DoD spent $967M on aviation turbine fuel, with Equilon Enterprises LLC as the primary contractor

Contract Overview

Contract Amount: $966,960,726 ($967.0M)

Contractor: Equilon Enterprises LLC

Awarding Agency: Department of Defense

Start Date: 2007-03-21

End Date: 2008-04-30

Contract Duration: 406 days

Daily Burn Rate: $2.4M/day

Competition Type: FULL AND OPEN COMPETITION

Number of Offers Received: 21

Pricing Type: FIXED PRICE WITH ECONOMIC PRICE ADJUSTMENT

Sector: Energy

Official Description: TURBINE FUEL, AVIATION (JP8) & TURBINE FUEL, AVIATION (JP5)

Place of Performance

Location: DEER PARK, HARRIS County, TEXAS, 77536

State: Texas Government Spending

Plain-Language Summary

Department of Defense obligated $967.0 million to EQUILON ENTERPRISES LLC for work described as: TURBINE FUEL, AVIATION (JP8) & TURBINE FUEL, AVIATION (JP5) Key points: 1. The contract represents a significant expenditure for aviation fuel, highlighting the DoD's reliance on these critical resources. 2. Aviation turbine fuel is essential for military operations, underscoring the strategic importance of this procurement. 3. The fixed-price contract with economic price adjustment suggests an attempt to manage cost volatility in fuel markets. 4. The large number of bids indicates a competitive market for aviation fuel supply. 5. The contract duration of 406 days suggests a need for consistent and reliable fuel delivery. 6. The geographic location of the contractor in Texas may influence logistical considerations for fuel distribution.

Value Assessment

Rating: good

The total award amount of $966.96 million for aviation turbine fuel over approximately 13 months is substantial. Benchmarking this against similar large-scale fuel procurements by the DoD would provide a clearer picture of value for money. The fixed-price with economic price adjustment (FPEPA) contract type aims to balance cost certainty for the government with protection against market fluctuations for the contractor, which is a common approach for volatile commodities like fuel. Without specific unit cost data or comparison to market indices at the time of award, a precise value assessment is challenging, but the scale suggests significant volume purchasing.

Cost Per Unit: N/A

Competition Analysis

Competition Level: full-and-open

The contract was awarded under full and open competition, with 21 bids received. This high level of competition is a positive indicator, suggesting that the market has multiple capable suppliers for aviation turbine fuel. A robust bidding process generally leads to more competitive pricing and better terms for the government, as contractors vie for the award. The significant number of bidders implies that the requirements were well-defined and accessible to a broad range of potential suppliers.

Taxpayer Impact: The extensive competition for this large fuel contract likely resulted in more favorable pricing for taxpayers compared to a sole-source or limited competition scenario. It ensures that the government is not overpaying due to a lack of market alternatives.

Public Impact

Military aviation units across various branches of the Department of Defense benefit from a consistent and reliable supply of JP8 and JP5 fuel. The services delivered are critical for maintaining operational readiness and supporting global military deployments. The geographic impact is likely widespread, supporting air bases and operations within the United States and potentially overseas, depending on delivery points. The contract supports the energy sector, specifically petroleum refining and distribution, contributing to jobs and economic activity within that industry.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Potential for price volatility due to the economic price adjustment clause, which could increase costs if fuel prices surge.
Dependence on a single primary contractor (Equilon Enterprises LLC) for a large volume of critical fuel could pose supply chain risks if the contractor faces disruptions.
Logistical challenges in ensuring timely and efficient delivery of fuel to diverse military installations.

Positive Signals

Awarded under full and open competition, indicating a healthy and competitive market for aviation fuel.
The large number of bidders (21) suggests strong market interest and potential for competitive pricing.
The contract type (FPEPA) attempts to mitigate risks associated with fuel price fluctuations for both the government and the contractor.

Sector Analysis

This contract falls within the broader energy sector, specifically the refining and distribution of petroleum products. The market for aviation fuels like JP8 and JP5 is specialized, serving military and commercial aviation needs. The DoD is a major consumer of such fuels, and its procurement activities significantly influence market dynamics. Comparable spending benchmarks would involve analyzing other large government fuel contracts or major commercial airline fuel purchasing agreements to gauge the scale and pricing efficiency.

Small Business Impact

The data indicates that this contract was not specifically set aside for small businesses, nor does it explicitly mention subcontracting goals for small businesses. Equilon Enterprises LLC is a large entity. Therefore, the direct impact on the small business ecosystem through this specific contract appears limited, although downstream effects in fuel distribution or related services might involve smaller firms.

Oversight & Accountability

Oversight for this contract would typically be managed by the Defense Contract Management Agency (DCMA) and the Defense Contract Audit Agency (DCAA), ensuring compliance with contract terms, pricing, and delivery schedules. The contract's fixed-price nature with economic price adjustment requires careful monitoring of fuel price indices to ensure fair adjustments. Transparency is facilitated through contract databases like FPDS, though detailed performance metrics may not always be publicly available.

Related Government Programs

DoD Fuel Procurement
Aviation Fuel Contracts
Petroleum Product Supply
Defense Logistics Agency Contracts
Energy Commodity Procurement

Risk Flags

Potential for price volatility
Supply chain dependency
Logistical complexity

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $967.0 million to EQUILON ENTERPRISES LLC. TURBINE FUEL, AVIATION (JP8) & TURBINE FUEL, AVIATION (JP5)

Who is the contractor on this award?

