UPMC Braddock v. Harris , 934 F. Supp. 2d 238 ( 2013 )


Menu:
  •                               UNITED STATES DISTRICT COURT
    FOR THE DISTRICT OF COLUMBIA
    ___________________________________
    )
    UPMC BRADDOCK, et al.,                     )
    )
    Plaintiffs,                         )
    )
    v.                                  )           Civil Action No. 09-1210 (PLF)
    )
    SETH D. HARRIS, Acting Secretary,          )
    United States Department of Labor, et al., )
    )
    1
    Defendants.                         )
    ___________________________________ )
    OPINION
    This is an action to review a final agency decision by the Department of Labor’s
    Administrative Review Board under the Administrative Procedure Act, 
    5 U.S.C. § 701
     et seq.
    Before the Court are cross-motions for summary judgment by the plaintiffs and the defendants,
    along with the plaintiffs’ motion for leave to supplement the administrative record. Upon
    consideration of the parties’ papers, the relevant legal authorities, and the entire record in this
    case, the Court will grant the defendants’ motion for summary judgment, deny the plaintiffs’
    motion for summary judgment, and deny the plaintiffs’ motion for leave to supplement the
    administrative record.2
    1
    The Court has substituted Acting Secretary of Labor Seth D. Harris as a defendant
    in place of former Secretary Hilda L. Solis, pursuant to Rule 25(d) of the Federal Rules of Civil
    Procedure.
    2
    The papers reviewed in connection with this matter include the following:
    plaintiffs’ complaint (“Compl.”); plaintiffs’ motion for summary judgment (“Pls.’ MSJ”);
    defendants’ motion for summary judgment (“Defs.’ MSJ”); plaintiffs’ opposition to defendants’
    motion (“Pls.’ Opp.”); defendant’s opposition to plaintiffs’ motion (“Defs.’ Opp.”); plaintiffs’
    reply (“Pls.’ Reply”); defendants’ reply (“Defs.’ Reply”); plaintiffs’ motion for leave to
    supplement the administrative record (“Mot. Supp.”) defendants’ opposition to that motion
    I. BACKGROUND
    A. Overview
    The plaintiffs in this action are three hospitals affiliated with the University of
    Pittsburgh Medical Center: UPMC Braddock, UPMC McKeesport, and UPMC Southside
    (collectively, the “hospitals”). The hospitals have entered into contracts with a health
    maintenance organization, UPMC Health Plan, to provide medical services and supplies to
    individuals enrolled in its coverage program. The Health Plan, in turn, has contracted with the
    U.S. Office of Personnel Management (“OPM”) to provide coverage for federal employees who
    participate in the Federal Employees Health Benefits Program. Because the hospitals provide
    medical services to federal employees, among others, pursuant to their agreements with the
    UPMC Health Plan, which has contracted with OPM to provide coverage for those employees, a
    compliance and enforcement division of the Department of Labor has concluded that the
    hospitals qualify as government subcontractors and thus are subject to certain statutory and
    regulatory requirements involving equal opportunity efforts that are imposed on such
    subcontractors. The hospitals adamantly deny that they qualify as government subcontractors or
    that they are subject to the oversight of the Labor Department or the statutory and regulatory
    requirements it seeks to impose. Following administrative enforcement proceedings, the
    Department of Labor’s Administrative Review Board (“ARB”) disagreed with the hospitals. It
    concluded that they are subcontractors and issued an order enjoining them from failing or
    refusing to comply with the equal opportunity provisions at issue here. The Court agrees with
    the ARB’s conclusions and will uphold its decision.
    (“Opp. Supp.”); plaintiffs’ reply (“Reply Supp.”); and the administrative record from
    proceedings before the Department of Labor Administrative Review Board (“AR”).
    2
    B. Statutory and Regulatory Background
    This dispute arises from an Executive Order and two laws and the regulations
    promulgated by the Secretary of Labor under their authority: Executive Order 11246, 
    30 Fed. Reg. 12319
     (Sept. 24, 1965); Section 503 of the Rehabilitation Act of 1973, as amended, 
    29 U.S.C. § 793
     (“Rehabilitation Act”); and Section 402 of the Vietnam Era Veterans’
    Readjustment Assistance Act of 1974, 
    38 U.S.C. § 4212
     (“VEVRAA”). The Executive Order
    and the statutes require that all applicable government contracts and subcontracts include specific
    clauses furthering the equal opportunity goals of federal law.
    Specifically, Executive Order 11246, as amended by Executive Order 11375, 
    32 Fed. Reg. 14303
     (Oct. 13, 1967), directs that all government agencies “shall include” clauses in
    their applicable government contracts specifying that “[t]he contractor will not discriminate
    against any employee or applicant for employment because of race, color, religion, sex, or
    national origin” and “will take affirmative action to ensure that applicants are employed, and that
    employees are treated during employment, without regard to their race, color, religion, sex or
    national origin.” Exec. Order No. 11246 § 202(1).3 The Executive Order further directs that the
    contractor “will include” these provisions “in every subcontract or purchase order unless
    exempted by rule, regulations, or orders of the Secretary of Labor.” Id. § 202(7). Each
    subcontractor, in addition to complying with the non-discrimination and affirmative action
    obligations set forth in these provisions, “will permit access to his books, records, and accounts
    by the contracting agency and the Secretary of Labor for purposes of investigation to ascertain
    compliance with such rules, regulations, and orders” and “will furnish all information required
    by the Executor Order and by the rules, regulations, and orders of the Secretary of Labor.”
    3
    Executive Order 11246 also has been amended by Executive Order 12086, 
    43 Fed. Reg. 46501
     (Oct. 5, 1978), and Executive Order 13279, 
    67 Fed. Reg. 77141
     (Dec. 12,
    2002).
    3
    
    Id.
     § 205. The Secretary is responsible for the administration of these provisions and is
    authorized to “adopt such rules and regulations and issue such orders as he deems necessary and
    appropriate to achieve the purposes thereof.” Id. § 201.
    The Rehabilitation Act requires that any government contract or subcontract in
    excess of $10,000 for the procurement of “personal property” or “nonpersonal services” for the
    United States “shall contain” a provision requiring that the contracting or subcontracting party
    “take affirmative action to employ and advance in employment qualified individuals with
    disabilities.” 
    29 U.S.C. § 793
    (a). The President is authorized to implement the provisions of this
    section by promulgating regulations, 
    id.,
     an authority that the President has delegated to the
    Secretary of Labor. See Exec. Order No. 11758, 
    39 Fed. Reg. 2075
     (Jan. 15, 1974).
    Finally, VEVRAA provides that any government contract or subcontract in excess
    of $100,000 for the procurement of “personal property” or “nonpersonal services” for the United
    States “shall contain” a provision requiring that the contracting or subcontracting party “take
    affirmative action to employ and advance in employment qualified covered veterans.” 
    38 U.S.C. § 4212
    (a)(1). The Secretary of Labor is authorized to promulgate regulations promoting the
    implementation of these requirements. 
    Id.
     § 4212(a)(2).
    Exercising the power conferred by statute and Executive Order, the Secretary of
    Labor has issued regulations under the authority of all three provisions. Two aspects of those
    regulations are relevant to the dispute in this case. First, the regulations state that the equal
    opportunity clauses described above, which are required to be included in every nonexempt
    government contract and subcontract, “shall be considered to be a part of every contract and
    subcontract required by the [statute or executive] order and the regulations in this part to include
    such a clause whether or not it is physically incorporated in such contracts and whether or not
    4
    the contract between the agency and the contractor is written.” 
    41 C.F.R. § 60-1.4
    (e)
    (implementing Exec. Order No. 11246) (emphasis added); see 
    41 C.F.R. § 60-741.5
    (e)
    (implementing Rehabilitation Act); 
    41 C.F.R. § 60-250.5
    (e) (implementing VEVRAA). In other
    words, the regulations provide that the equal opportunity clauses are deemed included in all
    qualifying contracts and subcontracts by operation of law, regardless of whether the contracting
    entities actually include the clause in their agreements.
    Second, the regulations define certain key terms used in the Executive Order and
    statutes, including with the word “subcontract”:
    Subcontract means any agreement or arrangement between a
    contractor and any person (in which the parties do not stand in the
    relationship of an employer and an employee):
    (1) For the purchase, sale or use of personal property or
    nonpersonal services which, in whole or in part, is necessary to the
    performance of any one or more contracts; or
    (2) Under which any portion of the contractor’s obligation under
    any one or more contracts is performed, undertaken or assumed.
    
    41 C.F.R. § 60-1.3
    ; see 
    41 C.F.R. § 60-741.2
    (l) (setting forth same definition); 
    41 C.F.R. § 60-250.2
    (l) (same). A “subcontractor” is defined simply as “any person holding a subcontract”
    in the requisite monetary amount. 
    41 C.F.R. § 60-1.3
    ; 
    41 C.F.R. § 60-741.2
    (m); 
    41 C.F.R. § 60-250.2
    (m). The regulations also provide guidance on the meaning of “nonpersonal
    services,” a term used in the first prong of the definition of “subcontract”:
    The term “nonpersonal services” as used in this section includes,
    but is not limited to, the following services: Utilities, construction,
    transportation, research, insurance, and fund depository.
    
