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BP's Federal Contract Ban Will Hurt U.S. Taxpayers, Not Just BP

This article is more than 10 years old.

BP shares are down 1.2% this morning on news that the company has been barred from entering into new contracts with the federal government. The EPA announced this morning that the ban is "due to BP's lack of business integrity as demonstrated by the company's conduct with regard to the Deepwater Horizon blowout."

So if that's the case, then why didn't they levy the ban two years ago before new CEO Robert Dudley started fixing the place up?

The move has more to do with the timing of the criminal charges that BP agreed to plead guilty to a couple weeks ago in its $4.5 billion federal settlement. They include Obstruction of Congress, misconduct, neglect, violation of the Clean Water Act and the Migratory Bird Treaty Act. Today, BP's top men on the doomed rig, Tom Kaluza and Donald Vidrine, are to be arraigned on manslaughter charges. Another former exec David Rainey has been charged with concealing from Congress the amount of oil flowing from the Macondo well.

The EPA said today that the ban won't affect existing contracts that BP has with the government, or prevent it from drilling on federal leases it already has. But until further notice, this means that BP won't be leasing any new Gulf of Mexico blocks from the feds, nor will its refineries be able to make new deals to sell fuel to federal agencies or the military.

This could be a huge deal for BP, and U.S. taxpayers. The company is said to be the biggest fuel supplier to the U.S. military, providing for more than 10% of needs. Last September BP entered into two contracts to provide $1.5 billion worth of fuel to the Defense Logistics Agency.

BP and its executives do deserve to be punished for breaking the law, but you've got to wonder what purpose is served by banning the company from all federal contracts. By removing competition from the marketplace it will be U.S. taxpayers that end up paying more to fuel the military's tanks and planes. What's more, without BP bidding for federal acreage, taxpayers will end up receiving less in leasing fees and fewer royalties than we would otherwise.

The contract suspension could last up to a year, and in order to get the ban lifted, BP will have to prove to the government that it is a good corporate citizen and has cleaned up its act. But I thought that's what the last two years were all about.

Analyst Fadel Gheit with Oppenhemier put it well in this story in the WaPo today:

Gheit said: “I am not sure why the government is doing that since BP has done everything the government asked and more. The spill cost BP more than $40 billion. Businesses and individuals were generously compensated, and the gulf region is back better than before. BP is the largest operator and investor in the gulf, and banning it from participating in the bid round does not help the government, BP or anyone else.”