DoD spent $43M on turbine fuel, with 24 awards, highlighting a fixed-price contract with economic adjustments

Contract Overview

Contract Amount: $43,070,942 ($43.1M)

Contractor: Tesoro Refining & Marketing Company LLC

Awarding Agency: Department of Defense

Start Date: 2011-12-19

End Date: 2012-09-30

Contract Duration: 286 days

Daily Burn Rate: $150.6K/day

Competition Type: FULL AND OPEN COMPETITION

Number of Offers Received: 24

Pricing Type: FIXED PRICE WITH ECONOMIC PRICE ADJUSTMENT

Sector: Energy

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 $43.1 million to TESORO REFINING & MARKETING COMPANY LLC for work described as: AVIATION FUEL, TURBINE, GRADE JP-8 Key points: 1. The contract utilized a fixed-price structure with economic price adjustments, allowing for fluctuations based on market conditions. 2. Competition was full and open, suggesting a robust bidding process for this fuel supply. 3. The contract duration was 286 days, indicating a relatively short-term supply need. 4. The award was made by the Defense Logistics Agency, a key entity for military supply chain management. 5. The North Dakota location of the contractor suggests a regional focus for this fuel procurement.

Value Assessment

Rating: fair

The total award amount of $43,070,942.31 for aviation turbine fuel (JP-8) over a period of approximately 9.5 months appears substantial. Benchmarking this against similar large-scale fuel procurements is challenging without more specific contract details and market data for the period. The fixed-price with economic price adjustment (FPEPA) structure introduces variability, making a direct value-for-money assessment difficult without analyzing the price adjustment clauses and actual price changes during the contract period. However, the scale of the award suggests a significant volume of fuel was procured.

Cost Per Unit: N/A

Competition Analysis

Competition Level: full-and-open

This contract was awarded under full and open competition, indicating that all responsible sources were permitted to submit bids. The data shows 24 awards were made, suggesting multiple solicitations or task orders under a larger contract vehicle. The high number of awards under this competition type generally promotes competitive pricing and allows the government to select the most advantageous offers based on price and other factors.

Taxpayer Impact: Full and open competition is generally favorable for taxpayers as it is expected to drive down prices through market forces and encourage a wider range of suppliers to participate, potentially leading to better value.

Public Impact

The Department of Defense benefits from a reliable supply of critical aviation fuel (JP-8) for its operations. This contract supports military readiness by ensuring aircraft have the necessary fuel for training and operational missions. The geographic impact is primarily linked to the contractor's location in North Dakota, potentially involving regional distribution networks. The contract supports jobs within the petroleum refining and distribution sector, particularly at Tesoro Refining & Marketing Company LLC.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

The fixed-price with economic price adjustment (FPEPA) contract type can expose the government to price increases if fuel market prices rise significantly.
The specific details of the economic price adjustment formula are not provided, making it difficult to assess the potential for cost overruns.
The contract duration of 286 days is relatively short, which might lead to frequent re-solicitations and associated administrative costs.

Positive Signals

The award was made under full and open competition, indicating a competitive bidding process that should have yielded favorable pricing.
The Defense Logistics Agency's involvement suggests adherence to established procurement processes for critical supplies.
The contractor, Tesoro Refining & Marketing Company LLC, is a significant player in the refining industry, implying established capacity and experience.

Sector Analysis

The procurement of aviation turbine fuel falls within the broader energy sector, specifically the downstream petroleum refining and distribution industry. This industry is characterized by large capital investments, complex supply chains, and sensitivity to global commodity prices. The market size for military fuel procurement is substantial, as defense forces require vast quantities of various fuel types. This contract represents a specific instance of the government securing a critical energy commodity, fitting within the Defense Logistics Agency's role of managing the military's supply chain for such essential resources.

Small Business Impact

The data indicates that this contract was not set aside for small businesses (sb: false) and the contractor is Tesoro Refining & Marketing Company LLC, a large entity. Therefore, there are no direct subcontracting implications for small businesses arising from a small business set-aside. The focus of this procurement is on large-scale fuel supply, which typically involves major industry players rather than small business contractors.

Oversight & Accountability

Oversight for this contract would primarily reside with the Defense Logistics Agency (DLA), responsible for its administration and compliance. As a fixed-price contract with economic price adjustments, DLA would monitor the application of the adjustment clauses to ensure they align with the contract terms and market realities. Transparency is facilitated through contract award databases like FPDS. Inspector General jurisdiction would apply in cases of suspected fraud, waste, or abuse related to the contract.

Related Government Programs

Defense Logistics Agency Fuel Contracts
Aviation Turbine Fuel Procurements
Petroleum Product Supply Contracts
Fixed-Price with Economic Price Adjustment Contracts

Risk Flags

Potential for cost increases due to economic price adjustment
Short contract duration may lead to frequent re-procurement
Lack of detailed performance data in provided summary

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $43.1 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 $43.1 million.

