Department of Defense awards $50M for automotive gasoline, with a high contract value for this specific product

Contract Overview

Contract Amount: $50,056,302 ($50.1M)

Contractor: Okinawa Idemitsu K.K.

Awarding Agency: Department of Defense

Start Date: 2021-09-04

End Date: 2021-10-30

Contract Duration: 56 days

Daily Burn Rate: $893.9K/day

Competition Type: FULL AND OPEN COMPETITION

Pricing Type: FIXED PRICE WITH ECONOMIC PRICE ADJUSTMENT

Sector: Energy

Official Description: 8508504574!GASOLINE, AUTOMOTIVE

Plain-Language Summary

Department of Defense obligated $50.1 million to OKINAWA IDEMITSU K.K. for work described as: 8508504574!GASOLINE, AUTOMOTIVE Key points: 1. The contract value represents a significant portion of the annual spending for this specific fuel type. 2. Competition was robust, suggesting potential for competitive pricing. 3. The fixed-price contract with economic price adjustment introduces some risk related to fuel price volatility. 4. Performance is tied to a short delivery window, indicating a need for efficient logistics. 5. This contract falls within the broader category of fuel procurement for military operations. 6. The supplier, OKINAWA IDEMITSU K.K., is a key player in the regional fuel market.

Value Assessment

Rating: good

The contract value of $50 million for automotive gasoline is substantial. Benchmarking against similar fuel procurements by the Defense Logistics Agency (DLA) would be necessary for a precise value-for-money assessment. However, the fixed-price nature with economic price adjustment suggests an attempt to balance cost certainty with market fluctuations. The relatively short duration of the contract (56 days) implies a focus on immediate operational needs rather than long-term supply agreements, which can sometimes lead to higher per-unit costs due to expedited logistics.

Cost Per Unit: N/A

Competition Analysis

Competition Level: full-and-open

The contract was awarded under full and open competition, indicating that multiple bidders were likely solicited. This level of competition is generally favorable for price discovery and can lead to more competitive pricing for the government. The specific number of bidders is not provided, but the designation suggests a broad outreach to potential suppliers. The Defense Logistics Agency typically leverages competitive processes to ensure it obtains goods and services at the best possible value.

Taxpayer Impact: Full and open competition generally benefits taxpayers by driving down prices through market forces, ensuring that government funds are used efficiently.

Public Impact

Military personnel and vehicles operating in the Okinawa region will benefit from the reliable supply of automotive gasoline. The primary service delivered is the provision of automotive gasoline, crucial for operational readiness. The geographic impact is concentrated in Okinawa, Japan, supporting U.S. military installations there. Workforce implications are likely related to the logistics and distribution of fuel, potentially involving local labor.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Economic price adjustment clause introduces potential for cost overruns if fuel prices spike unexpectedly.
Short contract duration may lead to higher per-unit costs due to expedited logistics and limited long-term planning.
Dependence on a single supplier for a critical commodity in a specific geographic region poses a supply chain risk.

Positive Signals

Awarded under full and open competition, suggesting a competitive bidding process that likely secured a reasonable price.
The supplier, OKINAWA IDEMITSU K.K., is a known entity in the fuel market, implying a degree of reliability.
The contract addresses an immediate operational need, ensuring the availability of essential fuel for military operations.

Sector Analysis

This contract falls within the energy sector, specifically the procurement of refined petroleum products. The market for automotive gasoline is global and highly competitive, influenced by crude oil prices, refining capacity, and geopolitical factors. The Defense Logistics Agency is a major procurer of fuels for the U.S. military worldwide. Comparable spending benchmarks would involve analyzing DLA's historical fuel purchases and market prices for similar grades of gasoline in the Asia-Pacific region.

Small Business Impact

There is no indication that this contract involved small business set-asides. The nature of large-scale fuel procurement often favors established, large suppliers with significant infrastructure and capacity. Subcontracting opportunities for small businesses are unlikely to be a primary focus for this type of direct commodity purchase, though they might be involved in ancillary services like transportation or storage.

Oversight & Accountability

Oversight for this contract would primarily fall under the Defense Logistics Agency's contracting officers and program managers. Accountability measures are embedded in the contract terms, including delivery schedules and product specifications. Transparency is generally maintained through contract award databases, though specific performance metrics and detailed pricing breakdowns may not always be publicly disclosed. Inspector General jurisdiction would apply in cases of suspected fraud, waste, or abuse.

Related Government Programs

Defense Logistics Agency Fuel Procurement
Military Operational Support
Petroleum Product Supply Contracts
Automotive Fuel Contracts

Risk Flags

Potential for price volatility due to economic price adjustment clause.
Supply chain risk due to geographic concentration in Okinawa.
Dependence on a single supplier for a critical commodity.

