Spotlight: The US Military’s March 2007 Fuel Contracts
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Fuel is a big issue to the US military.
While there are some contracts issued throughout the year, the US military typically issues large sets of contracts over concentrated periods. In March 2006, for instance, DID covered over $3 billion in contracts issued within a week. A September 2005 flurry was over $1.5 billion worth, while 2 articles’ [1 | 2] worth of contracts in March 2005 amounted to over $2.5 billion. The Defense Energy Support Center estimates that the US military paid more than $10 billion for over 130 million barrels of fuel in 2006, compared to $6.7 billion for 144.8 million barrels in 2004. No wonder energy conservation is on the Pentagon’s agenda, field commanders are asking for portable renewable power, DARPA is researching alternative fuels for B-52 bombers, et. al.
It would appear to be that time of year again. Here are all of the fuel contracts for March 2007, along with descriptions of key fuel types and explanations of the contract language. The final tally was $4,199,518,242 – plus any economic price adjustments later, a term we explain below…
Key Fuel Types
Unfortunately, the March 2007 contracts are far less specific than past flurries. For your information, here are some of the key fuel types involved, beyond contracts for straight diesel fuel. 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. Both documents are in PDF format.
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 with regard to water and particulate content. Gas turbine maintenance (particularly when associated with combustor cans) 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 that JP-5 tends to be more expensive; its energy content is lower than F-76 type fuel; and it may have lower viscosity and/or lubricity characteristics. The lower energy content means higher fuel consumption rates. Lower viscosity and lubricity may cause wear-type problems in diesel engine injection pumps.
JP-8, which contains even less benzene than JP-5 and so is thicker, is used by the US Army and Air Force. It is actually the same as commercial jet fuel (Jet Fuel A), but 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 notes some of the successes and difficulties to date. 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 it’s consumed before any potential stability problem can occur. 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 typically leads to price 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.
The March 2007 Contracts
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The Defense Energy Support Center (DESC) in Fort Belvoir, VA issues these contracts.
March 30/07: Woman-owned small business qualifier Leemon Oil Co., Inc. in Romulus, MI received a maximum $18.8 million fixed price with economic price adjustment contract for diesel fuel, gasoline and fuel oil on behalf of US Army, Navy, Air Force, federal civilian agencies, and Department of Defense activities. Other locations of performance are VA; TN; WVA; MD; OH; District of Columbia and KY. Proposals were Web-solicited and 17 responded. Date of performance completion is July 31, 2010 (SP0600-06-D-4001).
March 27/07: Petron Corporation in Makati City, Philippines received a minimum $6.7 million fixed price with economic price adjustment contract for diesel fuel. Using services are Army and Navy. There were 2 proposals submitted and 2 responded. Date of performance completion is January 30, 2010 (SP0600-07-D-1257).
March 23/07: ExxonMobil Fuels Marketing Co. in Fairfax, VA received a maximum $926.8 million IDIQ contract for jet fuel for Defense Energy Support Center. Other locations of performance include Baytown, TX and Baton Rouge, LA. Proposals were solicited using Federal Business Opportunities website. Date of performance completion is April 30, 2008 (SP0600-07-D-0468).
March 23/07: ConocoPhillips in Bartlesville, OK won a maximum $267.4 million IDIQ contract covering aviation turbine fuel for the Defense Energy Support Center. Other locations of performance are Texas, Oklahoma, Kansas, and Colorado. There were 33 proposals solicited with 21 responses. Date of performance completion is April 30, 2008 (SP0600-07-R-0061).
March 23/07: Small business qualifier Refinery Associates of Texas, Inc. in New Braunfels, TX received a maximum $171.8 million IDIQ contract for for naval distillate for Defense Energy Support Center. Other location of performance is Pasadena, Texas. Proposals were Web-solicited and 21 responded. This is an indefinite delivery, indefinite quantity contract. Date of performance completion is April 30, 2008 (SP0600-07-D-0479).
March 23/07: Small business qualifier Gary-Williams Energy Corp. in Denver, CO won a maximum $153.5 million IDIQ contract for jet fuel for Defense Energy Support Center. Work will be also performed in Wynnewood, OK. Proposals were Web-solicited and 21 responded. Date of performance completion is April 30, 2008 (SP0600-07-D-0476).
March 23/07: Alon USA, L.P., Dallas, Texas won a maximum $137.9 million IDIQ contract for turbine fuel for Defense Energy Support Center. The other location of performance is Big Spring, TX. Proposals were Web-solicited and 21 responded. Date of performance completion is April 30, 2008 (SP0600-07-D-0477).
