November 15, 2012

The Nuclear Option: Debar BP, End $2 Billion Fuel Sales Now

This post is based on an article I wrote with Anne Havemann entitled “Too Big to Obey: Why BP Should Be Debarred,” published in the William & Mary Environmental Law & Policy Review.

Attorney General Eric Holder and his lead prosecutor, Lanny Breuer, are deservedly running a victory lap in the immediate aftermath of their criminal settlement with BP.  The amount of money paid to settle the charges, $4.5 billion—is considerably larger than anything paid by past bad actors, although it represents just a few months of profit for the company.  In addition, the two top supervisors on duty at the rig when it exploded will be prosecuted for manslaughter, sending the message that line managers put their futures on the line when they worry more about sparing costs for the company than the safety of their workers.   But even these tough remedies fall far short of the “nuclear option” that should be invoked in this case: the permanent debarment of BP from ever doing business with the U.S. government.

Despite a shocking history of chronic law violations stretching a couple decades in this country—including an explosion at its Texas City refinery in 2005 that killed 15 workers--BP remains the Pentagon’s largest supplier of jet and vehicle fuel, with government contracts valued at more than $2 billion.  In theory, at least, the United States only does business with “responsible” companies and, as I’ll explain further in a moment, BP is the corporate embodiment of irresponsibility, even if we ignore the catastrophe that happened in the Gulf.  Yet any suggestion that the company should be debarred by the Department of Defense (DOD)--the government’s biggest spender--is summarily dismissed by observers who seem convinced that debarring BP would leave the Pentagon with nobody to sell it fuel.  

Some statutes, including the Clean Air and Clean Water Acts, provide for immediate suspension for government contractors found guilty of violating their provisions.  Unfortunately, however, the suspension is only applicable to the facility where the violation took place.  The drilling rig that exploded is obviously no longer in existence.  

A more general form of debarment is explicitly designed to “protect the public interest” and cannot be used to “punish” contractors. Because government officials use this language to avoid debarment whenever it seems inconvenient, the nuclear option does not seem to worry the Fortune 500 corporations that dominate Department of Defense (DOD) purchase orders.

Studies by the Government Accountability Office (GAO) and the Project on Government Oversight (POGO), a Washington-based public interest group, have documented the unfortunate truth that small contractors are much more likely to be suspended or debarred than large ones, no matter how egregious the latter’s behavior, rendering the process a pale carbon copy of what Congress intended it to be.

The BP situation raises squarely the uncomfortable question of whether the nation can tolerate the reality that some firms are too big to suffer this powerful consequence of breaking the law, even if violations occur multiple times, with appalling consequences.  If ever a company deserved to be debarred, it is BP. Conversely, if BP avoids government-wide debarment, the inescapable message will be that the U.S. government is not serious about this remedy and is willing to do business with any large corporation, no matter how irresponsible it may be.

Just how bad has BP been?   The spectacle of the damage caused by the 200 or so million gallon spill and the company’s increasingly desperate efforts to control it were alarming enough. But as investigative reporters converged on the scene, an equally disconcerting history of corporate irresponsibility on a national scale soon emerged.

BP first pled guilty to felony charges under the Resource Conservation and Recovery Act (RCRA) for illegal dumping of hazardous waste at its production facilities on Alaska’s North Slope, paying $22 million in civil penalties and criminal fines.  The violations began in 1993.

Then, in 1994, in deference to the company’s size and sophistication, California regulators decided to allow BP the privilege of inspecting its own facilities for compliance with the Clean Air Act, provided that it submit periodic reports to government officials.  In 2002, regulators began to wonder if the records submitted by the company were too good to be true: the documents showed that storage tanks at its Carson refinery in Los Angeles had no problems and required no repairs over the entire period.  Government inspectors informed the company that they needed to visit the plant in order to confirm these results, but company executives took the highly unusual and defiant step of refusing to grant access voluntarily, forcing regulators to get a search warrant.  When they finally entered the plant, the inspectors discovered rips in the seals of the tanks that were nearly two feet long, leaking roofs, and other conditions that amounted to thousands of separate violations of applicable law.  The case was settled for a civil penalty of $100 million.

Then, in 2005, an explosion killed 15 and injured 180 at the company’s Texas City refinery in July 2005.  As reported by the U.S. Chemical Hazard and Safety Investigation Board, that tragedy was preceded by ample warnings that maintenance, training, and front-line risk management at the plant were alarmingly deficient.  The Occupational Safety and Health Administration assessed a $21 million fine and signed a consent decree with the company.  It discovered a few years later that BP had ignored the requirements of the decree, so OSHA went back in, this time collecting $50 million in penalties.

A few months later, BP managed a 200,000 gallon oil spill—the biggest ever on Alaska’s North Slope. That spill turned out to be heralded by whistle blower reports that inspections and maintenance were erratic to the point of willful negligence.  The company settled criminal charges with the government, but its performance was so poor in subsequent years that the government moved to revoke its probation.

Regarded as a rogue even by its oil industry compatriots, BP was and is a company moving too fast to be bothered with what experts call a “safety culture” in any of its dangerous operations.  For years, it skipped past civil and criminal penalties, inflicting collateral damage on thousands of bystanders.

Over the last two decades, Fortune 500 companies with disgraceful track records have continued to do business with the government, avoiding debarment without taking effective action to remedy violations.  The root of this problem is DOD, which spends more money on contractors than any other agency or department and consequently holds the whip hand on government-wide debarment.  Conceivably, the threat of debarment is used behind-the-scenes as a threat to provoke settlement on less drastic terms. Given the confidentiality surrounding the settlement of government enforcement actions, we cannot know.  But without routine, public enforcement of this powerful tool, that threat is likely to have lost its potency long ago.

Rena Steinzor, Professor of Law, University of Maryland Carey School of Law. Bio.

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