Since the decision in Washington Metro. Area Transit Auth. v.
DeArment, 55 Empl. Prac. Dec. [CCH] ¶ 40,507 (D.D.C. 1991), it has been an
element of OFCCP's case to prove that the employee or applicant allegedly discriminated
against was or would have been employed to carry out a government contract. The question
here is whether Rowan, in conducting drilling for holders of government leases of lands on
the OCS, is a government subcontractor as defined in 41 C.F.R. § 60-741.2 (1995).
The regulations define a government subcontract as:
any agreement or arrangement between a contractor and any person
. . .
(1) For the furnishing of supplies or services or for the use of
real or personal property, including lease arrangements, 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.
[Page 3]
In other words, the applicants would be covered only if they would have been employed by
Rowan to perform services necessary to the performance of a government contract, or if
Rowan performed an obligation of the prime contractor pursuant to the lease.
Rowan argues that the plain language of section 503 precludes coverage
of OCS lessees and, a fortiori , of their subcontractors because it only covers
"contract[s] for the procurement of personal property and nonpersonal services for the
United States." 29 U.S.C. § 793(a). Because the government does not obtain
personal property or receive nonpersonal services under the OCS leases, Rowan asserts these
agreements are not covered contracts under section 503. Rowan also argues that because the
leases themselves do not require the lessee to drill, the drilling services provided by Rowan
are not "necessary to the performance of" a government contract. 41 C.F.R.
§ 60-741.2. Finally, Rowan relies on a recommended decision of an administrative law
judge in another section 503 case for the proposition that OFCCP had no authority to conduct
a compliance review here because no individual complaint was filed. We reject the latter
argument at the outset. The Assistant Secretary for Employment Standards rejected that
argument, among others, in OFCCP v. American Airlines , Case No. 94-OFC-9,
Ass't. Sec'y. Dec. Apr. 26, 1996, slip op. at 25, and we deny this exception for the reasons
set forth in that decision.
After careful consideration of the Outer Continental Shelf Lands Act
(OCSLA), its implementing regulations and a sample lease and other related documents, we
have concluded on the basis of the record made in this case that drilling was not necessary to
the performance of the offshore oil lease, or any extension or modification of that lease. We
also find that drilling was not an obligation of any of the government contractors, the lessees
of OCS leases. We do not agree with Rowan that a lease is not a government contract; as any
other agency, we are bound by the Department of Labor regulations which include leases in
the definition of government contracts, 41 C.F.R. § 60-1.3. But, as the Secretary held
in OFCCP v. Loffland Brothers Co. , Case No. OEO 75-1, Sec'y Dec. Apr. 16,
1984, slip op. at 7, "lessees [of federal oil and gas leases] have no obligation to perform
any drilling on the leased land." Specifically with respect to oil and gas leases under
the OCSLA, the Supreme Court made it clear that "the purchase of a lease entitles the
purchaser only to priority over other interested parties in submitting for federal approval a
plan for exploration, production, or development." Secretary of the Interior v.
California , 464 U.S. 312, 336 (1984). Further, the court held that "the purchase
of a lease entails no right to proceed with full exploration, development, or production"
Id. at 338. Concomitantly, it follows that a lessee has no obligation to conduct
drilling and that drilling is not necessary to the performance of the lease contract.
OFCCP argues that, even if the lease itself does not require drilling,
other documents submitted by the leaseholders in this case constitute either a modification of
the lease or a new contract which requires drilling. Before the holder of an OCS lease
explores for and removes oil and gas, it must submit an exploration plan, and a development
and production plan,
[Page 4]
for approval to the Secretary of the Interior. That submission is to include, among other
things, "a schedule of anticipated exploration activities," 43 U.S.C. §
1340(c)(3)(A), and the "expected rate of development and production and a time
schedule for performance . . . ." 43 U.S.C. § 1351(c)(5).
However, the primary thrust of Department of the Interior regulations
implementing the OCSLA is directed at protection of the environment and, to a lesser extent,
protection of the infrastructure of affected adjacent states and of archeological and cultural
resources in the leased area. See 30 C.F.R. §§ 250.33 and 34. We
have found nothing in the regulations indicating that the lessee has an obligation to drill. The
regulations only require that if drilling is conducted, it must meet protective standards. The
regulations provide that "[w]henever the lessee . . . fails to comply with an approved
[development and production] plan, the lease may be canceled [in accordance with certain
provisions of the OCSLA and the regulations]." 30 C.F.R. § 250.34(r). If the
lessee determines that drilling for exploration and development is not economically feasible,
it can abandon its plan and suffer only cancellation of the lease. This is not sufficient to find
that an OCSLA leaseholder has a contractual obligation to the government to perform drilling
or that drilling is necessary to the performance of the lease.
Finally, OFCCP asserts that, under a well accepted rule of oil and gas
law, a lessee of oil and gas rights has "an implied covenant to develop the tract with
reasonable diligence." Sauder v. Mid-Continent Petroleum Corp. , 292 U.S.
272, 278 (1934). Such development would necessarily include drilling. However, OFCCP
has not directed our attention to, nor have we discovered, any cases applying that principle
to federal oil and gas leases. Where a statute, the OCSLA, and regulations, 30 C.F.R. Part
250, set forth extensive requirements for development of federally owned offshore oil and gas
resources without clearly establishing such an obligation on the part of leaseholders, we are
reluctant to import such an obligation derived from the law of private contracts.
[Page 5] Thus we cannot conclude on the basis of the record presented that
the leases in question effectuate coverage under Section 503 of the Rehabilitation Act of 1973
as written before the 1992 amendments to that Act. Accordingly, the complaint in this case
is DISMISSED .
SO ORDERED .
DAVID A. O'BRIEN
Chair
KARL J. SANDSTROM
Member
JOYCE D. MILLER
Alternate Member
[ENDNOTES]
1 On April 17, 1996, a Secretary's
Order was signed delegating jurisdiction to issue final agency decisions under this statute to the newly
created Administrative Review Board. 61 Fed. Reg. 19978 (May 3, 1996). Secretary's Order 2-96
contains a comprehensive list of the statutes, executive order, and regulations under which the
Administrative Review Board now issues final agency decisions. Final procedural revisions to the
regulations implementing this reorganization were also promulgated on that date. 61 Fed. Reg. 19982.
2 The hearing covered six days in
July and August 1990, but the transcript was not consecutively numbered. References to the transcript
refer to the page numbers in the separate volumes for each day of the hearing.
3 Congress deleted that phrase,
among other changes, in 1992 amendments to the Rehabilitation Act. Pub. Law 102-569, §
505(a)(2).