Defense Production Act: Agencies Lack Policies and Guidance for  
Use of Key Authorities (26-JUN-08, GAO-08-854). 		 
                                                                 
Production Act of 1950 (DPA) to ensure the availability of	 
industrial resources to meet defense needs. Amendments to the Act
allow its use for energy supply, emergency preparedness, and	 
critical infrastructure protection and require agencies to report
on foreign offsets, which are incentives to foreign governments  
to purchase U.S. goods and services. Only Titles I, III, and VII 
remain in effect. In the National Defense Authorization Act for  
Fiscal Year 2008, Congress directed GAO to review recent agency  
efforts to implement the DPA. This report (1) examines the extent
to which agencies use DPA authorities and (2) assesses agencies' 
response to reporting requirements on the economic impact of	 
foreign offsets. GAO's work is based on a review of policies and 
guidance for the use of DPA authorities, instances in which	 
agencies have exercised the authorities, and the analysis used in
required reports on foreign offsets.				 
-------------------------Indexing Terms------------------------- 
REPORTNUM:   GAO-08-854 					        
    ACCNO:   A82566						        
  TITLE:     Defense Production Act: Agencies Lack Policies and       
Guidance for Use of Key Authorities				 
     DATE:   06/26/2008 
  SUBJECT:   Agency missions					 
	     Agency proceedings 				 
	     Agricultural industry				 
	     Allocation (Government accounting) 		 
	     Contract authority 				 
	     Critical infrastructure				 
	     Data collection					 
	     Defense agreements 				 
	     Defense capabilities				 
	     Defense economic analysis				 
	     Defense industry					 
	     Defense procurement				 
	     Federal agencies					 
	     Foreign governments				 
	     Homeland security					 
	     National defense operations			 
	     Policy evaluation					 
	     Prime contracts					 
	     Reporting requirements				 
	     Requirements definition				 
	     Strategic planning 				 
	     Policies and procedures				 
	     program goals or objectives			 

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GAO-08-854

   

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Report to Congressional Committees: 

United States Government Accountability Office: 
GAO: 

June 2008: 

Defense Production Act: 

Agencies Lack Policies and Guidance for Use of Key Authorities: 

GAO-08-854: 

GAO Highlights: 

Highlights of GAO-08-854, a report to congressional committees. 

Why GAO Did This Study: 

Congress enacted the Defense Production Act of 1950 (DPA) to ensure the 
availability of industrial resources to meet defense needs. Amendments 
to the Act allow its use for energy supply, emergency preparedness, and 
critical infrastructure protection and require agencies to report on 
foreign offsets, which are incentives to foreign governments to 
purchase U.S. goods and services. Only Titles I, III, and VII remain in 
effect. 

In the National Defense Authorization Act for Fiscal Year 2008, 
Congress directed GAO to review recent agency efforts to implement the 
DPA. This report (1) examines the extent to which agencies use DPA 
authorities and (2) assesses agenciesï¿½ response to reporting 
requirements on the economic impact of foreign offsets. 

GAOï¿½s work is based on a review of policies and guidance for the use of 
DPA authorities, instances in which agencies have exercised the 
authorities, and the analysis used in required reports on foreign 
offsets. 

What GAO Found: 

The Department of Defense (DOD) routinely exercises the DPA Title I 
priorities and allocations authority, which allows rated contracts and 
orders to be delivered before others, to ensure the availability of 
defense resources. However, civilian agencies have generally not used 
the Title I authority and most differ from DOD in deciding when to 
apply it. For example, DOD places ratings on most of its contracts 
before critical defense items are needed. In contrast, agencies such as 
the Department of Homeland Security (DHS) generally request ratings 
after delivery needs are identified, potentially delaying critical 
items during emergencies. Also, agencies responsible for responding to 
domestic emergencies and procuring resources in the areas of food and 
agriculture, health resources, and civil transportation, lack policies 
and guidance that could facilitate execution of the Title I authority 
and delivery of items needed in an emergency. While the Departments of 
Agriculture (USDA) and Health and Human Services are developing 
regulations to establish a framework for considering priority ratings, 
the Department of Transportation (DOT) has not yet begun to do so. 

Table 1: Status of Priorities and Allocations Policies and Guidance by 
Agency: 

Agency: Department of Commerce; 
Area of authority: Industrial resources; Status: In place. 

Agency: Department of Defense; 
Area of authority: Defense and water resources; Status: In place. 

Agency: Department of Energy; 

Area of authority: All forms of energy; Status: In place. 

Agency: Department of Homeland Security; Area of authority: Homeland 
security programs; Status: In place. 

Agency: Department of Health and Human Services; Area of authority: 
Health resources; Status: In development. 

Agency: Department of Agriculture; 
Area of authority: Food and agriculture resources; Status: In 
development. 

Agency: Department of Transportation; Area of authority: Civil 
transportation; Status: Not in place. 

Source: GAO. 

Note: DHS is currently developing additional policies and guidance on 
implementing its authority. 

[End of table] 

Other DPA authorities have been used exclusively by DOD or have not 
been triggered by recent events. For example, DOD has generally been 
the sole user of the Title III authority for expansion of production 
capabilities, while events that would activate some Title VII 
authoritiesï¿½such as the National Defense Executive Reserve and 
voluntary agreementsï¿½have not occurred. 

Agencies have taken steps towards fulfilling their offset reporting 
requirements to Congress, but data collected by the Department of 
Commerce limits the analysis of the economic effect of offsets. 
Commerce officials noted that a more detailed analysis could be 
provided if they requested more specific product data from prime 
contractors. Also, a DOD-chaired interagency teamï¿½required to report on 
its consultations with foreign nations on limiting the adverse effects 
of offsetsï¿½has reached consensus with other nations that adverse 
effects exist, but not yet on best practices to address them. Actions 
by the National Commission on Offsets have similarly been limited in 
the assessment of economic effects. 

What GAO Recommends: 

GAOï¿½s three recommendations are that agencies develop and implement a 
priorities and allocations system, consider ratings in advance of 
emergencies, and that Commerce update regulations to better assess the 
economic effect of offsets. USDA concurred, while other agencies 
provided only technical comments. HHS and DOT indicated that they plan 
to implement our recommendations. 

To view the full product, including the scope and methodology, click on 
[hyperlink, http://www.gao.gov/cgi-bin/getrpt?GAO-08-854]. For more 
information, contact Ann Calvaresi Barr at (202) 512-4841 or 
[email protected]. 

[End of section] 

Contents: 

Letter: 

Results In Brief: 

Background: 

DOD Is the Primary User of DPA Authorities, but Civilian Agency Use Has 
Been Limited: 

Efforts to Assess Foreign Offsets Have Been Limited: 

Conclusion: 

Recommendations for Executive Action: 

Agency Comments: 

Appendix I: Scope and Methodology: 

Appendix II: Priorities and Allocations Authority under Title I of the 
Defense Production Act: 

Appendix III: Title III Authority for Expansion of Production 
Capabilities for Critical Security Needs: 

Tables: 

Table 1: Status of Priorities and Allocations Policies and Guidance by 
Agency: 

Table 2: Title III Project Descriptions and Dollar Costs: 

Figure: 

Figure 1: Number of Title III Projects Initiated by Fiscal Year: 

Abbreviations: 

BIS: Bureau of Industry and Security: 

DHS: Department of Homeland Security: 

DOD: Department of Defense: 

DOE: Department of Energy: 

DOT: Department of Transportation: 

DPA: Defense Production Act of 1950: 

DPAS: Defense Priorities and Allocations System: 

EDS: Explosives Detection Systems: 

FEMA: Federal Emergency Management Agency: 

HHS: Department of Health and Human Services: 

MRAP: Mine Resistant Ambush Protected Vehicle: 

NAICS: North American Industry Classification System: 

NASA: National Aeronautics and Space Administration: 

NDER: National Defense Executive Reserve: 

SIC: Standard Industrial Classification: 

TSA: Transportation Security Administration: 

USACE: U.S. Army Corps of Engineers: 

USDA: United States Department of Agriculture: 

[End of section] 

United States Government Accountability Office:
Washington, DC 20548: 

June 26, 2008: 

Congressional Committees: 

During the Korean War, Congress enacted the Defense Production Act of 
1950 (DPA)[Footnote 1] to ensure the availability of industrial 
resources to meet the needs of the Department of Defense (DOD). Over 
time, DPA has been amended to include energy supply, emergency 
preparedness, and critical infrastructure protection and restoration 
activities, thereby allowing civilian agencies to rapidly respond to 
crises such as natural disasters and terrorist attacks. Only Titles I, 
III, and VII of the DPA remain in effect. These titles allow the 
President to require preferential performance on government contracts 
with private companies, provide financial incentives to increase 
production capabilities for critical security needs, and collect 
information related to domestic industrial base issues. 

