On March 18, President Trump issued an Executive Order invoking the Defense Production Act (DPA), a tool that may help the administration combat the COVID-19 pandemic. With companies like 3M, GE, and others voluntarily ramping production of medical supplies to accomplish the nation’s significant needs, the president is yet to unleash his recently invoked authority. Still, the Executive Order activates far-reaching executive powers to prioritize production of key medical supplies, including protective medical equipment and ventilators. With the apparatus needed to deploy the DPA now in place, government contractors should prepare themselves for what may come.

By way of background, Congress passed the DPA during the Korean War to ensure sufficient production of materials deemed critical to the nation’s defense. Echoing economic controls imposed in World War II, the DPA gives the executive branch extraordinary powers, including the authority to require manufacturers to produce and prioritize certain items; allocate raw materials and facilities for the production of these items; and, in certain circumstances, even set price and wage controls.

Although the Executive Order does not mandate any concrete action, it delegates significant powers under the DPA to the Health and Human Service (HHS) Secretary. Specifically, the HHS Secretary could require that contractors accept and prioritize orders for the production of critical health and medical equipment over any other contractual obligation, whether to the government or commercial partners.

The Executive Order further allows the Secretary to issue orders that allocate materials, services, and even facilities toward the production of critical medical equipment. Finally, The HHS Secretary may, in consultation with the Secretary of Commerce, designate the proper nationwide priorities and allocation of health and medical resources. This includes the distribution of items such as medical masks and ventilators in the civilian market.

If the administration invokes this authority, all manufacturers of medical equipment would likely feel the most immediate effects, as they will be required to prioritize orders for equipment such as ventilators and masks. Likewise, both government contractors and other businesses that manufacture components used in medical equipment may be called upon to reorient their production toward those components.

Yet the effect may reverberate further downstream from producers of medical supplies. Government contractors could face shortages for scarce raw materials, especially if these are used to produce critical medical equipment, such as masks or respirators. Contractors may face delays from suppliers who enlisted to produce medical equipment.

As stated above, the Executive Order does not yet invoke the full scope of the president’s authority under the DPA because the swift and remarkable voluntary efforts by American manufacturing is being brought to bear on the massive increase in the need for personal protective equipment like N95 masks and medical equipment, like ventilators.  For example, in two months 3M has doubled global production of N95 masks to about 100 million per month, and it plans to invest in new equipment to push annual mask production to 2 billion masks within 12 months. That massive increase by traditional producers has been bolstered by the entrance of non-traditional producers throwing their weight behind the mobilization of our entire economy in this fight, with companies like My Pillow, Smile Direct Club and Ford retooling to make masks and face shields, and Tesla, GM and others retooling to make ventilators.

Together with this extraordinary manufacturing mobilization, other developments are helping to mitigate the resource problems. Rapid regulatory changes allowing things like N95 masks made for the industry to be used in the medical setting have become the norm, and ingenious uses of existing equipment, such as using ventilators for two or more patients, have also been helpful.

But should these voluntary efforts prove insufficient,  the administration could set wage and price control if authorized by an act of congress, set up voluntary agreements with private industry, or incentivize production through loans or purchase commitments.

While use of the DPA is not without precedent, the same cannot be said about the rapidly escalating economic and health crises caused by COVID-19, with the Spanish Influenza of 1918-1919 being the sole exception. The situation is highly fluid and future developments could certainly require more drastic action. For now, government contractors should closely follow developments and assess the situation as it unfolds.

Updated March 30, 2020

On the afternoon of March 27, 2020, President Trump invoked the Defense Production Act for the first time by compelling General Motors (GM) to produce ventilators with Ventec Life Systems. Although the parties engaged in negotiations for the production of ventilators, the White House indicated the need for life-saving equipment is too urgent to allow the back-and-forth negotiating process to take its course. The move underscores the fluid nature of the situation, as well as the need to keep appraised of ongoing developments.

If you have any questions about the DPA or the government’s response to the COVID-19 pandemic, please contact Richard Arnholt or any member of our Government Contracts Practice Group.