DoD's $580M petroleum contract awarded to BP Products North America Inc. for refineries
Contract Overview
Contract Amount: $580,318,778 ($580.3M)
Contractor: BP Products North America Inc.
Awarding Agency: Department of Defense
Start Date: 2006-09-19
End Date: 2007-10-30
Contract Duration: 406 days
Daily Burn Rate: $1.4M/day
Competition Type: FULL AND OPEN COMPETITION
Number of Offers Received: 17
Pricing Type: FIXED PRICE WITH ECONOMIC PRICE ADJUSTMENT
Sector: Other
Place of Performance
Location: FERNDALE, WHATCOM County, WASHINGTON, 98248
Plain-Language Summary
Department of Defense obligated $580.3 million to BP PRODUCTS NORTH AMERICA INC. for work described as: Key points: 1. The contract value represents a significant investment in fuel supply chain resilience. 2. Competition dynamics for this contract are crucial for ensuring competitive pricing in the energy sector. 3. Risk indicators include potential price volatility in petroleum markets and geopolitical factors. 4. Performance context involves ensuring consistent fuel availability for military operations. 5. Sector positioning highlights the critical role of energy suppliers in national security. 6. The fixed-price with economic price adjustment structure aims to balance cost certainty with market fluctuations.
Value Assessment
Rating: fair
Benchmarking the value of this specific contract is challenging without comparable, recent petroleum supply agreements from the Department of Defense. The total award amount of over $580 million over its duration suggests a substantial volume of fuel. However, the 'economic price adjustment' clause introduces variability, making a fixed value assessment difficult. Further analysis would require understanding the specific fuel types, volumes, and the market conditions during the contract period to truly assess value for money.
Cost Per Unit: N/A
Competition Analysis
Competition Level: full-and-open
The contract was awarded under full and open competition, indicating that multiple bidders were likely considered. The presence of 17 bids suggests a reasonably competitive environment for this type of large-scale fuel supply contract. This level of competition is generally positive for price discovery and can help drive down costs for the government.
Taxpayer Impact: A competitive bidding process for essential fuel supplies helps ensure taxpayer dollars are used efficiently by preventing inflated prices and encouraging cost-effective solutions.
Public Impact
Military readiness and operational capabilities are directly supported by the reliable supply of petroleum products. The contract ensures the availability of fuel for various Department of Defense activities, potentially across multiple geographic locations. The workforce implications are indirect, primarily affecting the petroleum refining and distribution sectors. National security is enhanced through the secure and consistent provision of energy resources.
Waste & Efficiency Indicators
Waste Risk Score: 50 / 10
Warning Flags
- Potential for price volatility due to economic price adjustment clause.
- Geopolitical risks impacting global petroleum supply and pricing.
- Dependence on a single primary contractor for a critical resource.
Positive Signals
- Awarded under full and open competition, suggesting a robust bidding process.
- Contract duration provides a degree of supply chain stability.
- Inclusion of economic price adjustment may mitigate risks for the contractor, potentially leading to more stable bids.
Sector Analysis
The petroleum refining industry is a cornerstone of the global energy market, characterized by significant capital investment, complex supply chains, and sensitivity to commodity prices and geopolitical events. Federal contracts for fuel are essential for maintaining national security and operational readiness across various government agencies, particularly the Department of Defense. This contract, valued at over half a billion dollars, represents a substantial portion of spending within this sector for fuel procurement, underscoring the government's reliance on major energy providers.
Small Business Impact
This contract does not appear to have specific small business set-aside provisions, as indicated by 'sb': false. However, large prime contractors like BP Products North America Inc. often engage small businesses as subcontractors for various support services, logistics, or specialized components within their supply chain. The extent of small business participation would depend on BP's subcontracting strategy and requirements.
Oversight & Accountability
Oversight for this contract would typically be managed by the Defense Logistics Agency (DLA), which is responsible for procuring and supplying fuel for the DoD. Mechanisms likely include contract performance monitoring, quality assurance checks, and financial audits. Transparency is generally maintained through contract award databases, though specific performance details might be sensitive. Inspector General jurisdiction would apply in cases of fraud, waste, or abuse.
Related Government Programs
- Defense Logistics Agency Fuel Contracts
- Department of Defense Energy Procurement
- Petroleum Product Supply Agreements
- Fixed Price with Economic Price Adjustment Contracts
Risk Flags
- Potential for price volatility due to economic price adjustment.
- Dependence on a single large supplier for critical fuel resources.
- Geopolitical risks impacting global petroleum markets.
Tags
defense, department-of-defense, defense-logistics-agency, petroleum-refining, fuel-supply, fixed-price-economic-price-adjustment, full-and-open-competition, large-contract, energy, national-security, bp-products-north-america-inc
Frequently Asked Questions
What is this federal contract paying for?
Department of Defense awarded $580.3 million to BP PRODUCTS NORTH AMERICA INC.. See the official description on USAspending.
Who is the contractor on this award?
The obligated recipient is BP PRODUCTS NORTH AMERICA INC..
Which agency awarded this contract?
