In an executive order last week, President Joe Biden said that he will use the Defense Production Act to boost the production of vaccines, testing and equipment to help fight the COVID-19 pandemic.
The executive order authorizes federal agencies to fill shortages as soon as possible by “acquiring additional stockpiles, improving distribution systems, building market capacity or expanding the industrial base.”
While the specifics of how the administration will use the DPA are still being worked out, it’s likely that in the coming days and weeks, the administration will use or consider using the law to ensure access to critical healthcare equipment and facilities, according to Alex Hontos, a partner at the international law firm Dorsey & Whitney in procurement law and government contracting.
"The DPA vests the president with broad authority to order goods and services, to prioritize the production of key goods over the production of other items, and to make loan guarantees and other incentives to expedite and expand industrial capacity," Hontos said.
Although the DPA was invoked by former President Donald Trump last March, it was used sparingly. Biden has said he will take a much broader approach to the law.
"Use of the already enacted DPA means the president does not need to go back to Congress, meaning it is a good way for the administration to organize the pandemic response without getting bogged down on Capitol Hill,” he said. “I expect the Biden administration to use the DPA extensively.”
Here, Construction Dive talks with Hontos about the DPA and its ramifications for U.S. industries including construction.
What is the purpose of the DPA?
First enacted by Congress during the Korean War, the purpose of the DPA is to provide the president with various authorities to regulate private industry to facilitate national defense. In particular, the DPA confers an “array of authorities to shape national defense preparedness programs and to take appropriate steps to maintain and enhance the domestic industrial base.”
This includes the ability of the government to prioritize its needs over the needs of the private sector and increase supply of materials as it deems necessary. To do so, the government may, among other actions:
Purchase goods and supplies from the private sector.
Make direct loans and loan guarantees.
Transfer government equipment.
Prioritize private production.
Incentivize the private sector’s production through subsidies and cash awards.
Authorize voluntary agreements and purchases with private industry and make purchase commitments of industrial resources or critical technology items.
How will the DPA affect U.S. industries such as construction?
Contrary to some beliefs, the law does not nationalize private industry. Instead, it is an opportunity for the private sector to partner with the public sector — not unlike the goal of public/private partnerships — to help the government address the nation’s needs in times of crisis.
While the specifics of the Biden administration’s future use of the DPA are still unclear, we envision the medical device, manufacturing, construction, logistics, food production and transportation sectors will all be affected. Further, the ability to offer loans and loan guarantees might affect the financial services and banking sectors.
We expect the DPA will be used immediately to secure the equipment and supplies needed to combat the virus over the coming months — and given its loan and loan guarantee authorities, the DPA might have an even larger economic impact on industries from healthcare to manufacturing to construction to logistics.
What parts of the law pertain to construction?
The DPA covers virtually every industry engaged in production, rendering of healthcare or logistics or construction services, or use of natural resources in the United States. Some types of relief that the president can authorize that relate to construction include:
Government Procurement (Section 303(e)(a)): The president may authorize the purchase and installation of any equipment, facilities, processes or improvements to government-owned facilities.
Private Use of Government Equipment (Section 303(e)(b)): The president may authorize the purchase and installation of new equipment in privately owned facilities.
Government Improvement of Private Facilities (Section 303(e)(c), (d)): The president may authorize the improvement or modification of privately owned facilities in conjunction with any of the president’s actions under Section 301, 302, or 303. The president may also provide for the sale or transfer of any government-owned equipment to the owner of a privately owned facility.
How can businesses be prepared for DPA-related work?
Industry should anticipate outreach from the government, understand the DPA’s options and the administration’s specific proposals (when they come) and have proposals ready to deploy to maintain the national defense and best utilize the DPA’s provisions.
For example, the government could back loans to finance the construction of new COVID-19 medical facilities. Or the government could loan funds to construct the same facility. The government could also incentivize the production of PPE and medical supplies, through loans, subsidies, or direct purchases.
How has it been used in the past?
While the DPA is usually invoked to support traditional national defense objectives such as the production of tanks and bombers, it can be used to ameliorate the effects of domestic emergencies. For example, the DPA was used to allow the U.S. Army Corps of Engineers to prioritize contracts designed to protect southern Louisiana from future flooding after Hurricane Katrina in 2005.
Even earlier, the DPA was used by the Department of Energy to ensure California utilities retained a sufficient supply of natural gas to avoid the threat of electrical blackouts in 2001. More recently, the Federal Emergency Management Agency made use of the DPA in 2017 to prioritize contracts for food and bottled water, pre-manufactured housing units and the restoration of electrical transmission and distribution systems in Puerto Rico after Hurricane Maria.
In other words, the DPA has been used in many contexts to authorize various federal agencies, and not just the Department of Defense, to bolster America’s national defense as broadly defined under the DPA. COVID-19, and the national response to it, is surely within the context of national defense. The DPA could be — and should be — central to the Biden administration’s response to immediate COVID-19 shortages but also part of the longer-term solution to maintaining economic security and stability for the United States.