DoD spent $618M on aviation fuel, with BP West Coast Products LLC securing the contract

Contract Overview

Contract Amount: $618,212,416 ($618.2M)

Contractor: BP West Coast Products LLC

Awarding Agency: Department of Defense

Start Date: 2012-05-25

End Date: 2013-01-30

Contract Duration: 250 days

Daily Burn Rate: $2.5M/day

Competition Type: FULL AND OPEN COMPETITION

Number of Offers Received: 10

Pricing Type: FIXED PRICE WITH ECONOMIC PRICE ADJUSTMENT

Sector: Defense

Official Description: AVIATION TURBINE FUEL, JAA (28,420,000 USG) AND JP8 (281,485,000 USG) FOB ORIGIN TANKER DELIVERY EX CHERRY POINT, WA.

Place of Performance

Location: FERNDALE, WHATCOM County, WASHINGTON, 98248

State: Washington Government Spending

Plain-Language Summary

Department of Defense obligated $618.2 million to BP WEST COAST PRODUCTS LLC for work described as: AVIATION TURBINE FUEL, JAA (28,420,000 USG) AND JP8 (281,485,000 USG) FOB ORIGIN TANKER DELIVERY EX CHERRY POINT, WA. Key points: 1. The contract value represents a significant investment in aviation fuel for military operations. 2. Competition dynamics for this large fuel contract are crucial for ensuring competitive pricing. 3. Potential risks include price volatility in the petroleum market and supply chain disruptions. 4. The contract duration and delivery volume indicate a substantial operational requirement. 5. This spending falls within the broader category of energy and fuel procurement for the defense sector.

Value Assessment

Rating: fair

Benchmarking this contract's value is challenging without specific per-unit pricing details and market conditions at the time of award. The total value of over $600 million for approximately 310 million gallons of fuel suggests a per-gallon cost of roughly $2.00. This figure needs to be compared against prevailing market rates for aviation fuel (Jet A/JP-8) during the contract period (2012-2013) and adjusted for FOB origin tanker delivery terms. Without more granular data on the economic price adjustment (EPA) mechanism, a precise value-for-money assessment is difficult, but the scale suggests significant taxpayer funds were allocated.

Cost Per Unit: Approximately $2.00 per gallon (estimated based on total value and volume), requires market comparison for specific period.

Competition Analysis

Competition Level: full-and-open

The contract was awarded under full and open competition, indicating that multiple bidders were likely solicited. The presence of 10 bidders suggests a reasonably competitive environment for this substantial fuel supply requirement. A higher number of bidders generally leads to better price discovery and potentially lower costs for the government. The specific details of the bidding process and the evaluation criteria would further illuminate the effectiveness of the competition.

Taxpayer Impact: Full and open competition with 10 bidders is generally favorable for taxpayers, as it increases the likelihood of securing the best possible price for the required aviation fuel.

Public Impact

The primary beneficiaries are the Department of Defense and its aviation units, ensuring operational readiness. The contract delivers essential aviation turbine fuel (JAA) and JP8 to support military aircraft. The geographic impact is centered around Cherry Point, WA, as the origin point for tanker deliveries. Workforce implications include roles in fuel logistics, transportation, and quality control related to fuel supply.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Economic price adjustment clauses can lead to cost overruns if fuel prices escalate significantly.
Reliance on a single primary awardee (BP West Coast Products LLC) for such a large volume could pose supply risks if unforeseen issues arise with the contractor.
The FOB origin terms place the transportation risk and cost primarily on the government after the fuel leaves the refinery.
The contract duration of 250 days might be short for such a large volume, potentially leading to frequent re-solicitations and administrative overhead.

Positive Signals

Awarding to a known entity like BP West Coast Products LLC suggests a level of confidence in their capability to meet demand.
The full and open competition process indicates an effort to maximize taxpayer value through market forces.
The specific fuel types (JAA and JP8) are critical for military aviation, ensuring mission capability.
The large volume procured suggests a strategic effort to secure a significant supply of essential fuel.

Sector Analysis

This contract falls within the petroleum refining and distribution sector, specifically serving the defense industry's need for aviation fuel. The market for military-grade aviation fuels is specialized, with a limited number of large suppliers capable of meeting the stringent quality and volume requirements. Comparable spending benchmarks would involve analyzing other large-volume fuel contracts awarded by the DoD or other government agencies for similar fuel types and delivery terms.

Small Business Impact

The data indicates this contract was not specifically set aside for small businesses, nor does it explicitly mention subcontracting goals for small businesses. Given the nature of large-volume fuel procurement and the primary awardee being a major corporation, the direct impact on small businesses within this specific contract is likely minimal unless they are involved in transportation or related logistical support services. Further analysis of subcontracting reports would be needed to confirm any small business participation.

Oversight & Accountability

Oversight for this contract would typically fall under the Defense Logistics Agency (DLA), which is responsible for procuring and distributing fuel for the DoD. Accountability measures would include performance monitoring, quality assurance checks on the fuel, and adherence to delivery schedules. Transparency is generally maintained through contract award databases, though specific performance metrics and audit details may not be publicly available. Inspector General jurisdiction would apply in cases of suspected fraud, waste, or abuse.

Related Government Programs

Defense Logistics Agency Fuel Procurement
Military Aviation Fuel Supply Contracts
Petroleum Product Procurement
Fixed-Price Contracts with Economic Price Adjustment

Risk Flags

Potential for price volatility due to market fluctuations.
Supply chain disruption risks.
Contract performance risks associated with large volume delivery.
Reliance on economic price adjustment clauses for cost management.