Awarding agency: Department of Defense (Defense Logistics Agency).
What is the total obligated amount?
The obligated amount is $580.3 million.
What is the period of performance?
Start: 2006-09-19. End: 2007-10-30.
What was the historical spending pattern for petroleum products by the Defense Logistics Agency prior to this contract?
Analyzing historical spending patterns for petroleum products by the Defense Logistics Agency (DLA) prior to this specific contract is crucial for context. While the provided data focuses on a single award, understanding the DLA's typical annual expenditure on fuels, the number and value of contracts awarded, and the primary suppliers over the preceding years would reveal trends in demand, pricing strategies, and market concentration. For instance, if DLA spending on similar fuels has been consistently high, it indicates a sustained need. Conversely, significant fluctuations might suggest changes in operational tempo, inventory management, or the adoption of alternative energy sources. Without specific historical data, it's difficult to ascertain if the $580 million award represents an increase, decrease, or stable level of investment in petroleum procurement.
How does the pricing structure (fixed price with economic price adjustment) compare to other DoD fuel contracts?
The 'fixed price with economic price adjustment' (FPEPA) pricing structure is a common mechanism used in commodity-based contracts, including those for petroleum products, to balance cost certainty for the buyer with protection against market volatility for the seller. Compared to a pure fixed-price contract, FPEPA offers more flexibility by allowing adjustments based on pre-defined economic indicators, such as fuel market indices. This can be advantageous for the government as it may lead to more competitive initial bids by reducing the contractor's risk premium. However, it also means the final cost can fluctuate. Other DoD fuel contracts might utilize different structures, such as firm fixed-price (FFP) for shorter durations or when market stability is high, or cost-plus contracts for services where costs are less predictable. The suitability of FPEPA depends on the anticipated volatility of petroleum markets during the contract's term and the DoD's risk tolerance for price fluctuations.
What are the key performance indicators (KPIs) typically used to evaluate the performance of petroleum supply contracts for the DoD?
Key Performance Indicators (KPIs) for evaluating petroleum supply contracts for the Department of Defense (DoD) typically focus on reliability, quality, timeliness, and cost-effectiveness. Essential KPIs include on-time delivery rates, ensuring fuel is available at designated locations precisely when needed to support military operations. Fuel quality assurance is paramount, with KPIs measuring adherence to strict military specifications (e.g., MIL-SPEC) to prevent equipment damage. Inventory management and stock levels are also monitored to ensure sufficient supply without excessive overstocking. Furthermore, compliance with contract terms, including reporting requirements and adherence to safety and environmental regulations, is critical. For contracts with economic price adjustments, tracking the accuracy and fairness of these adjustments against market benchmarks is also a key performance metric. Successful performance hinges on meeting these diverse requirements consistently.
What is the track record of BP Products North America Inc. in fulfilling large federal energy contracts?
BP Products North America Inc. has a significant history of fulfilling large federal energy contracts, particularly with the Department of Defense and other government agencies. As a major global energy company, BP possesses the infrastructure, logistical capabilities, and financial resources necessary to manage complex, high-volume fuel supply agreements. Their track record includes numerous awards for providing various types of petroleum products, often under challenging conditions and across diverse geographic locations. While specific contract performance details are often proprietary, BP's continued success in securing substantial federal contracts suggests a generally positive performance history. However, like any large corporation, they may have faced scrutiny or performance issues on specific contracts, which would be detailed in government performance databases or Inspector General reports if significant.
What are the potential risks associated with relying on a single primary contractor for such a large volume of petroleum products?
Relying on a single primary contractor, even one as large as BP Products North America Inc., for a substantial volume of petroleum products introduces several potential risks. Supply chain disruption is a primary concern; any issue affecting the contractor's operations—such as refinery problems, transportation bottlenecks, labor disputes, or geopolitical events impacting their global supply—could directly impact the DoD's fuel availability. Price vulnerability is another risk, particularly if the economic price adjustment mechanism is heavily influenced by factors that disproportionately benefit the supplier or if competition diminishes in the future. Furthermore, a single point of failure can reduce the government's leverage in negotiations or performance disputes. While multiple bids were received initially, the long-term sustainability of competition in specialized sectors like fuel supply warrants ongoing monitoring to mitigate these risks.
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
Solicitation ID: SP060006R0161
Offers Received: 17
Pricing Type: FIXED PRICE WITH ECONOMIC PRICE ADJUSTMENT (K)
Evaluated Preference: NONE
Contractor Details
Parent Company: BP P.L.C. (UEI: 210042669)
Address: 6 CENTERPOINTE DR, LA PALMA, CA, 45
Business Categories: Category Business, Not Designated a Small Business
Financial Breakdown
Contract Ceiling: $580,318,778
Exercised Options: $580,318,778
Current Obligation: $580,318,778
Contract Characteristics
Cost or Pricing Data: NO
Parent Contract
Parent Award PIID: SP060006D0502
IDV Type: IDC
Timeline
Start Date: 2006-09-19
Current End Date: 2007-10-30
Potential End Date: 2007-10-30 00:00:00
Last Modified: 2008-03-12
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