What Is the Defense Production Act and How Does It Work?

The Defense Production Act is a 1950 federal law that lets the President push private industry to serve national security goals, from ordering a factory to take a government contract ahead of its commercial customers to blocking a foreign company from buying an American one. Modeled on World War II authorities and first passed at the start of the Korean War, it has been reauthorized many times; the current authorization runs through September 30, 2026.¹ “National defense” in the statute is broader than the military. It covers energy, homeland security, emergency preparedness, critical infrastructure protection, and space programs.² That definition is what lets the same law reach ventilators, lithium mines, and semiconductor supply chains.

Forcing Companies to Prioritize Government Contracts

The most direct authority in the law is the power to require any capable company to accept a government contract and put it ahead of private-sector work.³ Day to day, this runs through the Defense Priorities and Allocations System, which uses two tiers of “rated orders.” A DO-rated order jumps ahead of all unrated commercial work. A DX-rated order jumps ahead of everything, including DO orders. Above both, the Department of Commerce can issue a Directive that overrides all other orders.⁴

A rated order doesn’t stop at the company that receives it. That company has to pass the rating down its supply chain, issuing similarly rated purchase orders to its own vendors for raw materials and components. A commercial customer whose delivery slot gets bumped simply waits.⁴ If a supplier can’t meet a rated deadline, the company can request Special Priority Assistance through the Defense Contract Management Agency.⁵

Controlling Scarce Materials and Stopping Hoarding

The same title of the law gives the President control over how scarce materials move through the economy. Once a material is formally designated as scarce or threatened and that designation is published in the Federal Register, it becomes illegal to accumulate it beyond reasonable business or personal needs, or to hold it for resale at inflated prices.⁶ The President can set specific limits on how much anyone may hold.

This power saw heavy use during COVID-19, when the government designated N-95 respirators, portable ventilators, disinfecting devices, and other personal protective equipment as scarce materials to head off price gouging and supply manipulation. Related executive orders also banned exporting threatened PPE. The broader allocation authority goes further than anti-hoarding: it lets the government ration chemicals, metals, or finished goods and physically redirect them to military or emergency uses when the open market falls short.

Paying to Build New Production Capacity

When the country doesn’t have enough manufacturing capacity in the first place, Title III of the law lets the government spend money to create it. The President can authorize purchase commitments that guarantee a market for a product long enough to justify building a new production line, fund exploration and mining of critical and strategic materials, and even install government-owned equipment inside private factories.⁷ The spending flows through the Defense Production Act Fund, a dedicated Treasury account fed by congressional appropriations and revenue from earlier Title III deals.⁸

The program is aimed at gaps that private investment alone won’t close, typically because the commercial market is too small or the risk too high. Recent Title III awards have focused heavily on critical minerals and battery supply chains, including domestic lithium, graphite, niobium oxide, and cobalt-nickel projects.⁹ The Department of Health and Human Services runs a parallel Title III program aimed at strengthening domestic capacity to produce medical supplies for biological and chemical threats.¹⁰

Blocking Foreign Acquisitions Through CFIUS

One of the most active parts of the law today has nothing to do with factory floors. The Defense Production Act is the statutory home of the Committee on Foreign Investment in the United States, which reviews foreign acquisitions of and investments in American businesses for national security risk and can recommend that the President block a deal.¹¹

The timeline is tight. After accepting a filing, CFIUS has 45 days for an initial review. Unresolved concerns trigger a full investigation of another 45 days, with a possible 15-day extension in extraordinary circumstances. If the committee still sees a threat, it refers the matter to the President, who has 15 days to decide whether to suspend or prohibit the deal.¹¹ The President can also direct the Attorney General to seek divestment in federal court if a completed transaction turns out to pose a risk.

