DoD's $38.6M gasoline contract awarded to OKINAWA IDEMITSU K.K. on Okinawa, Japan

Contract Overview

Contract Amount: $38,570,175 ($38.6M)

Contractor: Okinawa Idemitsu K.K.

Awarding Agency: Department of Defense

Start Date: 2023-12-21

End Date: 2024-01-31

Contract Duration: 41 days

Daily Burn Rate: $940.7K/day

Competition Type: FULL AND OPEN COMPETITION

Pricing Type: FIXED PRICE WITH ECONOMIC PRICE ADJUSTMENT

Sector: Energy

Official Description: 8510348735!GASOLINE, AUTOMOTIVE

Plain-Language Summary

Department of Defense obligated $38.6 million to OKINAWA IDEMITSU K.K. for work described as: 8510348735!GASOLINE, AUTOMOTIVE Key points: 1. Contract value represents a significant portion of annual fuel needs for U.S. forces on Okinawa. 2. Fixed Price with Economic Price Adjustment (FPEPA) contract type introduces potential for price fluctuations. 3. Competition dynamics for this contract are crucial for ensuring fair pricing in a potentially limited market. 4. Performance period is short, suggesting this may be a bridge contract or for specific, immediate needs. 5. The contract falls under the Petroleum Refineries industry, supporting essential operational logistics. 6. Oversight will be critical to manage price adjustments and ensure delivery meets operational demands.

Value Assessment

Rating: fair

The contract value of $38.6 million for a short duration (41 days) indicates a substantial per-day expenditure. Benchmarking this against similar fuel contracts for overseas bases is challenging without more granular data on volume and specific fuel types. The FPEPA clause introduces variability, making a direct value-for-money assessment difficult without tracking the economic adjustments. However, the presence of full and open competition suggests an attempt to secure competitive pricing.

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. The number of bidders is not specified, but this level of competition is generally positive for price discovery. However, the geographic location (Okinawa) might inherently limit the number of truly competitive bidders for specialized fuel supply.

Taxpayer Impact: Full and open competition is intended to drive down prices through market forces, potentially saving taxpayer dollars by ensuring the government receives the best possible offer.

Public Impact

U.S. military personnel and operations on Okinawa benefit from a reliable supply of automotive gasoline. Ensures the operational readiness and logistical support for Department of Defense activities in the Indo-Pacific region. The contract supports the local economy through the provision of essential fuel services. Impacts the transportation and logistics sector supporting military installations.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Economic Price Adjustment (EPA) clause could lead to costs exceeding initial estimates if fuel prices rise significantly.
Geographic isolation of Okinawa may present logistical challenges and limit alternative supply options.
Short contract duration might indicate a lack of long-term planning or potential for frequent re-competition, leading to administrative overhead.

Positive Signals

Awarded under full and open competition, suggesting a competitive bidding process.
The contractor, OKINAWA IDEMITSU K.K., is likely experienced in supplying fuel in the region.
Fixed price component provides some cost certainty, with adjustments only for documented economic factors.

Sector Analysis

This contract falls within the broader energy sector, specifically the distribution and supply of refined petroleum products. The market for supplying fuel to military installations overseas is often characterized by specific logistical requirements and potential geographic limitations. Comparable spending benchmarks would typically involve other fuel supply contracts for overseas bases, considering factors like volume, duration, and geopolitical location.

Small Business Impact

The provided data does not indicate any small business set-aside or subcontracting goals for this contract. Given the nature of large-scale fuel supply for military operations, it is less likely to be structured for significant small business participation directly, though indirect opportunities might exist within the supply chain.

Oversight & Accountability

Oversight for this contract would typically fall under the Defense Logistics Agency (DLA), which manages fuel procurement for the DoD. Accountability measures would include performance monitoring, adherence to delivery schedules, and verification of fuel quality. Transparency is generally maintained through contract award databases, though specific details of economic price adjustments may require further inquiry.

