[Federal Register Volume 76, Number 97 (Thursday, May 19, 2011)]
[Proposed Rules]
[Pages 29084-29106]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2011-12153]



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Vol. 76

Thursday,

No. 97

May 19, 2011

Part III





Department of Agriculture





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Farm Service Agency



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7 CFR Part 789



Agriculture Priorities and Allocations System; Proposed Rule

  Federal Register / Vol. 76 , No. 97 / Thursday, May 19, 2011 / 
Proposed Rules  

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DEPARTMENT OF AGRICULTURE

Farm Service Agency

7 CFR Part 789

RIN 0560-AH68


Agriculture Priorities and Allocations System

AGENCY: Farm Service Agency, USDA.

ACTION: Proposed rule.

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SUMMARY: The Farm Service Agency (FSA) is establishing the regulation 
for the Agriculture Priorities and Allocations System (APAS). Food is a 
critical commodity essential to the national defense (including civil 
emergency preparedness and response). To avoid civilian hardship during 
national defense emergencies it may be necessary to regulate the 
production, processing, storage, and wholesale distribution of food. 
Through the APAS rule, the U.S. Department of Agriculture (USDA) will 
respond to requests to place priority ratings on contracts, or orders 
of agriculture commodities up through the wholesale levels for 
agriculture production and equipment, allocate resources, and handle 
food claims as specified in the Defense Production Act (DPA) of 1950, 
as amended, if the necessity arises. FSA needs to implement this rule 
to direct the agriculture commodities and resources to areas of 
hardship or potential hardship due to national emergencies. For 
example, APAS is designed to use the DPA authority to help ensure that 
food is available when and where it is needed most, such as after a 
hurricane or earthquake. In most cases, there is likely to be no 
economic impact in filling priority orders because it would generally 
just be changing the timing in which orders are completed.

DATES: We will consider comments that we receive by July 18, 2011.

ADDRESSES: We invite you to submit comments on this proposed rule and 
the information collection. In your comment, include the Regulation 
Identifier Number (RIN) and volume, date, and page number of this issue 
of the Federal Register. You may submit comments by any of the 
following methods:
     Federal eRulemaking Portal: Go to http://www.regulations.gov. Follow the online instructions for submitting 
comments.
     Mail: USDA FSA, 1400 Independence Ave., SW., Mail Stop 
0543, Washington, DC 20250-0543.
     Hand Delivery or Courier: Deliver comments to the above 
address.
    Comments may be inspected at the mail address listed above between 
8 a.m. and 4:30 p.m., Monday through Friday, except holidays. A copy of 
this proposed rule is available through the FSA home page at http://www.fsa.usda.gov/.

FOR FURTHER INFORMATION CONTACT: Josh Bornstein, telephone (202) 690-
4770. Persons with disabilities who require alternative means for 
communication (Braille, large print, audiotape, etc.) should contact 
the USDA Target Center at (202) 720-2600 (voice and TDD).

SUPPLEMENTARY INFORMATION:

Executive Summary

    APAS is a USDA program that supports not only national defense 
needs (such as for combat rations), but also emergency preparedness 
initiatives by addressing essential civilian needs (food and food 
resources) through the placing of priorities on contracts for items and 
services or allocate resources, as necessary. Although a specific 
disaster designation is not required, the ability to prioritize or 
allocate items or services can be triggered by a determination by the 
President or designated entities that this action is necessary and 
essential to promote national defense including the imminent need for 
emergency preparedness. Under DPA (50 U.S.C. App. 2061 to 2170, 2171, 
and 2172), the term ``national defense'' includes emergency 
preparedness, response, and critical infrastructure and key resources 
protection. Authority for priorities and allocations of contracts is 
specified in DPA and further defined in Executive Order 12919, 
``National Defense Industrial Resources Preparedness,'' dated June 3, 
1994.

History of DPA

    DPA was enacted into law as a means to combat military and civilian 
hardships as a result of the Korean War and other Cold War events. 
Until recently, only the Department of Commerce (DOC) implemented 
regulations to use the authority under DPA. The Department of Defense 
and DOC have used DPA authority to timely procure military and 
construction items. Items not under Department of Defense and DOC 
jurisdiction were procured using DPA priority ratings only after 
entering into a memorandum of understanding (MOU) with the Department 
that had jurisdiction over those items. For example, USDA has had MOUs 
with DOC for items under USDA jurisdiction; as a result, enabling DOC 
to establish priority ratings for food and food resources. Recent 
events such as acts of terrorism, hurricane disasters, and severe 
floods and droughts have increased the need for DPA priority ratings, 
requiring USDA to implement the APAS regulations to relieve DOC from 
the implementation responsibility for food and food resources and to 
directly assist other Departments in achieving national defense 
including emergency preparedness initiatives.

Jurisdiction

    Title I of DPA and Executive Order 12919 authorize jurisdictional 
areas for each Department that is involved in national defense 
including emergency preparedness. USDA has jurisdiction for items that 
fall under the categories of:
    (1) Food;
    (2) Food resource facilities; and
    (3) Distribution of farm equipment and commercial fertilizer.
    USDA cannot use its DPA authority for items or services not in its 
jurisdiction. Those persons \1\ in need of items or services that do 
not fall under the jurisdiction of USDA will request priorities or 
allocations assistance from the applicable Department. USDA will direct 
the requesters to the appropriate Department if the request comes into 
USDA.
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    \1\ The word ``person'' as used in this rule refers to the 
requester of the priority rating. A person is an individual, 
corporation, partnership, association, or any other organized group 
of persons, or legal successor or representative thereof, or any 
State or local government or agency thereof, or any Federal agency.
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APAS Process

    If a Federal, State, or local government agency or private industry 
has placed, or wishes to place, a contract for items or services that 
are necessary or appropriate for the promotion of national defense, the 
agencies or private industry can request authorization from USDA to 
place a priority rating on the contract for the items or services. This 
process will allow the contractor (department or person requesting the 
priority rating) with the means to meet the requirements of maintaining 
or restoring national defense operations. To request priority 
authorization, the contractor must submit form AD-2102 (Request for 
Special Priorities Assistance) and include a written justification for 
the need to use APAS to establish the priority rating. USDA would only 
use APAS when the items or services required cannot be obtained in a 
timely manner through normal market channels.

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Priorities

    In the priorities component of APAS, certain contracts between the 
government and private parties, or contracts between private parties, 
would be given priority over other contracts to ensure timely delivery 
of items or services needed to support the national defense. Contracts 
for these items may already be in place, but may need to be amended 
(quantity and delivery dates), or new contracts may be required for 
immediate action as a means to support national defense requirements. 
Through APAS, USDA will work with the contracted vendor \2\ to 
establish the new required priority.
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    \2\ The word ``vendor'' as used in this rule refers to the 
vendor, manufacturer, or supplier of the items or services. The 
person requesting an APAS priority rating has or will place a 
contract with the vendor for which the priority rating is requested.
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Allocations

    The second part of APAS is the allocations component. Allocation 
authority will only be used when there is an insufficient supply of an 
item or service to satisfy national defense supply requirements through 
the use of priorities authority or when the use of the priorities 
authority would cause a severe and prolonged disruption in the retail 
market place. Allocation orders would be distributed equitably among 
the suppliers of the resource(s) being allocated and would not require 
any person to relinquish a disproportionate share of the civilian 
market. Under no circumstances would allocations be used to ration 
materials or services at the retail level. No department of the Federal 
government has used its allocation authority in more than 50 years.

APAS Programs Approved for Use by USDA

    USDA has three approved programs for priorities and allocations 
support under section 202(c) of Executive Order 12919. Items or 
services that USDA may establish a priority rating for must fall under 
either of the following programs:
    (1) Food and food resources (civilian): Programs involving food and 
food resources processing and storage in support of emergency 
preparedness activities conducted pursuant to Title VI of the Robert T. 
Stafford Disaster Relief and Emergency Assistance Act (Stafford Act, 42 
U.S.C. 5195-5197h).
    (2) Agriculture and food critical infrastructure protection and 
restoration (civilian): Programs to protect or restore the agriculture 
and food system from terrorist attacks, major disasters, and other 
emergencies.
    (3) Military food rations: Programs to provide the Department of 
Defense with food resources for combat rations.
    For all other requests for items under USDA's jurisdiction that are 
not covered by these three programs, USDA will request concurrence from 
the Secretary of Homeland Security before placing a priority rating on 
the items.

Acceptance and Rejection of a Rated Order

    A contract on which a priority rating has been placed is called a 
``rated order.'' Rated orders require a supplier to fill the order 
before all other unrated orders. DPA provides liability protection to 
suppliers if they breach other unrated contracts in order to fill rated 
orders.
    A vendor must accept a rated order and follow provisions contained 
in the priority rated contract if the vendor normally supplies the 
materials or services covered by the order. A vendor must not 
discriminate against rated orders in any manner such as charging higher 
prices or by imposing different terms and conditions than for 
comparable unrated orders. A person who was in receipt of a rated order 
and did not comply with the provisions of the contract is subject to 
penalties and fines.
    If a vendor is unable to accept the rated order, they must 
immediately notify USDA and the requester (if a USDA agency is not the 
requester). A vendor must not accept a rated order for delivery on a 
specific date if they are unable to fill it by that date or if they are 
unable to fill it because they are in receipt of other rated orders. 
However, the vendor still must offer to accept the order on the 
earliest delivery date otherwise possible.

Appeals

    Appeal rights are available to vendors seeking an adjustment to or 
exception from a rated order due to exceptional hardships or if such 
vendor believes that the order is contrary to the intent of DPA or 
other applicable statutes.

Responsibilities

    APAS responsibilities have been delegated to FSA from the Secretary 
of Agriculture (the Secretary). The Emergency Preparedness Division 
(EPD) implements APAS for FSA. FSA's Deputy Administrator for 
Management is responsible for the initial determination of placing a 
priority rating on a contract. The FSA Administrator is responsible for 
resolving conflicts and hearing appeals on requests for an adjustment 
or exception.

Scope

    APAS covers only those Government and public agencies that have 
national defense, or emergency preparedness, response, and recovery 
responsibilities. This environment strictly limits the participants 
eligible to request assistance through APAS. Also, the vendors that 
supply agriculture related items (food, food resources) and in the 
quantity that is expected to be requested is inherently limited in 
scope. Only a select few are able to produce or deliver the large 
quantities of items that will require priority rating requests through 
APAS. For example, for preparations in advance of Hurricane Ike hitting 
the Texas Coast in 2008, one Federal agency considered requesting 1 
million meals-ready-to-eat. In this example, it is clear that there 
would be limited companies that would be able to quickly supply 1 
million meals-ready-to-eat. This is a representative example of the 
type of needs for which a priority rating would be requested through 
APAS. As a result, this program has a very limited customer base of 
large manufacturers and suppliers as well as those Government and 
public agencies (for example, the Red Cross), having national defense, 
or emergency preparedness, response, and recovery responsibilities.
    Government organizations will request priority ratings through APAS 
to ensure that they are able to obtain critical resources during or in 
anticipation of an emergency to lessen the effects of the hazard on 
civilian populations.
    As an example of how DOC has needed to use DPAS, during the 
aftermath of Hurricane Katrina, after the request was endorsed by the 
Federal Emergency Management Agency (FEMA), DOC authorized a railroad 
to place a priority rated order with Company X for equipment to repair 
the damages to the railroad system supporting commodity movements in 
and around the New Orleans area. This rated order allowed the vendor 
responsible for repairing the railroad infrastructure around the New 
Orleans area to complete repairs in the fastest time possible. This 
allowed the response organizations to quickly receive items in bulk 
quantities needed to support the mass care and housing of those 
displaced by the hurricane and its aftermath. When the railroad placed 
the rated order for equipment, Company X was required to fill the 
railroad's order first, before any other orders, unless Company X had a 
legal basis for rejecting the rated order. In addition, all customers 
currently under contract

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obligations from Company X would not have breach-of-contract cause of 
action against Company X if their orders could not be filled by the 
original agreed-to time due to unplanned delays due to filling the 
rated order.

DPA Priorities and Allocations Authority

    Section 101 of the DPA of 1950 (50 U.S.C. App. 2071) establishes 
the broad authority for the President to require the acceptance and 
priority performance of contracts or orders (other than contracts of 
employment) to promote the national defense over performance of any 
other contracts or orders, and to allocate materials, services, and 
facilities as deemed necessary or appropriate to promote the national 
defense. This is commonly referred to as ``priorities and allocations'' 
authority. Through Executive Order 12919 the President delegated the 
DPA section 101 priorities and allocations authority to the following 
agency heads:
     The Secretary of Agriculture with respect to food 
resources, food resource facilities, and the domestic distribution of 
farm equipment and commercial fertilizer.
     The Secretary of Energy with respect to all forms of 
energy.
     The Secretary of Health and Human Services with respect to 
health resources.
     The Secretary of Transportation with respect to all forms 
of civil transportation.
     The Secretary of Defense with respect to water resources.
     The Secretary of Commerce for all other materials, 
services, and facilities, including construction materials.
    Since the initial enactment, Congress has continued to reauthorize 
DPA. Most recently, on September 30, 2009, Congress enacted the Defense 
Production Act Reauthorization (DPAR) of 2009 (Pub. L. 111-67). A 
significant difference in this reauthorization was the requirement for 
Departments other than DOC to initiate rulemaking to implement their 
responsibilities under DPA. Specifically, section 101(d) of DPA (50 
U.S.C. App. 2071(d)), as added by DPAR, directs the head of each 
Federal agency to issue final rules that establish standards and 
procedures to use the authority of section 101 to promote the national 
defense under both emergency and nonemergency conditions and, as 
appropriate and to the extent necessary, consult with the heads of 
other Federal agencies to develop a consistent and unified Federal 
Priorities and Allocations System (FPAS).
    FEMA in the Department of Homeland Security (DHS) is responsible 
for coordinating priorities and allocations rulemaking efforts among 
the six Federal agencies that have been delegated DPA section 101 
authority (referred to as ``resource agencies'') to ensure consistency 
and uniformity of rule language and provisions across resource agency 
jurisdictions. Each of the six resource agencies is either revising 
existing priorities and allocations regulations to meet this statutory 
requirement or is in the process of developing and publishing its 
initial regulation. Together, the priorities and allocations system 
regulations of each resource agency will constitute FPAS.
    USDA is working with FEMA and the other Departments to have common 
rules for the implementation of APAS and the other Departments' 
regulations; that common rule language is the basis for this rule. DOC 
published proposed revisions to the DPAS regulations on June 7, 2010 
(75 FR 32122-32140); Energy published the proposed rule for EPAS on 
July 16, 2010 (75 FR 41405-41421); and Transportation published the 
proposed rule for TPAS on February 15, 2011 (76 FR 8675-8699).
    Within USDA, authority to administer APAS has been delegated to the 
FSA Administrator. FSA will manage APAS for all USDA.
    This rule establishes APAS, one-part of the FPAS, to implement 
USDA's administration of its delegated authority under DPA section 101 
and other related statutes such as the priorities provisions of the 
Military Selective Service Act \3\ (50 U.S.C. App. 468) (see Executive 
Order 12742, ``National Security Industrial Responsiveness,'' dated 
Jan. 8, 1991). As explained in further detail below, APAS is consistent 
with the existing Defense Priorities and Allocations System (DPAS) (15 
CFR part 700) implemented by DOC to provide continuity with long-
established priorities system procedures and to make use of a proven 
foundation for a consistent and unified FPAS.\4\
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    \3\ References to the Military Selective Service Act apply to 
those required deliveries to the Government exclusively for the use 
of the armed forces or for the use of the Atomic Energy Commission.
    \4\ DPAS regulations provided the starting point for development 
of the common rule language discussed above.
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    In other words, the APAS regulations are intended to be consistent 
with the DOC regulations through which DPAS has operated for 
approximately 25 years. The only intended differences are those that 
are unique to USDA's requirements. Specific changes were made as needed 
due to the focus on food and food resources versus construction 
materials and other related items or services and to specifically 
include emergency preparedness. For both of those, one specific change 
is in the timing allowed to accept or reject priority orders; a shorter 
time frame is required when dealing with food and food resources for 
civilian hardships due to emergencies. Therefore, instead of having 15 
days, the APAS regulation allows for 6 to 12 hours.

