DoD spent $38.4M on jet fuel, with a significant portion potentially subject to price adjustments

Contract Overview

Contract Amount: $38,441,312 ($38.4M)

Contractor: Chattanooga Metropolitan Airport Authority

Awarding Agency: Department of Defense

Start Date: 2015-04-01

End Date: 2019-03-31

Contract Duration: 1,460 days

Daily Burn Rate: $26.3K/day

Competition Type: FULL AND OPEN COMPETITION

Number of Offers Received: 131

Pricing Type: FIXED PRICE WITH ECONOMIC PRICE ADJUSTMENT

Sector: Defense

Official Description: JET A W/FSII

Place of Performance

Location: CHATTANOOGA, HAMILTON County, TENNESSEE, 37421, UNITED STATES OF AMERICA

State: Tennessee Government Spending

Plain-Language Summary

Department of Defense obligated $38.4 million to CHATTANOOGA METROPOLITAN AIRPORT AUTHORITY for work described as: JET A W/FSII Key points: 1. The contract utilized an economic price adjustment clause, which could lead to higher-than-anticipated costs. 2. Competition was robust, with 131 offers received, suggesting a competitive market for jet fuel. 3. The contract duration of 1460 days (4 years) provided long-term stability for fuel supply. 4. The fixed-price structure with economic adjustments introduces a moderate level of financial risk. 5. The award was made by the Defense Logistics Agency, a key provider of fuel to the military. 6. The contract was awarded to a non-profit airport authority, an unusual but potentially cost-effective choice.

Value Assessment

Rating: fair

The total award amount of $38.4 million over four years averages to $9.6 million annually. Benchmarking this against similar fuel contracts is challenging without specific volume data. However, the inclusion of an economic price adjustment (EPA) clause introduces uncertainty in the final cost. While fixed-price contracts aim for cost certainty, the EPA allows for adjustments based on market fluctuations, potentially increasing the overall expenditure beyond initial projections. The contract's value is thus contingent on the volatility of jet fuel prices during its term.

Cost Per Unit: N/A

Competition Analysis

Competition Level: full-and-open

This contract was awarded under full and open competition, receiving a substantial 131 offers. This high number of bids indicates a healthy and competitive market for the supply of jet fuel. Such broad competition generally exerts downward pressure on prices and encourages contractors to offer their best terms. The extensive bidding process suggests that the government likely secured a reasonable price, given the market conditions at the time of award, although the EPA clause adds a layer of complexity to a direct price comparison.

Taxpayer Impact: The robust competition for this contract is beneficial for taxpayers, as it likely led to more favorable pricing than a less competitive scenario. It ensures that multiple suppliers vied for the business, driving efficiency and potentially reducing the overall cost of fuel procurement.

Public Impact

Military operations across various branches relying on jet fuel supplied under this contract. The Department of Defense benefits from a consistent and reliable source of aviation fuel. The contract supports the logistical infrastructure necessary for national defense readiness. Indirectly supports the aviation industry through the demand for jet fuel.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Economic price adjustment clause introduces potential for cost overruns if fuel prices escalate significantly.
The contract's long duration could lock the government into unfavorable pricing if market conditions change drastically.
Reliance on a single supplier (airport authority) for a critical commodity, though competition was high at award.

Positive Signals

Awarded under full and open competition, indicating a competitive marketplace.
A large number of offers (131) suggests strong market interest and availability of suppliers.
The fixed-price component provides a baseline cost certainty before adjustments.
The contract was awarded to a metropolitan airport authority, potentially indicating efficient local sourcing.

Sector Analysis

The petroleum refineries sector (NAICS 324110) is crucial for producing fuels like JET A. This contract falls within the broader energy and defense logistics sectors. The market for aviation fuel is influenced by global oil prices, geopolitical stability, and demand from commercial and military aviation. The Defense Logistics Agency (DLA) is a major procurer of fuel for the U.S. military, managing complex supply chains to ensure operational readiness. Spending benchmarks for jet fuel can vary widely based on volume, location, and specific fuel additives (like FSII).

Small Business Impact

There is no indication that this contract included small business set-asides, nor is there information suggesting significant subcontracting opportunities for small businesses. The award to a metropolitan airport authority suggests the primary contractor is not a small business. Further analysis would be needed to determine if any portion of the fuel supply chain involved small business participation.

Oversight & Accountability

The contract was awarded by the Defense Logistics Agency (DLA), which has established oversight mechanisms for its procurement processes. The use of a fixed-price contract with economic price adjustments is a standard contracting vehicle, but requires diligent monitoring of price indices to ensure adjustments are justified. Transparency is generally maintained through contract award databases, though specific details of price adjustments may be less public. Inspector General oversight would apply to allegations of fraud, waste, or abuse.

Related Government Programs

Defense Logistics Agency Fuel Contracts
Aviation Fuel Procurement
Fixed-Price Contracts with Economic Price Adjustment
Department of Defense Energy Spending

Risk Flags

Economic Price Adjustment Clause
Potential for Cost Overruns
Reliance on Market Price Fluctuations

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $38.4 million to CHATTANOOGA METROPOLITAN AIRPORT AUTHORITY. JET A W/FSII

Who is the contractor on this award?

The obligated recipient is CHATTANOOGA METROPOLITAN AIRPORT AUTHORITY.

