Report | Sept. 23, 2021

Audit of Defense Logistics Agency Award and Management of Bulk Fuel Contracts in Areas of Contingency Operations (DODIG-2021-129)

Audit

Publicly Released: September 27, 2021

 

Objective

The objective of this audit was to determine whether Defense Logistics Agency (DLA) Energy personnel awarded bulk fuel contracts and met bulk fuel requirements, in areas of contingency operations, as required by Federal and DoD guidance. In addition, we determined whether the DLA had processes in place to ensure contractors met contractual obligations and followed anticorruption practices.

 

Background

This audit was conducted in response to House Report 116‑442, requiring that the Office of Inspector General brief the House Armed Services Committee on fuels contracting in areas of contingency operations. The committee report required:

  • a list of solicitations and awards greater than $250,000 for fuel in areas of contingency operations, issued since January 1, 2016;
     
  • an assessment of whether the DLA successfully fulfilled the requirements; and
     
  • an assessment of whether the DLA has an adequate system in place to ensure contractors are meeting obligations and abide by required anticorruption practices.

DLA Energy provides worldwide acquisition and management of commercial fuels delivered directly to military and Federal customers. This includes the procurement of aviation fuel at commercial airports; commercial ship fuel at seaports; and diesel, gasoline, and bio‑based products at posts, camps, and stations.

From January 1, 2016, through September 30, 2020, DLA Energy personnel issued 68 contracts and purchase orders, which resulted in 4,012 contract actions (orders) for bulk fuel in support of overseas contingency operations, with exercised obligations valued at $3.3 billion. We completed a statistical sample of the 4,012 orders and reviewed 180 orders, valued at $212.9 million.

 

Finding

DLA Energy contracting officials complied with Federal Acquisition Regulation and DoD guidance and generally met bulk fuel requirements, valued at $212.9 million, in Afghanistan, Bahrain, Iraq, Jordan, Kuwait, the Philippines, Turkey, Qatar, and the United Arab Emirates. DLA Energy officials ensured contractors fulfilled bulk fuel requirements for 164 of the 180 orders reviewed.

DLA Energy contracting officers terminated 26 of 180 orders within 11 of 68 contracts in the universe, which cost the DoD an additional $9.1 million for the new bulk fuel contracts due to price increases and other costs, in addition to the time needed to award the new contracts. In addition, one termination resulted in a cost savings of $2.7 million due to a lower price per gallon on the replacement contract.

Due to the frequency and nature of terminations in Iraq, based on the results of the sample testing related to order terminations, we expanded our review to include an analysis of an additional 36 terminated Iraq contracts. The 2 terminated contracts from the original sample and the 36 contract terminations from our expanded analysis cost the DoD an additional $7.1 million and $43.3 million, respectively, due to price increases based on the original and replacement contract values and other costs. DLA Energy contracting officials faced challenges, which were outside of their control, when fulfilling fuel requirements in Iraq. First, contractors faced restrictions from the Iraqi government to include Prime Minister’s National Operations Center approval and Oil Products Distribution Center allocations for exclusive purchasing of fuel. Second, the DoD encountered force protection risks. Although outside of the contracting officers’ control, these challenges impacted bulk fuel deliveries. However, as a result of the contracting officers’ actions, using one‑time buys and the appropriate authorities necessary to deliver fuel on time, DoD customers received the fuel necessary to meet mission requirements.

Additionally, DLA Energy had an adequate system in place to ensure its fuel contractors met contractual obligations and abided by anticorruption practices.

Although DLA Energy contracting officers generally met bulk fuel requirements, contracting officers can use various source selection methods to obtain fuel in areas of contingency operations. The lowest price technically acceptable source selection process is appropriate when the expectation is the best value. However, in areas of contingency operations, the best value may require an evaluation of factors other than lowest price and technically acceptable.

DLA Energy contracting officials met bulk fuel requirements for 164 orders, and fuel was delivered on time at the lowest price to meet mission needs. For the remaining 16 orders, DLA Energy officials ultimately ensured DoD customers received the fuel needed to meet mission needs. However, to fulfill the bulk fuel requirement, DLA Energy officials needed to use one‑time buys that resulted in late deliveries and at an additional cost to the DoD.

 

Recommendation

We recommend that the Commander of Defense Logistics Agency‑Energy direct contracting officers to consider a tradeoff source selection, and consider using past performance evaluation factors, in addition to other factors such as cost or price, for bulk fuel purchases in areas of overseas contingency operations.

 

Management Comments and Our Response

The Director, DLA Acquisition, responding for the Commander of DLA Energy, agreed with the recommendation and stated that the DLA Energy Commander will ensure contracting officers consider the circumstances of each acquisition, including whether the acquisition is in an area of contingency operations, when determining whether to use lowest price technically acceptable source selection procedures. DLA Energy officials issued a directive to the procurement workforce requiring the use of tradeoff utilization and past performance evaluation factors in areas of contingency operations on September 2, 2021. Therefore, the recommendation is closed.

 

This report is a result of Project No. D2020‑D000AU‑0187.000.