As the nation confronts new threats and rising security challenges, it 
is critical that agencies are able to quickly obtain the necessary 
resources to respond. In fiscal year 2008, Congress directed GAO to 
review recent use of the DPA in the areas of defense, energy, domestic 
emergency and disaster response and recovery, and critical 
infrastructure, as well as to review issues related to the economic 
impact of foreign offsets--incentives provided to foreign governments 
to purchase U.S. military goods and services.[Footnote 2] In response, 
we (1) examined the extent to which agencies use DPA authorities and 
(2) assessed agencies' response to reporting requirements on the 
economic impact of foreign offsets. 

To conduct our work, we analyzed applicable agency regulations, 
policies, and guidance for the use of DPA authorities and reviewed 
documentation on circumstances in which selected agencies have 
exercised the authorities since DPA was last reauthorized to respond to 
defense, energy, domestic security, disaster response and critical 
infrastructure protection and restoration requirements. We also 
reviewed DPA reporting requirements and the resulting reports. Finally, 
we spoke with officials from DOD and the Departments of Agriculture 
(USDA), Commerce (Commerce), Energy (DOE), Health and Human Services 
(HHS), Homeland Security (DHS), and Transportation (DOT), as relevant 
to our objectives. We conducted this performance audit from January 
2008 through June 2008 in accordance with generally accepted government 
auditing standards. These standards require that we plan and perform 
the audit to obtain sufficient, appropriate evidence to provide a 
reasonable basis for our findings and conclusions based on our audit 
objectives. We believe that the evidence obtained provides a reasonable 
basis for our findings and conclusions based on our audit objectives. 
For more on our scope and methodology, see appendix I. 

Results In Brief: 

DOD routinely exercises the priority and allocations authority under 
Title I of the DPA to place priority ratings on contracts, ensuring 
preferential delivery of industrial resources and capabilities for 
defense needs. However, civilian agencies have generally not used the 
Title I authority and most differ from DOD in deciding when to apply 
it. For example, DOD proactively places priority ratings on most of its 
contracts at the time of award and before critical defense items are 
needed to ensure timely execution of the authority. In contrast, 
agencies such as DHS place priority ratings on contracts that support 
approved programs after delivery issues are identified, potentially 
delaying delivery of critical products during emergencies. Also, we 
found that civilian agencies responsible for responding to domestic 
emergencies in the areas of civil transportation, health resources, and 
food and agriculture resources have not developed and implemented 
policies or guidance to use the Title I authority that could facilitate 
more timely execution. Instead, the process for implementation is 
unclear and could potentially cause delays in emergencies as agencies 
navigate the process. While HHS and USDA are beginning to develop 
regulations that will establish a framework for considering requests 
for priority ratings, DOT officials stated that they have not yet begun 
to develop such policies. Other DPA authorities have been used 
exclusively for defense needs or have not been triggered by recent 
events. For example, DOD has generally been the sole user of the Title 
III authority for expansion of production capabilities, while events 
that would trigger the use of some Title VII authorities--such as the 
National Defense Executive Reserve and voluntary agreements--have not 
occurred. 

Agencies have taken steps towards fulfilling their offset reporting 
requirements to Congress, but the type of data collected by the 
Department of Commerce limits the analysis of the economic effect of 
offsets. According to Commerce officials, a more detailed analysis 
could be provided if they requested more specific product data from 
prime contractors. At the same time, an interagency team chaired by 
DOD--which is required to report on its consultations with foreign 
nations on limiting the adverse effects of offsets--has reached 
consensus with these nations that adverse effects exist, but not yet on 
best practices to address them. Other related reporting actions, such 
as those initiated by the National Commission on Offsets, have also 
been limited in their assessments of economic effects. 

We are recommending that the Secretaries of Agriculture, Health and 
Human Services, and Transportation develop and implement a system for 
using the priorities and allocations authority for food and agriculture 
resources, health resources, and civil transportation, respectively. We 
are also recommending that the Secretaries of Agriculture, Energy, 
Health and Human Services, Homeland Security, and Transportation 
consider approving programs and placing priority ratings on contracts 
in advance of emergencies for items that are likely to be needed in an 
emergency situation. In addition, we are recommending that the 
Secretary of Commerce update regulations to improve the assessment of 
the economic effect of offsets. 

In official comments on a draft of this report, USDA generally 
concurred with our findings and recommendations. Other agencies did not 
officially comment on our recommendations, but provided technical 
comments that were incorporated as appropriate. In their technical 
comments, HHS and DOT indicated that they will implement our 
recommendations. 

Background: 

The DPA is intended to facilitate the supply and timely delivery of 
products, materials, and services to military and civilian agencies in 
times of peace as well as in times of war. Since it was enacted in 
1950, DPA has been amended to broaden its definition beyond military 
application. Congress has expanded DPA's coverage to include crises 
resulting from natural disasters or "man-caused events" not amounting 
to an armed attack on the United States. The definition of "national 
defense" in the Act has been amended to include emergency preparedness 
activities conducted pursuant to Title VI of the Robert T. Stafford 
Disaster Relief and Emergency Assistance Act (Stafford Act)[Footnote 3] 
and critical infrastructure protection and restoration.[Footnote 4] In 
2003, the DPA was reauthorized through September 30, 2008.[Footnote 5] 

Currently, only Titles I, III, and VII are in effect: 

* Title I authorizes the President to require priority performance on 
contracts or orders and allocate materials, services, and facilities as 
necessary or appropriate to promote the national defense or to maximize 
domestic energy supplies for national defense needs.[Footnote 6] The 
authority allows priority-rated contracts or orders to take preference 
over any other unrated contract or order if a contractor cannot meet 
all required delivery dates. The authority is delegated among various 
agencies, including DOD, USDA, and Commerce, with respect to different 
types of resources such as water, food and agriculture, and industrial 
resources.[Footnote 7] Currently, Commerce administers the only 
priorities and allocations system that is actively used--the Defense 
Priorities and Allocations System (DPAS)--which is used for industrial 
resources. Commerce has delegated its authority to use priority ratings 
for industrial resources to DOD, DOE, and DHS in support of approved 
national defense, energy, and homeland security programs.[Footnote 8] 

* Title III allows agencies to provide a variety of financial 
incentives to domestic firms to invest in production capabilities to 
ensure that the domestic industrial and technological base is capable 
of meeting the critical national security needs of the United States. 
It may be used when domestic sources are required and firms cannot, or 
will not, act on their own to meet a national defense production need. 
Title III financial incentives are designed to reduce the risks for 
domestic suppliers associated with the capitalization and investments 
required to establish, expand, or preserve production capabilities. 
Executive Order 12,919 authorized the authority to implement Title III 
actions to the Secretary of Defense and the heads of other federal 
agencies and designates the Secretary of Defense as the DPA Fund 
Manager. DOD's Office of Technology Transition provides top-level 
management, direction, and oversight of the DPA Title III program. The 
Air Force serves as the Executive Agent for DOD's Title III program, 
and maintains a program office to execute the authority under the 
guidance of the Office of the Secretary of Defense. 

* Title VII provides for a range of authorities, which include giving 
private firms that participate in voluntary agreements for preparedness 
programs, defenses from aspects of the antitrust laws and protecting 
contractors who honor priority-rated contracts from lawsuits brought by 
other customers. Title VII allows for establishing a National Defense 
Executive Reserve (NDER) composed of recognized experts from the 
private sector and government, which could be activated in the event of 
an emergency. Title VII also provides for investigative authority to 
collect information on the U.S. industrial base, which has been used by 
Commerce to conduct surveys and prepare reports at the request of the 
armed services, Congress, and industry. 

DPA also requires the President to report annually to Congress on the 
effect of offsets--a range of incentives or conditions provided to 
foreign governments to purchase U.S. military goods and services--on 
U.S. defense preparedness, industrial competitiveness, employment, and 
trade.[Footnote 9] Additionally, DPA requires Commerce to prepare a 
report to the Congress on the cumulative effects of offsets on defense 
trade, with a focus on the U.S. defense subcontractor base.[Footnote 
10] 

Defense offsets include coproduction arrangements and subcontracting, 
technology transfers, in-country procurements, marketing and financial 
assistance, and joint ventures. Foreign governments use offsets to 
reduce the financial effect of their defense purchases, obtain valuable 
technology and manufacturing know-how, support domestic employment, 
create or expand their defense industries, and make the use of their 
national funds for foreign purchases more politically palatable. Views 
on defense offsets range from beliefs that they are both positive and 
an unavoidable part of doing business overseas to beliefs that they 
negatively affect the U.S. industrial base. U.S. prime contractors have 
indicated that if they did not offer offsets, export sales would be 
reduced and the positive effects of those exports on the U.S. economy 
and defense industrial base would be lost. Critics charge that negative 
aspects of offset transactions limit or negate the economic and 
industrial benefits claimed to be associated with defense export sales. 