March 23/07: small business qualifier AGE Refining Inc. in San Antonio, TX won a maximum $91.9 million IDIQ contract for jet fuel for the Defense Energy Support Center. This proposal was Web solicited with 21 responses. Date of performance completion is April 30, 2008 (SP0600-07-D-0471).
March 23/07: Calumet Sales Co., Inc. in Indianapolis, IN won a maximum $91.5 million fixed price with economic price adjustment IDIQ contract for turbine fuel for the Defense Energy Support Center. The other location of performance is Shreveport, LA. Proposals were Web-solicited and 21 responded. Date of performance completion is April 30, 2008 (SP0600-07-D-0478).
March 23/07: Tesoro Refining and Marketing Co. in San Antonio, TX won a maximum $74.8 million IDIQ contract for jet fuel for the Defense Energy Support Center. Other locations of performance are Mandan, ND, and Moorhead, MN. Proposals were Web-solicited and 21 responded. Date of performance completion is April 30, 2008. (SP0600-07-D-0474).
March 23/07: Small business qualifier Hermes Consolidated, Inc. in Denver, CO received a maximum $58.1 million IDIQ contract for jet fuel for the Defense Energy Support Center. The other location of performance is Newcastle, WY. Proposals were Web-solicited and 21 responded. Date of performance completion is April 30, 2008 (SP0600-07-D-0475).
March 23/07: Delek Refining, LTD. in Tyler, TX won a maximum $30.7 million IDIQ contract for jet fuel for the Defense Energy Support Center. This proposal was Web solicited with 21 responses. Date of performance completion is April 30, 2008 (SP0600-07-D-0472).
March 22/07: Shell Oil Products – Deer Park in Houston, TX won a maximum $967 million contract for aviation turbine fuel. The other location of performance listed is Deer Park, TX. Using services are Defense Energy Support Center. There were 33 proposals solicited with 21 responses. Date of performance completion is April 30, 2008 (SP0600-07-D-0481).
March 22/07: Valero Marketing and Supply Co. in San Antonio, TX won a maximum $499.3 million IDIQ contract for fuel. The other location of performance listed is Ohio. Using services are Defense Energy Support Center. There were 33 proposals solicited with 21 responses. Date of performance completion is April 30, 2008 (SP0600-07-D-0470).
March 22/07: Shell Oil Products – Mobile in Houston, TX won a maximum $257.8 million fixed price with economic price adjustment contract for aviation turbine fuel. Other location of performance listed is Alabama. Using services are Defense Energy Support Center. There were 33 proposals solicited with 21 responses. Date of performance completion is April 30, 2008 (SP0600-07-D-0482).
March 22/07: Shell Chemical Yabucoa, Inc. in Yabucoa, Puerto Rico received a maximum $143 million IDIQ contract for naval distillate fuel to the Defense Energy Support Center. There were 33 proposals solicited with 21 responses. Date of performance completion is April 30, 2008 (SP0600-07-D-0467).
March 22/07: Small business qualifier Placid Refining Co. LLC in Port Allen, LA received a maximum $116.1 million IDIQ contract for aviation turbine fuel to the Defense Energy Support Center (DESC). There were 33 proposals solicited with 21 responses. Date of performance completion is April 30, 2008 (SP0600-07-D-0469).
March 22/07: Hunt Refining Co. in Tuscaloosa, AL is being awarded a maximum $70 million IDIQ contract for JP-8 jet fuel and aviation turbine fuel. Using services are Defense Energy Support Center. There were 33 proposals solicited with 21 responses. Date of performance completion is April 30, 2008.
(SP0600-07-D-0480).
March 22/07: Small business qualifier Western Petroleum Co. in Eden Prairie, MN won a maximum $60 million IDIQ contract for aviation turbine fuel. Using services are Defense Energy Support Center. There were 33 proposals solicited with 21 responses. Date of performance completion is April 30, 2008 (SP0600-07-R-0061).
March 12/07: Small business qualifier Ranger Aviation Enterprises, Inc. in San Angelo, TX won a maximum $6.1 million contract for jet fuel. Using services are the US Army, Navy, Air Force, Marine Corps and Federal civilian agencies. There were 2 proposals solicited and 1 responded. Date of performance completion is March 31, 2011 (SP0600-07-D-0061).
March 7/07: BP Corporation North America, Inc., dba Air BP in Warrenville, IL received a maximum $50.1 million contract for jet fuel. The other location of performance is KIWA William Gateway Airport in Phoenix, AZ. Using services are the US Army, Air Force, Marine Corps and Federal civilian agencies. There was 1 proposal solicited and 1 responded. Date of performance completion is March 31, 2011 (SP0600-07-D-0041).
