At a press briefing on March 19, President Trump brushed aside demands that the federal government take the lead in buying medical equipment – including the coronavirus tests, ventilators and protective gear – critically needed to save lives in the current pandemic. “We are not a shipping clerk” Trump said, and left it to the states to take first responsibility for procuring life-saving equipment.
Is President Trump right – should state governments be left to procure emergency equipment – or is this one of the most serious mistakes he has made in this pandemic?
The need for emergency equipment is desperate. On March 18, for example, the New York Times reported that there are only roughly 170,000 ventilators in this country, although many hundreds of thousands of coronavirus patients may need them soon. In a March 19 interview, Governor Andrew Cuomo of New York was brutally direct. “We now have about 5,000, 6,000 ventilators in New York State,” Cuomo reported. “We are going to need about 30,000 ventilators because these people who come in all have respiratory illnesses.” Experience in Italy, already overwhelmed by the pandemic, shows that if emergency equipment is not procured immediately, thousands of American patients and healthcare providers may die unnecessarily.
Trump’s comment deflecting responsibility for buying emergency equipment came at a March 19 White House press briefing, when he was asked why the federal government had (by executive order) invoked, but not triggered, the Defense Production Act. The Act allows the federal government to direct manufacturers to produce vitally needed items. The states’ governors, Trump responded, “are supposed to be doing a lot of this work.” The federal government, he continued, “is not supposed to be out there buying vast amounts of items and then shipping.” “You know,” Trump said, “we’re not a shipping clerk. The governors are supposed to be – as with testing, the governors are supposed – are supposed to be doing it.”
Trump’s insistence that the states take the lead in emergency procurement contradicts his own administration’s “Crimson Contagion” study, confidentially drafted before the pandemic and disclosed on March 19 by the New York Times. The Trump administration draft report clearly foresaw that the federal government would have to coordinate equipment requests from the states in times of pandemic. Public health experts now reinforce the administration’s own conclusion: the federal government must take the lead in purchasing emergency equipment such as ventilators.
Trump’s approach also contradicts what other nations facing the same pandemic are doing. Italy, for example, has centralized (and radically simplified) procurements of emergency equipment. CONSIP, the Italian centralized purchasing agency, has taken charge of buying thousands of ventilators, and it has open requests to the market for emergency equipment.
By pushing procurement responsibility out to the states, Trump’s approach also ignores a critical tool available to the federal government: the United States’ unmatched ability to assure vendors that if they build equipment, the manufacturers’ costs will be covered even if the equipment is never used.
While the Defense Production Act allows the government to direct the production process – always a risky prospect – the federal government’s contracting tools include the power to “terminate for convenience.” This simple, largely unknown contracting power became a central part of U.S. procurement after World War I, when the federal government canceled large numbers of wartime contracts. The termination for convenience clause – now required in every federal supply contract – says that while the government may terminate contracts for its own convenience (a right most commercial parties do not have), the United States will make its contractors whole if the federal government does prematurely end a contract.
This simple termination right is extremely powerful in a time of crisis, because it means that manufacturers – from Ford to Tesla – can incur huge cost risks in retooling to build vital equipment. Although contractors may lose commercial opportunities by temporarily retooling their production lines, at least those companies know their sunk costs will be covered by the United States – and here, that federal government guarantee may enable many more manufacturers to join this battle against death by disease.
“This simple termination right is extremely powerful in a time of crisis, because it means that manufacturers . . . can incur huge cost risks in retooling to build vital equipment.”
This simple procurement tool also explains why the federal government must take the lead in procuring emergency equipment. State governments typically have the same contract clause – the same right of termination for convenience – but state governments do not have the federal government’s massive resources backing the promise to make manufacturers whole, or the United States’ preeminent market position. In contrast to the states’ limited resources, the U.S. government’s procurement rules channel the federal government’s nearly unlimited resources – its commitment to pay, and the world’s largest procurement apparatus – to drive procurement of equipment that will save lives. The time for the federal government to exercise that procurement power is now.
By Christopher Yukins, the Lynn David Research Professor in Government Procurement Law at the George Washington University Law School, Washington, DC. The Law School’s government procurement program will host an international online colloquium on public procurement and the COVID-19 pandemic on Tuesday, March 24, 2020, at 12:00 ET.
