N95 masks and medical surgical masks

In response to the continued rapid spread of, and increasing death toll from, COVID-19 in the United States, the drumbeat in the United States for more medical tests, supplies and equipment—in particular personal protection equipment (PPE)—has grown louder and more urgent since President Donald Trump declared a national emergency on March 13. Trump subsequently invoked the U.S. Defense Production Act (DPA) and then directed the Secretary of Health and Human Services on March 27 to require one of the United States' major automobile manufacturers to accept, perform and prioritize federal contracts for the ventilators the U.S. government now believes are required to care for critical coronavirus patients who would not otherwise survive without such equipment.

On April 2, Trump again invoked the DPA to clear up supply chain issues encountered in the manufacturing of ventilators and to ensure the production of additional N95 face masks. Trump then invoked the DPA yet again, on April 3, to compel a U.S. manufacturer of the N95 face mask, to send the masks it manufactures in factories overseas to the United States and to cease the exportation of face masks currently manufactured in the United States. Given the status of the pandemic and the urgent requirement for PPE, it is only a matter of time until the federal government finally accedes to the public's demand and begins to issue DPA-rated orders to other companies that currently manufacture, and have the capability to manufacture, PPE to permit the federal government to acquire PPE on an expedited and urgent basis.

For those who are unfamiliar with the DPA, who don't know what a rated order is, or who don't know what the receipt of a rated order would mean for their business operations, here is a brief primer. A DPA-rated government order is an order/contract issued by an authorized federal government agency, such as the Department of Defense, Health and Human Services, the Federal Emergency Management Agency, which contains terms that puts the recipient of the order/contract on notice that compliance with the contract/order is mandatory. Unless certain conditions exist, receipt of a rated order mandates that the business recipient reschedule and, possibly, reorganize its manufacturing and supply chain processes to meet the terms, conditions and delivery date of the rated order. Further, the receipt of a rated order authorizes the business recipient to issue rated orders to its U.S.-based suppliers and manufacturers and these entities must, in turn, do what is necessary to comply with the terms and delivery dates of the authorized rated orders issued to them by the original rated order recipient. Should any recipient of a rated order encounter issues that would affect its ability to meet the rated order's requirements, that recipient should reach out to its customer and/or the awarding agency, as applicable, for assistance. We note that there are penalties for intentional noncompliance with a rated order and there are avenues by which a rated order recipient may decline such an order. Finally, the DPA protects a rated order recipient from liability arising out of that recipient's possible breach of its existing contracts resulting from that recipient's efforts to meet the federal government's requirements.

The receipt of a rated order from the federal government will bring with it many terms and conditions that should never be regarded as "boilerplate," and it is recommended that any recipient of such an order review and understand all of the obligations imposed.  Some of the terms and conditions of any government order, rated or not, are required by law and enforce various public policies—for instance in the realm of labor and employment and foreign acquisition—to name a few. The balance of this article focuses on two specific laws related to the government's policies on domestic and foreign acquisition, and how noncompliance with the specific statutes and regulations can result in substantial liability for the inexperienced recipient of a rated order for PPE.

The Buy American Act (BAA), 41 U.S.C. chapter 83, generally requires that the federal government only purchase domestic end products (supplies) where they will be used in the United States. The BAA applies to orders greater than the federal government's micro-purchase threshold or, in light of Trump's declaration of national disaster, any order valued at $20,000 or more. A foreign product may only be provided to the federal government where the federal government has made a determination that the price of the domestic product is unreasonable or if another exception exists. Any rated order issued over the micro-purchase threshold will require that the recipient provide products considered to be manufactured in the United States unless the federal government has made a determination that an exception to the BAA applies. As such, these orders would include Federal Acquisition Regulation (FAR) clauses 52.225-1, Buy American—Supplies, and 52.225-2, Buy American Certificate.

