DoD's $240M petroleum contract to Equilon Enterprises LLC awarded under full and open competition

Contract Overview

Contract Amount: $239,513,274 ($239.5M)

Contractor: Equilon Enterprises LLC

Awarding Agency: Department of Defense

Start Date: 2010-12-17

End Date: 2011-10-30

Contract Duration: 317 days

Daily Burn Rate: $755.6K/day

Competition Type: FULL AND OPEN COMPETITION

Number of Offers Received: 20

Pricing Type: FIXED PRICE WITH ECONOMIC PRICE ADJUSTMENT

Sector: Energy

Official Description: JP8

Place of Performance

Location: HOUSTON, HARRIS County, TEXAS, 77002

State: Texas Government Spending

Plain-Language Summary

Department of Defense obligated $239.5 million to EQUILON ENTERPRISES LLC for work described as: JP8 Key points: 1. Contract awarded for petroleum products, a critical component for military operations. 2. Full and open competition suggests a potentially competitive bidding process. 3. Fixed-price contract with economic price adjustment introduces some cost variability. 4. Contract duration of 317 days indicates a short-term supply need. 5. Awarded by the Defense Logistics Agency, a key procurement arm for the DoD. 6. The North American Industry Classification System (NAICS) code 324110 points to petroleum refining activities.

Value Assessment

Rating: fair

The total award amount of $239,513,274 for a 317-day contract for petroleum products appears substantial. Without specific unit pricing or comparison to similar petroleum supply contracts for the DoD, it is difficult to definitively assess value for money. The economic price adjustment clause introduces a degree of uncertainty regarding the final cost, potentially increasing the overall expenditure beyond the initial fixed price.

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. This method is generally preferred for maximizing competition and achieving the best possible pricing. The number of bids received (20) suggests a healthy level of interest from potential suppliers, which can contribute to price discovery and potentially lower costs for the government.

Taxpayer Impact: A competitive bidding process like this one is beneficial for taxpayers as it encourages multiple companies to offer their best prices, potentially leading to significant savings compared to non-competitive awards.

Public Impact

The primary beneficiaries are the Department of Defense, ensuring the supply of essential petroleum products for its operations. Services delivered include the provision of refined petroleum products, crucial for fueling military vehicles, aircraft, and other equipment. The geographic impact is likely national, given the Defense Logistics Agency's role in supplying military installations across the United States. Workforce implications may include employment within the petroleum refining and distribution sectors, supporting jobs in these industries.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Economic price adjustment clause could lead to cost overruns if market prices for petroleum increase significantly.
The large dollar value of the contract warrants close monitoring to ensure efficient use of funds.
Dependence on a single contractor for a significant portion of petroleum supply could pose a risk if supply chains are disrupted.

Positive Signals

Awarded through full and open competition, indicating a robust and fair bidding process.
A high number of bids (20) suggests strong market interest and potential for competitive pricing.
The Defense Logistics Agency has established processes for managing large-scale supply contracts.

Sector Analysis

The petroleum refining industry (NAICS 324110) is a large and complex sector. This contract falls within the energy sector, specifically focusing on the supply of refined fuels. The Defense Logistics Agency is a major procurer of petroleum products for the U.S. military, and spending in this category is consistently high due to operational demands. Benchmarking this contract's value would require comparing its unit prices and total cost against other large-scale government or commercial petroleum supply agreements.

Small Business Impact

The contract data indicates that small business participation was not a specific set-aside criterion (ss: false, sb: false). While the prime contractor is Equilon Enterprises LLC, there is no explicit information on subcontracting plans for small businesses within this award. The large scale of this contract might present opportunities for small businesses in the supply chain, but without specific subcontracting goals or reporting, their direct impact is unclear.

Oversight & Accountability

The Defense Logistics Agency (DLA) is responsible for overseeing this contract. DLA has established procurement regulations and contract management procedures to ensure accountability and transparency. Oversight mechanisms likely include performance monitoring, financial audits, and compliance checks. The Inspector General of the Department of Defense would have jurisdiction over any potential fraud, waste, or abuse related to this contract.

Related Government Programs

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

Risk Flags

Potential for cost escalation due to Economic Price Adjustment
Dependence on volatile global energy markets
Need for robust contract oversight to manage EPA clause

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $239.5 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 $239.5 million.

