It has long been questioned whether the "Christian Doctrine," pursuant to which mandatory contract clauses reflecting core procurement policy are incorporated into government prime contracts by operation of law, can be used to incorporate such clauses into subcontracts. That question may now have an answer. In a non-CDA decision issued last year that has flown somewhat "under the radar," the Department of Labor's Administrative Review Board ("ARB") held that at least some such clauses are incorporated into subcontracts by operation of law. OFCCP v. UPMC-Braddock, ARB Case No. 08-048 ("UPMC-Braddock").
While the ARB does not have jurisdiction under the Contracts
Disputes Act ("CDA"), it has jurisdiction over a
significant number of disputes arising under many of the
socio-economic government contract clauses, such as the various
equal opportunity clauses mandated by Executive Order 11246 and
certain ameliorative statutes that address the needs of the
disabled and veterans. Moreover, the reasoning of the ARB might
also appeal to tribunals with jurisdiction over CDA disputes when
considering whether a given clause is incorporated into a
subcontract by operation of law.
Given the number of contract clauses that the FAR mandates must be
flowed down to contractors it would seem that a decision addressing
this issue is long overdue. But in fact it has been some 47 years
since the Court of Claims, in G. L. Christian & Associates
v. United States, 312 F.2d 418, 426 (Ct. Cl. 1963),
established the principle that contract clauses addressing "a
deeply ingrained strand of public procurement policy" are
"incorporated, as a matter of law, into [the]
contract...." This holding, commonly referred to as the
"Christian Doctrine," was quickly accepted by other
tribunals because the policy underlying it makes sense: if Congress
has directed that contractors are to comply with a given set of
requirements, then neither they nor the contracting agency should
be able to evade that direction simply by physically excluding the
implementing clause from the contract document. The sensibility of
the underlying policy, however, should not be confused with the
sensibility of the Christian Doctrine itself. The Court of Claims
could easily have held, consistent with that policy, that the
contract itself was illegal, an unauthorized act for which the
contracting officer had no actual authority, a decision that would
have been consistent with the oft-cited case of Federal Crop
Insurance v. Merrill. That, then, would have left the parties
to their rights under a quantum meruit theory, with
recovery based on a standard legal theory customarily used by the
courts when there is no contract.
It is not the purpose of this posting to revisit the wisdom of, or
necessity for, the Christian Doctrine. It has been around too long
and its principles are too settled to make that dialogue worth the
effort. It has long been the law – for prime contracts.
That policy that underlies the doctrine might arguably be thought
to extend with equal felicity to subcontracts under government
prime contracts, but – until UPMC-Braddock
– we were aware of no Board of Contract Appeals or court
that has so held. Perhaps this persistent silence reflected some
vestigial respect for the concept of privity. If the Government is
not a party to a contract, should it – a stranger to the
bargain that owes no duty to and has no contractual liability to
the subcontractor – be able to impose under that contract
an obligation that the parties have excluded? Some might think the
answer to that question would be a resounding "No." But
the ARB apparently believes otherwise.
In UPMC-Braddock, the ARB, a tribunal with authority to
decide disputes between the Office of Federal Contract Compliance
Policy ("OFCCP") and contractors, decided that the equal
opportunity requirements of Executive Order 11426, the
Rehabilitation Act, and the Vietnam Era Veterans' Readjustment
Act each express a significant or "deeply ingrained strand of
public procurement policy" that is incorporated by operation
of law into any subcontract under a federal prime contract
– regardless of whether the parties to that subcontract
included the clauses. In this regard, the two statutes in question
explicitly require the inclusion of their implementing clauses in
subcontracts. The Executive Order does not, stating, rather that
"each [covered] contractor...shall file, and shall cause
each of his subcontractors to file, Compliance
Reports...." (Emphasis added).
The UPMC-Braddock decision arises from OFCCP policy of
initiating enforcement proceedings directly against subcontractors
at any tier and its determination that three hospitals holding HMO
contracts with the University of Pittsburgh Medical Center
("UPMC"), which, in turn, had a prime contract with the
Office of Personnel Management ("OPM") to provide medical
services and supplies to federal government employees, were
(a) subcontractors under a federal prime contract and
(b) bound by the provisions of the three equal opportunity clauses because the clauses were incorporated into the subcontracts by operation of law.