The effect of offsets on the U.S. economy has been a concern for many 
years, and Congress has on numerous occasions required some federal 
agencies to take steps to define and address offset issues. DPA, as 
amended, provided for an interagency team to consult with foreign 
nations on limiting the adverse effects of offsets in defense 
procurement--without damaging the U.S. economy or defense preparedness-
-and provide an annual report on their consultations and meetings. 
Other steps have been taken to address offsets outside of the DPA, 
including establishing a national commission to report on the extent 
and nature of offsets. 

DOD Is the Primary User of DPA Authorities, but Civilian Agency Use Has 
Been Limited: 

DOD is the primary user of the DPA, but other agencies can use Title I 
priorities and allocations authority for emergency support functions. 
Agencies other than DOD generally do not apply the authority and would 
do so after an issue affecting delivery needs had been identified, 
which could add delays to the delivery of critical products during 
emergencies. We found a lack of developed policies or guidance also may 
limit agencies' ability to use the authority in emergencies. Other 
authorities in the DPA have had limited use. Specifically, Title III 
authority to expand production capabilities for industrial resources or 
critical technology essential to the national defense has been used 
almost exclusively for defense needs, and circumstances have not 
required use of some Title VII authorities, such as the National 
Defense Executive Reserve or voluntary agreements. 

Agencies' Timely Use of Title I Authorities Could Be Limited in 
Emergencies: 

While other agencies have used or have considered using Title I's 
priorities and allocations authority, DOD has been the primary user. 
DOD places priority ratings as a proactive measure on almost all of its 
contracts for industrial resources, which number approximately 300,000 
annually, to facilitate timely execution of the authority. The Title I 
authority allows rated contracts or orders to take preference over any 
other unrated contract or order if a contractor cannot meet all 
required delivery dates. DOD has used the authority in recent years to 
prioritize the delivery of material for body armor for the Army and 
Marine Corps and to ensure that the military's Counter-Improvised 
Explosive Device systems and the Mine Resistant Ambush Protected 
Vehicle program receive high industrial priority. DOD employs this 
approach to ensure that its use of the priorities and allocations 
authority is self-executing, which it reports should mitigate the risk 
of not having critical items to meet defense requirements. The U.S. 
Army Corps of Engineers (USACE), which executes the authority for water 
resources, also uses this approach to procure water through advance 
contracts for emergency response purposes, according to a USACE 
official. 

In contrast, officials from other agencies indicated that they would 
decide to place priority ratings on contracts or modifications on a 
case-by-case basis after a triggering event had identified an issue 
affecting delivery. DHS reported that it has authorized or endorsed to 
the Department of Commerce the use of priority ratings 15 times since 
2003, which includes endorsing other federal agencies' use of priority 
ratings in support of homeland security programs. DHS makes 
endorsements with respect to programs, not specific contracts. Over 
half of these have been in support of critical infrastructure 
protection and restoration requirements. For example, a railroad 
company used a priority-rated contract to procure switch equipment and 
generators to help restore rail service in the Gulf Coast region 
following Hurricane Katrina. DHS also endorsed the use of a priority 
rating for a Department of State continuity of operations facility for 
which Commerce authorized a priority rating for a contract to procure a 
generator to provide emergency power. However, DHS officials told us 
that, unlike DOD, its contracts, including those placed for emergency 
preparedness purposes, do not automatically receive priority ratings. 

DOE, HHS, USDA, and DOT have had little or no experience using Title I 
priorities and allocations authority. The National Nuclear Security 
Administration, a separately organized agency within DOE, has applied 
priority ratings to contracts primarily in support of defense and 
atomic energy programs. Aside from these purposes, DOE has not 
encountered a need requiring the use of its priority and allocations 
authority for energy resources in the past several years. However, DOE 
also reported that it has considered using the authority in response to 
a number of emergency preparedness and disaster response cases, such as 
the restoration of refinery services affected by fire and flooding in 
2007. Upon consideration, DOE determined that use of the authority was 
not necessary. DOT has not used the Title I authority since the DPA was 
reauthorized in 2003, but has used it in the past for airport security 
and in support of DOD during the Gulf War. Appendix II describes DOT's 
current and past use. While HHS and USDA officials said that they have 
not encountered circumstances to date that would require the use of 
priority rated orders, HHS officials anticipated that they could use 
the authority to place priority ratings on contracts prior to an 
emergency for a selected number of health resources needed in an 
emergency, such as masks, respirators, and antibiotics. In contrast, 
USDA and DOT officials indicated that they would place a rating on a 
contract once it was determined that the private sector could not 
otherwise respond to a need. 

Most of the agencies we reviewed play a key role in an emergency--under 
the National Response Framework--to execute contracts to procure needed 
goods and services in areas such as transportation, human services, and 
energy.[Footnote 11] We have previously recommended that DHS provide 
guidance on advance procurement practices and procedures for those 
federal agencies with roles and responsibilities under the National 
Response Plan.[Footnote 12] Our prior work identified a number of 
emergency response practices in the public and private sectors that 
provide insight into how the federal government can better manage its 
disaster-related procurements, including developing knowledge of 
contractor capabilities and prices, establishing vendor relationships 
prior to the disaster, and establishing a scalable operations plan to 
adjust the level of capacity to match the response with the need. DHS 
and Commerce officials recognized that while the priorities and 
allocations authority cannot be used for procurement of items that are 
commonly available in sufficient quantities, emergency situations can 
quickly affect the availability of items. Further, priority ratings can 
be placed on procurement documents that provide for items as needed but 
would not be considered rated until a specific delivery date was 
identified and received by the supplier. However, agencies have 
generally not considered placing priority ratings on contracts for 
critical emergency response items before an emergency occurs and, 
instead, would wait until there is an issue that affects delivery of 
needed goods and services. 

Agency officials acknowledged that there is a need to have policies and 
guidance in order to implement the Title I priorities and allocations 
authority, but the degree to which agencies have accomplished this 
varies. Currently, the Defense Priorities and Allocations System (DPAS) 
is the only active system for implementing the authority in operation, 
used primarily by Commerce, DOD, DOE, and DHS for industrial resources. 
Commerce has established a regulation governing DPAS, and DOD and DOE 
have internal policies and procedures for using the authority. DHS is 
in the process of establishing policies and procedures to fully 
implement its priorities and allocations authority. Despite these 
efforts, gaps remain. Currently, there is no system for using the 
priorities and allocations authority for food and agriculture, health, 
and civil transportation resources. USDA and HHS officials told us they 
are in the process of developing regulations for using Title I for food 
and agriculture and health resources, respectively, modeled on DPAS. 
DOT officials acknowledged that they do not have an established system 
for using the authority for civil transportation needs, but have 
internal protocols in place to contact Commerce and DHS should the need 
arise.[Footnote 13] DOT officials said they have not yet begun the 
process to develop regulations for a priorities and allocations system. 
Table 1 provides a summary of the status of agencies' priorities and 
allocations policies and guidance. 

Table 1: Status of Priorities and Allocations Policies and Guidance by 
Agency: 

Agency: Department of Commerce; 
Area of authority: Industrial resources; 
Status of policies/guidance: Operates under DPAS regulation[A]. 

Agency: Department of Defense; 
Area of authority: Defense; 
Status of policies/guidance: Operates under DPAS regulation, DOD 
directive, and DOD Priorities and Allocations Manual[B]. 

Agency: Department of Defense; 
Area of authority: Water resources; 
Status of policies/guidance: US Army Corps of Engineers operates under 
DOD Priorities and Allocations Manual for executing water resource 
priorities and allocations authority. 

Agency: Department of Energy; 
Area of authority: All forms of energy; 
Status of policies/guidance: Operates under DPAS regulation and 
procedures described in DOE priorities and allocations regulation and 
order[C]. 

Agency: Department of Homeland Security; 
Area of authority: Homeland security programs[D]; 
Status of policies/guidance: Operates under DPAS regulation and is 
currently establishing policies and procedures for implementing 
authority, which it expects to complete this year. 

Agency: Department of Health and Human Services; 
Area of authority: Health resources; 
Status of policies/guidance: In process of developing regulations for a 
priorities and allocations system modeled on DPAS, but has no timeline 
for completion. 

