Three hospitals affiliated with the University of Pittsburgh Medical Center (UPMC) were considered subcontractors by District Court Judge Friedman on March 30, 2013. The case is UPMC Braddock v. Harris and includes UPMC Braddock, UPMC McKeesport and UPMC Southside as plaintiffs. The three hospitals were first audited by OFCCP in January 2004, at which point all three contested their status as a federal subcontractor. OFCCP filed administrative complaints against the hospitals, which were affirmed by an Administrative Law Judge (ALJ) in 2008 and Administrative Review Board (ARB) in 2009. UPMC then appealed the ARB ruling in Federal District court.

In this case, the hospitals had a contract with UPMC Health Plan, a health maintenance organization (HMO), to provide medical services and supplies. UMPC Health Plan additionally had a prime federal contract with the U.S. Office of Personnel Management (OPM). The hospitals disputed their obligations under Executive Order 11246 due to the definition of “subcontractor” included in the contract between UPMC Health Plan and OPM. As cited in the UMPC v. Harris case above, “subcontractor” was defined with the following exclusion clause: “except for providers of direct medical services or supplies pursuant to the Carrier’s health benefits plan”.

Judge Friedman ruled that even though the contract was explicit, it does not override a federal statute. Further, the court sided with the Department of Labor, stating that “Generally, a provision in a government contract that violates or conflicts with a federal statute is invalid or void”. Judge Friedman interpreted that the relationship between the Pittsburgh hospitals and the HMO met the regulatory definition of “subcontractor” and the medical services and supplies that the hospitals provided were necessary for UPMC to meet the obligations of their contract with OPM. Another key takeaway is that prime and subcontractor consent of obligations is not required under Executive Order 11246, Section 503 of the Rehabilitation Act, or Section 4212 of the Vietnam Era Veterans’ Readjustment and Assistance Act (VEVRAA). Although UMPC Braddock Hospital argued the contract with UMPC Health Plan did not include the required EEO clauses, Judge Friedman ruled that this does not preclude the hospitals from their federal obligations. Thus, even if the prime contractor does not notify the subcontractor of the government relationship, the subcontractor status still exists and will be subject to affirmative action obligations as a result of this ruling.

Stay tuned for more information on the implications of this ruling in a future client alert.
by Amanda Shapiro and Joanna Colosimo, DCI Consulting Group


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