The Trade Agreements Act (TAA) of 1979, 19 U.S.C. 2501, et seq, allows the president to waive the BAA in whole or in part with respect to any eligible products originating in any foreign country. The FAR implements the presidential delegation of this waiver to the U.S. Trade Representative who has waived the BAA and other discriminatory provisions for eligible products from countries that have signed an international trade agreement with the United States or that meet other criteria such as being a least developed country. The value of the rated order placed will determine the applicability of the trade agreements to the rated order.  The customary threshold for full application of the TAA is $182,000. FAR Part 25.402. Any rated order issued by the federal government that exceeds the $182,000 threshold would mandate, unless stated otherwise in the order, that the recipient of the rated order provide only products from countries identified in FAR clauses 52.225-5, Trade Agreements, and will require that the recipient certify compliance under 53.225-6, Trade Agreements Certificate, or disclose where the products will be manufactured if not manufactured in a Trade Agreement complaint country.

Finally, 10 U.S.C. 2533a, the Berry Amendment to the Buy American Act, prohibits the Department of Defense (DOD) from acquiring certain fabrics, clothing and the materials and components thereof that have not been grown, reprocessed, reused or produced in the United States. Rated orders from the DOD likely may include Defense Federal Acquisition Regulation Supplement (DFARS) Clause 252.225-7012, Preference for Certain Domestic Commodities.  Further analysis of the composition of PPE products would be needed to determine whether the PPE would fall under the Berry Amendment's restriction prohibiting the DOD from acquiring any PPE that was not comprised of fabrics grown or produced in the United States.

To date, many government contractors—experience and unexperienced—have been the subject of lawsuits under the False Claims Act, 31 U.S.C. Sections 3729 – 3733. These lawsuits have been based, in part, on a contractor's failure to comply with the BAA or TAA and resulting sale of products to the federal government that were manufactured in China, Malaysia, India or other non-Trade Agreement Act compliant countries. The costs of responding to a government investigation into compliance with these laws are not trivial.

To minimize and avoid liability under the BAA, TAA and the Berry Amendment, and in advance of receipt of a rated order, businesses selling, or that will be asked to supply, PPE to the federal government should check their supply chains and determine the country of origin, if other than the United States, for each individual PPE item that the federal government might order. To the degree that it is possible, the business should consider whether it is possible to shift manufacturing to the United States and a Trade Agreement Acts compliant country for items being supplied to the government. Upon receipt of a request for quotation for PPE or a rated order for PPE, the recipient should check the terms of the order for the requirements discussed above. If the PPE does not comply with these requirements, the recipient should advise the ordering agency, in writing, of the actual country of origin for all PPE products the federal government has ordered and request permission and/or a waiver of the applicable law to permit the PPE to be delivered.

Unless a rated order is classified, the terms and conditions of such an order are subject to disclosure under the Freedom of Information Act, 5 U.S.C. Section 522, and employees and competitors may seek an opportunity to exploit any potential noncompliance with the laws discussed above. In the rush to meet the country's urgent requirements for PPE, the saying that it is better to seek forgiveness than permission does not hold true when filling orders from the federal government. Given the significant risks from noncompliance, it is better to provide complete disclosure of the country of origin for any PPE products the federal government may order and seek permission from the ordering agency in advance of filling any order.

Holly A. Roth is a partner in Reed Smith's government regulatory practice. Roth has more than 30 years of government contracts experience, including 10 years with a Fortune 50 company. She focuses her practice on a wide range of counseling and litigation relating to federal, state, and local government procurement matters as well as federal assistance agreements and grants.  She can be reached at [email protected].

Francisca M. Mok is the managing partner of the firm's Century City office and a partner in the global regulatory enforcement group. She handles a variety of complex commercial litigation matters, including in the areas of securities law, unfair competition and class action litigation. She also conducts internal investigations for clients and represents individuals and companies in government investigations by criminal and civil authorities. Mok can be reached at [email protected].

Liza V. Craig is counsel in the firm's global regulatory enforcement group, where she focuses on government contracting. She counsels her clients on all aspects of the procurement process, including the proposal preparation and submission process, the resolution of disputes related to awards, administration, and termination of government contracts, and on matters related to contract compliance. Craig can be reached at [email protected].