Agency: Department of Agriculture; 
Area of authority: Food and agriculture resources; 
Status of policies/guidance: In process of developing regulations for a 
priorities and allocations system modeled on DPAS, which it expects to 
complete by the end of this year. 

Agency: Department of Transportation; 
Area of authority: Civil transportation; 
Status of policies/guidance: Currently does not have a priorities and 
allocations system. 

Source: GAO. 

[A] 15 C.F.R. Part 700. 

[B] 15 C.F.R. Part 700; DOD Directive 4400.1, Defense Production Act 
Programs (2001); DOD Priorities and Allocations Manual, DOD 4400.1-M 
(2002). 

[C] 10 C.F.R. Part 216; DOE Order 0544.1. 

[D] There are eight approved homeland security programs, which include 
emergency preparedness and response and critical infrastructure 
protection and restoration activities. 

[End of table] 

DOD, DHS, and DOE have supplemented their policies and guidance with 
training and outreach efforts to increase awareness of the authority 
and its potential applications. DOD has developed online training on 
the use of its priorities and allocations authority, and DHS is 
currently developing a Web site and a training program for its 
personnel and other groups such as contractors and state and local 
government personnel. DOE is updating its energy emergency support 
function operations manual with references to the authority, and has 
incorporated information on use of the authority in its emergency 
responder training. 

Given the status of available policies and guidance for certain 
resources, additional time could be required to react to emergency 
situations as agencies determine the proper procedures for using the 
authority. In addition, agencies may have to rely on less-efficient 
means for using the authority. For example, a DOD official stated that 
the Defense Logistics Agency has been working with HHS to establish a 
Memorandum of Understanding to use priority ratings to procure auto- 
injector medical devices for the military, as DOD's priorities and 
allocations authority does not apply to health resources.[Footnote 14] 
Further, DOT lacks a system for exercising the authority for civil 
transportation that could help facilitate more timely delivery of 
critical items and services and could avoid additional steps to 
identify the appropriate processes each time an emergency situation 
arises.[Footnote 15] 

Other DPA Authorities Have Been Used Primarily for Defense Needs as 
Events Have Not Triggered Their Use in Other Areas: 

DOD has generally been the exclusive user of Title III's authority to 
stimulate investment and expand production capabilities and is 
currently the only agency with a program office prepared to readily use 
the authority. DOD has used the authority, for example, to modernize 
and preserve two domestic manufacturing sources for next-generation 
radiation-hardened microelectronics for space and missile systems and 
to reestablish a domestic production source for high-purity beryllium 
metal that was lost when the sole domestic production facility was shut 
down. It is also being used to establish a domestic source for lithium 
ion battery production and to expand production of lightweight, 
transparent armor for the military. Appendix III includes examples of 
DOD's use of the Title III authority. DOE officials stated that they 
have worked with the DOD Title III Program Office on cooperative 
projects. For example, they noted that they actively managed a project 
to supply high temperature superconductors. Additionally, DOE and 
National Aeronautics and Space Administration (NASA) have contributed 
money in support of DOD-managed projects. Other agencies have 
considered using the authority for non-defense needs but pursued other 
alternatives. For example, DHS had committed funds toward a potential 
project on biological agents, but pulled back planned funding because 
DHS was pursuing an alternative project. Similarly, HHS considered 
using Title III authority to expand production of vaccines, but no 
project resulted. USDA officials stated that, based on the availability 
of suppliers for items they typically purchase, they did not see a need 
to use Title III. 

DOD officials noted that statutory limitations on the use of Title III 
authority present challenges to efficient use of the authority. For 
example, the requirement that Congress be notified of new projects via 
the annual budget cycle creates a waiting period of up to one year 
before new projects can be initiated and can hinder use of the 
authority to meet rapidly evolving defense industrial base needs. To 
address this and other challenges, DOD has proposed amendments to DPA. 
These include allowing for notification to Congress of new projects in 
writing throughout the year rather than through the budget cycle, as 
well as reducing the required waiting period for awarding contracts 
from 60 to 30 days and increasing the statutory limitation on actions 
under Title III from $50,000,000 to $200,000,000 before specific 
authorization in law is required.[Footnote 16] According to officials, 
past Title III projects were primarily initiated and funded through DOD 
based on the needs of particular programs or through information 
received from industries. However, as shown in figure 1, a growing 
number of projects have been funded through Congressionally directed 
projects.[Footnote 17] 

Figure 1: Number of Title III Projects Initiated by Fiscal Year: 

[See PDF for image] 

This figure is a vertical bar graph depicting the following data: 

Year: 2002; 
DOD-initiated: 1; 
Congressionally requested: 0. 

Year: 2003; 
DOD-initiated: 1; 
Congressionally requested: 0. 

Year: 2004; 
DOD-initiated: 0; 
Congressionally requested: 2. 

Year: 2005; 
DOD-initiated: 5; 
Congressionally requested: 3. 

Year: 2006; 
DOD-initiated: 1; 
Congressionally requested: 6. 

Year: 2007; 
DOD-initiated: 2; 
Congressionally requested: 4. 

Year: 2008; 
DOD-initiated: 0; 
Congressionally requested: 7. 

Source: Title III Program Office, U.S. Air Force. 

[End of figure] 

Some civilian agency officials identified other limitations in 
initiating new projects under Title III, such as a lack of 
institutional willingness to use the authority and available funds. For 
example, DOE officials stated that it would be difficult to defend, 
fund, and manage a project from a departmental standpoint. However, 
they added that DOE's involvement in current projects suggests that 
Title III may be used to enhance production capabilities for industrial 
resources needed for energy production and distribution. 

The Title VII authority to collect information on the U.S. industrial 
base has been used by Commerce almost exclusively to address 
capabilities of industries supplying DOD. Because DOD has a diverse 
supplier base, these assessments have covered a range of industries 
from biotechnology to textiles and apparel. While Commerce officials 
recognized that the DPA's definition of national defense has been 
expanded to include emergency preparedness and the protection of 
critical infrastructure, they stated that an assessment at the request 
of agencies other than DOD would require additional resources based on 
current and projected workloads. 

In general, agencies have policies and guidance on using Title VII's 
other authorities but have never had to employ them in an actual event. 
The Federal Emergency Management Agency (FEMA), under DHS, has interim 
guidance and is preparing a new regulation on forming and activating 
NDER units--reserves composed of government and industry experts--in 
the event of an emergency, yet has not activated its NDER and is 
currently assessing the need for it.[Footnote 18] While DOE and DOT no 
longer have active NDER units, which were associated with Cold War 
threats, a DOE official stated that the department is interested in 
continuing to work with DHS to restore its unit while DOT officials 
expressed similar interest in re-establishing an NDER should a 
justifiable reason be established under existing crisis management 
programs and authorities. 

DOT officials stated that it is positioned to use Title VII's authority 
to develop voluntary agreements and plans of action for preparedness 
programs and expansion of production capacity and supply that make 
defenses from antitrust laws available to participating industry 
representatives. DOT currently has voluntary agreements with commercial 
tanker and maritime shipping industries to rapidly mobilize resources 
in support of defense needs, but noted that events have not triggered 
the activation of the established plans of action. DHS reported that 
because of the time needed to use this authority it could take 21 to 50 
days to establish a voluntary agreement following a disaster, affecting 
the usefulness of the authority in an emergency. HHS officials told us 
that another statute provides similar authority that the agency could 
implement more quickly for certain health-related purposes.[Footnote 
19] 

Efforts to Assess Foreign Offsets Have Been Limited: 

Agencies have taken steps towards fulfilling their offset reporting 
requirements, but the information in these reports does not provide a 
basis for fully evaluating the effect of offsets on the U.S. economy or 
take steps to address them. In its annual reports to Congress, Commerce 
provides useful summaries of offsets issues, but the type of data 
collected from prime contractors limits their analysis. Efforts from an 
interagency team chaired by DOD to consult with other countries on 
limiting harmful effects of offsets have resulted in a consensus with 
other nations that negative effects exist, but not yet on best 
practices to address them. Other related efforts to report on offsets 
have yet to be completed and are limited in their assessments of 
economic effects. 

