DoD spent $24M on aviation fuel, with 12 bidders indicating strong competition

Contract Overview

Contract Amount: $23,953,976 ($24.0M)

Contractor: HD Hyundai Oilbank CO., Ltd

Awarding Agency: Department of Defense

Start Date: 2009-11-06

End Date: 2011-01-30

Contract Duration: 450 days

Daily Burn Rate: $53.2K/day

Competition Type: FULL AND OPEN COMPETITION

Number of Offers Received: 12

Pricing Type: FIXED PRICE WITH ECONOMIC PRICE ADJUSTMENT

Sector: Other

Official Description: TURBINE FUEL, AVIATION JP8

Plain-Language Summary

Department of Defense obligated $24.0 million to HD HYUNDAI OILBANK CO., LTD for work described as: TURBINE FUEL, AVIATION JP8 Key points: 1. The contract secured a significant volume of aviation fuel, demonstrating the agency's substantial operational needs. 2. A high number of bidders suggests a competitive market for this type of fuel, potentially driving favorable pricing. 3. The fixed-price contract with economic price adjustment introduces some cost volatility risk, mitigated by the competitive bidding. 4. The contract duration of 450 days provided a stable supply chain for a critical defense commodity. 5. The Defense Logistics Agency's procurement of JP8 fuel highlights its role in supporting aviation readiness across the military. 6. The use of a delivery order under a larger contract structure allows for flexibility in meeting fluctuating demand.

Value Assessment

Rating: good

The total award of $23.95 million for aviation fuel appears reasonable given the quantity and market for such a critical commodity. While specific per-unit cost benchmarks are not provided, the presence of 12 bidders in a full and open competition suggests that pricing was likely competitive. The economic price adjustment clause introduces some variability, but the fixed-price nature of the base contract provides a degree of cost certainty. Compared to other large-scale fuel procurements, this contract's value is within expected ranges for supporting significant military operations.

Cost Per Unit: N/A

Competition Analysis

Competition Level: full-and-open

This contract was awarded under full and open competition, with 12 distinct bidders participating. This high level of competition is a positive indicator, suggesting that the market for aviation fuel is robust and accessible to multiple suppliers. The significant number of bidders likely contributed to price discovery and ensured that the Department of Defense received competitive offers, minimizing the risk of overpayment.

Taxpayer Impact: A robust competition ensures that taxpayer dollars are used efficiently by driving down prices through market forces. The 12 bidders indicate that multiple companies vied for this contract, leading to a more favorable outcome for the government and taxpayers.

Public Impact

The primary beneficiaries are the various branches of the Department of Defense that rely on aviation fuel for their aircraft operations. The contract directly supports the delivery of essential aviation fuel (JP8), ensuring the operational readiness of military aircraft. The geographic impact is likely widespread, supporting military bases and operations both domestically and potentially overseas where aviation assets are deployed. The contract has implications for the energy sector, specifically the refining and distribution of petroleum products, and supports jobs within that industry.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Economic price adjustment clause introduces potential for cost increases beyond initial projections.
Reliance on a single fuel type (JP8) could pose supply chain risks if disruptions occur in its production or distribution.
The fixed-price nature, even with adjustments, may not fully insulate against extreme market volatility.

Positive Signals

Full and open competition with 12 bidders suggests a healthy and responsive market.
The Defense Logistics Agency's established role in fuel procurement indicates expertise in managing such contracts.
The contract duration provided a stable period for fuel supply, supporting consistent operational planning.

Sector Analysis

This contract falls within the broader energy sector, specifically the downstream petroleum refining and distribution market. The market for aviation fuels like JP8 is critical for military and commercial aviation. Spending benchmarks for such fuels can vary significantly based on global oil prices, geopolitical stability, and demand. The Defense Logistics Agency is a major procurer of fuels, often leveraging large-scale contracts to ensure supply chain security and cost-effectiveness for the Department of Defense.

Small Business Impact

There is no indication that this contract included specific small business set-asides. Given the nature of large-scale fuel procurement and the primary contractor, it is unlikely that small businesses were directly awarded the prime contract. However, opportunities may have existed for small businesses to participate as subcontractors in areas such as fuel transportation or logistics, depending on the prime contractor's subcontracting plan.

Oversight & Accountability

The Defense Logistics Agency (DLA) is responsible for the oversight of this contract. As a delivery order under a larger contract, oversight likely involves monitoring delivery schedules, fuel quality, and adherence to contract terms. Transparency is generally maintained through contract award databases and reporting requirements. Inspector General jurisdiction would apply in cases of suspected fraud, waste, or abuse related to the contract.

Related Government Programs

Defense Logistics Agency Fuel Procurement
JP8 Fuel Supply Contracts
Aviation Fuel Contracts
Department of Defense Energy Procurement
Petroleum Product Supply Contracts

Risk Flags

Economic Price Adjustment Clause
Potential for Cost Volatility
Reliance on Global Commodity Markets

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $24.0 million to HD HYUNDAI OILBANK CO., LTD. TURBINE FUEL, AVIATION JP8

Who is the contractor on this award?

