DoD's $60M turbine fuel contract awarded to Hermes Consolidated LLC shows potential for price volatility

Contract Overview

Contract Amount: $59,987,520 ($60.0M)

Contractor: Hermes Consolidated LLC

Awarding Agency: Department of Defense

Start Date: 2012-09-20

End Date: 2014-01-30

Contract Duration: 497 days

Daily Burn Rate: $120.7K/day

Competition Type: FULL AND OPEN COMPETITION

Number of Offers Received: 27

Pricing Type: FIXED PRICE WITH ECONOMIC PRICE ADJUSTMENT

Sector: Other

Official Description: 18,000,000 USG OF TURBINE FUEL, AVIATION, JAA, FOB ORIGIN PIPELINE EX NEW CASTLE, WY

Place of Performance

Location: DENVER, DENVER County, COLORADO, 80202

State: Colorado Government Spending

Plain-Language Summary

Department of Defense obligated $60.0 million to HERMES CONSOLIDATED LLC for work described as: 18,000,000 USG OF TURBINE FUEL, AVIATION, JAA, FOB ORIGIN PIPELINE EX NEW CASTLE, WY Key points: 1. The contract's fixed-price with economic price adjustment (EPA) structure introduces risk of cost overruns due to fluctuating fuel prices. 2. Awarded under full and open competition, the contract saw 27 bids, suggesting a competitive market for aviation turbine fuel. 3. The duration of the contract (497 days) and its value ($59.9M) indicate a significant, medium-term supply requirement. 4. The Defense Logistics Agency (DLA) is responsible for procuring fuel for military operations, highlighting the critical nature of this supply chain. 5. The North American Industry Classification System (NAICS) code 324110 points to petroleum refineries as the primary industry sector involved. 6. The contract's origin point in New Castle, WY, suggests a specific logistical and geographic focus for fuel delivery.

Value Assessment

Rating: fair

The total award of $59,987,520 for turbine fuel over approximately 16 months suggests a significant volume. Benchmarking this against market rates for aviation turbine fuel during the 2012-2014 period would be necessary for a precise value-for-money assessment. The inclusion of economic price adjustment (EPA) clauses, while common for commodities like fuel, introduces a risk of costs exceeding initial projections if market prices rise significantly. Without specific per-unit cost data or comparison to similar DLA contracts, a definitive value assessment is challenging.

Cost Per Unit: N/A

Competition Analysis

Competition Level: full-and-open

This contract was awarded under full and open competition, receiving 27 bids. This high number of bidders indicates a robust and competitive market for aviation turbine fuel. The extensive competition likely contributed to achieving a reasonable price at the time of award, as multiple suppliers vied for the contract. The DLA's approach to full and open competition is standard for ensuring broad market access and potentially better pricing.

Taxpayer Impact: The strong competition in this instance is beneficial for taxpayers, as it likely drove down initial bid prices and provided a wider pool of suppliers to choose from, enhancing the government's negotiating position.

Public Impact

The primary beneficiaries are the Department of Defense (DoD) and its various branches, ensuring the availability of critical aviation fuel for operational readiness. The contract delivers essential turbine fuel (JAA grade) for aircraft, supporting flight operations and military missions. The geographic impact is centered around the origin point in New Castle, Wyoming, and extends to where the fuel is ultimately utilized by military aircraft. The contract supports the petroleum refining industry and associated logistics and transportation workforces involved in fuel production and delivery.

Waste & Efficiency Indicators

Waste Risk Score: 50 / 10

Warning Flags

The economic price adjustment (EPA) clause introduces uncertainty regarding the final cost, as fuel prices can be volatile.
The fixed-price nature of the base contract, combined with EPA, requires careful monitoring of market fluctuations to manage budget.
Dependence on a specific origin point (New Castle, WY) could pose logistical risks if disruptions occur in that region.

Positive Signals

Awarded through full and open competition with 27 bids, indicating a healthy market and competitive pricing.
The Defense Logistics Agency's established procurement processes suggest a structured approach to managing this significant contract.
The contract specifies JAA grade turbine fuel, ensuring adherence to critical quality standards for aviation safety.

Sector Analysis

The petroleum refining sector (NAICS 324110) is a large and complex industry critical to national infrastructure and defense. Aviation turbine fuel is a specialized product within this sector, subject to global commodity prices and geopolitical factors. The Defense Logistics Agency is a major consumer of fuel, and its procurement activities significantly influence market dynamics for defense-related fuels. Comparable spending benchmarks would involve analyzing other DLA fuel contracts and Department of Energy data on fuel production and pricing.

Small Business Impact

This contract does not appear to have a small business set-aside component, as indicated by 'ss' being false. Furthermore, 'sb' being false suggests no specific small business subcontracting goals were mandated. This implies that the primary awardee, Hermes Consolidated LLC, was not specifically selected to encourage small business participation, and subcontracting opportunities for small businesses may be limited or at the discretion of the prime contractor.

Oversight & Accountability

Oversight for this contract would primarily fall under the Defense Logistics Agency (DLA) contracting officers and program managers. Accountability measures are embedded in the contract terms, including delivery schedules and fuel specifications. Transparency is facilitated through contract award databases like FPDS. Inspector General jurisdiction would apply if any fraud, waste, or abuse related to the contract is suspected or reported.

Related Government Programs

Defense Logistics Agency Fuel Procurement
Aviation Turbine Fuel Supply Contracts
Department of Defense Energy Procurement
Fixed-Price with Economic Price Adjustment Contracts
Commodity Procurement by Federal Agencies

Risk Flags

Economic Price Adjustment (EPA) Clause Risk
Potential for Fuel Price Volatility
Logistical Risks from Single Origin Point
Dependence on Commodity Markets

Frequently Asked Questions

What is this federal contract paying for?