APAS Description

    APAS provides guidance and procedures for use of DPA priorities and 
allocations authority with respect to the resource areas delegated by 
the President to USDA as specified in Executive Order 12919: Food 
resources, food resource facilities, and the domestic distribution of 
farm equipment and commercial fertilizer. As specified in Executive 
Order 12919, section 202, priorities and allocations may be used only 
to support programs that have been determined in writing ``as necessary 
or appropriate to promote the national defense'' by:
    (a) The Secretary of Defense with respect to military production 
and construction, military assistance to foreign nations, stockpiling, 
outer space, and directly related activities;
    (b) The Secretary of Energy with respect to energy production and 
construction, distribution and use, and directly related activities; or
    (c) The Secretary of Homeland Security, with respect to essential 
civilian needs supporting national defense, including civil defense and 
continuity of government and directly related activities.
    Under DPA, the term ``national defense'' specifically includes 
emergency preparedness activities conducted pursuant to Title VI of the 
Stafford Act.\5\ The Stafford Act, in section 602(b) of Title VI, also 
cross-references DPA by stating that ``[t]he terms `national defense' 
and `defense,' as used in [DPA], include emergency preparedness 
activities conducted pursuant to this title.'' (See 42 U.S.C. 
5195a(b).) Emergency preparedness activities include a broad range of 
measures to be taken in preparation for, during, and in response to 
natural

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disasters or accidental or man-caused events (that is, hazards).\6\ For 
APAS, emergency preparedness is expected to be used most for:
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    \5\ The term ``national defense'' is defined in section 702(14) 
of DPA as ``programs for military and energy production or 
construction, military or critical infrastructure assistance to any 
foreign nation, homeland security, stockpiling, space, and any 
directly related activity. Such term includes emergency preparedness 
activities conducted pursuant to title VI of the [Stafford Act] and 
critical infrastructure protection and restoration.'' See 50 U.S.C. 
App. 2152(14).
    \6\ The term ``emergency preparedness'' is defined in section 
602(a) of the Stafford Act as ``all those activities and measures 
designed or undertaken to prepare for or minimize the effects of a 
hazard upon the civilian population, to deal with the immediate 
emergency conditions which would be created by the hazard, and to 
effectuate emergency repairs to, or the emergency restoration of, 
vital utilities and facilities destroyed or damaged by the hazard.'' 
(See 42 U.S.C. 5195a(a).) Section 602(a) also provides a non-
exhaustive list of specific measures that constitute emergency 
preparedness.
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    (1) Preparedness, including actions taken before an event occurs to 
lessen the severity of hardships to civilians,
    (2) Response, including actions taken immediately after the event 
happens, but before any recovery actions are taken, to relieve the 
effects on civilians; and
    (3) Recovery, including actions taken to restore critical 
infrastructure and key resources as close as can be to normal 
operations to approve priority ratings in cases of imminent hazard; 
response includes both the anticipation of the event and the immediate 
response to it.
    USDA expects the requests for priority ratings will predominately 
be from Federal government agencies, and the few State and local 
governments with a responsibility in emergency preparedness. When the 
request is from a private entity, it is expected to be for the purpose 
of fulfilling a government contract.
    As mentioned above, according to Executive Order 12919 the 
priorities and allocations authority of DPA may only be used by the 
Secretary of Agriculture to support programs that have been determined 
in writing as necessary or appropriate to promote the national defense. 
Therefore, to be ready to use the priorities and allocations authority 
for food and food resources, USDA has already coordinated with the 
Secretary of Homeland Security and the Secretary of Defense to approve 
programs that will cover everything for which we expect to need to 
provide priorities and allocations in the near future.
    USDA has two programs that have been approved by the Secretary of 
Homeland Security for priorities and allocations support pursuant to 
section 202(c) of Executive Order 12919:
    (1) Food and food resources (civilian): Programs involving food and 
food resources processing and storage in support of emergency 
preparedness activities conducted pursuant to Title VI of the Stafford 
Act. Such programs involve activities and measures designed or 
undertaken to prepare for or minimize the effects of a hazard upon the 
civilian population, to deal with the immediate emergency conditions 
that would be created by the hazard, and to make emergency repairs to, 
or the emergency restoration of, vital utilities and food resource 
facilities destroyed or damaged by the hazard.
    (2) Agricultural and food critical infrastructure protection and 
restoration: Programs to protect or restore the agriculture and food 
system from terrorist attacks, major disasters, and other emergencies. 
In Homeland Security Presidential Directive HSPD-9, ``Defense of United 
States Agriculture and Food, ``dated January 30, 2004, such programs 
involve activities and measures to:
     Identify and prioritize critical infrastructure and key 
resources in the agriculture and food system for establishing 
protection requirements;
     Develop awareness and early warning capabilities to 
recognize threats;
     Mitigate vulnerabilities at critical production and 
processing nodes;
     Enhance screening procedures for domestic and imported 
products; and
     Enhance response and recovery procedures.
    These programs support the national defense by providing for 
essential civilian needs to ensure a viable food and agriculture sector 
during an emergency preparedness event or a military conflict. Both 
programs involve emergency preparedness activities and the maintenance 
and restoration of the critical infrastructure and key resources.
    USDA has one program, Food Resources (combat rations), that has 
been approved by the Secretary of Defense for priorities and 
allocations support under section 202(a) of Executive Order 12919. As 
mentioned above, prior to implementation of DPAR, USDA delegated 
implementation authority of the agricultural portion of DPA to DOC. DOC 
in turn delegated authority to the Department of Defense to administer 
a ``priorities'' program for combat rations to meet troop requirements. 
The combat rations program was established by an agreement between DOC 
and USDA, dated January 28, 1991, and approved by FEMA on February 1, 
1991. USDA's current intention is to continue the policy established 
under DOC granting authority to the Department of Defense to administer 
the combat rations program.
    The approved programs are listed in Schedule I of the APAS 
regulation (see Schedule I for a complete list of approved programs).
    Before USDA can exercise its priorities or allocations authority 
for any requirements not covered under the approved programs, as 
specified in section 202 of Executive Order 12919, the Secretaries of 
Defense, Energy, or Homeland Security, as appropriate, would have to 
concur, in writing, with USDA that use of priorities or allocations 
authority by USDA would be necessary or appropriate to promote the 
national defense.
    Commodities covered under the APAS regulation include those items 
required for production of agriculture commodities (including 
fertilizer, agriculture seed and livestock feed), raw and processed 
agriculture products for wholesale distribution, and agriculture 
production equipment.

Priorities and Allocations

    APAS has two principal components: Priorities and allocations.

Priorities

    In the ``priorities'' component of APAS, certain contracts between 
the government and private parties, or contracts between private 
parties, would be required to be given priority over other respective 
contracts to ensure timely delivery of an item needed for an ``approved 
program.'' ``Approved program'' is defined in 7 CFR 789.8 to mean ``a 
program determined by the Secretary of Defense, the Secretary of 
Energy, or the Secretary of Homeland Security to be necessary or 
appropriate to promote the national defense, in accordance with section 
202 of Executive Order 12919.'' As stated above, certain USDA programs 
have been approved by the Secretary of Homeland Security and by the 
Secretary of Defense as necessary or appropriate to promote the 
national defense. Other programs could be approved in the future.

Priority Rating Authority

    During a disaster event that impacts or threatens the national 
defense, Government and private agencies that have a role in emergency 
preparedness may require additional items or materials and delivery of 
these items in a short time span to meet the demands of emergency 
preparedness, response, and recovery efforts. Contracts for these items 
may already be in place, but may need to be altered (quantity and 
delivery dates) to meet national defense including emergency 
preparedness requirements. If no contract is in place to supply 
specific items at a specific time, a new contract may be required to 
obtain these items to meet emergency preparedness requirements. 
Specific

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contracts for emergency preparedness items may require prioritization 
(ranked above non-essential contracts) to allow for timely delivery of 
specific materials to meet the requirements of national defense.
    If a Government or private agency has placed, or wishes to place, a 
contract for an item that is necessary or appropriate for the promotion 
of national defense (including emergency preparedness activities under 
the Stafford Act or the protection or restoration of the agriculture 
and food system), the agency or private entity can request from USDA 
authorization to place a priority rating on the contract for the items 
to provide the contractor with the means to meet the requirements of 
maintaining or restoring national defense operations.
    A contract on which a priority rating has been placed is called a 
``rated order.'' Rated orders require a vendor or supplier to fill the 
order before all other unrated orders. Procedures for the placement of 
rated orders and the effect of rated orders on unrated orders are 
specified in Sec. Sec.  789.10 through 789.18 as described below.
    In addition, APAS priority authority provided by USDA provides the 
vendor or supplier with legal protection from other customers without 
rated orders with respect to timeliness of filling their other unrated 
orders as specified Sec.  789.70, ``Protection Against Claims.''

Example

    If a Federal agency with emergency preparedness authorities placed 
an order with Company X for shelf stable meals in anticipation of or 
response to a hurricane, and Company X told the Federal agency that 
there were 19 other orders to be filled before the Federal agency's 
order, the Federal agency could request from USDA authority to place a 
priority rating on its order with Company X. USDA would then determine 
if the acquisition of shelf stable meals was necessary or appropriate 
to support emergency preparedness activities or promote the national 
defense. (Note: If USDA determines that the item would support a 
program that has not yet been approved by the Secretaries of Defense, 
Energy, or Homeland Security, as appropriate, in accordance with 
section 202 of Executive Order 12919, USDA could not authorize the 
contractor to place a priority rating on its contract unless USDA were 
to receive from the appropriate Secretary (Defense, Energy, or Homeland 
Security) a written determination that the particular program is 
necessary or appropriate to promote the national defense.) If so, USDA 
then would authorize the Federal agency to place a priority rating on 
the order for the item(s). Company X would be required to meet the 
delivery requirements of the Federal agency's rated order, and modify 
production or delivery schedules of any of the other 19 unrated orders 
only when required delivery dates for the rated order cannot otherwise 
be met, unless Company X had a basis for rejecting the rated order as 
specified in Sec.  789.13. Customers 1 through 19 on the list would not 
have a cause of action against Company X for not filling their orders 
by the original agreed-to time, as specified in Sec.  789.70 if the 
rated order was the reason why they could not fulfill other orders by 
the agreed-upon time.

Use of Priority Ratings

    If you (as a vendor) receive a rated order, you must give it 
preferential treatment as required by subpart C, Sec. Sec.  789.10 
through 789.18 (the sections of the regulations are discussed below). 
Generally, this means that you must accept and fill rated orders for 
items that you normally supply and consistent with regularly 
established terms of sale (see Sec.  789.13(a)). Failure to comply with 
the provisions of the rated order may result in legal actions and fines 
against the recipient of the rated order. However, certain grounds for 
mandatory rejection or optional rejection of the rated order may apply 
(see Sec.  789.13(b) and (c)). Rated orders must be accepted or 
rejected within specified time frames (see Sec. Sec.  789.13(d) and 
789.13(e)).
    All rated orders must be scheduled in a manner and to the extent 
possible to ensure timely delivery by the required delivery date 
contained in each order (see Sec.  789.14(a)).
    The existence of previously accepted unrated orders or contracts or 
lower rated orders is not sufficient reason for rejecting a rated 
order. In fact, you (as a supplier or vendor) are required to displace 
or defer lower rated or unrated orders if they conflict with your 
performance against a higher rated order (see Sec.  789.14(b)). When 
you receive multiple rated orders for specific goods or services and 
the orders have the same rating level, you must first place and fill 
those orders that you received first (see Sec.  789.14(c)).
    To ensure that contracts and orders for authorized programs are 
completed in a timely fashion, you (as a supplier or vendor) must 
place, as necessary, a priority rating on all the contracts and orders 
you issue with suppliers for items needed to fill rated orders you have 
received (see Sec.  789.15). This requirement ensures that priority 
treatment will be afforded your orders by your suppliers and from 
vendor to vendor throughout the supply chain. Other requirements apply 
to changes or cancellations of priority ratings and rated orders (see 
Sec.  789.16) and use of rated orders for certain items (see Sec.  
789.17).
    Finally, you may place a priority rating on your contracts or 
orders only if you are in receipt of a rated order or if you have been 
otherwise explicitly authorized to do so by USDA or a delegate agency 
(see Sec.  789.18 for other limitations on placing rated orders).

Example

    If a Federal agency with responsibilities in mass care and feeding 
during an emergency has a need for bread, and its current inventory is 
not sufficient to handle the short term needs of the dependents, nor 
would its existing contracts with vendors be sufficient to resupply its 
inventory in the timeframe that is required. The Federal agency 
requests from USDA authorization to place a priority rating on an order 
for the bread. USDA authorizes the Federal agency to place a priority 
rating on the order for the bread, and the agency places a priority 
rating on an order issued to Company Z, the manufacturer and supplier 
of the bread. Upon receipt of the rated order from the agency, Company 
Z must schedule operations to satisfy the delivery requirements of the 
rated order. Company Z must use the rated order received from the 
Federal agency to place prioritt ratings on contracts with other 
vendors that supply Company Z with items used to process the bread 
(ingredients, packaging materials), as necessary.
    Although packaging materials would fall under the jurisdiction of 
DOC, USDA is working with DOC to establish a delegation of authority 
from DOC to USDA to assign priority ratings to orders for industrial 
resources falling within the priorities authority of DOC that are 
needed for use in USDA programs (see Sec.  789.10). This would allow 
for a rated order placed using authorization from USDA to cross 
multiple jurisdictions and remain valid.

Allocations

    An ``allocation'' is defined in Sec.  789.8 as ``the control of the 
distribution of materials, services, or facilities for a purpose deemed 
necessary or appropriate to promote the national defense.'' As 
specified in the allocations component of the APAS regulation (see 
subpart E, Sec. Sec.  789.30 through 789.37), USDA has the authority to 
allocate specified items to promote the national defense.

[[Page 29089]]

    Allocation authority would be used only when there is insufficient 
supply of a material, service, or facility to satisfy national defense 
supply requirements through the use of priorities authority or when the 
use of the priorities authority would cause a severe and prolonged 
disruption in the supply of materials, services, or facilities 
available to support normal U.S. economic activities (see Sec.  
789.30(a)). Under no circumstances would allocations be used to ration 
materials or services at the retail level (see Sec.  789.30(a)). 
Allocation orders would be distributed equitably among the suppliers of 
the resource(s) being allocated and would not require any person to 
relinquish a disproportionate share of the civilian market (see Sec.  
789.30(b)).
    Additionally, as specified in DPA Sec.  101(b) and section 201(d) 
of Executive Order 12919, USDA may not use an allocation to control the 
general distribution of a material in the civilian market unless:
     The Secretary has made a written finding that such 
material is a scarce and critical material essential to the national 
defense and the requirements of the national defense for such material 
cannot otherwise be met without a significant dislocation of the normal 
distribution of such material in the civilian market to such a degree 
as to create appreciable hardship;
     The Secretary has submitted the finding for the 
President's approval through the Assistant to the President for 
National Security Affairs; and
     The President has approved the finding (see Sec.  789.33).
    DOC has extensive experience using its priorities authority (under 
their DPAS regulation), but has not used its allocation authority in 
more than 50 years. Much like DPAS, APAS is expected to primarily be 
used for prioritizing contracts and to a much lesser extent for making 
allocations. However, USDA is proposing to include allocations in the 
regulation to have the option ready, if needed. The proposed allocation 
standards and procedures provide strong assurance that allocations 
would only be used in situations where the circumstances justify such 
orders.
    For example, dairy operations are brought to a standstill due to a 
detected presence of Foot and Mouth disease. The output of milk 
produced in the United States is curtailed by 80 percent as a result of 
reduced herd numbers in response to the outbreak. Prices for processed 
and unprocessed milk would skyrocket. USDA determines that allocating 
milk commodities to processors or wholesalers is necessary to promote 
the national defense, namely, as an emergency response action under 
Title VI of the Stafford Act (which is an approved program by the 
Secretary of Homeland Security under section 202(c) of Executive Order 
12919). Because allocating this commodity would involve controlling its 
general distribution in the market, USDA then makes the required 
finding as specified in DPA section 101(b) for allocating this food 
commodity and forwards that finding to the President through the 
National Security Advisor. After Presidential concurrence with the 
determination, per Executive Order 12919, USDA may allocate this 
commodity on a pre-determined basis to processors or wholesalers. The 
purpose of this allocation would be to control the distribution of milk 
to ensure civilian hardships are minimized. USDA would allocate 
existing and new milk sources to redistribute milk products in a way 
that ensures previously established priorities for this food product 
(for example, school food programs and nutritional programs for mothers 
and infant children to continue to provide some level of resources for 
those already enrolled in such programs) are met and would continue 
implementing allocation policies until USDA determines that this food 
source shortfall no longer meets the requirements for allocation 
programs.

