The outbreak of COVID-19 has rapidly increased demand for medical supplies and equipment such as N95 respirators, isolation gowns, isolation masks, surgical masks, eye protection, intensive care unit equipment, and diagnostic testing supplies. To address the resulting shortage, President Trump issued Executive Order 13909 on March 18, 2020, under the Defense Production Act of 1950 (DPA), authorizing the Department of Health and Human Services to prioritize orders for “health and medical resources needed to respond to the spread of COVID-19, including personal protective equipment and ventilators.”
The DPA allows the government to issue “rated orders” which take priority over a contractor’s pre-existing government and commercial contracts. If you are a contractor providing medical equipment and you receive a rated order for the equipment identified above, it could disrupt pre-existing contracts and operations. Accordingly, it is critical to know your rights and obligations under the DPA.
The DPA is a sweeping delegation of power that allows the President to require that defense and emergency-based contracts be given precedence over any other contract, government or commercial. This authority has been delegated to agencies, which may issue “rated orders” with delivery or performance priority that can impact business operations. The President’s delegation of March 18th fits within this framework.
DPA rated orders are issued under the Federal Priorities and Allocations System (FPAS) regulations. A contractor who receives a rated order should confirm it is valid and includes the required delivery date, the signature of an authorized individual, a symbol (“DO” or “DX”), and the following statement: “This is a rated order certified for national defense use, and you are required to follow all the provisions of the [FPAS] regulation at 45 CFR part 101.”
A contractor must accept a rated order if it calls for equipment or supplies normally sold by the contractor and the contractor is capable of meeting the specified delivery requirements. A contractor must reject a rated order if unable to fulfill the delivery requirements, even with priority treatment. If a contractor rejects a rated order, it must inform the customer agency of the earliest date on which delivery can be made.
The key rule is that a government contractor “shall not discriminate against rated orders in any manner such as by charging higher prices or by imposing different terms and conditions than for comparable unrated orders.” Under the DPA, violation of this rule could result in a statutory fine or imprisonment.
Generally, a contractor must give priority to a rated order and must reschedule unrated orders as necessary to accommodate the rated order. For example, if a contractor receives a rated order with a delivery date of June 3rd and meeting that date would mean delaying production or delivery of an item for an unrated order, the unrated order must be delayed.
If a contractor receives two rated orders with the same DO or DX priority, the contractor must give priority to the order that requires delivery or performance first.
Finally, if a contractor cannot resolve a conflict between orders, it can seek “Special Priorities Assistance” using Department of Commerce Form BIS-999. This assistance is available to expedite deliveries, resolve delivery conflicts, place rated orders, locate suppliers, or verify information supplied by customers and vendors.
Despite the strict deadlines imposed by the DPA, it provides a limited statutory defense “for any act or failure to act resulting directly or indirectly from compliance with a rule, regulation, or order issued [even if it is later] declared by judicial or other competent authority to be invalid.” The DPA thus affords protection to a government contractor from third-party liability, if the contractor’s compliance with a DPA rated order means another private contract for supplies is delayed or unfulfilled.
It is worth noting that Congress, when faced with wartime and emergency crises like the present COVID-19 pandemic, has anticipated civilian cooperation with the government’s procurement policies. However, suppliers of medical equipment should expect considerable urgency with respect to COVID-19 related government orders and plan accordingly.