Buying Fuel

Q. We have a grantee that inquired about whether its method for procuring diesel fuel using two options meets FTA requirements. The procurement approach is the grantee's effort to achieve, in the wake of volatile fuel markets, full and open competition as well as reasonable prices for a multi-agency procurement. The grantee has held a pre-bid conference where it presented this approach, and it got a lot of good input from potential suppliers; nothing surfaced during the meeting that indicated any dissatisfaction. Do you think this approach is consistent with 4220.1F and the BPPM?  Are there any elements where the grantee might modify the language or substance to better achieve their goals? Note in particular the method of allowing bidders to set placeholders under RESERVING BIDDERS RIGHTS. Background - Selected Text From the Draft Procurement Document

OPTION A

Each vendor will render bids by indicating a DIFFERENTIAL (exclusive of all taxes and gross receipt taxes) from the New Haven Tank Car Low as published on the date of delivery in the JOURNAL OF COMMERCE under the heading "DAILY PETROLEUM PRICES". Pricing for No.1 Diesel and Ultra-low sulfur will be derived from the low published price per gallon for Kerosene. Pricing for No. 2 Diesel* will be derived from the low published price per gallon for Low Sulfur Diesel. Pricing DIFFERENTIALS shall be carried out to the fourth decimal place to the right of the decimal point. Price DIFFERENTIALS exceeding four (4) decimal places to the right of the decimal point shall be rounded back to the four places. DIFFERENTIALS will be either over or under this published pricing. Such DIFFERENTIALS may be indicated as either plus (+) or minus (-). If neither a (+) nor a (-) is noted, the DIFFERENTIAL will be interpreted as a (+). All Bidders bidding this option must agree to hold their bid DIFFERENTIAL for the entire one-year contract period of May 1, 2005 through April 31, 2006 regardless of when, how much or how often each of the participating agencies may choose to order under this particular option. This option provides each of the participating agencies with the assurance of procurement integrity while maintaining ultimate flexibility. Agencies will be able to order from the Bidder with the lowest DIFFERENTIAL at any time during the contract period if they so choose (as participation is optional) without soliciting three prices quotations with every fuel order. The DIFFERENTIAL remains constant and under no circumstances is subject to change. The only variable will be the actual purchase price off the New Haven Tank Car Low, which will be verified against the published low in the JOURNAL OF COMMERCE. At a minimum all orders purchased under this option will be made no later than noon the day prior to delivery.

OPTION B

This option if selected by a participating agency will ultimately result in a FIRM FIXED PRICE PER GALLON for a specifically determined period of time and quantity. This will be accomplished by bidding a firm fixed differential (inclusive of the adder, profit, transportation, administrative costs exclusive of all state and federal taxes including gross receipt tax), which will be added to the NYMEX Strip Average. In order to accommodate the varying purchasing procedures for each of the participating agencies that dictate the amount of time required to make a contract award, vendors are required to hold their firm fixed price per gallon under this option for a twenty-one (21) day hold period from the date of opening as per the escalation/de-escalation clause described below. The firm pricing established by this provision will remain in effect for the duration of any contract awarded under this provision. Firm fixed pricing provided for under Option B for all fuel types shall be calculated as follows: Complete price per gallon to be based on the closing ("settle") NYMEX prices for heating oil on Tuesday, April 12, 2005 and the monthly weightings for each of the participating agencies. Weightings have been established by each participating agency and are contained in this bid document on the bid pricing sheets and are a mandatory component of these bid specifications. All fixed prices offered shall include any and all costs to manufacture and deliver and be exclusive of taxes. Bidders shall furnish a FIRM FIXED MARK UP for each participating agency that will be added to the strip's weighted average for each participating agency in order to generate a TOTAL FIXED PRICE for each participating agency. While the FIXED MARK UP is NOT subject to change for a twenty-one day period following the bid opening, the strip against which the weightings are applied and to which the FIXED MARK UP is added, can shift in accordance with inter- and intra-day fluctuations in the NYMEX, until an award is made. The intent behind using this methodology is to identify the lowest responsible vendor at the time of the bid opening, as said vendor would remain low despite upward and downward swings in the NYMEX. Vendors will be required to supply documentation to verify the updated strip used to calculate any and all price adjustments (escalations/de-escalations) that are made to establish a final award price. Option B also provides for repricing in the event that an agency so chooses not to award within the initial 21-day hold period. Each agency may ask for repricing under this option with 48 hours advance notice to all responsive and responsible Bidders that reserved their bidder rights as described below. Repricing will follow the same format as originally requested but will be updated to reflect the revised strip for the remainder of the contract term or any portion thereof. The updated maximum amount of fuel each agency may purchase under this repricing may not exceed the annual estimated gallons to be used within the original time frame contained in this document. Under no circumstances shall the fuel be purchased with the intent of utilization beyond the contract end date of April 31, 2006. Bidders will be required to submit repricing accompanied by a statement that all certifications and statements made in the original submittal remain true, accurate and are made applicable to the repricing being submitted.

RESERVING BIDDERS RIGHTS/BIDDING OPTIONS

Bidders are encouraged to bid on both options for each participating agency but are not required to do so. Bidders should indicate no bid next to items they are not bidding at this time. All Bidders submitting bids in response to this solicitation on April 14, 2005 that are determined to be responsive and responsible will be permitted to submit bids in response to a request by any participating agency for repricing as may be called for under Option B. Repricing will not be sought from any party other than those submitting original qualifying bids. Therefore, Bidders unable to bid at this time but may be in a position to bid at some other time during this contract period are encouraged to submit a bid response in accordance with the provisions of this document including all certifications and forms but indicating no bid to all pricing items. This will ensure that if found to be responsive and responsible that they will be provided the ability to quote on any repricing requested.

A. We agree with your assessment that the grantee's IFB terms for this fuel procurement appear to meet all FTA requirements for full and open competition, and we can see no reason to change any of the terms. From our perspective, all orders placed against this IFB will be via a sealed bid process. All interested suppliers have an opportunity up-front to submit bids and related documentation regarding their responsibility, which gives them the opportunity of submitting bids later in the year if requested to do so. The one - year time frame of this contract/bidding procedure is not too long to preclude suppliers who may miss this first opportunity from competing one year later. The two pricing approaches would appear to give agencies the best of all worlds as far as pricing options are concerned, and suppliers are protected by the indexed fuel market prices no matter which pricing option an agency chooses. We were a little concerned about the prequalification procedures; i.e., that agencies must keep the window open if a potential supplier comes in before the solicitation closes. However, after looking at the details of the planned procedure during the course of the year, and the fuel market realities regarding volatility that would require agencies to react quickly to changing markets, it would be counter-productive to try and qualify a supplier within the 48 hour time frame for notifying and soliciting bids under the Option B pricing approach. There is not nearly enough time to reopen the bidder evaluation process for determining responsibility. And as already noted, the agency's time frame for these contracts is only one year, which gives any new suppliers an opportunity to bid at the end of the year. This appears very reasonable. We especially appreciate the planning work done by this grantee in bringing their suppliers in for planning discussions as to how a bid process could be structured to give the best results with the least risk to agencies and suppliers. The fact that the fuel suppliers are satisfied with the fairness of the bidding procedures developed is an indication that the plan should work to the satisfaction of all parties. (Reviewed: May 2010)