Section by Section Discussion of Rule

    As stated throughout this document, the APAS regulation was 
developed in consultation with the other relevant Federal departments 
and agencies. The majority of the regulation is based on the 
regulations DOC has used for DPAS for many years. Specific differences 
from DPAS are noted below in the relevant sections.
    The purpose of the APAS regulation, as specified in Sec.  789.1, 
``Purpose,'' states that the regulation provides guidance and 
procedures for use of the DPA priorities and allocations authorities 
delegated by the President to the Secretary of Agriculture as specified 
in Executive Order 12919 with respect to food resources, food resource 
facilities, and the domestic distribution of farm equipment and 
commercial fertilizer.
    Section 789.2, ``Priorities and Allocations Authority,'' summarizes 
the delegations of priorities and allocations authority in Part II of 
Executive Order 12919. In addition to listing the delegations of 
authority to the six resource agencies (described above), Sec.  789.2 
clarifies that the delegated priorities and allocations authority may 
be used only to support programs that have been determined in writing 
as necessary or appropriate to promote the national defense by the 
Secretary of Defense, Energy, or Homeland Security in their respective 
areas of jurisdiction.
    Section 789.3, ``Program Eligibility,'' lists the categories of 
programs eligible for priorities and allocations support, in accordance 
with the definition of ``national defense'' in DPA section 702. 
Programs approved and eligible for priorities and allocation support by 
USDA are contained in Schedule I. Other agencies with priorities and 
allocations authority list their programs eligible for priorities and 
allocation support in their respective regulations.
    Section 789.8, ``Definitions,'' defines terms used in the 
regulation. Most of the definitions are drawn from other sources, which 
are noted below, and used in each agency's priorities and allocations 
regulations for consistency across the agencies, while certain 
definitions are distinct to APAS, as follows:
     DPA section 702 (50 U.S.C. App. 2152)--``critical 
infrastructure;'' ``facilities;'' ``homeland security;'' ``materials;'' 
``national defense;'' and ``services.'' The term ``person'' is drawn 
from DPA section 702, but is expanded to also include any Federal 
agency.
     Section 902 of Executive Order 12919--``civil 
transportation;'' ``energy;'' ``farm equipment;'' ``fertilizer;'' 
``food resources;'' ``food resource facilities;'' ``health resources;'' 
and ``water resources.''
     The current DPAS regulation (15 CFR part 700)--
``allotment'' (with technical modifications); ``approved program'' 
(with technical modifications); ``construction;'' ``delegate agency'' 
(with technical modifications); ``directive;'' ``industrial 
resources;'' ``item;'' ``maintenance and repair and operating supplies 
or MRO;'' ``official action'' (with technical modifications); ``rated 
order'' (with technical modifications); and ``set-aside'' (with 
technical modifications). The technical modifications to the 
definitions were those required to make them applicable for 
agriculture.
     Section 602 of the Stafford Act (42 U.S.C. 5195a)--
``emergency preparedness'' and ``hazard.''
    The ``allocation'' and ``allocation order'' definitions are based 
on language in DPA section 101 that describes the allocation authority 
of the President. ``Defense Production Act'' means the Defense 
Production Act of 1950, as amended (50 U.S.C. App. 2061 to 2170, 2171, 
and 2172). ``Resource agency'' means one of the six Federal departments 
that has been delegated DPA priorities and allocations authority under 
section 201 of Executive Order

[[Page 29090]]

12919. ``Secretary'' means the Secretary of Agriculture. ``Stafford 
Act'' means Title VI of the Robert T. Stafford Disaster Relief and 
Emergency Assistance Act, as amended (42 U.S.C. 5195-5197h). The 
``feed'' and ``seed'' definitions are consistent with other USDA 
regulations.
    The ``civil transportation'' definition was only changed for plain 
language and as required for the Code of Federal Regulations 
references; there is no intended change from the meaning given in 
Section 902 of Executive Order 12919. The word ``shall,'' which is not 
considered plain language was removed; specifically ``shall not 
include'' was changed to ``does not include'' and ``shall include'' was 
changed to ``includes.'' In addition, the word ``herein'' was replaced 
with the phrase ``in this part'' to use the correct reference for text 
in the Code of Federal Regulations.
    Section 789.10, ``Delegations of Authority,'' describes the 
delegation of priorities and allocations authority from the President 
to the Secretary for all forms of food resources. USDA anticipates 
receiving a delegation of authority from DOC to assign priority ratings 
for materials, services, and facilities falling within the priorities 
authority of the DOC that are needed for use in approved programs for 
USDA; this means the extension of APAS priority ratings. USDA expects 
to include a reference to any such delegation from DOC in this section 
in the final rule in reserved paragraph (a). Within USDA, the authority 
to administer APAS has been delegated to the FSA Administrator. The FSA 
Administrator will coordinate APAS implementation and administration 
through the Director, USDA Office of Homeland Security and Emergency 
Coordination.
    The provisions Sec. Sec.  789.11 through 789.18 (subpart C) are in 
general continued from DPAS provisions to provide continuity with long-
established priorities system procedures and to make use of a proven 
foundation for a consistent and uniform FP AS as described in this 
section.
    Section 789.11, ``Priority Ratings,'' describes the: ``DO'' and 
``DX'' rating symbols; program identification symbols; levels of 
priority ratings; priority ratings consist of a rating symbol and a 
program identification symbol; and directives that take precedence over 
priority ratings. Priority levels designate differences between orders 
based on national defense including emergency preparedness 
requirements. ``DX'' rated orders take precedence over ``DO'' rated 
orders and directives take precedence over ``DX'' and ``DO'' rated 
orders. All rated orders will include a program identification symbol 
to indicate which approved program is being supported by the rated 
order. DX and DO symbols were created to differentiate between levels 
of requirements for items. If one person has a higher requirement for 
an item compared to another person in need of the same item, but both 
with emergency preparedness and response functions, USDA will place a 
DX rating symbol on the contract for the higher requirement item(s) and 
a DO rating symbol on all others, as applicable.
    Section 789.12, ``Elements of a Rated Order,'' describes the four 
elements that must be included in a contract or order to make it a 
``rated order.'' The four elements are: (1) A priority rating; (2) 
specific delivery date(s) for materials or services covered in the 
rated order; (3) the signature of an individual authorized to sign 
rated orders (the signature on the request to rate the order certifies 
that the rated order is authorized); and 4) a statement that describes 
what is required of the rated order recipient, in accordance with 
procedures provided in the rule. Section 789.12 includes a new 
provision (not in the current DPAS regulation), that requires an 
additional statement to be included in a rated order involving 
emergency preparedness and requiring quicker action by the recipient to 
accept or reject the order. In the current DPAS regulation, the 
recipient of a rated order must accept or reject the rated order within 
15 working days for a ``DO''-rated order or 10 working days for a 
``DX''-rated order. Agency-specific deadlines are incorporated into the 
regulations issued by each agency (see section 789.13(d)). While these 
deadlines are appropriate for orders under ``normal'' circumstances, 
they are too long for emergency conditions, when quick procurement 
actions may be needed to help save lives and to help protect or restore 
property (See Sec.  789.13(e)).
    Section 789.13, ``Acceptance and Rejection of Rated Orders,'' 
specifies mandatory and optional conditions for acceptance or rejection 
of rated orders. In general, a person must accept a rated order if the 
person normally supplies the materials or services covered by the 
order. A person must reject an order if unable to fill the order by the 
specified delivery date(s) or if the order would interfere with 
delivery under another rated order with a comparable or higher priority 
rating. A person has the option of rejecting a rated order if any one 
of a number of other conditions exists. As noted above, the recipient 
of a rated order must either accept or reject the order by specified 
deadlines. These deadlines are significantly shorter for orders that 
are identified in the orders as being placed for the purpose of 
emergency preparedness. Section 789.13 includes two new provisions that 
are not in the current DPAS regulation: (1) The shorter deadlines for 
orders supporting emergency preparedness activities; and (2) a 
provision that requires a person to reject an order if prohibited by 
Federal law from meeting the terms of the order. Due to the nature of 
short time response requirements after an emergency event, vendors have 
6 to 12 hours to accept or reject a rated order. In the cases where 
persons (including Federal Departments) are not responding to an actual 
emergency, but are restocking inventories depleted from previous 
emergency response activities, vendors have up to 15 working days to 
accept or reject a rated order. As proposed, the recipient of a rated 
order must accept or reject the rated order within 15 working days for 
a ``DO''-rated order or within either 6 hours, 12 hours, or 15 working 
days for a ``DX''-rated order; USDA will specify the required timeframe 
on the rating authorization.
    Section 789.14, ``Preferential Scheduling,'' specifies: (1) When a 
recipient of a rated order must modify production or delivery schedules 
to satisfy the delivery requirements of a rated order; (2) the order of 
precedence for rated, unrated, and conflicting orders; and (3) the use 
of inventoried production items when needed to fill a rated order. A 
person must modify production or delivery schedules of other contracts 
to fulfill the requirements of the rated order if required delivery 
dates cannot be met under normal operating conditions. For conflicts 
over rated orders that have the same delivery dates, the person must 
give precedence to those orders that have the earliest receipt dates. 
If a person is unable to purchase needed production items in time to 
fill a rated order by its required delivery date, the person must fill 
the rated order by using inventoried production items. A person who 
uses inventoried items to fill a rated order may replace those items 
with the use of a rated order.
    Section 789.15, ``Extension of Priority Ratings,'' states that the 
recipient of a rated order must use the same rating symbols on rated 
orders as necessary with suppliers to obtain items or services needed 
to fill a rated order. For example, if you have a DX-P1 rated order for 
a food source (milk) and need to purchase packaging materials (milk 
cartons) from the packaging supplier, you must use a DX-P1 rated order 
to obtain the needed packaging materials

[[Page 29091]]

(milk cartons) required to fulfill the obligations of the rated 
contract.
    Section 789.16, ``Changes or Cancellations of Priority Ratings and 
Rated Orders,'' describes procedures that apply when a priority rating 
or the provisions of a rated order are changed or canceled. An official 
action of USDA or a written notification from the person who requested 
authorization for a rated order and placed it are the two ways changes 
or cancellations can be made to rated orders. When a priority rating is 
added to an unrated order, or is changed or canceled, all suppliers 
must be promptly notified in writing. If changes are made that make an 
unrated order a rated order, or a DO rating is changed to a DX rating, 
the supplier must give the appropriate preferential treatment to the 
order as of the date the supplier is notified. If an amendment to a 
rated order significantly alters a supplier's original production or 
delivery schedule then it constitutes a new rated order as of the date 
of its receipt. The supplier must accept or reject the amended order as 
specified in Sec.  789.13. Certain amendments do not constitute a new 
rated order, such as: a change in shipping destination; a reduction in 
the total amount of the order; an increase in the total amount of the 
order that has a negligible impact upon deliveries; a minor variation 
in size or design; or a change that is agreed upon between the supplier 
and the customer. If the items or services are no longer needed to fill 
a rated order, the rated orders must be canceled.
    Section 789.17, ``Use of Rated Orders,'' requires that the 
recipient of a rated order: (1) Must use rated orders as necessary to 
obtain items and services needed to fulfill the order; (2) may use a 
rated order to replace inventoried items that were used to fulfill the 
order; (3) may combine orders with different priority ratings; and (4) 
may forgo use of a priority rating for orders below certain dollar 
thresholds.
    Section 789.18, ``Limitations on Placing Rated Orders,'' describes 
general and jurisdictional limitations on the use of rated orders. 
Rated orders may only be placed by persons with the proper authority 
for items and services that are needed to support approved programs and 
that are eligible for priority treatment. In general, the use of rated 
orders under each resource agency's rule is limited to resources within 
that agency's jurisdiction, as delegated under section 201 of Executive 
Order 12919. USDA anticipates receiving a delegation from DOC to 
authorize USDA certain authority to use DPAS for materials, services, 
and facilities falling within the priorities and allocations 
jurisdiction of DOC.

Special Priorities Assistance

    The provisions in Sec. Sec.  789.20 through 789.24 (subpart D) are 
in general continued from DPAS provisions to provide continuity with 
long-established priorities system procedures and to make use of a 
proven foundation for a consistent and uniform FPAS as described in 
this section.
    Section 789.20, ``General Provisions,'' also describes procedures 
to request assistance in resolving problems with an existing rated 
order or in dealing with procurement issues involving a program that is 
eligible for support using the priorities authority.
    Section 789.21, ``Requests for Priority Rating Authority,'' 
describes procedures to request rating authority under special 
circumstances, such as for: (1) Items and services not normally rated 
under the regulation and (2) use of rated orders for supplies needed to 
fulfill a rated prime contract that is anticipated but not yet 
received. If there are production or delivery problems, a person should 
immediately contact the FSA Administrator for special priorities 
assistance (see Sec. Sec.  789.20 through 789.24 and 789.73). If FSA is 
unable to resolve the problem, USDA may forward the request to another 
resource agency, as appropriate, for action. Generally, special 
priorities assistance is provided to expedite deliveries, resolve 
delivery conflicts, place rated orders, locate suppliers, or to verify 
information supplied by customers and vendors. Special priorities 
assistance may also be used to request rating authority for items that 
are not normally eligible for priority treatment. To request special 
priorities assistance or priority rating authority, submit Form AD-2102 
to FSA. Form AD-2102 and instruction are available from http://forms.sc.egov.usda.gov/eForms/welcomeAction.do?Home or by contacting 
the FSA Administrator.
    Section 789.22, ``Examples of Assistance,'' lists various uses for 
special priorities assistance, specifically:
     Difficulty in obtaining delivery against a rated order by 
the required delivery date;
     Cannot locate a supplier for an item or service needed to 
fill a rated order;
     Ensuring that rated orders receive preferential treatment 
by suppliers;
     Resolving production or delivery conflicts between various 
rated orders;
     Assisting in placing rated orders with suppliers;
     Verifying the urgency of rated orders; and
     Determining the validity of rated orders.
    Section 789.23, ``Criteria for Assistance,'' states that a request 
for special priorities assistance must establish that there is an 
urgent procurement need and that the applicant has made a reasonable 
effort to resolve the problem for which assistance is needed.
    Section 789.24, ``Instances Where Assistance May Not be Provided,'' 
states that special priorities assistance is provided at the discretion 
of USDA or a delegate agency and lists examples of when assistance may 
not be provided. Assistance must not be provided in situations in which 
a person is attempting to:
     Secure a price advantage;
     Obtain delivery prior to the time required to fill a rated 
order;
     Gain competitive advantage;
     Disrupt an industry apportionment program in a manner 
designed to provide a person with an unwarranted share of scarce items; 
or
     Overcome a supplier's regularly established terms of sale 
or conditions of doing business.

Allocation Actions

    Section, 789.30, ``Policy,'' states the policy of the Federal 
Government regarding use of the allocations authority, based on 
statutory language in DPA section 101 and its legislative history. USDA 
is only authorized to use the allocations authority when there is 
insufficient supply of a material, service, or facility to satisfy 
national defense supply requirements through the use of the priorities 
authority or when the use of the priorities authority would cause a 
severe and prolonged disruption in the supply of materials, services, 
or facilities available to support normal U.S. economic activities. The 
allocations authority may not be used to ration materials or services 
at the retail level. Allocation orders, when used, will be distributed 
equitably among the suppliers of the materials, services, or facilities 
being allocated and not require any person to relinquish a 
disproportionate share of the civilian market.
    Legislative history indicates that Congress was concerned that 
national defense requirements, during times of emergency, could consume 
much of the output of key industrial sectors and selected producers 
within some sectors. The allocations authority was viewed as a means to 
ensure an equitable distribution of national defense demand among 
potential suppliers to avoid disproportionate impacts on each 
supplier's share of the civilian market.

