Defense contract for petroleum products awarded to Muddy Creek Oil and Gas, Inc. for over $607 million

Contract Overview

Contract Amount: $16,237,063 ($16.2M)

Contractor: Gold Star Technologies, Inc

Awarding Agency: Department of Defense

Start Date: 2004-08-12

End Date: 2009-06-30

Contract Duration: 1,783 days

Daily Burn Rate: $9.1K/day

Competition Type: FULL AND OPEN COMPETITION

Number of Offers Received: 3

Pricing Type: FIXED PRICE WITH ECONOMIC PRICE ADJUSTMENT

Sector: Other

Official Description: 200612!002831!97AS!SP0600!DEFENSE ENERGY SUPPORT CENTER !SP060004D4513 !A!N! !N!B001 !18 !20060808!20090630!607421963!607421963!607421963!N!MUDDY CREEK OIL AND GAS, INCOR!S HWY 407 !PINE RIDGE !SD!57770!69596!201!48!SPRING !HARRIS !TEXAS !+000000498684!N!N!000000000000!9140!FUEL OILS !A8A!PETROLEUM !000 !NOT DISCERNABLE !424720!E! !3!A!S!C! !A!20090630!B! ! !A! !A!U!K!2!003!A! !Z!N!Z! ! !Y!A!N!N!D! ! ! !A!A!000!A!B!N! ! ! ! !5700! !0001! !

Place of Performance

Location: SPRING, HARRIS County, TEXAS, 77391

State: Texas Government Spending

Plain-Language Summary

Department of Defense obligated $16.2 million to GOLD STAR TECHNOLOGIES, INC for work described as: 200612!002831!97AS!SP0600!DEFENSE ENERGY SUPPORT CENTER !SP060004D4513 !A!N! !N!B001 !18 !20060808!20090630!607421963!607421963!607421963!N!MUDDY CREEK OIL AND GAS, INCOR!S HWY 407 !PINE RIDGE !SD!57770!69596!201!48!SPRING !HARR… Key points: 1. Contract value exceeds $607 million over its duration. 2. Awarded under full and open competition. 3. Fixed Price with Economic Price Adjustment contract type indicates potential for price fluctuations. 4. Contract duration of 1783 days suggests a long-term supply need. 5. The North American Industry Classification System (NAICS) code 424720 points to wholesale distribution of petroleum products. 6. The Product Service Code (PSC) is not discernible from the provided data. 7. The contract was awarded by the Defense Logistics Agency, a component of the Department of Defense.

Value Assessment

Rating: fair

The total contract value of $607,421,963 over approximately five years represents a significant expenditure. Without specific benchmarks for petroleum products of this nature and volume, a precise value-for-money assessment is challenging. However, the fixed-price with economic price adjustment structure suggests a mechanism to account for market volatility, which can be beneficial for both parties but also introduces risk of higher costs if market prices rise significantly. The number of bids received (3) is on the lower side for a contract of this magnitude, which could imply less competitive pricing than if more bidders had participated.

Cost Per Unit: N/A

Competition Analysis

Competition Level: full-and-open

This contract was awarded under full and open competition, indicating that all responsible sources were permitted to submit bids. Three bids were received for this solicitation. While competition was present, the relatively low number of bidders for a contract of this size might suggest potential barriers to entry or a limited number of qualified suppliers in the market for these specific petroleum products.

Taxpayer Impact: The full and open competition, despite a limited number of bidders, aims to ensure fair pricing for taxpayers. However, a higher number of bids could have potentially driven the price down further.

Public Impact

The primary beneficiaries are military operations and facilities requiring fuel oil, ensuring readiness and operational capability. The contract delivers essential petroleum products, likely for use across various Department of Defense installations. The geographic impact is likely widespread, supporting defense logistics across the United States and potentially overseas. Workforce implications include support for logistics personnel, fuel handlers, and administrative staff within the Defense Logistics Agency and potentially at the contractor's facilities.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

The contract is for petroleum products, a sector with inherent price volatility, which is managed through the economic price adjustment clause.
The fixed-price with economic price adjustment (FPEPA) contract type can lead to increased costs for the government if market prices for fuel rise substantially.
The relatively low number of bids (3) in a full and open competition might indicate a less competitive market for this specific type of petroleum product or service, potentially impacting price efficiency.

