To fully understand the current relevance and application of the Defense Production Act (DPA) to the Coronavirus Disease 2019 (COVID-19) public health emergency, it helps to remember the two extraordinary wartime crises faced by Americans in the space of 10 short years before its enactment. When President Harry Truman signed the Defense Production Act in the summer of 1950, he did so against the backdrop of an enormous war emergency—World War II (WWII)—which the federal government had fully met, as well as a new global threat—the struggle against Communism and the invasion of South Korea by North Korea, a state influenced by Chinese Communists under Mao Zedong and the Soviet Union under Joseph Stalin. The government-industry partnership fostered by President Franklin D. Roosevelt (FDR) in WWII to mobilize industry, and the command and control tools he devised (with some trial and error) to meet the production challenge, were endorsed by then-Senator Truman and gave him, as president, the legal and practical underpinning for the DPA.
The key authorizations that Truman drew on included the Second War Powers Act of March 1942, which allowed the U.S. government to compel a business to accept war emergency production contracts for crucially needed materials. The Act also granted the War Production Board (WPB)—established by Executive Order 9024 and featuring some 120 field offices—nearly unrestricted power to control and allocate strategically necessary resources such as petroleum, chemicals, aluminum, rubber, and steel. Under WPB regulations, government and industry negotiated contracts free of competitive bidding, but there was an iron fist inside that velvet glove: under the May 27, 1941, Presidential Proclamation of the WWII “unlimited national emergency,” the U.S. government could seize plants where unresolved bottlenecks or manufacturing delays endangered critical wartime production goals. At least 64 companies had their plants seized by the U.S. government between 1941 and 1945.
At the same time, however, WWII demonstrated that the U.S. economy could meet unprecedented production goals. In 1940, U.S. domestic gun powder production was insignificant, and the country had no synthetic rubber industry to speak of. By 1943, America was a leading producer of gun powder and had stood up factories for a new synthetic rubber industry that were producing 270,000 tons of rubber. FDR’s famous, and seemingly unrealistic challenge to industry—that it produce 50,000 warplanes per year at a time when the aircraft industry was custom-building perhaps 1,000 warplanes annually—would be exceeded with the production of an astonishing 324,750 planes by V-J Day. Industry leaders who worked within the new government command structure—such as Glenn L. Martin in plane production, Henry J. Kaiser in Liberty Ships, and Andrew Higgins in D-Day landing craft—became household names and models for what could be achieved when private enterprise responded with speed and creativity to crucial wartime emergency demands. In the early years of mobilization, former automotive executives, such as Bill Knudsen, volunteered to help marshal the resources of GM and Ford with their formidable understandings of the science of mass production and ability to re-tool production lines to make nearly anything—skills that are still vital to production today.
Truman, who as Senator had ridden tough herd on WWII defense contractors, brought the telling experience of both sides of the previous war’s government-industry experience forward when he, and the nation, confronted the Korean War and its sudden requirement for the increased production of military supplies. On July 19, 1950, Truman explained to Americans the rationale for the DPA and the resumption of government command and control:
We need laws which will insure prompt and adequate supplies for military and essential civilian use. I have therefore recommended that the Congress give the Government power to guide the flow of materials into essential uses, to restrict their use for nonessential purposes, and to prevent the accumulation of unnecessary inventories.
Truman understood that, although the public strongly supported a mobilization effort including priority contracts and even price controls, any defense production law had to avoid granting too much government control, even while leaving open the prospect that those firms that were willfully uncooperative could, under extraordinary circumstances, be compelled to produce critical items. Newsweek aptly described the legislative aim as “something about halfway between full war mobilization and peacetime business as usual.” On September 19, 1950, Truman outlined how the DPA, which he had signed the day before, would work:
This law will enable the Government to provide special financial help to businessmen where that is necessary to enlarge the production of our mines and factories for defense purposes. This law also will enable the Government to make sure that defense orders have top priority, and that manufacturers get the steel, aluminum, copper, and other materials they need to fill such orders. This law gives the Government the power to prevent the hoarding of raw materials essential to defense. It also enables the Government to cut down the production of nonessential civilian goods that use up critical materials.
I have directed the agencies to exercise these production powers vigorously and promptly, making use of every resource of American business, large and small. These powers will be administered with one paramount purpose in mind: to produce the defense equipment we need as rapidly as possible.
The U.S. production of critical items during the Korean War partial remobilization was largely a success story—although conflicts among emergency agencies, and Truman’s seizure of the steel mills, certainly brought controversy. While some DPA provisions lapsed in 1953 as armistice negotiations brought an end to the Korean War conflict, its system of rated strategic priority orders quickly became the essential, flexible structure for defense production for the duration of the Cold War as well as later “hot” wars from Vietnam to the present-day response to natural disasters. Congress has reauthorized the DPA 53 times through 2019.
President Harry S. Truman signed the Defense Production Act (DPA) on September 18, 1950. The DPA empowers the executive branch to take extraordinary measures to ensure that private industry can supply the materials and services needed in times of crisis. Executive agencies can provide DPA funding and other support to promote the development and maintenance of factories, production lines, and other aspects of critical national infrastructure.
The DPA includes several authorities geared towards encouraging, rather than controlling, private industry. Congress established DPA funding pools for financial assistance to the domestic industrial base. For example, executive agencies may guarantee private loans and make direct loans to avoid shortfalls of industrial resources needed for national defense purposes. In addition, agencies may purchase commitments or provide subsidies to private businesses with the goal of protecting, expanding, or restoring domestic industrial base capabilities essential to national defense.
