DoD spent $107.8M on turbine fuel, with Tesoro Refining & Marketing LLC winning a fixed-price contract

Contract Overview

Contract Amount: $107,838,498 ($107.8M)

Contractor: Tesoro Refining & Marketing Company LLC

Awarding Agency: Department of Defense

Start Date: 2012-09-20

End Date: 2014-01-30

Contract Duration: 497 days

Daily Burn Rate: $217.0K/day

Competition Type: FULL AND OPEN COMPETITION

Number of Offers Received: 27

Pricing Type: FIXED PRICE WITH ECONOMIC PRICE ADJUSTMENT

Sector: Other

Official Description: AVIATION FUEL, TURBINE, GRADE JP-8

Place of Performance

Location: MANDAN, MORTON County, NORTH DAKOTA, 58554

State: North Dakota Government Spending

Plain-Language Summary

Department of Defense obligated $107.8 million to TESORO REFINING & MARKETING COMPANY LLC for work described as: AVIATION FUEL, TURBINE, GRADE JP-8 Key points: 1. Contract value of $107.8M for turbine fuel over approximately 1.6 years. 2. Awarded under full and open competition, indicating a broad market solicitation. 3. Fixed-price contract with economic price adjustment suggests potential for cost fluctuations. 4. The contract was awarded by the Defense Logistics Agency, a key procurement arm for the DoD. 5. The North Dakota location of the contractor may influence delivery logistics and regional economic impact. 6. The North American Industry Classification System (NAICS) code 324110 points to petroleum refineries as the sector.

Value Assessment

Rating: fair

The total contract value of $107.8M for aviation turbine fuel appears substantial. Benchmarking this against similar contracts for JP-8 fuel would be necessary for a precise value-for-money assessment. The fixed-price with economic price adjustment (FP-EPA) structure introduces a layer of uncertainty regarding the final cost, as it allows for adjustments based on market conditions. Without specific comparable contract data or detailed cost breakdowns, it's challenging to definitively assess if this represents excellent value.

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 data indicates 27 bids were received, suggesting a healthy level of competition for this fuel supply requirement. A higher number of bidders generally leads to more competitive pricing and a greater likelihood of the government securing favorable terms.

Taxpayer Impact: The robust competition for this contract likely resulted in more cost-effective pricing for taxpayers, as multiple suppliers vied for the business.

Public Impact

The Department of Defense benefits from a reliable supply of critical aviation fuel (JP-8). This contract ensures the operational readiness of military aircraft requiring this specific fuel grade. The geographic impact is primarily centered around the Defense Logistics Agency's operational areas and potentially the contractor's refining and distribution network. Workforce implications may include employment at the refining facility and in the transportation and logistics sectors involved in fuel delivery.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

The fixed-price with economic price adjustment (FP-EPA) clause introduces risk of cost overruns if fuel prices escalate significantly.
Reliance on a single primary contractor, Tesoro Refining & Marketing Company LLC, could pose supply chain risks if their operations are disrupted.
The duration of the contract (approx. 1.6 years) may not align with long-term strategic fuel sourcing needs.

Positive Signals

Awarded under full and open competition with 27 bids received, indicating strong market interest and potential for competitive pricing.
The Defense Logistics Agency's involvement suggests adherence to established procurement processes and oversight.
The contract specifies a critical fuel type (JP-8), ensuring support for essential military aviation operations.

Sector Analysis

The petroleum refining industry (NAICS 324110) is a mature sector crucial for supplying energy products, including aviation fuels. The market size for aviation fuel is significant, driven by both commercial and military demand. This contract represents a portion of the Department of Defense's overall spending on fuel, a recurring and substantial expenditure necessary for maintaining global operational capabilities. Comparable spending benchmarks would typically involve analyzing historical DoD fuel procurement data and market prices for JP-8.

Small Business Impact

The data indicates that this contract was not set aside for small businesses (sb: false) and there is no specific mention of small business subcontracting goals. Therefore, the direct impact on the small business ecosystem appears minimal for this particular award. The primary beneficiary is likely the large prime contractor, Tesoro Refining & Marketing Company LLC.

Oversight & Accountability

Oversight for this contract would primarily fall under the Defense Logistics Agency (DLA), which is responsible for managing and administering DoD contracts. Accountability measures are typically embedded within the contract terms, including performance standards and payment clauses. Transparency is generally facilitated through contract award databases like FPDS-NG. 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
Department of Defense Aviation Fuel Contracts
JP-8 Fuel Supply Contracts
Petroleum Product Procurement

Risk Flags

Potential for price volatility due to Economic Price Adjustment clause
Supply chain risk associated with reliance on a single primary contractor
Need for detailed benchmarking to confirm value for money

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $107.8 million to TESORO REFINING & MARKETING COMPANY LLC. AVIATION FUEL, TURBINE, GRADE JP-8

Who is the contractor on this award?

