Department of Defense awards $39.8M for automotive gasoline, with a fixed-price contract featuring economic price adjustments

Contract Overview

Contract Amount: $39,848,126 ($39.8M)

Contractor: Okinawa Idemitsu K.K.

Awarding Agency: Department of Defense

Start Date: 2023-09-29

End Date: 2023-11-30

Contract Duration: 62 days

Daily Burn Rate: $642.7K/day

Competition Type: FULL AND OPEN COMPETITION

Pricing Type: FIXED PRICE WITH ECONOMIC PRICE ADJUSTMENT

Sector: Other

Official Description: 8510182493!GASOLINE, AUTOMOTIVE

Plain-Language Summary

Department of Defense obligated $39.8 million to OKINAWA IDEMITSU K.K. for work described as: 8510182493!GASOLINE, AUTOMOTIVE Key points: 1. Contract value of $39.8M for automotive gasoline indicates significant demand for fuel within the Defense Logistics Agency. 2. The use of a fixed-price contract with economic price adjustment suggests a strategy to manage fluctuating fuel costs. 3. Competition dynamics for this contract are characterized as 'FULL AND OPEN COMPETITION', implying a broad market engagement. 4. The contract duration of 62 days points to a short-term requirement for fuel supply. 5. The primary contractor, OKINAWA IDEMITSU K.K., is a key player in the petroleum supply chain. 6. The North American Industry Classification System (NAICS) code 324110 categorizes the work under Petroleum Refineries. 7. The absence of small business set-aside flags suggests this contract was not specifically targeted towards small businesses.

Value Assessment

Rating: fair

The contract value of $39.8 million for automotive gasoline over a 62-day period represents a substantial expenditure. Without specific benchmarks for fuel procurement in this region or for this exact product specification, a precise value-for-money assessment is challenging. However, the fixed-price nature with economic price adjustment aims to provide cost certainty while allowing for market fluctuations. Comparing this to similar large-volume fuel contracts would be necessary for a more definitive value assessment.

Cost Per Unit: N/A

Competition Analysis

Competition Level: full-and-open

The contract was awarded under 'FULL AND OPEN COMPETITION', indicating that all responsible sources were permitted to submit bids. This suggests a competitive environment where multiple suppliers had the opportunity to offer their services. The specific number of bidders is not provided, but the open competition is generally expected to drive more competitive pricing and better terms for the government.

Taxpayer Impact: Full and open competition is beneficial for taxpayers as it maximizes the potential for cost savings by encouraging a wide range of suppliers to bid, leading to potentially lower prices and better quality.

Public Impact

Military operations and readiness are supported through the provision of essential automotive gasoline. Personnel and equipment operating in the Okinawa region are directly impacted by the availability of this fuel. The contract ensures the logistical supply chain for fuel remains robust for defense activities. The workforce involved includes personnel in logistics, procurement, and potentially those operating vehicles requiring this fuel.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Potential for price volatility due to economic price adjustment clause, requiring careful monitoring.
Dependence on a single contractor for a critical resource in a specific geographic location.
Short contract duration may lead to frequent re-competition and associated administrative overhead.

Positive Signals

Awarded under full and open competition, suggesting a competitive bidding process.
Fixed-price contract structure provides a degree of cost control.
Contractor is an established entity in the petroleum industry.

Sector Analysis

The petroleum refining and distribution sector is critical for national security and economic stability, providing essential fuels for transportation, industry, and military operations. The market is characterized by large, integrated companies and significant global supply chain dynamics. Government fuel procurement, particularly for defense purposes, represents a substantial segment of this market, often requiring specialized logistics and adherence to strict quality standards. This contract for automotive gasoline fits within the broader category of energy and fuels procurement, a vital component of defense logistics.

Small Business Impact

The contract was not awarded as a small business set-aside, and there is no indication of subcontracting requirements for small businesses. This suggests that the primary focus was on securing the most competitive offer from the broader market, rather than specifically promoting small business participation in this particular procurement.

Oversight & Accountability

Oversight for this contract would typically fall under the Defense Logistics Agency's procurement and contract management procedures. Accountability measures are inherent in the fixed-price contract structure, with performance tied to delivery and quality specifications. Transparency is generally maintained through contract award databases, though specific performance metrics and oversight reports may not be publicly detailed. Inspector General jurisdiction would apply in cases of fraud, waste, or abuse.

