The U.S. Federal Emergency Management Agency (FEMA) issued an interim final rule (the “Rule”) on May 13 to implement standards and procedures for use of the priorities and allocations authority under the Defense Production Act (DPA). The DPA is a statute that gives the President emergency procurement and manufacture allocation authority. DPA authority may be delegated to Federal agencies, which are required to issue rules to govern agency-specific use of DPA authority.
In the wake of the COVID-19 pandemic, the President delegated DPA authority to the Secretary of Homeland Security, who then re-delegated it to FEMA. On April 7, FEMA used this authority to issue a temporary final rule that effectively imposes domestic allocation requirements for certain personal protective equipment, and prohibits its export without FEMA authorization. A summary of the impact of the temporary final rule can be found here.
In the May 13 Rule, FEMA establishes the Emergency Management Priorities and Allocations System (EMPAS), which will be the FEMA-specific regulations that will become part of the Federal Priorities and Allocations System (FPAS) — the body of regulations that governs the President’s authority under the DPA. Although FEMA’s current authority extends to health and medical resources needed to respond to the spread of COVID-19 within the U.S., the Rule is not limited to the COVID-19 response.
The EMPAS borrow significantly from existing regulations, such the Department of Commerce’s Defense Priorities and Allocations System (DPAS) regulations, which are the most commonly used FPAS regulations, and the Department of Health and Human Services’ Health Resources Priorities and Allocations System (HRPAS) regulations. The EMPAS, however, differ in one key aspect. With respect to rated order authority, they authorize FEMA to place priority orders not only on behalf of the Federal government, but also for the benefit of third parties.
Given that this is an interim final rule, it goes into effect immediately. The agency is required to issue a final rule after seeking comment on the interim rule. Comments are due by June 12, 2020.
Key elements of the EMPAS
The following are key similarities and differences between the EMPAS and the DPAS and HRPAS:
Procedures for use of “rated orders,” which are priority ratings that are assigned to certain government contracts.
The EMPAS adds certain new definitions. For example, in contrast to other FPAS regulations, FEMA has chosen to specifically define “written” and “in writing” to make clear that FEMA will accept either hard copy or electronic documents as “written” communications or records under this rule. FEMA indicates that it wishes to allow electronic communication to the greatest extent possible, for more efficient operations.
The rating symbols remain the same for both DPAS and EMPAS.
The EMPAS includes additional detail regarding the time limits for accepting or rejecting orders.
As discussed further below, as part of the COVID-19 response, FEMA is coordinating efforts to assist third parties in obtaining critical health and medical resource supplies. The DPAS does not include corresponding provisions.
Standards for “allocation” orders, which may be placed when there is insufficient supply of a material, service, or facility to satisfy national defense supply requirements.
Like the DPAS and HRPAS, the EMPAS enumerates the three types of allocation orders, including “set-aside,” “directive,” and “allotment.”
The EMPAS clarifies that an allocations directive takes precedence over all priorities directives, rated orders, and unrated orders previously or subsequently received, unless a contrary instruction appears in the directive.
FEMA recognizes that, with respect to the present COVID-19 emergency, the President has already established the criteria necessary for FEMA to invoke allocation authority.
New authority under the EMPAS
Noting “the unique circumstances faced in the COVID-19 pandemic,” the Rule explains that “it may be necessary or appropriate for FEMA to use its priority rating authority under section 101(a)(1) of the DPA to facilitate the sale of health and medical resources to third parties.” Accordingly, Section 333.19 of the EMPAS includes a provision that permits FEMA to use its rated order authority to assist private parties in obtaining critical health and medical resources as part of the current response for COVID-19 and other emergency circumstances.
Under the new regulatory provision, FEMA places an order to facilitate the sale to a third party, and the third party is responsible for satisfying the applicable terms of sale and payment. The regulations specifically provide that the Federal government will not be liable for any failure to meet the terms of sale or payment for rated orders to facilitate sales to third parties. DPA immunity from breach of contract claims that may result from delay or nonperformance of commercial contracts resulting from prioritization of a rated order appears to continue to apply in the context of third party orders.
FEMA requires that these rated orders include language making clear that the order is being placed to facilitate a sale to a third party. FEMA states that “the additional required language in these rated orders will ensure those receiving the order clearly understand that the order is for the facilitation of a sale to a third party, and may help avoid any confusion or delay that might otherwise occur.”
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If you have any questions about how use of these expanded procurement tools may affect your company or would like assistance with submitting comments, please do not hesitate to contact our Government Contracts team.
Authored by Joy Sturm, Dave Burgett, Allison Pugsley, Annie Vanselow, and Stacy Hadeka