DoD's $883M petroleum contract to Equilon Enterprises LLC awarded under full and open competition

Contract Overview

Contract Amount: $882,846,124 ($882.8M)

Contractor: Equilon Enterprises LLC

Awarding Agency: Department of Defense

Start Date: 2008-03-31

End Date: 2009-04-30

Contract Duration: 395 days

Daily Burn Rate: $2.2M/day

Competition Type: FULL AND OPEN COMPETITION

Number of Offers Received: 23

Pricing Type: FIXED PRICE WITH ECONOMIC PRICE ADJUSTMENT

Sector: Other

Official Description: JP8

Place of Performance

Location: DEER PARK, HARRIS County, TEXAS, 77536

State: Texas Government Spending

Plain-Language Summary

Department of Defense obligated $882.8 million to EQUILON ENTERPRISES LLC for work described as: JP8 Key points: 1. Contract value of $883M represents significant investment in petroleum refining. 2. Awarded under full and open competition, suggesting a robust bidding process. 3. Fixed Price with Economic Price Adjustment (FP-EPA) contract type introduces potential for cost fluctuations. 4. Contract duration of 395 days indicates a medium-term supply need. 5. The Petroleum Refineries NAICS code (324110) highlights the specific industry focus. 6. Awarded by the Defense Logistics Agency, a key procurement arm for the DoD. 7. No small business set-aside indicates the primary award was not targeted for small businesses.

Value Assessment

Rating: fair

The contract value of $882,846,124 is substantial, reflecting the scale of petroleum needs for the Department of Defense. Without specific benchmarks for similar petroleum refining contracts of this size and duration, a precise value-for-money assessment is challenging. The FP-EPA pricing structure introduces a degree of uncertainty regarding the final cost to taxpayers, as it allows for adjustments based on economic factors. Further analysis would require comparison with market prices for refined petroleum products during the contract period and the specific economic adjustment clauses.

Cost Per Unit: N/A

Competition Analysis

Competition Level: full-and-open

This contract was awarded under full and open competition, meaning all responsible sources were permitted to submit a bid. The presence of 23 bids suggests a healthy level of competition for this significant petroleum supply contract. A higher number of bidders generally leads to more competitive pricing and better terms for the government, as contractors vie to win the award. The extensive competition likely contributed to achieving a reasonable price, although the FP-EPA clause necessitates ongoing monitoring.

Taxpayer Impact: The full and open competition process, with 23 bidders, is beneficial for taxpayers as it increases the likelihood of securing the best possible price and terms for essential petroleum products, minimizing potential overspending.

Public Impact

The Department of Defense is the primary beneficiary, ensuring the supply of refined petroleum products for its operations. Services delivered include the provision of refined petroleum, critical for military readiness and logistical support. The geographic impact is likely widespread, supporting military installations and operations across various regions. Workforce implications may include employment within Equilon Enterprises LLC's refining operations and associated logistics.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

The Fixed Price with Economic Price Adjustment (FP-EPA) clause introduces risk of cost escalation due to market volatility in petroleum prices.
Reliance on a single large contractor for a critical commodity like petroleum could pose supply chain risks.
The long-term implications of economic price adjustments on the total contract cost require careful monitoring.

Positive Signals

Awarded through full and open competition with a significant number of bidders (23), indicating a competitive marketplace.
The Defense Logistics Agency's involvement suggests adherence to established procurement processes and oversight.
The contract specifies refined petroleum products, ensuring a defined and critical supply for military needs.

Sector Analysis

The petroleum refining sector is a mature industry characterized by significant capital investment and complex supply chains. This contract falls within the downstream segment of the oil and gas industry, focusing on the processing of crude oil into usable fuels and other products. The market size for refined petroleum products is vast, driven by transportation, industrial, and military demand. Comparable spending benchmarks would typically involve analyzing the average price per barrel of refined products like jet fuel or diesel during the contract period, adjusted for economic factors.

Small Business Impact

This contract was not awarded as a small business set-aside, and there is no indication of specific subcontracting goals for small businesses in the provided data. This suggests that the primary focus was on securing the most competitive offer from large, established entities within the petroleum refining industry. The absence of set-asides means that opportunities for small businesses to directly participate in this specific contract may be limited, though they could potentially engage as suppliers or subcontractors to the prime contractor.

Oversight & Accountability

Oversight for this contract would primarily fall under the purview of the Defense Logistics Agency (DLA), which is responsible for managing and administering DoD contracts. Accountability measures are embedded in the contract terms, including performance standards and payment schedules. Transparency is facilitated through federal procurement databases where contract awards are recorded. Inspector General jurisdiction would apply in cases of suspected fraud, waste, or abuse related to the contract.

Related Government Programs

Defense Logistics Agency Fuel Contracts
Department of Defense Energy Procurement
Petroleum Product Supply Contracts
Fixed Price with Economic Price Adjustment Contracts

Risk Flags

Economic Price Adjustment Clause
Potential for Supply Chain Disruption
Market Concentration Risk

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $882.8 million to EQUILON ENTERPRISES LLC. JP8

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 $882.8 million.

