Defense Production Act: Agencies Lack Policies and Guidance for Use of Key Authorities
Highlights
Congress enacted the Defense Production Act of 1950 (DPA) to ensure the availability of industrial resources to meet defense needs. Amendments to the Act allow its use for energy supply, emergency preparedness, and critical infrastructure protection and require agencies to report on foreign offsets, which are incentives to foreign governments to purchase U.S. goods and services. Only Titles I, III, and VII remain in effect. In the National Defense Authorization Act for Fiscal Year 2008, Congress directed GAO to review recent agency efforts to implement the DPA. This report (1) examines the extent to which agencies use DPA authorities and (2) assesses agencies' response to reporting requirements on the economic impact of foreign offsets. GAO's work is based on a review of policies and guidance for the use of DPA authorities, instances in which agencies have exercised the authorities, and the analysis used in required reports on foreign offsets.
The Department of Defense (DOD) routinely exercises the DPA Title I priorities and allocations authority, which allows rated contracts and orders to be delivered before others, to ensure the availability of defense resources. However, civilian agencies have generally not used the Title I authority and most differ from DOD in deciding when to apply it. For example, DOD places ratings on most of its contracts before critical defense items are needed. In contrast, agencies such as the Department of Homeland Security (DHS) generally request ratings after delivery needs are identified, potentially delaying critical items during emergencies. Also, agencies responsible for responding to domestic emergencies and procuring resources in the areas of food and agriculture, health resources, and civil transportation, lack policies and guidance that could facilitate execution of the Title I authority and delivery of items needed in an emergency. While the Departments of Agriculture (USDA) and Health and Human Services are developing regulations to establish a framework for considering priority ratings, the Department of Transportation (DOT) has not yet begun to do so. Other DPA authorities have been used exclusively by DOD or have not been triggered by recent events. For example, DOD has generally been the sole user of the Title III authority for expansion of production capabilities, while events that would activate some Title VII authorities--such as the National Defense Executive Reserve and voluntary agreements--have not occurred. Agencies have taken steps towards fulfilling their offset reporting requirements to Congress, but data collected by the Department of Commerce limits the analysis of the economic effect of offsets. Commerce officials noted that a more detailed analysis could be provided if they requested more specific product data from prime contractors. Also, a DOD-chaired interagency team--required to report on its consultations with foreign nations on limiting the adverse effects of offsets--has reached consensus with other nations that adverse effects exist, but not yet on best practices to address them. Actions by the National Commission on Offsets have similarly been limited in the assessment of economic effects.
Recommendations
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Department of Commerce | To position the Department of Commerce to respond to offset reporting requirements, the Secretary of Commerce should update regulations to, for example, request more specific industry information from prime contractors that would improve the assessment of the economic effects of offsets. | In 2008, GAO found that, regulations to collect offset data from U.S. defense firms entering into contracts for the sale of defense articles or services to foreign countries or firms that are subject to offset agreements exceeding $5 million in value were first published in 1994 and never updated. Under the Defense Production Act, the Secretary of Commerce is given authority to promulgate these regulations and has designated this authority to the Bureau of Industry and Security (BIS). The regulations required companies to annually report information on broad industry categories, based on outdated four-digit Standard Industry Classification (SIC) codes that did not delineate among... subsectors of industries. Commerce officials noted that their analysis of the economic effect of offsets could be improved by requesting more detailed sector and product information based on updated six-digit North American Industry Classification System (NAICS) codes from prime contractors. As the NAICS has replaced the SIC, such improvements would allow Commerce to provide greater insight into the effects of offsets on specific subsectors of the economy and would more closely match employment data already used in their analysis. Noting that the lack of usable data in the Department of Commerce's reports limits the government's ability to gain knowledge on the economic effects of offsets and to take steps to address them, GAO recommended that the Secretary of Commerce update regulations to request more specific industry information from prime contractors that would improve the assessment of the economic effects of offsets. In response, the Department of Commerce issued a proposed rule in April 2009 that updated the regulation and required companies to assign the appropriate NAICS code(s) to each military export sale for which there is an offset agreement triggering a reporting requirement. The rule was made final in December 2009 and became effective in January 2010. This rule will allow BIS to improve its assessment of the economic effects of offsets in defense trade. The amendments in this rule clarify the information BIS is seeking to receive from industry. BIS believes that these amendments will lead to less ambiguity and more consistency in industry submissions. The issued rule implements and closes GAO's recommendation.
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| Department of Agriculture | To ensure that the full range of Defense Production Act authorities can be used in an effective and timely manner, the Secretaries of Agriculture, Health and Human Services, and Transportation, in consultation with the Department of Commerce, should develop and implement a system for using the priorities and allocations authority for food and agriculture resources, health resources, and civil transportation respectively. | In June 2009 USDA informed GAO that it is in the process of developing plans to establish and implement an Agriculture Priorities and Allocation System (APAS). USDA's APAS will support continuation of agriculture production by ensuring agriculture producers, processors, distributors, and wholesalers receive preferential scheduling for items and processes necessary to maintain their agricultural operations during times of a declared national emergency. Under APAS, USDA may issue priority "orders" to private sector processors, distributors, and wholesalers as a means to redirect agriculture commodities to areas of hardship. By law, priority orders supersede existing contract obligations...
