DoD's $37.4M natural gas contract awarded to Texican Natural Gas Company shows fair value with 37 bids

Contract Overview

Contract Amount: $37,441,385 ($37.4M)

Contractor: Texican Natural GAS Company

Awarding Agency: Department of Defense

Start Date: 2008-10-01

End Date: 2010-09-30

Contract Duration: 729 days

Daily Burn Rate: $51.4K/day

Competition Type: FULL AND OPEN COMPETITION

Number of Offers Received: 37

Pricing Type: FIXED PRICE WITH ECONOMIC PRICE ADJUSTMENT

Sector: Energy

Official Description: DIRECT SUPPLY NATURAL GAS

Place of Performance

Location: HOUSTON, HARRIS County, TEXAS, 77002

State: Texas Government Spending

Plain-Language Summary

Department of Defense obligated $37.4 million to TEXICAN NATURAL GAS COMPANY for work described as: DIRECT SUPPLY NATURAL GAS Key points: 1. The contract's fixed-price with economic price adjustment structure offers some cost certainty while allowing for market fluctuations. 2. With 37 bids received, the competition level suggests a robust market for natural gas supply to the Defense Logistics Agency. 3. The contract duration of 729 days (2 years) provides a stable supply chain for the specified period. 4. The award to Texican Natural Gas Company indicates their competitiveness within the sector. 5. The contract's value, while significant, needs to be benchmarked against similar energy procurements for a full value assessment.

Value Assessment

Rating: good

The contract value of $37.4 million over approximately two years appears reasonable given the nature of natural gas supply. While specific per-unit cost data is not provided, the presence of 37 bids suggests competitive pricing was achieved. Benchmarking against other similar fixed-price with economic price adjustment contracts for natural gas by the Defense Logistics Agency or other federal entities would provide a more precise value-for-money assessment. However, the competitive bidding process is a strong indicator of fair pricing.

Cost Per Unit: N/A

Competition Analysis

Competition Level: full-and-open

The contract was awarded under 'full and open competition,' indicating that all responsible sources were permitted to submit bids. The high number of 37 bids received is a positive sign of a healthy and competitive market for natural gas supply. This level of competition generally leads to better price discovery and ensures that the government is receiving services at a competitive market rate.

Taxpayer Impact: A high number of bidders means taxpayers benefit from potentially lower prices due to market forces driving down costs. It also reduces the risk of overpayment and ensures a wider pool of qualified contractors is considered.

Public Impact

This contract directly benefits the Department of Defense by ensuring a reliable supply of natural gas for its operations. The services delivered are critical for maintaining energy infrastructure and operational readiness. The geographic impact is primarily within Texas, where the contractor is based and likely where the natural gas is sourced. Workforce implications may include employment opportunities within the natural gas extraction and distribution sectors in Texas.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Potential for price volatility due to the economic price adjustment clause, which could impact long-term budget predictability if not managed carefully.
Dependence on a single supplier, even with competitive bidding, can pose risks if supply chain disruptions occur.

Positive Signals

Awarded under full and open competition, indicating a robust market and competitive pricing.
The fixed-price component provides a baseline cost certainty.
The contract duration of two years offers stability in supply and planning.

Sector Analysis

The energy sector, specifically natural gas supply, is a critical component of federal procurement, supporting a wide range of agency operations. The market for natural gas is influenced by global commodity prices, domestic production levels, and regulatory environments. This contract fits within the broader category of energy procurement, which represents a significant portion of federal spending. Comparable spending benchmarks would involve analyzing other federal contracts for natural gas supply, particularly those awarded by agencies with large operational footprints like the Department of Defense.

Small Business Impact

There is no indication that this contract included a small business set-aside. The large value and nature of the procurement suggest it was likely awarded to a larger entity. Subcontracting opportunities for small businesses are not explicitly detailed but could exist within the supply chain for natural gas extraction, transportation, or related services. The impact on the small business ecosystem would depend on whether Texican Natural Gas Company actively engages small businesses as subcontractors.

Oversight & Accountability

Oversight for this contract would primarily fall under the Defense Logistics Agency (DLA) and the Department of Defense. Accountability measures are typically embedded in the contract terms, including performance standards and payment schedules. Transparency is facilitated through contract award databases like FPDS. Inspector General jurisdiction would apply in cases of suspected fraud, waste, or abuse related to the contract.

Related Government Programs

Defense Logistics Agency Energy Contracts
Department of Defense Fuel and Energy Procurement
Federal Natural Gas Supply Contracts
Crude Petroleum and Natural Gas Extraction Services

Risk Flags

Economic Price Adjustment Clause: Potential for cost escalation.
Contract Duration: Two-year term may not align with long-term energy strategy needs.

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $37.4 million to TEXICAN NATURAL GAS COMPANY. DIRECT SUPPLY NATURAL GAS

Who is the contractor on this award?

The obligated recipient is TEXICAN NATURAL GAS COMPANY.

Which agency awarded this contract?

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

What is the total obligated amount?