Related Government Programs

Defense Logistics Agency Fuel Contracts
Overseas Military Base Support Contracts
Automotive Gasoline Supply
Petroleum Product Procurement

Risk Flags

Potential for price volatility due to Economic Price Adjustment clause.
Limited competition due to geographic location.
Short contract duration may impact long-term supply stability and administrative costs.

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $38.6 million to OKINAWA IDEMITSU K.K.. 8510348735!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 $38.6 million.

What is the period of performance?

Start: 2023-12-21. End: 2024-01-31.

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

Analyzing historical spending on automotive gasoline for DoD on Okinawa requires accessing past contract awards. Without specific historical data, it's difficult to establish a precise pattern. However, fuel is a continuous requirement for military operations. Spending typically fluctuates based on operational tempo, troop levels, and prevailing market prices. Contracts are often awarded on an annual or multi-year basis, with mechanisms like Economic Price Adjustments (EPAs) to account for market volatility. The current $38.6 million contract for a short duration suggests either a specific surge in demand, a transition period between larger contracts, or a need to replenish stocks. Understanding the average annual spend and the typical contract durations would provide context for whether this award is typical, higher, or lower than historical averages.

How does the pricing structure (Fixed Price with Economic Price Adjustment) typically impact the final cost compared to a firm fixed price contract?

A Fixed Price with Economic Price Adjustment (FPEPA) contract aims to balance cost certainty for the government with protection against uncontrollable market fluctuations for the contractor. Unlike a Firm Fixed Price (FFP) contract where the price is set regardless of market changes, FPEPA allows for price adjustments based on pre-defined economic indicators (e.g., commodity indices, currency exchange rates). This can be beneficial when procuring goods subject to volatile global markets, like petroleum. For taxpayers, FPEPA can prevent cost overruns due to external factors but also carries the risk of increased costs if market prices rise significantly. The effectiveness depends on the fairness and accuracy of the chosen economic adjustment formula and robust oversight to ensure adjustments are justified.

What are the potential risks associated with a short contract duration (41 days) for fuel supply?

A short contract duration, like the 41 days for this gasoline supply, presents several potential risks. Firstly, it can lead to increased administrative costs due to the frequent need for re-solicitation and contract award processes. Secondly, it may discourage potential bidders who prefer longer-term commitments, potentially reducing competition and leading to higher prices. Thirdly, it could create supply chain instability if a follow-on contract is delayed, risking operational disruptions for the end-users. Finally, it might indicate a lack of strategic planning or an inability to secure a longer-term agreement, possibly due to unresolved issues or market uncertainties.

What is the typical profit margin for fuel suppliers to the Department of Defense in overseas locations?

Determining the typical profit margin for fuel suppliers to the Department of Defense in overseas locations is complex and not directly ascertainable from the contract data provided. Profit margins are influenced by numerous factors including the level of competition, logistical costs, geopolitical risks, contract type, and the specific services rendered. While contracts are awarded based on the best value to the government, which includes price, the profit margin is embedded within the overall bid price. Government agencies do not typically disclose specific profit margins of contractors. However, regulatory oversight and competitive bidding processes are designed to ensure that prices are fair and reasonable, implicitly limiting excessive profit.

How does the geographic location (Okinawa) influence the competition and pricing for this fuel contract?

The geographic location of Okinawa significantly influences both competition and pricing for this fuel contract. Okinawa is an island, and its remote location in the Indo-Pacific region presents logistical challenges for fuel transportation and storage. This can limit the pool of potential bidders to those with established infrastructure and expertise in the region, potentially reducing the level of 'full and open' competition in practice. Furthermore, the costs associated with shipping, handling, and potentially maintaining local storage facilities on Okinawa are likely higher than in continental U.S. locations. These factors contribute to the overall price of the fuel and may necessitate specific contract clauses, like Economic Price Adjustments, to account for the unique market dynamics and risks associated with operating in such a location.

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: $38,570,175

Exercised Options: $38,570,175

Current Obligation: $38,570,175

Contract Characteristics

Commercial Item: COMMERCIAL PRODUCTS/SERVICES

Cost or Pricing Data: NO

Parent Contract

Parent Award PIID: SPE60521D1004

IDV Type: IDC

Timeline