DoD's $21M electric distribution contract with SMECO shows long-term commitment and potential value

Contract Overview

Contract Amount: $20,981,133 ($21.0M)

Contractor: Southern Maryland Electric Cooperative, Inc.

Awarding Agency: Department of Defense

Start Date: 2009-05-01

End Date: 2059-04-30

Contract Duration: 18,261 days

Daily Burn Rate: $1.1K/day

Competition Type: FULL AND OPEN COMPETITION

Number of Offers Received: 2

Pricing Type: FIRM FIXED PRICE

Sector: Other

Official Description: UTILITIES PRIVATIZATION CONTRACT FOR ELECTRIC DISTRIBUTION SERVICES

Place of Performance

Location: PATUXENT RIVER, SAINT MARYS County, MARYLAND, 20670

State: Maryland Government Spending

Plain-Language Summary

Department of Defense obligated $21.0 million to SOUTHERN MARYLAND ELECTRIC COOPERATIVE, INC. for work described as: UTILITIES PRIVATIZATION CONTRACT FOR ELECTRIC DISTRIBUTION SERVICES Key points: 1. The contract's long duration suggests a strategic need for reliable electric distribution services. 2. Full and open competition indicates a robust bidding process, potentially leading to competitive pricing. 3. The firm-fixed-price structure shifts cost risk to the contractor, offering budget predictability. 4. Performance context is crucial given the extended period of service delivery. 5. This contract positions the Navy to secure essential utility infrastructure for an extended period. 6. The absence of small business set-asides warrants further examination of subcontracting opportunities.

Value Assessment

Rating: good

The contract value of approximately $21 million over nearly 50 years represents a significant, long-term investment in utility infrastructure. While direct comparisons are difficult due to the unique nature of utility privatization and long-term service agreements, the firm-fixed-price structure suggests a degree of cost certainty for the government. Benchmarking this against typical utility infrastructure investments or service contracts of shorter duration would be necessary for a more precise value assessment. The extended duration may offer economies of scale and predictable service, contributing to overall value.

Cost Per Unit: N/A

Competition Analysis

Competition Level: full-and-open

The contract was awarded under full and open competition, suggesting that multiple qualified bidders had the opportunity to submit proposals. This level of competition is generally favorable for price discovery and ensuring the government receives competitive terms. The presence of two bidders, as indicated by the 'no' field, provides a basis for comparison, though the specific details of the bidding process and the nature of the proposals would offer deeper insights into the competitive dynamics.

Taxpayer Impact: Full and open competition typically benefits taxpayers by driving down prices and encouraging innovation among bidders, leading to better value for the government's investment.

Public Impact

The primary beneficiaries are the Department of the Navy and its installations in Southern Maryland, ensuring reliable electric power distribution. The contract delivers essential electric power distribution services, maintaining operational readiness and infrastructure integrity. The geographic impact is concentrated in Maryland, specifically within the service area of Southern Maryland Electric Cooperative. Workforce implications may include the maintenance and operation of electrical infrastructure by SMECO employees, potentially supporting local jobs.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Long contract duration (nearly 50 years) could lead to vendor lock-in and reduced flexibility for future technological advancements or market changes.
Lack of explicit small business set-aside or subcontracting goals may limit opportunities for small businesses in this significant contract.
Dependence on a single utility provider for critical infrastructure raises concerns about service continuity and potential price increases over the long term.
The firm-fixed-price nature, while offering budget certainty, might disincentivize the contractor from proactively investing in efficiency improvements beyond basic maintenance.

Positive Signals

The firm-fixed-price contract provides budget predictability for the Department of Defense over the long term.
Full and open competition suggests a competitive award process, likely resulting in favorable initial pricing.
The extended duration indicates a strategic commitment to securing essential utility services for critical military operations.
The contractor, Southern Maryland Electric Cooperative, is an established utility provider, suggesting a degree of reliability and expertise.