Related Government Programs

Defense Fuel Supply Center
Military Fuel Procurement
Automotive Fuels
Petroleum Products

Risk Flags

Economic Price Adjustment Clause
Short Contract Duration
Geographic Concentration of Supply

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $39.8 million to OKINAWA IDEMITSU K.K.. 8510182493!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 $39.8 million.

What is the period of performance?

Start: 2023-09-29. End: 2023-11-30.

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

Analyzing historical spending for automotive gasoline by the Defense Logistics Agency (DLA) in the Okinawa region requires access to detailed procurement data over multiple fiscal years. Typically, DLA manages fuel contracts globally to support military operations. Spending patterns can fluctuate based on operational tempo, troop presence, fuel price volatility, and the specific contract vehicles in use. Without direct access to DLA's historical contract awards for this specific item and location, it's difficult to provide precise figures. However, it is reasonable to assume consistent demand for automotive gasoline to support ground transportation assets. The current contract's value of approximately $39.8 million over two months suggests a significant, ongoing requirement that likely represents a portion of a larger, potentially multi-year fuel supply strategy for the region.

How does the economic price adjustment (EPA) clause in this contract typically function and what are its implications for cost certainty?

An Economic Price Adjustment (EPA) clause in a fixed-price contract allows for an upward or downward revision of the contract price based on specified economic factors, most commonly fluctuations in the cost of labor or materials. For automotive gasoline, this typically means the price can be adjusted based on published indices for crude oil, refined petroleum products, or transportation costs. The primary implication for cost certainty is that while the base price might be fixed, the final price paid can vary. This protects the contractor from unforeseen market shocks that could otherwise make the contract unprofitable, but it introduces variability for the government. The DLA likely has specific formulas and trigger points defined in the contract to govern these adjustments, aiming to balance risk between the parties and reflect genuine market changes rather than speculative increases.

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

Determining the typical profit margin for contractors supplying bulk automotive gasoline to the Department of Defense (DoD) in overseas locations is complex and not publicly disclosed in detail. Profit margins are influenced by numerous factors, including the specific contract type (e.g., fixed-price with EPA), the level of competition, the contractor's operational efficiency, logistical costs, geopolitical risks, and the prevailing market conditions in the region. While fixed-price contracts generally aim for a specific profit margin, the EPA clause can alter the final profitability. Industry standards for fuel distribution can vary, but margins are often considered relatively thin in high-volume, commodity-based markets. DoD contracts are subject to oversight, and while profit is a legitimate component, excessive profits are generally scrutinized. Without specific bid data or post-award analysis from the Defense Contract Audit Agency (DCAA), providing a precise typical margin is speculative.

What are the potential risks associated with a short contract duration (62 days) for fuel supply?

A short contract duration of 62 days for fuel supply presents several potential risks. Firstly, it necessitates frequent re-competition, which incurs administrative costs and requires continuous effort from both the contracting agency and potential bidders. This can lead to less stable supply chains if contractors are hesitant to invest in infrastructure or personnel for such short-term engagements. Secondly, a short window might not allow for the full benefits of economies of scale or long-term supplier relationships to be realized, potentially leading to higher per-unit costs compared to longer-term contracts. Thirdly, it increases the risk of supply disruptions if a new contract award is delayed or if the incumbent contractor is unwilling to extend services, especially in a critical operational area like Okinawa.

How does the 'Petroleum Refineries' NAICS code (324110) relate to the actual service of supplying automotive gasoline via a delivery order?

The North American Industry Classification System (NAICS) code 324110, 'Petroleum Refineries,' primarily describes establishments primarily engaged in refining crude petroleum into fuels and other products. While the contractor, OKINAWA IDEMITSU K.K., may operate refineries, this specific contract is for the supply of automotive gasoline, likely through a delivery order against a broader contract vehicle. The NAICS code assigned to a contract often reflects the primary industry of the performing entity or the nature of the goods/services procured. In this case, it indicates the source industry for the gasoline. However, the actual performance involves distribution and delivery, which might fall under different, though related, industry classifications. The use of a delivery order suggests this is a call against an existing contract, potentially for a specific quantity and delivery location, rather than a standalone contract for refining services.

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: $39,848,126

Exercised Options: $39,848,126

Current Obligation: $39,848,126

Contract Characteristics

Commercial Item: COMMERCIAL PRODUCTS/SERVICES

Cost or Pricing Data: NO

Parent Contract

Parent Award PIID: SPE60521D1004

IDV Type: IDC

Timeline