    41 C.F.R. § 60-1.3
    .
    The equal opportunity requirements of Executive Order 11246, the Rehabilitation
    Act, and VEVRAA are administered by the Office of Federal Contract Compliance Programs
    5
    (“OFCCP”) within the Department of Labor. The Secretary’s regulations impose certain
    obligations on contractors and subcontractors that are designed to allow OFCCP to ensure
    compliance with the laws’ equal opportunity mandates, including reporting requirements,
    compliance evaluations, and on-site reviews. See 
    41 C.F.R. §§ 60-1.7
    , 60-1.20, 60-250.60(a)(1),
    60-250.60(a)(1)(ii), 60-741.60(a)(1), 60-741.44(h), 60-741.60(a)(1)(ii). Among these
    obligations is that contractors and subcontractors must permit “access to [their] records and
    site[s] of employment,” as set forth in a regulation which provides:
    Each contractor shall permit access during normal business hours
    to its premises for the purpose of conducting on-site compliance
    evaluations and complaint investigations. Each contractor shall
    permit the inspecting and copying of such books and accounts and
    records, including computerized records, and other material as may
    be relevant to the matter under investigation and pertinent to
    compliance with the Order, and the rules and regulations
    promulgated pursuant thereto by the agency, or the Deputy
    Assistant Secretary.
    
    41 C.F.R. § 60-1.43
    .
    If OFCCP has reasonable cause to believe that a contractor or subcontractor has
    violated the statutory or regulatory provisions described above, it may issue “a notice requiring
    the contractor to show cause, within 30 days, why monitoring, enforcement proceedings or other
    appropriate action to ensure compliance should not be instituted.” 
    41 C.F.R. § 60-1.28
    . If
    certain required conciliation efforts are unsuccessful, see 
    41 C.F.R. § 60-1.26
    (b)(1), OFCCP may
    institute administrative enforcement proceedings by filing a complaint with the Department of
    Labor’s Office of Administrative Law Judges. 
    Id.
     § 60-1.26(a). An administrative law judge
    then holds a hearing on the record and issues a recommended decision and order, which proceeds
    to the Department’s Administrative Review Board for a final agency decision.
    6
    C. Factual and Procedural Background
    In 1995, each of the plaintiff hospitals entered into payment agreements with
    UPMC Health Plan in which the hospitals agreed to provide medical services to individuals
    whose employers had purchased group health coverage from the Health Plan. AR 32-38
    (Stipulated Facts, or “SF”) ¶¶ 9, 11, 15, 19. Effective January 1, 2000, the Health Plan entered
    into a contract with OPM in which the Health Plan agreed to provide the service of a health
    maintenance organization and offer coverage for medical services and supplies to federal
    employees who enroll in its program of benefits. See SF ¶ 21; AR 769-848 (contract for federal
    employees health benefits). Although the hospitals’ original agreements with the Health Plan
    were entered into before the Health Plan held a contract with the federal government, each
    hospital renegotiated and renewed its agreement with the Health Plan after the year 2000, when
    the Health Plan contracted with OPM. SF ¶¶ 9, 11, 15, 17; see AR 136-45, 304-11, 585-98
    (original agreements); AR 250-55, 432-37, 707-12 (notices of amendment).
    The agreements between the hospitals and the Health Plan set forth the rates and
    formulas to be used by the Health Plan in making payments to the hospitals for medical services
    and supplies provided to covered individuals. SF ¶ 18. Pursuant to the contract between OPM
    and the Health Plan, in conjunction with the agreements between the Health Plan and the
    hospitals, when federal employees receive medical treatment at one of the hospitals, the hospital
    bills the Health Plan according to the payment terms set forth in its agreement. Those
    agreements are not limited to, and do not specifically mention, federal government employees
    covered by virtue of the contract between the Health Plan and OPM, but rather apply to all
    individuals covered by the Health Plan. Id. ¶ 19.
    7
    None of the agreements between the hospitals and the Health Plan contain
    provisions obligating the hospitals to comply with Executive Order 11246, Section 503 of the
    Rehabilitation Act, or Section 402 of VEVRAA. SF ¶ 20.
    In January 2004, OFCCP sent letters to each hospital stating that it had been
    selected for a compliance review under the Executive Order, the Rehabilitation Act, and
    VEVRAA, and requesting that the hospital submit information demonstrating compliance with
    the equal opportunity provisions in those laws and permit OFCCP representatives to conduct on-
    site inspections. SF ¶ 24; AR 1070-94. The hospitals did not supply the information requested
    by OFCCP and instead sent it a joint letter maintaining that they held no government
    subcontracts and thus were not subject to the auditing authority of OFCCP or the equal
    opportunity requirements of the statutes and Executive Order. SF ¶¶ 25-26; AR 1095-96.
    In November 2006, OFCCP filed administrative complaints against the hospitals
    to enforce Executive Order No. 11246, Section 503 of the Rehabilitation Act, and Section 402 of
    VEVRAA. AR 1223. Appearing before the ALJ assigned to hear the matter, the hospitals
    contended that they held no government subcontracts and thus were not subject to OFCCP’s
    authority. See AR 18-31. Disagreeing with the arguments advanced by the hospitals in support
    of that contention, the ALJ issued a recommended decision and order granting OFCCP’s motion
    for summary judgment. See AR 1133-52. The hospitals then filed exceptions to the ALJ’s
    recommended decision and order with the ARB. See AR 1153-55. In May 2009, the ARB
    issued a final decision and order upholding the ALJ’s decision and confirming that the hospitals’
    agreements with the Health Plan are subcontracts covered by the three equal opportunity
    provisions. See AR 1221-34. The ARB’s final decision and order permanently enjoins the
    8
    hospitals from failing or refusing to comply with the requirements of Executive Order 11246, the
    Rehabilitation Act, VEVRAA, and their implementing regulations. AR 1232.
    The hospitals now seek review of the ARB’s decision and order under the APA,
    5. U.S.C. § 701 et seq., asking the Court to set aside the decision and order and enjoin the
    Department of Labor from enforcing it. The hospitals maintain that the ARB erred in concluding
    that they are government subcontractors obligated to comply with the equal opportunity
    requirements of federal law. They further contend that the Secretary of Labor’s implementing
    regulations conflict with the underlying laws, exceed the grant of his delegated legislative
    authority, and are “inconsistent with the fundamental notion that a party is bound by the
    affirmative action obligations of Executive Order 11246, Section 503 of the Rehabilitation Act
    and VEVRAA by virtue of electing to do business with the federal government and/or by
    agreeing to be bound by such obligations.” Compl. ¶¶ 65, 70-72.
    The parties have filed cross-motions for summary judgment. In addition, the
    hospitals have moved for leave to supplement the administrative record with one additional
    document, a request that the Secretary opposes. As the ARB explained, and as the parties agree,
    this case involves no factual disputes and presents only questions of law. See AR 1224.
    II. LEGAL STANDARD
    Summary judgment may be granted if the moving party “shows that there is no
    genuine dispute as to any material fact and the movant is entitled to judgment as a matter of
    law.” FED. R. CIV. P. 56(a). In a case involving review of a final agency action under the
    Administrative Procedure Act, 
    5 U.S.C. § 706
    , however, the Court’s role is limited to reviewing
    the administrative record, so the standard set forth in Rule 56(a) does not apply. See Cottage
    Health System v. Sebelius, 
    631 F. Supp. 2d 80
    , 89-90 (D.D.C. 2009) (citing North Carolina
    9
    Fisheries Ass’n v. Gutierrez, 
    518 F. Supp. 2d 62
    , 79 (D.D.C. 2007)). “Under the APA, it is the
    role of the agency to resolve factual issues to arrive at a decision that is supported by the
    administrative record, whereas ‘the function of the district court is to determine whether or not as
    a matter of law the evidence in the administrative record permitted the agency to make the
    decision it did.’” 
    Id.
     (quoting Occidental Engineering Co. v. INS, 
    753 F.2d 766
    , 769-70 (9th Cir.
    1985)). Summary judgment simply serves as “the mechanism for deciding, as a matter of law,
    whether the agency action is supported by the administrative record and otherwise consistent
    with the APA standard of review.” See id. at 90; Fund for Animals v. Babbitt, 
    903 F. Supp. 96
    ,
    105 (D.D.C. 1995).
    The standard of review under the APA “is a highly deferential one. It presumes
    agency action to be valid.” Humane Society of the United States v. Kempthorne, 
    579 F. Supp. 2d 7
    , 12 (D.D.C. 2008) (quoting Ethyl Corp. v. EPA, 
    541 F.2d 1
    , 34 (D.C. Cir. 1976)).
    Nevertheless, a reviewing court must set aside agency actions, findings, or conclusions when
    they are arbitrary, capricious, an abuse of discretion, otherwise not in accordance with law, or
    unsupported by substantial evidence. See 
    5 U.S.C. § 706
    (2)(A) and (E); Marsh v. Oregon
    Natural Resources Council, 
    490 U.S. 360
    , 375 (1989). Agency action is arbitrary and capricious
    if the agency
    relied on factors which Congress has not intended it to consider,
    entirely failed to consider an important aspect of the problem,
    offered an explanation for its decision that runs counter to the
    evidence before the agency, or is so implausible that it could not be
    ascribed to a difference in view or the product of agency expertise.
    Motor Vehicle Mfrs. Assoc. v. State Farm Mutual Auto. Insurance Co., 
    463 U.S. 29
    , 43 (1983).
    When faced with cross-motions for summary judgment, the court must rule on
    each party’s motion on an individual and separate basis, determining in each case whether a
    10
    judgment may be entered for the moving party. Beverly Enterprises, Inc. v. Herman, 
    130 F. Supp. 2d 1
    , 12 (D.D.C. 2000) (citing Held v. American Airlines, Inc., 
    13 F. Supp. 2d 20
    , 23
    (D.D.C. 1998)).
    III. DISCUSSION
    The hospitals raise four objections to the ARB’s determination that they are
    government subcontractors obligated to comply with the Executive Order and statutes at issue as
    well as with the Secretary of Labor’s implementing regulations. The Court finds none of these
    objections persuasive. It will discuss each in turn.
    A. Definition of “Subcontractor” in the Health Plan’s Contract with OPM
    The hospitals first contend that the statutes and Executive Order do not apply to
    them because OPM and the Health Plan expressly agreed that a provider of medical services is
    not a “subcontractor” within the meaning of their contract. Thus, the very government contract
    on which the hospitals’ alleged status as subcontractors rests, they argue, itself makes clear that
    they are not subcontractors. While the hospitals are correct about the terms of the OPM/Health
    Plan contract, they are wrong about the legal implications of those terms.
    The OPM/Health Plan contract defines the term “subcontractor,” for the purposes
    of the contract, as “[a]ny 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.” AR 776 (emphasis added);
    see 
    id.
     (defining “Carrier” as the main contractor, i.e., the Health Plan). The contract thus
    purports to exempt hospitals, among others, from the status of subcontractors.
    11
    But as the Secretary explains, “neither the UPMC Health Plan nor a federal
    contracting agency is empowered to override the mandatory requirements of two federal statutes
    and an Executive Order.” Defs.’ MSJ at 24. To the contrary: “Generally, a provision in a
    government contract that violates or conflicts with a federal statute is invalid or void.” Burnside-
    Ott Aviation Training Ctr. v. Dalton, 
    107 F.3d 854
    , 858 (Fed. Cir. 1997) (quoting American
    Airlines, Inc. v. Austin, 
    75 F.3d 1535
    , 1538 (Fed. Cir. 1996)); see id. at 857-59 (holding
    jurisdiction-defeating contract provision to be void); Yosemite Park & Curry Co. v. United
    States, 
    582 F.2d 552
    , 560 (Ct. Cl. 1978) (holding contract provision violating federal
    procurement law to be void); see also Reno Hilton Resorts v. N.L.R.B., 
    196 F.3d 1275
    , 1281
    (D.C. Cir. 1999) (noting “the general principle that a party cannot exercise its contractual rights
    in violation of the law”); Javins v. First Nat. Realty Corp., 
    428 F.2d 1071
    , 1081-82 (D.C. Cir.
    1970) (reading terms of housing code regulations into housing contract).
    The Secretary of Labor, not OPM, has been given the authority to administer the
    statutes and Executive Order and to issue regulations implementing them. See Exec. Order No.
    11246 § 201; Exec. Order No. 11758 § 2; 
    38 U.S.C. § 4212
    (a)(1). These regulations define the
    term “subcontractor” without including an exception for providers of medical services. See 
    41 C.F.R. §§ 60-1.3
    , 60-741.2(m), 60-250.2(m). Moreover, the Secretary alone has been delegated
    the authority to waive the non-discrimination and affirmative action requirements of the statutes
    and Executive Order under certain circumstances and with respect to particular contracts. See
    Exec. Order No. 11246 § 204; Exec. Order No. 11758 § 2.
    In light of this apportioning of authority, OPM and the Health Plan have no power
    to limit the scope of the Rehabilitation Act, VEVRAA, or Executive Order 11246 by
    contractually agreeing to a narrower definition of “subcontractor” than the Secretary has adopted
    12
    in implementing those laws. To the contrary, as discussed at greater length in Section III.D of
    this Opinion, “a mandatory contract clause that expresses a significant or deeply ingrained strand
    of public procurement policy is considered to be included in a contract by operation of law,” and
    thus cannot be intentionally or inadvertently omitted by a contracting federal agency, because
    “the United States is neither bound nor estopped by its agents who act beyond their authority or
    contrary to statute and regulations.” S.J. Amoroso Const. Co., Inc. v. United States, 
    12 F.3d 1072
    , 1075 (Fed. Cir. 1993) (citing Federal Crop Ins. Corp. v. Merrill, 
    332 U.S. 380
    , 384
    (1947)).
    Because OPM and the Health Plan have no authority to define the contours of the
    equal opportunity laws governing federal procurement by devising their own meaning for the
    word “subcontractor,” the definition of that word in the OPM/Health Plan contract has no effect
    on whether the hospitals lawfully may be regarded as government subcontractors and subject to
    the attendant legal obligations.
    B. Regulatory Definition of “Subcontractor”
    The hospitals’ next argument is that they do not qualify as “subcontractors” under
    the Secretary’s own implementing regulations. Again, their contentions fall short.
    The regulations implementing the statutes and Executive Order each provide the
    following definition of “subcontract”:
    Subcontract means any agreement or arrangement between a
    contractor and any person (in which the parties do not stand in the
    relationship of an employer and an employee):
    (1) For the purchase, sale or use of personal property or
    nonpersonal services which, in whole or in part, is necessary to the
    performance of any one or more contracts; or
    13
    (2) Under which any portion of the contractor’s obligation under
    any one or more contracts is performed, undertaken or assumed.
    
