COVID-19: Federal Government Identifies 15 Products as Scarce Materials Subject to Compelled Production and Distribution under the Defense Production Act

COVID-19: Federal Government Identifies 15 Products as Scarce Materials Subject to Compelled Production and Distribution under the Defense Production Act

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The Trump Administration has remained hesitant to exercise compulsory powers under the Defense Production Act (DPA), preferring to engage in negotiations with companies to encourage increased production of goods needed for COVID-19 response through a number of formal and informal channels.  But the last two weeks have seen a number of noteworthy developments in the Administration’s supply chain efforts, including use of the DPA. 

On March 25, 2020, the Secretary of Health and Human Services (HHS) identified 15 categories of products as “scarce materials or materials the supply of which would be threatened by” improper accumulation, paving the way for the federal government to issue orders under the DPA compelling companies to give priority in the production and distribution of these products to the government or to government-designated recipients. The President has already directed the issuance of DPA orders to eight companies for ventilators and N-95 masks. Companies that manufacture products in any of the 15 designated categories or components needed for their production, and organizations, including hospital and other medical facilities, that use these products should be prepared in case the government issues further orders seeking to control their manufacture and distribution.   

The designated products are: (1) N-95 masks; (2) other specified masks and airway protective devices; (3) elastomeric, air-purifying respirators; (4) powered air-purifying respirators; (5) portable ventilators; (6) drug products with the active ingredient chloroquine phosphate or hydroxychloroquine HCl; (7) sterilization services for medical devices and certain sterilizers; (8) disinfecting devices and other sanitizing and disinfecting products suitable for use in a clinical setting; (9) medical gowns or apparel; (10) personal protective equipment (PPE) coveralls; (11) PPE face masks; (12) PPE surgical masks; (13) PPE face shields; (14) PPE gloves or surgical gloves; and (15) ventilators, anesthesia gas machines modified for use as ventilators, and positive pressure breathing devices modified for use as ventilators, ventilator tubing connectors, and ventilator accessories. 

Background 

The DPA grants the President the power to compel private companies to produce products for the government or specified private buyers, or to divert production to the government or to specified private buyers when necessary “to promote the national defense.”  50 U.S.C. § 4511(a). While these prioritization and allocation authorities are not designed principally to deal with public health crises such as the COVID-19 pandemic, the DPA’s definition of “national defense” is broad enough that the government has treated it as an encompassing response to the pandemic. See id. § 4552(14). President Obama delegated the President’s DPA authorities to various Cabinet Secretaries in 2012, and in the last two weeks President Trump has reaffirmed and revised those delegations in three Executive Orders, concentrating DPA authority concerning “health and medical resources” need for COVID-19 response in the hands of the Secretary of HHS and the Secretary of Homeland Security, the latter of whom has in turn delegated most of his DPA authority to the Director of the Federal Emergency Management Agency (FEMA).1

Recent Actions 

Between March 27 and April 2, President Trump issued three memoranda directing the Secretary of HHS, or the Secretary of Homeland Security acting through the FEMA Director, to use their DPA authorities to ensure the production of ventilators and N-95 masks in adequate quantities. The March 27 memo directed the Secretary of HHS to “require General Motors . . . to accept, perform, and prioritize contracts or orders for the number of ventilators that the Secretary determines to be appropriate.” On April 2, the President directed the Secretary of HHS, in consultation with the Secretary of DHS, “to facilitate the supply of materials to” six ventilator manufacturers: General Electric; Hill-Rom Holdings, Inc.; Medtronic; ResMed Inc.; Royal Philips N.V.; and Vyaire Medical, Inc. The same day the President instructed the Secretary of DHS, acting through the FEMA director, “to acquire” from 3M “the number of N-95 respirators that the Administrator determines to be appropriate.”

According to press accounts, these directives were designed to boost production, ensure that increased supplies would be used in the United States rather than being sold abroad, and direct products within the United States to recipients the federal government determined were highest priority.2 News reports indicate that DPA orders are increasingly leading to the diversion of certain products from their original buyers—including state government agencies—to other recipients dictated by the federal government.3

Inside the Trump Administration, responsibility for coordination of efforts to ensure adequate production and appropriate distribution of supplies needed for COVID-19 response—including voluntary agreements, contracts, and DPA orders—has been shared among several individuals and agencies. The Supply Chain Stabilization Task Force, based in FEMA and headed by Rear Adm. John Polowczyk, a senior logistics officer, has taken a lead role in working with many companies. At the White House, Peter Navarro, the Director of the Office of Trade and Manufacturing Policy, has played an important role in DPA matters. According to press accounts, Jared Kushner, senior adviser to the President, and Larry Kudlow, the head of the National Economic Council, have also been involved in supply chain decision-making.    

What To Expect Next

The Administration has faced increasing pressure—from Governors, Senators, and some on the medical frontlines—to make more aggressive use of DPA orders to ensure that adequate supplies of essential goods reach medical facilities and other organizations in greatest need.4 As the number of coronavirus cases continues to rise rapidly and the need for these supplies grows,  companies should be prepared for the possibility that the federal government will make more frequent and extensive use of its powers under the DPA. And companies should also consider how to communicate effectively with the Administration about how they can help alleviate supply and distribution problems and about urgent needs they may have. The 15 categories of products designated as scarce on March 25 are likely to continue to be the focus of Administration efforts.   

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WilmerHale’s Coronavirus Task Force, led by former Deputy Secretary of Homeland Security Alejandro Mayorkas, has deep experience with the Defense Production Act and other authorities being brought to bear in COVID-19 response efforts.  We are closely tracking efforts by both the federal and state governments to influence the production and allocation of resources during the public health emergency caused by the COVID-19 pandemic.

 

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