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $618.2 million to BP WEST COAST PRODUCTS LLC. AVIATION TURBINE FUEL, JAA (28,420,000 USG) AND JP8 (281,485,000 USG) FOB ORIGIN TANKER DELIVERY EX CHERRY POINT, WA.

Who is the contractor on this award?

The obligated recipient is BP WEST COAST PRODUCTS LLC.

Which agency awarded this contract?

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

What is the total obligated amount?

The obligated amount is $618.2 million.

What is the period of performance?

Start: 2012-05-25. End: 2013-01-30.

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

Historical spending patterns for aviation fuel by the Defense Logistics Agency (DLA) prior to May 2012 would reveal trends in volume, pricing, and contractor awards. Analyzing prior years' data would show if this $618 million contract represented a typical expenditure, an increase, or a decrease in fuel procurement. It would also highlight whether DLA consistently relied on full and open competition or utilized other contracting methods. Understanding these patterns is crucial for assessing the long-term cost-effectiveness and strategic sourcing of aviation fuels. For instance, if previous contracts were significantly smaller or awarded to different entities, it might indicate a shift in market dynamics, strategic priorities, or a change in DLA's procurement approach. Without specific historical data, it's difficult to contextualize this single award within a broader spending trajectory.

How did the economic price adjustment (EPA) clause impact the final cost of the fuel compared to a fixed-price contract?

The economic price adjustment (EPA) clause in this contract allowed for modifications to the contract price based on fluctuations in specified economic factors, typically related to the cost of raw materials or labor. In the context of aviation fuel, this primarily means changes in crude oil prices. If crude oil prices increased significantly between the contract award date (May 2012) and the delivery period (ending January 2013), the final cost to the government would likely be higher than if it had been a firm fixed-price contract. Conversely, if prices decreased, the EPA could have resulted in a lower final cost. The effectiveness of the EPA in this instance hinges on the specific index used, the adjustment formula, and the actual market movement of fuel prices during the contract's term. Without access to the contract's specific EPA terms and the price data used for adjustments, it's impossible to quantify the exact impact, but it introduces price volatility risk for the government.

What is the typical profit margin for contractors supplying large volumes of aviation fuel to the Department of Defense?

Determining the typical profit margin for contractors supplying large volumes of aviation fuel to the Department of Defense is complex, as it's influenced by numerous factors including market competition, operational efficiencies, contract type, and the specific risks undertaken. While exact profit margins are proprietary and not publicly disclosed, industry analyses and government audits suggest that margins on fuel contracts can range from low single digits to potentially higher percentages for specialized or high-risk deliveries. For a contract of this magnitude ($618 million) awarded under full and open competition with 10 bidders, the profit margin for BP West Coast Products LLC was likely competitive, reflecting the market conditions and the efficiency of their operations. Government auditors and contracting officers aim to ensure that prices are fair and reasonable, which implicitly caps excessive profit margins. The presence of an economic price adjustment clause might also influence how profit is factored into the base price versus the variable components.

What were the specific quality control measures required for the JAA and JP8 fuel delivered under this contract?

The delivery of JAA (Jet A Aviation) and JP8 (a military-grade kerosene-based jet fuel) under this contract would have been subject to stringent quality control measures mandated by the Department of Defense and relevant industry standards (e.g., ASTM specifications). These measures typically include rigorous testing protocols at various stages: production, loading, transportation, and delivery. Key quality parameters tested would encompass aspects like flash point, freeze point, viscosity, water content, sediment, and chemical composition to ensure the fuel meets precise military specifications for safe and effective aircraft operation. The Defense Logistics Agency (DLA) likely had quality assurance representatives overseeing the process, and the contractor, BP West Coast Products LLC, would have been required to provide certificates of analysis for each batch. Non-compliance with these specifications could lead to rejection of the fuel and potential penalties for the contractor.

How does the FOB origin delivery term affect the overall cost and risk compared to FOB destination?

The Free On Board (FOB) origin delivery term means that the ownership and responsibility for the goods (in this case, aviation fuel) transfer from the seller (BP West Coast Products LLC) to the buyer (Department of Defense) at the point of origin, which is Cherry Point, WA. This implies that the buyer assumes the costs and risks associated with transportation, including freight charges, insurance, and potential damage or loss during transit. In contrast, FOB destination terms would mean the seller retains ownership and responsibility until the goods reach the buyer's specified destination. For this contract, the FOB origin term shifts the logistical burden and associated costs (tanker delivery) to the DoD. While this might allow the DoD to potentially negotiate better transportation rates or manage logistics more directly, it also means they bear the full risk of delays or issues during the extensive transportation process. The quoted price of $618 million likely reflects the fuel cost at origin, with transportation costs being a separate, albeit significant, component managed by the government.

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: SP060011R0161

Offers Received: 10

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

Evaluated Preference: NONE

Contractor Details

Parent Company: BP P.L.C. (UEI: 210042669)

Address: 6 CENTERPOINTE DR, LA PALMA, CA, 45

Business Categories: Category Business, Limited Liability Corporation, Manufacturer of Goods, Not Designated a Small Business, Special Designations, U.S.-Owned Business

Financial Breakdown

Contract Ceiling: $618,212,416

Exercised Options: $618,212,416

Current Obligation: $618,212,416

Contract Characteristics

Cost or Pricing Data: NO

Parent Contract

Parent Award PIID: SP060012D0476

IDV Type: IDC

Timeline