DoD spent $16.5M on petroleum products, with State Oil Limited winning a fixed-price contract

Contract Overview

Contract Amount: $16,501,481 ($16.5M)

Contractor: State OIL Limited

Awarding Agency: Department of Defense

Start Date: 2009-06-09

End Date: 2012-07-30

Contract Duration: 1,147 days

Daily Burn Rate: $14.4K/day

Competition Type: FULL AND OPEN COMPETITION

Number of Offers Received: 4

Pricing Type: FIXED PRICE WITH ECONOMIC PRICE ADJUSTMENT

Sector: Other

Official Description: DIESEL FUEL, 10 PPM SULFUR; GASOLINE, PREM. UNL.; SUPER PREM. UNL. GASOLINE; KEROSENE, CLASS C-2

Plain-Language Summary

Department of Defense obligated $16.5 million to STATE OIL LIMITED for work described as: DIESEL FUEL, 10 PPM SULFUR; GASOLINE, PREM. UNL.; SUPER PREM. UNL. GASOLINE; KEROSENE, CLASS C-2 Key points: 1. Contract awarded through full and open competition, suggesting a competitive bidding process. 2. Fixed-price contract with economic price adjustment introduces potential for cost fluctuations. 3. Contract duration of 1147 days indicates a long-term supply need. 4. The North American Industry Classification System (NAICS) code 424720 points to wholesale distribution of petroleum products. 5. The award type 'DO' suggests a priority rating, potentially for national defense needs. 6. No small business set-aside was utilized, indicating the contract was open to all eligible bidders.

Value Assessment

Rating: fair

The total award amount of $16.5 million over approximately three years for petroleum products appears moderate for a Department of Defense contract. Without specific unit pricing or detailed product breakdowns, a direct value-for-money assessment is challenging. However, the fixed-price nature with economic price adjustment suggests an attempt to control base costs while allowing for market volatility. Benchmarking against similar fuel supply contracts would be necessary for a more precise evaluation of cost-effectiveness.

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 bids. The presence of 4 bids indicates a reasonable level of competition for this petroleum supply requirement. A competitive process generally helps in achieving fair market prices and encourages contractors to offer their best terms.

Taxpayer Impact: Full and open competition is beneficial for taxpayers as it typically leads to more competitive pricing and a wider selection of qualified suppliers, ensuring the government receives good value for its expenditure.

Public Impact

The Department of Defense is the primary beneficiary, securing essential fuel supplies. Services delivered include the provision of various grades of diesel fuel, gasoline, and kerosene. The geographic impact is likely widespread, supporting military operations across potentially numerous locations. Workforce implications are indirect, supporting jobs within the petroleum supply chain and logistics sectors.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Economic price adjustment clause could lead to higher-than-anticipated costs if fuel prices surge significantly.
Contract duration of over three years may not fully capture potential market shifts or technological advancements in fuel efficiency.
Reliance on a single awardee for a significant volume of fuel could pose supply chain risks in case of disruptions.

Positive Signals

Awarded through full and open competition, maximizing the potential for competitive pricing.
Fixed-price element provides a baseline cost control measure.
The 'DO' award type suggests a priority for critical national defense needs, ensuring timely delivery.

Sector Analysis

This contract falls within the Petroleum and Petroleum Products Merchant Wholesalers sector, a critical component of the energy industry supporting transportation and operational needs across various sectors, including defense. The market is characterized by global supply and demand dynamics, price volatility, and significant logistical considerations. The Department of Defense is a major consumer of petroleum products, and contracts like this are essential for maintaining operational readiness. Comparable spending benchmarks would involve analyzing other large-scale fuel procurement contracts by government agencies or major commercial fleet operators.

Small Business Impact

The contract was not set aside for small businesses, and there is no indication of subcontracting requirements for small businesses. This suggests that the scale and nature of the petroleum products required were likely better suited to larger suppliers, potentially limiting direct opportunities for small businesses in this specific procurement. However, small businesses may still be involved further down the supply chain.

Oversight & Accountability

Oversight for this contract would typically be managed by the Defense Contract Management Agency (DCMA) and the awarding agency, the Defense Logistics Agency (DLA). Accountability measures are embedded in the contract terms, including delivery schedules and product specifications. Transparency is facilitated through contract award databases. Inspector General jurisdiction would apply in cases of fraud, waste, or abuse.

Related Government Programs

Defense Fuel Supply Center Contracts
Military Fuel Procurement
Petroleum Product Wholesale Distribution
Fixed-Price Contracts with Economic Price Adjustment

Risk Flags

Potential for cost overruns due to economic price adjustment clause.
Long contract duration may not reflect current market conditions.
Dependence on a single supplier could create supply chain vulnerability.