    41 C.F.R. § 60-1.3
    ; see 
    41 C.F.R. § 60-741.2
    (l); 
    41 C.F.R. § 60-250.2
    (l). The ALJ and the ARB
    concluded that the hospitals’ agreements with the Health Plan qualify as subcontracts under both
    prongs of this definition. AR 1143-45, 1229-30. The hospitals’ primary argument here is that
    the business of supplying medical care is one of offering “personal services,” not “nonpersonal
    services,” and that the services they provide pursuant to their agreements with the Health Plan
    therefore do not fall within the first prong of the Secretary’s definition.
    None of the three laws on which these regulations are based define the term
    “nonpersonal services.” The Secretary’s implementing regulations provide some limited
    guidance on the meaning of that term within their definition of “government contract”:
    Government contract means any agreement or modification thereof
    between any contracting agency and any person for the purchase,
    sale or use of personal property or nonpersonal services. The term
    “personal property,” as used in this section, includes supplies, and
    contracts for the use of real property (such as lease arrangements),
    unless the contract for the use of real property itself constitutes real
    property (such as easements). The term “nonpersonal services” as
    used in this section includes, but is not limited to, the following
    services: Utilities, construction, transportation, research,
    insurance, and fund depository. The term Government contract
    does not include:
    (1) Agreements in which the parties stand in the relationship of
    employer and employee; and
    (2) Federally assisted construction contracts.
    
