Law360, New York (November 28, 2012, 10:15 PM EST) — The U.S. government’s decision Wednesday to suspend BP PLC, the U.S. military’s largest fuel supplier, in the wake of a criminal settlement over the Deepwater Horizon oil spill sends a message that even companies that perform vital roles for the government are never “too big to debar,” experts say.
Following BP’s record-setting $4.5 billion criminal settlement over Deepwater-related violations, the U.S. Environmental Protection Agency on Wednesday suspended BP from receiving any new government contracts, including military supply deals and drilling leases with the U.S. Department of the Interior.
The decision came as a surprise to many, who believed the company would escape suspension or debarment, based on the government’s reluctance to cut off relationships with its most important suppliers, as well as BP’s own statements after the Nov. 15 settlement.
“There’s some tension between the government’s desire to continue dealing with BP and the government’s capacity to impose a tough suspension,” said Charles Tiefer, a professor of government contracts law at the University of Baltimore and a former member of the congressional Commission on Wartime Contracting.
The government rarely suspends or debars large contractors, and several government watchdogs applauded the move as crucial to protect taxpayers from the risks of dealing with a company whose business integrity is dubious. While suspensions of important contractors rarely last long, they can jolt a company into making dramatic business reforms.
BP’s suspension sends a message that even big contractors will be held accountable if their business practices put taxpayers at risk, according to Scott Amey, general counsel for the nonprofit Project on Government Oversight.
“You can count on probably one hand the number of large contractors that have been suspended or debarred, and a lot of those instances it was only for a matter of days,” Amey said. “I would imagine that BP is doing everything it can do to convince the government that it is a responsible contractor.”
BP said Wednesday it had submitted more than 100 pages of documents to the EPA, highlighting a shake-up of its leadership and business structure and new deepwater drilling policies that exceed current regulatory requirements.
But the agency’s decision to suspend BP less than two weeks after the criminal settlement could indicate it is preparing to force BP to undertake more serious reforms than the company had planned, according to Tiefer.
If the EPA weren’t insisting on extensive reforms, BP would have acquiesced quickly to avoid the “black mark” of a suspension, which can count against the company during contract competitions even after it is lifted, Tiefer said.
“BP would like to argue that it has solved its problems and fixed its systems and by now it should be let off without even a short suspension,” Tiefer said. “But it appears that … the untold billions of dollars in environmental damage that BP did to the Gulf can’t be dealt with through a short period of suspension.”
Tyson Slocum, director of the energy program at the nonprofit Public Citizen, called for the suspension to last for the full five years of probation BP agreed to in its settlement with the U.S. Department of Justice.
He urged the U.S. Department of Defense, which purchased $1.4 billion in fuel from BP in 2011, not to undermine the suspension by seeking a waiver that would let it continue purchasing fuel under new contracts or task orders.
The suspension won’t affect BP’s existing government contracts, including $1.3 billion in new contracts announced Sept. 20. BP says it received more than 50 new drilling leases in the Gulf in the time between the oil spill and the suspension, in addition to billions of dollars in defense contracts.
But according to Defense Logistics Agency spokeswoman Michelle McCaskill, BP’s suspension may cause the agency — which purchases most of the petroleum the DOD uses — to look to other sources for fuel.
The decision to suspend BP more than two years after the spill shows some of the difficulties the government faces when balancing the need to protect itself from unethical contractors with the need to give accused companies time to explain and address deficiencies.
Suspension is intended to protect the government from unscrupulous contractors, not to punish companies — so the timing of BP’s suspension seems strange, according to Amey.
“This is not supposed to be penalty, so it’s odd that the EPA finally acted now,” Amey said.
But in BP’s case, the government had more pressing concerns than an immediate suspension, including overseeing cleanup efforts and pursuing a serious criminal case, Tiefer said.
“There are cases, but this is not one of them, where the need to stop dealing with a contractor is so great that an earlier indictment occurs and then suspension occurs,” Tiefer said. “It’s important that BP is not a wartime contractor in, say Afghanistan — there’s no danger to the troops in the field from a delayed suspension of BP.”
Amey said he’ll be watching to see if BP is able to lift the suspension as quickly as other major contractors have in the past. It would be “a little concerning,” he said, if the EPA quickly lifted the suspension, given it announced the move after about two years of supposed corporate reforms.
BP, for its part, said it expected negotiations with the EPA would go smoothly and it would receive a draft administrative agreement lifting the suspension “soon.”
The company’s criminal plea agreement should help its case. BP said the DOJ has agreed to “advise any appropriate suspension or debarment authority that in the department’s view, BP has accepted criminal responsibility for its conduct relating to the Deepwater Horizon blowout, explosion, oil spill and response.”
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Dietrich Knauth 