By Dan Kelly, Zack Hadzismajlovic and Ethan Brown

Law360 (April 17, 2020, 5:43 PM EDT) --

Dan Kelly

Zack Hadzismajlovic

Ethan Brown

Through its website, the Federal Emergency Management Agency[1] is encouraging the private sector to step up and support the agency in its response to COVID-19 in a variety of ways. In pertinent part, the website solicits donations of medical supplies and equipment, refers businesses with nonmedical goods or services that can help the response to the U.S. Department of Homeland Security Procurement Action Response team, and provides guidance to hospitals and health care providers in need of medical supplies.

The centerpiece of the "How To Help" web page is its open solicitation[2] of COVID-19 personal protective equipment and medical supplies. Released "under unusual and compelling urgency," the solicitation contemplates making single or multiple awards for commercial supplies required by medical professionals responding to the COVID-19 pandemic, such as protective masks, gloves, gowns/coveralls and face guards. Many of these items were been deemed commercial items by the Defense Contract Management Agency Commercial Item Group in a March 27 commercial item determination.

To facilitate the expedient procurement of crucial PPE and medical supplies, and in response to numerous offeror requests to do so, FEMA amended the original solicitation to remove all requirements related to Part 15 of the Federal Acquisition Regulation, negotiated procurements, including lowest-priced, technically acceptable evaluation requirements.

In place of such requirements, the streamlined procedures adopted the use of federal supply schedules in FAR Part 8 and/or simplifed acquisition procedures in FAR Part 13, for proposals under $13 million, and of streamlined commercial item acquisition in FAR Part 8 and/or Far Part 12.6 for proposals in excess of $13 million.

As an additional boon for offerors, FEMA also waived application of the Buy American Act (but not the Trade Agreement Act) to the acquisition. However, in regard to the TAA, the U.S. General Services Administration, in an April 3 class determination and findings, has temporarily waived the TAA requirements for purchases off the federal supply schedule for many — if not all — of the same supplies being solicited by FEMA.

Contractors should note that, as with all government contracting efforts, risk accompanies these new opportunities if they are not properly seized:

• Contractors must determine, to the extent possible, that the supplies or services they offer fall squarely within any temporary commercial item determination issued in response to the COVID-19 pandemic or the "commercial item" definition in FAR 2.101;

• Suppliers must ensure that their offer accurately captures pricing and quantities on hand; and

• Suppliers must ensure that their offer conforms to delivery requirements proposed by the government.

FEMA has already reported issues with some commercial offerors responding to its COVID-19 solicitation and then walking back on the number of supplies on hand they had proposed during contract negotiations. This is a dangerous practice that can be avoided with proper planning. With the threat of COVID-19 already disrupting daily life, a termination for default of this sort is a preventable risk that would only make a collectively bad situation unnecessarily worse.

FEMA Bans Export of PPE, Provides Exemption

On April 10, FEMA published a temporary final rule,[3] intended "to prevent domestic brokers, distributors, and other intermediaries from diverting such [resources] overseas."  Effective from April 7 through Aug. 10, pursuant to the Defense Production Act, the rule prohibits the export of five enumerated types of PPE from the U.S. without explicit approval by FEMA:

• N95 filtering facepiece respirators, including disposable half-facepiece nonpowered air-purifying particulate respirators;

• Other filtering facepiece respirators (including those designated as N99, N100, R95, R99, R100, P95, P99 or P100), including single-use, disposable half-mask respiratory protective devices that cover the user's nose and mouth, and offer protection at an N95 filtration efficiency level;
  

• Elastomeric, air-purifying respirators and appropriate particulate filters/cartridges;
  

• PPE surgical masks; and

• PPE gloves or surgical gloves, including those defined at Title 21 of the Code of Federal Regulations, Sections 880.6250 (exam gloves) and 878.4460 (surgical gloves).

Under the rule, before an export of any of the above articles may occur, U.S. Customs and Border Protection will detain the shipment temporarily, during which time FEMA will determine whether to return for domestic use, issue a rated order for, or allow the export of part or all of the shipment under Section 101(a) of the Defense Production Act.[4]

According to the Rule, FEMA will issue a determination "within a reasonable time of being notified of an intended shipment."[5] Although FEMA has stated it will review and make determinations quickly, no time frames have been issued for the decision-making process.