Which agency awarded this contract?

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

What is the total obligated amount?

The obligated amount is $38.4 million.

What is the period of performance?

Start: 2015-04-01. End: 2019-03-31.

What was the specific economic price adjustment (EPA) formula used in this contract, and how did it impact the final cost?

The provided data does not specify the exact economic price adjustment (EPA) formula. Typically, EPAs are tied to published indices for specific commodities, such as jet fuel prices reported by organizations like the Energy Information Administration (EIA) or industry-specific benchmarks. The formula would outline how changes in these indices translate into upward or downward adjustments to the contract's unit price. Without the specific formula and the historical price data for the contract period (April 1, 2015, to March 31, 2019), it is impossible to quantify the exact impact of the EPA on the total $38.4 million expenditure. However, the presence of an EPA suggests that the final cost could have deviated from the initial fixed price, potentially increasing if fuel prices rose significantly during the contract term.

How does the award to a metropolitan airport authority compare to typical DoD fuel suppliers?

It is less common for the Department of Defense (DoD) to directly contract with a metropolitan airport authority for bulk jet fuel compared to contracting with major fuel distributors, refiners, or specialized energy companies. Airport authorities often manage fuel farms and hydrant systems for the airport's operations, and may procure fuel for resale or direct use. The DoD's award to the Chattanooga Metropolitan Airport Authority suggests a potential for localized sourcing or a unique arrangement where the authority could competitively supply the fuel. While potentially offering cost efficiencies through direct access or reduced overhead compared to larger corporations, it also raises questions about the scale of operations and the authority's primary mission focus compared to dedicated energy suppliers. The high number of bids (131) indicates that despite the unusual awardee, the market perceived sufficient competition and value.

What is the significance of the 'JET A W/FSII' designation?

The designation 'JET A W/FSII' specifies the type of aviation fuel procured. JET A is the standard grade of commercial kerosene-based jet fuel used in turbine-engine aircraft. The 'W/FSII' stands for 'with Fuel System Icing Inhibitor.' FSII is a crucial additive that prevents the formation of ice crystals in the fuel, which can otherwise block fuel lines and filters at high altitudes, potentially leading to engine failure. Military operations, especially those involving long flights or operations in cold environments, require fuel with FSII to ensure safety and reliability. Therefore, this designation indicates the procurement of a specific, high-quality grade of jet fuel essential for aviation safety and performance.

What does the contract type 'FIXED PRICE WITH ECONOMIC PRICE ADJUSTMENT' imply for cost control?

The 'FIXED PRICE WITH ECONOMIC PRICE ADJUSTMENT' (FPEPA) contract type attempts to balance cost certainty with market volatility. The 'fixed price' component establishes a baseline cost per unit. However, the 'economic price adjustment' (EPA) clause allows for modifications to this price based on fluctuations in specified economic factors, most commonly the cost of raw materials or labor. For jet fuel, this typically means the price can be adjusted based on changes in crude oil prices or other relevant fuel indices. While this protects the contractor from significant losses due to unforeseen market increases, it also introduces uncertainty for the government buyer. Effective cost control under an FPEPA contract relies heavily on the careful selection of the adjustment formula, the frequency of adjustments, and robust government oversight to ensure that adjustments are justified and reflect genuine market changes, rather than contractor inefficiencies.

Given the $38.4M total value and 4-year duration, what was the approximate annual spending rate?

The total contract value was $38,441,312.46, and the duration was 1460 days, which is exactly 4 years (365 days/year). To determine the approximate annual spending rate, we divide the total value by the number of years: $38,441,312.46 / 4 years = $9,610,328.115 per year. This indicates an average annual spending rate of approximately $9.61 million. It's important to note that this is an average, and actual spending in any given year could fluctuate based on demand, operational tempo, and the specific application of the economic price adjustment clause, which could alter the per-unit price throughout the contract's life.

What are the potential risks associated with the 'Petroleum Refineries' (NAICS 324110) sector in relation to this contract?

The petroleum refineries sector (NAICS 324110) is inherently linked to the price volatility of crude oil and refined products, which directly impacts the cost of jet fuel. Key risks include geopolitical instability affecting global oil supply, fluctuations in refinery capacity due to maintenance or unplanned outages, and environmental regulations that can increase operational costs. For this specific contract, the primary risk stems from the economic price adjustment (EPA) clause, which allows the contract price to increase if fuel prices rise. This sector is also subject to supply chain disruptions, whether from natural disasters impacting production facilities or transportation bottlenecks. While the contract was competed, the underlying market dynamics of refining and fuel distribution mean that the government is exposed to these sector-specific risks, particularly concerning price escalations.

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: SP060014R0221

Offers Received: 131

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

Evaluated Preference: NONE

Contractor Details

Address: 1001 AIRPORT RD STE 14, CHATTANOOGA, TN, 37421

Business Categories: U.S. Government Authorities, Category Business, Government, U.S. Local Government, Not Designated a Small Business, Special Designations, U.S.-Owned Business

Financial Breakdown

Contract Ceiling: $38,441,312

Exercised Options: $38,441,312

Current Obligation: $38,441,312

Contract Characteristics

Cost or Pricing Data: NO

Parent Contract

Parent Award PIID: SP060015D0004

IDV Type: IDC

Timeline