What really distinguishes the DPA, however, are the authorities that allow executive agencies to control the domestic industrial base. For example, the DPA allows executive agencies to control the allocation of supplies, raw materials, and services in any manner necessary to promote national defense. While the DPA’s allocation authorities are quite broad, congressional authorization is required for any wage or price controls.
In addition, the issuance of DPA “rated orders”—for materials and services necessary for the national defense (including natural and manmade disasters and pandemic threats)—requires private businesses to prioritize rated orders over their existing commercial obligations. The DPA shields private businesses from liability for failing to meet their other contractual obligations due to performing a “rated order.” The suggestion that all DPA authority is rarely and sparingly used is incorrect. While the DPA’s allocation authorities have rarely been used to take control of U.S. industry, the DPA’s system for placing priority orders has, for years, been in near-constant use. The Department of Defense (DoD) places roughly 300,000 DPA priority-rated orders and contracts each year. Indeed, DoD’s policy is to include a Defense Priorities and Allocation System clause in all eligible contracts and orders. Thus, it could be said that, on average, the DPA is used nearly 1,000 times per day.
“Rated orders” may be issued directly by executive agencies or by their prime contractors to other suppliers. Either way, “rated orders” include a priority designation of either “DO” (meaning the order takes priority over all unrated orders) or “DX” (the order takes priority over all DO orders). They must specify a required delivery date and provide signed certifications that the orders are being placed pursuant to the DPA.
Under current regulations, private businesses that receive a rated order must reject the order if they are unable to meet the specified delivery date either because of impossibility or because of schedule conflicts with rated orders of equal or greater priority. In such cases, private businesses must offer to complete the rated order by the earliest possible date. In addition, private businesses may reject a rated order for a limited number of other reasons—for instance, if the order is for an item that the private business does not make or supply or for a service that the business is unable to perform. In most cases, a “DO” rated order must be accepted or rejected within 15 working days, and a “DX” rated order within 10 working days. Any rejection must be accompanied by a written explanation. In performing a rated order, private businesses may (and in some cases are actually required) to “flow down” the priority rating by issuing “rated orders” to their own suppliers and subcontractors. Generally, the price and terms of a “rated order” should conform to the prices and terms normally offered by a private business in its traditional commercial dealings and no premium may be charged for fulfilling the order. A willful failure to perform a prioritized order can constitute a criminal violation punishable by imprisonment up to one year and a fine of up to $10,000. See, e.g., 15 C.F.R. §700.74.
On March 27, 2020, President Donald Trump issued an Executive Order on “Delegating Additional Authority Under the DPA with Respect to Health and Medical Resources to Respond to the Spread of COVID-19.” The Executive Order delegates the President’s DPA authority to provide financial assistance, take allocation actions, and place “rated orders” for health and medical resources needed to respond to the spread of COVID-19 to the Secretary of Health and Human Services (HHS) and the Secretary of Homeland Security. Following the President’s Executive Order, HHS published a notice prohibiting the hoarding of personal protective equipment (PPE) pursuant to its delegated DPA allocation and anti-hoarding authorities. HHS has, as of this writing, issued several rated orders, most notably for ventilators needed to treat severe COVID-19 cases.
The Defense Production Act in Perspective
Fast forwarding from WWII and Korean War origins to its current usage in the battle against COVID-19, one may draw certain lessons from the DPA’s past to be considered today, when its applicability is once more under serious and vital consideration and in the news. Among such lessons may be the following:
- The DPA, through its confident assertion of effective and practical federal emergency mobilization powers, represents an excellent tool which can cut through obstacles and should be mobilized when bottlenecks threaten to slow down procurement and deployment of key medical supplies;
- The DPA’s longtime, strong, and proven “rated orders” setup—its key priority strategic contracting system to meet any emergency—though a forceful and not uncontroversial exercise of special governmental authority, over time has acted to avert the need for more drastic interventions in private enterprise, such as industrial plant seizures similar to those required during WWII;
- On balance, the DPA in our own times still effectively symbolizes in law and in practice an aggressive yet necessary assertion of federal power, which any White House can use with confidence and “small d” democratic backing whenever emergencies affecting all Americans loom large. Its history and its pragmatic application have played out solidly within American traditions as a kind of valuable “middle solution” between an unrestricted private response to a national crisis, with the unwanted competition and heedless price gouging that may entail, and an unfettered U.S. government, with total command and control and no bars to its authority.
AUTHORS
Paul McQuade is a shareholder of international law firm Greenberg Traurig, LLP. Early in his career, he performed substantial research on U.S. Government involvement in WWII plant operations in connection with seeking contribution toward environmental cleanup costs at refineries, aviation engine, coal tar, lumber treating, and synthetic rubber plants. Any views expressed herein are those of the author, not the firm. The research assistance of Daniel Straus, an associate of the firm, is gratefully acknowledged.
Mike Reis is senior vice president at History Associates, Inc., in Rockville, Maryland, having previously served as the director of litigation research. Mike has provided deposition or trial testimony in environmental, toxic tort, building law, and historic preservation cases, as well as numerous expert reports and affidavits. He has directed numerous historical investigations focused on the federal government’s role in wartime mobilization and contracting, from the world wars through the recent, ongoing Middle Eastern conflicts.
Emily Sullivan is a former historian at History Associates, Inc., in Rockville, Maryland, where she undertook research and writing projects focused on the U.S. military experience in World War II. She previously interned with the education department at the National Museum of the U.S. Navy.