What is the period of performance?

Start: 2008-03-31. End: 2009-04-30.

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

Analyzing historical spending patterns for petroleum refining contracts by the Defense Logistics Agency (DLA) requires access to detailed procurement data over multiple fiscal years. Generally, the DLA manages a significant portfolio of fuel contracts to support military operations globally. Spending in this category can fluctuate based on geopolitical events, global oil prices, and changes in military readiness requirements. Historically, the DLA has awarded large, multi-year contracts for various refined petroleum products, often utilizing competitive bidding processes. The total dollar amount awarded annually can range from billions to tens of billions, depending on market conditions and demand. Understanding specific historical trends for contracts similar to the Equilon Enterprises LLC award would involve examining contract values, durations, and the number of bidders over time to identify patterns in pricing, competition, and contractor performance.

How does the FP-EPA pricing structure compare to other contract types for petroleum procurement?

The Fixed Price with Economic Price Adjustment (FP-EPA) contract type offers a balance between price certainty and flexibility for both the government and the contractor, particularly in volatile markets like petroleum. Unlike a firm fixed-price (FFP) contract, which locks in a price regardless of market fluctuations, FP-EPA allows for price adjustments based on pre-defined economic factors, such as changes in the cost of raw materials or labor. This can protect the contractor from significant losses due to unforeseen market spikes, potentially leading to more competitive initial bids. However, it also introduces risk for the government, as the final cost may exceed the initially estimated price. Compared to cost-plus contracts, FP-EPA offers more price predictability for the government, as the profit margin is typically fixed, and adjustments are tied to specific economic indices rather than actual costs incurred. For petroleum procurement, FP-EPA is often used to mitigate the impact of fluctuating global oil prices on long-term supply contracts.

What are the potential risks associated with a single large award for petroleum refining?

Awarding a substantial petroleum refining contract to a single entity, such as Equilon Enterprises LLC in this case, carries several potential risks. Firstly, there's a risk of supply chain disruption. If the contractor experiences operational issues, such as refinery shutdowns, natural disasters affecting their facilities, or labor disputes, it could significantly impact the availability of critical petroleum products for the Department of Defense. Secondly, over-reliance on one supplier can reduce the government's leverage in future negotiations. If competition diminishes in subsequent contract awards, the government might face higher prices or less favorable terms. Thirdly, market concentration can stifle innovation and efficiency within the broader industry if smaller, potentially more agile competitors are consistently excluded from large-scale awards. Finally, the contractor's financial stability becomes a critical factor; any financial distress on their part could jeopardize contract performance.

How does the Defense Logistics Agency ensure contractor performance on large fuel contracts?

The Defense Logistics Agency (DLA) employs a multi-faceted approach to ensure contractor performance on large fuel contracts. Key mechanisms include stringent performance standards outlined in the contract, such as delivery timelines, product quality specifications, and inventory management requirements. DLA contracting officers and quality assurance representatives actively monitor contractor activities, conduct site visits, and review performance reports. Payment is typically contingent upon satisfactory performance, with provisions for withholding payment or applying penalties for non-compliance. Furthermore, DLA utilizes contractor performance evaluation systems, like the Contractor Performance Assessment Reporting System (CPARS), to document past performance, which influences future award decisions. In cases of significant performance issues, DLA has the authority to issue cure notices, default the contract, or pursue other contractual remedies.

What is the typical profit margin for petroleum refining companies on government contracts?

Determining the typical profit margin for petroleum refining companies on government contracts is complex and not directly derivable from the provided data. Profit margins are influenced by numerous factors, including the specific contract type (e.g., fixed-price vs. cost-plus), the level of competition, the efficiency of the contractor's operations, market conditions, and the specific economic price adjustment clauses in FP-EPA contracts. Government contracts aim for fair and reasonable pricing, which includes an allowable profit. While specific profit percentages are often proprietary or negotiated, they are generally expected to be within a reasonable range, reflecting the risk undertaken by the contractor and the services provided. Analysis of historical contract data and industry benchmarks would be necessary to estimate typical profit margins, but this information is not readily available from the basic award details.

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: SP060008R0061

Offers Received: 23

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

Evaluated Preference: NONE

Contractor Details

Parent Company: Shell Deutschland Gmbh (UEI: 423792808)

Address: 910 LOUISIANA ST, HOUSTON, TX, 90

Business Categories: Category Business, Corporate Entity Not Tax Exempt, Not Designated a Small Business, Special Designations, U.S.-Owned Business

Financial Breakdown

Contract Ceiling: $882,846,124

Exercised Options: $882,846,124

Current Obligation: $882,846,124

Contract Characteristics

Cost or Pricing Data: NO

Parent Contract

Parent Award PIID: SP060008D0470

IDV Type: IDC

Timeline