DoD spent $494.5M on turbine fuel (JP8) via fixed-price contract with price adjustment

Contract Overview

Contract Amount: $494,507,610 ($494.5M)

Contractor: Equilon Enterprises LLC

Awarding Agency: Department of Defense

Start Date: 2009-03-24

End Date: 2010-05-25

Contract Duration: 427 days

Daily Burn Rate: $1.2M/day

Competition Type: FULL AND OPEN COMPETITION

Number of Offers Received: 26

Pricing Type: FIXED PRICE WITH ECONOMIC PRICE ADJUSTMENT

Sector: Energy

Official Description: TURBINE FUEL, JP8

Place of Performance

Location: SARALAND, MOBILE County, ALABAMA, 36571

State: Alabama Government Spending

Plain-Language Summary

Department of Defense obligated $494.5 million to EQUILON ENTERPRISES LLC for work described as: TURBINE FUEL, JP8 Key points: 1. Contract awarded through full and open competition, suggesting a competitive market for fuel supply. 2. The fixed-price with economic price adjustment (EPA) structure aims to mitigate fuel price volatility. 3. Awarded to Equilon Enterprises LLC, indicating a significant market share for this supplier. 4. The contract duration of 427 days (approx. 1.17 years) suggests a medium-term supply need. 5. The contract's value of $494.5M positions it as a substantial procurement within its category. 6. The North American Industry Classification System (NAICS) code 324110 points to petroleum refineries as the primary industry.

Value Assessment

Rating: fair

Benchmarking the value of this contract is challenging without specific unit price data and market comparisons for JP8 fuel during the 2009-2010 period. However, the substantial dollar amount suggests a significant volume of fuel procured. The fixed-price with EPA structure is a common mechanism to manage price fluctuations in volatile commodity markets, but it can also lead to higher overall costs if prices rise significantly. Further analysis would require comparing the actual price paid per gallon against prevailing market rates and similar government contracts awarded around the same time.

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. The presence of 26 bids suggests a robust competitive environment for this fuel supply requirement. A high number of bidders generally leads to better price discovery and potentially lower prices for the government, as suppliers vie for the contract. This level of competition is a positive indicator for achieving value for taxpayer money.

Taxpayer Impact: The extensive competition for this fuel contract likely resulted in more favorable pricing for the Department of Defense compared to a sole-source or limited competition scenario. Taxpayers benefit from the cost savings achieved through this competitive bidding process.

Public Impact

The Department of Defense is the primary beneficiary, ensuring a consistent supply of JP8 turbine fuel for its operations. This contract supports military readiness by providing essential fuel for aircraft and other turbine-powered equipment. The geographic impact is primarily within Alabama (SN: ALABAMA), where the contract was administered or fulfilled. The contract likely has implications for the petroleum refining and distribution workforce involved in supplying the fuel.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Potential for cost overruns due to the economic price adjustment clause if fuel prices increase substantially.
Reliance on a single contractor (Equilon Enterprises LLC) for a large volume of a critical commodity.
Limited transparency on the specific unit pricing mechanisms within the EPA, making direct cost comparisons difficult.

Positive Signals

Awarded through full and open competition with a significant number of bidders (26), indicating a healthy market.
The fixed-price with EPA structure is designed to manage price volatility, offering some cost predictability.
The contract specifies a clear product (JP8 turbine fuel), reducing ambiguity in delivery.

Sector Analysis

This contract falls within the petroleum refining sector (NAICS 324110), a critical component of the energy industry. The market for aviation and turbine fuels is often characterized by large, established players and significant infrastructure requirements. Government procurements of this nature represent a substantial portion of demand, influencing market dynamics. Comparable spending benchmarks would involve analyzing other large-volume fuel contracts awarded by the DoD or other federal agencies for similar types of fuel and operational contexts.

Small Business Impact

The data indicates that this contract was not set aside for small businesses (SB: false). There is no explicit information regarding subcontracting plans for small businesses. Given the scale and nature of fuel supply contracts, it is common for large prime contractors to utilize a network of suppliers and distributors, which may include small businesses. However, without specific subcontracting data, the direct impact on the small business ecosystem remains unclear.

Oversight & Accountability

Oversight for this contract would typically fall under the Defense Logistics Agency (DLA), which is responsible for procuring and managing fuel for the DoD. Accountability measures would include performance monitoring, adherence to delivery schedules, and compliance with contract terms, including the economic price adjustment provisions. Transparency is generally maintained through contract award databases, though detailed pricing breakdowns might be limited. Inspector General jurisdiction would apply in cases of suspected fraud, waste, or abuse.

