Bloomberg News

BP Seen Escaping U.S. Contracting Ban After Oil Spill Settlement

November 15, 2012

BP Said to Agree to Largest U.S. Criminal Settlement in History

Crude oil floats on the surface of Gulf of Mexico waters at the site of the sunken BP/Transocean oil drill the Deepwater Horizon, on April 27, 2010. Photographer: Benjamin Lowy/Getty Images

BP Plc (BP:US), which reached a settlement with the U.S. government over the biggest oil spill in the nation's history, may escape a federal contracting ban.

In an agreement with the Justice Department announced yesterday, the London-based company will pay $4.5 billion, including a record $1.26 billion criminal fine, to end all criminal charges and resolve securities claims relating to the April 2010 well blowout in the Gulf of Mexico that killed 11 people.

While a so-called contracting death sentence is still possible, “it looks like there will be little if any suspension or debarment for BP,” said Charles Tiefer, a law professor at the University of Baltimore who specializes in contracting.

The company said in a statement that it hadn’t been informed of any plans by federal agencies to ban it from future contracts. BP (BP/) was the Pentagon’s biggest fuel supplier with awards valued at about $1.35 billion in 2011. The Department of Defense has stepped up its purchases from the company.

The magnitude of the disaster argues for a ban, said Tiefer, who served on the U.S. Commission on Wartime Contracting.

“For BP to get off without a suspension or debarment is like going to a maximum security federal prison and handing out a folder of pardons,” he said. “For what BP did to the Gulf of Mexico, it should be getting shock treatment, not just monitoring.”

Government agencies are allowed to suspend or disqualify companies from bidding on or receiving new contracts if they have committed or are suspected of committing wrongdoing. Debarred companies are able to work on existing contracts.

Two Years Later

Scott Amey, general counsel at the Washington-based Project on Government Oversight, said suspensions and debarments are based on whether a company is presently acting responsibly, so it may be difficult to pursue action against BP since the oil spill happened more than two years ago. He said it raises the question as to why the company wasn’t suspended in 2010.

“It seems that people don’t want to react until these sorts of cases are finalized,” Amey said. “At that point, after years have passed, it’s almost impossible to hold the contractor accountable using the suspension and debarment system.”

The government may be reluctant to pursue a ban because it relies heavily on BP, Amey said.

“It gets into whether this company is untouchable in the sense that they are such a relied-upon contractor by the Department of Defense,” he said.

EPA Decision

The Environmental Protection Agency is the lead agency for suspension and debarment matters regarding BP, Mimi Schirmacher, a Defense Logistics Agency spokeswoman, said in an e-mail. The logistics agency is a Pentagon unit that contracts with BP.

“All actions are being coordinated through EPA,” Schirmacher said.

Stacy Kika, an EPA spokeswoman, declined to comment and deferred questions to the Department of Justice. The Department of Justice didn’t immediately comment.

The company’s contracts with the military surged 33 percent to $1.35 billion in the fiscal year that ended Sept. 30, 2011, from $1.02 billion in the previous year, according to data compiled by Bloomberg. BP received 49 percent more in defense contracts than the No. 2 fuel supplier, San Antonio-based Valero Energy Corp. (VLO:US) BP won a $782 million Pentagon award for fuel in May even as it continued to face legal challenges.

Full fiscal 2012 figures aren’t yet available.

Felony Counts

The settlement announced today calls for the record criminal fine to be paid over five years. The company agreed to five years’ probation and will pay $525 million to settle charges with the Securities and Exchange Commission. The settlement also provided for the appointment of two monitors to review safety and ethics.

BP said it has agreed to plead guilty to 11 felony counts of misconduct or neglect of ships officers related to the 11 deaths, one misdemeanor count under the Clean Water Act, one misdemeanor count under the Migratory Bird Treaty Act and one felony count of obstruction of justice.

The company said in the statement that it hadn’t been advised of “the intention of any federal agency to suspend or debar the company in connection with this plea agreement.”

Boeing Suspensions

Large companies or their divisions have been suspended or debarred in the past. The Air Force in 2003 suspended three units of Boeing Co. (BA:US) in response to allegations that several former employees conspired to steal trade secrets from Lockheed Martin Corp. (LMT:US) during a competition. The suspension was lifted in 2005.

GTSI Corp., a technology company, was in 2010 temporarily suspended from federal work after agency officials said they found evidence that it had gone through other firms to receive set-aside contracts meant for small businesses.

BP previously has been cited with violations of the federal Clean Water Act, which allows the government to seek fines of $1,100 a barrel of oil spilled, a figure that can rise to as much as $4,300 a barrel if a judge finds the company was grossly negligent in allowing the pollution to occur.

Violations of the Clean Water and Clean Air Acts typically result in the barring of specific facilities where the problems occurred, rather than punishing the company as a whole. The EPA has indefinitely disqualified two BP facilities from doing government work due to other violations.

The agency in 2009 barred the company’s refinery in Texas City, Texas, after an explosion that killed 15 workers and injured 170 others, according to EPA data. In 2008, the EPA disqualified BP’s Prudhoe Bay Unit on the North Slope in Alaska after a leak spilled between 200,000 and 270,000 gallons of crude oil into a nearby lake and tundra area.

To contact the reporter on this story: Danielle Ivory in Washington at divory@bloomberg.net

To contact the editor responsible for this story: Stephanie Stoughton at sstoughton@bloomberg.net


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  • BP
    (BP PLC)
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