What is the period of performance?

Start: 2010-12-17. End: 2011-10-30.

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

The Defense Logistics Agency (DLA) is the primary agency responsible for procuring fuel for the U.S. military. Historical spending on petroleum products by the DLA has consistently been in the billions of dollars annually, reflecting the vast operational needs of the armed forces. This spending fluctuates based on global oil prices, geopolitical events, and the intensity of military operations. For instance, during periods of heightened conflict or increased training exercises, fuel consumption and thus DLA spending tend to rise. The agency manages a complex global supply chain to ensure fuel availability at bases worldwide. Analyzing DLA's historical fuel budgets and actual expenditures provides context for the scale of individual contract awards like the one to Equilon Enterprises LLC, highlighting the consistent and significant financial commitment to maintaining fuel readiness.

How does the economic price adjustment (EPA) clause typically impact the final cost of petroleum contracts?

An Economic Price Adjustment (EPA) clause in a contract allows for adjustments to the contract price based on fluctuations in specified economic factors, most commonly the price of raw materials or labor. For petroleum contracts, an EPA typically ties the final price to a benchmark commodity price, such as West Texas Intermediate (WTI) or Brent crude oil. This means if the market price of crude oil increases, the price paid by the government for the refined product will also increase, and vice versa. While EPAs can protect contractors from unforeseen market volatility and ensure supply continuity by preventing price-related defaults, they introduce uncertainty for the government regarding the final expenditure. The government may end up paying more than initially anticipated if market prices rise significantly. Effective management of EPA clauses involves clearly defined indices, regular price reviews, and potentially caps on price increases to mitigate excessive cost escalation.

What are the risks associated with a fixed-price contract with economic price adjustment for petroleum supply?

A primary risk associated with a Fixed-Price contract with Economic Price Adjustment (EPA) for petroleum supply is cost uncertainty for the government. While the fixed-price component provides a baseline, the EPA allows for upward adjustments based on market fluctuations, potentially leading to expenditures exceeding initial budget projections. This is particularly concerning in volatile energy markets where crude oil prices can experience rapid and significant swings. Another risk is the potential for contractor over-reliance on the EPA, leading to less incentive for cost efficiency compared to a firm fixed-price contract. Furthermore, the administration and verification of EPA calculations require diligent oversight to ensure accuracy and prevent potential disputes or manipulation. The government must have robust mechanisms in place to monitor market indices and validate price adjustments to safeguard taxpayer funds.

What is Equilon Enterprises LLC's track record with government contracts, particularly with the DoD?

Equilon Enterprises LLC, often associated with Shell Oil Company, has a history of engaging in government contracts, including those with the Department of Defense (DoD). Their involvement typically centers around the supply of petroleum products and related services. Analyzing their past performance requires reviewing contract databases for awards, delivery performance, and any instances of disputes or contract terminations. Companies of this size and in this sector are expected to have experience fulfilling large-scale supply requirements. However, specific details regarding their performance metrics, compliance history, and any past issues with DoD contracts would necessitate a deeper dive into contract performance reports and procurement records. Generally, large energy companies are accustomed to the rigorous demands and oversight associated with government procurement.

How does the number of bidders (20) influence price discovery and potential savings for this contract?

A high number of bidders, such as the 20 received for this contract, generally indicates a competitive market and is a positive sign for price discovery. When multiple qualified companies vie for a contract, they are incentivized to offer their most competitive pricing and terms to win the award. This competitive pressure can drive down prices below what might be achieved in a less contested procurement. The presence of numerous bidders allows the contracting agency, in this case, the Defense Logistics Agency, to compare a wider range of offers, identify the best value, and potentially negotiate more favorable terms. For taxpayers, this increased competition typically translates into better value for money, as the government is less likely to overpay when multiple suppliers are actively seeking its business.

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

Offers Received: 20

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 STE 2, 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: $239,513,274

Exercised Options: $239,513,274

Current Obligation: $239,513,274

Contract Characteristics

Cost or Pricing Data: NO

Parent Contract

Parent Award PIID: SP060011D0458

IDV Type: IDC

Timeline