HESS CORPORATION awarded $29.6M contract for petroleum products by Defense Logistics Agency

Contract Overview

Contract Amount: $29,555,838 ($29.6M)

Contractor: Hess Corporation

Awarding Agency: Department of Defense

Start Date: 2005-09-28

End Date: 2010-07-31

Contract Duration: 1,767 days

Daily Burn Rate: $16.7K/day

Competition Type: FULL AND OPEN COMPETITION

Number of Offers Received: 43

Pricing Type: FIXED PRICE WITH ECONOMIC PRICE ADJUSTMENT

Sector: Other

Place of Performance

Location: FREDERICK, FREDERICK County, MARYLAND, 21702

State: Maryland Government Spending

Plain-Language Summary

Department of Defense obligated $29.6 million to HESS CORPORATION for work described as: Key points: 1. Contract awarded through full and open competition, suggesting a competitive bidding process. 2. Fixed Price with Economic Price Adjustment contract type introduces potential for cost fluctuations. 3. Contract duration of 1767 days (approx. 4.8 years) indicates a long-term supply need. 4. The North American Industry Classification System (NAICS) code 424720 points to wholesale distribution of petroleum products. 5. Awarded by the Defense Logistics Agency, a key provider of logistics support to the U.S. Armed Forces. 6. The contract was awarded as an "Other Direct Cost" (ODC) type, often used for services or supplies not fitting standard categories. 7. The contract was not set aside for small businesses, indicating it was open to all eligible offerors.

Value Assessment

Rating: fair

Benchmarking the value of this contract is challenging without specific performance metrics or detailed cost breakdowns. The Fixed Price with Economic Price Adjustment (FPEPA) structure means the final cost could vary based on market fluctuations in petroleum prices. While the total award amount is substantial, its value-for-money depends heavily on the reliability of supply, quality of products, and the actual price adjustments experienced over the contract's nearly five-year term. Comparing it to similar petroleum supply contracts would require access to detailed pricing structures and market conditions at the time of award.

Cost Per Unit: N/A

Competition Analysis

Competition Level: full-and-open

This contract was awarded under full and open competition, meaning all responsible sources were permitted to submit a bid. The presence of 43 bids suggests a robust competitive environment for this petroleum products supply requirement. A high number of bidders generally indicates that the market is healthy and that the government is likely to receive competitive pricing. This level of competition helps ensure that taxpayer dollars are used efficiently by driving down costs through market forces.

Taxpayer Impact: The extensive competition for this contract is beneficial for taxpayers as it likely resulted in more favorable pricing than a sole-source or limited competition award. It demonstrates that multiple suppliers were willing and able to meet the government's needs, fostering a price-discovery mechanism that benefits the public purse.

Public Impact

The primary beneficiaries are the U.S. Armed Forces, who receive essential petroleum products for operational readiness. Services delivered include the wholesale distribution of petroleum and petroleum products. The geographic impact is likely nationwide, supporting military installations and operations across various locations. Workforce implications may include jobs in logistics, transportation, and fuel handling within HESS CORPORATION and its supply chain.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Economic price adjustment clauses can lead to cost overruns if not carefully managed.
Long contract duration increases exposure to market volatility for petroleum prices.
Reliance on a single contractor for a critical commodity like fuel carries inherent supply chain risks.

Positive Signals

Awarded through full and open competition, indicating a competitive market.
The Defense Logistics Agency has a strong track record in managing complex supply chains.
The contract specifies fixed-price elements, providing some cost certainty.

Sector Analysis

The petroleum and petroleum products wholesale industry is a critical component of the energy sector, supplying fuel for transportation, industry, and defense. The Defense Logistics Agency (DLA) is a major consumer of these products, ensuring the operational readiness of military forces. Spending in this sector by the government is substantial, reflecting the essential nature of fuel for national security and operations. This contract fits within the DLA's broader mission of providing logistical support and falls under the wholesale distribution segment of the petroleum market.

Small Business Impact

This contract was not set aside for small businesses, and there is no indication of specific subcontracting requirements for small businesses within the provided data. This suggests that the primary award went to a large business, and opportunities for small businesses would likely arise through subcontracting tiers if HESS CORPORATION chooses to engage them. The absence of a set-aside means that the direct impact on the small business ecosystem from this specific prime contract is likely minimal.

Oversight & Accountability

Oversight for this contract would typically be managed by the Defense Logistics Agency's contracting officers and program managers. Accountability measures are embedded in the contract terms, including delivery schedules, quality specifications, and pricing adjustments. Transparency is facilitated through contract award databases like FPDS. Inspector General jurisdiction would apply in cases of suspected fraud, waste, or abuse related to the contract.

Related Government Programs

Defense Logistics Agency Fuel Contracts
Petroleum Product Procurement
Military Logistics Support
Fixed Price with Economic Price Adjustment Contracts
Wholesale Petroleum Distribution

Risk Flags

Potential for cost escalation due to Economic Price Adjustment clause.
Supply chain vulnerability to geopolitical events and market volatility.
Long contract duration increases exposure to unforeseen market changes.