    41 C.F.R. § 60-1.3
     (emphasis added). This provision obviously does not define “nonpersonal
    services” but rather lists several non-exclusive examples of such services. The hospitals assert
    that “none of the listed categories are analogous to the type of personalized medical care
    provided by the hospitals in this case.” Pls.’ MSJ at 16. In other words, the hospitals argue — as
    14
    they did before the ALJ and the ARB — that the term “nonpersonal services” must be contrasted
    with “personal services” (a term not found in the regulations) like colonoscopies or proctology
    examinations, AR 1229, and thus refers to a lack of direct interpersonal interaction provided by
    the subcontracting entity to those benefitting from its services. The hospitals have cited no
    authority for their proffered definition.
    Recognizing that there is no explicit definition of the term “nonpersonal services”
    in the statutes or regulations, the ALJ and the ARB looked for guidance to Chapter 1 of the
    Federal Acquisition Regulations (“FAR”), found in Title 48 of the Code of Federal Regulations,
    because Subchapter D of that chapter — which “prescribes policies and procedures pertaining to
    nondiscrimination in employment by contractors and subcontractors,” 
    48 C.F.R. § 22.800
     —
    includes a definition of “subcontract” that is materially identical to the definition set forth in the
    Secretary’s regulations. See 
    48 C.F.R. § 22.801.4
     Subchapter F of that chapter, entitled “Special
    Categories of Contracting,” includes a Part 37, entitled “Service Contracting,” explaining that a
    “[n]onpersonal services contract means a contract under which the personnel rendering the
    services are not subject, either by the contract’s terms or by the manner of its administration, to
    the supervision and control usually prevailing in relationships between the Government and its
    employees.” 
    48 C.F.R. § 37.101
    . The regulations further explain that “[a] personal services
    contract is characterized by the employer-employee relationship it creates between the
    Government and the contractor’s personnel.” 
    48 C.F.R. § 37.104
    (a).5
    4
    The only difference between the FAR definition and the Labor Secretary’s
    definition is the substitution of the word “that” for “which” and the word “are” for “is” within
    prong (1) of the definition. See 
    48 C.F.R. § 22.801
    .
    5
    Later, the regulations shed light on the significance of clearly distinguishing
    between government employees and employees of a company that hold a personal services
    contract: “The Government is normally required to obtain its employees by direct hire under
    competitive appointment or other procedures required by the civil service laws. Obtaining
    15
    The ALJ and the ARB concluded that the definition of “nonpersonal services
    contract” in the Federal Acquisition Regulations is applicable to the Labor Secretary’s equal
    opportunity regulations. AR 1144, 1228. First, the two sets of regulations contain materially
    identical definitions of “subcontract,” within which the term “nonpersonal services” is found,
    and second, as the ALJ noted, the relevant portion of the FAR is designed to prescribe “policies
    and procedures pertaining to nondiscrimination in employment by contractors and
    subcontractors,” thus making its application to the Secretary’s equal opportunity regulations for
    contractors and subcontractors especially appropriate. AR 1144 (citing 
    48 C.F.R. § 22.800
    ).
    The ALJ found, and the ARB agreed, that the term “nonpersonal services” does
    not refer to the nature of the interaction between the employees of a subcontractor and those
    individuals benefitting from the subcontract, as the hospitals would have it, but rather to the
    relationship between the subcontractor’s personnel and the contracting government agency, as
    spelled out in the FAR. AR 1144, 1228. The hospitals provided “nonpersonal services” because
    their personnel “were neither in an employer-employee relationship with the UPMC nor under
    the supervision and control that an employer would exercise over its employees.” AR 1230.
    Accordingly, there is no basis for the hospitals’ contention that their agreements with the Health
    Plan fall outside the first prong of the Secretary’s definition of “subcontract” simply because the
    hospitals provide direct medical services. AR 1228.
    The hospitals lodge two objections to the ARB’s reasoning. First, they assert that
    instead of drawing on the definition of “nonpersonal services contract” from within Chapter 1 of
    the FAR in order to elucidate the meaning of “subcontractor” in the Secretary’s regulations, the
    agency should instead have utilized the definition of “subcontractor” that is provided in a
    personal services by contract, rather than by direct hire, circumvents those laws unless Congress
    has specifically authorized acquisition of the services by contract.” 
    48 C.F.R. § 37.104
    (a).
    16
    different portion of the FAR, Chapter 16. That chapter sets forth regulations for OPM in
    acquiring and administering contracts with health insurance carriers for federal employees. 
    48 C.F.R. § 1601.101
    (b). It defines “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.” 
    48 C.F.R. § 1602.170-15
     (emphasis added). This definition, of course, mirrors the one
    recited in the OPM/Health Plan contract, discussed in Section III.A of this Opinion. If applied, it
    would place the hospitals outside the purview of the Secretary’s equal opportunity regulations.
    The ARB rationally rejected this approach.
    Using the definition of “subcontractor” within Chapter 16 of the FAR might, at
    first blush, offer some appeal because this case involves a contract entered into by OPM
    involving health benefits for federal employees. Yet following that approach would entirely
    supplant the definition of “subcontractor” provided in the Secretary of Labor’s regulations,
    replacing that definition with one from an entirely different regulation that by it terms has no
    apparent connection to any agency besides OPM. But to use that definition to elucidate the
    meaning of “subcontractor” in the Secretary’s regulations would affect not only OPM contractors
    like this one but all other government agencies’ contractors and their subcontractors as well.
    Such a result would make little sense in light of its far-reaching results. Unlike the approach
    urged by the hospitals, which would completely replace the Secretary’s definition of
    “subcontractor,” the ARB’s reasoning merely helps clarify a term within the Secretary’s
    definition whose meaning is not fully spelled out in the regulations. And instead of drawing on a
    definition from the FAR that is specific to the operation of a single agency, OPM, and that bears
    no evident connection to employment practices, see 
    48 C.F.R. § 1602.170-15
    , the ARB’s
    17
    interpretation explains the term “nonpersonal services” with reference to a broadly applicable
    definition found in a part of the FAR that clearly evinces a concern with the relationship between
    employees and their supervisors. See 
    48 C.F.R. §§ 37.101
    , 37.104. The fact that this definition
    is found within a chapter that includes a definition of “subcontract” identical to the Secretary’s
    definition further reinforces the ARB’s conclusion that it offers a more appropriate source for
    guidance than does Chapter 16 of the FAR.
    The hospitals articulate no sensible rationale for their interpretation. The statutory
    provisions and Executive Order administered by the Secretary are designed to ensure that
    contractors who benefit from government contracts, and the subcontractors whom they enlist in
    their efforts, treat their employees in accordance with the equal opportunity mandates of federal
    law. There is no reason why the Secretary, in implementing those provisions, would have
    chosen to remove certain categories of employees from the protection of those laws based solely
    on whether their jobs involve rendering “personal services” — in other words, why the Secretary
    would have chosen to exclude nurses, doctors, and other hospital staff members from the laws’
    protection while insurance company staffers and construction workers, for instance, remain
    within the ambit of that protection.
    The hospitals’ second objection to the ARB’s reasoning is that its interpretation of
    the term “nonpersonal services” renders the regulation “nonsensical” and plagued by
    “unnecessary and superfluous text.” Pls.’ MSJ at 18. That is so, the hospitals say, because the
    definition of “subcontract” already excludes agreements in which the parties “stand in the
    relationship of an employer and an employee.” 
    41 C.F.R. § 60-1.3
    . It would be redundant, they
    maintain, if one of the subparts of the definition — prong (1) — used the term “nonpersonal
    services” with no other purpose than to exclude the very same category of agreements.
    18
    The Court disagrees. The ARB’s interpretation does not create any redundancy in
    the regulation. The opening phrase in the definition of “subcontract” speaks to the relationship
    between the contractor and the subcontractor, making clear that a subcontract exists only if “the
    parties” themselves “do not stand in the relationship of an employer and an employee.” 
    41 C.F.R. § 60-1.3
    . Prong (1) of the definition, as interpreted by the ARB in reliance on the first
    chapter of the FAR, refers to the relationship between the contractor and the employees of the
    subcontractor, making clear that a subcontract exists only if those employees — i.e., “the
    personnel rendering the services” — “are not subject, either by the contract’s terms or by the
    manner of its administration, to the supervision and control usually prevailing in relationships
    between the Government and its employees.” 
    48 C.F.R. § 37.101
    . The distinction is meaningful
    because a subcontractor can be either an individual person or a company with its own employees.
    In the latter scenario, if no employer-employee relationship exists between the government and
    the company’s personnel, the contract is one for “nonpersonal services” and thus qualifies as a
    “subcontract” within the first prong of the Secretary’s definition.6
    The ARB’s interpretation of the term “nonpersonal services” also is consistent
    with the regulation’s pronouncement, within the definition of “government contract,” that “[t]he
    term ‘nonpersonal services’ as used in this section includes, but is not limited to, the following
    services: Utilities, construction, transportation, research, insurance, and fund depository.” 
    41 C.F.R. § 60-1.3
    . This non-exclusive list sets forth classic illustrative examples of arrangements
    in which a contractor provides an ongoing service to the government while maintaining
    6
    Presumably there is no need to provide an equivalent limitation regarding
    employees of subcontractors involved in “the purchase, sale or use of personal property,” 
    41 C.F.R. § 60-1.3
    , because the employees of such subcontractors will never be confused with
    government personnel, as their employers deliver to the government a tangible good or finished
    product, not an ongoing service.
    19
    exclusive supervisory control over its own personnel. Listing these illustrative examples
    performs a clarifying function and is not superfluous simply because the actual definition of
    “nonpersonal services” must be found elsewhere.
    Far from rendering the Secretary’s regulation “nonsensical,” therefore, the ARB
    construed the term “nonpersonal services” in a manner that is not only highly rational but also in
    harmony with the general use of that term in federal procurement law elsewhere in the Code of
    Federal Regulations. The Court therefore rejects the hospitals’ argument that the ARB’s
    decision should be set aside for misconstruing the meaning of the term “nonpersonal services”
    within the Secretary’s definition of “subcontract.”7
    Were there any doubt here about the correctness of the ARB’s interpretation,
    basic principles of administrative review would still require upholding that interpretation. Courts
    “must give substantial deference to an agency’s interpretation of its own regulations,” Fina Oil &
    Chem. Co. v. Norton, 
    332 F.3d 672
    , 676 (D.C. Cir. 2003) (quoting Thomas Jefferson Univ. v.
    Shalala, 
    512 U.S. 504
    , 512 (1994)). Because they “lack authority to ‘decide which among
    several competing interpretations [of an agency’s own regulation] best serves the regulatory
    purpose,’” courts “instead must ‘give effect to the agency’s interpretation so long as it . . .
    sensibly conforms to the purpose and wording of the regulations.’” 
    Id.
     (quoting Martin v.
    7
    As noted, the ARB also concluded that the hospitals qualify as subcontractors
    within the second prong of the Secretary’s definition as well as the first. The second prong
    encompasses agreements “[u]nder which any portion of the contractor’s obligation under any one
    or more contracts is performed, undertaken or assumed.” 
    41 C.F.R. § 60-1.3
    . The ARB found
    this condition satisfied because the Health Plan’s contract with OPM “required it to put a health
    maintenance organization into operation,” and the contract “thus depended on medical providers
    like the [hospitals] to offer medical services and supplies necessary for the [Health Plan] to meet
    a portion of its obligations under its contract with OPM.” AR 1230. The ARB’s conclusion on
    this point is problematic, however, because Section 503 of the Rehabilitation Act and Section
    402 of VEVRAA, on which the Secretary’s implementing regulations are based, limit their equal
    opportunity mandates to subcontracts for the procurement of “personal property” or
    “nonpersonal services.” 
    29 U.S.C. § 793
    (a); 
    38 U.S.C. § 4212
    (a)(1).
    20
    Occupational Safety & Health Review Comm’n, 
    499 U.S. 144
    , 150-51 (1991) (alteration in Fina
    Oil)). Only an agency interpretation that is “plainly erroneous or inconsistent with the
    regulation” will be rejected. 
    Id.
     (quoting Bowles v. Seminole Rock & Sand Co., 
    325 U.S. 410
    ,
    414 (1945)). As the foregoing discussion should make clear, the Court does not find the ARB’s
    interpretation of the Secretary’s regulation to be plainly erroneous or inconsistent with the
    regulation.
    C. Designation of the Hospitals as Subcontractors
    The hospitals next argue that, even accepting the ARB’s construction of the word
    “subcontract” in the Secretary’s regulations, their agreements with the Health Plan do not fit
    within that definition, and therefore they are not government subcontractors who must comply
    with the laws at issue here. Essentially, this argument involves a dispute about the nature and
    scope of OPM’s contract with the Health Plan, which in turn affects whether the hospitals’
    agreements with the Health Plan can properly be understood as serving the ends of that contract
    — thus rendering them subcontractors.
    In order to qualify as a subcontract under the regulations, an agreement must
    provide for the furnishing of property or nonpersonal services that are “necessary to the
    performance” of a government contract — or, in the alternative, the agreement must be one
    “[u]nder which a portion of the contractor’s obligation [pursuant to its government contract] is
    performed, undertaken or assumed.” 
    41 C.F.R. § 60-1.3
    ; 
    41 C.F.R. § 60-741.2
    (l); 
    41 C.F.R. § 60-250.2
    (l). The hospitals maintain that the medical services they provide as part of their
    agreements with the Health Plan are not “necessary to the performance” of the Health Plan’s
    contract with OPM. Nor, they say, is any portion of the Health Plan’s obligation to OPM
    performed, undertaken, or assumed under their own agreements with the Health Plan. The gist
    21
    of their argument is that the Health Plan has contracted only to provide insurance coverage to the
    federal employees enrolled in its program — it has not agreed to provide actual medical services
    to those employees. Therefore, although the Health Plan reimburses the hospitals for their
    treatment of covered federal employees, that arrangement is not necessary to the performance of
    the Health Plan’s contract, nor do the hospitals’ services represent a partial performance or
    undertaking of that contract, because the Health Plan has promised only to insure the federal
    employees in question, not to provide them with medical care. See Pls.’ MSJ at 19.
    The hospitals chiefly rely on an earlier decision by the ARB involving a similar
    factual scenario, OFCCP v. Bridgeport Hospital, ARB Case No. 00-034, 
    2003 WL 244810
     (Jan.
    31, 2003). There, OFCCP attempted to enforce the same equal opportunity provisions at issue
    here on a hospital that had a medical services agreement with Blue Cross/Blue Shield, which in
    turn had contracted with OPM to provide federal employees with health insurance. 
    Id. at *2
    . “In
    OFCCP’s view, by providing services to Blue policyholders at a discounted rate, Bridgeport was
    providing a service ‘necessary to’ effectuation of Blue’s contract with OPM and/or performing
    part of that contract on Blue’s behalf.” 
    Id.
     Bridgeport Hospital, like the hospitals here, denied
    that it was a government subcontractor. The ARB agreed, finding OFCCP’s argument to be
    “inconsistent with the contract that Blue has with OPM.” 
    Id. at *3
    . “That contract does not
    obligate Blue to provide ‘medical services and supplies’ to government employees,” but rather,
    “obligated Blue [only] to provide health insurance.” 
    Id.
     In making this determination, the ARB
    emphasized that “the Blue-OPM contract expressly stated that Blue made no commitment to
    assure hospital care or services to enrollees.” 
    Id.
     To illustrate this point, the ARB quoted the
    contract: “While a Member may elect to be hospitalized in any hospital, the Carrier [Blue] does
    not undertake to guarantee the admission of such member to the hospital, nor the availability of
    22
    any accommodations or services therein requested by the Member or his physician.” 
    Id.
     As a
    result, the ARB concluded: “Blue did not contract with OPM to provide its policyholders with
    medical services. Blue contracted with OPM to provide reimbursement to its policyholders for
    medical care costs.” 
    Id. at *4
    .8
    The hospitals in this case argue that the Bridgeport decision controls the outcome
    here. The ARB disagreed, finding that the Health Plan’s contract with OPM is fundamentally
    different from Blue Cross’s contract with OPM in Bridgeport, and that unlike Blue Cross, the
    Health Plan has agreed to provide medical services to federal employees because it agreed to
    serve the function of a health maintenance organization or HMO, nor merely that of a traditional
    insurer. And because the Health Plan’s contract with OPM “required [it] to put a health
    maintenance organization (HMO) into operation. . . . [t]he contract thus depended on medical
    providers like the [hospitals] to offer medical services and supplies necessary for the [Health
    Plan] to meet a portion of its obligations under its contract with OPM to put an HMO into
    operation.” AR 1230. “Unlike Blue Cross,” the ARB explained, the Health Plan “is more than
    an insurer.” AR 1231. “According to the UPMC Health Plan brochure, the Health Plan ‘is a
    health maintenance organization (HMO)’ that ‘contract[s] with individual physicians, medical
    groups, and hospitals to provide the benefits in this brochure,’” which include a variety of
    medical services. 
    Id.
     “Provision of medical services and supplies was a critical component of
    the UPMC’s contract,” therefore, and “[t]he contract depended on medical providers like the
    [hospitals] to offer medical services and supplies necessary for UPMC to meet its obligations
    8
    The ARB therefore “d[id] not reach the question whether Blue’s non-existent
    obligation to deliver medical services to Blue enrollees did or did not constitute partial
    performance by Bridgeport of Blue’s contract with OPM or was ‘necessary to performance’ of
    the prime contract,” because “the first premise of OFCCP’s argument fails — Blue has no
    commitment to OPM to provide its policyholders with medical care.” OFCCP v. Bridgeport
    Hospital, 
    2003 WL 244810
    , at *4.
    23
    under its contract with OPM.” 
    Id.
     “Unlike Bridgeport Hospital, [the] hospitals contracted to
    provide ‘a portion of the contractor’s obligation’ to provide medical services and supplies under
    its contract with OPM.” Id.; see also AR 1147-49 (ALJ recommended decision and order,
    distinguishing Bridgeport on the same basis).
    Although the hospitals discuss the Bridgeport decision at length, they offer only
    one objection to the ARB’s reasoning distinguishing that decision. The ARB’s conclusion, they
    aver, “is premised on the entirely faulty assumption that UPMC Health Plan, in its contract with
    OPM, agreed to provide actual medical care to federal employees.” Pls.’ MSJ at 22 (emphasis
    in original). In other words, the hospitals dispute the ARB’s conclusion that the Health Plan is
    materially different from Blue Cross because it is an HMO rather than a stand-alone insurer.
    The hospitals discern support for their view in the Supreme Court’s decision in
    Rush Prudential HMO, Inc. v. Moran, 
    536 U.S. 355
     (2002). But that decision cuts strongly the
    other way. At issue in Rush Prudential was whether a state law regulating certain practices by
    HMOs was a law that “regulates insurance,” thereby falling outside the preemptive sweep of the
    Employee Retirement Income Security Act of 1974 (“ERISA”). Arguing in favor of ERISA
    preemption, the defendant HMO, Rush Prudential, “contend[ed] that seeing an HMO as an
    insurer distorts the nature of an HMO, which is, after all, a health care provider, too. This, Rush
    argue[d], should determine its characterization, with the consequence that regulation of an HMO
    is not insurance regulation within the meaning of ERISA.” 
    Id. at 366
    . The Court disagreed and
    held that HMO restrictions do “regulate insurance,” but it also made clear that inherent in the
    nature of an HMO is a guarantee of the provision of medical services. The Court refused to
    characterize an HMO as either exclusively an insurance provider or exclusively a health care
    provider; it is both:
    24
    The answer to Rush is, of course, that an HMO is both: it provides
    health care, and it does so as an insurer. . . . “The defining feature
    of an HMO is receipt of a fixed fee for each patient enrolled under
    the terms of a contract to provide specified health care if needed.”
    “The HMO thus assumes the financial risk of providing the
    benefits promised: if a participant never gets sick, the HMO keeps
    the money regardless, and if a participant becomes expensively ill,
    the HMO is responsible for the treatment[.]” So Congress has
    understood from the start, when the phrase “Health Maintenance
    Organization” was established and defined in the HMO Act of
    1973. The Act was intended to encourage the development of
    HMOs as a new form of health care delivery system[.]
    
