiness and domestic preparedness for national emergencies.  However, shortly after passage of the Act – and President Truman’s attempt to nationalize the steel industry – several titles were terminated including Titles II (Authority to Requisition and Condemn), IV (Price and Wage Stabilization), V (Settlement of Labor Disputes), and VI (Control of Consumer Real Estate Credit).  These titles were officially repealed in 2009.  Today, the remaining DPA authorities include Title I (Priorities and Allocations), III (Expansion of Productive Capacity and Supply), and VII (General Provisions).  Each of these is discussed in turn below.

Title I, Priorities and Allocation, 50 U.S.C. §§ 4511-18:  This section generally addresses the President’s powers with respect to goods that are already being produced, including the power to (1.) require contractors to prioritize the Federal Government’s orders or contracts over the performance of any other contract or order and (2.) to allocate materials, services, or facilities as necessary to promote the national defense.  While prioritized orders – referred to as “rated” orders using the ratings DO or DX – are common in the defense industry, the President’s allocation powers have not been used since the Cold War (but does serve as the ongoing justification for the Civil Reserve Air Fleet).

The Act provides that these powers are not to be used to “control the general distribution of any material in the civilian market unless the President finds (1) that such material is a scarce and critical material essential to the national defense, and (2) that the requirements of the national defense for such material cannot otherwise be met without creating a significant dislocation of the normal distribution of such material in the civilian market to such a degree as to create appreciable hardship.”  In line with this power, this Title also prohibits the hoarding of scarce materials by individuals and reselling at excessive prices (price gouging).

This section also specifically addresses application of this power to the domestic energy market and the prerequisites for using this power to “maximize domestic energy supplies” and outlines certain applications of this power that cannot be used without explicit authorization from Congress, including wage or price controls, requiring private persons to assist in the production of chemical or biological weapons, and rationing of gasoline.

With respect to strengthening domestic capability, the Act also provides that the president “may provide appropriate incentives to develop, maintain, modernize, restore, and expand the productive capacities of domestic sources for critical components, critical technology items, materials, and industrial resources essential for the execution of the national security strategy of the United States.”  This includes taking actions to maintain reliable sources of supply such as restricting solicitations, stockpiling components, etc.

Title III, Expansion of Productive Capacity and Supply, 50 U.S.C. §§ 4531-34:  This section addresses the President’s powers with respect to goods that are not yet in production.  This Title covers the President’s powers to incentivize the domestic industrial base to expand production and supply of materials and goods through:

  • Loan guarantees and loans.  Guarantees may be provided during national emergencies or when certain determinations are made. Loans may be made to the extent financial assistance is not available from private sources.  These loans require appropriations and that several conditions are met;
  • Purchasing or making purchase commitments of industrial resources or critical technology items;
  • Subsidy payments for domestically produced materials; and
  • Installing and purchasing equipment for government and privately owned industrial facilities to expand production capacity.

This Title also establishes the Defense Production Act Fund in order to carry out the provisions of the DPA.

Title IV, Miscellaneous Provisions, 50 U.S.C. §§ 4551-68:  Consistent with its name, this section addresses a wide variety of issues, including:

  • Limited immunity from liability for contractors complying with prioritized orders under the DPA or other DPA-related rules or guidance;
  • Requirements to consider small businesses in any procurements or programs under the DPA;
  • The President’s ability to enter into voluntary agreements and plans of action with private industry (what might otherwise be considered a cartel-style agreement) without anti-trust liability;
  • The President’s power to block foreign mergers that threaten national security; and
  • The President’s authority to hire SMEs to assist in DPA-related determinations.

For more detailed analyses of several DPA-related topics, see our blog.