DoD spent $112M on aviation fuel, with BP Products North America Inc. winning a fixed-price contract

Contract Overview

Contract Amount: $112,148,307 ($112.1M)

Contractor: BP Products North America Inc.

Awarding Agency: Department of Defense

Start Date: 2009-08-27

End Date: 2010-05-31

Contract Duration: 277 days

Daily Burn Rate: $404.9K/day

Competition Type: FULL AND OPEN COMPETITION

Number of Offers Received: 4

Pricing Type: FIXED PRICE WITH ECONOMIC PRICE ADJUSTMENT

Sector: Other

Official Description: TURBINE FUEL, AVIATION, JET A (JAA)

Place of Performance

Location: WARRENVILLE, DUPAGE County, ILLINOIS, 60555

State: Illinois Government Spending

Plain-Language Summary

Department of Defense obligated $112.1 million to BP PRODUCTS NORTH AMERICA INC. for work described as: TURBINE FUEL, AVIATION, JET A (JAA) Key points: 1. Contract awarded through full and open competition, suggesting a competitive bidding process. 2. The contract utilized a fixed-price structure with economic price adjustment, allowing for cost fluctuations. 3. Awarded by the Defense Logistics Agency, indicating a focus on supporting military aviation needs. 4. The contract duration was 277 days, suggesting a short-term supply requirement. 5. The base award amount was $40.5M, with a total award of $112.1M, showing significant potential for price adjustments. 6. The contractor, BP Products North America Inc., is a major player in the petroleum industry.

Value Assessment

Rating: fair

The total award of $112.1M for aviation fuel over a 277-day period represents a significant expenditure. While the base award was $40.5M, the economic price adjustment clause allowed for substantial increases, highlighting potential volatility in fuel pricing. Benchmarking this against similar contracts for jet fuel would be necessary to fully assess value for money, as market conditions can heavily influence pricing.

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 bids. The presence of 4 bidders indicates a reasonable level of competition for this aviation fuel requirement. This competitive environment generally supports price discovery and can lead to more favorable pricing for the government.

Taxpayer Impact: The full and open competition likely resulted in a more competitive price for taxpayers compared to a sole-source or limited competition scenario.

Public Impact

Military aviation units within the Department of Defense benefit from the reliable supply of jet fuel. Ensures operational readiness for aircraft requiring Jet A fuel. The contract supports the logistical operations of the Defense Logistics Agency. Indirectly supports jobs within the petroleum supply chain and aviation industry.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Economic price adjustment clause introduces cost uncertainty and potential for significant overruns beyond the base award.
Short contract duration (277 days) may lead to less favorable pricing than longer-term, more stable agreements.
Reliance on a single large supplier (BP) for a critical commodity like jet fuel could pose supply chain risks.

Positive Signals

Awarded through full and open competition, maximizing potential for competitive pricing.
Contractor is a well-established entity with significant experience in fuel supply.
Fixed-price element provides some cost certainty, despite the economic price adjustment.

Sector Analysis

This contract falls within the energy sector, specifically the distribution and sale of petroleum products. The market for aviation fuel is influenced by global oil prices, geopolitical events, and demand from commercial and military aviation. The Defense Logistics Agency is a major procurer of fuel to support military operations, and contracts like this are essential for maintaining readiness. Comparable spending benchmarks would involve analyzing other large-volume jet fuel procurements by government agencies or major airlines.

Small Business Impact

The data indicates this contract was not set aside for small businesses, and the 'sb' field is false. Given the nature of large-volume fuel procurement, it is unlikely that small businesses would be primary awardees for the prime contract. However, the prime contractor, BP Products North America Inc., may engage small businesses for subcontracting opportunities related to logistics, transportation, or support services, though this is not explicitly detailed in the provided data.

Oversight & Accountability

The Defense Logistics Agency, as part of the Department of Defense, is subject to various oversight mechanisms. These include internal audits, contract performance reviews, and potentially oversight from the Government Accountability Office (GAO) or the DoD Inspector General. Transparency is generally maintained through contract award databases like FPDS. The fixed-price with economic price adjustment contract type requires careful monitoring of price adjustments to ensure they align with market indices and contract terms.

Related Government Programs

Defense Logistics Agency Fuel Procurement
Department of Defense Aviation Support
Jet Fuel Supply Contracts
Petroleum Product Procurement

Risk Flags

Significant cost increase due to Economic Price Adjustment
Short contract duration may indicate limited long-term planning
Potential supply chain risks associated with a single large supplier

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $112.1 million to BP PRODUCTS NORTH AMERICA INC.. TURBINE FUEL, AVIATION, JET A (JAA)

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 $112.1 million.