    Id. at 367
     (citation omitted). Thus, while HMOs do provide insurance, Congress understood that
    in establishing them it was promoting “a novel form of insurance” in which HMOs “‘assum[e]
    direct financial responsibility, without benefit of reinsurance, for care . . . in excess of the first
    five thousand dollars per enrollee per year.’” 
    Id.
     (quoting Senate Report); see also Kentucky
    Ass’n of Health Plans, Inc. v. Miller, 
    538 U.S. 329
    , 331 (2003).
    The Supreme Court’s observations in Rush Prudential, along with the evidence
    presented to the ALJ and the ARB in this case about the nature of the Health Plan’s obligations
    to OPM and its relationship with the hospitals, support the ARB’s conclusion that the hospitals
    here, unlike Bridgeport Hospital, are subcontractors. In Bridgeport, the ARB explained, Blue
    Cross was solely an insurer; it had not agreed to provide health care to federal employees but
    only to insure them for such care. Bridgeport Hospital’s arrangement with Blue Cross therefore
    did not contribute to the fulfillment of any contractual obligation undertaken by Blue Cross in its
    federal contract; thus Bridgeport Hospital was not a subcontractor subject to OFCCP’s
    jurisdiction. OFCCP v. Bridgeport Hospital, 
    2003 WL 244810
    , at *3. By contrast, because the
    Health Plan is an HMO — a “health care delivery system” that is “responsible for treatment,”
    Rush Prudential HMO, Inc. v. Moran, 
    536 U.S. at
    367 — the ARB determined that the Health
    Plan did agree to supply medical care, not just insurance, to federal employees under its contract
    25
    with OPM. See AR 1149 (ALJ’s observation that “an HMO by its nature arranges and provides
    for the medical services through the medical providers such as the [plaintiff] hospitals with
    which it contracts”); AR 1231-32 (ARB’s observation that “there is ample evidence” of
    operation “primarily as health care delivery providers and not strictly as insurance providers”);
    see also Pls.’ MSJ at 26 n.18 (conceding that “UPMC Health Plan is affiliated, through the HMO
    arrangement, with the hospitals that provide the actual medical care received by insured
    individuals”).
    Because the hospitals provide a portion of the medical care that the Health Plan
    agreed to supply to federal employees under its OPM contract, the hospitals’ agreements with the
    Health Plan are necessary to the performance of that contract. Thus, as the ARB held, those
    agreements are “subcontracts” within the meaning of 
    41 C.F.R. § 60-1.3
    . See AR 1230-32. It
    does not matter, therefore, that the Health Plan “does not employ any doctors or ‘providers’ of
    medical care,” that its contract with OPM “specifically differentiates between UPMC Health
    Plan . . . and the actual ‘providers’ of medical services,” or that the Health Plan “provides health
    insurance to government employees.” Pls.’ MSJ at 27. All of that is consistent with the ARB’s
    conclusions and with the nature of an HMO. See Kentucky Ass’n of Health Plans, Inc. v. Miller,
    
