Defense Logistics Agency awards $119M for aviation turbine fuel, with 25 offers received

Contract Overview

Contract Amount: $118,956,755 ($119.0M)

Contractor: BP Products North America Inc.

Awarding Agency: Department of Defense

Start Date: 2011-05-12

End Date: 2012-03-01

Contract Duration: 294 days

Daily Burn Rate: $404.6K/day

Competition Type: FULL AND OPEN COMPETITION

Number of Offers Received: 25

Pricing Type: FIXED PRICE WITH ECONOMIC PRICE ADJUSTMENT

Sector: Energy

Official Description: BASIC AWARD FOR 37,630,000 USG FOR AVIATION TURBINE FUEL, JAA, FOB ORIGIN PL AWARD FOR SUPPLEMENTAL SOLICITATION SP0600-10-R-0061-0001

Place of Performance

Location: NAPERVILLE, DUPAGE County, ILLINOIS, 60563

State: Illinois Government Spending

Plain-Language Summary

Department of Defense obligated $119.0 million to BP PRODUCTS NORTH AMERICA INC. for work described as: BASIC AWARD FOR 37,630,000 USG FOR AVIATION TURBINE FUEL, JAA, FOB ORIGIN PL AWARD FOR SUPPLEMENTAL SOLICITATION SP0600-10-R-0061-0001 Key points: 1. The contract was awarded under full and open competition, indicating a robust bidding process. 2. The fixed-price with economic price adjustment structure aims to manage fuel price volatility. 3. The award value of $119M represents a significant investment in aviation fuel supply. 4. The contract duration of 294 days suggests a focused, short-term supply need. 5. The geographic scope is FOB Origin, meaning the supplier is responsible for delivery to the point of origin. 6. The contractor, BP Products North America Inc., is a major player in the petroleum industry.

Value Assessment

Rating: good

The award of $118,956,754.83 for aviation turbine fuel appears reasonable given the market for such commodities. While specific per-unit cost benchmarks are not provided, the presence of 25 offers suggests competitive pricing was sought. The fixed-price with economic price adjustment (FPEPA) contract type is common for fuel procurements to mitigate market fluctuations, which can be a value-preserving mechanism.

Cost Per Unit: N/A

Competition Analysis

Competition Level: full-and-open

This contract was awarded under full and open competition, with 25 offers received. This high number of bidders suggests a healthy competitive environment for aviation turbine fuel. The extensive competition likely drove down prices and ensured the government received favorable terms.

Taxpayer Impact: The robust competition for this fuel contract is beneficial for taxpayers, as it increases the likelihood of obtaining the best possible price and quality for essential aviation supplies.

Public Impact

The primary beneficiaries are military aviation units requiring reliable fuel supplies. The service delivered is the provision of aviation turbine fuel. The geographic impact is tied to the origin points of fuel delivery, impacting logistics and transportation sectors. Workforce implications include jobs in fuel production, transportation, and logistics.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Potential for price increases due to economic price adjustment clause if fuel markets rise significantly.
Dependence on a single contractor for a critical supply chain component.
Logistical challenges associated with 'FOB Origin' if delivery points are geographically dispersed or difficult to access.

Positive Signals

Awarded under full and open competition, indicating a competitive market.
Contractor is a well-established entity in the energy sector.
Fixed-price component provides some cost certainty.
Economic price adjustment can protect against unexpected market downturns.

Sector Analysis

This contract falls within the energy sector, specifically the petroleum refining and distribution sub-sector. The market for aviation turbine fuel is global and subject to significant price volatility influenced by geopolitical events, supply and demand, and refining capacity. The Defense Logistics Agency (DLA) is a major procurer of fuel for military operations, and its spending in this area is substantial, often benchmarked against commercial jet fuel prices.

Small Business Impact

The data indicates this contract was not set aside for small businesses and was awarded to BP Products North America Inc., a large corporation. There is no explicit information on subcontracting requirements for small businesses within this award notice. Therefore, the direct impact on the small business ecosystem is likely minimal unless BP Products North America Inc. voluntarily engages small businesses for support services or components.

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 and fuel quality specifications. Transparency is facilitated through contract award databases like FPDS. Inspector General jurisdiction would apply in cases of fraud, waste, or abuse.

Related Government Programs

Defense Logistics Agency Fuel Procurement
Aviation Fuel Supply Contracts
Petroleum Products Procurement
Fixed-Price with Economic Price Adjustment Contracts

Risk Flags

Potential for price volatility due to economic price adjustment clause.
Logistical complexity associated with FOB Origin delivery.
Dependence on a single large supplier.

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $119.0 million to BP PRODUCTS NORTH AMERICA INC.. BASIC AWARD FOR 37,630,000 USG FOR AVIATION TURBINE FUEL, JAA, FOB ORIGIN PL AWARD FOR SUPPLEMENTAL SOLICITATION SP0600-10-R-0061-0001

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 $119.0 million.

What is the period of performance?

Start: 2011-05-12. End: 2012-03-01.

What is the historical spending pattern of the Defense Logistics Agency on aviation turbine fuel over the last five years?

