By Jennifer Plitsch, Tyler Evans and Carl Wiersum of Covington & Burling
Two notices recently published in the Federal Register indicate the Federal Emergency Management Agency (“FEMA”) intends to exercise Defense Production Act (“DPA”) authority in novel ways during the current coronavirus pandemic.
On May 12th, FEMA announced that it plans to invoke DPA authority which permits the President to consult with representatives of industry, business, financing, agriculture, labor, and other interests in order to enter into voluntary agreements or plans of action to help provide for the national defense.
The following day, FEMA published the Emergency Management Priorities and Allocations System (“EMPAS”) regulations governing FEMA’s use of DPA priorities and allocations authority — which, as we’ve previously covered on several occasions, permit the executive branch to require private companies to prioritize its orders and allocate resources in the private sector as needed to promote the national defense. FEMA included a new concept of third-party rated orders in its version of DPA regulations.
The Coronavirus Voluntary Agreement
The first notice published last week announces FEMA’s intention to create a voluntary agreement with industry under Title VII of the DPA. FEMA’s stated purpose “is to maximize the effectiveness of the distribution of critical health and medical resources nationwide to respond to pandemics in general, and COVID-19 specifically, by establishing unity of effort between agreement participants and the Federal Government for integrated coordination, planning, information sharing, and distribution of critical medical resources.” FEMA envisions the agreement establishing “the terms, conditions, and procedures under which participants agree voluntarily to contribute and facilitate health and medical resource production and distribution capacity as requested by FEMA and other Federal Government entities.”
To begin, FEMA is planning to hold a tele-/web conference on May 21, 2020 at 2:00 – 3:30 p.m. EST (with potentially a second meeting on May 27). The meeting will be open to the public, though FEMA notes attendees should register by May 20. At the meeting, FEMA aims to identify agreement participants and gather technical advice on scope and substance for the draft agreement.
A key aspect of the DPA voluntary agreement authority that FEMA intends to use is the special legal defense parties entering into a DPA voluntary agreement are afforded if their actions within the scope of the agreement would otherwise violate antitrust or contract laws. This protection extends to both federal and state laws for “any action taken to develop or carry out any [DPA] voluntary agreement” provided the party complied with the DPA and the terms of the voluntary agreement itself.
The only currently-established DPA voluntary agreements are Department of Transportation-managed agreements targeted at ensuring the maritime industry can respond to rapid mobilization, deployment, and transportation requirements if DOD requires. For these programs, voluntary participants from the maritime industry are solicited to join annually. Historically, the voluntary agreement authority has also been used to enable companies to cooperate on weapons manufacture — for example, with respect to production processes or standardizing design specifications.
In comparison to the maritime DPA voluntary agreement, the Civilian Reserve Air Fleet (“CRAF”) program is also managed by the Department of Transportation and allocates civilian aircraft for potential use, if required, by DOD to augment its airlift capability if needed. Although CRAF is established using the DPA allocation authority rather than the voluntary agreement authority, civilian carriers are given preference in carrying commercial peacetime cargo and passenger traffic for DOD in return for their participation in CRAF.
Emergency Management Priorities and Allocations System
The second publication last week sets out FEMA’s new EMPAS regulations governing their use of DPA prioritizations and allocations authority with respect to coronavirus response. These regulations follow the President’s delegation to FEMA of certain DPA authority related to the coronavirus response in an April executive order.
The EMPAS will be codified at 44 C.F.R. Part 333 as part of the Federal Priorities and Allocations System (“FPAS”) — the set of regulations promulgated by the various executive agencies to exercise DPA authority that has been delegated by the President in executive orders over the years. This set of regulations already includes the Defense Priorities and Allocations System (“DPAS”), the Health Resources Priorities and Allocations System (“HPAS”), the Agriculture Priorities and Allocations System (“APAS”), the Energy Priorities and Allocations System (“EPAS”), and the Transportation Priorities and Allocations System (“TPAS”).
Two aspects of the EMPAS in particular seem to potentially give insight into FEMA’s future planned use of the DPA authorities.
First, the decision to publish a separate set of regulations in the EMPAS, rather than use other FPAS regulations, may indicate that FEMA intends to exercise its coronavirus-specific authority over an extended period of time, or may expect this authority to eventually be extended to more general emergency preparedness activities. After all, FEMA already possesses subdelegated authority to use both DPAS and APAS, and DPAS in particular is quite broad in terms of coverage. FEMA also expressly noted that it intends for the regulations to cover more than the agency’s COVID-19 response to ensure that the regulations can immediately be used in the event that its DPA authority is increased in the future. In any event, the new regulations should enhance predictability, and appear to be patterned closely after the other sets of FPAS regulations — which was to be expected, given that each set of already-established regulations are similar.
Second, in comparison to other FPAS regulations (such as DPAS or HPAS), FEMA has included several new references to “rated orders placed by FEMA or a Delegate Agency to facilitate sales to third parties.” This may be intended to reference to contracts placed in support of hospitals or other health entities, or it might be a more general reference to the overarching distributor-style role FEMA and the executive branch has seemed to play during the COVID-19 crisis with respect to PPE, ventilators, and potential treatments. This could also potentially be viewed as FEMA setting up the possibility of issuing a type of hybrid rated order/allocation action. Taking this approach could potentially allow FEMA to relieve certain restrictions that generally apply to allocation actions, including equitable distribution and rationing restrictions, and FEMA appears to intend to disclaim any liability associated with the third-party transactions that it facilitates.
FEMA indicated that it plans to issue additional guidance in the future on which agencies and programs will be eligible to use the new authorities created by the EMPAS.