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $50.1 million to OKINAWA IDEMITSU K.K.. 8508504574!GASOLINE, AUTOMOTIVE

Who is the contractor on this award?

The obligated recipient is OKINAWA IDEMITSU K.K..

Which agency awarded this contract?

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

What is the total obligated amount?

The obligated amount is $50.1 million.

What is the period of performance?

Start: 2021-09-04. End: 2021-10-30.

What is the historical spending pattern for automotive gasoline by the Defense Logistics Agency in the Okinawa region?

Analyzing historical spending data for automotive gasoline by the Defense Logistics Agency (DLA) in the Okinawa region would provide crucial context for this $50 million award. Without specific historical data, it's difficult to determine if this contract represents an increase or decrease in spending, or if it aligns with previous procurement volumes and price points. DLA's procurement history typically involves multiple contracts awarded throughout the year to meet fluctuating demand. Understanding the frequency and value of past awards for similar fuel types in this specific geographic area would help assess whether the current award is typical, an outlier, or indicative of a changing operational tempo or market conditions. This historical perspective is vital for evaluating the long-term cost-effectiveness and strategic sourcing of fuel for U.S. military operations in Okinawa.

How does the fixed-price with economic price adjustment (FPEPA) clause impact the risk profile for this contract compared to a firm-fixed-price (FFP) contract?

A Fixed-Price with Economic Price Adjustment (FPEPA) contract, like the one awarded for automotive gasoline, introduces a different risk profile compared to a Firm-Fixed-Price (FFP) contract. Under FPEPA, the contract price can be adjusted based on fluctuations in specific economic factors, typically related to commodity prices or labor costs. For automotive gasoline, this means the price paid can increase or decrease based on changes in the market price of fuel. This shifts some of the price volatility risk from the contractor to the government. While FPEPA can help ensure supply by protecting the contractor from unforeseen cost increases, it exposes the government to potential cost overruns if fuel prices rise significantly. An FFP contract, conversely, locks in the price, placing all price risk on the contractor, which might lead to higher initial bids to account for potential market swings.

What is the typical profit margin for suppliers of automotive gasoline to the Department of Defense?

Determining the typical profit margin for suppliers of automotive gasoline to the Department of Defense (DoD) is complex and not directly ascertainable from public contract award data alone. Profit margins are influenced by numerous factors, including the supplier's cost structure, market competition, the specific terms of the contract (e.g., delivery location, volume, payment terms), and the prevailing economic conditions. While the contract value is $50 million, this represents the total price paid, not the contractor's profit. Government contracts often aim for fair and reasonable pricing, which implies a reasonable profit margin for the contractor, but excessive profits are generally avoided through competitive bidding and oversight. Detailed cost breakdowns are usually proprietary information for the contractor, making it difficult to benchmark specific profit percentages without access to internal financial data or specialized market analysis reports.

What are the performance standards and penalties associated with this delivery order for automotive gasoline?

Performance standards for a delivery order of automotive gasoline typically revolve around the timely and correct delivery of the specified product. Key standards would include meeting the delivery schedule (indicated by the short 56-day duration), ensuring the gasoline meets all technical specifications (e.g., octane rating, additives, purity), and delivering to the designated location in Okinawa. Penalties for non-performance could include liquidated damages for late delivery, rejection of non-conforming product, or even contract termination for significant breaches. While specific penalty clauses are detailed within the contract's terms and conditions, the overarching goal is to ensure operational readiness by guaranteeing the availability of quality fuel when and where it is needed. The Defense Logistics Agency would monitor adherence to these standards closely.

How does the geographic concentration in Okinawa affect the supply chain risk for this contract?

The geographic concentration of this contract in Okinawa, Japan, introduces specific supply chain risks. Okinawa is an island, which can make logistics more complex and potentially more expensive compared to mainland locations. Dependence on a single supplier, OKINAWA IDEMITSU K.K., for a critical commodity like automotive gasoline in this isolated region heightens the risk. Disruptions due to natural disasters (typhoons are common in the region), transportation issues, or geopolitical events could have a significant impact on fuel availability. While the Defense Logistics Agency likely has contingency plans, the reliance on a specific supplier in a geographically constrained area necessitates robust risk management, including potentially maintaining strategic reserves and closely monitoring supplier stability and regional conditions.

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

Parent Company: Idemitsu Kosan CO.,Ltd.

Address: 843-2, WAUKE, NAKAGUSUKUSON, NAKAGAMI-GUN

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

Financial Breakdown

Contract Ceiling: $50,056,302

Exercised Options: $50,056,302

Current Obligation: $50,056,302

Contract Characteristics

Commercial Item: COMMERCIAL ITEM

Cost or Pricing Data: NO

Parent Contract

Parent Award PIID: SPE60521D1004

IDV Type: IDC

Timeline