The president was right to sign an executive order this week invoking his authority under the 1950s-era Defense Production Act, or DPA, which can be used to mobilize production of health and medical resources needed to go to war against the new coronavirus.
However, it would be a significant missed opportunity — indeed, public policy malpractice — if this broad and flexible set of powers and tools are put on the shelf, as the president has suggested, only to be used “if we need to” for a “worst case scenario.”
Rather, in what is effectively a wartime situation, the Trump administration should immediately put the DPA to work now to aggressively and urgently ramp up of production of critically needed items like masks, surgical gowns and ventilators and, just as important, grow our limited stockpiles and surge capacity for the possible 18-month path of the virus and future pandemics.
It is a matter of longstanding U.S. policy to let the private sector fill urgent needs, especially in the civilian marketplace — and some companies, large and small, have clearly been stepping up to the plate. The urge to let market forces work and avoid the heavy hand of government in supply chain management is certainly consistent with our historic reliance on private enterprise.
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Nevertheless, having declared a national emergency early this week in light of the enormous coronavirus threat, this is decidedly not the time for business as usual. If this isn’t the “worse case,” as the president tweeted, it’s close enough. There are demonstrated short-term shortages of needed health and medical resources — ranging from N95 respirators and other protective equipment to ventilators to test kits and hospital facilities.
Moreover, as Secretary of Health and Human Services Alex Azar recently told Congress, the national stockpile of medical supplies and protective equipment for use in emergencies is facing shortfalls, including respirator masks. Our industrial surge capacity — to ramp up production of key supplies for coronavirus and similar pandemics — is far too limited.
In short, given the prospect that COVID-19 may be with us for a considerable period, it’s simply too risky to leave this issue for the “worst case” scenario. We need to seize the day and urgently use the DPA to ameliorate our health supply chain vulnerabilities now, including stockpiles and surge capacity, so that we don’t end up in a prolonged and more costly war in six or nine months.
Indeed, a core focus of the DPA is to promote the preparedness of our industrial base to respond to our national needs in emergencies just like this.
While some point the finger at our heavy reliance on imports from China and India — and question the reliability of these supplies in periods of exigency — the issue is less about nationality of suppliers than global supply and demand. What we have now seen is that a virus in the Wuhan region of China can rapidly spread worldwide and create enormous global demand for needed equipment and resources that will well exceed global supply. In this situation, having more supply overall, from the U.S. or elsewhere, is critical.
How can the administration utilize the DPA?
The Cold War-era law offers a broad and flexible set of authorities, tools and incentives, and enforcement authorities — “carrots and sticks” that, in the right hands, can be used to build private sector capacity, expand production and otherwise mobilize the health sector to the emergency tasks at hand.
The most historically used DPA authority is the ability to “rate” private sector orders so that the emergency needs come first and suppliers must give “priority to” these orders over other commercial orders. The DPA also authorizes the president to allocate materials, services and facilities to address the emergency. Under this allocation authority, not used since the Cold War, the Department of Health and Human Services can direct a company, for example, to shift from the production of industrial masks to N95 masks.
The DPA also authorizes the administration to issue loans and loan guarantees to finance any needed private sector production capabilities to expand or surge production for the emergency. The executive branch also is authorized to enter into voluntary agreements with the private sector.
In sum, the administration can utilize its DPA authorities, tools and incentives to negotiate with industry to achieve important preparedness outcomes now. The breadth of the administration’s DPA ability to order private sector conduct, combined with penalties for noncompliance, can be used prospectively by the administration — as a modern day “sword of Damocles” to bring industry to the table to forge constructive and holistic solutions to urgent health care supply shortages.
Practical use of DPA authority
In the circumstances here, HHS would be wise to use the DPA to work directly with specific industries, starting with the obvious choices of masks and ventilators. The administration should assemble an experienced interagency team, with health care sector expertise, contracting know-how and regulatory savvy, who can, for a specific product area, (1) quickly survey demand needs and available supply, (2) identify supply side flexibilities of key companies in the sector to expand production, and (3) identify opportunities for cost-effectively developing surge capabilities and stockpiles.
Based on a short review, HHS can immediately enter into discussions with relevant larger suppliers, one by one, of what their contributions could be and make decisions as appropriate — knowing that, in the end, it could order companies to act. HHS thus could fund contracts that are afforded priority ratings with key suppliers for immediate buildup of production or for medium-term production increases to expand the national stockpile. HHS also could provide loans, guarantees and contract funding to finance facilities or new production liens for surge capability for the future.
Consistent with the DPA’s priority on small business, HHS should develop a separate financing facility for small and medium businesses — preferably regionally located to distribute industrial capability nationwide and more readily meet regional needs.
In the perfect world, the contracting opportunities would be competitively bid — a hallmark of federal policy. Given the exigency, however, we have no alternative but to use sole-source contracting in certain situations on a case-by-case basis as we did during the wars in Afghanistan and Iraq — drawing on the lessons learned from those wartime experiences. As time goes by, new opportunities can eventually be competitively bid.
In sum, the time to act to use the DPA to shape constructive and creative ways to meet our needs for health and medical resources in this war on the virus is now, when we have a better chance to mitigate the terrible risks and costs in the short, medium and long term.
Undoubtedly, using the DPA authority is not a panacea and cannot eliminate the problem entirely. Mistakes will be made and solutions will not be perfect. But in a war, we need to resort to wartime measures and use triage where needed to meet our health preparedness needs.
A partner in Eversheds-Sutherland, a global law firm, Bialos previously served as Deputy Under Secretary of Defense for Industrial Affairs and as a member of Secure Virginia, the state’s homeland security advisory board.
