DoD's $173M petroleum contract to Petroleum Traders Corp. shows fair competition but raises value concerns

Contract Overview

Contract Amount: $173,070,450 ($173.1M)

Contractor: Petroleum Traders Corp

Awarding Agency: Department of Defense

Start Date: 2005-10-01

End Date: 2010-07-31

Contract Duration: 1,764 days

Daily Burn Rate: $98.1K/day

Competition Type: FULL AND OPEN COMPETITION

Number of Offers Received: 43

Pricing Type: FIXED PRICE WITH ECONOMIC PRICE ADJUSTMENT

Sector: Other

Place of Performance

Location: FORT WAYNE, ALLEN County, INDIANA, 46804

State: Indiana Government Spending

Plain-Language Summary

Department of Defense obligated $173.1 million to PETROLEUM TRADERS CORP for work described as: Key points: 1. The contract was awarded under full and open competition, indicating a broad market search. 2. Pricing appears to be a key area for scrutiny, with potential for overpayment. 3. The duration of the contract (over 4 years) suggests a long-term need for these petroleum products. 4. The fixed-price with economic price adjustment structure introduces risk related to market volatility. 5. The award to a single entity, despite open competition, warrants a closer look at bidder participation. 6. The contract's value is substantial, requiring robust oversight to ensure taxpayer funds are used efficiently.

Value Assessment

Rating: fair

Benchmarking the value of this $173 million petroleum contract is challenging without specific unit cost data. However, the fixed-price with economic price adjustment (EPA) clause introduces inherent risk. While EPA clauses are common in commodity contracts to account for market fluctuations, they can also shield contractors from significant price increases, potentially leading to less favorable outcomes for the government if not managed carefully. Comparing this to similar long-term fuel supply contracts would be necessary to determine if the pricing structure and overall value are competitive.

Cost Per Unit: N/A

Competition Analysis

Competition Level: full-and-open

The contract was awarded under 'full and open competition,' suggesting that all responsible sources were permitted to submit offers. The presence of 43 bids indicates a healthy level of interest from the market. However, the fact that the award went to a single entity, Petroleum Traders Corp., despite this broad competition, raises questions about the effectiveness of the competition in driving down prices or if specific capabilities were required that only one bidder could meet. Further analysis of the bid submissions would be needed to understand why only one offer was ultimately accepted.

Taxpayer Impact: A high number of bids generally suggests robust competition, which should theoretically lead to better pricing for taxpayers. However, the ultimate success in achieving value depends on the evaluation process and whether the lowest price technically acceptable or best value was achieved.

Public Impact

Military operations and readiness are supported through the reliable supply of petroleum products. The Department of Defense, specifically the Defense Logistics Agency, is the primary beneficiary, ensuring fuel availability. The geographic impact is likely widespread, supporting military installations and operations across various regions. The contract supports jobs within the petroleum supply and logistics sectors, though direct workforce implications are not detailed.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Potential for price escalation due to the economic price adjustment clause.
Oversight needed to ensure fair market prices are being paid despite EPA.
Contract duration may lock in prices that become unfavorable over time.

Positive Signals

Awarded under full and open competition, suggesting market availability.
Multiple bids received (43), indicating significant industry interest.
Contract supports critical national defense logistics.

Sector Analysis

The petroleum and petroleum products wholesale market is a critical component of the energy sector, supporting a wide range of industries, including defense. This contract falls under the 'Petroleum and Petroleum Products Merchant Wholesalers (except Bulk Stations and Terminals)' NAICS code (424720). The market is characterized by global supply and demand dynamics, price volatility, and significant logistical challenges. Federal agencies, particularly the Department of Defense, are major consumers of petroleum products, making these types of contracts essential for operational readiness. Comparable spending benchmarks would involve analyzing other large-scale fuel supply contracts awarded by the government or major commercial entities.

Small Business Impact

This contract does not appear to have a small business set-aside component, as indicated by 'sb': false. There is also no explicit mention of subcontracting goals for small businesses. Therefore, the direct impact on the small business ecosystem from this specific award is likely minimal, unless Petroleum Traders Corp. voluntarily engages small businesses in its supply chain. Further investigation into subcontracting plans would be needed for a comprehensive assessment.

Oversight & Accountability

Oversight for this contract would primarily fall under the Defense Logistics Agency (DLA) and potentially the Department of Defense's Inspector General. Mechanisms would include contract performance monitoring, audits of pricing and delivery, and adherence to the terms of the fixed-price with economic price adjustment clause. Transparency is facilitated by the contract award data, but detailed performance metrics and oversight reports would provide a clearer picture of accountability.

Related Government Programs

Defense Fuel Supply Center contracts
Military fuel procurement
Energy commodity contracts
Logistics support services

Risk Flags

Potential for price escalation due to EPA clause
Long contract duration increases market risk exposure
Need for robust oversight of price adjustments

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $173.1 million to PETROLEUM TRADERS CORP. See the official description on USAspending.

Who is the contractor on this award?

The obligated recipient is PETROLEUM TRADERS CORP.

Which agency awarded this contract?

Awarding agency: Department of Defense (Defense Logistics Agency).

What is the total obligated amount?

The obligated amount is $173.1 million.

What is the period of performance?

Start: 2005-10-01. End: 2010-07-31.

What is the historical spending pattern for petroleum products by the Defense Logistics Agency?

