* * *
Lambert here: Simple answers to simple questions:
* * *
The ban on BP (NYSE:BP) is only the tip of the iceberg. In the wake of oil spills, deaths, murky war contracts, sharing of government secrets and other lapses in ethics, Obama’s 2012 house-cleaning project will continue into the New Year.
Cleaning up the messes of the past decade of contractual chaos in the US is a formidable task, and so far the Obama administration has slapped bans on more than 3,800 contractors in 2012—though the punishments aren’t exactly tough.
The most highlighted case is that of BP Plc (BP/), suspended last month from new federal contracts for an undefined period. Eleven people were killed in the 2010 Deepwater Horizon oil spill—the worst in US history and the company was accused by the Environmental Protection Agency (EPA) of demonstrating a “lack of business integrity”. BP will survive the punishment—which isn’t as stringent as it could be as it has no effect on existing contracts. But we may see a carve up of the company in the New Year, in the aftermath of a settlement it reached with the US Justice Department to pay $4.5 billion in return for an end to criminal charges and to cover securities claims as a result of the spill.
Why is this case getting the bulk of the media attention? Because the government doesn’t typically want to punish the big boys—especially big oil–so it’s a significant precedent that certainly has some other big players worried about what 2013 will bring.
A Texas unit of Booz Allen Hamilton Holding Corp (BAH)—a slightly smaller fish–was also suspended for nine weeks in February when it hired a former government employee who agreed to share sensitive secrets about a pending technology project. It wasn’t much of a punishment.
Oil spills aside, we’re also likely to see some serious house-cleaning related to war contracts handed out like candy.
And in this atmosphere, companies are turning on each other and the ranks of whistleblowers are inflating. The Whistleblower ranks are set to grow further in 2013 thanks to December legislation that grants new legal protection to whistleblowers who work for federal contractors or grant recipients. These provisions are part of the $633 billion defense bill passed by Senate, and the point is to protect people from being fired or harassed with the government’s complicity for exposing fraud, waste, abuse or ethical lapses. The legislation essentially sets up a channel for whistleblowers to protect themselves through federal internal watchdogs (inspectors general) or the courts.
At the same time, companies are abusing the whistleblower role, using it as a tool to knock down the competition. As such, weeding out the true whistleblowers from those with disingenuous agendas will be challenging, and 2013 is set to be a very aggressive year in this respect.
Though perhaps still a bit lacking, the contracting house certainly needs to be cleaned—and vendors need to be more thoroughly vetted. After all, we’re talking about an annual federal contract market of around $500 billion in taxpayers’ money.
So far, though, house-cleaning has been disappointing, despite the big numbers. Of the 3,800 companies targeted for disciplinary action, try to find a big dog outside of BP or Booz Hamilton, whose 9-week suspension falls short of real punishment. The game is to go after the small fish to inflate the numbers. When those numbers start to include the big boys—and big oil beyond the obvious BP—then we can talk about cleaning house.