Sector Analysis

This contract falls within the Utilities Privatization (UP) program, a mechanism used by the Department of Defense to transfer ownership and/or operation of utility systems to the private sector. This allows the military to focus on its core mission while leveraging private sector expertise and capital for infrastructure modernization and maintenance. The market for utility services, particularly for large government installations, is often characterized by long-term contracts and regulated pricing, with significant barriers to entry for new providers.

Small Business Impact

The contract data indicates that small business participation was not a specific set-aside goal (ss: false, sb: false). This suggests that the primary focus was on securing the utility service through full and open competition. While this may lead to competitive pricing, it also means that opportunities for small businesses to directly participate as prime contractors or through mandated subcontracting may be limited. Further investigation into SMECO's subcontracting plans would be necessary to assess the impact on the small business ecosystem.

Oversight & Accountability

Oversight for this contract would primarily reside with the Department of the Navy contracting officers and program managers responsible for utility services. The firm-fixed-price nature shifts some performance risk to the contractor, but the government retains oversight of service delivery, compliance with contract terms, and adherence to performance standards. Transparency is generally maintained through contract awards databases, but detailed operational oversight specifics are typically internal. Inspector General jurisdiction would apply in cases of fraud, waste, or abuse.

Related Government Programs

Department of Defense Utilities Privatization Program
Military Base Infrastructure Modernization
Electric Power Distribution Services
Long-Term Service Contracts

Risk Flags

Long-term contract duration
Potential for vendor lock-in
Limited small business participation noted
Lack of detailed performance metrics in summary data

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $21.0 million to SOUTHERN MARYLAND ELECTRIC COOPERATIVE, INC.. UTILITIES PRIVATIZATION CONTRACT FOR ELECTRIC DISTRIBUTION SERVICES

Who is the contractor on this award?

The obligated recipient is SOUTHERN MARYLAND ELECTRIC COOPERATIVE, INC..

Which agency awarded this contract?

Awarding agency: Department of Defense (Department of the Navy).

What is the total obligated amount?

The obligated amount is $21.0 million.

What is the period of performance?

Start: 2009-05-01. End: 2059-04-30.

What is the historical spending pattern for electric power distribution services at this specific Navy installation prior to this contract?

Analyzing historical spending on electric power distribution at the specific Navy installation prior to this contract is crucial for understanding the long-term financial commitment and potential value. Without specific historical data for this installation, we can infer that prior to privatization, the Navy likely managed its own electrical infrastructure or contracted with various providers for maintenance and power supply. This contract consolidates those needs under a single, long-term agreement with Southern Maryland Electric Cooperative. The shift to a privatization model often aims to achieve cost savings through private sector efficiencies and capital investment, suggesting that the government anticipates long-term benefits that outweigh the initial or ongoing costs compared to previous arrangements. However, a true comparison would require detailed historical expenditure records for the installation's electrical systems, including capital improvements, maintenance, and energy procurement costs.

How does the per-unit cost of electricity distribution under this contract compare to commercial rates in Southern Maryland?

Determining the precise per-unit cost of electricity distribution under this contract and comparing it to commercial rates in Southern Maryland is complex without specific rate breakdowns. The contract value of $20,981,133.28 over approximately 18,261 days (50 years) averages to roughly $1,148.97 per day. However, this figure represents the total contract value and not necessarily the cost of electricity units distributed. Utility privatization contracts often bundle infrastructure maintenance, upgrades, and service provision, making direct per-unit comparisons challenging. Southern Maryland Electric Cooperative (SMECO) is a member-owned electric cooperative, and its rates are regulated. To perform a valid comparison, one would need to isolate the distribution charges from the energy supply charges within the contract and compare these to SMECO's published commercial distribution rates for similar service levels in the region. Factors such as guaranteed load, infrastructure investment by SMECO, and the long-term nature of the agreement can influence the negotiated rates, potentially differing from standard commercial tariffs.

What are the key performance indicators (KPIs) and service level agreements (SLAs) associated with this contract?