Positive Signals

Awarded under full and open competition, which is a positive indicator for market fairness and potential for competitive pricing.
The contract duration of over 1700 days suggests a stable and reliable supply chain for critical petroleum products.
The Defense Logistics Agency is a major procurement entity, implying adherence to established procurement processes and oversight.

Sector Analysis

The petroleum wholesale distribution sector is characterized by significant market fluctuations driven by global supply and demand, geopolitical events, and refining capacities. This contract falls within the broader energy and logistics support for the Department of Defense. Comparable spending benchmarks for bulk fuel procurement by government entities are often influenced by contract type, volume, delivery locations, and specific product grades. The scale of this contract suggests it is a significant procurement within the defense sector's energy supply chain.

Small Business Impact

The data indicates that this contract was not set aside for small businesses (ss: false, sb: false). Therefore, there are no direct subcontracting implications or specific benefits for small businesses stemming from a set-aside provision. The primary contractor, Muddy Creek Oil and Gas, Inc., is likely a larger entity if it can fulfill a contract of this magnitude. Opportunities for small businesses would typically arise through subcontracting opportunities offered by the prime contractor, which are not detailed in this data.

Oversight & Accountability

Oversight for this contract would primarily fall under the purview of the Defense Logistics Agency (DLA) and the Department of Defense's internal audit and inspection mechanisms. The DLA has established contracting officers and contract management teams responsible for monitoring performance, ensuring compliance with contract terms, and managing payments. Inspector General (IG) jurisdiction would apply for investigations into fraud, waste, or abuse related to the contract. Transparency is generally maintained through contract databases like FPDS, though specific performance details may be less public.

Related Government Programs

Defense Fuel Support Center
Defense Logistics Agency Energy
Petroleum Product Procurement
Fixed Price Contracts
Economic Price Adjustment Contracts

Risk Flags

Potential for increased costs due to economic price adjustment clause in volatile fuel markets.
Limited number of bidders (3) in a full and open competition may indicate reduced price competition.
Contract duration of over 4.8 years requires careful long-term budget planning and monitoring.

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $16.2 million to GOLD STAR TECHNOLOGIES, INC. 200612!002831!97AS!SP0600!DEFENSE ENERGY SUPPORT CENTER !SP060004D4513 !A!N! !N!B001 !18 !20060808!20090630!607421963!607421963!607421963!N!MUDDY CREEK OIL AND GAS, INCOR!S HWY 407 !PINE RIDGE !SD!57770!69596!201!48!SPRING !HARRIS !TEXAS !+000000498684!N!N!000000000000!9140!FUEL OILS !A8A!PETROLEUM !000 !NOT DISCERNABLE !424720!E! !3!A!S!C! !A!200

Who is the contractor on this award?

The obligated recipient is GOLD STAR TECHNOLOGIES, INC.

Which agency awarded this contract?

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

What is the total obligated amount?

The obligated amount is $16.2 million.

What is the period of performance?

Start: 2004-08-12. End: 2009-06-30.

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

The Defense Logistics Agency (DLA) is a primary procurer of fuel for the Department of Defense. Historical spending patterns reveal consistent and substantial investments in petroleum products to support global military operations. DLA's annual fuel spending can range in the billions of dollars, fluctuating based on operational tempo, global market prices, and strategic inventory levels. For instance, in fiscal years preceding and following this contract (2006-2009), DLA's fuel expenditures were consistently high, often exceeding $10 billion annually. This specific contract, valued at over $607 million, represents a significant portion of DLA's procurement within a given year, highlighting the critical nature of reliable fuel supply chains for national defense.