[[Page 29092]]

Congress prohibits the use of the allocation authority to ration at the 
retail level.
    If it is determined that meeting defense needs could only be 
satisfied by a significant dislocation of consumer goods for household 
or personal use, use of the allocation authority first requires the DPA 
section 101(b) findings by the President. DPA section 101(b) states 
that the priorities and allocations authority will not be used to 
control the general distribution of any material in the civilian market 
unless the President finds (1) that such material is a scarce and 
critical material essential to the national defense, and (2) that the 
requirements of the national defense for such material cannot otherwise 
be met without creating a significant dislocation of the normal 
distribution of such material in the civilian market to such a degree 
as to create appreciable hardship.
    Section 789.31, ``General Procedures,'' states that USDA will 
develop a plan when planning to execute the allocations authority to 
address a supply problem within the USDA resource jurisdiction. The 
information that USDA will include in the plan is specified in Sec.  
789.31.
    Section 789.32, ``Precedence over Priority Rated Order,'' states 
that all allocation orders take precedence over unrelated rated orders 
or prioritization directives (see Sec.  789.42 for a description of 
directives).
    Section 789.33, ``Controlling the General Distribution of a 
Material in the Civilian Market,'' provides procedures for the findings 
required by DPA section 101(b) and section 201(d) of Executive Order 
12919. DPA section 101(b) requires Presidential findings. (See 
description of findings above in Sec.  789.30.) Section 201(d) directs 
heads of resource agencies to make the findings required under DPA 
section 101(b) and to submit the findings for the President's approval 
through the Assistant to the President for National Security Affairs.
    Section 789.34, ``Types of Allocation Orders,'' identifies the 
three types of allocations orders: (1) Set-asides; (2) directives; and 
(3) allotments.
    Section 789.35, ``Elements of an Allocation Order,'' describes the 
elements of an allocation order. These elements are: (1) A detailed 
description of the required allocation action(s); (2) specific start 
and end calendar dates for each required allocation action; (3) the 
signature of the Secretary of Agriculture, certifying that the order is 
authorized under the APAS regulation and that the requirements are 
being followed; (4) a statement that the order is certified for 
national defense use and that recipients are required to comply with 
the order; and (5) a copy of 7 CFR part 789.
    Section 789.36, ``Mandatory Acceptance of an Allocation Order,'' 
states that persons must: (1) Accept and comply with allocation orders; 
and (2) not discriminate against an allocation order in any manner 
(such as by charging higher prices). Persons are required to notify 
USDA immediately if unable to comply with an allocation order.
    Section 789.37, ``Changes or Cancellations of an Allocation 
Order,'' states that USDA may change or cancel the order by an official 
action.

Official Actions

    The provisions in Sec. Sec.  789.40 through 789.43 (subpart F) are 
in general continued from DPAS provisions to provide continuity with 
long-established priorities system procedures and to make use of a 
proven foundation for a consistent and uniform FPAS as described in 
this section.
    Section 789.40, ``General Provisions,'' states that USDA may take 
specific official actions to implement the provisions of the APAS 
regulation and that the official actions may take the form of Rating 
Authorizations, Directives, and Letters of Understanding which are 
covered in the remaining sections of the subpart. Each is addressed 
below in this section.
    Section 789.41, ``Rating Authorizations,'' states that a rating 
authorization is an official action that grants specific priority-
rating authority. A rating authorization permits a person to place a 
priority rating on an order for an item or service not normally ratable 
under APAS, or authorizes a person to modify a priority rating on a 
specific order or series of contracts or orders.
    Section 789.42, ``Directives,'' specifies the order of preference 
for directives and rated orders. Specifically, a directive is an 
official action and a person must comply with a directive. In addition, 
Sec.  789.42 specifies: (1) A priorities directive takes precedence 
over rated orders; and (2) an allocations directive takes precedence 
over a priorities directive.
    Section 789.43, ``Letters of Understanding,'' specifies that a 
letter of understanding is used to confirm production or shipping 
schedules that do not require modifications to other rated orders. A 
letter of understanding may not be used to alter scheduling between 
rated orders, authorize the use of priority ratings, impose 
restrictions under the APAS regulation, or take other official actions. 
A letter of understanding is an official action that may be issued to 
reflect an agreement resolving a request for special priorities 
assistance.

Compliance

    The provisions in Sec. Sec.  789.50 through 789.55 (subpart G) are 
in general continued from DPAS provisions to provide continuity with 
long-established priorities system procedures and to make use of a 
proven foundation for a consistent and uniform FPAS as described in 
this section.
    Section 789.50, ``General Provisions,'' states that: (1) USDA may 
take specific official actions to enforce or administer DPA, the APAS 
regulation, or an official action; (2) a person who places or receives 
a rated order or an allocations order must comply with the provisions 
of the APAS regulation; and (3) willful violation of Title I and 
section 705 of DPA, other related statutes, 7 CFR part 789, or an 
official action is a punishable criminal act.
    Section 789.51, ``Audits and Investigations,'' provides procedures 
for conducting audits and investigations to ensure that the provisions 
of DPA and other related statutes, the APAS regulation, and official 
actions have been properly followed.
    Section 789.52, ``Compulsory Process,'' specifies that a 
representative of USDA may seek compulsory process if a person refuses 
to permit a duly authorized representative of USDA to have access to 
any premises or source of information necessary to the administration 
or the enforcement of DPA and other applicable statutes, the APAS 
regulation, or an APAS official action.
    Section 789.53, ``Notification of Failure to Comply,'' states that 
USDA may inform a person in writing if USDA determines that the 
requirements of DPA and other related statutes, the APAS regulation, or 
an APAS official action were not complied with.
    Section 789.54, ``Violations, Penalties, and Remedies,'' describes 
penalties and related actions by the Federal Government for violations 
of the provisions of DPA, this APAS regulation, or an APAS official 
action.
    Section, 789.55, ``Compliance Conflicts,'' states that a person 
must notify USDA immediately, if compliance with any provision of DPA 
and other applicable statutes, the APAS regulation, or an APAS official 
action would prevent a person from filling a rated order or from 
complying with another provision of the DPA and other related statutes, 
the APAS regulation, or an official action.

[[Page 29093]]

Adjustments, Exceptions, and Appeals

    The provisions in Sec. Sec.  789.60 through 789.61 (subpart H) are 
in general continued from DPAS provisions to provide continuity with 
long-established priorities system procedures and to make use of a 
proven foundation for a consistent and uniform FPAS as described in 
this section.
    Section 789.60, ``Adjustments or Exceptions,'' provides procedures 
for a person to request an adjustment or exception to a provision of 
the APAS regulation or an official action. The request for adjustment 
or exception must be submitted to the Deputy Administrator for 
Management of USDA's Farm Service Agency. Decisions of the Deputy 
Administrator for Management may be appealed to the Administrator of 
the Farm Service Agency as specified in section 789.61.
    Section 789.61, ``Appeals,'' provides procedures for a person to 
appeal the denial of a request for an adjustment or exception to a 
provision of the APAS regulation or an APAS official action. In 
addition to current DPAS procedures, Sec.  789.61 also includes an 
expedited procedure for dealing with a request involving a rated order 
placed for the purpose of emergency preparedness. Any person whose 
request for adjustment or exception has been denied by the FSA Deputy 
Administrator for Management as specified in Sec.  789.60, may appeal 
to the FSA Administrator who will review and reconsider the denial. The 
person must submit their appeal in writing to the FSA Administrator. 
For requests for adjustment or exception involving rated orders placed 
for the purpose of emergency preparedness, the appeal must be received 
by the FSA Administrator no later than 15 days after receipt of the 
written notice of denial; other appeals must be received no later than 
45 days after receipt of a written notice of denial. To be accepted, 
the appeal must show good cause. The appeal must contain a complete 
statement of all the facts and circumstances related to the appealed 
action from and a full and precise statement of the reasons the 
decision should be modified or reversed. An appellant may also request, 
in writing, an opportunity for an informal hearing. The FSA 
Administrator may grant or deny the request for an informal hearing. 
When a hearing is granted, if the hearing officer decides that a 
printed transcript is necessary, the transcript expenses must be paid 
by the appellant. When determining an appeal, the FSA Administrator may 
consider all information submitted during the appeal as well as any 
recommendations, reports, or other relevant information and documents 
available to USDA, or consult with any other person or group. The FSA 
Administrator will decide on the appeal within 5 days after receipt of 
the appeal, or within 1 day for appeals pertaining to emergency 
preparedness, and that decision will be the final administrative 
action. The Administrator will issue a written statement of the reasons 
for the decision to the appellant. Contract performance under the order 
may not be stayed pending resolution of the appeal. An appeal will not 
relieve any person from the obligation of complying with the provision 
of APAS or official action in question while the appeal is being 
considered unless such relief is granted in writing by the FSA 
Administrator.

Miscellaneous Provisions

    The provisions in Sec. Sec.  789.70 through 789.73 (subpart I) are 
in general from DPAS provisions to provide continuity with long-
established priorities system procedures and to make use of a proven 
foundation for a consistent and uniform FPAS as described in this 
section.
    Section 789.70, ``Protection Against Claims,'' states that a person 
will not be held liable for damages or penalties for any act or failure 
to act resulting directly or indirectly from compliance with any 
provision of the APAS regulation, or an official action, 
notwithstanding that such provision or action may subsequently be 
declared invalid by judicial or other competent authority.
    Section 789.71, ``Records and Reports,'' requires that records 
regarding any transaction covered in the APAS regulation or an official 
action must be maintained for at least 3 years.
    Section 789.72, ``Applicability of this Part and Official 
Actions,'' states that the APAS regulation and all official actions, 
unless specifically stated otherwise, apply to transactions in any 
State, territory, or possession of the United States and the District 
of Columbia. Section 789.72 also provides that the APAS regulation and 
all official actions apply not only to deliveries to other persons but 
also to affiliates and subsidiaries of a person. In addition, Sec.  
789.72 specifies that APAS does not affect any administrative actions 
taken by USDA, or outstanding contracts or orders placed pursuant to 
any regulations, orders, schedules, or delegations of authority 
previously issued by USDA pursuant to its delegated authority under 
DPA.
    Section 789.73 ``Communications,'' explains that all communications 
concerning the APAS regulation, including requests for copies of the 
regulation and explanatory information, requests for guidance or 
clarification, requests for adjustment or exception, and appeals of 
denials of requests are to be sent to the FSA Administrator and 
provides the mailing address and the e-mail address.

Executive Order 12866

    The Office of Management and Budget (OMB) designated this rule as 
significant under Executive Order 12866, ``Regulatory Planning and 
Review,'' and has reviewed this rule. A summary of the cost benefit 
analysis is provided below and is available from the contact 
information listed above.

Summary of Cost Benefit Analysis

    DPAR requires the head of each Federal agency to which the 
President delegates authority to prioritize contracts and orders to 
meet the needs of national defense. In Executive Order 12919 the 
President delegated DPA authorities with respect to food resources, 
food resource facilities, and the domestic distribution of farm 
equipment and commercial fertilizer to the Secretary of Agriculture. 
Under previous implementation of DPA, the Secretary of Agriculture 
delegated certain implementation authority to DOC. For current 
implementation of DPA, the Secretary of Agriculture has retained 
implementation authority and has assigned FSA as lead agency. To 
implement DPA, FSA is proposing the APAS regulation, which is modeled 
after DPAS.
    Food is essential to national defense including civil emergency 
response. APAS is designed to use the DPA authority to help ensure that 
food is available when and where it is needed most, such as after a 
hurricane or earthquake. The authority under DPA extends beyond 
emergency conditions to also cover nonemergency conditions. Under DPA, 
USDA may develop plans and programs to expedite and expand the supply 
of critical resources from the private sector for the production, 
processing, storage, and distribution of agricultural commodities to 
promote national defense and to prevent civilian hardship in the food 
marketplace. In addition, DPA enables USDA to more effectively support 
domestic emergency preparedness, response, and recovery activities, 
critical infrastructure protection and restoration, and homeland 
security activities.
    The impact of APAS on private companies receiving priority orders 
is expected to vary. In most cases, there is likely to be no economic 
impact in filling priority orders because it would

[[Page 29094]]

generally just be changing the timing in which orders are completed.
    APAS is expected to primarily be used for prioritizing contracts 
and to a much lesser extent for making allocations. USDA does not 
expect any program outlays for APAS for prioritizing contracts and 
potentially making allocations. USDA will likely incur administrative 
expenses associated with assessing priorities and allocations requests 
and providing oversight for approved requests. The administrative 
expenses are expected to be marginal as APAS will presumably be 
administered using existing USDA personnel.
    APAS is expected to have an overall positive impact on the U.S. 
public and industry by maintaining and restoring the production, 
processing, storage, and distribution of agricultural commodities 
during times of both emergency and nonemergency conditions to promote 
national defense and to prevent civilian hardship in the food 
marketplace. While USDA has not yet administered APAS under DPA 
authority, the continued use of DPAS by the Department of Defense 
proves the utility of a priorities and allocations system.

Regulatory Flexibility Act

    The Regulatory Flexibility Act (5 U.S.C. 601-612), as amended by 
the Small Business Regulatory Enforcement Fairness Act of 1996 
(SBREFA), generally requires an agency to prepare a regulatory 
flexibility analysis of any rule subject to the notice and comment 
rulemaking requirements under the Administrative Procedure Act (5 
U.S.C. 553) or any other statute, unless the agency certifies that the 
rule will not have a significant economic impact on a substantial 
number of small entities. FSA has determined that this proposed rule, 
if promulgated, will not have a significant impact on a substantial 
number of small entities for the reasons explained below. Consequently, 
FSA has not prepared a regulatory flexibility analysis.
    Small entities include small businesses, small organizations, and 
small governmental jurisdictions. For purposes of assessing the impacts 
of this proposed rule on small entities, a small business, as described 
in the Small Business Administration's Table of Small Business Size 
Standards Matched to North American Industry Classification System 
Codes (August 2008 Edition), has a maximum annual revenue of $33.5 
million and a maximum of 1,500 employees (for some business categories, 
these numbers are lower). Due to the scope of this rule and for 
consistency with DPAS and other FPAS regulations, these general size 
standards were used for this analysis. The range of small business size 
standards varies. For example, SBA classifies a small business for Food 
Manufacturing as one that has a maximum annual revenue of $750,000 and 
for Crop or Animal Production a maximum of 500 employees. Due to the 
wide variety of businesses that could be involved in APAS, and that the 
potential impacts are expected to be minor, the more narrow categories 
were not used for this analysis. A small governmental jurisdiction is a 
government of a city, town, school district or special district with a 
population of less than 50,000. A small organization is any not-for-
profit enterprise that is independently owned and operated and is not 
dominant in its field.
    This rule sets criteria under which USDA (or agencies to which USDA 
delegates authority) will authorize prioritization of certain orders or 
contracts as well as criteria under which USDA would issue orders 
allocating resources or production facilities. Because the rule affects 
commercial transactions, USDA believes that small organizations and 
small governmental jurisdictions are unlikely to be affected by this 
rule. However, FSA has no basis on which to estimate the number of 
small businesses that are likely to be affected by this rule.
    FSA believes that any impact that this rule might have on small 
businesses would be minor. The rule has two principle components: 
prioritization and allocation. Prioritization is the process that is, 
by far, more likely to be used. Under prioritization, USDA designates 
certain orders, which may be placed by Government or by private 
entities, and assigned under one of two possible priority levels. Once 
so designated, such orders are referred to as ``rated orders.'' The 
recipient of a rated order must give it priority over an unrated order. 
The recipient of a rated order with the higher priority rating must 
give that order priority over any rated orders with the lower priority 
rating and over unrated orders as necessary to meet the delivery 
requirements of each rated order. A recipient of a rated order may 
place two or more orders at the same priority level with suppliers and 
subcontractors for supplies and services necessary to fulfill the 
recipient's rated order and the suppliers and subcontractors must treat 
the request from the rated order recipient as a rated order with the 
same priority level as the original rated order. The rule does not 
require recipients to fulfill rated orders if the price or terms of 
sale are not consistent with the price or terms of sale of similar non-
rated orders. The rule provides a defense from any liability for 
damages or penalties for actions or inactions made in compliance with 
the rule.
    Although rated orders could require a firm to fill one order prior 
to filling another, they would not require a reduction in the total 
volume of orders nor would they require the recipient to reduce prices 
or provide rated orders with more favorable terms than a similar non-
rated order. Under these circumstances, the economic effects on the 
rated order recipient of substituting one order for another are likely 
to be mutually offsetting, resulting in no net loss.
    Allocations could be used to control the general distribution of 
materials or services in the civilian market. Specific allocation 
actions that FSA might take are set-asides, allocations directives, and 
allotments. Any allocations actions would be used only in extraordinary 
circumstances. As required by section 101(b) of DPA (50 U.S.C. App. 
2071) and by Section 201(d) of Executive Order 12919, as amended, 
allocations may be implemented only if the Secretary of Agriculture 
made, and the President approved, a finding:

    (1) That the material [or service] is a scarce and critical 
material [or service] essential to the national defense, and (2) 
that the requirements of the national defense for such material [or 
service] cannot otherwise be met without creating a significant 
dislocation of the normal distribution of such material [or service] 
in the civilian market to such a degree as to create appreciable 
hardship.

    Any allocation actions would also have to comply with Section 
701(e) of DPA (50 U.S.C. app. 2151(e)), which provides that small 
business concerns be accorded, to the extent practicable, a fair share 
of the material, including services, in proportion to the share 
received by such business concerns under normal conditions, giving such 
special consideration as may be possible to emerging business concerns.
    Although FSA cannot determine precisely the number of small 
entities that would be affected by this rule, FSA believes that the 
overall impact on such entities would not be significant. In most 
instances, rated contracts would be in addition to other (unrated) 
contracts and not reduce the total amount of business of the firm that 
receives a rated contract.
    Because allocations can be imposed only after a determination by 
the President, and the fact that there have been no allocations actions 
under DPA authority in more than 50 years, allocations are expected to 
be a rare

[[Page 29095]]

occurrence. Therefore, estimating the impact of an allocation, should 
one occur, is difficult. However, FSA believes that the requirement for 
a Presidential determination and the provisions of section 701 of the 
DPA provide reasonable assurance that any impact on small business will 
not be significant.
    Therefore, for the reasons set forth above, FSA certifies that this 
action would not have a significant impact on a substantial number of 
small entities.