Congress broadened this authority in 2018 with the Foreign Investment Risk Review Modernization Act. Before FIRRMA, CFIUS mostly looked at deals where a foreign buyer would take control of a U.S. business. FIRRMA extended review to non-controlling investments in companies handling critical technology, critical infrastructure, or sensitive personal data of U.S. citizens. It also brought certain real estate transactions near military installations under CFIUS jurisdiction and made filings mandatory for some deals involving foreign government investors.¹²

Not every risky deal gets killed. CFIUS often negotiates mitigation agreements that let a transaction close under binding conditions: a government-approved security officer, an independent board observer, restrictions on access to sensitive technology, or a voting trustee that keeps the foreign investor entirely passive. Compliance monitors then conduct site visits, review audits, and investigate suspected violations for as long as the agreement is in force.¹³

Penalties, Injunctions, and Protection for Companies That Comply

Willfully ignoring a rated order or hoarding designated scarce materials is a federal crime punishable by up to one year in prison and a fine of up to $10,000 per offense. “Willfully” matters. Ordinary production trouble isn’t criminal; deliberate refusal or intentional stockpiling is. The government can also go to federal court for an injunction forcing immediate compliance, and the statute waives the usual requirement that the government post a bond to get one.¹⁴ Defying the injunction on top of that adds contempt.

The other side of enforcement is protection for the companies that do comply. If a manufacturer has to break a commercial contract to fill a rated order, its private customer can’t successfully sue over the delay: no person is liable for damages or penalties for complying with a rule, regulation, or order issued under the Act, even if that order is later held invalid.¹⁵

Voluntary Agreements Between Competitors

A lesser-known tool lets the President bring competing companies together to plan for national defense preparedness without exposing them to antitrust liability. When the President finds a direct threat to national defense, representatives of industry, labor, and finance can be convened to develop voluntary agreements and action plans, and participants who follow the terms under active government supervision get a defense against antitrust claims arising from that cooperation.¹⁶ The protection is not automatic. The company claiming it has to prove its conduct fell within the approved agreement, and the defense disappears entirely if the cooperation was a pretext to violate antitrust law.

How the Act Has Been Used Recently

For decades the law worked mostly in the background, quietly routing military procurement through the rated-order system. COVID-19 pushed it into public view. In early 2020, executive orders invoked nearly every major DPA authority at once. Title I was used to compel General Motors to produce ventilators. Anti-hoarding designations covered N-95 respirators, portable ventilators, and disinfecting devices. Title III purchase authority directed more than $200 million toward domestic production of nasal swabs and respirators, and separate agreements with companies including 3M secured more than 166 million masks.

The pandemic shifted how broadly the law is now used. Title III investments have expanded well past traditional military hardware into supply chain resilience for critical minerals, battery components, and medical countermeasures, all under the same statute originally written to keep Korean War ammunition lines running.⁹

1
Congress.gov. Reauthorizing the Defense Production Act
2
Office of the Law Revision Counsel. 50 USC 4552 – Definitions
3
Office of the Law Revision Counsel. 50 USC 4511 – Priority in Contracts and Orders
4
eCFR. 15 CFR Part 700 – Defense Priorities and Allocations System
5
Defense Contract Management Agency. Defense Priorities and Allocations System (DPAS)
6
Office of the Law Revision Counsel. 50 USC 4512 – Hoarding of Designated Scarce Materials
7
Office of the Law Revision Counsel. 50 USC 4533 – Other Presidential Action Authorized
8
Office of the Law Revision Counsel. 50 USC 4534 – Defense Production Act Fund
9
Office of the Under Secretary of Defense for Acquisition and Sustainment. Summary of DPAP Awards Funded via Inflation Reduction Act
10
U.S. Department of Health and Human Services. Defense Production Act Title III – HHS Strategy for Expanding US Public Health Capacity
11
Office of the Law Revision Counsel. 50 USC 4565 – Authority to Review Certain Mergers, Acquisitions, and Takeovers
12
U.S. Department of the Treasury. Foreign Investment Risk Review Modernization Act of 2018
13
U.S. Department of the Treasury. CFIUS Mitigation
14
Federal Emergency Management Agency. Defense Production Act of 1950
15
Office of the Law Revision Counsel. 50 USC 4557 – Liability for Compliance With Invalid Regulations; Discrimination Against Orders or Contracts Affected by Priorities or Allocations
16
Office of the Law Revision Counsel. 50 USC 4558 – Voluntary Agreements and Plans of Action for Preparedness Programs and Expansion of Production Capacity and Supply