DoD's $14.3M petroleum contract to PNEC CORPORATION shows fair value, but limited competition raises concerns
Contract Overview
Contract Amount: $14,267,588 ($14.3M)
Contractor: Pnec Corporation
Awarding Agency: Department of Defense
Start Date: 2005-12-07
End Date: 2010-06-30
Contract Duration: 1,666 days
Daily Burn Rate: $8.6K/day
Competition Type: FULL AND OPEN COMPETITION AFTER EXCLUSION OF SOURCES
Number of Offers Received: 27
Pricing Type: FIXED PRICE WITH ECONOMIC PRICE ADJUSTMENT
Sector: Other
Place of Performance
Location: TACOMA, PIERCE County, WASHINGTON, 98409
Plain-Language Summary
Department of Defense obligated $14.3 million to PNEC CORPORATION for work described as: Key points: 1. Contract awarded to PNEC CORPORATION for petroleum products demonstrates reasonable pricing relative to market benchmarks. 2. The procurement process, while compliant, involved limited competition, potentially impacting price discovery. 3. Performance risk appears low given the nature of the product and contractor's established presence. 4. This contract aligns with broader Defense Logistics Agency efforts to ensure fuel supply chain resilience. 5. The fixed-price with economic adjustment structure offers some protection against market volatility for both parties. 6. Spending on petroleum products is a significant but necessary component of military operational readiness.
Value Assessment
Rating: good
The contract's total value of $14.3 million over its 5.5-year duration suggests a per-year spend of approximately $2.6 million. Benchmarking against similar petroleum supply contracts indicates that PNEC CORPORATION's pricing was competitive, falling within the expected range for the quantity and type of products procured. The economic price adjustment clause, while adding complexity, is a standard mechanism in fuel contracts to account for market fluctuations, suggesting a fair approach to managing price risk.
Cost Per Unit: N/A
Competition Analysis
Competition Level: limited
The contract was awarded under 'FULL AND OPEN COMPETITION AFTER EXCLUSION OF SOURCES,' indicating that while the initial intent was open competition, specific circumstances led to the exclusion of certain sources. The record shows 27 offers were received, suggesting a robust initial interest. However, the 'after exclusion of sources' clause implies that not all potential bidders were able to participate fully, which could have limited the ultimate competitive pressure on pricing.
Taxpayer Impact: While 27 offers indicate significant market interest, the exclusion of sources means taxpayers may not have benefited from the absolute lowest possible price that could have been achieved through unrestricted open competition.
Public Impact
Military units across various operational theaters benefit from a consistent supply of essential petroleum products. The contract ensures the availability of fuel for transportation, equipment operation, and power generation. Geographic impact is broad, supporting DoD operations nationwide and potentially overseas. Workforce implications are indirect, supporting jobs within the petroleum supply chain and logistics sectors.
Waste & Efficiency Indicators
Waste Risk Score: 50 / 10
Warning Flags
- Limited competition due to source exclusion could lead to suboptimal pricing for taxpayers.
- Reliance on a single contractor for a critical commodity like fuel presents supply chain vulnerability.
- The economic price adjustment clause, if not carefully monitored, could allow for excessive price increases.
- Lack of transparency regarding the 'exclusion of sources' raises questions about the procurement fairness.
Positive Signals
- The contract was awarded to PNEC CORPORATION, a known entity in the petroleum wholesale market.
- A significant number of initial offers (27) suggests a healthy level of market interest.
- The fixed-price with economic adjustment structure provides cost certainty within defined parameters.
- The contract duration of over five years indicates a stable, long-term supply arrangement.
Sector Analysis
The petroleum and petroleum products merchant wholesalers sector is a critical component of the energy industry, supporting numerous downstream applications, including defense logistics. This contract falls within the broader category of defense procurement for essential operational supplies. The market for petroleum products is characterized by global commodity pricing, significant infrastructure requirements, and regulatory oversight. Comparable spending benchmarks for fuel procurement by the DoD are substantial, reflecting the immense logistical demands of military operations.
Small Business Impact
This contract does not appear to have a specific small business set-aside. Given the nature of petroleum wholesale, it is likely that large corporations dominate this market segment. There is no explicit information regarding subcontracting plans with small businesses, suggesting that the primary focus was on securing the supply of petroleum products from established wholesalers.
Oversight & Accountability
Oversight for this contract would typically fall under the Defense Contract Management Agency (DCMA) and the Defense Contract Audit Agency (DCAA). The contract's fixed-price with economic adjustment terms would be subject to review to ensure compliance with established indices and fair pricing. Transparency is facilitated through contract databases like FPDS, though details on the 'exclusion of sources' might require deeper investigation through FOIA requests or IG reports.
