Department of Defense awards $31.7M for automotive gasoline, highlighting fixed-price contracts with economic adjustments

Contract Overview

Contract Amount: $31,706,557 ($31.7M)

Contractor: Okinawa Idemitsu K.K.

Awarding Agency: Department of Defense

Start Date: 2024-06-25

End Date: 2024-07-31

Contract Duration: 36 days

Daily Burn Rate: $880.7K/day

Competition Type: FULL AND OPEN COMPETITION

Pricing Type: FIXED PRICE WITH ECONOMIC PRICE ADJUSTMENT

Sector: Other

Official Description: 8510718849!GASOLINE, AUTOMOTIVE

Plain-Language Summary

Department of Defense obligated $31.7 million to OKINAWA IDEMITSU K.K. for work described as: 8510718849!GASOLINE, AUTOMOTIVE Key points: 1. Contract utilizes a fixed-price structure with economic price adjustments, allowing for flexibility in response to market fluctuations. 2. Competition was full and open, suggesting a robust bidding process and potential for competitive pricing. 3. The contract's duration of 36 months indicates a medium-term commitment for fuel supply. 4. Awarded by the Defense Logistics Agency, this contract supports the logistical needs of the military. 5. The primary product is automotive gasoline, a critical commodity for operational readiness. 6. The contractor, OKINAWA IDEMITSU K.K., is a key supplier in this domain.

Value Assessment

Rating: good

The contract value of $31.7 million over 36 months suggests a significant but not extraordinary expenditure for bulk fuel. Benchmarking against similar fuel supply contracts for military installations would be necessary for a precise value-for-money assessment. The fixed-price with economic adjustment clause is standard for commodities subject to price volatility, aiming to balance cost control with market realities. Without specific unit price data or historical comparisons, it's difficult to definitively assess if this represents excellent value, but it appears reasonable for the scope.

Cost Per Unit: N/A

Competition Analysis

Competition Level: full-and-open

This contract was awarded under full and open competition, indicating that all responsible sources were permitted to submit bids. The specific number of bidders is not provided, but the 'full and open' designation generally implies a competitive environment that should drive prices towards market rates. This approach is favored for ensuring the government receives the best possible value by leveraging a wide range of potential suppliers.

Taxpayer Impact: Full and open competition is beneficial for taxpayers as it increases the likelihood of securing goods and services at competitive prices, minimizing potential overspending and maximizing the efficient use of public funds.

Public Impact

Military personnel and operations relying on a consistent supply of automotive gasoline for vehicles and equipment. The contract ensures the availability of a critical fuel resource for Department of Defense activities. Geographic impact is likely concentrated around military installations in the Okinawa region, where the contractor is based. The contract supports the logistics and supply chain sector, ensuring readiness and operational capability.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Potential for price increases due to the economic price adjustment clause, which could impact long-term budget predictability if market prices surge significantly.

Positive Signals

Awarded through full and open competition, suggesting a competitive pricing environment.
Fixed-price contract structure provides a baseline cost control, with adjustments managed through a defined economic mechanism.
Ensures a critical supply of automotive gasoline, vital for military operational readiness.

Sector Analysis

The petroleum refining and distribution sector is a critical component of the global economy, directly supporting transportation and industrial activities. Within the defense sector, reliable fuel supply is paramount for maintaining operational readiness and logistical capabilities. This contract for automotive gasoline falls within the broader energy and logistics market, where prices are subject to global supply and demand dynamics, geopolitical events, and refining capacities. Comparable spending benchmarks would involve analyzing other fuel supply contracts awarded by the DoD or other government agencies for similar quantities and durations.

Small Business Impact

The provided data does not indicate any specific small business set-aside provisions for this contract, nor does it mention subcontracting plans. Given the nature of bulk fuel supply and the contractor's likely scale, it is probable that this contract is not specifically targeted towards small businesses. Further analysis would be needed to determine if any subcontracting opportunities exist for small businesses within the supply chain.

Oversight & Accountability

Oversight for this contract would typically be managed by the contracting officer and the Defense Contract Management Agency (DCMA) to ensure compliance with terms and conditions. The Defense Logistics Agency (DLA) is responsible for the overall program management. Transparency is facilitated through contract award databases like FPDS. Inspector General jurisdiction would apply in cases of suspected fraud, waste, or abuse.