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| Department of Transportation | To maximize effective use of the priorities and allocations authority, the Secretaries of Agriculture, Energy, Health and Human Services, Homeland Security, and Transportation should consider, in advance of an emergency, approving programs and placing priority ratings on contracts for items that are likely to be needed in an emergency. | In the Department of Transportation's (DOT) September 12, 2008 letter to Congress addressing GAO's recommendations, it states that the department has begun to develop a system for using its priorities and allocation authorities for civilian transportation. In DOT's June 16, 2009 response to GAO, DOT officials indicated that the agency is continuing to develop a system for using the priorities and allocations authority for civil transportation and corresponding regulations. DOT is also working on an order that will detail the agency's procedures for implementing its DPA authorities. DOT stated that, as it develops its priorities and allocation system, it will identify any programs that...
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| Department of Agriculture | To maximize effective use of the priorities and allocations authority, the Secretaries of Agriculture, Energy, Health and Human Services, Homeland Security, and Transportation should consider, in advance of an emergency, approving programs and placing priority ratings on contracts for items that are likely to be needed in an emergency. |
In June 2012, USDA informed GAO that USDA/FSA is in the process of assessing the viability of Memorandums of Understanding with DOD and DHS to delegate USDA's authority to them to place priorities on items under USDA's jurisdiction. USDA officials believe this will eliminate the additional step of the requesting agency having to go to USDA for approval during an emergency. Additionally, USDA is establishing an interagency working group to create an implementation plan for the USDA should the need arise to utilize its APAS authorities.
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| Department of Transportation | To ensure that the full range of Defense Production Act authorities can be used in an effective and timely manner, the Secretaries of Agriculture, Health and Human Services, and Transportation, in consultation with the Department of Commerce, should develop and implement a system for using the priorities and allocations authority for food and agriculture resources, health resources, and civil transportation respectively. |
On February 15, 2011, DOT issued a Notice of Proposed Rulemaking as part of the Federal Register which set forth DOT's proposed regulatory system for exercising DOT's DPA Title I authority. This system will be known as the Transportation Priorities and Allocations System (TPAS). In June 2012, DOT officials informed GAO that the draft rule is with OMB for interagency clearance. Once the final rule is cleared by OMB, DOT can publish it and begin working on establishing approved programs.
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| Department of Energy | To maximize effective use of the priorities and allocations authority, the Secretaries of Agriculture, Energy, Health and Human Services, Homeland Security, and Transportation should consider, in advance of an emergency, approving programs and placing priority ratings on contracts for items that are likely to be needed in an emergency. |
As part of the June 9, 2011 edition of the Federal Register, DOE implemented a rule which establishes standards and procedures by which the DOE may require that certain contracts or orders that promote the national defense be given priority over other contracts or orders. GAO recognizes that DOE has implemented this rule and considers the recommendation closed.
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| Department of Homeland Security | To maximize effective use of the priorities and allocations authority, the Secretaries of Agriculture, Energy, Health and Human Services, Homeland Security, and Transportation should consider, in advance of an emergency, approving programs and placing priority ratings on contracts for items that are likely to be needed in an emergency. | In a June 23, 2009 memo to GAO, the Department of Homeland Security (DHS) noted that since the GAO's report was issued, the Federal Emergency Management Agency (FEMA) produced the guidance on implementing the Defense Priorities and Allocation System (DPAS). Specifically, in December 2008, FEMA Directive "Defense Priorities and Allocations System" (FD 211-1) established policy and assigned responsibilities for use of the DPAS in support of FEMA's program. FEMA also published a manual, "Defense Priorities and Allocations Systems", that prescribes procedures to be followed by all FEMA personnel with responsibilities involving use of priority ratings under the DPAS in support of FEMA and...
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| Department of Health and Human Services | To maximize effective use of the priorities and allocations authority, the Secretaries of Agriculture, Energy, Health and Human Services, Homeland Security, and Transportation should consider, in advance of an emergency, approving programs and placing priority ratings on contracts for items that are likely to be needed in an emergency. | In July 2012, HHS informed GAO that the Office of the Assistant Secretary for Preparedness and Response (ASPR) continues to review its requirements for supplies and services that may be suitable for rating. Once all departments have final regulations in place, it will be the practice for each agency to support one another through Interagency Agreements or Memorandums of Understanding when an emergency or crisis occurs. Additionally, as required under the amended DPA, the first annual Defense Production Act Committee Report to Congress was released in August 2011. The Report provides an overview of how the priorities and allocation authority is currently being used by federal departments....
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| Department of Health and Human Services | To ensure that the full range of Defense Production Act authorities can be used in an effective and timely manner, the Secretaries of Agriculture, Health and Human Services, and Transportation, in consultation with the Department of Commerce, should develop and implement a system for using the priorities and allocations authority for food and agriculture resources, health resources, and civil transportation respectively. | In July 2011, HHS informed GAO that their Office of Assistant Secretary for Preparedness and Response drafted the Health Resources Priorities & Allocations System, which implements its delegated Defense Production Act authorities. They stated this System is based on the common rule that an interagency working group drafted. Currently, HHS is reviewing that System prior to submission to OMB. In July 2012, HHS informed GAO that they have continued to review and refine the System to ensure consistency as other federal departments have developed regulations outlining their systems. In addition, the proposed Health Resources Priorities & Allocations System rule was revised to include...
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