Environmental Review

    The environmental impacts of this rule have been considered in a 
manner consistent with the provisions of the National Environmental 
Policy Act (NEPA, 42 U.S.C. 4321-4347), the regulations of the Council 
on Environmental Quality (40 CFR parts 1500-1508), and FSA regulations 
for compliance with NEPA (7 CFR part 799). The provisions of this rule 
are specifically related to acquisition and are considered solely 
administrative in nature. Therefore, FSA has determined that NEPA does 
not apply to this proposed rule and no environmental assessment or 
environmental impact statement will be prepared.

Executive Order 12372

    Executive Order 12372, ``Intergovernmental Review of Federal 
Programs,'' requires consultation with State and local officials. The 
objectives of the Executive Order are to foster an intergovernmental 
partnership and a strengthened Federalism, by relying on State and 
local processes for State and local government coordination and review 
of proposed Federal Financial assistance and direct Federal 
development. This rule neither provides Federal financial assistance or 
direct Federal development; it does not provide either grants or 
cooperative agreements. Therefore, this program is not subject to 
Executive Order 12372.

Executive Order 12988

    This proposed rule has been reviewed under Executive Order 12988, 
``Civil Justice Reform.'' This rule would not preempt State and or 
local laws, and regulations, or policies unless they present an 
irreconcilable conflict with this rule. Before any judicial action may 
be brought concerning the provisions of this rule, appeal provisions of 
7 CFR parts 11 and 780 would need to be exhausted. This proposed rule 
would not preempt a State or Tribal government law, including any State 
or Tribal government liability law.

Executive Order 13132

    This proposed rule has been reviewed under Executive Order 13132, 
``Federalism.'' The policies contained in this rule do not have any 
substantial direct effect on States, on the relationship between the 
Federal government and the States, or on the distribution of power and 
responsibilities among the various levels of government. Nor does this 
rule impose substantial direct compliance costs on State and local 
governments. Therefore, consultation with the States is not required.

Executive Order 13175

    This proposed rule has been reviewed for compliance with Executive 
Order 13175, ``Consultation and Coordination with Indian Tribal 
Governments.'' The policies contained in this rule do not have Tribal 
implications that preempt Tribal law. FSA continues to consult with 
Tribal officials to have a meaningful consultation and collaboration on 
the development and strengthening of FSA regulations.

Unfunded Mandates

    Title II of the Unfunded Mandate Reform Act of 1995 (UMRA, Pub. L. 
104-4) requires Federal agencies to assess the effects of their 
regulatory actions on State, local, or Tribal governments or the 
private sector. Agencies generally must prepare a written statement, 
including a cost benefit analysis, for proposed and final rules with 
Federal mandates that may result in expenditures of $100 million or 
more in any 1 year for State, local, or Tribal governments, in the 
aggregate, or to the private sector. UMRA generally requires agencies 
to consider alternatives and adopt the more cost effective or least 
burdensome alternative that achieves the objectives of the rule. This 
rule contains no Federal mandates as defined by Title II of UMRA for 
State, local, or Tribal governments or for the private sector. 
Therefore, this rule is not subject to the requirements of sections 202 
and 205 of UMRA.

Paperwork Reduction Act

    In accordance with the Paperwork Reduction Act of 1995, FSA is 
seeking comments on Request for Special Priorities Assistance 
information collection activities for APAS. The information collection 
established by the regulation is necessary for the program applicant 
(person) to request prioritizing of a contract above all other 
contracts. Data required will include: name, location, contact 
information, items for which the applicant is requesting assistance on, 
quantity, and delivery date. The estimated time for a person to 
complete and submit a request for a priority rating on a contract is 30 
minutes. The intent of the priority rating is to obtain item(s) in 
support of national defense programs that they are not able to obtain 
in time through normal market channels.
    Title: Request for Special Priorities Assistance for APAS.
    OMB Control Number: 0560-New.
    Type of Request: New Collection.
    Abstract: APAS would efficiently place priority ratings on 
contracts or orders of agriculture commodities up through the wholesale 
levels, agriculture production equipment, allocate resources, and 
handle food claims within its authority as specified in the Defense 
Production Act (DPA) of 1950, as amended, when necessary. It was 
determined that food is a scarce and critical commodity essential to 
the national defense (including civil emergency preparedness and 
response). Unless its production, processing, storage, and wholesale 
distribution are regulated during times of emergencies, the national 
defense requirement for food and food production may not be met without 
creating hardship in the civilian marketplace. Applicants (Government 
agencies or private individuals with a role in emergency preparedness, 
response, and recovery functions) will request authorization from USDA 
to place a rating on a contract for items to support national defense 
activities. Priority rating request procedures and forms can be found 
on USDA's Web site. Applicants must supply, at time of request, their 
name, location, contact information, items for which the applicant is 
requesting assistance on, quantity, and delivery date. Applicants can 
submit the request by mail or fax.
    Estimated of Burden: Public reporting for this collection of 
information is estimated to average 30 minutes per response.
    Type of Respondents: Individuals, businesses, and Agencies with 
responsibilities for emergency preparedness and response.
    Estimated Number of Respondents: 100.
    Estimated Number of Responses per Respondents: 0.95.
    Estimated Total Number of Respondents: 95.
    Estimate Total Annual Burden Hours on Respondents: 50 hours.
    We are requesting comments on all aspects of this information 
collection to help us:
    (1) Evaluate whether the collection of information is necessary for 
the proper performance of the functions of FSA,

[[Page 29096]]

including whether the information will have practical utility;
    (2) Evaluate the accuracy of FSA's estimate of burden including the 
validity of the methodology and assumptions used;
    (3) Enhance the quality, utility and clarity of the information to 
be collected;
    (4) Minimize the burden of the collection of information on those 
who are to respond, including through the use of appropriate automated, 
electronic, mechanical, or other technological collection techniques or 
other forms of information technology.
    All comments received in response to this notice, including names 
and addresses when provided, will be a matter of public record. 
Comments will be summarized and included in the submission for Office 
of Management and Budget approval.

E-Government Act Compliance

    FSA is committed to complying with the E-Government Act, to promote 
the use of the Internet and other information technologies to provide 
increased opportunities for citizen access to Government Information 
and services, and for other purposes.

List of Subjects in 7 CFR Part 789

    Administrative practice and procedure, Business and industry, 
Government contracts, National defense, Reporting and recordkeeping 
requirements.

    For the reasons discussed in the preamble, FSA proposes to add 7 
CFR part 789 as follows:

PART 789--AGRICULTURE PRIORITIES AND ALLOCATIONS SYSTEM (APAS)

Subpart A--General
Sec.
789.1 Purpose.
789.2 Priorities and allocations authority.
789.3 Program eligibility.
Subpart B--Definitions
789.8 Definitions.
Subpart C--Placement of Rated Orders
789.10 Delegation of authority.
789.11 Priority ratings.
789.12 Elements of a rated order.
789.13 Acceptance and rejection of rated orders.
789.14 Preferential scheduling.
789.15 Extension of priority ratings.
789.16 Changes or cancellations of priority ratings and rated 
orders.
789.17 Use of rated orders.
789.18 Limitations on placing rated orders.
Subpart D--Special Priorities Assistance
789.20 General provisions.
789.21 Requests for priority rating authority.
789.22 Examples of assistance.
789.23 Criteria for assistance.
789.24 Instances where assistance must not be provided.
Subpart E--Allocation Actions
789.30 Policy.
789.31 General procedures.
789.32 Precedence over priority rated orders.
789.33 Controlling the general distribution of a material in the 
civilian market.
789.34 Types of allocation orders.
789.35 Elements of an allocation order.
789.36 Mandatory acceptance of allocation orders.
789.37 Changes or cancellations of allocation orders.
Subpart F--Official Actions
789.40 General provisions.
789.41 Rating authorizations.
789.42 Directives.
789.43 Letters of understanding.
Subpart G--Compliance
789.50 General provisions.
789.51 Audits and investigations.
789.52 Compulsory process.
789.53 Notification of failure to comply.
789.54 Violations, penalties, and remedies.
789.55 Compliance conflicts.
Subpart H--Adjustments, Exceptions, and Appeals
789.60 Adjustments or exceptions.
789.61 Appeals.
Subpart I--Miscellaneous Provisions
789.70 Protection against claims.
789.71 Records and reports.
789.72 Applicability of this part and official actions.
789.73 Communications.
Schedule I to Part 789--Approved Programs and Delegate Agencies

    Authority: 50 U.S.C. App. 2061-2170, 2171, and 2172; 42 U.S.C. 
5195-5197h.

Subpart A--General


Sec.  789.1  Purpose.

    This part provides guidance and procedures for use of the Defense 
Production Act priorities and allocations authority by the United 
States Department of Agriculture (USDA) with respect to food resources, 
food resource facilities, and the domestic distribution of farm 
equipment and commercial fertilizer in this part. (The guidance and 
procedures in this part are consistent with the guidance and procedures 
provided in other regulations that, as a whole, form the Federal 
Priorities and Allocations System. Guidance and procedures for use of 
the Defense Production Act priorities and allocations authority with 
respect to other types of resources are provided for: All forms of 
energy refer to the Department of Energy; all forms of civil 
transportation refer to the Department of Transportation; for water 
resources refer to the Department of Defense; and for health resources 
refer to Health and Human Services; all other materials, services, and 
facilities, including construction materials in the Defense Priorities 
and Allocations System (DPAS) regulation in 15 CFR part 700.)


Sec.  789.2  Priorities and allocations authority.

    (a) Section 201 of Executive Order 12919 delegates the President's 
authority under section 101 of the Defense Production Act to require 
acceptance and priority performance of contracts and orders (other than 
contracts of employment) to promote the national defense over 
performance of any other contracts or orders, and to allocate 
materials, services, and facilities as deemed necessary or appropriate 
to promote the national defense to the following agencies. Essentially, 
this allows the following agencies to place priority on the performance 
of contracts for items and materials under their jurisdiction as 
required for national defense initiatives including emergency 
preparedness activities.
    (1) The Secretary of Agriculture with respect to food resources, 
food resource facilities, and the domestic distribution of farm 
equipment and commercial fertilizer;
    (2) The Secretary of Energy with respect to all forms of energy;
    (3) The Secretary of Health and Human Services with respect to 
health resources;
    (4) The Secretary of Transportation with respect to all forms of 
civil transportation;
    (5) The Secretary of Defense with respect to water resources; and
    (6) The Secretary of Commerce for all other materials, services, 
and facilities, including construction materials.
    (b) Section 202 of Executive Order 12919 specifies that the 
priorities and allocations authority may be used only to support 
programs that have been determined in writing as necessary or 
appropriate to promote the national defense by:
    (1) The Secretary of Defense with respect to military production 
and construction, military assistance to foreign nations, stockpiling, 
outer space, and directly related activities;
    (2) The Secretary of Energy with respect to energy production and 
construction, distribution and use, and directly related activities; or
    (3) The Secretary of Homeland Security with respect to essential 
civilian needs supporting national

[[Page 29097]]

defense, including civil defense and continuity of government and 
directly related activities.


Sec.  789.3  Program eligibility.

    Certain programs that promote the national defense are eligible for 
priorities and allocations support. These include programs for military 
and energy production or construction, military or critical 
infrastructure assistance to any foreign nation, homeland security, 
stockpiling, space, and any directly related activity. Other eligible 
programs include emergency preparedness activities conducted pursuant 
to Title VI of the Stafford Act and critical infrastructure protection 
and restoration.

Subpart B--Definitions


Sec.  789.8  Definitions.

    As used in this part:
    Allocation means the control of the distribution of materials, 
services, or facilities for a purpose deemed necessary or appropriate 
to promote the national defense.
    Allocation order means an official action to control the 
distribution of materials, services, or facilities for a purpose deemed 
necessary or appropriate to promote the national defense.
    Allotment means an official action that specifies the maximum 
quantity for a specific use of a material, service, or facility 
authorized to promote the national defense.
    Applicant means the person applying for assistance under APAS. (See 
definition of ``person.'')
    Approved program means a program determined by the Secretary of 
Defense, the Secretary of Energy, or the Secretary of Homeland Security 
to be necessary or appropriate to promote the national defense, as 
specified in section 202 of Executive Order 12919.
    Civil transportation includes movement of persons and property by 
all modes of transportation in interstate, intrastate, or foreign 
commerce within the United States, its territories and possessions, and 
the District of Columbia, and, without limitation, related public 
storage and warehousing, ports, services, equipment and facilities, 
such as transportation carrier shop and repair facilities. However, 
civil transportation does not include transportation owned or 
controlled by the Department of Defense, use of petroleum and gas 
pipelines, and coal slurry pipelines used only to supply energy 
production facilities directly. As applied in this part, civil 
transportation includes direction, control, and coordination of civil 
transportation capacity regardless of ownership.
    Construction means the erection, addition, extension, or alteration 
of any building, structure, or project, using materials or products 
that are to be an integral and permanent part of the building, 
structure, or project. Construction does not include maintenance and 
repair.
    Critical infrastructure means any systems and assets, whether 
physical or cyber-based, so vital to the United States that the 
degradation or destruction of such systems and assets would have a 
debilitating impact on national security, including, but not limited 
to, national economic security and national public health or safety.
    Defense Production Act means the Defense Production Act of 1950, as 
amended (50 U.S.C. App. 2061 to 2170, 2171, and 2172).
    Delegate Agency means a government agency authorized by delegation 
from USDA to place priority ratings on contracts or orders needed to 
support approved programs.
    Directive means an official action that requires a person to take 
or refrain from taking certain actions in accordance with the 
provisions.
    Emergency preparedness means all those activities and measures 
designed or undertaken to prepare for or minimize the effects of a 
hazard upon the civilian population, to deal with the immediate 
emergency conditions that would be created by the hazard, and to make 
emergency repairs to, or the emergency restoration of, vital utilities 
and facilities destroyed or damaged by the hazard. Emergency 
preparedness includes the following:
    (1) Measures to be undertaken in preparation for anticipated 
hazards (including the establishment of appropriate organizations, 
operational plans, and supporting agreements, the recruitment and 
training of personnel, the conduct of research, the procurement and 
stockpiling of necessary materials and supplies, the provision of 
suitable warning systems, the construction or preparation of shelters, 
shelter areas, and control centers, and, when appropriate, the 
nonmilitary evacuation of the civilian population).
    (2) Measures to be undertaken during a hazard (including the 
enforcement of passive defense regulations prescribed by duly 
established military or civil authorities, the evacuation of personnel 
to shelter areas, the control of traffic and panic, and the control and 
use of lighting and civil communications).
    (3) Measures to be undertaken following a hazard (including 
activities for fire fighting, rescue, emergency medical, health and 
sanitation services, monitoring for specific dangers of special 
weapons, unexploded bomb reconnaissance, essential debris clearance, 
emergency welfare measures, and immediately essential emergency repair 
or restoration of damaged vital facilities).
    Energy means all forms of energy including petroleum, gas (both 
natural and manufactured), electricity, solid fuels (including all 
forms of coal, coke, coal chemicals, coal liquefaction and coal 
gasification), and atomic energy, and the production, conservation, 
use, control, and distribution (including pipelines) of all of these 
forms of energy.
    Facilities includes all types of buildings, structures, or other 
improvements to real property (but excluding farms, churches or other 
places of worship, and private dwelling houses), and services relating 
to the use of any such building, structure, or other improvement.
    Farm equipment means equipment, machinery, and repair parts 
manufactured for use on farms in connection with the production or 
preparation for market use of food resources.
    Feed is a nutritionally adequate manufactured food for animals 
(livestock and poultry raised for agriculture production) other than 
man; and by specific formula is compounded to be fed as the sole ration 
and is capable of maintaining life and promoting production without any 
additional substance being consumed except water.
    Fertilizer means any product or combination of products that 
contain one or more of the elements--nitrogen, phosphorus, and 
potassium--for use as a plant nutrient.
    Food resources means all commodities and products, simple, mixed, 
or compound, or complements to such commodities or products, that are 
capable of being ingested by either human beings or animals, 
irrespective of other uses to which such commodities or products may be 
put, at all stages of processing from the raw commodity to the products 
suitable for sale for human or animal consumption. Food resources also 
means all starches, sugars, vegetable and animal or marine fats and 
oils, seed, cotton, hemp, and flax fiber, but does not mean any such 
material after it loses its identity as an agricultural commodity or 
agricultural product.
    Food resource facilities means plants, machinery, vehicles 
(including on-farm), and other facilities required for

