Time to dust off emergency procurement rules?

Joseph J. Petrillo

Now that President Bush has placed the country on a war footing to respond to terrorist attacks, it is time to dust off some dormant procurement programs. Potentially, one of the most important of these is the Defense Priorities and Allocations System.

The system has its origins in the mobilization preceding World War II. Its current incarnation dates back to the Defense Production Act of 1950. Although the authority of the act lasts for only a single fiscal year, Congress has renewed it every year. In the wake of the Sept. 11 attacks, Congress authorized a two-year extension. This law plus two others gives the government extraordinary powers to establish a priority system.

The basic concept here is that under such extreme circumstances, the needs of the government take priority over commercial requirements.

The act permits the president to establish priorities for contracts related to the national defense. You can find the rules in Commerce Department regulations and in the Federal Acquisition Regulation.

The priorities system applies only to so-called approved programs, for example, production of military aircraft or munitions, and programs which 'maximize domestic energy supplies.' It isn't hard to imagine contracts for IT qualifying for this program, given that technology has implications for national security.

There are two basic levels of priority, DX and DO. All DO orders have priority over unrated orders, and all DX orders have priority over both unrated and DO orders.

When a government contract will be covered in whole or in part by the allocation system, the contracting officer must insert the clause found at FAR 52-211.14 in the solicitation, and the clause at FAR 52-211.15 in the resulting contract. A contract that contains the appropriate clause qualifies as a rated order, with the corresponding level of priority'DX or DO'designated by the contracting officer.

All subcontracts and purchase orders under a prime contract bear the same level of priority as the prime contract. If a company can't fill a rated order on time, it can refuse it, but must state the earliest time when it can supply the items. There are a few other narrow exceptions to the requirement to accept and fill a rated order.

A specific provision of the law deals with the liability of a company which, for instance, is late in its shipments because of acceptance and performance of a rated order. A company may not be held liable for damages or penalties for any act or failure to act resulting directly or indirectly from compliance with this defense priority program.

Beyond the priority system, Commerce can issue special directives, which take precedence over the DX and DO priorities. These directives can compel a supplier to accept a rated order. They let the government require a company to rearrange production or delivery schedules, or increase the frequency of shipments. Also, in the event of a national emergency, Commerce can promulgate special rules for critical industrial items and facilities.

Compliance with the act and its priorities is a serious matter. Willful violations can lead to criminal penalties, among other legal sanctions. But that sort of sanction is probably unnecessary, given today's heightened sensitivity to national security.

In recent years, contracts subject to the Defense Priority and Allocation System have been a rarity. However, given the current situation, we may be seeing more of them soon.

Joseph J. Petrillo is an attorney with the Washington law firm of Petrillo & Powell. E-mail him at [email protected].


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