DoD's $44.2M gasoline contract awarded to OKINAWA IDEMITSU K.K. for 41 days

Contract Overview

Contract Amount: $44,226,472 ($44.2M)

Contractor: Okinawa Idemitsu K.K.

Awarding Agency: Department of Defense

Start Date: 2023-09-20

End Date: 2023-10-31

Contract Duration: 41 days

Daily Burn Rate: $1.1M/day

Competition Type: FULL AND OPEN COMPETITION

Pricing Type: FIXED PRICE WITH ECONOMIC PRICE ADJUSTMENT

Sector: Other

Official Description: 8510158551!GASOLINE, AUTOMOTIVE

Plain-Language Summary

Department of Defense obligated $44.2 million to OKINAWA IDEMITSU K.K. for work described as: 8510158551!GASOLINE, AUTOMOTIVE Key points: 1. Contract value represents a significant expenditure for a short-duration fuel supply. 2. Limited competition dynamics may impact overall cost-effectiveness. 3. Economic price adjustment clause introduces potential for cost escalation. 4. Performance period is exceptionally brief, suggesting an urgent or specific need. 5. Sector positioning within petroleum refineries indicates a focus on essential fuel commodities. 6. The contract's fixed-price nature with adjustments requires careful monitoring of market fluctuations.

Value Assessment

Rating: fair

The contract value of $44.2 million for a 41-day period suggests a high daily burn rate. Without comparable contracts for automotive gasoline in the Okinawa region, it is difficult to definitively benchmark value. However, the inclusion of an economic price adjustment clause introduces uncertainty regarding the final cost and potential for overspending if market prices rise significantly.

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. However, the specific number of bidders is not provided, which limits the assessment of the competitive landscape. A robust competition typically leads to better price discovery and potentially lower costs for the government.

Taxpayer Impact: While full and open competition is generally favorable for taxpayers, the absence of specific bidder numbers prevents a definitive conclusion on whether the best possible price was achieved.

Public Impact

Military operations in Okinawa benefit from a reliable supply of automotive gasoline. The contract ensures the availability of fuel for vehicles and equipment supporting DoD missions. Geographic impact is concentrated in Okinawa, Japan. Workforce implications are minimal as this is a supply contract, not a service requiring significant labor.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Economic price adjustment clause could lead to costs exceeding initial estimates.
Short contract duration may indicate a reactive procurement rather than strategic planning.
Lack of specific bidder count makes it hard to confirm optimal price discovery.

Positive Signals

Awarded under full and open competition, suggesting a broad search for suppliers.
Fixed-price contract type provides some cost certainty, albeit with adjustments.
Ensures critical fuel supply for military operations in a key region.

Sector Analysis

This contract falls within the petroleum refining sector, specifically for automotive gasoline. The market for refined petroleum products is global and subject to significant price volatility based on geopolitical events, supply and demand, and refining capacity. The size of this specific contract is substantial for a short-term fuel requirement, highlighting the critical nature of fuel logistics for military operations in the Indo-Pacific region.

Small Business Impact

There is no indication that this contract involved small business set-asides or subcontracting opportunities. The nature of large-scale fuel procurement often involves major suppliers, potentially limiting direct participation by small businesses unless they are part of a larger supply chain.

Oversight & Accountability

Oversight for this contract would typically fall under the Defense Logistics Agency (DLA), responsible for providing logistics support to the DoD. Accountability measures are inherent in the contract's performance requirements and payment terms. Transparency is facilitated by the contract award notice, though further details on the competitive process and pricing structure would enhance public understanding.

Related Government Programs

Defense Fuel Supply Center contracts
Petroleum product procurement
DoD fuel logistics
Indo-Pacific region military support

Risk Flags

Economic Price Adjustment Clause
Short Contract Duration
Potential for Price Volatility

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $44.2 million to OKINAWA IDEMITSU K.K.. 8510158551!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 $44.2 million.