The obligated recipient is EQUILON ENTERPRISES LLC.

Which agency awarded this contract?

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

What is the total obligated amount?

The obligated amount is $967.0 million.

What is the period of performance?

Start: 2007-03-21. End: 2008-04-30.

What was the historical spending pattern for aviation turbine fuel by the Defense Logistics Agency prior to this contract?

Analyzing historical spending patterns for aviation turbine fuel by the Defense Logistics Agency (DLA) prior to this $967 million contract would reveal trends in demand, pricing, and contractor reliance. Without specific historical data, it's difficult to provide exact figures. However, the DLA is the primary agency responsible for procuring and supplying fuel to the DoD. Consistent demand for JP8 and JP5 is expected due to ongoing military aviation operations. Significant fluctuations in spending could be attributed to changes in operational tempo, geopolitical events, global oil prices, and shifts in contracting strategies (e.g., moving towards or away from full and open competition, or changes in contract types). Understanding past spending helps contextualize the scale of this award and identify potential efficiencies or cost drivers over time.

How did the economic price adjustment (EPA) clause impact the final cost of the fuel compared to a fixed-price contract?

The economic price adjustment (EPA) clause in this contract allowed for modifications to the base price based on fluctuations in specified economic factors, typically related to the cost of raw materials or market indices for petroleum products. If fuel prices increased significantly during the contract period (March 2007 - April 2008), the EPA would have likely resulted in a higher final cost for the government than a strict fixed-price contract. Conversely, if prices decreased, the EPA could have led to a lower cost. The period of performance (roughly 13 months) coincided with volatile global oil prices, suggesting the EPA likely played a role in adjusting the contract's total value. Without access to the specific indices used and the price adjustments made, quantifying the exact impact is not possible, but it aimed to share the risk of price volatility.

What is the typical profit margin for contractors supplying aviation turbine fuel to the DoD?

Determining the precise profit margin for contractors like Equilon Enterprises LLC on this specific $967 million aviation turbine fuel contract is challenging without detailed cost and pricing data, which is often proprietary. However, the fuel supply industry, particularly for large government contracts, typically operates on relatively slim margins due to the commodity nature of the product and intense competition. Profitability is often driven by volume, efficiency in logistics, and the ability to manage supply chain risks effectively. The fixed-price with economic price adjustment (FPEPA) contract type aims to provide a reasonable return while protecting against extreme market swings. Industry benchmarks for fuel distribution and refining suggest profit margins can range from low single digits to potentially higher single digits, depending on the specific services, risks undertaken, and market conditions at the time of award.

What are the key performance indicators (KPIs) used to evaluate the performance of Equilon Enterprises LLC under this contract?

Key performance indicators (KPIs) for a contract supplying aviation turbine fuel typically focus on reliability, timeliness, quality, and cost control. For Equilon Enterprises LLC, critical KPIs would likely include on-time delivery rates to specified military installations, adherence to fuel quality standards (e.g., meeting military specifications for JP8 and JP5), accuracy of invoicing and reporting, and responsiveness to urgent delivery requests. The contract's success would also be measured by the contractor's ability to manage the supply chain effectively and maintain fuel availability, minimizing disruptions to military flight operations. Performance would be monitored by the Defense Contract Management Agency (DCMA), potentially through regular reports, site visits, and feedback from the end-users (military aviation commands).

How does the geographic location of the contractor (Texas) influence the logistics and cost of fuel delivery for the DoD?

The contractor's location in Texas is significant for the logistics and cost of delivering aviation turbine fuel to the Department of Defense. Texas is a major hub for the petroleum industry, with extensive refining capacity and pipeline infrastructure. This proximity likely facilitates sourcing and initial processing of the fuel. However, the DoD's needs are geographically dispersed. If deliveries are required to bases far from Texas, transportation costs (via pipeline, rail, truck, or ship) become a major factor. The contract's success hinges on Equilon Enterprises LLC's ability to manage these distribution networks efficiently, whether utilizing existing infrastructure or arranging specialized transport. The cost structure would reflect these logistical complexities, potentially favoring deliveries to bases within or near the central US, while requiring higher costs for more distant locations.

Industry Classification

NAICS: Manufacturing › Petroleum and Coal Products Manufacturing › Petroleum Refineries

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

Competition & Pricing

Extent Competed: FULL AND OPEN COMPETITION

Solicitation Procedures: NEGOTIATED PROPOSAL/QUOTE

Solicitation ID: SP060007R0061

Offers Received: 21

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

Evaluated Preference: NONE

Contractor Details

Parent Company: Shell Deutschland Gmbh (UEI: 423792808)

Address: 1100 LOUISIANA ST, HOUSTON, TX, 90

Business Categories: Category Business, Not Designated a Small Business

Financial Breakdown

Contract Ceiling: $966,973,686

Exercised Options: $966,960,726

Current Obligation: $966,960,726

Contract Characteristics

Cost or Pricing Data: NO

Parent Contract

Parent Award PIID: SP060007D0481

IDV Type: IDC

Timeline