What is the period of performance?

Start: 2009-08-27. End: 2010-05-31.

What was the historical spending pattern for aviation fuel by the Defense Logistics Agency prior to this contract?

Analyzing historical spending patterns for aviation fuel by the Defense Logistics Agency (DLA) prior to August 2009 would reveal trends in volume, pricing, and contractor awards. This contract, with a total award of $112.1M, suggests a significant requirement. Previous years might show similar or larger expenditures, depending on operational tempo and fuel price fluctuations. For instance, if fuel prices were lower in preceding years, the volume procured might have been higher to reach a similar dollar value. Conversely, if prices were higher, the volume might have been less. Understanding these patterns helps contextualize the $112.1M award and assess whether it represents an increase, decrease, or stable level of spending for this critical commodity.

How did the economic price adjustment clause impact the final cost compared to the initial base award?

The economic price adjustment (EPA) clause in this contract allowed the price to fluctuate based on an agreed-upon index, typically tied to market prices for crude oil or refined products. The base award was $40,486,800, while the total award reached $112,148,306.70. This means the EPA clause resulted in an additional $71,661,506.70, an increase of approximately 177% over the base award. This substantial difference highlights the significant impact of market volatility on the final cost. Such a large adjustment underscores the importance of closely monitoring the index used for EPA and ensuring the clause is structured to protect both the government from excessive price hikes and the contractor from unsustainable losses.

What is the typical profit margin for contractors on large aviation fuel contracts awarded by the DoD?

Determining the precise profit margin for BP Products North America Inc. on this specific contract is challenging without access to detailed cost breakdowns and financial reporting. However, for large-volume commodity contracts like aviation fuel, profit margins are generally considered to be relatively slim, often in the single digits (e.g., 2-8%). This is because the primary driver of cost is the commodity itself, with contractor profit being a smaller percentage added on top. The fixed-price nature of the base award, coupled with the economic price adjustment, means the contractor's risk is primarily related to operational efficiency and managing the EPA fluctuations. Government agencies aim to secure competitive pricing, which inherently limits the potential for excessively high profit margins.

What are the risks associated with relying on a single contractor for a critical supply like aviation fuel?

Relying on a single contractor, even one as large as BP Products North America Inc., for a critical supply like aviation fuel presents several risks. Firstly, there's a risk of supply disruption due to unforeseen events affecting the contractor, such as natural disasters, labor strikes, or geopolitical issues impacting their supply chain. Secondly, a lack of competition for future contracts could lead to reduced price negotiation leverage for the government, potentially resulting in higher costs. Thirdly, dependence on a single source can reduce flexibility in adapting to changing operational needs or adopting new fuel types if required. While this contract was awarded competitively, ongoing reliance on a sole provider for subsequent needs could diminish competitive pressure over time.

How does the geographic location of fuel supply (Illinois noted) impact delivery costs and timelines for the DoD?

The notation 'IL' for Illinois likely refers to the state where the contractor, BP Products North America Inc., is headquartered or has significant operations, not necessarily the delivery location for the fuel. Aviation fuel is a fungible commodity, meaning its value is largely standardized. However, the actual delivery points for the DoD could be numerous airbases across various regions. The cost and timeline of delivery would depend heavily on the proximity of these airbases to BP's refining or distribution terminals. If deliveries are required in regions far from Illinois or its primary distribution hubs, transportation costs (pipeline, rail, truck, barge) would increase, impacting the overall price paid by the DoD. Efficient logistics planning is crucial to minimize these costs and ensure timely fuel availability at operational sites.

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: SP060009R0061

Offers Received: 4

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

Evaluated Preference: NONE

Contractor Details

Parent Company: BP P.L.C. (UEI: 210042669)

Address: 28301 FERRY ROAD, WARRENVILLE, IL, 90

Business Categories: Category Business, Corporate Entity Not Tax Exempt, Manufacturer of Goods, Not Designated a Small Business, Special Designations, U.S.-Owned Business

Financial Breakdown

Contract Ceiling: $112,148,307

Exercised Options: $112,148,307

Current Obligation: $112,148,307

Contract Characteristics

Cost or Pricing Data: NO

Parent Contract

Parent Award PIID: SP060009D0510

IDV Type: IDC

Timeline