What is the period of performance?

Start: 2023-09-20. End: 2023-10-31.

What is the historical spending pattern for automotive gasoline in Okinawa by the Department of Defense?

Analyzing historical spending for automotive gasoline in Okinawa by the Department of Defense requires access to detailed procurement databases. However, general trends indicate that fuel costs for military installations abroad are significant and subject to fluctuations based on global oil prices and local market conditions. Contracts of this nature are often awarded on a recurring basis to ensure supply continuity. Without specific historical data for this exact commodity and location, it's challenging to establish a precise pattern. However, the $44.2 million for a 41-day period suggests a substantial, potentially recurring, need for fuel in this strategic location. Factors like the number of personnel, vehicles, and operational tempo directly influence demand and, consequently, spending.

How does the economic price adjustment (EPA) clause typically function in fuel contracts, and what are the potential risks?

An Economic Price Adjustment (EPA) clause in a contract allows for modifications to the price based on fluctuations in specific economic factors, such as the cost of raw materials or labor. For fuel contracts, EPA clauses often tie the price to a published index, like the Average Civilian Motor Gasoline Prices, U.S. / All Formulations, reported by the U.S. Energy Information Administration (EIA). This mechanism aims to protect both the contractor from unforeseen cost increases and the government from paying inflated prices if market costs decrease. The primary risk for the government is that the price could increase significantly if the referenced index rises substantially during the contract period, potentially leading to costs exceeding initial budget estimates. Careful monitoring of the index and contract terms is crucial.

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

Determining the exact profit margin for contractors supplying automotive gasoline to the Department of Defense is complex, as it depends on various factors including the contract type, competition level, specific services provided (e.g., delivery, storage), and the contractor's own cost structure. Fixed-price contracts, even with economic price adjustments, aim to provide a reasonable profit margin while incentivizing efficiency. Government contracts often include provisions for profit, but these are not typically disclosed publicly in award notices. However, industry standards for fuel distribution and supply can offer a general benchmark. Profit margins in commodity supply can be relatively thin, often in the single-digit percentages, with larger volumes and efficiencies being key to profitability. The EPA clause can also influence the realized profit by mitigating some cost risks for the contractor.

What are the implications of awarding a short-term contract (41 days) for a critical commodity like gasoline?

Awarding a short-term contract, like this 41-day delivery order for automotive gasoline, often indicates an urgent need or a gap-filling requirement. It could be a bridge to a longer-term contract, a response to an unexpected surge in demand, or a way to procure a specific quantity for a limited-duration operation. The implications include potentially higher per-unit costs compared to longer-term agreements, as contractors may factor in the administrative overhead and uncertainty of short-term engagements. It also suggests less opportunity for strategic sourcing and long-term relationship building with suppliers. For the government, it necessitates a more frequent procurement cycle, increasing administrative burden and the risk of supply disruptions if follow-on contracts are not secured in time.

How does the geographic location (Okinawa) influence the cost and logistics of this gasoline contract?

The geographic location of Okinawa significantly influences the cost and logistics of this gasoline contract. As an island, Okinawa relies heavily on imported fuel, which adds transportation costs (shipping, handling) to the base price of gasoline. Furthermore, the logistical challenges of operating in a remote location, potentially involving specific port facilities and distribution networks, can increase operational expenses for the supplier. The presence of a large U.S. military base also creates a concentrated demand, which can be both an advantage (volume) and a challenge (infrastructure capacity). These factors contribute to the overall price, making fuel in Okinawa potentially more expensive than in mainland locations with more robust domestic refining and distribution infrastructure.

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: 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: $44,226,472

Exercised Options: $44,226,472

Current Obligation: $44,226,472

Contract Characteristics

Commercial Item: COMMERCIAL PRODUCTS/SERVICES

Cost or Pricing Data: NO

Parent Contract

Parent Award PIID: SPE60521D1004

IDV Type: IDC

Timeline