[[Page 29098]]

the production, processing, distribution, and storage (including cold 
storage) of food resources, livestock and poultry feed and seed, and 
for the domestic distribution of farm equipment and fertilizer 
(excluding transportation for that distribution).
    Hazard means an emergency or disaster resulting from a natural 
disaster; or an accidental or man-caused event.
    Health resources means materials, facilities, health supplies, and 
equipment (including pharmaceutical, blood collecting and dispensing 
supplies, biological, surgical textiles, and emergency surgical 
instruments and supplies) required to prevent the impairment of, 
improve, or restore the physical and mental health conditions of the 
population.
    Homeland security includes efforts--
    (1) To prevent terrorist attacks within the United States;
    (2) To reduce the vulnerability of the United States to terrorism;
    (3) To minimize damage from a terrorist attack in the United 
States; and
    (4) To recover from a terrorist attack in the United States.
    Industrial resources means all materials, services, and facilities, 
including construction materials, but not including: Food resources, 
food resource facilities, and the domestic distribution of farm 
equipment and commercial fertilizer; all forms of energy; health 
resources; all forms of civil transportation; and water resources.
    Item means any raw, in process, or manufactured material, article, 
commodity, supply, equipment, component, accessory, part, assembly, or 
product of any kind, technical information, process, or service.
    Letter of understanding means an official action that may be issued 
in resolving special priorities assistance cases to reflect an 
agreement reached by all parties (USDA, the Department of Commerce (if 
applicable), a delegate agency (if applicable), the supplier, and the 
customer).
    Maintenance and repair and operating supplies or MRO--
    (1) Maintenance is the upkeep necessary to continue any plant, 
facility, or equipment in working condition.
    (2) Repair is the restoration of any plant, facility, or equipment 
to working condition when it has been rendered unsafe or unfit for 
service by wear and tear, damage, or failure of parts.
    (3) Operating supplies are any resources carried as operating 
supplies according to a person's established accounting practice. 
Operating supplies may include hand tools and expendable tools, jigs, 
dies, fixtures used on production equipment, lubricants, cleaners, 
chemicals, and other expendable items.
    (4) MRO does not include items produced or obtained for sale to 
other persons or for installation upon or attachment to the property of 
another person, or items required for the production of such items; 
items needed for the replacement of any plant, facility, or equipment; 
or items for the improvement of any plant, facility, or equipment by 
replacing items that are still in working condition with items of a new 
or different kind, quality, or design.
    Materials includes--
    (1) Any raw materials (including minerals, metals, and advanced 
processed materials), commodities, articles, components (including 
critical components), products, and items of supply; and
    (2) Any technical information or services ancillary to the use of 
any such materials, commodities, articles, components, products, or 
items.
    National defense means programs for military and energy production 
or construction, military or critical infrastructure assistance to any 
foreign nation, homeland security, stockpiling, space, and any directly 
related activity. Such term includes emergency preparedness activities 
conducted pursuant to Title VI of the Stafford Act and critical 
infrastructure protection and restoration.
    Official action means an action taken by USDA or another resource 
agency under the authority of the Defense Production Act, Executive 
Order 12919, or this part. Such actions also include the issuance of 
rating authorizations, directives, set-asides, allotments, letters of 
understanding, demands for information, inspection authorizations, and 
administrative subpoenas.
    Person includes an individual, corporation, partnership, 
association, or any other organized group of persons, or legal 
successor or representative thereof, or any State or local government 
or agency thereof, or any Federal agency.
    Rated order means a prime contract, a subcontract, or a purchase 
order in support of an approved program issued as specified in the 
provisions of this part. Persons may request an order (contract) be 
rated in response to a need that is defined in this part. However, an 
order does not become rated until the request is approved by USDA. USDA 
will assign a rating priority for each rating request approved that 
designates the priority of that order over other orders that have 
similar order specifics.
    Resource agency means any agency that is delegated priorities and 
allocations authority as specified in Sec.  789.2.
    Secretary means the Secretary of Agriculture.
    Seed is used with its commonly understood meaning and includes all 
seed grown for and customarily sold to users for planting for the 
production of agriculture crops.
    Services includes any effort that is needed for or incidental to--
    (1) The development, production, processing, distribution, 
delivery, or use of an industrial resource or a critical technology 
item;
    (2) The construction of facilities;
    (3) The movement of individuals and property by all modes of civil 
transportation; or
    (4) Other national defense programs and activities.
    Set-aside means an official action that requires a person to 
reserve materials, services, or facilities capacity in anticipation of 
the receipt of rated orders.
    Stafford Act means Title VI (Emergency Preparedness) of the Robert 
T. Stafford Disaster Relief and Emergency Assistance Act, as amended 
(42 U.S.C. 5195-5197h).
    Water resources means all usable water, from all sources, within 
the jurisdiction of the United States, that can be managed, controlled, 
and allocated to meet emergency requirements.

Subpart C--Placement of Rated Orders


Sec.  789.10  Delegations of authority.

    (a) [Reserved].
    (b) Within USDA, authority to administer APAS has been delegated to 
the Administrator, Farm Service Agency, through the Under Secretary for 
Farm and Foreign Agricultural Services. (See Sec. Sec.  2.16(a)(6); 
2.42(a)(5) of this title.) The Farm Service Agency Administrator will 
coordinate APAS implementation and administration through the Director, 
USDA Office of Homeland Security and Emergency Coordination, as 
delegated by the Assistant Secretary for Administration. (See 
Sec. Sec.  2.24(a)(8)(ii)(A) and 2.24(a)(8)(v); 2.95(b)(1)(i) and 
2.95(b)(4) of this title.)


Sec.  789.11  Priority ratings.

    (a) Levels of priority. Priority levels designate differences 
between orders based on national defense including emergency 
preparedness requirements.
    (1) There are two levels of priority established by APAS, 
identified by the rating symbols ``DO'' and ``DX.''
    (2) All DO-rated orders have equal priority with each other and 
take

[[Page 29099]]

precedence over unrated orders. All DX-rated orders have equal priority 
with each other and take precedence over DO-rated orders and unrated 
orders. (For resolution of conflicts among rated orders of equal 
priority, see Sec.  789.14(c).)
    (3) In addition, a directive regarding priority treatment for a 
given item issued by the resource agency with priorities jurisdiction 
for that item takes precedence over any DX-rated order, DO-rated order, 
or unrated order, as stipulated in the Directive. (For more information 
on Directives, see Sec.  789.42.)
    (b) Program identification symbols. Program identification symbols 
indicate which approved program is being supported by a rated order. 
The list of currently approved programs and their identification 
symbols are listed in Schedule I. For example, P1 identifies a program 
involving food and food resources processing and storage. Program 
identification symbols, in themselves, do not connote any priority. 
Additional programs may be approved under the procedures of Executive 
Order 12919 at any time.
    (c) Priority ratings. A priority rating consists of the rating 
symbol DO or DX followed by the program identification symbol, such as 
P1 or P2. Thus, a contract for the supply of livestock feed will 
contain a DO-P1 or DX-P1 priority rating.


Sec.  789.12  Elements of a rated order.

    (a) Each rated order must include:
    (1) The appropriate priority rating (for example, DO-P1 for food 
and food resources processing and storage);
    (2) A required delivery date or dates. The words ``immediately'' or 
``as soon as possible'' do not constitute a delivery date. Some 
purchase orders, such as a ``requirements contract basic ordering 
agreement,'' ``prime vendor contract,'' or similar procurement 
document, bearing a priority rating may contain no specific delivery 
date or dates if it provides for the furnishing of items or services 
from time-to-time or within a stated period against specific purchase 
orders, such as calls, requisitions, and delivery orders. Specific 
purchase orders must specify a required delivery date or dates and are 
to be considered as rated as of the date of their receipt by the 
supplier and not as of the date of the original procurement document;
    (3) The written signature on a manually placed order, or the 
digital signature or name on an electronically placed order, of an 
individual authorized to sign rated orders for the person placing the 
order. The signature or use of the name certifies that the rated order 
is authorized under this part and that the requirements of this part 
are being followed; and
    (4) A statement requirement must be placed on the order as follows:
    (i) A statement that reads:

    This is a rated order certified for national defense use, and 
you are required to follow all the provisions of the Agriculture 
Priorities and Allocations System regulation in 7 CFR part 789.

    (ii) If the rated order is placed in support of emergency 
preparedness requirements and expedited action is necessary and 
appropriate to meet these requirements, the following sentences should 
be added following the statement specified in paragraph (a)(4)(i) of 
this section:

    This rated order is placed for the purpose of emergency 
preparedness. It must be accepted or rejected within six (6) hours 
after receipt of the order if the order is issued in response to a 
hazard that has occurred; or within the greater of twelve (12) hours 
or the time specified in the order, if the order is issued to 
prepare for an imminent hazard, in accordance with 7 CFR 789.13(e).

    (b) [Reserved]


Sec.  789.13  Acceptance and rejection of rated orders.

    (a) Mandatory acceptance. A person must accept a rated order if the 
person normally supplies the materials or services covered by the order 
in accordance with the following requirements:
    (1) Except as otherwise specified in this section, a person must 
accept every rated order received and must fill such orders regardless 
of any other rated or unrated orders that have been accepted.
    (2) A person will not discriminate against rated orders in any 
manner such as by charging higher prices or by imposing different terms 
and conditions than for comparable unrated orders.
    (b) Mandatory rejection. Unless otherwise directed by USDA for a 
rated order involving food resources, food resource facilities, and the 
domestic distribution of farm equipment and commercial fertilizer:
    (1) A person must not accept a rated order for delivery on a 
specific date if unable to fill the order by that date. However, the 
person must inform the customer of the earliest date on which delivery 
can be made and offer to accept the order on the basis of that date. 
Scheduling conflicts with previously accepted lower rated or unrated 
orders are not sufficient reason for rejection in this section.
    (2) A person must not accept a DO-rated order for delivery on a 
date that would interfere with delivery of any previously accepted DO- 
or DX-rated orders. However, the person must offer to accept the order 
based on the earliest delivery date otherwise possible.
    (3) A person must not accept a DX-rated order for delivery on a 
date that would interfere with delivery of any previously accepted DX-
rated orders, but must offer to accept the order based on the earliest 
delivery date otherwise possible.
    (4) If a person is unable to fill all of the rated orders of equal 
priority status received on the same day, the person must accept, based 
upon the earliest delivery dates, only those orders that can be filled, 
and reject the other orders. For example, a person must accept order A 
requiring delivery on December 15 before accepting order B requiring 
delivery on December 31. However, the person must offer to accept the 
rejected orders based on the earliest delivery dates otherwise 
possible.
    (5) A person must reject the rated order if the person is 
prohibited by Federal law from meeting the terms of the order.
    (c) Optional rejection. Unless otherwise directed by USDA for a 
rated order involving food resources, food resource facilities, and the 
domestic distribution of farm equipment and commercial fertilizer, 
rated orders may be rejected in any of the following cases as long as a 
supplier does not discriminate among customers:
    (1) If the person placing the order is unwilling or unable to meet 
regularly established terms of sale or payment;
    (2) If the order is for an item not supplied or for a service not 
capable of being performed;
    (3) If the order is for an item or service produced, acquired, or 
provided only for the supplier's own use for which no orders have been 
filled for 2 years prior to the date of receipt of the rated order. If, 
however, a supplier has sold some of these items or provided similar 
services, the supplier is obligated to accept rated orders up to that 
quantity or portion of production or service, whichever is greater, 
sold or provided within the past 2 years;
    (4) If the person placing the rated order, other than the Federal 
Government, makes the item or performs the service being ordered;
    (5) If acceptance of a rated order or performance against a rated 
order would violate any other regulation, official action, or order of 
USDA, issued under the authority of the Defense Production Act or 
another relevant statute.
    (d) Customer notification requirements. A person in receipt of a 
rated order is required to provide to the customer placing the order 
written or electronic notification of acceptance or rejection of the 
order.

[[Page 29100]]

    (1) Except as provided in paragraph (e) of this section, a person 
must accept or reject a rated order in writing or electronically within 
fifteen (15) working days after receipt of a DO rated order and within 
ten (10) working days after receipt of a DX rated order. If the order 
is rejected, the person must give reasons in writing or electronically 
for the rejection.
    (2) If a person has accepted a rated order and subsequently finds 
that shipment or performance will be delayed, the person must notify 
the customer immediately, give the reasons for the delay, and advise of 
a new shipment or performance date. If notification is given verbally, 
written or electronic confirmation must be provided within five (5) 
working days.
    (e) Exception for emergency preparedness conditions. If the rated 
order is placed for the purpose of emergency preparedness and includes 
the additional statement as specified in Sec.  789.12(a)(4)(ii), a 
person must accept or reject a rated order and send the acceptance or 
rejection in writing or in an electronic format:
    (1) Within 6 hours after receipt of the order if the order is 
issued in response to a hazard that has occurred; or
    (2) Within the greater of 12 hours or the time specified in the 
order, if the order is issued to prepare for an imminent hazard.


Sec.  789.14  Preferential scheduling.

    (a) A person must schedule operations, including the acquisition of 
all needed production items or services, in a timely manner to satisfy 
the delivery requirements of each rated order. Modifying production or 
delivery schedules is necessary only when required delivery dates for 
rated orders cannot otherwise be met.
    (b) DO-rated orders must be given production preference over 
unrated orders, if necessary to meet required delivery dates, even if 
this requires the diversion of items being processed or ready for 
delivery or services being performed against unrated orders. Similarly, 
DX-rated orders must be given preference over DO-rated orders and 
unrated orders. (Examples: If a person receives a DO-rated order with a 
delivery date of June 3 and if meeting that date would mean delaying 
production or delivery of an item for an unrated order, the unrated 
order must be delayed. If a DX-rated order is received calling for 
delivery on July 15 and a person has a DO-rated order requiring 
delivery on June 2 and operations can be scheduled to meet both 
deliveries, there is no need to alter production schedules to give any 
additional preference to the DX-rated order.)
    (c) For conflicting rated orders:
    (1) If a person finds that delivery or performance against any 
accepted rated orders conflicts with the delivery or performance 
against other accepted rated orders of equal priority status, the 
person must give precedence to the conflicting orders in the sequence 
in which they are to be delivered or performed (not to the receipt 
dates). If the conflicting orders are scheduled to be delivered or 
performed on the same day, the person must give precedence to those 
orders that have the earliest receipt dates.
    (2) If a person is unable to resolve rated order delivery or 
performance conflicts as specified in this section, the person should 
promptly seek special priorities assistance as provided in Sec. Sec.  
789.20 through 789.24. If the person's customer objects to the 
rescheduling of delivery or performance of a rated order, the customer 
should promptly seek special priorities assistance as specified in 
Sec. Sec.  789.20 through 789.24. For any rated order against which 
delivery or performance will be delayed, the person must notify the 
customer as provided in Sec.  789.13(d)(2).
    (d) If a person is unable to purchase needed production items in 
time to fill a rated order by its required delivery date, the person 
must fill the rated order by using inventoried production items. A 
person who uses inventoried items to fill a rated order may replace 
those items with the use of a rated order as provided in Sec.  
789.17(b).


Sec.  789.15  Extension of priority ratings.

    (a) A person must use rated orders as necessary with suppliers to 
obtain items or services needed to fill a rated order. The person must 
use the priority rating indicated on the customer's rated order, except 
as otherwise provided in this part or as directed by USDA. For example, 
if a person is in receipt of a DX-P1 rated order for a food resource 
(milk) and needs to purchase packaging materials (milk cartons) from 
the packaging supplier, that person must use a DX-P1 rated order to 
obtain the needed packaging materials (milk cartons).
    (b) The priority rating must be included as necessary on each 
successive order placed to obtain items or services needed to fill a 
customer's rated order. This continues from contractor to subcontractor 
to supplier throughout the entire procurement chain.


Sec.  789.16  Changes or cancellations of priority ratings and rated 
orders.

