On February 24, 2021, President Biden signed the Executive Order (EO) on America’s Supply Chains, setting forth his administration’s strategy for developing resilient and secure supply chains for critical goods. Prompted by global disruptions to supply during the COVID-19 pandemic, the EO directs a comprehensive review of supply chain security risks across key industries — from pharmaceuticals to semiconductors — in an effort to bolster domestic production and avoid shortages of critical and essential goods. It follows last month’s “Made in America” Executive Order aimed at strengthening existing “Buy American” laws and other administration actions focused on prohibiting the importation of goods manufactured or produced using forced labor.
The new EO similarly advances a policy of securing critical domestic supply chains, bolstering small business and minority business participation, and developing a resilient economy in light of evolving geopolitical and climate change threats. Below, our team breaks down the key requirements and implications of this order for government contractors.
What Does the Executive Order Require?
The EO mandates an immediate, 100-day review across federal agencies to assess vulnerabilities in four integral U.S. supply chains: (i) semiconductors and advanced packaging; (ii) large-capacity batteries, such as those used in electric vehicles; (iii) critical minerals, including rare earth elements; and (iv) pharmaceuticals and pharmaceutical ingredients. The reviews will identify gaps in domestic manufacturing and assess whether U.S. manufacturing and national security participants in these sectors are overly reliant on foreign sources, particularly Chinese suppliers.
In addition, the EO calls for a broader, year-long review of six supply chains: (i) defense industrial base; (ii) public health and biological preparedness; (iii) information and communications technology; (iv) energy; (v) transportation; and (vi) agricultural commodities and food production. These reviews will identify and assess critical goods and materials within supply chains, the manufacturing or other capabilities needed to produce those materials, and various vulnerabilities caused by an inability to develop domestic manufacturing capabilities. Federal agencies must also identify key manufacturing locations, the availability of substitute and alternative sources, the state of workforce skills and the role of transportation in supporting these supply chains. Agencies must then develop and issue recommendations to manage identified vulnerabilities and foster expanded research and development to strengthen these areas.
The Assistant to the President for National Security Affairs (APNSA) and the Assistant to the President for Economic Policy (APEP) are tasked with reviewing the agency reports and coordinating recommendations to strengthen supply chain resiliency as well as steps to implement quadrennial supply chain reviews.
Finally, the EO directs the Executive Branch to consult and coordinate with external stakeholders, including industry, labor unions, and non-governmental organizations, to fulfill the policy mandates of this order.
What Does This Mean for Government Contractors?
Government contractors should be aware that the intent of this EO is not to offer an immediate fix to existing supply chain shortages, but rather to develop policies and strategies to safeguard the U.S. economy against future shortages of critical supplies. Nonetheless, where the mandated reviews identify supply chain vulnerabilities in critical sectors, particularly where the U.S. is determined to be overly reliant on a single country, the Biden Administration likely will pressure companies to utilize suppliers and to develop supply chains where manufacturing and production occur in the United States or in allied nations.
In taking such measures, the Biden administration will likely have strong bipartisan support in Congress. Since the EO was announced, members of Congress on both sides of the political aisle have praised the administration’s actions and have expressed their collective desire to enact further legislative measures to promote the “onshoring” of U.S. supply chains for several product categories including semiconductors, high-capacity batteries, personal protective equipment (PPE) and critical minerals.
That being said, following decades of globalization, it will likely be difficult and costly to drastically alter U.S. supply lines or reduce U.S. reliance on foreign suppliers — particularly as the coronavirus pandemic continues to disrupt the U.S. industrial base. Furthermore, any strict directive for impacted contractors to relocate suppliers stateside would risk further alienating important trading partners that have already expressed concern about President Biden’s recent efforts to bolster “Buy American” requirements. As such, it is more likely that the Biden Administration will utilize a combination of financial and pricing incentives and import limitations to revitalize domestic supply chains rather than implementing outright prohibitions for certain foreign goods.
Industry participants, therefore, should review their global operations in preparation for a host of new compliance obligations resulting from changes to federal law, regulations, and policy; domestic and international trade policy reforms; and workforce reforms. Given the uncertainty around which course(s) of action the Administration will pursue, contractors with affected supply chains should consider engaging relevant policymakers and other stakeholders to shape potential recommendations and outcomes in both the short- and long-term.Ultimately, while it remains to be seen how these reviews will impact government contractors and supply chain requirements, the Administration’s focus on supply chain reform is obvious and the “America’s Supply Chains” EO is an important step in the Biden Administration’s ongoing efforts to secure critical supply chains and bolster American manufacturing. We encourage contractors to follow along with our Government Contracts team as we track and assess continuing developments in this area. For more information regarding this Executive Order and its impact on your operations, please reach out to any of the team members listed below.