Department of Defense awards $54M for automotive gasoline, with delivery orders extending through August 2024

Contract Overview

Contract Amount: $54,019,635 ($54.0M)

Contractor: Okinawa Idemitsu K.K.

Awarding Agency: Department of Defense

Start Date: 2024-06-25

End Date: 2024-08-31

Contract Duration: 67 days

Daily Burn Rate: $806.3K/day

Competition Type: FULL AND OPEN COMPETITION

Pricing Type: FIXED PRICE WITH ECONOMIC PRICE ADJUSTMENT

Sector: Energy

Official Description: 8510716040!GASOLINE, AUTOMOTIVE

Plain-Language Summary

Department of Defense obligated $54.0 million to OKINAWA IDEMITSU K.K. for work described as: 8510716040!GASOLINE, AUTOMOTIVE Key points: 1. Contract value appears reasonable given the market for petroleum products. 2. Full and open competition suggests a healthy market for fuel supply. 3. Fixed price with economic price adjustment introduces some cost volatility. 4. Short contract duration may indicate a need for frequent re-competition or market shifts. 5. Contract is positioned within the Defense Logistics Agency's broad procurement of essential fuels. 6. The award to OKINAWA IDEMITSU K.K. is a significant, though not unusual, transaction for fuel supply in the region.

Value Assessment

Rating: good

The contract value of $54 million for automotive gasoline is substantial. Benchmarking against similar fuel procurements by the Department of Defense is necessary for a precise value assessment. However, given the fluctuating nature of global oil prices and the scale of military operations, this amount seems within a plausible range. The fixed-price with economic price adjustment structure allows for market fluctuations, which can be beneficial for both parties but introduces some risk of cost escalation.

Cost Per Unit: N/A

Competition Analysis

Competition Level: full-and-open

This contract was awarded under full and open competition, indicating that multiple vendors were likely solicited and allowed to bid. The specific number of bidders is not provided, but this procurement method generally fosters competitive pricing. The Defense Logistics Agency's use of full and open competition for essential supplies like fuel suggests a robust market and a commitment to obtaining the best value through a broad solicitation process.

Taxpayer Impact: Full and open competition is favorable for taxpayers as it typically drives down prices through market forces, ensuring that the government is not overpaying for necessary goods and services.

Public Impact

Military operations in the Okinawa region will be supported by the reliable supply of automotive gasoline. Personnel and equipment relying on gasoline-powered vehicles within the Department of Defense will benefit from this contract. The contract ensures operational readiness for forces stationed in or transiting through Okinawa. Logistical support for U.S. military activities in the Indo-Pacific region is enhanced.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Economic price adjustment clause introduces potential for cost overruns if fuel prices surge unexpectedly.
Reliance on a single primary contractor for a critical commodity like gasoline carries inherent supply chain risks.
Geopolitical instability in fuel-producing regions could impact delivery and pricing.
Short contract duration may lead to increased administrative burden and potential for price increases during re-competition.

Positive Signals

Awarded under full and open competition, suggesting a competitive market and potential for good pricing.
The Defense Logistics Agency has extensive experience managing fuel contracts, indicating robust oversight capabilities.
Fixed-price component provides a baseline cost stability before economic adjustments.
The contractor, OKINAWA IDEMITSU K.K., is a known entity in the regional fuel market, implying established supply chains.

Sector Analysis

This contract falls within the energy sector, specifically the procurement of refined petroleum products. The market for automotive gasoline is global and subject to significant price volatility influenced by crude oil prices, geopolitical events, and refining capacity. The Defense Logistics Agency (DLA) is a major procurer of fuels for the U.S. military worldwide, managing complex supply chains to ensure operational readiness. Comparable spending benchmarks would involve analyzing other DLA fuel contracts or large-scale commercial fuel purchases in the Asia-Pacific region.

Small Business Impact

There is no indication that this contract includes a small business set-aside. Given the scale and nature of fuel procurement, it is unlikely that small businesses would be the primary awardees for such a large contract. However, the prime contractor may engage small businesses for subcontracting opportunities related to transportation, storage, or related logistical support services, though this is not explicitly detailed in the provided data.

Oversight & Accountability

Oversight for this contract is likely managed by the Defense Logistics Agency (DLA), which has established procedures for contract administration and performance monitoring. Accountability measures would include adherence to delivery schedules, quality specifications, and pricing terms. Transparency is generally maintained through contract award databases, although specific performance metrics and detailed oversight reports may not be publicly accessible. Inspector General jurisdiction would apply in cases of fraud, waste, or abuse.

