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CitizenVox: Standing Up to Corporate Power

Letter to the Department of Defense

Regarding BP's Federal Contracts

Click here for PDF with citations 

June 7, 2010

Dear President Obama and Secretary Gates,

On behalf of our 150,000 members and supporters across the U.S., Public Citizen requests that you immediately initiate proceedings to suspend and ultimately debar BP and its subsidiaries as federal contractors (collectively "BP"). A BP subsidiary currently has $2.1 billion in contracts with the Department of Defense (DoD). BP is responsible for what the administration’s top environmental advisor Carol Browner rightly deemed “the worst environmental disaster we’ve ever faced in this country.” The horror is still unfolding, but we know that 11 workers are dead, huge swaths of the Gulf are closed to fishing, underwater plumes are causing untold damage to sea life, coastlines in four states are fouled and a whole way of life is threatened.

This isn’t the first time BP has caused harm. BP’s poor track record, guilty pleas to criminal violations of U.S. law (under which the company remains on criminal probation) and hundreds of millions of dollars in fines to federal agencies to settle allegations of wrongdoing “directly affect[] the present responsibility”  of BP to effectively perform contracting functions.

Upon suspension and debarment of BP, we further urge that the government exercise its power to terminate six current DoD contracts awarded to BP Oil International Ltd (BPOI), a wholly-owned subsidiary of BP plc, totaling more than $2.1 billion.  In addition to terminating current contracts, the government should exclude BP and its subsidiaries for three years from winning future contracts.

Federal regulations authorize suspension of a federal contractor based upon evidence that the contractor has committed an “offense indicating a lack of business integrity or business honesty that seriously and directly affects the present responsibility of a Government contractor or subcontractor,” as well as for “any other cause of so serious or compelling a nature that it affects the present responsibility of a Government contractor or subcontractor.”  The regulations likewise authorize debarment of a contractor for these same reasons.  

While BP’s two recent criminal convictions should have led the government to deem the company and its wholly-owned subsidiaries lacking in the “business integrity or business honesty” required of a government contractor, the company’s ongoing role in the Gulf of Mexico oil disaster has further displayed an alarming level of irresponsibility that require the suspension and debarment and termination of contracts held by BP and its subsidiaries. Indeed, press reports indicate that the Environmental Protection Agency already is considering debarring BP from government contracts.  The debarment regulations take into account the relationship of corporate affiliates, defining an affiliate if “either one controls or has the power to control the other.”

Two American BP subsidiaries are still on criminal probation under the terms of the companies’ 2007 guilty pleas to a felony violation of the Clean Air Act and a criminal misdemeanor violation of the Clean Water Act. In addition to the criminal misdemeanor violation of the Clean Water Act, the Department of Justice filed a civil lawsuit against BP Exploration (Alaska) Inc. in March 2009 for failing “to comply in a timely manner with a Corrective Action Order” involving this spill of 200,000 gallons of crude oil into Alaska’s Prudhoe Bay. These guilty pleas, in addition to numerous settlements the company has paid regarding price-gouging, highlight that BP cannot be relied on to carry out its contractor duties.

BPOI has several fuel supply contracts with the DoD:

  • One DoD contract pays BPOI $615,581,089.98 to deliver fuel through July 30, 2010.  
  • A second contract pays BPOI $837,505,913.65 to deliver fuel through January 30, 2011.  
  • A third pays BPOI $20,595 for airport-related services in Albania through September 30, 2010.  
  • A fourth pays BPOI $615,581,090 to deliver fuel through June 30, 2010.  
  • A fifth pays BPOI $13,856,270.41 to deliver fuel through September 30, 2012.  
  • A sixth pays BPOI $76,500,002 through October 31, 2011 for fuel delivery.

In addition, nearly $1 billion in concluded contracts were awarded and paid to BPOI during the time that other subsidiaries of BP plc were on probation for criminal violations of both the Clean Water Act and the Clean Air Act:

  • A $728,771,113 contract.
  • A $277,526,225 contract.
  • A $37,377,521 contract.
Criminal Violations and Ongoing Criminal Probation by BP Subsidiaries

In 2007, two wholly-owned subsidiaries of BP plc – BP Products North America, Inc (BPNA) and BP Exploration (Alaska) Inc (BPEA) – pleaded guilty to two environmental crimes in connection with two separate incidents.  

First, BPNA pleaded guilty to a felony violation of the Clean Air Act and is still serving its three years probation for the company's role in the March 23, 2005, explosion at a BP refinery that killed 15 workers. That three-year criminal probation is effective under the terms of a plea agreement signed on October 24, 2007,  meaning the criminal probation is effective through October 2010. In addition to the felony criminal conviction, the company paid: A) a $50 million fine for the Clean Air Act violation ; B) $785,662 to resolve Emergency Planning and Community Right-to-Know Act violations ; and C) $109 million for willful and negligent violation of hundreds of workplace safety violations in connection with the explosion.

On December 3, 2007, BPEA agreed to plead guilty to a misdemeanor criminal violation of the Clean Water Act. The terms of the guilty plea required BP to pay $20 million in penalties and serve three years probation.  The Department of Justice found that BP was criminally negligent in knowingly allowing the condition of its pipelines to deteriorate in Alaska, resulting in a spill of 200,000 gallons of crude oil into the Alaskan tundra. While BP was on criminal probation in September 2008, another BP Alaskan pipeline ruptured, causing a massive explosion. This rupture was due to corrosion stemming from the company’s lack of maintenance. The state of Alaska’s Petroleum Systems Integrity Office was sharply critical of BP’s negligence in the 2008 explosion.

Furthermore, on March 31, 2009, the Department of Justice filed a civil action against BPEA for violations of the Clean Water Act for the same negligent release of 212,252 gallons of crude oil into the tundra and waterways of Alaska’s Prudhoe Bay.

In addition, BPNA settled a civil case in October 2007 alleging manipulation of the U.S. propane market by paying a $303 million fine.  This followed two separate settlements totaling $21 million against BP Energy, another wholly-owned subsidiary of BP p.l.c., for manipulating the electricity market in California in 2000-01.  BP Energy also paid a $7 million civil penalty in 2007 for engaging in anti-competitive practices with its natural gas pipeline operations.  These price-gouging and anti-competitive practices by BP display "a lack of business integrity or business honesty” and raise concerns about whether taxpayers are adequately protected from anti-competitive actions with BPs multiple fuel supply contracts.

BP's entire operations - from exploration, to refining, to fuel transport, to commodity trading - have violated federal laws with frequency and severity. Given the company's willful transgression of U.S. laws, it can no longer be presumed that BP will responsibly perform its contractor responsibilities. The demonstrated disregard for the law means that there is good reason to doubt that the company will abide by its obligations under its Department of Defense contracts. Moreover, the company's repeated violation of environmental laws suggests an unacceptably high likelihood that BP will violate such laws in carrying out its contractual obligations. BP's aggregate record of wrongdoing – including but not limited to causing the ongoing gusher in the Gulf of Mexico – evidences a lack of business honesty that seriously and directly affects its ability to perform its contractual duties. Indeed, negligently causing the worst environmental catastrophe in U.S. history, as director of the White House Office of Energy and Climate Change Policy Carol Browner labels BP's Gulf gusher, by itself is an action of so “serious or compelling a nature that it affects the present responsibility of the contractor or subcontractor,”  and is reason enough to suspend and debar BP.
We appreciate your prompt attention to this matter.


Tyson Slocum, Director
Public Citizen’s Energy Program

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