The obligated recipient is HD HYUNDAI OILBANK CO., LTD.

Which agency awarded this contract?

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

What is the total obligated amount?

The obligated amount is $24.0 million.

What is the period of performance?

Start: 2009-11-06. End: 2011-01-30.

What was the specific unit price of the JP8 fuel awarded under this contract, and how does it compare to market rates at the time?

The provided data does not include the specific unit price or the total quantity of fuel purchased, only the total award amount of $23,953,976.13. To determine the unit price, the total quantity would be needed. Without this, a direct comparison to market rates at the time (November 2009 - January 2011) is not possible. However, the contract type, 'FIXED PRICE WITH ECONOMIC PRICE ADJUSTMENT,' suggests that the base price was fixed, but subject to adjustments based on fluctuations in the cost of raw materials or other economic factors, typically tied to an index. The presence of 12 bidders in a full and open competition implies that the negotiated price was likely competitive within the prevailing market conditions for aviation fuel during that period.

What is the track record of HD HYUNDAI OILBANK CO., LTD in supplying aviation fuel to the US Department of Defense?

HD HYUNDAI OILBANK CO., LTD, a South Korean company, has a history of supplying petroleum products, including fuels, to various entities. While this specific contract indicates a past award from the Defense Logistics Agency (DLA), a comprehensive analysis of their track record would require examining multiple contracts over time. This would involve looking at the volume and value of fuel supplied, performance history (on-time delivery, quality compliance), and any past performance issues or disputes. The fact that they were awarded this contract under full and open competition suggests they met the necessary qualifications and were competitive. Further investigation into DLA's vendor performance databases or publicly available contract award histories could provide more detailed insights into their reliability and past performance specifically for aviation fuels.

How does the $23.95 million award compare to historical spending on JP8 fuel by the Defense Logistics Agency?

The $23.95 million award represents a specific procurement action for JP8 fuel by the Defense Logistics Agency (DLA) between November 2009 and January 2011. To compare this to historical spending, one would need to analyze DLA's total expenditure on JP8 fuel over several fiscal years. DLA is a major global supplier of fuel to the military, and its annual fuel spending can run into billions of dollars, depending on operational tempo, global market prices, and strategic reserves. This $23.95 million contract is likely one of many individual awards that contribute to DLA's overall fuel budget. Without knowing the total quantity procured under this award and the contract's duration relative to DLA's broader fuel needs, it's difficult to place this single award in the context of total historical spending. However, it signifies a substantial, albeit specific, investment in maintaining aviation fuel supplies.

What are the primary risks associated with a 'FIXED PRICE WITH ECONOMIC PRICE ADJUSTMENT' contract for aviation fuel?

The primary risk associated with a 'FIXED PRICE WITH ECONOMIC PRICE ADJUSTMENT' (FPEPA) contract for aviation fuel lies in the potential for cost escalation. While the base price is fixed, the economic price adjustment (EPA) clause allows the contractor to seek increases in the contract price based on fluctuations in specified economic factors, such as the cost of crude oil, refining costs, or transportation indices. This introduces uncertainty for the government regarding the final cost. For the buyer (Department of Defense), the risk is that fuel prices could rise significantly due to market volatility, geopolitical events, or supply chain disruptions, leading to expenditures exceeding initial budget projections. Conversely, the contractor bears the risk if the EPA formula does not fully compensate for actual cost increases, or if prices fall significantly below the adjusted price.

Given the 12 bidders, what does this imply about the level of competition and potential for price savings for the government?

The participation of 12 bidders in a full and open competition for this aviation fuel contract strongly suggests a highly competitive market. A larger number of bidders generally increases the likelihood that the government will receive competitive pricing, as companies vie to win the contract. This level of competition allows for robust price discovery, where the market effectively determines a fair price based on supply and demand dynamics. For the government, this typically translates into potential cost savings compared to a situation with fewer bidders or a sole-source award. The Defense Logistics Agency likely benefited from this competitive environment, potentially securing the fuel at a more advantageous price than would have been possible otherwise, thereby maximizing the value of taxpayer funds.

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: SP060009R0077

Offers Received: 12

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

Evaluated Preference: NONE

Contractor Details

Address: 640 - 6 DAEJOOK-RI, DAESAN-EUP, SOSAN

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

Financial Breakdown

Contract Ceiling: $23,953,976

Exercised Options: $23,953,976

Current Obligation: $23,953,976

Contract Characteristics

Commercial Item: COMMERCIAL ITEM

Cost or Pricing Data: NO

Parent Contract

Parent Award PIID: SP060010D0455

IDV Type: IDC

Timeline