Related Government Programs

Defense Logistics Agency Fuel Procurement
Department of Defense Energy Contracts
Indo-Pacific Region Military Logistics
Petroleum Product Supply Chain Management
Fixed Price with Economic Price Adjustment Contracts

Risk Flags

Potential for cost escalation due to economic price adjustment.
Supply chain vulnerability due to reliance on a single contractor.
Geopolitical risks impacting fuel prices and availability.
Short contract duration may lead to increased administrative costs and potential price volatility in future renewals.

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $54.0 million to OKINAWA IDEMITSU K.K.. 8510716040!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 $54.0 million.

What is the period of performance?

Start: 2024-06-25. End: 2024-08-31.

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 would provide crucial context for the current $54 million award. This involves examining past contract values, durations, and awardees over several fiscal years. A trend of increasing or decreasing spending could indicate shifts in operational tempo, fuel efficiency improvements, or changes in market pricing. For instance, if past contracts were significantly smaller or larger, it would suggest either a change in demand or a substantial fluctuation in market prices. Understanding the historical average price per gallon, adjusted for inflation, would also allow for a more accurate assessment of whether the current contract represents good value for money. Without this historical data, it is difficult to definitively state if the $54 million is an anomaly or a continuation of established spending levels.

How does the fixed-price with economic price adjustment (FPEPA) clause typically impact cost certainty for fuel contracts of this nature?

The Fixed-Price with Economic Price Adjustment (FPEPA) clause in fuel contracts like this one introduces a degree of cost uncertainty compared to a firm fixed-price contract. While the fixed-price component provides a baseline cost, the economic price adjustment allows for modifications based on fluctuations in specified economic indicators, most commonly the price of crude oil or refined petroleum products. This mechanism is designed to protect both the contractor from unforeseen market volatility and the government from excessively high initial bids that might account for potential price hikes. However, it means the final cost is not known at the time of award and can increase if market prices rise significantly. For taxpayers, this translates to a potential for higher overall expenditure than initially budgeted, though it also prevents the government from missing out on potential savings if prices were to fall below the adjusted baseline.

What are the specific risks associated with relying on a single contractor for a critical commodity like automotive gasoline in a geographically sensitive region like Okinawa?

Relying on a single contractor, OKINAWA IDEMITSU K.K. in this case, for a critical commodity like automotive gasoline in Okinawa presents several significant risks. Firstly, there's the risk of supply chain disruption. Any issue affecting the contractor's ability to procure, refine, or transport fuel – whether due to natural disasters, labor disputes, geopolitical tensions, or internal operational problems – could directly impact military readiness. Secondly, a lack of competition for subsequent contract renewals could lead to reduced price negotiation leverage for the Defense Logistics Agency (DLA), potentially resulting in higher costs for taxpayers over time. Thirdly, dependence on a single source can create vulnerabilities related to quality control or adherence to delivery schedules if the contractor faces unforeseen challenges. While full and open competition was used for this award, future procurements might face fewer bidders, increasing these risks.

What performance metrics are typically used by the Defense Logistics Agency to evaluate fuel suppliers, and how might they apply to this contract?

The Defense Logistics Agency (DLA) typically employs a range of performance metrics to evaluate fuel suppliers, ensuring reliability and quality. Key metrics often include on-time delivery rates, adherence to product specifications (e.g., octane rating, purity), accuracy of invoicing, and responsiveness to DLA inquiries or issues. For this contract, DLA would likely monitor OKINAWA IDEMITSU K.K.'s ability to meet delivery schedules at designated locations in Okinawa. Product quality would be verified through sampling and testing. The contractor's performance history, including any past issues with delivery or quality, would have been a factor in the initial award decision and will continue to be assessed throughout the contract period. Consistent positive performance against these metrics is crucial for maintaining a strong contractor relationship and ensuring mission support.

How does the $54 million contract value compare to the overall annual spending on petroleum products by the Department of Defense?

The $54 million awarded for automotive gasoline in Okinawa represents a fraction of the Department of Defense's (DoD) overall annual spending on petroleum products. The DoD is one of the largest consumers of fuel globally, with annual expenditures often running into the tens of billions of dollars across all types of fuels (jet fuel, diesel, gasoline, etc.) and for various operational needs worldwide. This specific contract, while substantial in absolute terms, is a localized procurement for a specific product. To contextualize its size, one would need to compare it against the DLA's total fuel budget or the DoD's aggregate fuel spending for a given year. It is likely a component of a much larger, complex global fuel supply chain managed by the DLA to support military operations across diverse theaters.

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: $54,019,635

Exercised Options: $54,019,635

Current Obligation: $54,019,635

Contract Characteristics

Commercial Item: COMMERCIAL PRODUCTS/SERVICES

Cost or Pricing Data: NO

Parent Contract

Parent Award PIID: SPE60521D1004

IDV Type: IDC

Timeline