How does the economic price adjustment (EPA) clause typically function in fuel contracts, and what are its implications for cost certainty?

An Economic Price Adjustment (EPA) clause in a fuel contract is designed to allow for modifications to the contract price based on fluctuations in specific economic indicators, most commonly the market price of the commodity being procured (in this case, fuel oils). For fuel contracts, EPA clauses often tie adjustments to published indices for crude oil or refined product prices. This mechanism provides a degree of cost certainty by acknowledging that fuel prices are volatile and beyond the direct control of either the government or the contractor. However, it also means that the final cost to the government is not fixed. If market prices increase, the contract price will rise, potentially leading to higher overall expenditure than initially budgeted. Conversely, if prices fall, the government benefits from a lower price. The specific indices and adjustment formulas within the EPA clause are crucial for determining the extent of price changes and the predictability of costs.

What is the typical number of bids received for large-scale petroleum procurement contracts by the Department of Defense?

The typical number of bids received for large-scale petroleum procurement contracts by the Department of Defense can vary significantly based on market conditions, contract complexity, geographic scope, and the specific type of petroleum product. For contracts of this magnitude (over $600 million), a full and open competition is expected to attract multiple bidders. While three bids were received in this instance, it is not uncommon for such solicitations to receive anywhere from three to ten or more bids, especially if the market is robust and competitive. Factors such as specialized delivery requirements, stringent quality specifications, or limited numbers of qualified suppliers can reduce the number of interested parties. A lower number of bids, as seen here, can sometimes indicate less competitive pressure, potentially leading to higher prices than might be achieved with a larger pool of offerors.

What are the risks associated with a Fixed Price with Economic Price Adjustment (FPEPA) contract type for fuel procurement?

The primary risk associated with a Fixed Price with Economic Price Adjustment (FPEPA) contract type for fuel procurement is cost uncertainty for the government. While it aims to account for market volatility, the EPA clause means the final price paid is not fixed at the time of award. If the market price of fuel increases significantly during the contract period, the government will pay more than the initially estimated fixed price, potentially exceeding budget allocations. This risk is amplified in volatile energy markets. Another risk is the administrative burden of tracking and applying the economic adjustments accurately, which requires robust monitoring of market indices and potential disputes over the application of the adjustment formula. For the contractor, the risk is that if fuel prices fall significantly, their profit margins could be squeezed if the EPA formula does not fully compensate for the decrease.

How does the Defense Logistics Agency ensure the quality and timely delivery of petroleum products under such contracts?

The Defense Logistics Agency (DLA) employs several mechanisms to ensure the quality and timely delivery of petroleum products. Quality assurance is typically managed through stringent product specifications outlined in the contract, requiring adherence to military standards (e.g., MIL-SPEC) and potentially involving independent laboratory testing at various points in the supply chain. DLA personnel or designated quality assurance representatives (QARs) are often present at delivery points or loading facilities to inspect products. For timely delivery, contracts include specific performance metrics, delivery schedules, and potential penalties for delays. DLA utilizes sophisticated logistics and tracking systems to monitor shipments and ensure products reach their intended destinations on time. Performance evaluations of the contractor are conducted throughout the contract lifecycle, and non-compliance can lead to corrective actions or contract termination.

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

Solicitation ID: SP060004R0042

Offers Received: 3

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

Evaluated Preference: NONE

Contractor Details

Address: 1000 E FRONTAGE, US 83 EX, SAN JUAN, TX, 34

Business Categories: Category Business, Hispanic American Owned Business, Minority Owned Business, Self-Certified Small Disadvantaged Business, Small Business, Small Disadvantaged Business, Special Designations

Financial Breakdown

Contract Ceiling: $16,237,063

Exercised Options: $16,237,063

Current Obligation: $16,237,063

Contract Characteristics

Cost or Pricing Data: NO

Parent Contract

Parent Award PIID: SP060004D4513

IDV Type: IDC

Timeline