    538 U.S. at 331
    .
    Beyond the general definition of an HMO, the administrative record fully
    supports the ARB’s findings and conclusions regarding the obligations undertaken by the Health
    Plan in its OPM contract as well as the relationship between those obligations and the hospitals’
    services. The Health Plan’s OPM contract states that it “shall provide the benefits as described
    in the agreed upon brochure text” included as Appendix A to the contract. AR 789. Those
    benefits include a host of medical services, see AR 867, 879, 884, 887, 889, 891, 895, which “are
    26
    provided in full unless indicated and subject to the definitions, limitations, and exclusions in
    th[e] brochure.” AR 912. Although the hospitals assert that the Blue Cross contract and
    brochure at issue in Bridgeport contained similar language, the Secretary responds that “[b]y
    statute, HMOs, including the UMPC Health Plan (in contrast to traditional insurers such as Blue
    Cross/Blue Shield), must furnish medical services as a precondition for participation in the
    [federal health benefits program], and those medical services must be available and accessible to
    each of the HMO’s members.” Defs.’ Reply at 2; see id. at 2-7 (explaining statutory scheme).
    Consistent with those requirements, the Health Plan’s brochure (which is incorporated into its
    OPM contract) includes a section entitled “Facts about this HMO Plan” that states: “This Plan is
    a health maintenance organization” that “contract[s] with individual physicians, medical groups,
    and hospitals to provide the benefits in this brochure.” AR 859. The brochure explains that
    individuals covered by the plan are “require[d] to see specific physicians, hospitals, and other
    providers that contract with us,” and “[t]he Plan is solely responsible for the selection of these
    providers[.]” Id. The hospitals neither dispute this evidence nor offer any persuasive rebuttal to
    the implications the ARB drew from it.
    In sum, as the ARB correctly explained: “Provision of medical services and
    supplies was a critical component of the UPMC’s contract. The contract depended on medical
    providers like the [hospitals] to offer medical services and supplies necessary for UPMC to meet
    its obligations under its contract with OPM.” AR 1231. “Unlike Bridgeport Hospital, [the]
    hospitals contracted to provide ‘a portion of the contractor’s obligation’ to provide medical
    services and supplies under its contract with OPM.” Id. Therefore, they qualify as
    27
    subcontractors under the Secretary’s regulations, notwithstanding the fact that the underlying
    contract between the Health Plan and OPM involves a form of insurance coverage.9
    D. Necessity of the Hospitals’ Consent
    Finally, the hospitals argue that they never consented to be bound by the equal
    opportunity clauses required under Executive Order 11246, the Rehabilitation Act, or VEVRAA,
    because their agreements with the Health Plan not only fail to include those clauses but also
    contained no indication that the hospitals, in accepting the agreements, would become
    government subcontractors. They reject the validity of the Secretary’s regulations insofar as
    those regulations purport to impose those clauses on all government subcontractors (as defined
    by the Secretary) solely by operation of law, without regard to whether the agreement entered
    into by a particular company contains the clauses or makes clear that the agreement constitutes a
    government subcontract. See 
    41 C.F.R. § 60-1.4
    (e) (“By operation of the order, the equal
    opportunity clause shall be considered to be a part of every contract and subcontract required by
    the order and the regulations in this part to include such a clause whether or not it is physically
    incorporated in such contracts.”); 
    41 C.F.R. § 60-741.5
    (e) (same for Rehabilitation Act); 
    41 C.F.R. § 60-250.5
    (e) (same for VEVRAA). The hospitals’ challenge takes the form of two
    9
    For similar reasons, the ARB’s decision does not conflict with a 2003 Policy
    Directive issued by OFCCP advising that health care providers having a relationship with
    Federal Employees Health Benefits Program (“FEHBP”) participants “are not covered under
    OFCCP’s programs based solely on that relationship.” Compl., Ex. G, at 1. The purpose of the
    Policy Directive was to explain the ARB’s recent Bridgeport decision and offer guidance on the
    ramifications of that decision. See 
    id. at 1-2
    . Summarizing the Bridgeport decision, the
    Directive explains that OFCCP lacks jurisdiction over a health care provider where the
    government contract that creates the connection to the federal government does not obligate the
    prime contractor “to provide medical services” to policyholders but only “to reimburse the
    policyholders for medical care costs.” 
    Id. at 2
    . Therefore, although the Directive broadly
    advises that “OFCCP cannot use FEHBP coverage as a basis to assert jurisdiction over a health
    care provider,” 
    id.,
     when that statement is read in in context of the Directive as a whole it is clear
    that neither OFCCP nor the ARB violated it with respect to the hospitals here.
    28
    related contentions: that the Secretary’s regulations are contrary to the laws under which they
    were issued, and that, as applied to the hospitals, they exceed the scope of the Secretary’s
    delegated authority.
    The hospitals frame the issue this way: “Whether or not the equal opportunity
    clause contemplated by the Executive Order, the Rehabilitation Act and VEVRAA applies to the
    hospitals in this case is a question based entirely on contract law.” Pls.’ MSJ at 29. Because the
    three laws simply direct that government contractors must include the equal opportunity clauses
    in their agreements with subcontractors, and because the Health Plan did not include those
    clauses in its agreements with the hospitals, “[i]t is obvious, therefore, that it is not possible for
    the hospitals to have violated the Executive Order or either of the cited statutes, since those laws,
    by their terms, impose obligations only on federal agencies (or direct federal contractors) with
    respect to the contents of their contracts.” 
    Id. at 30
    . “Indeed,” the hospitals continue, “the
    administrative complaints in this matter are nothing more than breach of contract suits,” and
    “[d]espite the contractual underpinnings of this entire proceeding, OFCCP is requesting that this
    Court ignore a fundamental principle of contract law — that of assent.” 
    Id. at 30-31
    .
    The hospitals thus maintain that “it is only through the voluntary agreement of a
    party that the affirmative action requirements of [the statutes and Executive Order] are
    triggered.” Pls.’ MSJ at 29 (citing Beverly Enterprises, Inc. v. Herman, 
    130 F. Supp. 2d at 18
    ,
    Yeager v. Gen. Motors Corp., 
    67 F. Supp. 2d 796
    , 802 (N.D. Ohio 1999), and McLaughlin v.
    Great Lakes Dredge & Dock Co., 
    495 F. Supp. 857
    , 861 (D. Ohio 1980)). Because the hospitals
    are “unwitting entities” who were never given the opportunity to decide “whether or not the
    benefits of doing business with the federal government outweighed the costs of affirmative
    29
    action compliance,” the obligations of the equal opportunity clauses cannot be imposed on them
    by operation of law. Pls.’ MSJ at 31-32.
    The three decisions cited by the hospitals do not address the question in dispute
    here and thus do not help advance their argument. More pertinent is a line of decisions from the
    Federal Circuit, which has long held that “certain statutory or regulatory provisions may become
    part of a government contract even though the contract does not contain language to that effect.”
    Amfac Resorts, L.L.C. v. U.S. Dep’t of the Interior, 
    282 F.3d 818
    , 824 (D.C. Cir. 2002), vacated
    in part by Nat’l Park Hospitality Ass’n v. Dep’t of Interior, 
    538 U.S. 803
     (2003) (citing S.J.
    Amoroso Constr. Co. v. United States, 
    12 F.3d at 1075
    , and General Engineering & Mach.
    Works v. O’Keefe, 
    991 F.2d 775
    , 779 (Fed. Cir. 1993)). Under the so-called “Christian
    doctrine,” first articulated in G.L. Christian & Assocs. v. United States, 
    312 F.2d 418
    , 424 (Ct.
    Cl. 1963), “a mandatory contract clause that expresses a significant or deeply ingrained strand of
    public procurement policy is considered to be included in a contract by operation of law.” S.J.
    Amoroso Const. Co., Inc. v. United States, 
    12 F.3d at 1075
    . The doctrine “echoes Supreme
    Court law that the United States is neither bound nor estopped by its agents who act beyond their
    authority or contrary to statute and regulations,” 
    id.
     (citing Federal Crop Ins. Corp. v. Merrill,
    