A Lack of Specific Industry Data has Limited the Analysis of Economic 
Effects of Offsets: 

The DPA requires Commerce to provide an annual report to Congress on 
the impacts of offsets on the defense preparedness, industrial 
competitiveness, employment, and trade of the United States.[Footnote 
20] Commerce's annual reports provide a summary of total offset 
agreement and transaction activity entered into between U.S. defense 
contractors and foreign governments in connection with U.S. defense 
related exports. Commerce's efforts to quantify the employment effects 
of offsets are based on limited data. For example, the employment 
analysis relies on aggregated defense aerospace data, which do not 
include other defense sectors nor delineate between subsectors of the 
aerospace industry. Further, the most recent annual report on offsets 
noted that its analysis does not include the potential effects of 
nearly $1 billion of technology transfer, training, and overseas 
investment offset transactions, representing nearly 24 percent of 
average annual offset transactions.[Footnote 21] 

The 2003 DPA reauthorization also requires Commerce to report on the 
impact of offsets on domestic prime contractors and, to the extent 
practicable, the first three lower tier subcontractors. These reports 
are to address domestic employment, including any job losses on an 
annual basis.[Footnote 22] The August 2004 report, produced in response 
to the 2003 DPA reauthorization, provided useful data on the scope of 
offset agreements and transactions during the preceding 5-year period, 
but data collected in surveys of prime and subcontractors limited the 
analysis on employment effects. To assess the effect of offsets on 
domestic employment, Commerce surveyed prime contractors and three 
tiers of subcontractors. While Commerce acknowledged that it could have 
requested documentation for all of the nearly 700 weapon systems and 
components contracts for the 5-year period (1998 through 2002), 
documentation was requested for only two weapon systems from each of 
the 13 U.S. prime contractors. Commerce cited sensitivity to not 
burdening contractors and a desire to be responsive to reporting time 
frames as a cause. The analysis was further limited by a less than 40 
percent response rate to the survey of the three tiers of 
subcontractors. Moreover, this survey used subjective measurements by 
asking for subcontractors' perceptions of the influence of offsets on 
employment, asking respondents to rank offsets among a variety of 
factors as they related to increases or decreases in U.S. employment. 

We have previously stated that, in evaluating offsets and identifying 
their effects on the U.S. economy as a whole, it is difficult to 
isolate the effects of offsets from the numerous other factors 
affecting specific industry sectors.[Footnote 23] Despite such 
difficulties, Commerce officials stated that they could request more 
specific product data from prime contractors that would allow for more 
detailed analysis of the effect of offsets on the U.S. economy. Under 
DPA, the Secretary of Commerce is given authority to promulgate 
regulations to collect offset data from U.S. defense firms entering 
into contracts for the sale of defense articles or services to foreign 
countries or firms that are subject to offset agreements exceeding $5 
million in value. The Secretary of Commerce designated this authority 
to the Bureau of Industry and Security (BIS), which published its first 
offset regulations in 1994.[Footnote 24] The regulations, which have 
never been updated, require companies to annually report information 
such as a name or description of the weapon system; defense item or 
service subject to the offset agreement; the name of the country of the 
purchasing entity; the approximate value of export sale subject to 
offset; and the total dollar value of the offset agreement. The 
regulations also require prime contractors to report on the broad 
industry category, based on outdated four-digit Standard Industry 
Classification (SIC) codes, in which offset transactions are fulfilled. 
Currently, 84 percent of the value of export contracts involving 
offsets submitted by prime contractors are for the aerospace industry 
and there is no delineation among subsectors of the aerospace industry. 

According to Commerce officials, their analysis of the economic effect 
of offsets could be improved by requesting more detailed sector and 
product information based on updated six-digit North American Industry 
Classification System (NAICS) codes from prime contractors. As the 
NAICS has replaced the SIC, such improvements would allow Commerce to 
provide greater insight into the effects of offsets on specific 
subsectors of the economy and would more closely match employment data 
already used in their analysis. BIS is currently conducting a review of 
the data and methodology used to assemble their annual reports on 
offsets. BIS officials have stated that they will review additional 
sources of data from sources such the Bureau of Labor Statistics and 
Commerce's Bureau of Economic Analysis. Commerce officials anticipate 
the outcome of this review to be represented in their next annual 
report. However, changes to the regulation would not affect data 
collection for the next annual report. 

Other Efforts to Report on Offsets Have Been Limited: 

In the 2003 DPA reauthorization, Congress created an interagency team 
to consult with foreign nations on limiting the adverse effects of 
offsets in defense procurement--without damaging the U.S. economy, 
defense industrial base, defense production, or defense preparedness-- 
and prepare an annual report detailing the results of their foreign 
consultations.[Footnote 25] In February 2007, the interagency team-- 
chaired by DOD, as designated by the President--issued its third and 
final report, which identified concerns shared by the United States and 
foreign nations about the adverse effects of offsets.[Footnote 26] This 
report, developed in consultation with representatives from U.S. 
government agencies, U.S. industry, and foreign nations, provided 
findings, recommendations, and strategies for limiting these adverse 
effects. The interagency working group went on to engage in bilateral 
dialogue with Australia in May 2007 and multilateral dialogue with six 
other countries in November 2007 and reached consensus to pursue the 
possibility of developing a statement of best practices for limiting 
the adverse effects of offsets.[Footnote 27] However, participants 
identified challenges including a lack of agreement on terminology and 
differences in views between national defense sectors and government 
agencies. While the interagency working group established a goal of 
producing a preliminary statement by the latter half of 2008, 
participating nations noted in the report that it will be difficult and 
time-consuming to do so. 

Additionally, the Defense Offsets Disclosure Act of 1999 established a 
national commission, requiring the President to submit a report to 
Congress addressing all aspects of the use of offsets in international 
defense trade within a year of its establishment.[Footnote 28] The 
commission, whose members included representatives from government, 
business, labor, and academia, produced an interim report in 2001 that 
described the extent and nature of defense-related offsets in both 
defense and commercial trade. It also described a variety of effects of 
offsets on the U.S. defense supplier base. For example, the commission 
reported that while offsets may facilitate defense export sales--which 
can help maintain the economic viability of certain U.S. firms--offsets 
can also supplant a significant amount of work and jobs that would go 
to U.S. firms if export sales occurred without offsets. The commission 
also reported that U.S. technology transfers through offsets often 
improved foreign firms' competitiveness, but rarely resulted in 
technology transfer back to the United States. The commission was to 
provide a final report with areas for additional study including the 
effects of indirect and commercial offsets, the effects of offsets on 
industries other than aerospace as well as concrete policy 
recommendations. Due to the 2001 change in the presidential 
administrations, which resulted in vacancies in the five executive 
branch positions on the commission, the final report and 
recommendations were never produced and no further activity by the 
commission occurred. 

Conclusion: 

Since the DPA was last reauthorized in 2003, there has been little use 
of its authorities for areas other than defense. Lessons learned from 
catastrophic events have emphasized the importance of ensuring that 
needed capabilities and contracts for key items are in place in advance 
of a disaster. Without an established system for considering and acting 
on requests to use priorities and allocations authority, additional 
time could be required to react to emergency situations as agencies 
determine the proper procedures for using the authority. Placing 
priority ratings on contracts only after a delivery problem has arisen 
could also limit agencies' ability to make timely use of the authority 
in an emergency. Agencies' efforts could be strengthened by placing 
priority ratings on contracts for critical emergency response items 
before an event occurs. 

DPA also requires Commerce to report on the potential impact of offsets 
on the U.S. economy, which has been a concern for many years. The lack 
of usable data in the Department of Commerce's reports limits the 
government's ability to gain knowledge on the economic effects of 
offsets and to take steps to address them. 

Recommendations for Executive Action: 

To ensure that the full range of Defense Production Act authorities can 
be used in an effective and timely manner, we recommend the Secretaries 
of Agriculture, Health and Human Services, and Transportation, in 
consultation with the Department of Commerce, develop and implement a 
system for using the priorities and allocations authority for food and 
agriculture resources, health resources, and civil transportation 
respectively. 

To maximize effective use of the priorities and allocations authority, 
we recommend the Secretaries of Agriculture, Energy, Health and Human 
Services, Homeland Security, and Transportation consider, in advance of 
an emergency, approving programs and placing priority ratings on 
contracts for items that are likely to be needed in an emergency. 

To position the Department of Commerce to respond to offset reporting 
requirements, we recommend the Secretary of Commerce update regulations 
to, for example, request more specific industry information from prime 
contractors that would improve the assessment of the economic effects 
of offsets. 

Agency Comments: 

We provided a draft of this report to USDA, Commerce, DOD, DOE, HHS, 
DHS, and DOT for comment. In official comments, USDA generally 
concurred with our findings and recommendations. Other agencies did not 
officially comment on our recommendations, but provided technical 
comments that were incorporated as appropriate. 

In its technical comments HHS noted that it is beginning to develop a 
regulation to establish a framework for considering requests for 
priority ratings. In line with GAO's recommendations, the regulation 
would allow for priority ratings for health resources to be approved in 
advance of an emergency situation. 