    (a) The priority rating on a rated order may be changed or canceled 
by:
    (1) An official action of USDA; or
    (2) Written notification from the person who placed the rated order 
or from a delegate agency with resource jurisdiction.
    (b) If an unrated order is amended so as to make it a rated order, 
or a DO rating is changed to a DX rating, the supplier must give the 
appropriate preferential treatment to the order as of the date the 
change is received by the supplier.
    (c) An amendment to a rated order that significantly alters a 
supplier's original production or delivery schedule constitutes a new 
rated order as of the date of its receipt. The supplier must accept or 
reject the amended order according to the provisions of Sec.  789.13.
    (d) The following amendments do not constitute a new rated order:
    (1) A change in shipping destination;
    (2) A reduction in the total amount of the order;
    (3) An increase in the total amount of the order that has a 
negligible impact upon deliveries;
    (4) A minor variation in size or design; or
    (5) A change that is agreed upon between the supplier and the 
customer.
    (e) If a person no longer needs items or services to fill a rated 
order, any rated orders placed with suppliers for the items or 
services, or the priority rating on those orders, must be canceled.
    (f) When a priority rating is added to an unrated order, or is 
changed or canceled, all suppliers must be promptly notified in 
writing.


Sec.  789.17  Use of rated orders.

    (a) A person must use rated orders as necessary to obtain:
    (1) Items that will be physically incorporated into other items to 
fill rated orders, including that portion of such items normally 
consumed or converted into scrap or by-products in the course of 
processing;
    (2) Containers or other packaging materials required to make 
delivery of the finished items against rated orders;
    (3) Services, other than contracts of employment, needed to fill 
rated orders; and
    (4) MRO needed to produce the finished items to fill rated orders.
    (b) A person may use a rated order to replace inventoried items 
(including finished items) if such items were used to fill rated 
orders, as follows:
    (1) The order must be placed within 90 days of the date of use of 
the inventory.

[[Page 29101]]

    (2) A DO rating and the program identification symbol indicated on 
the customer's rated order must be used on the order. A DX rating must 
not be used even if the inventory was used to fill a DX-rated order.
    (3) If the priority ratings on rated orders from one customer or 
several customers contain different program identification symbols, the 
rated orders may be combined. In this case, the program identification 
symbol P4 must be used (that is DO-P4).
    (c) A person may combine DX--and DO-rated orders from one customer 
or several customers if the items or services covered by each level of 
priority are identified separately and clearly. If different program 
identification symbols are indicated on those rated orders of equal 
priority, the person must use the program identification symbol P4 
(that is DO-P4 or DX-P4).
    (d) For combining rated and unrated orders:
    (1) A person may combine rated and unrated order quantities on one 
purchase order provided that:
    (i) The rated quantities are separately and clearly identified; and
    (ii) The four elements of a rated order, as required by Sec.  
789.12, are included on the order with the statement required in Sec.  
789.12(a)(4)(i) modified to read:

    This purchase order contains rated order quantities certified 
for national defense use, and you are required to follow all the 
provisions of the Agriculture Priorities and Allocations System 
regulation in 7 CFR part 789 only as it pertains to the rated 
quantities.

    (2) A supplier must accept or reject the rated portion of the 
purchase order as provided in Sec.  789.13 and give preferential 
treatment only to the rated quantities as required by this part. This 
part must not be used to require preferential treatment for the unrated 
portion of the order.
    (3) Any supplier who believes that rated and unrated orders are 
being combined in a manner contrary to the intent of this part or in a 
fashion that causes undue or exceptional hardship may submit a request 
for adjustment or exception as specified in Sec.  789.60.
    (e) A person may place a rated order for the minimum commercially 
procurable quantity even if the quantity needed to fill a rated order 
is less than that minimum. However, a person must combine rated orders 
as provided in paragraph (c), if possible, to obtain minimum procurable 
quantities.
    (f) A person is not required to place a priority rating on an order 
for less than $75,000 or one-half of the Simplified Acquisition 
Threshold (as established in the Federal Acquisition Regulation (FAR) 
(see 48 CFR 2.101) or in other authorized acquisition regulatory or 
management systems) whichever amount is greater, provided that delivery 
can be obtained in a timely fashion without the use of the priority 
rating.


Sec.  789.18  Limitations on placing rated orders.

    (a) General limitations. Rated orders may only be placed by persons 
with the proper authority for items and services that are needed to 
support approved programs and that are eligible for priority treatment.
    (1) A person must not place a DO--or DX-rated order unless 
authorized by USDA or the appropriate delegate agency to do so under 
this part.
    (2) Rated orders must not be used to obtain:
    (i) Delivery on a date earlier than needed;
    (ii) A greater quantity of the item or services than needed, except 
to obtain a minimum procurable quantity. Separate rated orders must not 
be placed solely for the purpose of obtaining minimum procurable 
quantities on each order;
    (iii) Items or services in advance of the receipt of a rated order, 
except as specifically authorized by USDA (see Sec.  789.21(c) for 
information on obtaining authorization for a priority rating in advance 
of a rated order);
    (iv) Items that are not needed to fill a rated order, except as 
specifically authorized by USDA or as otherwise permitted by this part;
    (v) Any of the following items unless specific priority rating 
authority has been obtained from USDA, a delegate agency, or the 
Department of Commerce, as appropriate:
    (A) Items for plant improvement, expansion, or construction, unless 
they will be physically incorporated into a construction project 
covered by a rated order; and
    (B) Production or construction equipment or items to be used for 
the manufacture of production equipment. For information on requesting 
priority rating authority, see Sec.  789.21; or
    (vi) Any items related to the development of chemical or biological 
warfare capabilities or the production of chemical or biological 
weapons, unless such development or production has been authorized by 
the President or the Secretary of Defense.
    (b) Jurisdictional limitations. Unless authorized by the resource 
agency with jurisdiction (see Sec.  789.10), the provisions of this 
part are not applicable to the following resources:
    (1) All forms of energy, including radioisotopes, stable isotopes, 
source material, and special nuclear material produced in Government-
owned plants or facilities operated by or for the Department of Energy 
(Resource agency with jurisdiction--Department of Energy);
    (2) Health resources (Resource agency with jurisdiction--Department 
of Health and Human Services);
    (3) All forms of civil transportation (Resource agency with 
jurisdiction--Department of Transportation);
    (4) Water resources (Resource agency with jurisdiction--Department 
of Defense, U.S. Army Corps of Engineers); and
    (5) All other materials, services, and facilities, including 
construction materials (Resource agency with jurisdiction--Department 
of Commerce).

Subpart D--Special Priorities Assistance


Sec.  789.20  General provisions.

    (a) APAS is designed to be largely self-executing. However, if 
production or delivery problems arise, a person should immediately 
contact the Farm Service Agency Administrator for special priorities 
assistance pursuant to Sec. Sec.  789.20 through 789.24 and as directed 
by Sec.  789.73. If the Farm Service Agency is unable to resolve the 
problem or to authorize the use of a priority rating and believes 
additional assistance is warranted, USDA may forward the request to 
another resource agency, as appropriate, for action. Special priorities 
assistance is a service provided to alleviate problems.
    (b) Special priorities assistance is available for any reason 
consistent with this part. Generally, special priorities assistance is 
provided to expedite deliveries, resolve delivery conflicts, place 
rated orders, locate suppliers, or to verify information supplied by 
customers and vendors. Special priorities assistance may also be used 
to request rating authority for items that are not normally eligible 
for priority treatment.
    (c) A request for special priorities assistance or priority rating 
authority must be submitted on Form AD-2102 (OMB Control Number 0560-
XXX) to the Farm Service Agency as provided in paragraph (a) of this 
section. Form AD-2102 may be obtained from USDA by downloading the form 
and instruction from http://forms.sc.egov.usda.gov/eForms/welcomeAction.do?Home or by contacting the Administrator of Farm 
Service Agency as specified in Sec.  789.73. Either mail or fax the 
form to USDA, using the address or fax number shown on the form.

[[Page 29102]]

Sec.  789.21  Requests for priority rating authority.

    (a) Rating authority for items or services not normally rated. If a 
rated order is likely to be delayed because a person is unable to 
obtain items or services not normally rated under this part, the person 
may request the authority to use a priority rating in ordering the 
needed items or services.
    (b) Rating authority for production or construction equipment. For 
a rated order for production or construction equipment not under the 
resource jurisdiction of USDA, follow the regulations in 15 CFR part 
700.
    (1) A request for priority rating authority for production or 
construction equipment must be submitted to the U.S. Department of 
Commerce on Form BIS-999. Form BIS-999 may be obtained from USDA as 
specified in Sec.  789.20(c) or from the Department of Commerce as 
specified in 15 CFR 700.81.
    (2) When the use of a priority rating is authorized for the 
procurement of production or construction equipment, a rated order may 
be used either to purchase or to lease such equipment. However, in the 
latter case, the equipment may be leased only from a person engaged in 
the business of leasing such equipment or from a person willing to 
lease rather than sell.
    (c) For rating authority in advance of a rated prime contract:
    (1) In certain cases and upon specific request, USDA, in order to 
promote the national defense, may authorize a person to place a 
priority rating on an order to a supplier in advance of the issuance of 
a rated prime contract. In these instances, the person requesting 
advance rating authority must obtain sponsorship of the request from 
USDA or the appropriate delegate agency. The person assumes any 
business risk associated with the placing of a rated order if the order 
has to be cancelled in the event the rated prime contract is not 
issued.
    (2) The person must state the following in the request:

    It is understood that the authorization of a priority rating in 
advance of our receiving a rated prime contract from USDA and our 
use of that priority rating with our suppliers in no way commits 
USDA or any other government agency to enter into a contract or 
order or to expend funds. Further, we understand that the Federal 
Government will not be liable for any cancellation charges, 
termination costs, or other damages that may accrue if a rated prime 
contract is not eventually placed and, as a result, we must 
subsequently cancel orders placed with the use of the priority 
rating authorized as a result of this request.

    (3) In reviewing requests for rating authority in advance of a 
rated prime contract, USDA will consider, among other things, the 
following criteria:
    (i) The probability that the prime contract will be awarded;
    (ii) The impact of the resulting rated orders on suppliers and on 
other authorized programs;
    (iii) Whether the contractor is the sole source;
    (iv) Whether the item being produced has a long lead time; and
    (v) The time period for which the rating is being requested.
    (4) USDA may require periodic reports on the use of the rating 
authority granted through paragraph (c) of this section.
    (5) If a rated prime contract is not issued, the person will 
promptly notify each supplier who has received any rated order related 
to the advanced rating authority that the priority rating on the order 
is cancelled.


Sec.  789.22  Examples of assistance.

    (a) While special priorities assistance may be provided for any 
reason in support of this part, it is usually provided in situations in 
which:
    (1) A person is experiencing difficulty in obtaining delivery 
against a rated order by the required delivery date; or
    (2) A person cannot locate a supplier for an item or service needed 
to fill a rated order.
    (b) Other examples of special priorities assistance include:
    (1) Ensuring that rated orders receive preferential treatment by 
suppliers;
    (2) Resolving production or delivery conflicts between various 
rated orders;
    (3) Assisting in placing rated orders with suppliers;
    (4) Verifying the urgency of rated orders; and
    (5) Determining the validity of rated orders.


Sec.  789.23  Criteria for assistance.

    (a) Requests for special priorities assistance should be timely 
(for example, the request has been submitted promptly and enough time 
exists for USDA or the delegate agency to meaningfully resolve the 
problem), and must establish that:
    (1) There is an urgent need for the item; and
    (2) The applicant has made a reasonable effort to resolve the 
problem.
    (b) [Reserved]


Sec.  789.24  Instances in which assistance must not be provided.

    (a) Special priorities assistance is provided at the discretion of 
USDA or the delegate agency when it is determined that such assistance 
is warranted to meet the objectives of this part. Examples in which 
assistance must not be provided include situations in which a person is 
attempting to:
    (1) Secure a price advantage;
    (2) Obtain delivery prior to the time required to fill a rated 
order;
    (3) Gain competitive advantage;
    (4) Disrupt an industry apportionment program in a manner designed 
to provide a person with an unwarranted share of scarce items; or
    (5) Overcome a supplier's regularly established terms of sale or 
conditions of doing business.
    (b) [Reserved]

Subpart E--Allocation Actions


Sec.  789.30  Policy.

    (a) It is the policy of the Federal Government that the allocations 
authority under Title I of the Defense Production Act may:
    (1) Only be used when there is insufficient supply of a material, 
service, or facility to satisfy national defense supply requirements 
through the use of the priorities authority or when the use of the 
priorities authority would cause a severe and prolonged disruption in 
the supply of materials, services, or facilities available to support 
normal U.S. economic activities; and
    (2) Not be used to ration materials or services at the retail 
level.
    (b) Allocation orders, when used, will be distributed equitably 
among the suppliers of the materials, services, or facilities being 
allocated and not require any person to relinquish a disproportionate 
share of the civilian market.


Sec.  789.31  General procedures.

    (a) When the Department of Agriculture plans to execute its 
allocations authority to address a supply problem within its resource 
jurisdiction, the Department will develop a plan that includes the 
following information:
    (1) A copy of the written determination made in accordance with 
section 202 of Executive Order 12919, that the program or programs that 
would be supported by the allocation action are necessary or 
appropriate to promote the national defense;
    (2) A detailed description of the situation to include any unusual 
events or circumstances that have created the requirement for an 
allocation action;
    (3) A statement of the specific objective(s) of the allocation 
action;
    (4) A list of the materials, services, or facilities to be 
allocated;

[[Page 29103]]

    (5) A list of the sources of the materials, services, or facilities 
that will be subject to the allocation action;
    (6) A detailed description of the provisions that will be included 
in the allocation orders, including the type(s) of allocation orders, 
the percentages or quantity of capacity or output to be allocated for 
each purpose, and the duration of the allocation action (for example, 
anticipated start and end dates);
    (7) An evaluation of the impact of the proposed allocation action 
on the civilian market; and
    (8) Proposed actions, if any, to mitigate disruptions to civilian 
market operations.
    (b) [Reserved]


Sec.  789.32  Precedence over priority rated orders.

    If a conflict occurs between an allocation order and an unrelated 
rated order or prioritization directive, the allocation order takes 
precedence.


Sec.  789.33  Controlling the general distribution of a material in the 
civilian market.

    (a) No allocation by USDA may be used to control the general 
distribution of a material in the civilian market, unless the Secretary 
has:
    (1) Made a written finding that--
    (i) Such material is a scarce and critical material essential to 
the national defense; and
    (ii) The requirements of the national defense for such material 
cannot otherwise be met without creating a significant dislocation of 
the normal distribution of such material in the civilian market to such 
a degree as to create appreciable hardship;
    (2) Submitted the finding for the President's approval through the 
Assistant to the President for National Security Affairs; and
    (3) The President has approved the finding.
    (b) [Reserved]


Sec.  789.34  Types of allocation orders.

    (a) The three types of allocation orders that may be used for 
allocation actions are:
    (1) Set-asides;
    (2) Directives; and
    (3) Allotments.
    (b) [Reserved]


Sec.  789.35  Elements of an allocation order.

    (a) Each allocation order will include:
    (1) A detailed description of the required allocation action(s);
    (2) Specific start and end calendar dates for each required 
allocation action;
    (3) The Secretary's written signature on a manually placed order, 
or the digital signature or name on an electronically placed order, of 
the Secretary. The signature or use of the name certifies that the 
order is authorized as specified in this part and that the requirements 
of this part are being followed;
    (4) A statement that reads: ``This is an allocation order certified 
for national defense use. [Insert the legal name of the person 
receiving the order] is required to comply with this order, in 
accordance with the provisions of 7 CFR part 789;'' and
    (5) A current copy of the APAS regulation (7 CFR part 789).
    (b) [Reserved]


Sec.  789.36  Mandatory acceptance of allocation orders.

    (a) A person must accept every allocation order received that the 
person is capable of fulfilling, and must comply with such orders 
regardless of any rated order, from any delegate agency, that the 
person may be in receipt of or other commitments involving the 
resource(s) covered by the allocation order.
    (b) A person must not discriminate against an allocation order in 
any manner such as by charging higher prices for resources covered by 
the order or by imposing terms and conditions for contracts and orders 
involving allocated resources(s) that differ from the person's terms 
and conditions for contracts and orders for the resource(s) prior to 
receiving the allocation order.
    (c) If circumstances prevent a person from being able to accept an 
allocation order, the person must comply with the provisions specified 
in Sec.  789.60 upon realization of the inability to accept the order.


Sec.  789.37  Changes or cancellations of allocation orders.

    An allocation order may be changed or canceled by an official 
action of USDA.

Subpart F--Official Actions


Sec.  789.40  General provisions.

    (a) USDA may take specific official actions to implement the 
provisions of this part.
    (b) Several of these official actions (rating authorizations, 
directives, and letters of understanding) are discussed in this 
subpart. Other official actions that pertain to compliance 
(administrative subpoenas, demands for information, and inspection 
authorizations) are discussed in Sec.  789.51(c).


Sec.  789.41  Rating authorizations.