The provided data does not explicitly detail the Key Performance Indicators (KPIs) or Service Level Agreements (SLAs) for this contract. However, for a long-term utility privatization contract of this nature, typical KPIs and SLAs would likely focus on reliability metrics such as outage frequency and duration (e.g., System Average Interruption Duration Index - SAIDI, System Average Interruption Frequency Index - SAIFI), response times for service restoration, maintenance schedules, power quality standards (voltage, frequency), and adherence to safety protocols. The firm-fixed-price structure implies that the contractor is responsible for meeting these performance standards to maintain the agreed-upon service level. The Department of the Navy would monitor these metrics to ensure the contractor fulfills its obligations, with potential penalties or incentives tied to performance outcomes. A thorough review of the contract's statement of work and appendices would be necessary to identify the specific KPIs and SLAs.

What is the track record of Southern Maryland Electric Cooperative (SMECO) in managing similar large-scale utility contracts, particularly with government entities?

Southern Maryland Electric Cooperative (SMECO) is a well-established electric utility cooperative serving Southern Maryland. Its primary function is providing electricity distribution and service to its members, which include residential, commercial, and industrial customers. While SMECO's core business is utility provision, its track record specifically with managing large-scale, long-term utility privatization contracts, particularly for government entities like the Department of Defense, is not explicitly detailed in the provided summary data. Typically, electric cooperatives focus on serving their member-owner base within their franchised territory. This contract represents a significant engagement with a federal agency, suggesting SMECO possesses the capacity and has met the requirements to secure such a long-term agreement. Assessing their broader track record would involve examining their history of infrastructure investment, reliability statistics, customer service ratings, and any prior experience with government contracts or similar privatization initiatives beyond their standard service provision.

What are the potential risks associated with the nearly 50-year duration of this contract?

The nearly 50-year duration of this contract presents several potential risks. Firstly, it creates a long-term dependency on a single provider, potentially limiting the government's flexibility to adopt new technologies or adapt to evolving energy landscapes. Secondly, over such an extended period, the risk of contractor underperformance or financial instability, though perhaps mitigated by SMECO's established nature, cannot be entirely discounted. Thirdly, the firm-fixed-price nature, while offering budget certainty, might disincentivize proactive infrastructure upgrades or efficiency improvements by the contractor beyond what is minimally required, potentially leading to aging infrastructure over the very long term. Lastly, market conditions, regulatory environments, and the government's own operational needs may change significantly over five decades, making the contract terms potentially misaligned with future realities. This necessitates robust oversight and potentially mechanisms for contract modification or review.

How does this contract align with the Department of Defense's broader strategy for energy resilience and infrastructure modernization?

This contract aligns with the Department of Defense's broader strategy for energy resilience and infrastructure modernization by leveraging private sector expertise and capital for essential utility services. The Utilities Privatization (UP) program, under which this contract likely falls, is a key initiative designed to improve the reliability, efficiency, and security of utility systems supporting military installations. By privatizing the operation and maintenance of electric distribution systems, the DoD can focus its resources on core military missions while ensuring that critical infrastructure is managed by specialized providers. This approach can facilitate necessary upgrades and modernization efforts that might be constrained by traditional government budgeting processes. The long-term nature of the contract suggests a strategic commitment to ensuring a stable and resilient power supply, which is fundamental to operational readiness and mission success across DoD facilities.

Industry Classification

NAICS: Utilities › Electric Power Generation, Transmission and Distribution › Electric Power Distribution

Product/Service Code: UTILITIES AND HOUSEKEEPING › UTILITIES

Competition & Pricing

Extent Competed: FULL AND OPEN COMPETITION

Solicitation Procedures: TWO STEP

Offers Received: 2

Pricing Type: FIRM FIXED PRICE (J)

Evaluated Preference: NONE

Contractor Details

Address: 15035 BURNT STORE RD, HUGHESVILLE, MD, 20637

Business Categories: Category Business, Corporate Entity Tax Exempt, Nonprofit Organization, Not Designated a Small Business

Financial Breakdown

Contract Ceiling: $27,292,415

Exercised Options: $27,292,415

Current Obligation: $20,981,133

Actual Outlays: $574,185

Contract Characteristics

Commercial Item: COMMERCIAL PRODUCTS/SERVICES PROCEDURES NOT USED

Cost or Pricing Data: NO

Timeline