DoD spent $114.4M on 55.5M gallons of aviation fuel, with Vitol Inc. awarded the contract

Contract Overview

Contract Amount: $114,438,947 ($114.4M)

Contractor: Vitol Inc

Awarding Agency: Department of Defense

Start Date: 2011-06-06

End Date: 2012-07-30

Contract Duration: 420 days

Daily Burn Rate: $272.5K/day

Competition Type: FULL AND OPEN COMPETITION

Number of Offers Received: 12

Pricing Type: FIXED PRICE WITH ECONOMIC PRICE ADJUSTMENT

Sector: Other

Official Description: TURBINE FUEL, AVIATION (JA1) - 55,500,000 USG

Plain-Language Summary

Department of Defense obligated $114.4 million to VITOL INC for work described as: TURBINE FUEL, AVIATION (JA1) - 55,500,000 USG Key points: 1. The contract's fixed-price structure with economic price adjustment offers some cost certainty while allowing for market fluctuations. 2. Full and open competition suggests a potentially competitive bidding process, which can lead to better pricing. 3. The contract duration of 420 days (approximately 14 months) is relatively short, indicating a need for ongoing fuel procurement. 4. The award was a delivery order, suggesting it was part of a larger indefinite-delivery/indefinite-quantity (IDIQ) contract or a pre-existing agreement. 5. The North American Industry Classification System (NAICS) code 324110 points to petroleum refineries as the primary industry.

Value Assessment

Rating: good

The total award amount of $114.4 million for 55.5 million gallons of aviation fuel translates to approximately $2.06 per gallon. Benchmarking this against historical aviation fuel prices and similar government contracts would be necessary for a definitive value assessment. However, given the scale and the nature of aviation fuel, this price point appears within a reasonable range, especially considering potential market volatility and the fixed-price with economic price adjustment clause.

Cost Per Unit: $2.06 per gallon

Competition Analysis

Competition Level: full-and-open

The contract was awarded under full and open competition, indicating that all responsible sources were permitted to submit bids. The presence of 12 bidders suggests a robust competitive environment for this fuel supply. A higher number of bidders generally correlates with more competitive pricing and a wider selection of qualified vendors, benefiting the government.

Taxpayer Impact: The extensive competition for this aviation fuel contract likely resulted in more favorable pricing for taxpayers by driving down costs through multiple bids.

Public Impact

This contract directly supports the Department of Defense's aviation operations, ensuring the availability of critical fuel for aircraft. The fuel supplied is essential for maintaining military readiness and executing various defense missions. The geographic impact is likely widespread, as military aircraft operate globally, requiring fuel at numerous locations. The contract supports jobs within the petroleum refining and fuel distribution sectors.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

Potential for price volatility due to the economic price adjustment clause, which could increase costs if market prices surge.
Dependence on a single contractor (Vitol Inc.) for a critical resource, raising concerns about supply chain resilience if issues arise.
The short contract duration may necessitate frequent re-competition, leading to administrative overhead and potential disruptions.

Positive Signals

Awarded through full and open competition, indicating a competitive market and potentially good value.
The fixed-price component provides a baseline cost control measure.
The large volume of fuel procured suggests economies of scale may have been leveraged.

Sector Analysis

The petroleum refining industry (NAICS 324110) is a mature sector characterized by significant capital investment and global supply chains. Aviation fuel, specifically Jet A-1 (JA1), is a critical commodity for both commercial and military aviation. Government procurement of such fuels is substantial, often managed through large-scale contracts to ensure consistent supply and competitive pricing. This contract fits within the broader energy and defense logistics sectors, where reliable fuel sourcing is paramount for operational continuity.

Small Business Impact

There is no indication that this contract was specifically set aside for small businesses. The nature of large-volume fuel procurement typically favors larger, established suppliers with the capacity to meet significant demand. Subcontracting opportunities for small businesses might exist within the broader logistics and distribution network, but the primary award is unlikely to have a direct small business set-aside component.

Oversight & Accountability

Oversight for this contract would typically fall under the Defense Contract Management Agency (DCMA) and the Defense Logistics Agency (DLA), responsible for ensuring contract compliance, quality control, and timely delivery. The fixed-price with economic price adjustment (FPEPA) clause requires careful monitoring of market price indices to ensure fair adjustments. Transparency is generally maintained through contract award databases, though specific delivery details and price adjustments may be less publicly accessible.

Related Government Programs

Defense Fuel Supply Center Contracts
Aviation Turbine Fuel Procurement
Department of Defense Energy Contracts
Jet Fuel Supply Agreements

Risk Flags

Price Volatility Risk
Supply Chain Dependency
Geopolitical Market Influence

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $114.4 million to VITOL INC. TURBINE FUEL, AVIATION (JA1) - 55,500,000 USG

Who is the contractor on this award?

The obligated recipient is VITOL INC.

Which agency awarded this contract?

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

What is the total obligated amount?

The obligated amount is $114.4 million.