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $16.5 million to STATE OIL LIMITED. DIESEL FUEL, 10 PPM SULFUR; GASOLINE, PREM. UNL.; SUPER PREM. UNL. GASOLINE; KEROSENE, CLASS C-2

Who is the contractor on this award?

The obligated recipient is STATE OIL LIMITED.

Which agency awarded this contract?

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

What is the total obligated amount?

The obligated amount is $16.5 million.

What is the period of performance?

Start: 2009-06-09. End: 2012-07-30.

What was the historical spending pattern for similar petroleum products by the Department of Defense prior to this contract?

Analyzing historical spending patterns for similar petroleum products by the Department of Defense would involve examining contract awards for diesel fuel, gasoline, and kerosene over several fiscal years. This would require accessing databases like FPDS or SAM.gov to identify trends in contract values, quantities procured, and the number of bidders. For instance, if previous contracts for similar volumes were significantly lower in price, it might suggest an increase in market prices or a less competitive bidding environment for this specific award. Conversely, consistent spending levels could indicate stable demand and pricing. Understanding the historical context helps in evaluating whether the $16.5 million award represents a typical expenditure or an outlier, and whether the fixed-price with economic adjustment was a necessary feature due to anticipated market volatility.

How did the unit prices in this contract compare to prevailing market rates for diesel and gasoline at the time of award?

To compare unit prices, one would need to extract the specific quantities of each petroleum product (diesel, gasoline, kerosene) awarded under the contract and divide the total price allocated to each by its quantity. This would yield an average price per unit (e.g., per gallon or liter). These calculated unit prices would then be benchmarked against average market prices for the same period. Market price data can be obtained from industry publications, government energy information agencies (like the EIA), or commodity trading platforms. A significant deviation, either higher or lower, would warrant further investigation. If prices were substantially higher than market rates, it could indicate issues with the competition or the contract's economic price adjustment clause. If lower, it might suggest favorable negotiation or a highly competitive bid.

What is the track record of State Oil Limited in fulfilling government contracts, particularly for fuel supply?

Assessing the track record of State Oil Limited involves reviewing their past performance on federal contracts. This includes examining contract completion rates, any instances of default or termination for cause, and past performance evaluations if available in government databases. Specifically for fuel supply contracts, it's important to look at their ability to meet delivery schedules, product quality specifications, and pricing terms. A history of successful, on-time deliveries and compliance with contract terms would indicate reliability. Conversely, a pattern of late deliveries, quality issues, or disputes could raise concerns about their capacity to fulfill this current $16.5 million award effectively. Information on past performance can often be found in contract award histories and performance review systems.

What are the potential risks associated with the 'Fixed Price with Economic Price Adjustment' (FPEPA) contract type for this petroleum procurement?

The FPEPA contract type introduces specific risks for both the government and the contractor. For the government, the primary risk is that the economic price adjustment (EPA) clause could allow the contractor to increase the price based on fluctuations in the cost of raw materials (like crude oil) or other economic factors. If fuel prices rise significantly during the contract period, the total cost to the government could exceed initial projections, potentially impacting budget predictability. The contractor, conversely, bears the risk of price decreases, although the EPA is designed to mitigate this. Effective oversight is crucial to ensure that any price adjustments are calculated strictly according to the contract's formula and are based on verifiable economic indicators, preventing unwarranted cost increases for the taxpayer.

How does the NAICS code 424720 (Petroleum and Petroleum Products Merchant Wholesalers) align with the Defense Logistics Agency's mission?

The Defense Logistics Agency (DLA) is responsible for providing the joint warfighter with the logistical support necessary to maintain readiness. This includes the procurement and distribution of a wide range of commodities, with fuel being a critical component. The NAICS code 424720, 'Petroleum and Petroleum Products Merchant Wholesalers (except Bulk Stations and Terminals),' directly aligns with the DLA's mission by identifying the type of business entity that supplies these essential products. DLA often contracts with such wholesalers to ensure a steady and reliable supply of various fuels required for military operations, transportation, and readiness across different branches of the armed forces. This classification helps in identifying appropriate sources and understanding the market structure for fuel procurement.

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

Solicitation Procedures: NEGOTIATED PROPOSAL/QUOTE

Offers Received: 4

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

Evaluated Preference: NONE

Contractor Details

Address: PRAX HOUSE, WEYBRIDGE

Business Categories: Category Business, Foreign Owned, Limited Liability Corporation, Not Designated a Small Business, Special Designations

Financial Breakdown

Contract Ceiling: $16,501,481

Exercised Options: $16,501,481

Current Obligation: $16,501,481

Contract Characteristics

Multi-Year Contract: Yes

Cost or Pricing Data: NO

Parent Contract

Parent Award PIID: SP060009D9406

IDV Type: IDC

Timeline