Takeaways

As of the completion of this advisory, four states have issued orders that require the general public to stay at home and non-essential businesses to close their doors.
The Department of Homeland Security has identified 16 critical infrastructure sectors that state and local governments should allow to remain operative.
The Defense Production Act authorizes Executive branch agencies to demand that companies—even those that have never performed a government contract—fulfill orders for goods and services.

Yesterday, the Department of Homeland Security (DHS) released guidance to state and local governments to assist their determination of what businesses should remain operative during the COVID-19 pandemic. The guidance identifies 16 critical infrastructure sectors “and the essential workers needed to maintain the services and functions Americans depend on daily and that need to be able to operate resiliently during the COVID-19 pandemic response.” The critical infrastructure sectors include the defense industrial base, water, energy, financial, nuclear and critical manufacturing industries.

California, New York, Pennsylvania and Illinois have issued “shelter in place” directives over the past 36 hours. The California “Stay-at-Home” order, for example, mandates that California residents must remain in their domiciles unless they are needed to maintain continuity of one of the 16 critical sectors.

This morning, President Trump confirmed that he already has acted upon his Executive power, under the Defense Production Act (DPA), to order the production of goods such as medical supplies. We advised readers about the DPA in a recent client alert, which notes that any business may be required to accept federal government orders deemed essential for our national defense and security.

Businesses desirous of remaining open notwithstanding the shelter in place directives may seek confirmation from their governor’s office that they fall within one of the 16 critical infrastructure sectors. As businesses advocate for such a determination, we recommend that they also consider the import of the DPA. Businesses that currently perform rated orders likely fall within the defense industrial base sector exempted from closure. But even if your business does not have a rated order—or has never performed a government contract—we recommend that you carefully consider whether the Trump administration might call upon you under the DPA to furnish goods needed to keep public order. We envision that manufacturers of, for example, sanitation, janitorial, commercial plumbing, clothing and bed/mattress products could persuasively argue that they need to stay open and be ready for such a call. The DPA regulations take precedence over state and local orders. See, e.g., 15 C.F.R. § 700.13(c) (providing list of scenarios for optional rejection of DPA orders, including where “acceptance of a rated order or performance against a rated order would violate any other regulation, official action, or order of the [delegating agency].”).

Pillsbury’s Government Contracts team will continue to analyze these issues and keep you informed. Please stay safe and let us know if we can help.

Pillsbury’s experienced crisis management professionals are closely monitoring the global threat of COVID-19, drawing on the firm's capabilities in supply chain management, insurance law, cybersecurity, employment law, corporate law and other areas to provide critical guidance to clients in an urgent and quickly evolving situation. For more thought leadership on this rapidly developing topic, please visit our COVID-19 resources page.

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