Department of Defense awarded $60.0 million to HERMES CONSOLIDATED LLC. 18,000,000 USG OF TURBINE FUEL, AVIATION, JAA, FOB ORIGIN PIPELINE EX NEW CASTLE, WY

Who is the contractor on this award?

The obligated recipient is HERMES CONSOLIDATED LLC.

Which agency awarded this contract?

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

What is the total obligated amount?

The obligated amount is $60.0 million.

What is the period of performance?

Start: 2012-09-20. End: 2014-01-30.

What was the average price per unit of turbine fuel awarded under this contract, and how does it compare to market benchmarks during the contract period?

The provided data does not include the specific price per unit, only the total award amount ($59,987,520) and the quantity (18,000,000 USG). To calculate the average price per unit, we divide the total award by the quantity: $59,987,520 / 18,000,000 gallons = approximately $3.33 per gallon. Comparing this to market benchmarks for aviation turbine fuel (like Jet A or JP-8) during the contract period (September 2012 - January 2014) is crucial. Historical data from sources like the U.S. Energy Information Administration (EIA) or industry publications would be needed. Given the economic price adjustment (EPA) clause, the actual average price paid could have varied from this initial calculation if market prices fluctuated significantly during the contract's term. A detailed analysis would require tracking monthly or quarterly price indices relevant to the fuel type and origin.

How did the economic price adjustment (EPA) clause impact the final cost of this contract compared to a fixed-price contract without adjustments?

The economic price adjustment (EPA) clause in this contract allowed for modifications to the contract price based on fluctuations in specific economic factors, likely related to the cost of crude oil or refined fuel products. If fuel prices increased significantly between September 2012 and January 2014, the EPA clause would have resulted in a higher final cost for the government compared to a scenario where the price was fixed at the initial award amount. Conversely, if prices decreased, the EPA might have led to a lower final cost. Without access to the specific price indices used for adjustment and the actual price changes over the contract period, it's impossible to quantify the exact impact. However, the presence of EPA indicates an expectation of price volatility and a mechanism to share that risk between the contractor and the government, potentially leading to a higher initial bid price than a firm fixed price to account for potential upward adjustments.

What is the track record of Hermes Consolidated LLC in fulfilling government contracts, particularly for fuel supply?

Information on Hermes Consolidated LLC's specific track record for fulfilling government contracts, especially for fuel supply, is not detailed in the provided data snippet. A comprehensive assessment would require searching federal procurement databases (like FPDS or SAM.gov) for past awards, performance evaluations (e.g., Contractor Performance Assessment Reporting System - CPARS), and any history of contract disputes or terminations. Given this was a significant award ($59.9M), it suggests the company had some level of experience or capability deemed sufficient by the Defense Logistics Agency (DLA) at the time. However, without further data, it's difficult to assess their reliability, past performance quality, or history with similar large-scale fuel procurements.

What are the potential risks associated with relying on a single origin point (New Castle, WY) for such a large volume of aviation fuel?

Relying on a single origin point, such as New Castle, Wyoming, for 18 million gallons of aviation turbine fuel presents several potential risks. Firstly, logistical disruptions are a primary concern. Issues like severe weather, transportation infrastructure failures (rail, pipeline, or trucking), labor strikes, or accidents could impede the fuel's timely delivery to its intended destinations. Secondly, localized supply issues at the refinery or terminal could impact availability. Geopolitical events or domestic production challenges affecting that specific region could also create supply shortages or price spikes. Lastly, the government's negotiating leverage might be reduced if alternative sourcing options from that specific origin are limited, potentially increasing costs if the single supplier faces operational challenges and needs to pass on increased expenses.

How does the Defense Logistics Agency (DLA) typically manage competition for large-volume fuel contracts like this one?

The Defense Logistics Agency (DLA) typically manages competition for large-volume fuel contracts by employing a strategy of "full and open competition" whenever feasible, as seen in this case with 27 bids received. DLA leverages its significant purchasing power to solicit bids from a wide range of qualified suppliers in the open market. They often use pre-qualification processes to ensure bidders meet stringent technical, financial, and security requirements. For fuel, contracts often include mechanisms like economic price adjustments (EPA) to account for market volatility, and delivery terms specify locations and timelines. DLA's approach aims to maximize competition, ensure supply chain resilience, and achieve best value for the government, balancing cost, quality, and delivery requirements across its global operations.

What is the significance of the NAICS code 324110 (Petroleum Refineries) in the context of this contract?

The North American Industry Classification System (NAICS) code 324110, 'Petroleum Refineries,' signifies that the primary business activity of the companies eligible to bid on or awarded this contract is the refining of crude oil into various petroleum products. Aviation turbine fuel is a key output of many refineries. This code helps categorize the contract within the broader industrial landscape, indicating that the government is procuring a product directly from the refining sector or a primary distributor closely linked to it. It informs economic analysis by placing the contract within a specific industry segment, allowing for comparisons with other spending in the refining sector and understanding the supply chain's upstream nature.

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: SP060012R0061

Offers Received: 27

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

Evaluated Preference: NONE

Contractor Details

Parent Company: Hermes Consolidated LLC (UEI: 027566247)

Address: 1600 BROADWAY STE 2300, DENVER, CO, 90

Business Categories: Category Business, Corporate Entity Not Tax Exempt, Limited Liability Corporation, Not Designated a Small Business, Special Designations, U.S.-Owned Business

Financial Breakdown

Contract Ceiling: $59,987,520

Exercised Options: $59,987,520

Current Obligation: $59,987,520

Contract Characteristics

Cost or Pricing Data: NO

Parent Contract

Parent Award PIID: SP060012D0492

IDV Type: IDC

Timeline