DOT noted in its technical comments that, based on its review of the 
draft, it will develop regulations for a priorities and allocations 
system. 

We are sending copies of this report to the Secretaries of Agriculture, 
Commerce, Defense, Energy, Health and Human Services, Homeland 
Security, and Transportation. We will also make copies available to 
others upon request. In addition, the report will be available at no 
charge on the GAO Web site at [hyperlink, http://www.gao.gov]. 

Please contact me at (202) 512-4841 or [email protected] if you 
have any questions regarding this report. Contact points for our 
Offices of Congressional Relations and Public Affairs may be found on 
the last page of this report. Key contributors to this report were John 
Neumann, Assistant Director; Marie Ahearn; Julie Hadley; Lauren Heft; 
Kevin Heinz; Marcus Lloyd Oliver; and Karen Sloan. 

Signed by: 

Ann Calvaresi Barr, Director: 
Acquisition and Sourcing Management: 

List of Committees: 

The Honorable Carl Levin: 
Chairman: 
The Honorable John McCain: 
Ranking Member: 
Committee on Armed Services: 
United States Senate: 

The Honorable Christopher J. Dodd: 
Chairman: 
The Honorable Richard C. Shelby: 
Ranking Member: 
Committee on Banking, Housing, and Urban Affairs: 
United States Senate: 

The Honorable Ike Skelton: 
Chairman: 
The Honorable Duncan L. Hunter: 
Ranking Member: 
Committee on Armed Services: 
House of Representatives: 

The Honorable Barney Frank: 
Chairman: 
The Honorable Spencer Bachus: 
Ranking Member: 
Committee on Financial Services: 
House of Representatives: 

[End of section] 

Appendix I: Scope and Methodology: 

To determine the extent to which agencies use the authorities in the 
Defense Production Act of 1950 (DPA), we reviewed the current 
legislation and recent amendments. In defining our scope we referred to 
Section 889 of the National Defense Authorization Act for Fiscal Year 
2008 and focused on use of authorities since the 2003 reauthorization 
to respond to defense, energy, domestic security, disaster response, 
and critical infrastructure protection and restoration requirements. We 
reviewed and analyzed applicable regulations, policies, and guidance 
from seven agencies that have been delegated authority to use the DPA 
by Executive Order or federal regulation or have exercised the 
authorities. These agencies included the Departments of Agriculture 
(USDA), Commerce, Defense (DOD), Energy (DOE), Health and Human 
Services (HHS), Homeland Security (DHS), and Transportation (DOT). At 
each of these agencies, we met with officials to discuss agency- 
specific DPA policies and guidance, recent use and implementation of 
the authorities, and challenges related to the authorities. Where 
available, we collected and reviewed documentation on circumstances in 
which agencies have used the DPA. 

In examining use of the Title I priorities and allocations authority, 
we met with several agencies to discuss experiences, policies, and 
guidance. We met with officials from the Department of Commerce, Bureau 
of Industry and Security, to examine and discuss the delegation of the 
authority as well as the regulations that guide several agencies' use. 
We also met with officials from the U.S. Army, Navy, and Air Force and 
DOD's Office of the Deputy Under Secretary of Defense (Industrial 
Policy) to review DOD's policies for use of the authority and specific 
policies at each service. These discussions addressed specific 
application of the authority as well as challenges in implementation. 
Further meetings were held with other agencies regarding experiences, 
policies, and guidance related to use of the Title I authority for 
specific types of items including, 

* USDA, Farm Service Agency, to discuss food and agriculture resources; 

* U.S. Army Corps of Engineers, to discuss water resources; 

* DOE, Office of Electricity Delivery and Energy Reliability, to 
discuss energy resources; 

* HHS, Biomedical Advanced Research and Development Authority and 
Office of the Assistant Secretary for Preparedness and Response, to 
discuss health resources; and: 

* DOT, Office of Intelligence, Security and Emergency Response to 
discuss civil transportation. 

In reviewing the use of the Title I authority by DHS, we reviewed 
documents from the Federal Emergency Management Agency (FEMA) including 
reports on its use of the authority, a consolidated report to Congress 
on use by it and other agencies, and endorsement and approval documents 
related to specific uses of the authority. 

Additional discussions were held with officials at each of the seven 
agencies on experiences and awareness of DPA authorities in Titles III 
and VII. We specifically met with the Air Force DPA Title III Program 
Office to obtain documents related to the management of the program and 
discuss efforts to coordinate with other agencies. We reviewed 
documents related to authorities in Title VII, including the National 
Defense Executive Reserve and voluntary agreements and discussed both 
with each agency. Specific voluntary agreements were discussed with the 
Maritime Administration. We also reviewed industrial capability 
assessments from the Department of Commerce, for which the Department 
of Commerce uses the Title VII authority to collect information. 

To identify the efforts of U.S. government agencies in assessing the 
economic effect of foreign offsets, we reviewed the DPA and other 
statutes to determine specific reporting requirements. To determine the 
extent to which the Department of Commerce has assessed the economic 
effects of offsets, we analyzed their annual offset reports since 2005 
as well as a 2004 special report on the impact of offsets on the U.S. 
subcontractor base. We also spoke with officials from the Commerce 
Department's Bureau of Industry and Security to identify the 
methodology used in assessing the economic effect of offsets as well as 
additional efforts that could allow for a more detailed analysis in the 
future. To determine DOD's response to the offsets reporting 
requirements contained in the DPA, which provides for an interagency 
team to consult with foreign nations on limiting the harmful effects of 
offsets in defense procurement, we reviewed and analyzed the 
interagency team's annual reports since 2004. We also contacted DOD's 
Office of International Cooperation to discuss experiences and 
challenges associated with the interagency team and to determine their 
future plans with respect to foreign consultations. Finally, we 
reviewed prior GAO reports to identify challenges associated with 
assessing the economic effect of offsets. 

We conducted this performance audit from January 2008 to June 2008 in 
accordance with generally accepted government auditing standards. Those 
standards require that we plan and perform the audit to obtain 
sufficient, appropriate evidence to provide a reasonable basis for our 
findings and conclusions based on our audit objectives. We believe that 
the evidence obtained provides a reasonable basis for our findings and 
conclusions based on our audit objective. 

[End of section] 

Appendix II: Priorities and Allocations Authority under Title I of the 
Defense Production Act: 

Title I of the Defense Production Act of 1950, as amended, authorizes 
the President to require priority performance on contracts or orders 
and to allocate materials, services, and facilities to promote the 
national defense. Executive Order No. 12,919, as amended, delegates the 
President's priorities and allocations authority for various resources 
to the following agency heads: 

* Secretary of Agriculture: food and agriculture resources[Footnote 
29]: 

* Secretary of Energy: all forms of energy: 

* Secretary of Health and Human Services: health resources: 

* Secretary of Transportation: all forms of civil transportation: 

* Secretary of Defense: water resources: 

* Secretary of Commerce: all other materials, services, and facilities, 
including construction materials, known as industrial resources. 

The Department of Commerce (Commerce) administers the only priorities 
and allocations system that is actively used--the Defense Priorities 
and Allocations System (DPAS)--which is used for industrial resources. 
Commerce has delegated authority to use priority ratings on contracts 
for industrial resources to the Departments of Defense (DOD), Energy 
(DOE), and Homeland Security (DHS) for use in support of approved 
national defense, energy, and homeland security programs.[Footnote 30] 
Under the DPAS, agencies can assign a "DO" or a "DX" priority rating to 
orders. [Footnote 31] DO ratings are used for items critical to 
national defense, while a DX rating denotes the highest national 
defense urgency. Priority rated orders have preference over all unrated 
orders as needed to meet required delivery dates, and among rated 
orders, DX-rated orders have preference over DO-rated orders. 

Recent Use of Priorities and Allocations Authority by Federal Agencies: 
Department of Commerce: 

While Commerce has delegated the ability to use DPAS authority to four 
agencies, it may also provide Special Priorities Assistance to 
authorize other government agencies, foreign governments, owners and 
operators of critical infrastructure, or companies to place priority 
ratings on contracts on a case-by-case basis, or to resolve any 
problems that may arise in the use of priorities and allocations 
authority. Commerce reported that since late 2003, it has taken 
approximately 180 actions to provide Special Priorities Assistance, 
primarily to support foreign government requirements related to DOD- 
approved programs. 