The Exemption

The rule carves out a limited exemption that permits manufacturers with "continuous export agreements with customers in other countries since at least January 1," to allow export of covered materials made by or on behalf of U.S. manufacturers "so long as at least 80% of such manufacturer's domestic production of such covered materials, on a per item basis, was distributed in the United States in the preceding 12 months."

The rule leaves open the ability to add exemptions as may be merited. Entities impacted by the rule should immediately review, assess and marshal any compelling reasons in favor of continuing exports and should seek appropriate relief.

Enforcement

In order to enforce the export prohibition, the rule authorizes FEMA to conduct investigations, request exporters' information or testimony, inspect records or premises, and, if needed, seek emergency injunctive relief to impose compliance. Willful violations of the DPA are criminal in all cases and can result in a fine of $10,000 or imprisonment for up to one year, and anyone who fraudulently or knowingly exports articles contrary to law or regulation, or facilitates such a transaction, may face up to 10 years' imprisonment pursuant to Title 18, Section 554 of the U.S. Code.

Enforcement of this effort will fall upon CBP, the only agency with access to real time export and import information. In 2014 the U.S. Census Bureau migrated the automated export system into the automated commercial environment, providing CBP's national targeting center with full visibility into export shipment data.

Specifically, a shipment-specific internal transaction number, or ITN, must be provided to CBP at the port of export. Exporters must cite the ITN on the first page of the bill of lading, air waybill and/or other commercial loading documents. On April 9, CBP issued a memorandum[6] providing guidance for the enforcement of the rule.

Here are the main takeaways:

The enforcement focus will be on commercial quantities — shipments valued at $2500 or containing more than 10,000 unites of gloves, masks or other protected commodities.

The following exports are excluded:

• Exports to Canada or Mexico,
• Exports to U.S. government military bases, agencies and other entities,
• Exports by U.S. charities,
• Exports by so-designated critical infrastructure industries for the protection of their workers,
• Exports below the commercial quantity level,
• In-transit shipments, and
• Exports by the 3M Company.

Export shipments not meeting the exclusions will be subject to document review and physical examination to determine if they fall within the prescribed commodities whose export is prohibited by the rule.

Don't Neglect State Orders

In addition to the FEMA rule, manufacturers, distributors, brokers or exporters of PPE should not neglect obligations under their respective state laws, some of which have issued executive orders[7] commandeering PPE. The application of these laws varies widely and will require impacted entities to examine the implications of federal and state laws to their present conditions and situations — a highly fact-intensive examination.

Summary

FEMA and the GSA have taken unprecedented steps to provide vehicles for fast-track procurement of PPE and medical supplies to fight the COVID-19 pandemic, including waiving domestic preference rules embodied in the Buy American Act and Trade Agreements Act. At the same time, FEMA and CBP have moved to shut down exports of such supplies outside the U.S., with limited exceptions. Suppliers and distributors should be mindful of these new opportunities and ensure than any planned exports comply with the newly imposed restrictions.

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Dan Kelly is a partner at McCarter & English LLP.

Zack Hadzismajlovic is a partner at the firm and heads the global trade, CFIUS and export controls practice.

Ethan Brown is an associate at the firm.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm, its clients or Portfolio Media Inc., or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.

[1] FEMA website: https://www.fema.gov/coronavirus/how-to-help

[2] https://beta.sam.gov/opp/430d3d2f82e24f508061e93caab06d41/view

[3] https://s3.amazonaws.com/public-inspection.federalregister.gov/2020-07659.pdf

[4] 50 U.S.C. § 4511(a)

[5] See new 44 CFR § 328.102(b).

[6] https://aaei.org/wp-content/uploads/2020/04/CBP-Updated_Memorandum_Regarding_Export_PPE_040920201.pd_.pdf

[7] https://nj.gov/infobank/eo/056murphy/pdf/EO-113.pdf

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