What is the period of performance?

Start: 2011-06-06. End: 2012-07-30.

What is Vitol Inc.'s track record with government fuel contracts?

Vitol Inc. is a major global energy and commodity trading company with a significant history of supplying fuels to government entities, including the Department of Defense. They have been involved in numerous large-scale fuel procurement contracts, both domestically and internationally. Their experience typically includes managing complex logistics, navigating regulatory requirements, and ensuring reliable supply chains. While specific performance metrics for individual contracts are not always publicly detailed, their continued success in winning competitive bids suggests a generally positive track record in meeting government requirements for fuel supply. Further analysis would involve reviewing past performance evaluations and any reported issues or disputes related to their government contracts.

How does the $2.06 per gallon price compare to market rates at the time of award?

The price of approximately $2.06 per gallon for aviation fuel (JA1) awarded in mid-2011 needs to be contextualized against prevailing market conditions. During 2011, global crude oil prices were elevated, often trading above $100 per barrel, which directly influences jet fuel prices. Spot prices for jet fuel in major hubs like New York Harbor or the U.S. Gulf Coast during that period fluctuated but were generally in a range that would make $2.06 per gallon competitive, especially considering the scale of the order, delivery terms, and the inclusion of economic price adjustments. Government contracts often include premiums for guaranteed supply and logistical support, so a direct comparison to the lowest spot market price might not be entirely accurate. However, this price appears reasonable within the context of a large, government-secured fuel purchase during a period of high energy costs.

What are the primary risks associated with this type of fuel supply contract?

The primary risks associated with this aviation fuel supply contract include price volatility, supply chain disruptions, and geopolitical instability affecting global oil markets. The 'economic price adjustment' clause, while necessary to account for market fluctuations, introduces the risk of cost overruns if fuel prices increase significantly beyond projections. Supply chain disruptions could arise from refinery issues, transportation problems (pipeline, shipping, trucking), or natural disasters impacting production or delivery routes. Geopolitical events in major oil-producing regions can lead to sudden price spikes and supply shortages. Furthermore, the reliance on a single contractor for a critical resource like aviation fuel carries inherent risk; any failure on the part of Vitol Inc. to deliver could have significant operational impacts on the Department of Defense.

What is the historical spending pattern for aviation fuel by the Defense Logistics Agency?

The Defense Logistics Agency (DLA) is the primary entity responsible for procuring and distributing fuel for the Department of Defense. Historical spending patterns for aviation fuel by DLA have consistently been in the billions of dollars annually, reflecting the vast operational needs of the U.S. military. Spending fluctuates based on global oil prices, operational tempo, and strategic requirements. DLA utilizes various contracting mechanisms, including large IDIQ contracts and specific delivery orders like the one awarded to Vitol Inc., to ensure a steady supply. Over the years, DLA has sought to optimize fuel procurement through competitive bidding, strategic sourcing, and exploring alternative fuels, but traditional petroleum-based aviation fuels remain a significant expenditure category due to their critical role in military aviation.

How does the competition level (12 bidders) impact the government's leverage?

A competition level involving 12 bidders for this aviation fuel contract significantly enhances the government's leverage. With numerous potential suppliers vying for the contract, the government can negotiate more favorable terms and pricing. The presence of many bidders indicates a healthy market with sufficient capacity and interest, reducing the likelihood of a contractor dictating terms. This level of competition allows the government to select the offer that provides the best overall value, considering not just price but also factors like delivery reliability, quality, and past performance. It also serves as a deterrent against potential price gouging or substandard performance, as contractors are aware that non-compliance could lead to losing future business to competitors.

What are the implications of the 'Fixed Price with Economic Price Adjustment' contract type?

The 'Fixed Price with Economic Price Adjustment' (FPEPA) contract type aims to balance cost certainty for the buyer with protection against market volatility for the seller. In this case, a base fixed price is established, but it can be adjusted upwards or downwards based on a pre-defined economic index, typically related to fuel prices. This means the Department of Defense benefits from a negotiated base price, potentially capturing economies of scale. However, it also exposes the government to potential cost increases if the index reflects rising fuel market prices during the contract period. For Vitol Inc., it provides a mechanism to maintain profitability despite unpredictable market swings, reducing their risk and potentially encouraging more competitive bids compared to a purely fixed-price contract in a volatile market.

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: SP060011R0033

Offers Received: 12

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

Evaluated Preference: NONE

Contractor Details

Address: 1100 LOUISIANA ST STE 5500, HOUSTON, TX, 77002

Business Categories: Category Business, Corporate Entity Not Tax Exempt, Foreign Owned, Not Designated a Small Business, Special Designations

Financial Breakdown

Contract Ceiling: $114,438,947

Exercised Options: $114,438,947

Current Obligation: $114,438,947

Contract Characteristics

Commercial Item: COMMERCIAL ITEM

Cost or Pricing Data: NO

Parent Contract

Parent Award PIID: SP060011D0508

IDV Type: IDC

Timeline