Internal watchdog clears State in Keystone contractor decision

The State Department followed its proper conflict-of-interest guidelines, when it selected the contractor responsible for conducting its environmental review of the Keystone XL oil pipeline, the agency's watchdog said on Wednesday.

The Office of Inspector General report found the State Department "substantially" followed "prescribed guidance" when selecting the private contractor Environmental Resources Management (ERM).

The firm took the lead on State's environmental analysis of the $5.4 billion Keystone project, which will carry crude oil from Alberta to refineries in the Gulf Coast region. ERM has previously done work with TransCanada, the company behind Keystone.

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The inspector general also found that the process State "used to assess organizational conflicts of interest was effective," adding further fuel to pipeline advocates' arguments that the path is clear for State to finish it's 90-day national determination test. That's the final piece before Secretary of State John Kerry sends his recommendations on Keystone to President Obama. 

While the reports says State's determination that ERM was objective in the environmental review of Keystone XL is a reasonable conclusion, the inspector general found areas in which State can "improve" its process for selecting contractors and its conflict of interest review when doing so. 

The watchdog also said State's public disclosures on the conflict of interest review need tidying.

The lack of "effective documentation" hurt State's ability to "reduce potential misperceptions" on transparency, the watchdog said. It cited State's failure to fully document its process of choosing a contractor and its conflict of interest review of ERM.

Rep. Raúl Grijalva (D-Ariz.) criticized the report, arguing it didn’t dive into the deeper concerns that ERM's previous work for oil companies like Exxon, and ties to industry groups swayed the outcome of the environmental review dropped earlier this year.

“The inspector general was only asked to examine whether the State Department followed its own flawed process for selecting a third party contractor," Grijalva said in a statement. 

"The fact that the answer is ‘yes’ doesn’t address any outstanding concerns about the integrity of ERM’s work, the State Department’s in-house ability to evaluate its quality, or whether the process itself needs to be reformed,” he said. “This report isn’t evidence that there’s no problem here. This is evidence of the problem.”

Sen. John Hoeven (R-N.D.), an outspoken supporter of the pipeline said the report "clears" the way for State to finish its process.

"Today’s Inspector General report makes clear that the Department of State did not violate its conflict of interest procedures in selecting ERM to conduct its environmental review of the Keystone XL pipeline project," Hoeven said in a statement.

"After more than five years, and five exhaustive environmental reviews, the Keystone XL pipeline project is perhaps the most thoroughly studied and long-delayed project of its kind in U.S. history."