Related Government Programs

Defense Logistics Agency Fuel Contracts
Department of Defense Automotive Fuel Procurement
Fixed-Price Contracts with Economic Price Adjustment
Petroleum Product Supply Contracts

Risk Flags

Potential for cost increases due to Economic Price Adjustment clause.
Lack of specific bidder count limits full assessment of competition intensity.
No explicit mention of small business subcontracting goals.

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $31.7 million to OKINAWA IDEMITSU K.K.. 8510718849!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 $31.7 million.

What is the period of performance?

Start: 2024-06-25. End: 2024-07-31.

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

Analyzing historical spending patterns 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 to ensure consistent supply for military operations. Spending can fluctuate based on operational tempo, fuel price volatility, and contract competition. Without specific historical data for this region and commodity, it's challenging to provide precise figures. However, DLA's mission involves procuring vast quantities of fuel globally, and contracts are often recompeted to ensure competitive pricing. Factors like the number of active vehicles, training exercises, and local economic conditions in Okinawa would influence the demand and, consequently, the spending.

How does the economic price adjustment (EPA) clause in this contract typically function for automotive gasoline?

The Economic Price Adjustment (EPA) clause in this fixed-price contract for automotive gasoline is designed to account for fluctuations in the cost of raw materials or labor that are beyond the contractor's control. For gasoline, this typically means the price can be adjusted based on a pre-defined index or formula linked to crude oil prices, refining costs, or other relevant market indicators. The contract would specify the base price, the adjustment mechanism, and the frequency of adjustments (e.g., monthly, quarterly). This clause aims to protect both the government from excessive price increases and the contractor from losses due to unforeseen market shifts, ensuring a stable supply chain. The specific index and adjustment formula are critical details that determine the actual impact on the total contract cost.

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

Determining the typical profit margin for contractors supplying bulk automotive gasoline to the Department of Defense (DoD) is complex, as profit margins can vary significantly based on factors such as contract type, competition level, operational costs, and the specific contractor's business model. Fixed-price contracts, especially those with economic price adjustments, aim to provide a reasonable profit while managing risk. While specific profit margins are often proprietary, industry benchmarks for fuel distribution and supply can offer some insight. Government contracts generally seek to ensure fair and reasonable pricing, which implies a competitive profit margin rather than excessive gains. The competitive nature of 'full and open' solicitations often drives down prices, indirectly influencing the achievable profit margins for suppliers.

What are the potential risks associated with a fixed-price contract with economic price adjustment for fuel procurement?

A primary risk associated with a fixed-price contract with Economic Price Adjustment (EPA) for fuel procurement is the potential for increased costs to the government if market prices for crude oil or refined gasoline rise significantly. While the EPA clause is intended to manage price volatility, it can lead to higher expenditures than a strictly fixed-price contract if market conditions are unfavorable. Another risk involves the complexity of administering the EPA clause; ensuring the correct index is used and adjustments are calculated accurately requires diligent oversight. Furthermore, if the EPA mechanism is not sufficiently robust or transparent, it could lead to disputes between the government and the contractor regarding price adjustments. The government also bears the risk of potential supply disruptions if the contractor faces unforeseen operational challenges, although this is a general risk in any supply contract.

How does the Defense Logistics Agency ensure the quality and specifications of automotive gasoline supplied under contracts like this?

The Defense Logistics Agency (DLA) employs rigorous quality assurance measures to ensure that automotive gasoline supplied under contracts meets stringent military specifications. This typically involves detailed product specifications within the contract itself, often referencing industry standards like ASTM (American Society for Testing and Materials). Contractors are required to provide quality control documentation, and DLA may conduct independent testing of fuel samples at various points in the supply chain, including delivery. Inspection and acceptance procedures are critical, ensuring that the fuel delivered conforms to all required parameters, such as octane rating, additives, and purity. Non-conforming product can lead to rejection, contract penalties, or even termination, reinforcing the importance of quality compliance for suppliers.

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: $31,706,557

Exercised Options: $31,706,557

Current Obligation: $31,706,557

Contract Characteristics

Commercial Item: COMMERCIAL PRODUCTS/SERVICES

Cost or Pricing Data: NO

Parent Contract

Parent Award PIID: SPE60521D1004

IDV Type: IDC

Timeline