The Defense Logistics Agency (DLA) is a significant procurer of petroleum products, essential for military operations worldwide. Historical spending patterns reveal a consistent and substantial investment in fuel. For instance, in fiscal year 2022, DLA Energy reported obligated amounts in the tens of billions of dollars across various fuel categories. This particular contract, awarded in 2005 and ending in 2010, represents a portion of that historical spending. Analyzing trends over multiple years would show fluctuations tied to global oil prices, geopolitical events, and changes in military operational tempo. The agency aims to ensure a stable and cost-effective supply chain, often utilizing long-term contracts with economic price adjustments to manage market volatility, as seen in the Petroleum Traders Corp. award.

How does the pricing structure of this contract compare to other similar petroleum supply contracts?

This contract utilizes a 'Fixed Price with Economic Price Adjustment' (FPEPA) structure. FPEPA contracts are common for commodities like petroleum where market prices can fluctuate significantly. The 'economic price adjustment' clause allows for modifications to the contract price based on an objective index or formula, typically tied to market benchmarks for crude oil or refined products. While this protects the government from paying excessively high prices if market rates drop, it also means the government shares the risk of price increases with the contractor. To compare, one would need to examine the specific index used in this contract and compare it to indices and price adjustments in other similar DoD or federal petroleum contracts awarded during the same period. Without access to the specific EPA formula and the actual price adjustments made, a direct comparison of value is difficult, but the structure itself indicates a shared risk approach to price volatility.

What are the potential risks associated with the 'Fixed Price with Economic Price Adjustment' clause in this contract?

The primary risk associated with the 'Fixed Price with Economic Price Adjustment' (FPEPA) clause in this petroleum contract is the potential for the government to pay higher prices than anticipated if market conditions lead to significant price increases. While the clause is designed to protect both parties from extreme market volatility, it shifts some of the price risk to the government. If the economic index used for adjustment rises sharply, the contract price will increase accordingly. This can lead to budget overruns if not properly forecasted. Additionally, the complexity of tracking and verifying price adjustments based on the chosen index requires diligent oversight to ensure that the government is not overpaying. The contractor benefits from a guaranteed market and protection against price drops, while the government gains supply assurance but assumes some price risk.

What was the contractor's track record prior to or during the award of this contract?

Information regarding Petroleum Traders Corp.'s specific track record prior to or during the award of this particular Department of Defense (DoD) contract (awarded in 2005) is not detailed in the provided data. However, as a merchant wholesaler of petroleum products, the company operates within a highly regulated and competitive industry. Companies in this sector typically need established supply chains, logistical capabilities, and financial stability to secure large government contracts. Federal procurement databases often contain past performance information, which would have been evaluated during the solicitation process. Without access to that specific evaluation data, it's difficult to assess their prior performance comprehensively. Generally, large federal contracts are awarded based on a combination of price, technical approach, and past performance.

How does the number of bids (43) influence the perceived value for money in this 'full and open competition' award?

Receiving 43 bids for a 'full and open competition' contract strongly suggests a competitive marketplace for petroleum products. A high number of bidders typically indicates that the solicitation was widely disseminated, and multiple companies possessed the capability and interest to compete. In theory, robust competition should drive down prices and improve the overall value for money by forcing bidders to offer their most competitive terms. However, the ultimate value for money depends on the government's evaluation criteria and the effectiveness of the negotiation process. While 43 bids are a positive signal of market engagement, it's crucial to examine if the winning bid represented the best possible price and terms achievable, especially considering the FPEPA clause which introduces price adjustment variables. The sheer volume of bids, however, does suggest that the government cast a wide net, increasing the likelihood of finding a competitive offer.

What is the significance of the contract duration (1764 days) for this petroleum supply contract?

A contract duration of 1764 days, approximately 4.8 years, for a petroleum supply contract signifies a long-term commitment by the Department of Defense to secure a consistent source of fuel. Such extended durations are common for critical supplies where stability and predictability are paramount for operational planning. For the contractor, it offers a degree of revenue certainty. However, a longer duration, especially when combined with an economic price adjustment clause, increases the government's exposure to market fluctuations over time. It necessitates careful monitoring of market trends and the contract's price adjustment mechanism to ensure that the government continues to receive fair value throughout the contract's life. Shorter contracts might offer more frequent opportunities to re-evaluate pricing and competition but could lead to less supply chain stability.

Industry Classification

NAICS: Wholesale Trade › Petroleum and Petroleum Products Merchant Wholesalers › Petroleum and Petroleum Products Merchant Wholesalers (except Bulk Stations and Terminals)

Product/Service Code: FUELS, LUBRICANTS, OILS, WAXES

Competition & Pricing

Extent Competed: FULL AND OPEN COMPETITION

Solicitation Procedures: NEGOTIATED PROPOSAL/QUOTE

Offers Received: 43

Pricing Type: FIXED PRICE WITH ECONOMIC PRICE ADJUSTMENT (K)

Evaluated Preference: NONE

Contractor Details

Address: 7110 POINTE INVERNESS WAY, FORT WAYNE, IN, 03

Business Categories: Category Business, Small Business

Financial Breakdown

Contract Ceiling: $173,233,452

Exercised Options: $6,168,000

Current Obligation: $173,070,450

Contract Characteristics

Cost or Pricing Data: NO

Parent Contract

Parent Award PIID: SP060005D4060

IDV Type: IDC

Timeline