Related Government Programs

Defense Fuel Supply Center Contracts
JP8 Fuel Procurements
Aviation Turbine Fuel Contracts
DoD Energy Procurement
Petroleum Product Supply Contracts

Risk Flags

Price Volatility Risk
Supply Chain Disruption Risk
Contract Performance Risk

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $494.5 million to EQUILON ENTERPRISES LLC. TURBINE FUEL, 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 $494.5 million.

What is the period of performance?

Start: 2009-03-24. End: 2010-05-25.

What was the historical spending pattern for JP8 fuel by the Defense Logistics Agency prior to this contract?

Analyzing historical spending patterns for JP8 fuel by the Defense Logistics Agency (DLA) prior to March 2009 would provide crucial context for this $494.5 million award. Without specific historical data, it's difficult to ascertain if this contract represented an increase, decrease, or stable level of spending. Typically, DLA manages vast quantities of fuel, and spending fluctuates based on geopolitical events, operational tempo, and global fuel market prices. A review of DLA's annual reports or budget justifications from preceding years could reveal trends in fuel procurement volumes and associated costs. Understanding past spending would help identify if this contract was part of a long-term strategy or a response to specific short-term needs, and whether the pricing structure was consistent with previous agreements.

How did the economic price adjustment (EPA) clause impact the final cost of the fuel compared to a fixed-price contract without adjustment?

The economic price adjustment (EPA) clause in this contract allowed for modifications to the price based on fluctuations in specified market indices for petroleum products. This structure was likely implemented to protect both the government and the contractor from extreme price volatility in the oil market between March 2009 and May 2010. If fuel prices increased significantly during this period, the EPA would have resulted in a higher final cost for the government compared to a scenario where the price was fixed at the initial award amount. Conversely, if prices decreased, the EPA might have led to a lower cost. Without access to the specific indices used and the price adjustments made, it's impossible to quantify the exact impact. However, the intent of EPA is to reflect market realities, potentially leading to a more stable supply chain, albeit at a potentially higher total expenditure if market prices trend upwards.

What is the typical profit margin for suppliers like Equilon Enterprises LLC on large government fuel contracts?

Determining the typical profit margin for suppliers like Equilon Enterprises LLC on large government fuel contracts is complex, as profit margins are influenced by numerous factors including market competition, contract type, operational efficiencies, and the specific terms of the economic price adjustment (EPA). Government contracts, especially those awarded under full and open competition, often aim to secure competitive pricing, which can compress profit margins. While the EPA clause helps manage price volatility, it doesn't necessarily guarantee higher profits; it primarily ensures cost recovery and a reasonable return. Industry-standard profit margins in the petroleum sector can vary widely. For large-scale commodity procurements, margins might be relatively slim, often in the single digits, with the primary goal being volume and consistent business. However, specific contractual terms, risk allocation, and the contractor's cost structure play a significant role in the actual profitability.

What were the primary operational uses of JP8 fuel procured under this contract by the Department of Defense?

JP8 fuel is a specialized kerosene-based fuel primarily used in military aviation, particularly for jet aircraft engines. It is also utilized in ground-based diesel engines, heaters, and generators within military operations. Given this contract's award to the Department of Defense (DoD) through the Defense Logistics Agency (DLA), the JP8 procured likely supported a range of critical functions. This would include powering tactical aircraft, helicopters, and potentially auxiliary power units on various military platforms. Furthermore, it could have been used for ground support equipment, ensuring the operational readiness of bases and deployed forces. The substantial volume ($494.5 million) suggests widespread use across multiple branches of the military and diverse operational theaters, underscoring its importance as a strategic energy resource for national defense.

How does the NAICS code 324110 (Petroleum Refineries) align with the supplier Equilon Enterprises LLC and the product JP8?

The North American Industry Classification System (NAICS) code 324110, 'Petroleum Refineries,' accurately categorizes the primary business activity of companies involved in processing crude oil into finished petroleum products. Equilon Enterprises LLC, as a supplier of JP8 fuel, is directly aligned with this classification. JP8 is a refined petroleum product, a type of kerosene specifically formulated for military use. Petroleum refineries are responsible for the complex processes that transform crude oil into various fuels, including gasoline, diesel, and aviation fuels like JP8. Therefore, a company operating refineries would be a logical source for such a product. The award to Equilon Enterprises LLC under this NAICS code signifies that the government procured JP8 from a primary producer or a major distributor with direct ties to refining operations, ensuring a reliable and large-scale supply.

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: SP060009R0061

Offers Received: 26

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: $494,507,610

Exercised Options: $494,507,610

Current Obligation: $494,507,610

Contract Characteristics

Cost or Pricing Data: NO

Parent Contract

Parent Award PIID: SP060009D0470

IDV Type: IDC

Timeline