    332 U.S. at 384
    ), and its application “turns not on whether the clause was intentionally or
    inadvertently omitted, but on whether procurement policies are being ‘avoided or evaded
    (deliberately or negligently) by lesser officials.’” 
    Id.
     (quoting G.L. Christian & Assocs. v.
    United States, 
    320 F.2d 345
    , 351 (Ct. Cl. 1963)). “Thus, under the Christian Doctrine a court
    may insert a clause into a government contract by operation of law if that clause is required
    under applicable federal administrative regulations,” so long as the clause “express[es] a
    30
    significant or deeply ingrained strand of public procurement policy.” General Engineering &
    Mach. Works v. O’Keefe, 
    991 F.2d at 779
    .10
    Our circuit “has never adopted the Federal Circuit’s Christian doctrine.” Amfac
    Resorts, L.L.C. v. U.S. Dep’t of the Interior, 
    282 F.3d at 824
    . It has noted, however, that
    because the doctrine is limited to “mandatory contract clauses,” i.e., clauses that by statute or
    regulation are “require[d] to be included in contracts,” the doctrine does not contravene the
    presumption long recognized by the Supreme Court that “‘a law is not intended to create private
    contractual or vested rights[.]’” 
    Id. at 824
     (quoting Dodge v. Board of Education, 
    302 U.S. 74
    ,
    79 (1937)). See also M. Steinthal & Co. v. Seamans, 
    455 F.2d 1289
    , 1304 (D.C. Cir. 1971)
    (citing with approval G.L. Christian & Assocs. and explaining that “[e]ven if [a] clause
    [permitting the government to terminate a contract for its own convenience] is omitted from a
    particular contract it will be incorporated into the contract by operation of law since it is required
    by [the Armed Services Procurement Regulations] and this requirement has the force and effect
    of law”).
    The Fifth Circuit has applied the Christian doctrine to uphold one of the same
    “incorporation” regulations challenged by the hospitals here — 
    41 C.F.R. § 60-1.4
    (e), which
    implements Executive Order 11246. See United States v. New Orleans Pub. Serv., Inc., 
    553 F.2d 459
    , 463-70 (5th Cir. 1977), vacated on other grounds, 
    436 U.S. 942
     (1978); see also
    10
    There is no serious doubt that the contract clauses required by the equal
    opportunity provisions of Executive Order 11246, the Rehabilitation Act, and VEVRAA express
    a significant and deeply ingrained strand of public procurement policy. See General Engineering
    & Mach. Works v. O’Keefe, 
    991 F.2d at 779-80
     (cataloguing other procurement policies
    satisfying that criterion); United States v. Mississippi Power & Light Co., 
    638 F.2d 899
    , 906 (5th
    Cir. 1981) (stating that 
    41 C.F.R. § 60-1.4
    (e), which implements Executive Order 11246,
    “embodies a longstanding, congressionally approved policy in government procurement: anyone
    who wishes to do business with the government must assume the affirmative action obligations
    required by the executive order,” and that “[t]his policy is so well known and well entrenched
    that anyone who does business with the government is held to that obligation”).
    31
    United States v. Mississippi Power & Light Co., 
    638 F.2d 899
    , 904-06 (5th Cir. 1981)
    (reaffirming original holding regarding validity of Executive Order 11246 and its incorporation
    into all government contracts by operation of law). In doing so, that court rejected the very same
    type of challenge to the operation of that regulation that the hospitals advance here, disagreeing
    with the argument that a company’s “lack of consent to be bound by the nondiscrimination
    clause” meant that the clause could not operate by force of law. United States v. New Orleans
    Pub. Serv., Inc., 
    553 F.2d at 468-69
    . That lack of consent “is not determinative.” 
    Id. at 469
    .
    “Government contracts are different from contracts between ordinary parties.”
    United States v. New Orleans Pub. Serv., Inc., 
    553 F.2d at 469
    . Because the government has the
    power to determine the conditions upon which it will contract for goods or services,
    “[a]greement to such conditions is unnecessary: where regulations apply and require the
    inclusion of a contract clause in every contract, the clause is incorporated into the contract, even
    if it has not been expressly included in a written contract or agreed to by the parties.” 
    Id.
     (citing,
    inter alia, M. Steinthal & Co. v. Seamans, 
    455 F.2d at 1304
    , and G.L. Christian & Assocs., 
    320 F.2d at 424
    ). Thus, where a court finds that a contractual relationship exists between a company
    and the government, notwithstanding the company’s “attempt to disclaim government-contractor
    status,” the company’s “express consent” is unnecessary for it to be bound by the obligations
    imposed by statute and regulation on federal contractors. 
    Id.
     Accordingly, “the Government can
    compel [a company] to comply with the equal opportunity obligations of Executive Order 11246,
    even though the company has not expressly consented to be bound by that Order.” United States
    v. New Orleans Pub. Serv., Inc., 
    553 F.2d at 470
    ; see also Century Marine Inc. v. United States,
    
