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Office of Federal Contract Compliance Programs
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July 31, 2019

Dear Name*,

This letter is in response to your jurisdictional inquiry concerning whether recipients of revenue disbursed from the Federal Communications Commission's Universal Service Fund are federal contractors for the purposes of Executive Order 11246, as amended (E.O. 11246); Section 503 of the Rehabilitation Act of 1973, as amended (Section 503), 29 U.S.C. § 793; and the Vietnam Era Veterans’ Readjustment Assistance Act of 1974, as amended (VEVRAA), 38 U.S.C. § 4212.

BACKGROUND

One of the core mandates of the Communications Act of 1934, 47 U.S.C. §§ 151 et seq., establishing the Federal Communications Commission (FCC), was to ensure that universal access to basic communications services was afforded to all Americans. Several decades later, Congress passed the Telecommunications Act of 1996, amending the Communications Act to formalize and expand universal service by codifying the Universal Service Fund and authorizing the expansion of universal service policies to include advanced telecommunication services such as broadband and high-speed Internet. The Universal Service Fund was then created and comprised of a series of FCC programs aimed at achieving the Telecommunications Act’s expanded definition of universal service. The FCC, in establishing the definition of services supported by universal support mechanisms, was to consider the extent to which such services were "essential to education, public health or public safety" and consistent with "public interest, convenience and necessity" as well as the extent to which such services were subscribed by consumers and deployed in networks and carriers. See 47 U.S.C. § 254(c)(1)(A)-(D).

In addition to granting the FCC the power to define "the services that are supported by Federal universal service support mechanisms," the Telecommunications Act articulated a series of universal service principles upon which "policies for the preservation and advancement of universal service" must be based. 47 U.S.C. § 254. These principles include that quality services be provided at "just, reasonable, and affordable rates"; that access to advanced telecommunications and information services be provided in all regions of the nation, including to "low-income consumers and those in rural, insular, and high cost areas"; and that telecommunications services providers "should make an equitable and nondiscriminatory contribution to the preservation and advancement of universal service." Id. § 254(b). The Telecommunications Act further required the FCC to "establish competitively neutral rules . . . to enhance . . . access to advanced telecommunications and information services for all public and nonprofit elementary and secondary school classrooms, health care providers, and libraries." 47 U.S.C. § 254(h)(2)(A).

The FCC accordingly established four programs within the Universal Service Fund, all aimed at achieving the Telecommunications Act's objective of providing expanded universal service. The four funds are the High-Cost Support Fund, also known as the Connect America Fund, aimed at increasing access in rural, insular, and high-cost areas; the Low-Income Support Fund, also known as the Lifeline program, aimed at initiating and expanding telephone and broadband services to eligible low-income consumers in every state, territory, commonwealth, and on tribal lands; the Schools and Libraries Support Fund, also known as the E-Rate program, whose purpose is to help schools and libraries obtain affordable broadband; and the Rural Health Care Program, which provides funding to eligible healthcare providers for telecommunications and broadband services to improve the quality of health care available to patients in rural communities. See https://www.fcc.gov/general/universal-service.

The Universal Service Fund is paid for by contributions from providers of telecommunications services based on an assessment of their interstate and international end-user telecommunications revenues. See 47 U.S.C. § 254(d). A variety of telecommunications carriers contribute to the fund, including wireline and wireless phone companies and interconnected Voice over Internet Protocol (VoIP) providers. The Universal Service Administrative Company administers all four programs and collects revenue for the Universal Service Fund under the direction of the FCC.

GENERAL LEGAL PRINCIPLES

OFCCP enforces E.O. 11246, Section 503, and VEVRAA. Collectively, these laws prohibit covered federal contractors and subcontractors from discriminating on the bases of race, color, sex, sexual orientation, gender identity, religion, national origin, disability, and protected veteran status. Contractors are also prohibited from discriminating against applicants or employees because they inquire about, discuss, or disclose their compensation or that of others, subject to certain limitations. Finally, OFCCP's laws require federal contractors and subcontractors to take affirmative steps to ensure equal employment in all aspects of their employment practices. Federal contracting agencies must include an equal opportunity clause in their contracts, and prime contractors and subcontractors must include the clause in each of their nonexempt subcontracts. 41 C.F.R. §§ 60-1.4(a), (c); 60-300.5(a), (b); 60-741.5(a), (b).

OFCCP's regulations implementing these laws define a government contract as "any agreement or modification thereof between any contracting agency and any person for the purchase, sale or use of personal property or nonpersonal services." See 41 C.F.R. §§ 60-1.3; 60-300.2; 60-741.2. The term has generally not been extended to arrangements the primary purpose of which is to extend help or support by conferring grants or other benefits under federal assistance programs. Thus, with the exception of federally assisted construction contracts (which are specifically covered by Part III, Sections 301-304 of E.O. 11246), E.O. 11246, Section 503, and VEVRAA do not apply to arrangements involving federal financial assistance. See Partridge v. Reich, 141 F.3d 920, 925-26 (9th Cir. 1998); OFCCP v. USAA Federal Savings Bank, No. 87-OFC-27, ALJ's Recommended Decision & Order on Motions for Summary Judgment, Oct. 4, 1990, pp. 3, 8.

The Federal Grant and Cooperative Agreement Act (Grant Act), 31 U.S.C. §§ 6301-6308, prescribes certain criteria for uniform use by executive agencies in deciding when to use a contract, a grant, or a cooperative agreement as the legal instrument reflecting a relationship between the United States government and a state, a local government, or other recipient. See 31 U.S.C. § 6301. The Grant Act requires an executive branch agency to use a procurement contract when "the principal purpose . . . is to acquire (by purchase, lease, or barter) property or services for the direct benefit or use of the United States Government." Id. § 6303(1). The Grant Act requires an executive agency to employ a grant agreement when "(1) the principal purpose of the relationship is to transfer a thing of value" to the recipient “to carry out a public purpose of support or stimulation authorized by a law of the United States," as opposed to "acquiring (by purchase, lease, or barter) property or services for the direct benefit or use of the United States Government," and "(2) substantial involvement is not expected between the executive agency and the State, local government, or other recipient when carrying out the activity contemplated in the agreement." Id. § 6304.

OPINION

As OFCCP's jurisdiction extends only to contracts and not to grants, the distinction between a grant and a contract is integral to determining whether Universal Service Fund recipients are governed by OFCCP's regulations implementing E.O. 11246, Section 503, and VEVRAA.

The revenue dispensed by the Universal Service Fund does not acquire property or services for the direct benefit or use of the federal government. See 31 U.S.C. § 6303(1). Recipients of the funding do not thereby enter into agreements with the federal government "for the purchase, sale or use of personal property or nonpersonal services," that would constitute a government contract. Rather, the Universal Service Fund programs "carry out a public purpose of support or stimulation authorized by" the Telecommunications Act, specifically, to increase access to telecommunications services for identified segments of the public. Id. § 6304(1); see 47 U.S.C. § 254. Accordingly, the revenue disbursed by the Universal Service Fund does not reflect a contractual arrangement but is more akin to a grant agreement

Therefore, receipt of revenue from any of the four Universal Service Fund programs does not, by itself, render a recipient a covered federal contractor subject to E.O. 11246, Section 503, or VEVRAA.

We trust that this letter is responsive and affords clarification to your inquiry.

Sincerely,

 

Craig E. Leen
Director, Office of Federal Contract Compliance Programs
U.S. Department of Labor

*Note: The actual name(s) was removed to protect privacy in accordance with 5 U.S.C. § 552(b)(7).