Written by: Gene Hansen, Senior Manager
March 27, 2020
President Trump’s recent executive order engaging the Defense Production Act (DPA) to redirect US manufacturing capability to support health and medical services will cause companies that have never done business with the federal government to start doing so. Among the implementing regulations of the DPA is Health and Human Services, 45 C.F.R. 101, which establishes a prioritization system that requires certain contracts or orders be given priority over other contracts and orders.
The Health Resources Priorities and Allocation System (HRPAS) is invoked by the DPA and priorities are authorized by the Health and Human Services Secretary. Similar to the Defense Priorities and Allocations System (DPAS), which DoD contractors are familiar with, the HRPAS requires that Health and Human Services orders include the appropriate rating and special language, the order is timely accepted or rejected, delivery dates are specified, and any modifications are timely accepted or rejected. Ratings and special language must be communicated into manufacturing planning and on to subcontractors. Like DPAS, imposition of a HRPAS rating on a subcontractor is conditioned, in part, on an existing regulatory threshold – see 45 C.F.R. 101.37(f) which relies on the applicable Simplified Acquisition Threshold and that threshold has increased pursuant to FAR 2.101 for acquisitions in support of the President’s emergency determination.
Managing supply chains with HRPAS or DPAS rated orders requires that systems and processes exist to flow ratings and special language down from a contract or order, through sales orders or projects and onto purchase orders and subcontracts. While many ERP and supply chain management systems contain “flow-down” functionality, they often are not retrieving a rating or clause from a contract; instead they are passing standard text onto orders. This is insufficient as it doesn’t provide the language from the contract through to purchase order. For HRPAS, this special language is codified at 45 C.F.R 101.32(d) or 101.37(d)(ii) when combining rated and unrated orders. It is very important that contractors close the loop from contract through purchase order to ensure timely delivery during national emergency and compliance with applicable requirements which we should all expect will be evaluated in a post award audit or review.
Managing manufacturing with HRPAS or DPAS rated orders requires that systems and processes exist to flow ratings and special language into the manufacturing planning process to ensure that rated orders are prioritized and prioritized correctly. For manufacturing operations running master production scheduling or manufacturing resource planning, either a manual override or an “expedite” function must be established to place rated orders ahead of lower rated or unrated orders.
Combining rated and unrated orders; handling manufacturing or supply chain quality or delivery issues; rejecting orders; managing orders under certain dollar thresholds; and other specific facets of HRPAS or DPAS are specified within the regulations.
Existing and new government contractors faced with supporting DPA should proactively engage knowledgeable support to ensure their processes and systems comply with federal regulations and to rapidly prepare to support the federal government in combating COVID-19.
Capital Edge Consulting is a professional services company comprised of adept problem solvers who deliver tangible results to address today’s most complex U.S. government contracting challenges. Capital Edge helps clients address the challenging regulatory, contractual and compliance requirements of U.S. federal contracts and we have experience working with a wide variety of industries that provide goods or services to the federal government.
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