The obligated amount is $37.4 million.

What is the period of performance?

Start: 2008-10-01. End: 2010-09-30.

What is the historical spending pattern for natural gas by the Defense Logistics Agency?

Historical spending data for natural gas by the Defense Logistics Agency (DLA) reveals a consistent need for this commodity to support military operations and installations. DLA procures vast quantities of energy products, including natural gas, through various contract vehicles. Analyzing past awards indicates fluctuating annual expenditures, heavily influenced by market prices and the specific needs of different military branches and bases. For instance, during periods of high energy demand or significant price spikes in the natural gas market, DLA's spending would naturally increase. Conversely, periods of lower demand or stable pricing would see reduced expenditures. The agency often utilizes long-term contracts, similar to the one awarded to Texican Natural Gas Company, to ensure supply stability and leverage competitive bidding over extended periods. Understanding these historical patterns is crucial for forecasting future budgetary needs and assessing the value of current contracts against past performance.

How does the awarded price compare to market rates for natural gas during the contract period?

Direct comparison of the awarded price to prevailing market rates for natural gas during the contract period (October 1, 2008 - September 30, 2010) is challenging without specific per-unit pricing data from the contract. However, the contract's structure, 'FIXED PRICE WITH ECONOMIC PRICE ADJUSTMENT' (FP-EPA), suggests an attempt to balance cost certainty with market realities. The 'economic price adjustment' clause allows for modifications to the fixed price based on an agreed-upon index, typically reflecting fluctuations in the cost of raw materials or labor. This implies that the base fixed price was likely negotiated with an expectation of market movement. Given that the contract was awarded under 'full and open competition' with 37 bids, it strongly suggests that the negotiated price, including its adjustment mechanism, was competitive at the time of award. A thorough analysis would require accessing the specific economic price adjustment formula and comparing it against historical natural gas indices (e.g., Henry Hub) during the contract's term.

What is Texican Natural Gas Company's track record with federal contracts?

Texican Natural Gas Company's track record with federal contracts, based on the provided data, includes this specific award from the Defense Logistics Agency (DLA) valued at approximately $37.4 million. Further investigation into federal procurement databases would be necessary to ascertain the full extent of their federal contracting history. This would include examining the number of contracts awarded, their values, the agencies involved, and performance ratings, if available. A positive performance history with previous federal contracts, especially with agencies like DLA that have stringent requirements, would indicate reliability and capability. Conversely, any past performance issues, contract disputes, or terminations would raise concerns. Without more comprehensive data, it's difficult to definitively assess their overall track record, but this significant DLA award suggests they are capable of handling large federal energy procurements.

What are the potential risks associated with this type of fixed-price with economic price adjustment contract?

Fixed-price with economic price adjustment (FP-EPA) contracts, while offering some benefits, carry inherent risks. For the government, the primary risk is potential cost escalation beyond initial budget projections if market prices for natural gas rise significantly, even with the adjustment clause. The complexity of the adjustment formula can also lead to disputes or require careful monitoring to ensure fairness. For the contractor, the risk lies in the possibility of market prices falling below the adjusted price, leading to reduced profit margins or even losses, although the fixed-price component offers some protection. Additionally, the administrative burden of tracking and applying the economic price adjustments can be substantial for both parties. Ensuring the chosen index accurately reflects market conditions and that the adjustment formula is transparent and equitable is crucial to mitigating these risks.

How does the number of bidders impact the value for taxpayers?

The number of bidders is a critical factor in determining the value for taxpayers in federal procurements. In this case, 37 bids were received for the natural gas supply contract. A high number of bidders, as seen here, typically indicates a competitive market where multiple companies are vying for the government's business. This intense competition generally drives down prices as contractors seek to offer the most attractive terms to win the contract. For taxpayers, this translates into potentially lower costs for the goods or services procured. Furthermore, a competitive bidding process reduces the risk of collusion among contractors and ensures that the government is not overpaying due to a lack of alternatives. Therefore, the 37 bids received for this contract are a strong positive signal for taxpayer value, suggesting that the price achieved is likely close to the market-clearing rate.

Industry Classification

NAICS: Mining, Quarrying, and Oil and Gas Extraction › Oil and Gas Extraction › Crude Petroleum and Natural Gas Extraction

Product/Service Code: CHEMICALS AND CHEMICAL PRODUCTS

Competition & Pricing

Extent Competed: FULL AND OPEN COMPETITION

Solicitation Procedures: NEGOTIATED PROPOSAL/QUOTE

Solicitation ID: SP060008R0401

Offers Received: 37

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

Evaluated Preference: NONE

Contractor Details

Address: 1 ALLEN CTR STE 1150, HOUSTON, TX, 90

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

Financial Breakdown

Contract Ceiling: $41,457,902

Exercised Options: $41,457,902

Current Obligation: $37,441,385

Contract Characteristics

Multi-Year Contract: Yes

Cost or Pricing Data: NO

Parent Contract

Parent Award PIID: SP060008D7511

IDV Type: IDC

Timeline