    (a) A rating authorization is an official action granting specific 
priority rating authority that:
    (1) Permits a person to place a priority rating on an order for an 
item or service not normally ratable under this part; or
    (2) Authorizes a person to modify a priority rating on a specific 
order or series of contracts or orders.
    (b) To request priority rating authority, see Sec.  789.21.


Sec.  789.42  Directives.

    (a) A directive is an official action that requires a person to 
take or refrain from taking certain actions in accordance with the 
provisions of the directive.
    (b) A person must comply with each directive issued. However, a 
person may not use or extend a directive to obtain any items from a 
supplier, unless expressly authorized to do so in the directive.
    (c) A priorities directive takes precedence over all DX-rated 
orders, DO-rated orders, and unrated orders previously or subsequently 
received, unless a contrary instruction appears in the directive.
    (d) An allocations directive takes precedence over all priorities 
directives, DX-rated orders, DO-rated orders, and unrated orders 
previously or subsequently received, unless a contrary instruction 
appears in the directive.


Sec.  789.43  Letters of understanding.

    (a) A letter of understanding is an official action that may be 
issued in resolving special priorities assistance cases to reflect an 
agreement reached by all parties (USDA, the Department of Commerce (if 
applicable), a delegate agency (if applicable), the supplier, and the 
customer).
    (b) A letter of understanding is not used to alter scheduling 
between rated orders, to authorize the use of priority ratings, to 
impose restrictions under this part, or to take other official actions. 
Rather, letters of understanding are used to confirm production or 
shipping schedules that do not require modifications to other rated 
orders.

Subpart G--Compliance


Sec.  789.50  General provisions.

    (a) USDA may take specific official actions for any reason 
necessary or appropriate to the enforcement or the administration of 
the Defense Production Act and other applicable statutes, this part, or 
an official action. Such actions include administrative subpoenas, 
demands for information, and inspection authorizations.

[[Page 29104]]

    (b) Any person who places or receives a rated order or an 
allocation order must comply with the provisions of this part.
    (c) Willful violation of the provisions of Title I or section 705 
of the Defense Production Act and other applicable statutes, this part, 
or an official action of USDA, is a criminal act, punishable as 
provided in the Defense Production Act and other applicable statutes, 
and as specified in Sec.  789.54.


Sec.  789.51  Audits and investigations.

    (a) Audits and investigations are official examinations of books, 
records, documents, other writings, and information to ensure that the 
provisions of the Defense Production Act and other applicable statutes, 
this part, and official actions have been properly followed. An audit 
or investigation may also include interviews and a systems evaluation 
to detect problems or failures in the implementation of this part.
    (b) When undertaking an audit, investigation, or other inquiry, 
USDA will:
    (1) Scope and purpose. Define the scope and purpose in the official 
action given to the person under investigation; and
    (2) Information not available. Have ascertained that the 
information sought or other adequate and authoritative data are not 
available from any Federal or other responsible agency.
    (c) In administering this part, USDA may issue the following 
documents that constitute official actions:
    (1) Administrative subpoenas. An administrative subpoena requires a 
person to appear as a witness before an official designated by USDA to 
testify under oath on matters of which that person has knowledge 
relating to the enforcement or the administration of the Defense 
Production Act and other applicable statutes, this part, or official 
actions. An administrative subpoena may also require the production of 
books, papers, records, documents, and physical objects or property.
    (2) Demands for information. A demand for information requires a 
person to furnish to a duly authorized representative of USDA any 
information necessary or appropriate to the enforcement or the 
administration of the Defense Production Act and other applicable 
statutes, this part, or official actions.
    (3) Inspection authorizations. An inspection authorization requires 
a person to permit a duly authorized representative of USDA to 
interview the person's employees or agents, to inspect books, records, 
documents, other writings, and information, including electronically-
stored information, in the person's possession or control at the place 
where that person usually keeps them or otherwise, and to inspect a 
person's property when such interviews and inspections are necessary or 
appropriate to the enforcement or the administration of the Defense 
Production Act and other related statutes, this part, or official 
actions.
    (d) The production of books, records, documents, other writings, 
and information will not be required at any place other than where they 
are usually kept if, prior to the return date specified in the 
administrative subpoena or demand for information, a duly authorized 
official of USDA is furnished with copies of such material that are 
certified under oath to be true copies. As an alternative, a person may 
enter into a stipulation with a duly authorized official of USDA as to 
the content of the material.
    (e) An administrative subpoena, demand for information, or 
inspection authorization will include the name, title, or official 
position of the person to be served, the evidence sought, and its 
general relevance to the scope and purpose of the audit, investigation, 
or other inquiry. If employees or agents are to be interviewed; if 
books, records, documents, other writings, or information are to be 
produced; or if property is to be inspected; the administrative 
subpoena, demand for information, or inspection authorization will 
describe the requirements.
    (f) Service of documents will be made in the following manner:
    (1) In person. Service of a demand for information or inspection 
authorization will be made personally, or by certified mail-return 
receipt requested at the person's last known address. Service of an 
administrative subpoena will be made personally. Personal service may 
also be made by leaving a copy of the document with someone at least 18 
years old at the person's last known dwelling or place of business.
    (2) Other than to the named individual. Service upon other than an 
individual may be made by serving a partner, corporate officer, or a 
managing or general agent authorized by appointment or by law to accept 
service of process. If an agent is served, a copy of the document will 
be mailed to the person named in the document.
    (3) Delivering individual and documentation. Any individual 18 
years of age or over may serve an administrative subpoena, demand for 
information, or inspection authorization. When personal service is 
made, the individual making the service must prepare an affidavit 
specifying the manner in which service was made and the identity of the 
person served, and return the affidavit, and in the case of subpoenas, 
the original document, to the issuing officer. In case of failure to 
make service, the reasons for the failure will be stated on the 
original document.


Sec.  789.52  Compulsory process.

    (a) If a person refuses to permit a duly authorized representative 
of USDA to have access to any premises or source of information 
necessary to the administration or the enforcement of the Defense 
Production Act and other applicable statutes, this part, or official 
actions, the USDA representative may seek compulsory process. 
Compulsory process is the institution of appropriate legal action, 
including ex parte application for an inspection warrant or its 
equivalent, in any forum of appropriate jurisdiction.
    (b) Compulsory process may be sought in advance of an audit, 
investigation, or other inquiry, if, in the judgment of USDA, there is 
reason to believe that a person will refuse to permit an audit, 
investigation, or other inquiry, or that other circumstances exist that 
make such process desirable or necessary.


Sec.  789.53  Notification of failure to comply.

    (a) At the conclusion of an audit, investigation, or other inquiry, 
or at any other time, USDA may inform the person in writing when 
compliance with the requirements of the Defense Production Act and 
other applicable statutes, this part, or an official action was not 
met.
    (b) In cases in which USDA determines that failure to comply with 
the provisions of the Defense Production Act and other applicable 
statutes, this part, or an official action was inadvertent, the person 
may be informed in writing of the particulars involved and the 
corrective action to be taken. Failure to take corrective action may 
then be construed as a willful violation of the Defense Production Act 
and other applicable statutes, this part, or an official action.


Sec.  789.54  Violations, penalties, and remedies.

    (a) Willful violation of the Defense Production Act, the priorities 
provisions of the Military Selective Service Act (50 U.S.C. App. 468), 
this part, or an official action, is a crime and upon conviction, a 
person may be punished by fine or imprisonment, or both. The maximum 
penalty provided by the Defense Production Act is a $10,000 fine, or 1 
year in prison, or both. The maximum penalty provided by the

[[Page 29105]]

Military Selective Service Act is a $50,000 fine, or 3 years in prison, 
or both.
    (b) The Government may also seek an injunction from a court of 
appropriate jurisdiction to prohibit the continuance of any violation 
of, or to enforce compliance with, the Defense Production Act, this 
part, or an official action.
    (c) In order to secure the effective enforcement of the Defense 
Production Act and other applicable statutes, this part, and official 
actions, the following are prohibited:
    (1) No person may solicit, influence, or permit another person to 
perform any act prohibited by, or to omit any act required by, the 
Defense Production Act and other applicable statutes, this part, or an 
official action.
    (2) No person may conspire or act in concert with any other person 
to perform any act prohibited by, or to omit any act required by, the 
Defense Production Act and other applicable statutes, this part, or an 
official action.
    (3) No person will deliver any item if the person knows or has 
reason to believe that the item will be accepted, redelivered, held, or 
used in violation of the Defense Production Act and other applicable 
statutes, this part, or an official action. In such instances, the 
person must immediately notify USDA that, in accordance with this 
provision, delivery has not been made.


Sec.  789.55  Compliance conflicts.

    If compliance with any provision of the Defense Production Act and 
other applicable statutes, this part, or an official action would 
prevent a person from filling a rated order or from complying with 
another provision of the Defense Production Act and other applicable 
statutes, this part, or an official action, the person must immediately 
notify USDA for resolution of the conflict.

Subpart H--Adjustments, Exceptions, and Appeals


Sec.  789.60  Adjustments or exceptions.

    (a) A person may submit a request to the Farm Service Agency Deputy 
Administrator for Management, as directed in Sec.  789.73, for an 
adjustment or exception on the ground that:
    (1) A provision of this part or an official action results in an 
undue or exceptional hardship on that person not suffered generally by 
others in similar situations and circumstances; or
    (2) The consequences of following a provision of this part or an 
official action is contrary to the intent of the Defense Production Act 
and other applicable statutes, or this part.
    (b) Each request for adjustment or exception must be in writing and 
contain a complete statement of all the facts and circumstances related 
to the provision of this part or official action from which adjustment 
is sought and a full and precise statement of the reasons why relief 
should be provided.
    (c) The submission of a request for adjustment or exception will 
not relieve any person from the obligation of complying with the 
provision of this part or official action in question while the request 
is being considered unless such interim relief is granted in writing by 
the Farm Service Agency Deputy Administrator for Management.
    (d) A decision of the Farm Service Agency Deputy Administrator for 
Management under this section may be appealed to the Farm Service 
Agency Administrator. (For information on the appeal procedure, see 
Sec.  789.61.)


Sec.  789.61  Appeals.

    (a) Any person whose request for adjustment or exception has been 
denied by the Farm Service Agency Deputy Administrator for Management 
as specified in Sec.  789.60, may appeal to the Farm Service Agency 
Administrator who will review and reconsider the denial.
    (b) A person must submit their appeal in writing to the Farm 
Service Agency Administrator as follows:
    (1) Except as provided in paragraph (b)(2) of this section, an 
appeal must be received by the Farm Service Agency Administrator no 
later than 45 days after receipt of a written notice of denial from the 
Farm Service Agency Deputy Administrator of Management. After the 45-
day period, an appeal may be accepted at the discretion of the Farm 
Service Agency Administrator if the person shows good cause.
    (2) For requests for adjustment or exception involving rated orders 
placed for the purpose of emergency preparedness (see Sec.  789.13(e)), 
an appeal must be received by the Farm Service Agency Administrator no 
later than 15 days after receipt of a written notice of denial from the 
Farm Service Agency Deputy Administrator for Management.
    (c) Contract performance under the order may not be stayed pending 
resolution of the appeal.
    (d) Each appeal must be in writing and contain a complete statement 
of all the facts and circumstances related to the appealed action from 
and a full and precise statement of the reasons the decision should be 
modified or reversed.
    (e) In addition to the written materials submitted in support of an 
appeal, an appellant may request, in writing, an opportunity for an 
informal hearing. This request may be granted or denied at the 
discretion of the Farm Service Agency Administrator.
    (f) When a hearing is granted, the Farm Service Agency 
Administrator may designate an employee of the Farm Service Agency to 
conduct the hearing and to prepare a report. The hearing officer will 
determine all procedural questions and impose such time or other 
limitations deemed reasonable. If the hearing officer decides that a 
printed transcript is necessary, the transcript expenses must be paid 
by the appellant.
    (g) When determining an appeal, the Farm Service Agency 
Administrator may consider all information submitted during the appeal 
as well as any recommendations, reports, or other relevant information 
and documents available to USDA, or consult with any other person or 
group.
    (h) The submission of an appeal under this section will not relieve 
any person from the obligation of complying with the provision of this 
part or official action in question while the appeal is being 
considered unless such relief is granted in writing by the Farm Service 
Agency Administrator.
    (i) The decision of the Farm Service Agency Administrator will be 
made within 5 days after receipt of the appeal, or within 1 day for 
appeals pertaining to emergency preparedness, and will be the final 
administrative action. The Administrator will issue a written statement 
of the reasons for the decision to the appellant.

Subpart I--Miscellaneous Provisions


Sec.  789.70  Protection against claims.

    A person will not be held liable for damages or penalties for any 
act or failure to act resulting directly or indirectly from compliance 
with any provision of this part, or an official action, even if such 
provision or action is subsequently declared invalid by judicial or 
other competent authority.


Sec.  789.71  Records and reports.

    (a) Persons are required to make and preserve for at least 3 years, 
accurate and complete records of any transaction covered by this part 
or an official action.
    (b) Records must be maintained in sufficient detail to permit the 
determination, upon examination, of whether each transaction complies 
with the provisions of this part or any official action. However, this 
part does not specify any particular method or system to be used.
    (c) Records required to be maintained by this part must be made 
available for

[[Page 29106]]

examination on demand by duly authorized representatives of USDA as 
provided in Sec.  789.51.
    (d) In addition, persons must develop, maintain, and submit any 
other records and reports to USDA that may be required for the 
administration of the Defense Production Act and other applicable 
statutes, and this part.
    (e) Section 705(d) of the Defense Production Act, as implemented by 
Executive Order 12919, provides that information obtained under that 
section which the Secretary deems confidential, or with reference to 
which a request for confidential treatment is made by the person 
furnishing such information, will not be published or disclosed unless 
the Secretary determines that the withholding of this information is 
contrary to the interest of the national defense. Information required 
to be submitted to USDA in connection with the enforcement or 
administration of the Defense Production Act, this part, or an official 
action, is deemed to be confidential under section 705(d) of the 
Defense Production Act and will be handled in accordance with 
applicable Federal law.


Sec.  789.72  Applicability of this part and official actions.

    (a) This part and all official actions, unless specifically stated 
otherwise, apply to transactions in any State, territory, or possession 
of the United States and the District of Columbia.
    (b) This part and all official actions apply not only to deliveries 
to other persons but also include deliveries to affiliates and 
subsidiaries of a person and deliveries from one branch, division, or 
section of a single entity to another branch, division, or section 
under common ownership or control.
    (c) This part and its schedules will not be construed to affect any 
administrative actions taken by USDA, or any outstanding contracts or 
orders placed based on any of the regulations, orders, schedules, or 
delegations of authority previously issued by USDA based on authority 
granted to the President in the Defense Production Act. Such actions, 
contracts, or orders will continue in full force and effect under this 
part unless modified or terminated by proper authority.


Sec.  789.73  Communications.

    Except as otherwise provided, all communications concerning this 
part, including requests for copies of this part and explanatory 
information, requests for guidance or clarification, and submission of 
appeals as specified in Sec.  789.61 will be addressed to the 
Administrator, Farm Service Agency, Room 4752, Mail Stop 0512, USDA, 
1400 Independence Ave., SW., Washington, DC 20250-0512 or e-mail: 
[email protected]. This address is also to be used for requests for 
adjustments or exceptions to the Farm Service Agency Deputy 
Administrator for Management as specified in Sec.  789.60.

SCHEDULE I TO PART 789--APPROVED PROGRAMS AND DELEGATE AGENCIES

    The programs listed in this schedule have been approved for 
priorities and allocation support under this part. They have equal 
preferential status. USDA has authorized the Delegate Agencies to use 
this part in support of those programs assigned to them, as indicated 
below.

----------------------------------------------------------------------------------------------------------------
        Program identification  symbol                   Approved program                Authorized agency
----------------------------------------------------------------------------------------------------------------
Agriculture programs:
    P1........................................  Food and food resources            USDA.
                                                 (civilian).
    P2........................................  Agriculture and food critical      USDA.
                                                 infrastructure protection and
                                                 restoration.
    P3........................................  Food resources (combat rations)..  Department of Defense.\1\
    P4........................................  Certain combined orders (see       USDA.
                                                 789.17).
----------------------------------------------------------------------------------------------------------------
\1\ Department of Defense includes: The Office of the Secretary of Defense, the Military Departments, the Joint
  Staff, the Combatant Commands, the Defense Agencies, the Defense Field Activities, all other organizational
  entities in the Department of Defense, and for purpose of this part, the Central Intelligence Agency, and the
  National Aeronautics and Space Administration as Associated Agencies.


    Signed: May 12, 2011.
Bruce Nelson,
Acting Administrator, Farm Service Agency.
[FR Doc. 2011-12153 Filed 5-18-11; 8:45 am]
BILLING CODE 3410-05-P