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $29.6 million to HESS CORPORATION. See the official description on USAspending.

Who is the contractor on this award?

The obligated recipient is HESS CORPORATION.

Which agency awarded this contract?

Awarding agency: Department of Defense (Defense Logistics Agency).

What is the total obligated amount?

The obligated amount is $29.6 million.

What is the period of performance?

Start: 2005-09-28. End: 2010-07-31.

What is the historical spending pattern for petroleum products by the Defense Logistics Agency?

The Defense Logistics Agency (DLA) is the primary agency responsible for procuring and distributing fuel to the U.S. military. Historical spending on petroleum products by the DLA has been consistently high, often running into billions of dollars annually. This spending fluctuates based on global oil prices, geopolitical events, and the operational tempo of military forces. The DLA manages a vast network of fuel terminals, pipelines, and transportation assets to ensure supply chain resilience. Analyzing specific historical spending requires accessing detailed DLA budget reports and contract award databases over multiple fiscal years to identify trends, major suppliers, and average contract values for different types of petroleum products.

How does the economic price adjustment (EPA) clause typically function in fuel contracts?

An Economic Price Adjustment (EPA) clause in a fuel contract is designed to allow for modifications to the contract price based on fluctuations in specific economic factors, most commonly the cost of raw materials or labor. For petroleum products, EPA clauses are often tied to published indices for crude oil or refined product prices (e.g., West Texas Intermediate or Brent crude). The clause specifies the base price, the index used for adjustment, the frequency of adjustments (e.g., monthly or quarterly), and the formula for calculating the price change. This mechanism aims to protect both the government from excessive price increases and the contractor from losses due to unforeseen market volatility, ensuring a stable supply while mitigating extreme cost risks for either party.

What are the potential risks associated with a long-duration contract for petroleum products?

Long-duration contracts for petroleum products, such as this 1767-day award, carry several potential risks. Firstly, market volatility in crude oil and refined product prices can lead to significant cost fluctuations, especially with an Economic Price Adjustment (EPA) clause. If the EPA formula is not perfectly aligned with actual cost drivers or if market swings are extreme, either the government or the contractor could face unfavorable pricing. Secondly, geopolitical events, supply chain disruptions (e.g., natural disasters, conflicts), or changes in production levels can impact availability and price. Thirdly, technological advancements or shifts in energy policy (e.g., towards alternative fuels) over a long contract period might make the contracted products less desirable or essential, potentially leading to contract renegotiations or underutilization. Finally, the contractor's financial stability and operational capacity over an extended period are also factors to consider.

What is the significance of the 'Other Direct Cost' (ODC) contract type in this context?

The 'Other Direct Cost' (ODC) designation, often seen in service contracts but sometimes applied to supplies, suggests that this contract might involve more than just the simple purchase of goods. It could encompass associated services like delivery, storage, handling, or specialized logistical support integral to the petroleum products supply. In the context of the Defense Logistics Agency (DLA), ODC awards can be used for unique or complex requirements that don't fit neatly into standard supply categories. This flexibility allows the DLA to procure a comprehensive solution rather than just the raw materials, ensuring that the petroleum products are delivered and managed effectively to meet military operational needs. The pricing structure for ODC items typically involves direct costs plus a negotiated fee or markup.

How does the Defense Logistics Agency manage its petroleum supply chain to ensure readiness?

The Defense Logistics Agency (DLA) employs a multi-faceted strategy to manage its petroleum supply chain and ensure military readiness. This includes maintaining strategic reserves, diversifying suppliers through competitive contracting, and utilizing a global network of fuel terminals and transportation assets. DLA works closely with military branches to forecast demand accurately and manages inventory levels to buffer against disruptions. They also invest in infrastructure and technology to enhance supply chain visibility and efficiency. Furthermore, DLA actively monitors global energy markets and geopolitical developments to anticipate potential risks and implement mitigation strategies, ensuring a continuous and reliable flow of fuel to support worldwide military operations.

Industry Classification

NAICS: Wholesale Trade › Petroleum and Petroleum Products Merchant Wholesalers › Petroleum and Petroleum Products Merchant Wholesalers (except Bulk Stations and Terminals)

Product/Service Code: FUELS, LUBRICANTS, OILS, WAXES

Competition & Pricing

Extent Competed: FULL AND OPEN COMPETITION

Solicitation Procedures: NEGOTIATED PROPOSAL/QUOTE

Offers Received: 43

Pricing Type: FIXED PRICE WITH ECONOMIC PRICE ADJUSTMENT (K)

Evaluated Preference: NONE

Contractor Details

Address: 1 HESS PLAZA, WOODBRIDGE, NJ, 06

Business Categories: Category Business, Not Designated a Small Business

Financial Breakdown

Contract Ceiling: $29,555,388

Exercised Options: $11,508

Current Obligation: $29,555,838

Contract Characteristics

Multi-Year Contract: Yes

Cost or Pricing Data: NO

Parent Contract

Parent Award PIID: SP060005D4056

IDV Type: IDC

Timeline