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BP Suspended From Contracts With U.S. Government After Spill

The Interior Department also said it won’t award BP any leases in a Gulf auction today because the company has been barred from winning federal contracts. BP would be eligible for the leases when the government ends the contract suspension, the agency said.

The EPA said the ban was imposed because the company’s conduct during the 2010 Deepwater Horizon disaster showed a lack of business integrity. The action, which doesn’t affect existing contracts, will stand until BP can demonstrate it meets business standards set by the government, the EPA said. The incident killed 11 people and caused the largest environmental disaster in U.S. history, it said.

“The suspension of BP is surprising and a win for holding all companies, big or small, accountable to the federal government and taxpayers,” said Scott Amey, general counsel for the Washington-based Project on Government Oversight.



Amey questioned whether the government could put BP “in timeout” because it is a top federal contractor supplying petroleum products to the Pentagon.

“Let’s see how long the suspension lasts or if the military grants any waivers,” he said.

The company in fiscal year 2011 was the Defense Department’s biggest fuel supplier with awards valued at about $1.35 billion. Its contracts with the military surged 33 percent from $1.02 billion in the previous year, according to data compiled by Bloomberg.

The company received 49 percent more in defense contracts in 2011 than the No. 2 fuel supplier, San Antonio-based Valero Energy Corp. (VLO) 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.

“BP quite likely did more damage to the United States than any other federal contractor that I can remember, in terms of inflicting many billion dollars of environmental harm and destruction,” said Charles Tiefer, a law professor at the University of Baltimore who specializes in government contracting.


Contract Suspension

The suspension “sends the signal to BP, and incidentally to the whole oil and gas drilling industry, that the United States will take strong steps to protect itself against a recurrence of that tragedy,” Tiefer said.

Tiefer, who served on the U.S. Commission on Wartime Contracting, said the EPA’s action will also “take a toll” on BP.

Even after the suspension expires, BP may have “an extremely negative mark” with the U.S. government, which includes a contractor’s past performance as part of its evaluations for awards, Tiefer said.

BP on Nov. 15 reached a settlement with the Justice Department, agreeing to 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.


Boeing Ban

Shares in BP slumped as much as 2.9 percent to 418.7 pence in London after the announcement. They traded at 425 pence at 3:23 p.m. London time, down 1.45 percent.

BP spokesman David Nicholas said he couldn’t immediately comment on the statement.

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) in response to allegations that several former employees conspired to steal trade secrets from Lockheed Martin Corp. (LMT) during a competition. The suspension was lifted in 2005.

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

Oil Spills

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.




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