Imagine this: You’re a commercial company with a great opportunity in the Government marketplace, but you’re worried that you and your subcontractors may face too many costs and risks from compliance requirements and other regulatory hurdles. Now imagine that the Government actually understands your concerns, and agrees to limit these costs and risks under the terms of the prime contract. Sounds good, right? Well, in a recent case before the U.S. District Court for the District of Columbia, UPMC Braddock, et al. v. Harris et al. (March 30, 2013), the Court nonetheless held that the Department of Labor’s (DoL) Office of Federal Compliance Programs (OFCCP) had jurisdiction to enforce equal employment opportunity laws against subcontractors even though the federal prime contract exempted them from such oversight. In doing so, the Court appears to have ratified OFCCP’s ability to impose its compliance programs far and wide.
This case involved several hospitals that had contracted to provide medical services to a health maintenance organization, UPMC Health Plan, which had a prime contract with the U.S. Office of Personnel Management (OPM) to provide health care to federal employees who participate in the Federal Employees Health Benefits Program. As I’m sure many of you are aware, the FAR states that the Equal Employment Opportunity clause is to be flowed down to subcontractors unless the subcontractor has less than $10,000 in federal prime or subcontract sales. However, in the prime contract between the Health Care Plan and OPM, the term subcontractor was defined in a way that excluded providers of direct medical services — and thus the hospitals were exempted from such subcontractor flow-downs. Nonetheless, DoL’s OFCCP sought to enforce equal employment opportunity laws against the hospitals.
This case involves the good old Christian Doctrine, which comes from the 1963 case G.L Christian & Associates v. United States. The Doctrine as it is presently interpreted means that mandatory contract clauses expressing a “significant or deeply ingrained strand of public procurement policy” are considered part of a government contract “by operation of law.” That key phrase — “by operation of law” — means that a contractor has to comply with these mandatory clauses even if they don’t actually appear in a contract, or even if the contractor has never heard of the clause (causing me to sometimes call this the You Need A Lawyer Doctrine).
Whether the hospitals were subject to OFCCP oversight turned on whether they were truly subcontractors under federal law. The Court considered the prime contract’s exemption for medical service providers, but found that this exemption was superseded by two federal statutes and DoL regulations. The Court highlighted the fact that “[DoL], not OPM” was accorded the authority to define the term subcontractor for the purposes of equal opportunity compliance, and DoL’s definition did not exclude medical service providers. Accordingly, the Court held that the hospitals were subcontractors for the purpose of equal employment opportunity laws, and therefore that DoL had jurisdiction to enforce compliance.
Much has already been written and said about this decision, but it’s nonetheless unclear how things will eventually shake out. It is possible for Congress to step in and update the definition of subcontractor to exempt hospitals from compliance regimes, or at least to allow them the benefit of their prime contract’s actual terms. And this is not a foregone conclusion — in 2011 Congress did just that in response to a similar case involving a different federal healthcare plan — TRICARE. Absent Congress’ intervention, it seems only a matter of time before OFCCP will assert jurisdiction over other unsuspecting subcontractors. Health care institutions that offer services through other federal health care plans, such as MEDICARE and MEDICAID, may now be subject to rigorous compliance programs. Together with the costs of implementing the Affordable Care Act, these compliance costs will pose serious challenges for institutions and may even contribute to the rising price of healthcare.
If you have any questions about this case or this area of law, please reach out to me at firstname.lastname@example.org. I’d love to hear your thoughts, and there are many interesting details I’ve had to omit about this case so there would be much to discuss.