Market News

 August 13, 2013
BP sues US government over suspension from new federal contracts

 BP sued the U.S. government on Monday over its decision to bar the British oil giant from new federal contracts to supply fuel and other services following the company's agreement to plead guilty to manslaughter and obstruction charges in connection with the 2010 Gulf of Mexico oil spill disaster.

The company said in court papers filed in U.S. District Court in Houston that the Environmental Protection Agency's decision to suspend the company from such contracts and its continued enforcement of that order is arbitrary, capricious and "an abuse of discretion."

BP, which was negotiating a possible agreement with the EPA at the time the agency issued the suspension last November, wants a judge to order the EPA to lift the suspension and allow BP to bid for and secure new government contracts.

The suspension, called a debarment, affects only new federal contracts, not existing ones. Because of it, however, BP has lost out on potentially billions of dollars of business with the U.S. government.

Among other things, the company was ineligible for new contracts worth up to $1.9 billion to provide fuel to the government this year. BP has been a major supplier of fuel to the U.S. military.

The contracts were with the Defense Logistics Agency, a combat support unit that provides the Army, Navy, Air Force, Marine Corps and other federal agencies with logistics, acquisition and technical services.

An EPA spokesman declined to comment on BP's court action, referring questions to the Justice Department, which also declined to comment.

Eleven rig workers were killed when an undersea well owned by BP blew out on April 20, 2010 some 50 miles off the coast of Louisiana and triggered an explosion on the Transocean-owned Deepwater Horizon. The resulting oil spill was the worst offshore spill in U.S. history.

In March, the Interior Department said it would allow BP to bid in a Gulf of Mexico lease sale, but warned that if the company was the highest bidder and remained under the EPA suspension at the time of the lease award, it would be disqualified. BP, which remains one of the largest leaseholders in the Gulf, skipped the lease sale auction.

BP pleaded guilty Jan. 29 to manslaughter, obstruction of Congress and other criminal charges stemming from the well blow-out and rig explosion in the Gulf. It was ordered to pay a $4 billion criminal penalty that it negotiated with the Justice Department.

The guilty plea keeps the suspension in place until BP can work out an administrative agreement with the EPA. However, in its court filing Monday, BP suggests that the suspension should have ended once the criminal case was resolved.

BP agreed to the plea deal in November, just before the EPA suspension.

BP said in its court filing Monday that the EPA order, which applies to 21 different BP entities, was continued by the agency just last month after BP lost an administrative challenge to the suspension.

BP said it holds contracts with the federal government worth more than $1.34 billion, under which the company provides jet fuel, marine diesel fuel, aviation gasoline, commercial airport refueling services, bulk fuel storage, lubricants and natural gas.

Besides the criminal penalty and fallout from the EPA suspension, the company already has spent more than $25 billion on Gulf clean-up, compensation to victims and other spill-related costs.

A civil trial over the disaster is set to resume next month in federal court in New Orleans. Billions of dollars in fines are at stake.