BP Contracting Ban Reinforces Debarment Misconceptions

Dietrich Knauth, Law360 – March 31, 2014

The unusual timing of BP PLC’s recently resolved suspension from federal contracting has left many experts scratching their heads, with some concerned that the government’s handling of the contracting ban could reinforce misconceptions that suspension and debarment should be used to punish companies rather than, first and foremost, to protect the government.

BP was suspended from competing for contracts or oil drilling leases 16 months ago, when the oil giant pled guilty to felony misconduct in a $4.5 billion settlement related to the Deepwater Horizon explosion and oil spill, which killed 11 people and released an estimated 4.2 million barrels into the water four years ago. The company sued the U.S. Environmental Protection Agency over the suspension in August, arguing that the EPA’s action ignored “the overwhelming evidence and record of BP’s present responsibility as a government contractor” and that the timing of the suspension was both arbitrary and punitive.

Suspension is intended to protect the government from unscrupulous or risky contractors, not to punish companies for previous wrongs — so the suspension of BP two years after the spill seemed strange to some, even within the government’s suspension and debarment community.

That BP was suspended when it was convicted, rather than when it was indicted or when the EPA had enough evidence to make a reasonable business decision, could reinforce the perception among some members of Congress and public interest groups that suspension is a punitive measure, according to Jessica Tillipman, assistant dean of government contracts law at George Washington University law school. It could also validate contractors’ fears about political debarment, she said.

“If you Google BP and its suspension, the word ‘punishment’ is all over the Internet,” Tillipman said. “BP just seems to be a lightning rod for strong feelings in the industry and for a parade of the ill-informed.”

If BP had been suspended earlier, which would have been more consistent with the normal practice of suspension and debarment, both the contracting industry and BP’s most vocal critics would likely have been happier, Tillipman said. Public Citizen slammed the EPA’s decision to lift the suspension after 16 months as premature, saying it “lets a corporate felon and repeat offender off the hook for its crimes against people and the environment.”

“It made it seem like they went to jail for a day,” Tillipman said. “[Suspension and debarment are] a fundamentally misunderstood regime by the media, by many members of Congress and a lot of public interest groups, who see it as punishment.”

On the other hand, the BP suspension is a reminder that even large, important contractors can’t avoid suspension for egregious conduct, according to Charles Tiefer, a University of Baltimore law professor. Before the suspension, BP was the largest supplier of fuel to the U.S. Department of Defense, with about $2 billion in annual contracts, and the DOD, through the Defense Logistics Agency, not only cut off the opportunity for new contracts as required during the suspension, but it also canceled existing contracts for regular fuel purchases, Tiefer said.

“Looking at the suspension as a whole, it has been an impressive success in government agency coordinated effort,” Tiefer said. “The Defense Department, which here principally means the Defense Logistics Agency, deferred to EPA about the seriousness of BP’s problems, and BP was never able to manipulate its ‘customer’ in the Defense Department to free it from EPA’s tough but legitimate scrutiny.”

Tiefer said the suspension would have started earlier in an ideal world but said he didn’t think it lasted too long or was needlessly punitive. Not only was the government wary of compromising its ongoing criminal case against BP with potential litigation over a suspension, but the late date and length of the suspension also gave government regulators more time to ensure that BP’s reforms in the wake of the spill were more than just symbolic gestures, he said.

“I couldn’t disagree more with those who wanted BP to get away early from the suspension,” Tiefer said. “First of all, the harm in the Gulf from BP’s spill was on a scale that just had never been seen before from a government contractor. The government legitimately took time not just to create some mechanisms on paper for ethics monitoring but to see BP go beyond a willingness to talk the talk and actually demonstrate it would walk the walk.”

Jay Devecchio, a partner at Jenner & Block LLP, said that he couldn’t fault the EPA for taking the time to sort through the facts and reach the right decision.

“I would have been more concerned it the EPA had suspended BP immediately after the spill,” DeVecchio said. “That would have suggested more of a punitive or PR reaction rather than a measured consideration of the facts. One certainly wouldn’t want SDOs to suspend contractors — particularly large, multifaceted companies — based upon isolated mistakes, accidents or localized errors in judgment. If that were the standard, no one would be in government business.”

The timing of the EPA’s decision to lift the suspension also raised questions, since the administrative agreement that ended the suspension didn’t contain any particularly tough or unusual provisions and essentially mirrored the additional monitoring and auditing agreements that BP had included in its guilty plea.

With the new provisions in place, BP will be able to seek new leases in the Gulf of Mexico. The EPA has called the Deepwater Horizon incident the largest environmental disaster in U.S. history.

BP’s active litigation against its suspension may have influenced the timing — courts have shown themselves willing to closely examine suspension and debarment decisions as in a recent case involving Inchcape Shipping, which, like BP, involved “stale facts” by the time the suspension was eventually carried out by the Navy, Tillipman said.

While some in the legal community had hoped that the EPA lawsuit could set clearer guidelines for agencies’ ability to suspend companies long after the facts underpinning the suspension are laid out, the administrative agreement takes that possibility off the table and leaves some uncertainty about how much precedential weight the BP suspension will carry.

“I have a hard time understanding why a suspension was issued here given the timing (as opposed to a proposed debarment), but I don’t think there is broader meaning of this action beyond EPA,” said David Robbins, a former Air Force debarment attorney who now heads the government contracts group at Shulman Rogers Gandal Pordy & Ecker PA.

While Tiefer said that the length of the suspension sent a message that the EPA would not let companies get away with extreme environmental violations, Robbins cautioned that suspensions should follow the rules and not be used politically.

“I’m sorry to say I don’t agree that suspensions are tools to show tough enforcement,” Robbins said.

Because of the unusual nature of the case, it may be hard for contractors to draw many lessons from the lengthy and late suspension, unless the EPA is handling their case, according to Robbins.

“Contractors should be vigilant, especially when the EPA is their debarring agency, and do all they can to mitigate risk of debarments, from enhanced ethics and compliance programs to early and voluntary reporting and engagement with the government,” Robbins said. “Early disclosure and cooperation, in many cases, goes a long way.”

Published by Law360

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