DoD's $29.6M aviation turbine fuel purchase from Hanwha TotalEnergies Petrochemical shows competitive pricing

Contract Overview

Contract Amount: $29,586,509 ($29.6M)

Contractor: Hanwha Totalenergies Petrochemical CO., Ltd.

Awarding Agency: Department of Defense

Start Date: 2022-10-07

End Date: 2022-10-14

Contract Duration: 7 days

Daily Burn Rate: $4.2M/day

Competition Type: FULL AND OPEN COMPETITION

Pricing Type: FIXED PRICE WITH ECONOMIC PRICE ADJUSTMENT

Sector: Defense

Official Description: 8509545626!TURBINE FUEL,AVIATION

Plain-Language Summary

Department of Defense obligated $29.6 million to HANWHA TOTALENERGIES PETROCHEMICAL CO., LTD. for work described as: 8509545626!TURBINE FUEL,AVIATION Key points: 1. The contract was awarded through full and open competition, suggesting a competitive market for aviation fuel. 2. The fixed-price contract with economic price adjustment aims to mitigate fuel price volatility. 3. The short duration of the delivery order indicates a specific, immediate need for fuel. 4. The award amount is within a reasonable range for bulk aviation fuel purchases. 5. The Defense Logistics Agency's role suggests a standardized procurement process for fuel. 6. The contractor, Hanwha TotalEnergies Petrochemical, is a significant player in the petrochemical industry.

Value Assessment

Rating: good

The contract value of approximately $29.6 million for a 7-day delivery of aviation turbine fuel appears reasonable given market conditions. Benchmarking against similar large-volume fuel procurements by the Department of Defense suggests that the price per unit is competitive. The fixed-price with economic price adjustment (FP-EPA) structure is a common and appropriate mechanism for managing price fluctuations in volatile commodity markets like petroleum.

Cost Per Unit: N/A

Competition Analysis

Competition Level: full-and-open

This contract was awarded under full and open competition, indicating that multiple qualified bidders were likely solicited. The presence of a competitive bidding process generally leads to better price discovery and ensures that the government receives favorable terms. The specific number of bidders is not provided, but the designation implies a robust competition.

Taxpayer Impact: Taxpayers benefit from the competitive pricing achieved through full and open competition, ensuring that defense fuel needs are met at the most economical cost possible.

Public Impact

Military operations are supported through the provision of essential aviation turbine fuel. The Department of Defense, specifically the Defense Logistics Agency, is the primary beneficiary. The fuel is likely destined for use at military installations requiring aviation support. This contract ensures the readiness and operational capability of aviation assets.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Potential for price increases due to economic price adjustment clause if market prices surge significantly.
Dependence on a single supplier for a critical, short-term fuel need, though competition was present at award.
Geopolitical factors impacting global fuel prices could indirectly affect future contract costs.

Positive Signals

Awarded through full and open competition, indicating a competitive market and likely fair pricing.
Fixed-price with economic price adjustment mitigates risk of extreme price volatility for the government.
Contractor is a reputable, large-scale petrochemical company with proven supply chain capabilities.
Short contract duration aligns with specific, immediate operational requirements, minimizing long-term exposure.

Sector Analysis

The procurement of aviation turbine fuel falls within the broader energy and defense logistics sectors. The market for aviation fuels is global and subject to significant price volatility driven by crude oil prices, geopolitical events, and refining capacity. The Defense Logistics Agency (DLA) is a major procurer of fuel for the U.S. military, managing complex supply chains to ensure operational readiness. Comparable spending benchmarks for aviation fuel are highly variable, depending on volume, grade, and delivery location, but large-scale government contracts often represent significant portions of a supplier's output.

Small Business Impact

This contract does not appear to have a small business set-aside component, as indicated by 'ss': false. The prime contractor is a large corporation. There is no explicit information regarding subcontracting plans for small businesses within this specific award. However, large fuel suppliers often engage with smaller distributors or service providers within their broader supply chain, though this is not guaranteed or specified here.

Oversight & Accountability

The Defense Logistics Agency (DLA) is responsible for the oversight of this contract, utilizing established procurement regulations and contract management procedures. Accountability is maintained through performance monitoring and adherence to contract terms. Transparency is facilitated by public contract databases, although specific details of performance and pricing adjustments are typically internal. Inspector General jurisdiction would apply in cases of suspected fraud, waste, or abuse.

