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The US military uses far more fuel than any branch of the American government, and the US Air Force uses far more fuel than the other services. DID has spotlighted the magnitude of these buys before, in March 2009 and March 2006, as a way of driving this reality home. The phenomenon has also been examined by organizations like the US Army Corps of Engineers, and the Brookings Institute, both of whom have raised concerns about meeting that demand in future.
March is not the only month for fuel contracts by any means, as purchases continue throughout the year. These purchases are handled by the US military’s Defense Logistics Agency Energy, located in Fort Belvoir, VA. To date, December 2010 fuel contracts total $1,551,570,807.
Key Fuel Types
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The December 2010 contracts aren’t specific, but “fuel” can encompass a number of different products. Here are some of the key fuel types involved. Information in this section is taken from the US Coast Guard’s Propulsion Fuel Guide, and the US Army Center for Health Promotion and Preventive Medicine.
JP-5 (also known as F-44) & JP-8. is procured to MIL-DTL-5624T. JP-5 is a very clean burning fuel with very strict quality requirements – especially its limit of water and particulate content. Turbine maintenance is reduced when burning JP-5. It is used in US Navy aircraft, and has a high flash point, which means it doesn’t vaporize until it reaches about 130 degrees Fahrenheit or so. This makes it ideally suited for storage aboard ship, where low flammability is desired. JP-5 is also inherently stable; it does not form oxygenated sludge, and because it’s an aviation fuel it includes a Fuel System Icing Inhibitor (FSII) additive. The downsides are threefold. JP-5 tends to be more expensive. Its energy content is lower than F-76 type fuel, which means lower mileage efficiency; and it may have lower viscosity and/or lubricity characteristics, which can cause extra wear in diesel engine injection pumps.
JP-8 contains even less benzene than JP-5, which makes it thicker. It is used by the US Army and Air Force. Its base is actually the same as commercial jet fuel (Jet Fuel A), but it has different additives. If you see a contract referring only to “jet fuel” other non-specific term along those lines, it’s very likely to be JP-8. This fuel has also been used in many US Army vehicles under the Single Fuel Concept; a March-April 2005 Army Logistician article noted some of the successes and difficulties involved. Shipboard fire safety concerns have prevented carrier-based aircraft from making the switch to JP-8.
F-76 is procured to MIL-F-16884J. It is suitable for use in both gas turbines and diesel engines. F-76 burned in Paxman engines however, must have a minimum Cetane Number of 45 (the F-76 specification allows a minimum Cetane Number of 42). It has numerous and very strict quality requirements – including a rigorous storage stability test. Because no commercial fuel products come with a similar storage stability “guarantee,” all commercial fuel must be periodically rotated onboard ship so that it’s consumed before any stability problems can arise. F-76 is generally found on Naval bases or oiler ships only.
Contract Type Explanations
Competitions of this sort generally work by having the government put the contract out to bid, receiving bids, and then using those prices plus any other evaluation criteria deemed important (delivery reliability, small/minority business quotas, et. al.) via a points system in order to assess how large a share of the available funds goes to each bidder (if any).
Unless otherwise noted, all contracts below are “fixed price with economic price adjustment” contracts. “economic price adjustment” contracts will compensate vendors if the prices of their inputs rise. These adjustments can be based on a set agreed price, or on actual prices or costs indexes of labor or material – see clause 16.203 at this link for more, including when to use such contracts and when not to.
For instance, the government signs an oil contract with Company A at a fixed price, but with economic price adjustment. If oil prices later go through the roof, Company A doesn’t have to go bankrupt supplying that oil, because there’s an agreed formula under which the government will pay extra as a function of the rise in commodity prices.
Here’s the key with respect to fuels: the military absolutely needs security of supply, but doesn’t want to pay more than it has to. Suppliers need a hedge against risk. If the government didn’t do this in areas like its fuel contracts, (a) all firms would pad their bids to cover price fluctuation risks, and the government would end up paying far more; and (b) many firms would be far less inclined to bid for long government contracts, because their size would represent too much risk. This would create security of supply issues, reduce the number of bidders overall, and pretty much eliminate small business bidders in this area. A structural lack of competition like this also tends to leads to higher prices, over and above any increases in risk premiums.
Contracts listed as “IDIQ” are also indefinite delivery/ indefinite quantity contracts, bought as needed in appropriate quantities up to the limit of funds. In practice, all of these contracts should be IDIQ contracts; some were not explicitly listed as such, however, and so we’ve made the distinction.
