Department of Defense awards $43.9M for automotive gasoline, with a significant portion allocated to a single delivery order

Contract Overview

Contract Amount: $43,938,220 ($43.9M)

Contractor: Okinawa Idemitsu K.K.

Awarding Agency: Department of Defense

Start Date: 2021-12-14

End Date: 2022-01-31

Contract Duration: 48 days

Daily Burn Rate: $915.4K/day

Competition Type: FULL AND OPEN COMPETITION

Pricing Type: FIXED PRICE WITH ECONOMIC PRICE ADJUSTMENT

Sector: Energy

Official Description: 8508747643!GASOLINE, AUTOMOTIVE

Plain-Language Summary

Department of Defense obligated $43.9 million to OKINAWA IDEMITSU K.K. for work described as: 8508747643!GASOLINE, AUTOMOTIVE Key points: 1. The contract value represents a substantial investment in fuel supply for military operations. 2. Competition dynamics for this fuel contract are crucial for ensuring cost-effectiveness. 3. Potential risks include price volatility in the global oil market and supply chain disruptions. 4. Performance context is tied to the timely and reliable delivery of essential fuel to military installations. 5. This contract falls within the broader energy and logistics support sector for the Department of Defense.

Value Assessment

Rating: good

The total award of $43.9M for automotive gasoline appears reasonable given the scale of military fuel needs. Benchmarking against similar large-scale fuel procurements by the Defense Logistics Agency (DLA) would provide further context. The fixed-price structure with economic price adjustment suggests an attempt to balance cost certainty with market fluctuations, which is a common practice for commodity-based contracts. However, a detailed analysis of the economic price adjustment mechanism is needed to fully assess value for money.

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 competitive process is designed to foster price discovery and encourage the most favorable terms for the government. The number of bidders and the specific terms of the bids would offer deeper insights into the level of competition and its impact on the final price. Without specific bid data, it's assumed that the competitive environment contributed to the negotiated price.

Taxpayer Impact: Full and open competition generally benefits taxpayers by driving down prices through market forces, ensuring that the government is not overpaying for goods and services.

Public Impact

Military personnel and operations at bases in Okinawa, Japan, are the primary beneficiaries of this fuel supply. The contract ensures the availability of essential automotive gasoline for logistical and operational support. Geographic impact is concentrated on U.S. military installations in Okinawa. Workforce implications are indirect, primarily supporting the logistics and transportation sectors within the military.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Potential for price increases due to the economic price adjustment clause if oil markets surge.
Dependence on a single large delivery order could pose logistical challenges if unforeseen issues arise.
Geopolitical instability in the region could impact fuel supply chains and pricing.

Positive Signals

Awarded under full and open competition, suggesting a competitive bidding process.
Fixed-price structure with economic price adjustment aims to mitigate extreme price volatility.
Contract supports critical operational needs for U.S. forces in a key strategic location.

Sector Analysis

This contract falls within the broader energy and logistics sector, specifically focusing on the procurement of refined petroleum products for military use. The market for aviation and automotive fuels is global and subject to significant price volatility influenced by geopolitical events, supply and demand dynamics, and refining capacity. Defense agencies are major consumers of fuel, and contracts like this are essential for maintaining operational readiness. Comparable spending benchmarks would involve analyzing other large fuel contracts awarded by DLA or other military branches for similar quantities and delivery locations.

Small Business Impact

There is no indication that this contract involved small business set-asides. Given the nature of large-scale fuel procurement and the specific contractor, it is unlikely that small businesses would be directly involved as prime contractors. Subcontracting opportunities for small businesses are not explicitly detailed but could potentially exist in areas such as transportation or specialized logistics services if the prime contractor utilizes them.

Oversight & Accountability

Oversight for this contract would primarily fall under the Defense Logistics Agency (DLA), which is responsible for procuring and distributing fuel to military installations worldwide. Accountability measures are embedded in the contract terms, including delivery schedules and quality specifications. Transparency is generally maintained through contract award databases, although detailed bid information is often proprietary. Inspector General (IG) jurisdiction would apply in cases of fraud, waste, or abuse related to the contract.

Related Government Programs

Defense Logistics Agency Fuel Procurement
Military Fuel Supply Contracts
Petroleum Product Procurement
Okinawa Military Base Support

Risk Flags

Potential for price volatility due to economic price adjustment clause.
Logistical risks associated with large-volume fuel delivery to a remote location.
Dependence on a single contractor for a critical supply.

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $43.9 million to OKINAWA IDEMITSU K.K.. 8508747643!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 $43.9 million.

What is the period of performance?

Start: 2021-12-14. End: 2022-01-31.