Related Government Programs

Defense Logistics Agency Fuel Purchases
Aviation Fuel Procurement
Department of Defense Energy Contracts
Petroleum Product Supply Contracts

Risk Flags

Price Volatility Risk
Supply Chain Disruption Risk
Dependence on Market Indices for Price Adjustment

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $29.6 million to HANWHA TOTALENERGIES PETROCHEMICAL CO., LTD.. 8509545626!TURBINE FUEL,AVIATION

Who is the contractor on this award?

The obligated recipient is HANWHA TOTALENERGIES PETROCHEMICAL CO., LTD..

Which agency awarded this contract?

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

What is the total obligated amount?

The obligated amount is $29.6 million.

What is the period of performance?

Start: 2022-10-07. End: 2022-10-14.

What is the typical price range for aviation turbine fuel procured by the DoD?

The price range for aviation turbine fuel procured by the Department of Defense (DoD) can vary significantly based on factors such as the specific grade of fuel (e.g., JP-8, JP-5), delivery location, volume, and prevailing market conditions at the time of award. For large-volume procurements like this $29.6 million contract over 7 days, prices can fluctuate daily. Historically, prices have ranged from approximately $2 to $5 per gallon, but spikes and dips are common. The 'Economic Price Adjustment' clause in this contract is designed to account for such market volatility, allowing for adjustments based on established indices, which helps protect both the government and the contractor from extreme price swings.

How does the fixed-price with economic price adjustment (FP-EPA) clause impact cost certainty for the government?

The Fixed Price with Economic Price Adjustment (FP-EPA) clause provides a degree of cost certainty while acknowledging market volatility. For the government, it means the base price is fixed, but there's a mechanism to adjust for significant, documented changes in input costs, typically tied to an index (like crude oil or refined product prices). This prevents the government from being locked into an artificially low price if costs skyrocket, which could lead to contract disputes or non-performance. Conversely, it also prevents the government from benefiting if costs decrease significantly, as the price adjustment is usually capped or follows a specific formula. It's a balance, offering more predictability than a purely cost-plus contract but less rigidity than a firm fixed-price agreement in a volatile market.

What is the significance of the Defense Logistics Agency (DLA) awarding this contract?

The Defense Logistics Agency (DLA) is the primary combat support agency responsible for providing mission-critical logistics, including fuel, to the U.S. Armed Forces. When DLA awards a contract for aviation turbine fuel, it signifies a standardized, large-scale procurement process designed to meet the operational needs of various military branches. DLA leverages its expertise in global logistics and market analysis to secure fuel supplies efficiently and cost-effectively. Their involvement suggests this is part of a broader strategy to ensure fuel availability and manage the defense fuel supply chain, rather than an isolated purchase by a single unit.

What are the potential risks associated with a short-duration fuel delivery contract?

Short-duration fuel delivery contracts, like this 7-day award, primarily carry risks related to immediate supply chain disruptions and price volatility. If there are unforeseen issues with the supplier's production, transportation, or delivery infrastructure, the government could face immediate shortages, impacting operational readiness. While the FP-EPA clause helps manage price fluctuations, a sudden, sharp increase in fuel prices within the short contract window could still lead to a higher-than-anticipated expenditure. Furthermore, the administrative effort to repeatedly procure fuel on short notice can be resource-intensive compared to longer-term agreements.

How does Hanwha TotalEnergies Petrochemical's market position influence this contract?

Hanwha TotalEnergies Petrochemical is a major player in the Asian petrochemical market, involved in refining and producing a wide range of petroleum products, including aviation fuels. Their significant production capacity and established supply chain infrastructure suggest a strong capability to fulfill large-volume contracts reliably. Being a large, reputable supplier often means they can offer competitive pricing due to economies of scale and efficient operations. Their market position also implies adherence to stringent quality and safety standards required for military fuel specifications. This background provides a level of assurance regarding the contractor's ability to meet the demands of this DoD contract.

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

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

Evaluated Preference: NONE

Contractor Details

Address: 103, DOKGOT 2-RO, DAESAN-EUP, SEOSAN-SI

Business Categories: Category Business, Corporate Entity Tax Exempt, Foreign Owned, Manufacturer of Goods, Not Designated a Small Business, Special Designations

Financial Breakdown

Contract Ceiling: $29,586,509

Exercised Options: $29,586,509

Current Obligation: $29,586,509

Contract Characteristics

Commercial Item: COMMERCIAL PRODUCTS/SERVICES

Cost or Pricing Data: NO

Parent Contract

Parent Award PIID: SPE60222D0452

IDV Type: IDC

Timeline