Defense Production Act brings compliance risks for vendors

      Federal agencies have utilized the Defense Production Act (DPA) in an expanded fashion in recent weeks to order contractors to produce medical supplies--including masks and ventilators--for COVID-19 response.

      In the past, the DPA was primarily for defense. Recently, that has broadened to include public health.

      Under the DPA, agencies may place top priority “rated orders” on industry for products and services. Compliance is mandatory. The DPA orders take precedence over all others.

      While the recent DPA orders are intended for a short-term emergency, affected vendors face long-term risks of liability and litigation, according to contracting attorneys. The lawyers are advising vendors to be aware of the rules and the potential penalties.

      While DPA invocation has been somewhat limited in recent weeks, more contractors are likely to be impacted as additional waves of infection develop over the next two years

Rated orders

      A prioritized contract under the DPA is known as a “rated order” under the Federal Priorities and Allocation System, for which several rules apply:

• A contractor must accept and fill a rated order, with limited exceptions;
• A rated order takes priority over any other order and applies to all types of contracts, except for job contracts;
• A contractor must perform a rated order for the same price it would charge for non-rated orders;
• Contractors must perform by the delivery date in the order, with few exceptions;
• Companies receiving rated orders should follow additional regulations concerning notices and scheduling. All federal procurement regulations and accounting standards are in effect.

Penalties for violations

      Willful violations are considered criminal acts, and reckless disregard of the rules could result in civil actions and possible triple damages under the False Claims Act.

      The Justice Dept. has indicated willingness to prosecute such cases, according to Holland & Knight.

      The statute of limitations for DPA liabilities is “particularly long and issues may not come to light until years later,” Holland & Knight attorneys wrote in a recent blog. In addition, individual whistleblowers can file legal actions and receive a portion of any settlement.

More information:
Holland & Knight: https://bit.ly/2Mgg7Ih
Pillsbury: https://bit.ly/2XMVmct
Shearman & Sterling: https://bit.ly/3gD8ud1
Morgan Lewis: https://bit.ly/2XMClqH
Crowell: https://bit.ly/2AsLUD3
Orrick: https://bit.ly/2Me1Xau
Covington: https://bit.ly/2XKOSeh
Husch Blackwell: https://bit.ly/3eAieTl

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