Federal regulators have temporarily suspended British oil giant BP PLC from future government contracts, citing the company’s “lack of business integrity” as demonstrated by the Deepwater Horizon explosion. 

The November 28 announcement was made by the U.S. Environmental Protection Agency, which was designated as the lead agency for suspension and debarment actions following the 2010 disaster that killed 11 people and caused what the agency described as the largest environmental disaster in U.S. history.

It’s not clear when the suspension, which does not affect current contracts, will be lifted. According to the government, BP must provide “sufficient evidence to EPA demonstrating that it meets Federal business standards” before it can be awarded future contracts.

BP in a statement said it has been in “regular dialogue with the EPA” and has provided the agency with a statement of more than 100 pages detailing its “present responsibility” to conduct business with the government.

The suspension comes after BP on November 15 agreed to plead guilty to 11 counts of misconduct or neglect of ship officers, one count of obstruction of Congress, one misdemeanor count regarding a violation of the Clean Water Act and one misdemeanor count of a violation of the Migratory Bird Treaty Act.

According to the company, the EPA is now working on “a proposed administrative agreement that, if agreed upon, would effectively resolve and lift this temporary suspension. The EPA notified BP that such a draft agreement would be available soon.” Also, the Justice Department as part of the plea deal agreed to advise “any appropriate suspension or debarment authority that in the Department’s view, BP has accepted criminal responsibility for its conduct,” the company reported.

The stakes are high. According to the database USAspending.gov, BP subsidiaries in recent years have won billions of dollars worth of government contracts, including a $1.13 billion deal with the Department of Defense in 2008 to supply turbine fuel; an $838 million deal also for turbine fuel in 2009 and $583 million for fuel in 2011.

To James McCullough, who heads the government contracts practice at Fried, Frank, Harris, Shriver & Jacobson and is not involved in the BP case, the most interesting thing to watch will be the Department of Defense’s reaction to the suspension.

“BP is a major supplier of petroleum products to military agencies, and DOD has the authority under the Federal Acquisition Regulation to waive a contractor’s suspension if the Secretary of Defense determines that there is a ‘compelling reason’ to continue to award contracts to a suspended contractor,” he said. “DOD’s regulations also expressly provide that such compelling reasons may include circumstances where the national defense requires continued business dealings with the suspended contractor.”

The Defense Department isn’t the only agency where BP will feel the pinch.

While the suspension is ongoing, the Interior Department said BP will not be eligible for new federal oil leases. The Bureau of Ocean Energy Management today is holding a sale that will make more than 20 million offshore acres available in the Western Gulf of Mexico. BP did not bid in the sale.

Scott Amey, the general counsel of the Project on Government Oversight, called the suspension “surprising but welcome” in a written statement. “It seemed that BP was too big to suspend or debar. The EPA demonstrated this is not the case,” he said. “This is exactly the strong step the government should take to protect federal agencies, safeguard taxpayers, and establish expectations for responsible contractor behavior.”

BP is not the first mega-contractor to be suspended by the EPA—IBM faced the same fate in 2008 in connection with allegations that the company violated procurement integrity provisions. The suspension was lifted after about a week under an interim agreement, where IBM agreed to cooperate with investigators.

Contact Jenna Greene at jgreene@alm.com.