Introduction
On President Biden’s first two days in office, he issued a National Strategy for the COVID-19 Response and Pandemic Preparedness and 11 related Executive Orders, including an Executive Order on a Sustainable Public Health Supply Chain. The National Strategy proposes a “comprehensive,” “coordinated,” and “aggressive” response to the pandemic. One of the National Strategy’s seven stated goals is to “[i]mmediately expand emergency relief and exercise the Defense Production Act” (DPA). It is too soon to know the full extent of actions that the Biden Administration will take in furtherance of this goal, but its immediate initiatives mark a departure from the Trump Administration’s approach.
In this Client Alert, we summarize the key provisions of the DPA and the Trump Administration’s use of it, and then describe the Biden Administration’s plans and implementing actions involving the DPA to date. We also briefly touch on non-DPA initiatives outlined in the National Strategy that complement invocation of the DPA. In short:
- The DPA provides the President with a toolkit for increasing the production and supply of critical supplies during a national crisis.
- The Trump Administration used the DPA to acquire ventilators and N95 respirators, bolster the supply of materials needed to develop vaccines, and target price gouging on certain scarce supplies.
- The Biden Administration has committed to using “all appropriate authorities,” including contracts and investments made under the DPA, to increase domestic production to fill any shortfalls in four critical supply categories: testing, protective equipment, vaccine production and distribution, and therapies.
- The Biden Administration promises to use its “full powers” to target price gouging, hoarding, and fraud.
- The Biden Administration plans to improve distribution of critical supplies, particularly in hard-hit communities.
- The Biden Administration’s plans indicate that the new administration intends to not only address the COVID-19 pandemic but also to lay a foundation for expanded domestic production capabilities for responding to future public health crises.
The DPA
As prior alerts (“COVID-19: Administration Undertakes Several Defense Production Act Initiatives” and “COVID-19: Federal Government Identifies 15 Products as Scarce Materials Subject to Compelled Production and Distribution under the Defense Production Act”) have described, the DPA grants the President the power to mobilize domestic industries in the service of the national defense. The President’s powers under the DPA, most of which he may delegate to the heads of agencies, fall primarily into three categories:
- Contract Prioritization and Allocations. The DPA’s prioritization authority empowers the President to compel US businesses to accept a contract for necessary materials, services, or facilities, and to prioritize such a contract over any others. 50 U.S.C. § 4511. Relatedly, but much less frequently used, the DPA’s allocation authority allows the President to control the distribution of goods, services, and facilities in the economy through allocation orders. 50 U.S.C. § 4511. Generally speaking, such orders could direct manufacturers to produce items, set aside productive capacity, or redirect goods, services, and facilities. The DPA also criminalizes hoarding and price gouging on materials the President has designated “scarce.” 50 U.S.C. § 4512.
- Expansion of Supply. The DPA grants the President the power to authorize loans and loan guarantees to private companies to expand the supply of “essential” materials. 50 U.S.C. §§ 4531(a), 4532(a)-(b).
- Coordination and Immunity. The DPA permits the President to encourage private businesses to enter into “voluntary agreements and plans of action to help” expand supply. 50 U.S.C. § 4558(c). The DPA then generally exempts from federal antitrust laws any action taken to develop such an agreement or plan, or to carry one out (if it was approved). 50 U.S.C. § 4558(j).
Although the DPA’s authorities are available to promote “the national defense,” and the federal government accordingly typically uses the DPA to procure supplies for the “defense industrial base,” the DPA’s authorities are not limited to circumstances involving military action and have been used by administrations of both political parties in response to civil crises. For example, in 2001 the Clinton and Bush Administrations invoked the DPA to compel utility companies to continue supplying electricity to California during a spate of rolling blackouts. Similarly in response to Hurricane Maria’s devastating effects on Puerto Rico in 2017, the Federal Emergency Management Agency (FEMA) issued hundreds of “priority contracts” under the DPA to facilitate disaster relief to the island.
The Trump Administration’s Response to COVID-19 and Invocation of the DPA
Starting on March 18, 2020, President Trump issued a series of executive orders delegating his DPA authorities to specified agency heads. Against the backdrop of an overarching executive order issued by President Obama in 2012 delegating DPA authorities to the heads agencies “engaged in procurement for the national defense” (which, again, has been broadly construed to reach national crises), President Trump delegated to the Secretary of Health and Human Services (HHS) power both to invoke the DPA’s prioritization and allocation authority “with respect to all health and medical resources needed to respond to the spread of COVID-19 within the United States” and to exercise its enforcement powers to prevent hoarding and price gouging on such resources. He further delegated to both the Secretary of HHS and the Secretary of Homeland Security the DPA’s voluntary agreement and financing powers. And he delegated to the US International Development Finance Corporation (DFC) the DPA’s financing authority to expand “domestic industrial base capabilities.”
Despite the apparent breadth of President Trump’s directives, his Administration’s use of these authorities has been called “sporadic and relatively narrow.” The Trump Administration touted its accomplishments in a report called “How President Trump Uses the Defense Production Act to Protect America from the China Virus,” but of the 80 instances where the administration invoked the DPA, only a handful actually addressed the pandemic. On the one hand, the Trump Administration issued several priority contracts for ventilators and N95 respirators under the DPA, prosecuted several individuals for hoarding and price-gouging on materials it deemed “scarce” under the DPA, and invoked the DPA’s contracting and financing authorities to bolster the supply of materials for the production and distribution of vaccines as part of Operation Warp Speed, a public-private partnership to expedite vaccine production. On the other hand, whereas the Trump Administration initially promised to spend $750 million in DPA financial assistance appropriated under the CARES Act on COVID-19 pandemic response, it ultimately reallocated more than half those funds to the defense industrial base.