Department of Defense: 

With some exceptions, all DOD contracts for industrial resources 
receive a priority rating under DPAS, which amounts to approximately 
300,000 contracts annually that receive priority ratings. For example, 
DOD has used its authority in the past several years to prioritize the 
delivery of ballistic material used in body armor for the Army and 
Marine Corps. In addition, DOD has worked to manage DOD-wide demand for 
armor plate steel and helped steel firms manage schedules in order to 
prevent armor plate shortages resulting from a surge in production on 
the Mine Resistant Ambush Protected (MRAP) Vehicle Program. The U.S. 
Army Corps of Engineers, which executes DOD's priorities and 
allocations authority for water resources, also uses rated orders to 
procure water in advance of or during emergency events. 

Department of Homeland Security: 

Since 2003, DHS reported that it has authorized or endorsed to the 
Department of Commerce the use of priority ratings for 15 programs, 
which includes approval of other federal agencies' use of priority 
ratings: 

* restoration of rail service in the Gulf Coast region after Hurricane 
Katrina; 

* construction of an FBI facility in Northern Virginia; 

* construction of the Department of Justice's Terrorist Screening 
Center; 

* procurement of perimeter security equipment for a major airport and 
seaport; 

* upgrades to cargo seaport security; 

* procurement of encrypted radio equipment for use in U.S. Park Police 
helicopters; 

* acquisition of generator transfer switches and transformers for state 
evacuation centers; 

* upgrade of State Department domestic facility security; 

* procurement of a generator for the State Department's Continuity of 
Operations facility; 

* construction of an emergency Federal Support Center; 

* procurement of equipment for a FEMA emergency facility; 

* DHS procurement of encrypted emergency communications equipment: 

* procurement of FBI night vision equipment; 

* FEMA's Communications Support Infrastructure Program; and: 

* The Geostationary Operational Environmental Satellite, R-Series 
Program of the National Oceanic and Atmospheric Administration. 

Department of Energy: 

DOE reported that it has used priority ratings primarily on contracts 
and orders supporting atomic energy or defense. Outside of this use, 
DOE has not encountered emergency conditions requiring the use of 
priorities and allocations authority to reduce interruptions in energy 
supplies since 2003. 

U.S. Department of Agriculture: 

USDA officials reported that they have not made use of priorities and 
allocations authority, and that use of the authority would be needed 
only in very catastrophic circumstances. USDA is in the process of 
developing regulations to implement an Agriculture Priorities and 
Allocations System to support use of priority ratings to maintain 
agricultural operations during a national emergency. A memorandum of 
understanding relating to foods that have industrial uses and the 
domestic distribution of farm equipment, sets the priorities and 
allocations jurisdiction and responsibilities of USDA and Department of 
Commerce for defense mobilization in the event of a national security 
emergency. 

Department of Health and Human Services: 

HHS officials reported that they have not encountered circumstances 
requiring use of the authority, but have identified some health 
resources for which HHS could potentially use the authority in the 
future. HHS is currently developing a priorities and allocations system 
regulation for health resources, modeled on DPAS. 

Department of Transportation: 

DOT officials reported that they have not routinely used priorities and 
allocations authority for civil transportation needs, explaining that 
the market has traditionally responded to civil transportation 
requirements without the need for priority-rated orders. For example, 
DOT reported that it consulted with Commerce and DHS on the possible 
use of DPAS authority during planning following the I-35W bridge 
collapse in Minnesota, but found there was no resource shortage that 
would have required using the authority. 

In 2002, DOT obtained a priority rating to support the procurement of 
approximately 1,800 Explosives Detection Systems (EDS) machines for use 
in U.S. airports. According to DOT officials, this rating was necessary 
for the Transportation Security Administration (TSA), then part of DOT, 
to meet a statutory obligation to install a specified number of EDS 
machines in U.S. airports by December 31, 2002. In addition, DOT has 
worked with DOD to secure priority ratings under DOD's authority. 
During the first Gulf War, the FAA, working through DOD, sought use of 
DPAS to support activation of the Civil Reserve Air Fleet. This request 
was made after the Air Mobility Command determined that air carriers 
could provide more resources if they could get priority for parts. 
Additionally, a DOD priority rating was used to expedite one carrier's 
airframe modifications to enable it to transport pallets used by DOD. 

[End of section] 

Appendix III: Title III Authority for Expansion of Production 
Capabilities for Critical Security Needs: 

Title III of the Defense Production Act of 1950 (DPA), as amended, 
allows agencies to provide financial incentives to domestic firms to 
invest in production capabilities to ensure that the domestic 
industrial and technological base is capable of meeting the critical 
national security needs of the United States. It is used when domestic 
sources are required and firms cannot, or will not, act on their own to 
meet a national defense production need. Title III financial incentives 
are designed to reduce the risks for domestic suppliers associated with 
the capitalization and investments required to establish, expand, or 
preserve production capabilities. The candidate projects are evaluated 
in terms of four criteria: 

1. The industrial resource or critical technology item is essential to 
the national defense; 

2. Without the Title III authority, United States industry cannot 
reasonably be expected to provide the capability for the needed 
industrial resource or critical technology item in a timely manner; 

3. Title III incentives are the most cost-effective, expedient, and 
practical alternative methods for meeting the need involved; and: 

4. The combination of the U.S. national defense demand and foreseeable 
nondefense demand for the industrial resource or critical technology 
item is not less than the output of domestic industrial capability, as 
determined by the President, including the output to be established 
with the Title III incentives. 

As shown in Table 2, Title III has been used to promote a variety of 
technologies with dedicated funds ranging from $88,000 to approximately 
$164 million. 

Table 2: Title III Project Descriptions and Dollar Costs: 

Title III project: Projects over $20 million: 
Radiation Hardened Microelectronics Capital Expansion; 
Description: Provides substantially higher electronic operating speeds 
and will lower the power/size of electronics in spacecraft; 
Funds: $163.91 million. 

Title III project: Projects over $20 million: Beryllium Industrial Base 
Production Initiative; 
Description: Provides a supply of primary (high-purity) beryllium metal 
available to the United States and its allies; 
Funds: $67.10 million. 

Title III project: Projects over $20 million: Titanium Metal Matrix 
Composites for Aircraft; 
Description: Supplies material properties that enable aircraft 
designers to engineer components that are stronger, lighter, and more 
durable than existing steel and pure titanium components; 
Funds: $20.41 million. 

Title III project: Projects $10 million-$20 million: 
Description: Provides silicon carbide metal semiconductor field effect 
transistor monolithic microwave integrated circuits that can satisfy 
military requirements for advanced radar systems; 
Funds: $16.42 million. 

Title III project: Projects $10 million-$20 million: Lithium Ion 
Batteries; 
Description: Supplies long-life lithium ion batteries for spacecraft 
use; 
Funds: $16.20 million. 

Title III project: Projects $10 million-$20 million: High Temperature 
Flexible Aerogel Material Supplier Initiative; 
Description: Provides nanoporous solids with up to 99 percent open 
porosity often called "frozen smoke"; 
Funds: $14.62 million. 

Title III project: Projects $10 million-$20 million: Integrated 
Advanced Composite Fiber Placement; 
Description: Provides expansion of the domestic supply base for 
automated composite technologies; 
Funds: $13.96 million. 

Title III project: Projects $10 million-$20 million: Polyhedral 
Oligomeric Silsesquioxane (POSS) Nanotechnology Scale-up Initiative; 
Description: Provides a nano-sized material used as a chemical additive 
that enhances the performance of polymers; 
Funds: $13.73 million. 

Title III project: Projects $10 million-$20 million: High Performance 
Thermal Battery Production Initiative; Description: Establish, 
strengthen, and expand a domestic source for advanced thermal 
batteries; 
Funds: $11.44 million. 

Title III project: Projects under $10 million: Radiation Hardened 
Cryogenic Read Out Integrated Circuits (ROIC); Description: 
Establishment of a domestic foundry for production of ROICs, which are 
used in manufacturing focal plane arrays used in space-based imaging 
and missile systems; 
Funds: $9.87 million. 

Title III project: Projects under $10 million: Next Generation 
Radiation Hardened Microprocessors; 
Description: Scaling up production capacities for high performance 
radiation-hardened microprocessors; 
Funds: $9.18 million. 

Title III project: Projects under $10 million: Thin Silicon-On-
Insulator Wafers; 
Description: Enables the fabrication of radiation-hard, ultra large 
scale digital devices; 
Funds: $9.14 million. 

Title III project: Projects under $10 million: Reactive Plastic CO2 
Absorbent Production Initiative; 
Description: Secures the CO2 absorbing material to a plastic sheet in a 
polymer matrix bond; 
Funds: $8.37 million. 

Title III project: Projects under $10 million: Miniature Compressors 
for Electronics & Personal Computing; 
Description: Establishing a facility to produce personal cooling 
systems for soldiers and vehicles; 
Funds: $7.95 million. 