By way of background, prior to this decision, health care
providers never believed they were, nor had they ever been treated
as, subcontractors under OPM's Federal Employees Health
Benefits Acquisition Regulation ("FEHBAR"), 48 CFR 1600
et. seq. This belief stemmed from the FEHBAR definition of
"subcontractor" as "any supplier, distributor,
vendor, or firm that furnishes supplies or services to or for a
prime contractor or another subcontractor, except for providers
of direct medical services or supplies pursuant to the
Carrier's health benefits plan ...." (Emphasis added).
This definition was incorporated directly into the hospital
HMO's ("hospitals") contracts with UPMC. As the HMOs
in question were, in their view, something other than
subcontractors, they never considered themselves covered by the
requirements of the three Equal Opportunity laws, all of which (i)
mandate that non-exempt subcontracts whose values exceed
various specified thresholds incorporate the applicable equal
opportunity clause and (ii) are implemented by the Secretary of
Labor and his delegee the OFCCP. When the three hospitals first
received letters from the OFCCP advising them that their contracts
were covered under the three laws and scheduling compliance reviews
of their operations, their managements politely declined either to
provide the documents requested or to allow the agency to conduct
onsite reviews of the HMOs' compliance with the three equal
opportunity clauses.
The OFCCP sought injunctive relief that was granted by the ARB,
which reasoned as follows:
(a) Pursuant to the Executive Order and the two statutes in question, UPMC's contract with OPM "explicitly required" that UPMC include the applicable equal opportunity clause in every subcontract.
(b) The FEHBAR (which the decision characterizes as a "FAR regulation") and contract provisions excluding "providers of direct medical services or supplies" from the definition of subcontractor was in direct conflict with the DOL regulations implementing the Executive Order and the two statutes, which collectively express "a significant or deeply ingrained strand of public procurement policy." The exclusion was, therefore, "invalid or void."
Just where does this holding take us? Well, maybe nowhere.
UPMC-Braddock and its sister hospitals have appealed the ARB's
decision to the U.S. District Court for the District of Columbia,
arguing, among other things, that "[t]he affirmative action
requirements that OFCCP seeks to impose . . . are not enforceable
against a party which had never agreed to such requirements and
which had never agreed to do business with the federal
government." UPMC-Braddock v. Solis, D.D.C., Civ. A.
No. 1:09-121-PLP (Complaint filed June 30, 2009). It would, of
course, be refreshing if the court were to sustain the appeal and
enforce the subcontracts as written, particularly since one might
think that the HMOs had a justifiable basis for relying on the
FEHBAR's explicit declaration that their agreements were not
"subcontracts." The HMOs, it would seem, have both the
language of their agreements and the language the FEHBAR on their
side. One would hope that is enough.
But if it is not, again, where does that take us?
It is of course possible that its impact will be limited to those
clauses over which the ARB has enforcement authority and that CDA
tribunals will decline to extend it to every FAR clause that has
ever been shoehorned into a prime contract via the Christian
Doctrine. After all, four decades of silence on the issue suggests
that the CDA tribunals have hardly been chomping at the bit to
extend Christian. Moreover, the Government has a direct
right of action against the prime contractor and can seek redress
against the prime contractor for its failure to have discharged its
contractual duty to flow the missing clause down into its
subcontract and it would be extraordinary for a tribunal now to
hold that Christian dispenses with the rule of privity in
regard to Government claims against subcontractors. That is a
slippery slope down which the Government may not wish to slalom if,
at the bottom, it eventuates in the collateral elimination of
privity as a bar to subcontractor claims against Uncle Sam.
What about prime contractor claims against subcontractors seeking
to impose duties under absentee clauses via the Christian Doctrine?
Well, absent the litigation of the issue under an indirect,
sponsored appeal agreement, those claims will not be heard by a CDA
tribunal. State and local courts, and even federal district courts,
do not live and breathe the federal common law and we would hazard
a guess that the judges in those tribunals will not find the
Christian Doctrine as easy a pill to swallow as do those that work
every day in the sometimes arcane world of government contracts.
They may well be reluctant – if not loath – to
modify subcontracts for the benefit of a prime contractor that
simply failed to have included certain clauses in the subcontracts
in the first instance.
All of which means – we live in a world of uncertain
legal obligations. Root for the appellants.
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