NDIA POLICY POINTS DEFENSE DEPARTMENT
NDIA Policy Points: It’s Time to Make Some Improvements to DPA
The response to the ongoing COVID-19 pandemic has catalyzed renewed interest in the Defense Production Act.
This statute is one of the country’s most powerful laws for federal intervention in national commercial activity. The act was passed in 1950 in response to the Korean War and has been reauthorized over 50 times, most recently in 2018. The DPA continues to serve a vital role empowering the president to protect the country against shortages of critical goods, services and materiel necessary for national defense or civil emergency response. The DPA creates incentives for companies to contribute to the crisis response by innovating new uses of their productive capacities and supplier networks.
To ensure the act remains a capable tool for supporting the defense industrial base, policymakers should consider reforms that would improve the law’s loan-making provisions, funding stream and transparency requirements.
Today’s Defense Production Act retains three broad sets of executive authorities — Titles I, III and VII — that empower the president to ensure that U.S. producers prioritize the nation’s interest over commercial production during times of crisis.
Title I empowers the president to jump the government to the front of the line to receive commercial products from domestic producers. This process ends with the power to require and prioritize production of critical national defense needs from U.S. companies.
The Defense Contracting Management Agency, as part of the defense priorities and allocations system, assigns priority ratings to certain contracts and orders. Specific sections within the act go further to authorize specific government activities when the act is invoked.
Section 102 prohibits hoarding of designated materials, regardless of whether intended for business or personal use.
Section 108 directs the president to show strong preference for small business, especially in underemployed areas when using these authorities. President Donald Trump recently invoked these sections in response to the COVID-19 pandemic to require General Motors to produce ventilators and to delegate authority to the Department of Health and Human Services secretary to designate items as “scarce materials” that could not be horded.
Title III of the act supports the growth and retention of domestic productive capacity and material supplies critical to national defense. Specifically, sections 301, 302 and 303 help companies in the private sector avoid the risk of production loss during a crisis by providing loans.
Section 303 authorizes subsidies to protect the supply of goods essential to national security. The federal government has not used the loan authorities provided under section 301 or 302 since 1992. However, subsidies under Title III have been used to fund projects including biofuels and gallium nitride integrated circuit production. Title III was also recently used to encourage production of rare earth elements.
Title VII includes an assortment of provisions further extending the executive branch’s powers of economic mobilization and regulation. It also includes a section that establishes a preference for small business contractors in DPA programs.
Additionally, it grants the executive branch powerful investigative authorities including the power to inspect company records to assess industrial capabilities, and the ability to review foreign investments in U.S. companies through the Committee on Foreign Investment in the United States.
The power to investigate company records was used by the Obama administration in 2011 to compel some telecommunication companies to reveal what Chinese-made equipment were contained within their systems.
Title VII provides protections for companies from anti-trust laws for voluntarily working together to meet national defense needs. It also authorizes federal agencies to establish national defense executive reserves consisting of leaders in industry, labor, professional groups and academia to serve in executive government positions during declared national defense emergencies.
To respond to urgent shortages of supplies, the federal government leverages DPA Title I to contract with private sector companies to fill production gaps. Contracts under the authorities come with a guarantee that production of needed materials will be paid for by the government.
The current COVID-19 crisis creates an environment of opportunity for private sector companies to aid the federal response effort. Companies that currently compete in the federal marketplace and new entrants can provide much needed productive capacity. The DPA’s demand-side guarantees can also alleviate financial concerns to those companies contracted to help. But, it could be better.
The act gives the executive branch broad oversight of the private sector to ensure critical supplies are available when urgently needed. It needs some improvements so that it can remain a powerful tool for strengthening the defense industrial base.
The DPA’s loan mechanisms have fallen into disuse — the victims of burdensome appropriations requirements.
For years, Title III programs have been significantly underfunded, preventing the Defense Department from fully addressing industrial base shortfalls.
Lastly, the government makes little information public about projects funded under Title III, weakening accountability.
Now in its 70th year, the Defense Production Act remains a powerful mechanism to address national emergencies and critical shortfalls, but it is in need of updates. Targeted reforms will ensure it is ready the next time America needs it.
Brian Boone and Kevin Merrick are junior policy fellows at the National Defense Industrial Association.