Skip to main content
This website uses cookies. By continuing to use this website you are agreeing to our use of cookies as described in our privacy policy.
Bulletin | Covid-19

Cows and Chickens are National Security - How the US CARES Act is Changing US Federal Government Procurement (and Export to Canada)

Fasken
Reading Time 5 minute read
Subscribe

Procurement Bulletin

Not much ink is being spilled in the Canadian press these days about the US Defense Production Act (US DPA) and the presidential memorandums and executive orders made under it, despite the fact that the temporary exemption allowing exports to Canada for certain personal protective equipment (PPE) is scheduled to end on August 10. The Coronavirus Aid, Relief, and Economic Security Act, a.k.a the CARES Act provides US government officials with increased funding, reduced oversight and broader authority to procure outside of regular contracting processes. While the focus has been on PPE, the most recent presidential memorandum has focused on issues one might never have considered are relevant to 'national security'.

The US Defense Production Act

The US DPA gives the president of the United States the authority to direct private industry to prioritize federal government needs during emergencies relating to national security. Because the definition of national security includes homeland security issues, US DPA authorities extend to public health emergencies such as the COVID-19 pandemic. The US DPA contains congressional oversight powers, which traditionally limit the president's authority under the DPA.

Thus far, the president has issued three Memorandums which direct:

• The Secretary of Health and Human Services to require General Motors to "accept, perform, and prioritize contracts or orders for [ventilators]" (March 27).

• The Federal Emergency Management Agency (FEMA) to acquire N-95 respirators "from any appropriate subsidiary or affiliate of 3M Company" (April 2). This direction was modified the next day when the president issued a further expanded memorandum to Secretaries of Health and Human Services, Homeland Security, and FEMA to restrict export of "critically needed personal protective equipment (PPE)". The PPE covers: several full facial respirators (such as the N95, N99, N100, R95, R99, R100, or P95, P99, P100), single-use, disposable half-mask respiratory protective devices (covering the nose and mouth); surgical masks; and gloves or surgical gloves.

Subsequent to these directions, FEMA issued a temporary rule - effective only until August 10- requiring approval of exports of PPE but exempting shipments to Canada and Mexico. As of the date of publication of this bulletin, it is unknown what the US position will be after August 10.

• The Secretary of Agriculture to ensure that meat and poultry processors, amongst other things, prioritize contracts for national defense over other orders (April 28).

The US CARES Act

Signed in to law on the same day as the General Motors Memorandum, the legislation provides $2.2 trillion in government funding to address the impact of the COVID-19 Pandemic.

Much of the approximately $340 billion directed to federal government agencies to respond to COVID-19 is expected to be used to fund new government contracts (e.g. purchase of medical or pharmaceutical supplies and equipment, advancing research and development on vaccines and treatments, etc.). Approximately $1 billion has been provided specifically for US DPA purchases, which include: expanded contracting authorities on a non-competitive or limited basis by certain agencies or programs and a broad authority to the Department of Veterans Affairs to enter in to or amend contracts whenever such contracting will facilitate national defence[1]. The Act also empowers the president to authorize a department or agency to enter into contracts whenever he deems such action would facilitate national defence, without regard to other provisions of law relating to contracts.[2] 

In addition, the CARES Act suspended Congressional oversight for certain economic incentives such as the $50 million dollar limit on the aggregate amount of outstanding loans that can be issued, and the requirement to return fund balances in excess of $750 million at the end of the fiscal year to treasury. Absent an extension, the suspension of Congressional oversight will end in March 2021 and the requirement to remit excess funds to treasury will end March, 2022.

What's Next?

As the COVID-19 Pandemic continues, understanding how the US may respond (and what Canada should do in response) remains a relevant and difficult question to answer.

Thus far, there is no publicly available information as to whether the exception for exports to Canada for PPE will continue after August 10, or whether Canadian government officials are in discussions on this point with their US counterparts. One assumes the issue of PPE export remains a serious concerns for all levels of US government, as states gradually reopen in the face of continuing shortages of PPE and increasing numbers of COVID-19 cases. While the traditionally close and cooperative relationship between Canada and the US might have assuaged concerns in the past, the US government's unpredictable response to COVID-19, combined with the expansive powers granted to the president to override other laws applicable to procurement, leaves the spectre of export prohibitions very much at the forefront, not just with PPE but also with raw materials, food, pharmaceuticals or any other goods considered of 'national security' concern.

The Canadian government updates on its response to COVID-19 is primarily focused on those efforts to coordinate purchases of PPE on a national basis. There is limited to no information provided that identifies companies that are involved in the production and supply of the underlying raw materials necessary to manufacture PPE or other items, such as pharmaceuticals, and, at least thus far, there is no publicly available list of all contracts awarded to date.

Canadian industry response to requests from all levels of government in the initial days of the Pandemic was incredible, immediate and innovative. But, many of the companies currently identified as providers of new and existing sources of supply are companies that have repurposed their production facilities to do so, as opposed to companies whose business was and will remain specifically engaged in the business of PPE production and supply.

In this regard, two broader questions remain: Is Canada moving towards a permanent solution for a secure domestic source of supply capable of responding to all elements of 'national security' (no longer weapons and warships)?; And, accordingly, how will Canada manage future export prohibitions that the US government (or any other government) may impose?



Thank you to Shannon Kristjanson, Catherine Lusk and Faye Voight for their contributions to this article.

[1] Since the DVA operates within non-veteran hospitals, in theory, acquisition of PPE by DVA for an entire hospital might be possible.

[2] Public Law 85-804 provides "[t]he President may authorize any department or agency of the Government which exercises functions in connection with the national defense, acting in accordance with regulations prescribed by the President for the protection of the Government, to enter into contracts or into amendments or modifications of contracts heretofore or hereafter made and to make advance payments thereon, without regard to other provisions of law relating to the making, performance, amendment, or modification of contracts, whenever he deems that such action would facilitate the national defense.". See: Public law 85-804, online

    Subscribe

    Receive email updates from our team

    Subscribe