It is common knowledge that performance of government contracts requires the contractor to comply with a range of clauses not found in commercial contracting, which are included to advance the federal government’s social and economic policies. For example, the Equal Opportunity clause (FAR 52.222-26) prohibits government prime contractors from discriminating based on race, color, religion, sex, or national origin and requires most contractors to have an affirmative action plan. Additionally, it requires the prime contractor to “flow down” these same prohibitions and requirements to subcontractors. 

The Department of Labor is responsible for enforcing the Equal Opportunity clause, as well as clauses prohibiting contractors and subcontractors from discrimination based on disability (Affirmative Action for Workers with Disabilities, FAR 52.222-36) and on disability and veteran status (Equal Opportunity for Special Disabled Veterans, Veterans of the Vietnam Era, and Other Eligible Veterans, FAR 52.222-35). Historically, the DOL has taken a broad view of who qualifies as a government subcontractor subject to the requirements of these non-discrimination clauses. 

According to the DOL, there are two circumstances in which a person doing business with a government contractor is considered a subcontractor for purposes of the non-discrimination laws:

The first circumstance is when the person provides the Federal contractor with services or property ‘necessary to achievement of’ the prime Federal contract. The second circumstance is when a person ‘performs part of the Federal contract’ on the Federal prime contractor’s behalf.

Office of Federal Contract Compliance Programs v. Bridgeport Hospital  (.pdf), ARB Case No. 00-034 (Jan. 31, 2003) (emphasis added). While the DOL Administrative Review Board ("ARB") determined in Bridgeport that the hospital was not a subcontractor because its provision of medical care pursuant to a contract between it and the government contractor was not “necessary to performance” of the prime government contract, the DOL has reached the opposite decision for hospitals in two cases since then.

First, in Office of Federal Contract Compliance Programs v. UPMC Braddock et al. (.pdf), ARB Case No. 08-048 (May 29, 2009), the DOL ARB determined that the medical services provided by three UPMC hospitals pursuant to an agreement with UPMC Health Plan, which had an HMO contract with the Office of Personnel Management to provide health care services to the Federal Employees Health Benefit Program, qualified the hospitals as subcontractors and subjected them to compliance with the non-discrimination clauses because they performed part of UPMC Health Plan’s government contract. UPMC’s appeal of the DOL ARB’s decision is pending.

Second, on October 18, 2010, a DOL Administrative Law Judge ("ALJ") determined that a Florida hospital that provided medical care to TRICARE beneficiaries qualified as a government subcontractor such that the DOL had jurisdiction to audit the hospital’s compliance with its affirmative action and non-discrimination obligations. See Office of Federal Contract Compliance Programs v. Florida Hospital of Orlando (.pdf), ALJ Case No. 2009-OFC-00002. In this case, the hospital had an agreement with Humana Military Health Services, Inc. (“HMHS”), an entity that performed a government prime contract to provide managed health care services to TRICARE beneficiaries. The hospital argued that it was not performing any of the contractual obligations under the prime contract, so it did not meet DOL’s definition of “subcontractor,” but the DOL ALJ found that the prime contract required the provision of medical services to TRICARE beneficiaries and, by providing medical services to its patients, which were TRICARE beneficiaries, the hospital did perform part of HMHS’ prime contract duties. Whether the hospital will appeal this decision remains to be seen.

The UPMC Braddock and Florida Hospital of Orlando decisions are particularly important to providers of medical services when they have agreements with federal health care program contractors, but are equally instructive to all other government subcontractors with respect to DOL’s broad notion of a “subcontractor” for purposes of enforcing the affirmative action and non-discrimination laws. Whether DOL’s broad definition will be adopted by other agencies responsible for enforcing other flow down clauses contained in government contracts remains to be seen.