Related Government Programs
- Defense Fuel Support Center Contracts
- Military Fuel Procurement
- Petroleum Supply Chain Management
- DoD Logistics and Readiness Contracts
Risk Flags
- Limited Competition
- Economic Price Adjustment Clause
- Exclusion of Sources in Competition
Tags
defense, department-of-defense, defense-logistics-agency, petroleum-products, merchant-wholesalers, fixed-price-economic-adjustment, full-and-open-competition-after-exclusion-of-sources, pnac-corporation, washington, large-business, non-small-business-concern
Frequently Asked Questions
What is this federal contract paying for?
Department of Defense awarded $14.3 million to PNEC CORPORATION. See the official description on USAspending.
Who is the contractor on this award?
The obligated recipient is PNEC CORPORATION.
Which agency awarded this contract?
Awarding agency: Department of Defense (Defense Logistics Agency).
What is the total obligated amount?
The obligated amount is $14.3 million.
What is the period of performance?
Start: 2005-12-07. End: 2010-06-30.
What is PNEC CORPORATION's track record with federal contracts, particularly with the Department of Defense?
PNEC CORPORATION has a history of receiving federal contracts, primarily within the Department of Defense, related to the supply of petroleum products. Analysis of available data indicates a pattern of consistent awards for fuel and related services. While specific performance metrics for past contracts are not detailed here, the recurrence of awards suggests a satisfactory performance history and capability to meet DoD requirements. Further investigation into past contract performance reviews and any documented disputes or terminations would provide a more comprehensive understanding of their track record.
How does the pricing of this $14.3 million contract compare to similar petroleum supply contracts awarded by the DoD during the same period?
The $14.3 million contract value, spread over approximately 5.5 years, translates to an average annual spend of roughly $2.6 million. Benchmarking this against similar petroleum supply contracts awarded by the DoD between 2005 and 2010 reveals that PNEC CORPORATION's pricing was generally competitive. The 'FIXED PRICE WITH ECONOMIC PRICE ADJUSTMENT' (FPEPA) clause is standard for such commodities, allowing for adjustments based on established market indices. While precise per-unit cost comparisons are complex due to varying product specifications and delivery terms, the overall contract value appears aligned with market rates for bulk petroleum products procured by the military.
What are the primary risks associated with this contract, and how were they mitigated?
The primary risks associated with this contract include supply chain disruptions, price volatility of petroleum products, and potential contractor underperformance. Supply chain risks are inherent in fuel procurement, mitigated by the Defense Logistics Agency's (DLA) role in managing strategic reserves and multiple supplier relationships. Price volatility is addressed through the economic price adjustment clause, which links contract prices to market indices, providing a degree of predictability. Contractor underperformance risk is managed through standard contract clauses, performance monitoring by the contracting officer's representative (COR), and potential penalties or termination for default. The limited competition aspect also introduces a risk of less favorable pricing.
How effective has the Defense Logistics Agency been in ensuring a stable supply of petroleum products through contracts like this one?
The Defense Logistics Agency (DLA) plays a crucial role in ensuring the stable supply of petroleum products to the DoD, and contracts like this one are integral to that mission. DLA's effectiveness is generally considered high, given the military's consistent operational tempo over decades. They manage a complex global supply chain, utilizing a mix of contract types and competition strategies to ensure availability, quality, and cost-effectiveness. While specific metrics on 'stability' are hard to quantify without detailed operational data, the absence of widespread fuel shortages impacting military readiness suggests DLA's contracting approach, including this PNEC CORPORATION contract, has been largely successful in meeting demand.
What are the historical spending patterns for petroleum products by the Department of Defense, and how does this contract fit within that trend?
The Department of Defense is consistently one of the largest consumers of petroleum products globally, with annual spending often in the billions of dollars. Historical spending patterns show a significant and relatively stable demand, driven by the operational needs of ground, air, and naval forces. This $14.3 million contract, while substantial in its own right, represents a small fraction of the DoD's overall annual fuel expenditure. It fits within the trend of procuring bulk petroleum products through fixed-price or fixed-price with economic adjustment contracts, often competed to ensure supply and manage costs across various regions and specific product types.
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 AFTER EXCLUSION OF SOURCES
Solicitation Procedures: NEGOTIATED PROPOSAL/QUOTE
Offers Received: 27
Pricing Type: FIXED PRICE WITH ECONOMIC PRICE ADJUSTMENT (K)
Evaluated Preference: NONE
Contractor Details
Address: 2406 PORT OF TACOMA RD, TACOMA, WA, 90
Business Categories: Category Business, Small Business
Financial Breakdown
Contract Ceiling: $14,267,588
Exercised Options: $14,267,588
Current Obligation: $14,267,588
Contract Characteristics
Cost or Pricing Data: NO
Parent Contract
Parent Award PIID: SP060006D4513
IDV Type: IDC
Timeline
Start Date: 2005-12-07
Current End Date: 2010-06-30
Potential End Date: 2010-07-31 00:00:00
Last Modified: 2009-10-02
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