DoD's $42.2M Gasoline Contract with OKINAWA IDEMITSU K.K. Faces Scrutiny Over Pricing and Competition

Contract Overview

Contract Amount: $42,253,821 ($42.3M)

Contractor: Okinawa Idemitsu K.K.

Awarding Agency: Department of Defense

Start Date: 2024-03-27

End Date: 2024-04-30

Contract Duration: 34 days

Daily Burn Rate: $1.2M/day

Competition Type: FULL AND OPEN COMPETITION

Pricing Type: FIXED PRICE WITH ECONOMIC PRICE ADJUSTMENT

Sector: Defense

Official Description: 8510536860!GASOLINE, AUTOMOTIVE

Plain-Language Summary

Department of Defense obligated $42.3 million to OKINAWA IDEMITSU K.K. for work described as: 8510536860!GASOLINE, AUTOMOTIVE Key points: 1. Significant spending on automotive gasoline for the Department of Defense. 2. Competition method is 'Full and Open', suggesting potential for competitive pricing. 3. Contract type 'Fixed Price with Economic Price Adjustment' introduces price volatility risk. 4. The sector is Defense Logistics, a critical but often high-cost area.

Value Assessment

Rating: fair

The contract value of $42.2M for a 34-day period is substantial. Benchmarking against similar fixed-price with economic adjustment contracts for bulk fuel purchases is necessary to assess if the pricing is competitive, especially considering the economic adjustment clause which can inflate costs.

Cost Per Unit: N/A

Competition Analysis

Competition Level: full-and-open

The contract was awarded under full and open competition, which is positive for price discovery. However, the effectiveness of this competition in securing the best price is moderated by the economic price adjustment clause, which can lead to costs exceeding initial bids.

Taxpayer Impact: Taxpayer funds are being used for essential fuel procurement. While competition is present, the economic price adjustment mechanism warrants close monitoring to ensure costs remain reasonable and do not unduly burden taxpayers.

Public Impact

Ensures fuel availability for military operations in Okinawa. Potential for fluctuating fuel costs impacting budget predictability. Supports a key supplier in the region for defense logistics.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Economic price adjustment clause may lead to cost overruns.
Short contract duration (34 days) may indicate urgent need or limited long-term planning.
Lack of small business participation noted.

Positive Signals

Awarded under full and open competition.
Supports critical defense logistics operations.

Sector Analysis

This contract falls within the Defense Logistics sector, specifically for petroleum products. Spending benchmarks for fuel procurement can vary widely based on geopolitical factors, market prices, and contract terms. The $42.2M for a short duration suggests a significant operational requirement.

Small Business Impact

The data indicates that small businesses were not involved in this specific contract, as 'sb' is false and 'st' is empty. This suggests that the prime contractor, OKINAWA IDEMITSU K.K., is likely a large entity, and opportunities for small business subcontracting may have been missed.

Oversight & Accountability

Oversight is crucial for contracts with economic price adjustment clauses. The Defense Logistics Agency should actively monitor fuel price indices and the justification for any price adjustments to ensure fairness and prevent potential fraud or abuse.

Related Government Programs

Petroleum Refineries
Department of Defense Contracting
Defense Logistics Agency Programs

Risk Flags

Economic Price Adjustment Clause
Potential for Cost Overruns
Lack of Small Business Participation
Short Contract Duration

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $42.3 million to OKINAWA IDEMITSU K.K.. 8510536860!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 $42.3 million.

What is the period of performance?

Start: 2024-03-27. End: 2024-04-30.

What is the benchmark price per gallon for automotive gasoline in Okinawa during the contract period, and how does the fixed price component compare?

Determining the benchmark price per gallon requires accessing regional fuel market data for the specified period (March-April 2024) in Okinawa. The fixed price component of the contract, before any economic adjustments, should be compared against this benchmark. Significant deviations could indicate either a favorable negotiated rate or potential overpricing, necessitating further investigation into the contract's specific terms and the supplier's cost structure.

How does the economic price adjustment clause mitigate or exacerbate risks associated with fuel price volatility for the Department of Defense?

The economic price adjustment clause is designed to protect the contractor from significant market fluctuations by allowing price increases based on an index. While this ensures supply continuity by preventing contractors from absorbing losses, it transfers the risk of price volatility to the government. This can lead to unpredictable budget outlays and potentially higher overall costs for the DoD if fuel prices rise substantially during the contract period.

What is the strategic importance of this specific gasoline contract for DoD operations in Okinawa, and are there alternative suppliers or fuel sources?

This contract is vital for ensuring the operational readiness of DoD assets in Okinawa, a key strategic location. The reliance on a single supplier, OKINAWA IDEMITSU K.K., raises questions about supply chain resilience. Exploring alternative suppliers or fuel sources, even for limited quantities, could enhance security of supply and potentially foster greater competition, thereby improving cost-effectiveness in the long run.

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: $42,253,821

Exercised Options: $42,253,821

Current Obligation: $42,253,821

Contract Characteristics

Commercial Item: COMMERCIAL PRODUCTS/SERVICES

Cost or Pricing Data: NO

Parent Contract

Parent Award PIID: SPE60521D1004

IDV Type: IDC

Timeline