Defense Fuel Supply Center Procedures for Purchasing Strategic Petroleum Reserve Oil

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.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

Director: John W. Sprague Team: General Accounting Office: Resources, Community, and Economic Development Division Phone: (202) 275-1441