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

Analyzing historical spending for automotive gasoline by the Defense Logistics Agency (DLA) in Okinawa requires access to detailed procurement data over several fiscal years. Typically, DLA manages fuel contracts to ensure consistent supply to military installations. Spending patterns can fluctuate based on operational tempo, troop levels, fuel price volatility, and the specific contract vehicles used (e.g., fixed-price, cost-plus). Without specific historical data for this exact commodity and location, it's difficult to provide precise figures. However, it's reasonable to assume that DLA maintains significant, multi-million dollar annual budgets for fuel in strategic locations like Okinawa due to the large military presence and logistical requirements. Trends might show an increase in spending during periods of heightened military activity or a decrease if fuel efficiency measures are implemented or if alternative energy sources are adopted. The current $43.9M award provides a snapshot, but a trend analysis would reveal long-term spending behavior and potential cost-saving opportunities or areas of concern.

How does the pricing of this contract compare to market rates for automotive gasoline in the Okinawa region?

Comparing the pricing of this $43.9M automotive gasoline contract to regional market rates in Okinawa requires access to real-time or historical fuel pricing data specific to that geographic area. Factors influencing local prices include import costs, local taxes, refining margins, distribution expenses, and competitive dynamics among fuel suppliers in Okinawa. The contract's 'FIXED PRICE WITH ECONOMIC PRICE ADJUSTMENT' (FPEPA) clause complicates a direct comparison, as the final price is subject to adjustments based on an index, likely tied to global oil prices. To assess value, one would need to compare the base price and the potential adjustment range against prevailing market prices for similar fuel grades during the contract period (December 2021 - January 2022). If the adjusted price consistently remained above or below market benchmarks, it would indicate whether the government secured favorable or unfavorable pricing. Benchmarking against other government fuel contracts in the Pacific theater could also provide comparative insights.

What are the specific risks associated with relying on a single large delivery order for a critical commodity like gasoline?

Relying on a single large delivery order for a critical commodity like automotive gasoline, even if awarded through full and open competition, introduces several risks. Firstly, logistical challenges: coordinating the delivery of a massive quantity of fuel to a specific location like Okinawa requires robust logistical planning. Any disruption—such as shipping delays, port congestion, weather events, or unforeseen infrastructure issues at the receiving end—could significantly impact the availability of fuel. Secondly, storage and handling: managing and storing such a large volume of gasoline necessitates adequate and secure facilities. Issues with storage capacity, fuel quality degradation over time, or safety protocols could arise. Thirdly, price volatility: while the contract has an economic price adjustment, a sudden, sharp spike in global oil prices immediately following the order placement could lead to a higher-than-anticipated final cost if the adjustment mechanism is not sufficiently protective. Lastly, supplier dependency: although competitively sourced, a single large order places significant reliance on the awarded contractor's ability to fulfill the entire quantity as specified, potentially straining their resources and increasing the risk of partial non-performance.

What is the track record of OKINAWA IDEMITSU K.K. in fulfilling large government fuel contracts?

Assessing the track record of OKINAWA IDEMITSU K.K. in fulfilling large government fuel contracts requires examining their past performance data, including contract history, delivery timeliness, quality compliance, and any reported issues or disputes with government agencies. As a subsidiary or affiliate of Idemitsu Kosan, a major Japanese petroleum company, it likely possesses significant experience in fuel supply and logistics. However, specific performance metrics related to U.S. government contracts, particularly with the Defense Logistics Agency (DLA), would be the most relevant indicators. Information on past awards, contract values, and performance evaluations (often available through government contract databases or past performance reports) would shed light on their reliability. A history of successful, on-time deliveries and adherence to quality standards would suggest a low risk for this current contract. Conversely, any documented instances of delivery failures, quality issues, or contract disputes would raise concerns about their capacity and reliability for this significant award.

How does the 'FIXED PRICE WITH ECONOMIC PRICE ADJUSTMENT' clause typically function in fuel contracts, and what are its implications for cost certainty?

The 'FIXED PRICE WITH ECONOMIC PRICE ADJUSTMENT' (FPEPA) clause is commonly used in contracts for commodities like fuel, where prices are subject to significant market fluctuations. It establishes a base price for the goods or services, but includes a mechanism to adjust that price based on a pre-defined economic index or formula. For fuel contracts, this index is typically tied to published prices of crude oil or refined petroleum products (e.g., West Texas Intermediate, Brent Crude, or specific fuel indices). The 'economic price adjustment' allows the contract price to increase if the index rises and, in some cases, decrease if the index falls, thereby sharing the risk of price volatility between the government and the contractor. This provides a degree of cost certainty by setting a baseline and a predictable adjustment method, preventing extreme price swings from derailing the contract. However, it means the final cost is not fixed and can vary, impacting budget predictability. The specific formula and the frequency of adjustments are critical details that determine how much risk is transferred and how closely the final price tracks market movements.

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: $43,938,220

Exercised Options: $43,938,220

Current Obligation: $43,938,220

Contract Characteristics

Commercial Item: COMMERCIAL ITEM

Cost or Pricing Data: NO

Parent Contract

Parent Award PIID: SPE60521D1004

IDV Type: IDC

Timeline