Title III project: Projects under $10 million: ALD Hermetic Coatings; 
Description: Establishes a domestic manufacturing capability for 
increased corrosion protection, reduced size, weight and cost factors, 
improved manufacturing yields, and much greater operational life of 
coated items; 
Funds: $5.42 million. 

Title III project: Projects under $10 million: ALON & Spinel Optical 
Ceramics; 
Description: Provides light-weight, higher performance, lower cost 
optical materials; 
Funds: $5.34 million. 

Title III project: Projects under $10 million: TWT Amplifiers for 
Space; 
Description: Provides vacuum electronic devices which amplify a radio- 
frequency signal; 
Funds: $5.30 million. 

Title III project: Projects under $10 million: YBCO Superconductors; 
Description: Provides critical component for defense applications which 
require high electrical power; 
Funds: $4.00 million. 

Title III project: Projects under $10 million: Photovoltaic Solar Cell 
Encapsulant; 
Description: Enables protection of solar cells from natural elements 
while insulating the imbedded electrical circuits; 
Funds: $3.38 million. 

Title III project: Projects under $10 million: Silicon Powder & Ceramic 
Armor Manufacturing; 
Description: Provides high quality, light weight, and cost competitive 
SiC ceramic armor for the Warfighter; 
Funds: $3.09 million. 

Title III project: Projects under $10 million: Military Lens Systems; 
Description: Provides night vision optical systems to be used in 
surveillance systems; 
Funds: $2.84 million. 

Title III project: Projects under $10 million: Methanol Fuel Cell 
Components; 
Description: Replacing batteries with reliable electrical power to 
lighten the loads of soliders; 
Funds: $2.43 million. 

Title III project: Projects under $10 million: Coal Based Carbon Foam; 
Description: Provides inexpensive, lightweight, fire-resistant, impact-
absorbing material fabricated in many shapes, sizes, and densities; 
Funds: $1.91 million. 

Title III project: Projects under $10 million: Amplifying Fluorescent 
Polymer Based IED Detection Devices; 
Description: Expands capacity of a small lightweight explosive detector 
device; 
Funds: $1.06 million. 

Title III project: Projects under $10 million: Continuous Filament 
Boron Fiber Production; 
Description: Provides boron fiber needed for aircraft structure 
reinforcement and repair; 
Funds: $0.88 million. 

Title III project: Projects with Contracts Not Yet Awarded; 
Description: [Empty]; 
Funds: $31.38 million. 

Title III project: Total; 
Description: [Empty]; 
Funds: $449.3 million. 

Source: GAO analysis of DOD data. 

[End of table] 

[End of section] 

Footnotes: 

[1] Pub. L. No. 81-774 (1950); codified at 50 U.S.C. App. ï¿½ï¿½2061-2171, 
as amended. 

[2] National Defense Authorization Act for Fiscal Year 2008, Pub. L. 
No. 110-181, ï¿½ 889, (2008). 

[3] National Defense Authorization Act for Fiscal Year 1995, Pub. L. 
No. 103-337 ï¿½ 3411(b) (1994). Stafford Act is codified at 42 U.S.C. ï¿½ 
5121 et seq. 

[4] Defense Production Act Reauthorization of 2003, Pub. L. No. 108-195 
ï¿½ 5 (2003). 

[5] Defense Production Act Reauthorization of 2003, Pub. L. No. 108-195 
ï¿½ 2 (2003). 

[6] For the purposes of this report, Title I authorities are referred 
to collectively as "priorities and allocations authority." 

[7] Exec. Order No. 12,919, National Defense Industrial Resources 
Preparedness, 59 Fed. Reg. 29,525 (1994), as amended by Exec. Order No. 
13,286, 68 Fed. Reg. 10,619 (2003), and revoked in part by Exec. Order 
No. 13,456, 73 Fed. Reg. 4,667 (2008). 

[8] The Department of Commerce has also delegated the authority to use 
priority ratings for industrial resources to the General Services 
Administration for use with contracts and orders in support of the 
General Services Administration supply system to acquire items for 
approved DOD and DOE programs. 

[9] 50 U.S.C. App. ï¿½ 2099, as amended. 

[10] Defense Production Act Reauthorization of 2003, Pub. L. No. 108- 
195, ï¿½ 7 (2003). 

[11] The National Response Framework presents the guiding principles 
that enable all response partners to prepare for and provide a unified 
national response to disasters and emergencies. The Emergency Support 
Functions in the framework provide the structure for coordinating 
federal interagency support for response to an incident. Agencies we 
reviewed may play a role in coordination, execution, or support for one 
or more of the 15 emergency support functions. 

[12] GAO, Catastrophic Disasters: Enhanced Leadership, Capabilities, 
and Accountability Controls Will Improve the Effectiveness of the 
Nation's Preparedness, Response, and Recovery System, [hyperlink, 
http://www.gao.gov/cgi-bin/getrpt?GAO-06-618] (Washington, D.C.: Sept. 
6, 2006). 

[13] DOT also has a regulation on priority use and allocation of 
shipping services for national defense purposes under Title I. See 46 
C.F.R. Part 340. 

[14] 15 C.F.R. 700.18(b). 

[15] According to DOT officials, while DOT has responsibility for civil 
transportation, DHS and DOT have entered into a memorandum of 
understanding specifying that FEMA will have the lead for the movement 
of commodities, goods, equipment and teams during an emergency. 

[16] 50 U.S.C. App. ï¿½ 2091, as amended. 

[17] All projects, including these Congressionally directed projects, 
must meet four statutory criteria, except during periods of declared 
national emergencies, which serve to ensure that only appropriate 
projects receive funding. See appendix III for specific criteria. 

[18] FEMA is responsible for developing policies and planning guidance 
for NDER and overall coordination of the NDER program. 

[19] Pandemic and All-Hazards Preparedness Act, Pub. L. No. 109-417, 
(2006). Section 405 of the Act provides a limited antitrust exemption 
to allow the Secretary of Health and Human Services to conduct meetings 
and consultations with persons engaged in the development of a security 
countermeasure, a qualified countermeasure, or a qualified pandemic or 
epidemic product for the purpose of the development, manufacture, 
distribution, purchase, or storage of a countermeasure or product. 

[20] 50 U.S.C. App. ï¿½ 2099(a). 

[21] U.S. Department of Commerce, Bureau of Industry and Security, 
"Offsets in Defense Trade, Twelfth Report to Congress." December 2007. 

[22] Defense Production Act Reauthorization of 2003, Pub. L. No. 108- 
195, ï¿½ 7 (2003). 

[23] GAO, Defense Trade: Issues Concerning the Use of Offsets in 
International Defense Sales, [hyperlink, http://www.gao.gov/cgi-
bin/getrpt?GAO-04-954T] (Washington, D.C.: July 8, 2004). 

[24] 15 C.F.R. Part 701. 

[25] Defense Production Act Reauthorization of 2003, Pub. L. No. 108- 
195, ï¿½ 7(c), (2003), amending the DPA, as amended. 

[26] U.S. Department of Commerce, Bureau of Industry and Security, 
Offsets in Defense Trade, Eleventh Report to Congress. (January 2007). 

[27] The interagency team issued a fourth annual report in December 
2007, which agency officials refer to as a progress report on 
consultations held by the interagency working group that was delegated 
responsibility to conduct consultations on behalf of the team. The six 
countries with which they consulted include France, Germany, Italy, 
Spain, Sweden, and the United Kingdom. 

[28] Defense Offsets Disclosure Act of 1999, Pub. L. No. 106-113, Div. 
B, ï¿½1247 (1999). 

[29] Exec. Order No. 12,919, National Defense Industrial Resources 
Preparedness, 59 Fed. Reg. 29,525 (1994), as amended by Exec. Order No. 
13,286, 68 Fed. Reg. 10,619 (2003), and revoked in part by Exec. Order 
No. 13,456, 73 Fed. Reg. 4,667 (2008) delegates to the Secretary of 
Agriculture priorities and allocations authority with respect to food 
resources, food resource facilities, and the domestic distribution of 
farm equipment and commercial fertilizer. For the purposes of this 
report we refer to these as "food and agriculture resources." 

[30] The Department of Commerce has also delegated authority to use 
priority ratings for industrial resources to the General Services 
Administration for use with contracts and orders in support of the 
General Services Administration federal supply system to acquire items 
for approved DOD and DOE programs. 

[31] Only DOD, DOE, and the General Services Administration have 
delegated authority under DPAS to issue DX ratings for approved 
programs. The Secretary of Defense and the Deputy Secretary of Defense 
approve programs to use DX ratings. 

[End of section] 

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