The Biden Administration’s Approach to Improving the Supply and Distribution of Medical Items in Response to COVID-19
In contrast, the Biden Administration’s plans envision a comprehensive use of the DPA as one component of the Administration’s multifaceted response to the COVID-19 public health crisis (along with actions based on other authorities), which will also condition the US to respond to similar crises in the future. President Biden does not appear to have altered any pre-existing delegations of DPA authorities, but he has asked the Secretary of HHS to recommend “whether any changes should be made to the authorities delegated” to him by President Trump with respect to hoarding and price gouging.
Filling Supply Shortfalls
The National Strategy declares that relevant federal agencies will use “all appropriate authorities” to increase “domestic manufacturing in four key critical sectors: Antigen and molecular-based testing; Personal protective equipment and durable medical equipment; Vaccine development and manufacturing; and Therapeutics and key drugs.” That includes “fully leveraging contract authorities, including the Defense Production Act.” As the President’s Chief Medical Advisor, Dr. Anthony Fauci, noted, the Biden administration’s plan is “taking what’s gone on, but amplifying it in a big way.”
In furtherance of this objective, President Biden’s Executive Order on a Sustainable Public Health Supply Chain directs the heads of all relevant federal agencies to “immediately review the availability of critical materials, treatments, and supplies needed to combat COVID-19” and to assess whether “United States industry” can “provide such supplies in a timely manner.” To the extent these reviews and assessments identify “shortfalls,” the Executive Order directs the head of the relevant agency to “take appropriate action using all available legal authorities, including the Defense Production Act, to fill those shortfalls as soon as practicable.” (Neither the Executive Order nor the National Strategy indicates whether the Administration plans to exercise only the DPA’s prioritization authority or also the DPA’s less commonly used allocation authority). These reviews and assessments may also yield recommendations to the President for “additional use” of the DPA or to “remove” “liability risk[ or] regulatory requirements” to the extent they “impede the development, production, and procurement of pandemic response supplies” (where such removal would be “consistent with law”).
According to the National Strategy, the federal government has already identified shortfalls in 12 “critical” categories of supplies: “N95 masks, isolation gowns, nitrile gloves, polymerase chain reaction (PCR) sample collection swabs, test reagents, pipette tips, laboratory analysis machines for PCR tests, high-absorbency foam swabs, nitrocellulose material for rapid antigen tests, rapid test kits, low dead-space needles and syringes, and all the necessary equipment and material to accelerate the manufacture, delivery, and administration of COVID-19 vaccine.” To fill these shortfalls, federal agencies are directed to “initiate contracts, enter into purchase commitments, and make investments,” including making “attractive loans.”
To promote both economic development and “supply chain resiliency,” the Biden Administration’s plan emphasizes “onshoring” and “building additional domestic manufacturing capacity” for critical supplies needed to address the pandemic (and future national health crises). For example, the National Strategy says that the government will seek “opportunities” to make manufacturing investments in “communities that bear the brunt of the economic impact of COVID-19.” The Administration hopes to establish an adequate “manufacturing base in the United States” so as to “avoid[] reliance on other countries for lifesaving medicines and supplies.”
Preventing Price-Gouging and Hoarding
The Biden Administration is “tak[ing] a strong stance against price gouging and fraud,” as well as hoarding of scarce supplies. The National Strategy promises that the Administration “will use its full powers to prevent hoarding and price gouging, including by reviewing and expanding the designated scarce materials under the DPA.” Accordingly, the President’s Executive Order directs the Secretary of HHS to recommend whether additional materials should be deemed scarce and thus at risk of hoarding or price gouging, beyond those already designated scarce during the Trump Administration.
Distribution of Supplies
Beyond securing the supply of essential materials for responding to the pandemic, the National Strategy also promises to “[i]mprove distribution and expand availability of critical materials” like “personal protective equipment, vaccines, [and] tests.” Such distribution efforts will primarily rely on authorities other than the DPA, including the Stafford Disaster Relief and Emergency Assistance Act. The Biden Administration plans to use contracting authorities, including “reasonable pricing clauses in Federal contracts and investment agreements” and “General Services Administration Schedules,” to ensure that supplies are available at a reasonable price—not only to the federal government but also to state, local, tribal, and territorial governments. The Administration also plans to use its purchasing power to “replenish depleted supplies in hard-hit, high-risk, and high-need areas and populations.” And President Biden also issued a memorandum directing FEMA to fully reimburse all states and territories deploying the National Guard to assist in responding to the COVID-19 pandemic until at least September 30, 2021. This contrasts with the Trump Administration’s approach of requiring nearly all states to pay 25 percent of the cost of the National Guard’s deployment related to the pandemic.
Conclusion
The urgency, specificity, and breadth of the Biden Administration’s strategy and actions to date reflect a more comprehensive and robust use of the DPA to respond to the COVID-19 pandemic. They also foreshadow the Administration’s plans to develop infrastructure to better respond to future public health crises; President Biden’s Executive Order on a Sustainable Public Health Supply Chain even directs key agencies and presidential advisors to formulate over the next six months a strategy to establish the “long-term capability of the United States to manufacture supplies for future pandemics and biological threats.” The coming weeks will likely shed further light on the Biden Administration’s approach to using the DPA and other legal authorities to expand the production and distribution of critical supplies for responding to the current pandemic and future events.