What is the period of performance?

Start: 2011-12-19. End: 2012-09-30.

What is the historical spending pattern for aviation turbine fuel by the Department of Defense over the last five fiscal years?

Analyzing historical spending for aviation turbine fuel by the Department of Defense (DoD) reveals a consistent and significant requirement for this critical commodity. While specific figures fluctuate year-to-year based on operational tempo, global events, and strategic priorities, the DoD remains one of the largest consumers of fuel globally. Data from sources like the Energy Information Administration (EIA) and defense budget reports indicate that annual spending on aviation fuels can range from billions to tens of billions of dollars. Factors influencing this spending include the number of aircraft in operation, training exercises, deployment schedules, and the prevailing market prices for jet fuels like JP-8. The trend generally shows a sustained high level of expenditure, with efforts often focused on improving fuel efficiency, exploring alternative fuels, and optimizing supply chain logistics to manage costs effectively.

How does the price of JP-8 under this contract compare to the average market price during the contract period?

Comparing the price of JP-8 under this specific contract to the average market price during its period of performance (December 2011 - September 2012) requires access to detailed contract pricing data and historical market benchmarks for that timeframe. The contract utilized a Fixed Price with Economic Price Adjustment (FPEPA) structure. This means the base price was subject to adjustments based on a pre-defined economic index or formula, typically tied to crude oil prices or refined product indices. Without the specific adjustment formula and the actual price paid per gallon or barrel, a direct comparison is difficult. However, the Defense Logistics Agency (DLA) generally aims to secure fuel at competitive market rates, often leveraging bulk purchasing power. Market prices for jet fuel during late 2011 and 2012 were influenced by global oil market volatility, geopolitical events, and refinery utilization rates. A thorough analysis would involve comparing the adjusted contract price against relevant Platts or EIA benchmarks for jet fuel in the relevant geographic region during the contract's execution.

What are the key risks associated with a fixed-price contract with economic price adjustment for fuel procurement?

The primary risk associated with a Fixed Price with Economic Price Adjustment (FPEPA) contract for fuel procurement is the potential for increased costs to the government if market prices for the commodity rise significantly. While the fixed-price component provides a baseline, the economic adjustment clause allows the contractor to pass on certain cost increases, often tied to indices like crude oil prices or refined product markets. This can lead to budget uncertainty and potentially higher-than-anticipated expenditures for the procuring agency. Another risk is the complexity in administering the economic price adjustment formula; ensuring the formula accurately reflects market changes and is applied correctly requires diligent oversight. Conversely, if market prices fall, the government might not benefit as much as it would under a purely fixed-price contract without adjustments. The contractor also faces risks if their costs increase beyond what the adjustment formula accounts for.

What is the track record of Tesoro Refining & Marketing Company LLC in fulfilling government fuel contracts?

Tesoro Refining & Marketing Company LLC, now part of Marathon Petroleum Corporation following a merger, has a significant history of operating refineries and supplying petroleum products. As a major player in the downstream energy sector, the company has likely been involved in numerous government contracts, including fuel supply agreements, over the years. Assessing their specific track record on government contracts would involve reviewing past performance evaluations, any documented instances of contract disputes, timely delivery records, and compliance history. Agencies like the Defense Logistics Agency (DLA) maintain performance data on contractors. Generally, large, established companies like Tesoro are expected to have the infrastructure and experience to manage complex supply chains and meet demanding delivery schedules required by government entities. However, specific performance details for past contracts would need to be sourced from government contract databases and performance reporting systems.

How does the number of awards (24) under this contract indicate the procurement strategy of the Defense Logistics Agency?

The presence of 24 awards under this contract suggests a strategy of utilizing a contract vehicle, potentially a Multiple Award Indefinite Delivery/Indefinite Quantity (MA IDIQ) contract or a similar framework, to procure aviation turbine fuel. Instead of issuing numerous individual, stand-alone contracts for each fuel requirement, the DLA likely established a broader contract with multiple awardees or multiple ordering provisions. The 24 awards could represent individual task orders, delivery orders, or calls against this larger contract, issued over its performance period to meet specific, time-bound fuel needs across various locations or units. This approach allows for flexibility, streamlined ordering processes, and potentially better pricing through competition among the awardees for each specific order. It indicates a strategy focused on efficient management of recurring or unpredictable fuel demands rather than one-off procurements.

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: SP060011R0061

Offers Received: 24

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: $43,070,942

Exercised Options: $43,070,942

Current Obligation: $43,070,942

Contract Characteristics

Cost or Pricing Data: NO

Parent Contract

Parent Award PIID: SP060012D0536

IDV Type: IDC

Timeline