December 2010 Contracts
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Dec 17/10: Chevron Global Aviation in Houston, TX wins a maximum $395.9 million IDIQ contract for aviation fuel. Other locations of performance are Utah and California. The original proposal was Web-solicited with 20 responses. The contract will run until Oct 30/11 (SP0600-11-D-0452).
Dec 17/10: Valero Marketing and Supply Co. in San Antonio, TX wins a maximum $249.8 million IDIQ contract for aviation fuel. Other location of performance is California. The original proposal was Web-solicited with 20 responses. The contract will run until Oct 30/11 (SP0600-11-D-0464).
Dec 17/10: Equilon Enterprises, in Houston, TX wins a maximum $239,513,274 million IDIQ contract for aviation fuel. Other location of performance is California. The original proposal was Web-solicited with 20 responses. The contract will run until Oct 30/11 (SP0600-11-D-0458).
Dec 17/10: Tesoro Hawaii Corp. in Kapolei, Hawaii, wins a maximum $234,539,106 million IDIQ contract for aviation fuel. There are no other locations of performance. The original proposal was Web-solicited with 20 responses. The contract will run until Oct 30/11 (SP0600-11-D-0454).
Dec 17/10: Western Refining Co. in El Paso, TX wins a maximum $111,863,194 million IDIQ contract for aviation fuel. There are no other locations of performance. The original proposal was Web-solicited with 20 responses. The contract will run until Oct 30/11 (SP0600-11-D-0461).
Dec 17/10: Small business qualifier Petro Star, Inc. in Anchorage, AK wins a maximum $104,438,609 million IDIQ contract for aviation fuel. Other locations of performance are in Valdez, Alaska, and North Pole, Alaska. The original proposal was Web-solicited with 20 responses. The contract will run until Jan. 30/11. (SP0600-11-D-0453).
Dec 17/10: BP West Coast Products, LLC in La Palma, CA wins a maximum $78,630,310 million IDIQ contract for Naval distillate fuel. Other location of performance is in Washington. The original proposal was Web-solicited with 20 responses. The contract will run until Oct 30/11 (SP0600-11-D-0462).
Dec 17/10: U.S. Oil Trading, LLC in Tacoma, WA wins a maximum $72,957,924 million IDIQ contract for aviation fuel. Other location of performance is Washington. The original proposal was Web-solicited with 20 responses. The contract will run until Oct 30/11 (SP0600-11-D-0463).
Dec 17/10: ExxonMobil Fuels Marketing Co. in Fairfax, VA wins a maximum $50,663,932 million IDIQ contract for Naval distillate fuel. Other location of performance is California. The original proposal was Web-solicited with 20 responses. The contract will run until Oct 30/11 (SP0600-11-D-0465).
Dec 17/10: Sinclair Oil Corp. in Salt Lake City, UT wins a maximum $38,603,925 million IDIQ contract for aviation fuel. There are no other locations of performance. The original proposal was Web-solicited with 20 responses. The contract will run until Oct 30/11 (SP0600-11-D-0457).
Dec 17/10: Navajo Refining Co., LLC in Artesia, NM wins a maximum $25,758,380 million IDIQ contract for aviation fuel. Other location of performance is Moriarty, N.M. The original proposal was Web-solicited with 20 responses. The contract will run until Oct 30/11 (SP0600-11-D-0459).
Dec 17/10: Small business qualifier Paramount Refining Corp. in Paramount, CA wins a maximum $12,318,424 million IDIQ contract for aviation fuel. There are no other locations of performance. The original proposal was Web-solicited with 20 responses. The contract will run until Oct 30/11 (SP0600-11-D-0455).
Dec 17/10: Small business qualifier Montana Refining Co. in Great Falls, MT, wins a maximum $10,686,928 million IDIQ contract for aviation fuel. There are no other locations of performance. The original proposal was Web-solicited with 20 responses. The contract will run until Oct 30/11 (SP0600-11-D-0456).
Dec 16/10: Mobile Oil Guam, Inc. in East Hagatna, Guam, wins a minimum $13.3 million contract for diesel fuel, delivered throughout Guam on behalf of the US Navy and Air Force. The original proposal was Web-solicited with 2 responses, and the contract will run until Dec 31/13 (SP0600-11-D-4503).
Additional Readings
* Global Security – Fuel Oil. Naval perspective.
* Wikipedia – JP-8
* Wikipedia – JP-5