The obligated recipient is TESORO REFINING & MARKETING COMPANY LLC.

Which agency awarded this contract?

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

What is the total obligated amount?

The obligated amount is $107.8 million.

What is the period of performance?

Start: 2012-09-20. End: 2014-01-30.

What is the historical spending pattern for JP-8 fuel by the Department of Defense?

Analyzing historical spending patterns for JP-8 fuel by the Department of Defense reveals a consistent and significant requirement driven by global military operations. Over the years, the DoD has allocated billions of dollars towards securing reliable supplies of this critical aviation fuel. Spending fluctuates based on geopolitical events, deployment levels, and strategic initiatives. Contracts are often awarded through competitive bidding processes, with major fuel suppliers and refiners frequently securing these awards. The Defense Logistics Agency (DLA) is the primary entity responsible for managing these fuel procurements, ensuring supply chain resilience and cost-effectiveness. Historical data indicates a trend towards longer-term contracts to stabilize pricing and ensure availability, though shorter-term awards are also common for specific operational needs or market conditions. The use of economic price adjustment clauses is also a recurring feature, reflecting the inherent volatility of global oil markets.

How does the pricing of this contract compare to market rates for JP-8 fuel during the contract period?

To assess the pricing of this contract against market rates for JP-8 fuel during the period of September 20, 2012, to January 30, 2014, one would need access to historical JP-8 spot prices and contract award data from that timeframe. The contract's 'Fixed Price with Economic Price Adjustment' (FP-EPA) clause complicates a direct comparison, as the final price paid would have varied based on market fluctuations. Generally, FP-EPA contracts aim to protect both the government and the contractor from extreme price volatility. If fuel prices rose significantly during the contract period, the government might have paid more than a fixed-price contract would have entailed. Conversely, if prices fell, the government could benefit. Without specific market data for JP-8 in the relevant regions and time, and without knowing the specific adjustment formula used, a definitive comparison is not possible. However, the presence of 27 bids suggests competitive market forces were at play, which typically helps align contract prices with prevailing market conditions.

What are the potential risks associated with Tesoro Refining & Marketing Company LLC as the contractor?

Potential risks associated with Tesoro Refining & Marketing Company LLC (now Marathon Petroleum) as a contractor for aviation fuel include operational disruptions at their refining facilities, transportation and logistics challenges in delivering the fuel, and financial stability concerns, although Tesoro was a significant player. Given the nature of refining, unexpected maintenance, accidents, or environmental issues could impact production capacity and delivery schedules. Furthermore, reliance on a single supplier, even a large one, introduces supply chain vulnerability. Market shifts or changes in their business strategy could also affect their ability to fulfill long-term contracts. The economic price adjustment clause, while intended to manage price volatility, also introduces a risk of higher costs for the government if market prices escalate. Assessing their track record on past government contracts, including on-time delivery rates and quality compliance, would provide further insight into their reliability.

What is the significance of the NAICS code 324110 (Petroleum Refineries) in the context of this contract?

The North American Industry Classification System (NAICS) code 324110, 'Petroleum Refineries,' is highly significant for this contract as it precisely categorizes the primary business activity of the awarded contractor, Tesoro Refining & Marketing Company LLC. This code indicates that the company operates facilities designed for the process of refining crude oil into various petroleum products, including aviation fuels like JP-8. For the Department of Defense, awarding contracts to entities within this sector ensures they are procuring fuel from established producers with the necessary infrastructure, technical expertise, and regulatory compliance required for large-scale fuel production and distribution. It also aids in industry analysis, allowing for comparisons with other contracts awarded to petroleum refineries and understanding the competitive landscape within this specific industrial segment.

How does the 'full and open competition' award type impact the overall cost-effectiveness for the taxpayer?

The 'full and open competition' award type generally enhances cost-effectiveness for the taxpayer. This approach mandates that all responsible sources are permitted to submit bids, thereby maximizing the pool of potential offerors. A larger number of bidders typically intensifies competition, driving down prices as companies vie to win the contract. This process allows the government to leverage market forces to secure the best possible value. In this specific case, with 27 bids received for the aviation fuel contract, the likelihood of achieving competitive pricing is significantly increased compared to sole-source or limited competition scenarios. While the economic price adjustment clause introduces some price variability, the initial competitive bidding process sets a strong foundation for cost control and ensures that taxpayer funds are utilized efficiently by selecting the most economically advantageous offer.

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: SP060012R0061

Offers Received: 27

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

Evaluated Preference: NONE

Contractor Details

Parent Company: Tesoro Corporation (UEI: 008133480)

Address: 19100 RIDGEWOOD PKWY, SAN ANTONIO, 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: $107,838,498

Exercised Options: $107,838,498

Current Obligation: $107,838,498

Contract Characteristics

Cost or Pricing Data: NO

Parent Contract

Parent Award PIID: SP060012D0496

IDV Type: IDC

Timeline