On January 21, 2021, as part of his administration's National Strategy for the COVID-19 Response and Pandemic Preparedness ("COVID Response Strategy"), President Biden issued an "Executive Order on a Sustainable Public Health Supply Chain"("Supply Chain EO"). The EO makes clear that in addition to inventorying supplies and developing strategies to improve availability of the supplies necessary for the states' and the federal COVID-19 response, the federal government will use all available authorities, including the broad authorities under the Defense Production Act ("DPA"), to address shortfalls in needed supplies and develop strategies for their delivery. The Supply Chain EO also emphasizes the development of a robust pandemic supply chain that will secure supplies for responding to the COVID-19 pandemic and future crises while reducing reliance on foreign sources.
The administration's COVID Response Strategy includes numerous ways that, while establishing clear federal leadership of a nationwide response, the Biden administration will increase emergency funding to the states and bolster the Federal Emergency Management Agency's response to improve state, local and tribal responses to the pandemic. In addition to the COVID Response Strategy and the Supply Chain EO, the administration published a Presidential Memorandum to Extend Federal Support to Governors' Use of the National Guard to Respond to COVID-19 and to Increase Reimbursement and other Assistance Provided to States. Among other things, the federal government will reimburse state, local and tribal governments for 100% of the cost of emergency supplies (including personal protective equipment, "PPE") and 100% of the costs related to use of the National Guard to assist with the pandemic response. In short, the federal government is removing substantial parts of the states' financial burden resulting from the pandemic in order to facilitate a faster and more comprehensive COVID-19 response.
The administration also intends to address supply shortfalls for vaccination supplies, testing supplies and PPE by use of the DPA. Under the COVID Response Strategy, resolving "twelve immediate supply shortfalls" has been identified as critical to successfully responding to the pandemic. Agencies will use the DPA to the extent possible "to accelerate manufacturing, delivery, and administration to meet shortfalls in these twelve categories of critical supplies." Within those categories, agencies have been tasked with increasing the availability of supplies such as:
- 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
- all the necessary equipment and material to accelerate the manufacture, delivery and administration of COVID-19 vaccine
There will necessarily be a large number of procurement decisions and actions required to effect the anticipated use of the DPA. With respect to just one of these examples mentioned above, the president's chief of staff explained that "we've got a very carefully coordinated program with the vaccine manufacturers to increase production" and that "one of the orders . . . signed today was to use the [DPA] to ramp up the production of a very specific kind of syringe that allows [a more efficient distribution of vaccine]" and "that DPA authority . . . actually increases our supply effectively 20%."
The Supply Chain EO, which is intended to facilitate the rapid procurement of significant quantities of the necessary products, emphasizes the development of a robust pandemic supply chain needed to secure supplies for responding to the COVD-19 pandemic and future crises while reducing reliance on foreign sources. It describes the administration's planned inventory assessment, price analysis and strategic development necessary to complete the effort.
Section 2 of the Supply Chain EO calls for an assessment of the inventory of response supplies and identification of emergency needs. If the assessment reveals a shortfall in the provision of pandemic response supplies, the head of the relevant agency shall take appropriate action using all available legal authorities, including the DPA, to fill those shortfalls as soon as practicable by acquiring additional stockpiles, improving distribution systems, building market capacity or expanding the industrial base.
The Supply Chain EO's Section 2 also contemplates actions to be taken in response to reports provided by agencies regarding pandemic response supplies. The COVID-19 Response Coordinator must review reports that the Supply Chain EO requires regarding assessment of pandemic response capabilities and provide recommendations to the president that address (i) whether additional use of the DPA would be helpful and (ii) the extent to which liability risk, regulatory requirements or other factors impede the development, production and procurement of pandemic response supplies and actions that can be taken to remove such impediments.
Section 3 of the Supply Chain EO addresses pricing of pandemic response supplies. The Department of Health and Human Services ("HHS") must "promptly recommend" whether changes should be made to the authorities delegated to HHS by EO 13910 of March 23, 2020 (which concerned hoarding of health and medical resources) regarding scarce materials or materials that would be threatened by accumulation for hoarding or price gouging. Section 3 also requires HHS, the Department of Defense ("DoD") and the Department of Homeland Security ("DHS") to recommend how to address the pricing of pandemic response supplies, including whether and how to direct the use of reasonable pricing clauses in federal contracts and investment agreements or other related vehicles. The secretaries also must recommend whether the General Services Administration Schedule program should be used to facilitate purchasing of pandemic response supplies for state, local, tribal and territorial government buyers and compacts.
The Supply Chain EO's Section 4 directs the development of a Pandemic Supply Chain Resiliency Strategy. DoD, DHS and HHS, among other agencies to be identified, must develop a strategy within 180 days to design, build and sustain a long-term capability in the United States to manufacture supplies for future pandemics and biological threats. Among other elements, this strategy must include an analysis of the role of foreign suppliers in the US pandemic supply chain, the Unites States' role in the international public health supply chain and options to strengthen and better coordinate global supply chain systems in future pandemics, as well as mechanisms to address points of failure in the supply chains and to ensure redundancies. The Supply Chain EO also calls for an approach to develop a multi-year implementation plan for domestic production of pandemic supplies.
Section 5 of the Supply Chain EO directs HHS to consult with tribal authorities and take steps to facilitate access to the Strategic National Stockpile for federally recognized tribal governments, Indian Health Service healthcare providers, tribal health authorities and Urban Indian Organizations.
The Defense Production Act—What To Expect
Although the DPA authorities are broad, they are not necessarily a "silver bullet." Section 101 of the DPA gives the president the power to shape civilian markets and control the distribution of materials and resources upon making certain findings about the criticality of the material to national defense and the potential dislocation of civilian markets. Where there is production capacity that needs to be prioritized, the "rated order" process under the DPA allows the president to specify the most important production and flow those priorities down the supply chain. Such orders could potentially be issued to US vaccine manufacturers, as well as suppliers of items such as syringes or cold storage facilities.
Section 101 also allows the president to determine the allocation of health and medical resources. This authority has seldom been used and was used for the first time in EO 13909 on March 18, 2020. This authority would permit the government to actually adjust production capacity and resources. However, the impact of this authority may be longer-term.
Other uses of the DPA require more planning and development. The Title III authorities for loans and loan guarantees (which were enhanced in some respects for a two-year period under the CARES Act) are tools to facilitate domestic production of PPE, for example. However, because so much of that production had moved out of the United States, use of these authorities is longer-term and requires analysis and expertise to structure financial incentives. Such work has been conducted at DoD through its Industrial Policy Office and most recently also through the US International Development Finance Corporation in conjunction with HHS, for example. See EO 13922, May 14, 2020.
In addition, authorities under Title VII of the DPA allow the president and industry to work cooperatively with protection from the antitrust laws. This authority may help facilitate, for example, distribution of vaccines by cooperation among potential distributors such as retail pharmacies.
For further information on the DPA, see David Dowd, Luke Levasseur, and Marcia Madsen, Defense Production Act—Using Authority To Address Emergent Needs, Thomson Reuters Briefing Papers Issue 20-8 (July 2020) [available from Thomson Reuters on Westlaw].
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