CARES Act: Defense/National Security Inputs

CARES Act: Defense/National Security Inputs

March 27, 2020, Covington Alert

The Senate's version of the CARES Act and supplemental appropriations contain provisions important to the Department of Defense and companies who do business in the national security sector. 

The supplemental adds $10.5 billion to support defense needs, with a significant portion focused on the Defense Health Program. These appropriations include $415 million in research and development funding, and will support the development of vaccines, anti-virals, lab staffing operations, and diagnostic tests. The Act also includes nearly $1.5 billion for the flexible Defense Working Capital Funds, and several billion dollars of "operation and maintenance" funds to allow the Department, the military services, and the National Guard to "prevent, prepare for, and respond to coronavirus, domestically or internationally."

The Act also appropriates $1 billion to fund Defense Production Act ("DPA") purchases, in order to increase access to materials necessary for national security. Broadly speaking, the DPA expands the government's contracting power to increase production and surge capacity to meet urgent needs. Section 4017 of the Senate bill waives, for two years, the requirement for congressional approval for projects above $50 million, and waives another provision requiring projects over $50 million to be delayed for 30 days pending congressional approval. Similarly, Section 13006 relaxes some of the legal constraints on "other transaction authority" to facilitate the use of these flexible acquisition authorities in responding to the pandemic.

All of the Defense appropriations are subject to an explicit restriction: the Administration may not allocate any of these funds towards a southern border wall.

Companies who work in the national security area should also monitor the provisions governing loans and loan guarantees. To provide liquidity to eligible businesses, States, and municipalities related to losses incurred directly or indirectly as a result of Covid-19, the Secretary of Treasury is authorized to make loans, guarantee loans, and make other investments in support of eligible businesses, States, and municipalities that do not in the aggregate exceed $500 billion. Up to $17 billion of this authority is allocated to "businesses critical to maintaining national security." We expect to see guidance from the Treasury Department to scope eligibility and procedures for these programs. This part of the bill was subject to some significant changes near the end of the Senate's consideration, which added to the terms and conditions of receiving funds. For example, the Act requires a business to certify, in connection with its application, "that it is created or organized in the United States or under the laws of the United States and has significant operations in and a majority of its employees based in the United States."

Finally, the bill gives the President flexibility to ensure continuity of senior military leadership. Section 13007 waives limitations on the tenure of seven flag and general officers, including the Chief of Staff of the Air Force and the Chief of the National Guard Bureau. The incumbents, both four-star Air Force generals, have served in their positions since 2016 alongside Army General Mark Milley, who was the Army Chief of Staff before becoming the Chairman last year. The current service chiefs of the Army, Navy, Marine Corps, and Space Force were all appointed in the past year.

 If you have any questions concerning the material discussed in this client alert, please contact the members of our Aerospace, Defense, and National Security industry group below.