Defense Fuel Supply Center Procedures for Purchasing Strategic Petroleum Reserve Oil

RCED-84-61: Published: Sep 21, 1984. Publicly Released: Sep 21, 1984.

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Pursuant to a congressional request to monitor the development, fill, and operation of the Strategic Petroleum Reserve (SPR), GAO reviewed the Defense Fuel Supply Center's (DFSC) oil purchasing procedures during the period from February 1981 to May 1983.

Department of Defense (DOD) acquisition regulations require DFSC to: (1) negotiate contract prices that are fair, reasonable, and result in the lowest overall cost to the government; (2) use competitive procedures; and (3) perform a cost analysis to determine whether offers are fair and reasonable. GAO found that DFSC used a 2-week solicitation and negotiation process to competitively purchase oil on the spot market and similar procedures for long-term contracts. DFSC formulated a market price analysis process to establish a price range for each crude oil type and to select offers within a price range that minimized the cost to the government. GAO found that a price analysis was performed for each spot market solicitation during the period reviewed and that the prices for most of the contracts awarded during fiscal year 1982 fell within the spot market price ranges. GAO concluded that DFSC procedures generally ensured fair and reasonable prices at the lowest overall cost to the government. However, GAO determined that DFSC could have paid $1.9 million less during the period evaluated and still acquired oil of acceptable quality if it had been more flexible in its purchasing practices.

Recommendation for Executive Action

  1. Status: Closed - Not Implemented

    Comments: DOD disagreed with this recommendation from a general policy standpoint and does not expect to take any action.

    Recommendation: The Secretary of Defense should instruct the Commander, DFSC, to develop formal guidelines for the contracting officer to use for making exceptions to the DFSC purchase procedures. In particular, the guidelines should allow for consideration of offers for acceptable quality oil that slightly exceed the spot market high price but result in lower per barrel acquisition costs.

    Agency Affected: Department of Defense


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