    153 F.3d 225
    , 228 n.1 (5th Cir. 1998) (“Federal regulations which are based upon a grant of
    authority have the force and effect of law, and, if they are applicable, they must be deemed terms
    32
    of the contract even if not specifically set out therein[.]”) (quoting General Engineering & Mach.
    Works v. O’Keefe, 
    991 F.2d at 780
     (internal quotation marks omitted)).
    The hospitals cite no authority to the contrary. Instead, they argue that United
    States v. New Orleans Pub. Serv., Inc. and other decisions applying the “incorporation” or
    “Christian” doctrine are inapplicable because they involved government contractors, not
    subcontractors. See Pls.’ MSJ at 33-41. The hospitals’ argument is not that they failed to
    consent to the particular contract clauses at issue here, but that they never consented to do
    business with the federal government at all. See id. at 40 (“Neither the hospital nor the
    government dispute the fact that voluntarily choosing to do business with the federal government
    triggers a contractor’s obligation to abide by the Executive Order.”); id. at 41 (“The hospitals
    never agreed to the obligations the Board’s decision imposes on them.”).
    The very feature that distinguishes a government subcontractor from a prime
    contractor, however, is that a subcontractor does not “enter into a business relationship with the
    federal government.” Pls.’ MSJ at 41. Instead, the subcontractor enters into a business
    relationship with a contractor, who in turn does business with the federal government. In the
    process, the subcontractor helps the contractor to fulfill its agreement with the government, and
    indirectly reaps benefit from that agreement. That is why Congress and the President have
    imposed equal opportunity requirements on subcontractors and not merely on contractors. See,
    e.g., Exec. Order No. 11246 §§ 101, 202(1), (7); 
    29 U.S.C. § 793
    (a); 
    38 U.S.C. § 4212
    (a)(1).
    The hospitals have not provided any cogent reason why the government may impose terms on
    government contracts by operation of law but not on government subcontracts. They offer no
    persuasive explanation of why the same constructive knowledge of federal procurement
    regulations should not also be imputed to subcontractors who undertake to provide services that
    33
    support a government contract. Regulations that bind subcontractors do not entrap all companies
    who happen to do business with a government contractor, but only affect those whose work
    sufficiently contributes to the contractor’s obligations under its contract with the government to
    qualify the company as a “subcontractor” under the relevant law and regulations.
    Between 2003 and 2006, plaintiff UPMC Braddock was paid over $500,000 by
    the Health Plan for medical services and supplies that the hospital provided to federal employees
    covered under the OPM contract. SF ¶ 10. Plaintiffs UPMC Southside and UPMC McKeesport
    each received nearly $1.5 million for such services rendered to federal employees during that
    period. 
    Id. ¶¶ 12, 16
    . Moreover, the agreements under which the hospitals obtained these
    payments fall within the definition of “subcontract” found in both the Secretary’s regulations and
    Chapter 1 of the Federal Acquisition Regulations. In such circumstances, it is not unreasonable
    to impute constructive knowledge of those regulations to the hospitals.11
    Finally, despite the hospitals’ mischaracterization of it, the Fifth Circuit’s decision
    in United States v. New Orleans Pub. Serv., Inc. addressed and rejected a “consent” argument
    precisely equivalent to their own. That decision did not simply concern whether a company that
    has chosen to contract with the government has the right to reject mandatory contract terms to
    which it did not consent. Instead, the decision addressed the broader argument that a company
    must consent to being deemed a government contractor in the first place. See United States v.
    New Orleans Pub. Serv., Inc., 
    553 F.2d at 469
     (holding that “notwithstanding the company’s
    attempt to disclaim government-contractor status,” a “contractual relationship exists by virtue of
    11
    This case does not present the question whether the hospitals validly may be
    penalized for failing to comply with the equal opportunity mandates during a period in which
    they did not actually realize they qualified as government subcontractors or reasonably believed
    otherwise. The decision and order of the ARB that they seek to overturn merely enjoins them
    from failing or refusing to comply with those mandates. See AR 1232. The hospitals’ fleeting
    but undeveloped reference to a possible constitutional violation, see Pls.’ MSJ at 13, therefore
    leads nowhere.
    34
    the fact that the company sells millions of dollars worth of utility services to various agencies of
    the Federal Government,” and that this conclusion could be reached “in the absence of any oral
    or written agreements to particular terms, because the relationship so clearly reflects a contract”).
    The hospitals have not explained why the same logic does not apply to a company that resists
    mandatory contract clauses by disclaiming its status as a government subcontractor, where the
    record clearly shows otherwise.
    In sum, there simply is no basis for the argument that the Secretary’s
    “incorporation” regulation conflicts with the laws under which it was promulgated because those
    laws are concerned only with those who choose to do business directly with the federal
    government. Nor have the hospitals offered a compelling reason why the Secretary has exceeded
    the scope of his regulatory authority by imposing the same “incorporation” regulation on
    government subcontracts that — the hospitals concede — validly applies to prime contracts. The
    hospitals’ argument based on “consent,” therefore, fails to undermine the legitimacy of the
    regulations as applied to them.
    E. Motion for Leave to Supplement the Administrative Record
    The hospitals have moved for leave to supplement the administrative record by
    adding one document — the contract between OPM and Blue Cross/Blue Shield that was
    addressed by the ARB in its 2003 decision in OFCCP v. Bridgeport Hospital, 
    2003 WL 244810
    .
    See Section III.C, supra. The hospitals would like to add this document to show that the
    “benefits” section of that contract has language similar to the equivalent section of the contract
    between OPM and the Health Plan at issue here. See Mot. Supp. at 6. This similarity, in the
    hospitals’ view, means that the ARB erred by relying on the “benefits” section of the
    OPM/Health Plan contract in this case in concluding that the Health Plan was obligated to
    35
    provide medical care, not just insurance, to federal employees. Pls.’ Opp. at 10-12. Because
    Blue Cross similarly promised in its contract in the Bridgeport case to offer certain medical
    services as “benefits,” yet nevertheless was found by the ARB to have contracted only to provide
    insurance, the hospitals argue that promising such benefits in a contract cannot be taken as proof
    of an agreement to provide medical services. Id.
    “As the Court of Appeals has explained, in order ‘to review an agency’s action
    fairly’ a court ‘should have before it neither more nor less information than did the agency when
    it made its decision.’” United Space Alliance, LLC v. Solis, 
    824 F. Supp. 2d 68
    , 87 (D.D.C.
    2011) (quoting Walter O. Boswell Mem’l Hosp. v. Heckler, 
    749 F.2d 788
    , 792 (D.C. Cir. 1984)).
    “It is a widely accepted principle of administrative law that the courts base their review of an
    agency’s actions on the materials that were before the agency at the time its decision was made.”
    IMS, P.C. v. Alvarez, 
    129 F.3d 618
    , 623 (D.C. Cir. 1997); see Puerto Rico Higher Educ.
    Assistance Corp. v. Riley, 
    10 F.3d 847
    , 850-51 (D.C. Cir. 1993) (“We base our review of the
    Department’s actions on the materials that were before the Department at the time its decision
    was made.”). “The task of the reviewing court is to apply the appropriate APA standard of
    review to the agency decision based on the record the agency presents to the reviewing court.”
    IMS, P.C. v. Alvarez, 
    129 F.3d at 623-24
     (quoting Florida Power & Light Co. v. Lorion, 
    470 U.S. 729
    , 743-44 (1985) (internal citation omitted)).
    Although there are “exceptions to the principle that the court cannot consider
    information that falls outside the agency record,” IMS, P.C. v. Alvarez, 
    129 F.3d at 624
    , none
    applies here. The hospitals have not demonstrated “that the agency failed to examine all relevant
    factors or to adequately explain its grounds for decision, or that the agency acted in bad faith or
    engaged in improper behavior in reaching its decision.” 
    Id.
     Nor is this a case where the agency
    36
    failed “‘to explain administrative action [so] as to frustrate effective judicial review.’” 
    Id.
    (quoting Camp v. Pitts, 
    411 U.S. 138
    , 142 (1973) (per curiam)); see Citizens to Preserve Overton
    Park v. Volpe, 
    401 U.S. 402
    , 420 (1971). This case is not “so complex that a court needs more
    evidence to enable it to understand the issues clearly” or one in which “evidence arising after the
    agency action shows whether the decision was correct or not.” Esch v. Yeutter, 
    876 F.2d 976
    ,
    991 (D.C. Cir. 1989).
    The hospitals claim that, despite its lack of inclusion in the administrative record,
    the Blue Cross contract was in fact considered by the ARB in rendering its decision in this case.
    See Esch v. Yeutter, 
    876 F.2d at
    991 (citing recognized exception where “an agency considered
    evidence which it failed to include in the record”). That claim is entirely unfounded. Nowhere
    does the ARB’s decision in this case cite the Blue Cross contract or give any indication that the
    ARB consulted the contract. Rather, the ARB simply refers to its own earlier decision in
    Bridgeport and the description of the contract’s terms provided in that decision. See
    AR 1230-32. Because the hospitals never attempted to introduce the Blue Cross contract into the
    administrative record here, the ARB did not undertake the side-by-side comparison of the
    “benefits” provisions of the two contracts that the hospitals wish the Court to engage in now.
    See 
    id.
     Undertaking that comparison, where the agency was not asked or given the opportunity
    to do so, would contravene basic principles of administrative review.
    In any event, the outcome of this case would not change even if the hospitals’
    assertions about the contents of the Blue Cross contract are completely accurate. In concluding
    that the Health Plan, as an HMO, contracted to provide medical care and not just insurance to
    federal employees, and that this factor distinguishes the contract from the one in Bridgeport,
    neither the ARB nor this Court relied on an isolated reading of the “benefits” section in the
    37
    contract. The significance of that section arises from the broader context in which it is found.
    Bridgeport emphasized that the Blue Cross contract expressly disclaimed any guarantee of
    medical care or control over an enrollee’s efforts to secure such care: “While a Member may
    elect to be hospitalized in any hospital, the Carrier [Blue] does not undertake to guarantee the
    admission of such member to the hospital, nor the availability of any accommodations or
    services therein requested by the Member or his physician.” OFCCP v. Bridgeport Hospital,
    
    2003 WL 244810
    , at *2 (quoting OPM/Blue Cross contract). The UPMC Health Plan contract,
    as the Court has noted, says precisely the opposite, explaining that individuals covered by the
    plan are “require[d] to see specific physicians, hospitals, and other providers that contract with
    us,” and that “[t]he Plan is solely responsible for the selection of these providers[.]” AR 859.
    The Court will deny the hospitals’ motion for leave to supplement the administrative record.
    IV. CONCLUSION
    For the foregoing reasons, the Court will grant the Secretary’s motion for
    summary judgment, deny the hospitals’ motion for summary judgment, and deny the hospitals’
    motion for leave to supplement the administrative record.
    An Order consistent with this Opinion will issue this same day.
    SO ORDERED.
    /s/________________________
    PAUL L. FRIEDMAN
    DATE: March 30, 2013                                  United States District Judge
    38
    

Document Info

Docket Number: Civil Action No. 2009-1210

Citation Numbers: 934 F. Supp. 2d 238

Judges: Judge Paul L. Friedman

Filed Date: 3/30/2013

Precedential Status: Precedential

Modified Date: 8/31/2023

Authorities (39)

Century Marine Incorporated v. United States , 153 F.3d 225 ( 1998 )

25-fair-emplpraccas-250-25-empl-prac-dec-p-31628-united-states-of , 638 F.2d 899 ( 1981 )

ethyl-corporation-v-environmental-protection-agency-ppg-industries-inc , 541 F.2d 1 ( 1976 )

Amfac Resorts, L.L.C. v. United States Department of the ... , 282 F.3d 818 ( 2002 )

UNITED STATES of America, Plaintiff-Appellee, v. NEW ... , 553 F.2d 459 ( 1977 )

occidental-engineering-company-a-delaware-corporation-and-yi-ling-wang-v , 753 F.2d 766 ( 1985 )

walter-o-boswell-memorial-hospital-v-margaret-m-heckler-secretary-of , 749 F.2d 788 ( 1984 )

Reno Hilton Resorts v. National Labor Relations Board , 196 F.3d 1275 ( 1999 )

Patrick Esch v. Clayton K. Yeutter, Secretary, U.S. ... , 876 F.2d 976 ( 1989 )

Puerto Rico Higher Education Assistance Corporation v. ... , 10 F.3d 847 ( 1993 )

Fina Oil & Chem Co v. Norton, Gale A. , 332 F.3d 672 ( 2003 )

S.J. Amoroso Construction Co., Inc. v. United States , 12 F.3d 1072 ( 1993 )

M. Steinthal & Co., Inc. v. Robert J. Seamans, Jr., ... , 455 F.2d 1289 ( 1971 )

Ims, P.C. v. Aida Alvarez, Administrator, United States ... , 129 F.3d 618 ( 1997 )

Fund for Animals v. Babbitt , 903 F. Supp. 96 ( 1995 )

G. L. Christian and Associates v. The United States , 312 F.2d 418 ( 1963 )

General Engineering & MacHine Works v. Sean C. O'keefe, ... , 991 F.2d 775 ( 1993 )

Burnside-Ott Aviation Training Center v. John H. Dalton, ... , 107 F.3d 854 ( 1997 )

american-airlines-inc-alaska-airlines-inc-continental-airlines , 75 F.3d 1535 ( 1996 )

G. L. Christian and Associates v. The United States , 320 F.2d 345 ( 1963 )

View All Authorities »