Analyzing the historical spending of the Defense Logistics Agency (DLA) on aviation turbine fuel reveals a consistent and substantial requirement driven by global military operations. While specific figures fluctuate annually based on operational tempo, global events, and fuel market prices, the DLA typically obligates billions of dollars each fiscal year for various types of fuel, including aviation turbine fuel. For instance, in FY2023, DLA Energy reported significant fuel obligations. The contract in question, awarded in 2011 for approximately $119 million, represents a portion of the DLA's ongoing need. Trends often show increased spending during periods of heightened military activity or significant geopolitical instability impacting oil prices. Conversely, periods of reduced global engagement or stable energy markets might see comparatively lower, though still substantial, spending. Benchmarking this $119M award against annual DLA fuel budgets provides context for its relative size within the agency's overall procurement strategy.

How does the pricing structure (Fixed Price with Economic Price Adjustment) typically perform in volatile fuel markets?

The Fixed Price with Economic Price Adjustment (FPEPA) contract structure is designed to balance cost certainty for the government with the contractor's need to manage fluctuating input costs, particularly relevant in volatile markets like petroleum. In FPEPA contracts, a base price is established, but it is subject to adjustment based on a pre-defined economic index or formula, often tied to a benchmark commodity price (e.g., West Texas Intermediate crude oil for gasoline, or specific jet fuel indices). When fuel prices rise, the contract price increases, protecting the contractor from losses and ensuring continued supply. Conversely, if prices fall, the contract price decreases, offering some savings to the government. The effectiveness hinges on the accuracy and fairness of the chosen index and the frequency of adjustments. In highly volatile periods, FPEPA can prevent supply disruptions that might occur under a firm fixed-price contract where the contractor might refuse to deliver if costs exceed the fixed price. However, it also means the government may not fully benefit from significant price drops, and the total expenditure can be less predictable than with a firm fixed-price contract.

What are the potential risks associated with relying on BP Products North America Inc. for a significant portion of aviation turbine fuel?

Relying on a single large contractor like BP Products North America Inc. for a significant portion of aviation turbine fuel introduces several potential risks. Firstly, there's the risk of supply chain disruption. If BP faces internal issues such as refinery problems, labor strikes, transportation bottlenecks, or geopolitical challenges affecting their operations, it could directly impact the government's fuel supply. Secondly, while this contract was awarded competitively, long-term reliance on a dominant supplier could potentially reduce future competitive pressure, especially if market consolidation occurs or if BP becomes the primary supplier across multiple contracts. Thirdly, price volatility, even with an economic price adjustment clause, can still lead to substantial cost increases if market conditions are unfavorable. Finally, contractor performance issues, such as quality control failures or delivery delays, could have significant operational consequences for military aviation units. Robust oversight and contingency planning are crucial to mitigate these risks.

What is the typical performance benchmark for aviation turbine fuel delivery contracts awarded by the Defense Logistics Agency?

Performance benchmarks for aviation turbine fuel delivery contracts awarded by the Defense Logistics Agency (DLA) typically revolve around on-time delivery, fuel quality specifications, and accurate invoicing. DLA Energy, which manages these contracts, emphasizes reliability to ensure uninterrupted military operations. Key performance indicators (KPIs) often include metrics like delivery timeliness (e.g., percentage of deliveries made within the specified window), adherence to stringent fuel quality standards (e.g., meeting ASTM D1655 specifications for aviation turbine fuel), and accuracy in reporting and invoicing. Contractor performance is usually monitored through a Contractor Performance Assessment Reporting System (CPARS), which tracks past performance on previous contracts. High ratings in CPARS are crucial for winning future DLA contracts. Deviations from these benchmarks can result in penalties, contract modifications, or even termination, underscoring the critical nature of consistent and high-quality fuel supply.

How does the 'FOB Origin' delivery term impact the overall cost and logistical complexity compared to 'FOB Destination'?

The 'FOB Origin' (Free On Board Origin) delivery term places the responsibility and cost of transportation on the buyer (the government in this case) from the point of origin. This contrasts with 'FOB Destination,' where the seller is responsible for delivery to the buyer's specified location. For aviation turbine fuel, 'FOB Origin' means the Defense Logistics Agency (DLA) must arrange and pay for the transportation of the fuel from the supplier's facility (e.g., refinery or terminal) to the point of use or staging area. This typically involves arranging tanker trucks, rail cars, or potentially pipelines, adding significant logistical complexity and cost. The government assumes the risk of loss or damage during transit. While 'FOB Origin' might sometimes appear to offer a lower base price from the supplier, the total delivered cost to the government can be higher due to the added transportation expenses and management overhead. 'FOB Destination' simplifies logistics for the government and often provides a more predictable total cost, but the supplier's price may reflect their absorbed transportation costs.

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: SP060010R0061

Offers Received: 25

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 RD, 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: $118,956,755

Exercised Options: $118,956,755

Current Obligation: $118,956,755

Contract Characteristics

Cost or Pricing Data: NO

Parent Contract

Parent Award PIID: SP060011D0481

IDV Type: IDC

Timeline