INSIGHT: US manufacturers challenge EPA in BP debarment case

12 December 2013 16:50  [Source: ICIS news]

By Joe Kamalick

EPA bars all of BP from federal work due to Deepwater disasterWASHINGTON (ICIS)--A growing coalition of international energy firms, manufacturers and broad general business interests is challenging what is termed “breath-taking overreach” by the Environmental Protection Agency’s (EPA) in barring BP from any federal programme indefinitely.

The US Chamber of Commerce, the National Association of Manufacturers (NAM), the American Petroleum Institute (API) and other trade associations - along with the UK government - charge that EPA has grossly overstepped its legislative and regulatory authority in shutting off BP and all of its affiliates and subsidiaries from doing business with the federal government or even with private companies that hold federal contracts.

The unprecedented EPA punishment of BP grows out of the April 2010 accident involving BP’s Deepwater Horizon offshore drilling rig, which was struck by an explosion and fire that took 11 lives and triggered the worst oil spill in US offshore energy development history.

In early 2012, BP Exploration & Production Inc (BPXP) pleaded guilty to a range of criminal violations and other offences, including a misdemeanour violation of the Clean Water Act (CWA), which is enforced by EPA.

Later that year and early in 2013, EPA barred parent company BP, its subsidiary BPXP and 20 other affiliates from entering into any new federal procurement contracts and other transactions. 

Soon after, in February 2013, EPA also barred BPXP’s corporate headquarters in Houston, Texas, from federal contracting, contending that the company’s Houston HQ offices constituted a “violating facility” under the Clean Water Act.

BP quickly filed suit (BP Exploration & Production Inc v [EPA administrator] McCarthy), charging that EPA had overstepped its authority under the CWA.

In a recently filed amicus curiae suit, the US Chamber, API and NAM, along with others, have sided with BP, arguing that if the EPA action is not overturned by the courts, it will establish a precedent that could do no less than undermine international commerce.

NAM senior vice president and general counsel Linda Kelly said that “The breadth of EPA’s overreach in this case is breath-taking and, if left to stand, would set a harmful precedent for manufacturers across the country”.

Kelly said that NAM recognises that rules and regulations are needed to protect public interests.

“But this disbarment ruling seems to be ignoring the confines of EPA’s statutory authority in order to be punitive and to make a point,” she said.

However, she added, “This heavy-handed approach is concerning to all manufacturers”.

The 14,000 member companies of NAM include a large number of chemicals producers and other process industries players.

In the amicus brief, NAM and its fellow petitioners argue that the Clean Water Act “clearly provides for mandatory disqualification from federal contracts ‘if the contract is to be performed at any facility at which the violation which gave rise to such conviction occurred, and if such facility is owned, leased, or supervised' by the convicted person.

“It was improper for EPA to designate the [BPXP] corporate headquarters as the violating facility because there was no CWA violation at that location,” NAM argues. “All of the conduct charged by EPA and agreed to in the [BP] plea agreement occurred on the rig, not at the headquarters.”

NAM, API and the US Chamber said they filed their amicus brief with the US District Court for the Southern District of Texas because they are “significantly concerned about the statutory overreach EPA exhibited in this case”.

In its broad debarment action against BP and all its subsidiaries and affiliates, EPA has “asserted that a Clean Water Act violation occurring at one company facility results in the mandatory disqualification of the corporate headquarters from involvement in any federal program”.

“And according to EPA, the discretionary suspension of a company based on the improper conduct of its employees automatically results in the indefinite suspension of multiple worldwide affiliates of that company, no matter their connection to or involvement in the improper conduct,” the amicus brief argues.

“The suspension also is not restricted to a single agency or a single industry; the affiliates are barred from entering into a contract with any government agency or working with any company involved in a federal program, even in an entirely unrelated industry,” the brief added.

“These expansive assertions of authority, and EPA’s actions pursuant to that authority, pose a grave threat to federal contractors and private industries with business touching on federal programs or federal land,” it said.

Make no mistake, the brief continues, “injuries caused by guilt-by-association exclusion would be significant”.

“If an entire corporate family is suspended or disqualified from federal programs, a cascade of impacts will follow,” they argue.

“First will come the layoffs of hundreds or even thousands of employees whose performed jobs have any relation to federal programs,” the brief says, adding: “Second will come the impact on the economy from the loss of corporate value resulting from the entire company’s exclusion from all federal contracting.”

“Third will come the ripple effect: the broader impact on the economy as the industries involved in government programs struggle with the uncertainties introduced by the threat of suspension or disqualification of an entire corporate structure stemming from the improper conduct of a few employees of one corporate affiliate.”

The ripple effect will spread wider still, the petitioners contend.

“For example, because a federal oil or gas lease is a ‘covered transaction’ for purposes of suspension and debarment, no federal leaseholder - which includes a large majority of oil and gas companies - may contract with a suspended or debarred affiliate,” the brief noted.

In addition, state governments, foreign countries and private entities “also often decline to do business with entities suspended by the federal government, and a company seeking a license to operate within a state or foreign country may be denied such a license because of a suspension or debarment”.

API, the Chamber and NAM join BP in urging the federal court to “declare EPA’s disqualification of BPXP’s corporate headquarters contrary to law, and it should declare that EPA’s unprecedented assertion of suspension power over affiliates is arbitrary, capricious, an abuse of the agency’s discretion and otherwise contrary to law”.

In announcing the amicus filing, NAM charged that EPA’s debarment action against BP constitutes “an awful abuse of EPA’s discretion”.

In joining the BP suit against EPA, NAM said that “This is another in a series of cases challenging EPA’s efforts to grant itself more power by broadening the language of one of its authorising statutes”.

The Houston district court decision in the BP case could be rendered in the first half of 2014.

Paul Hodges studies key influences shaping the chemical industry in Chemicals and the Economy

By: Joe Kamalick
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