Defense Fuel Supply Center's Procedures for Exchanging Naval Petroleum Reserve Crude Oil for Fuel Products

PLRD-82-103: Published: Jul 29, 1982. Publicly Released: Aug 30, 1982.

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Pursuant to a congressional request, GAO reviewed the Defense Fuel Supply Center's (DFSC) procedures for administering exchange contracts. GAO attempted to determine whether: (1) DFSC has been using suitable procedures in its exchange contracts, and (2) the Federal Government has been receiving optimum value for its crude oil.

Exchange contracts differ from normal procurements in that they require contractors to purchase a predetermined amount of Naval Petroleum Reserve (NPR) crude oil for every barrel of petroleum product that they sell to the Department of Defense. Traditionally, DFSC has procured petroleum products through nonexchange contracts but, in an effort to obtain supply assurance, DFSC now uses the exchange contract. This type of procurement is new to DFSC and has brought about changes that have reduced competition; however, the contracting procedures used compensate for the reduction and provide sufficient control over the procurements. GAO also concluded that, based on analyses of petroleum product and NPR crude oil prices, DFSC is receiving a fair price for the NPR crude oil.

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