Memo to File—Award 02207

Award—Mobile Marine Refueling component of Contract No. 022074/18/07 Comments Steve Krueger Purpose: The purpose of this effort was to establish a master Marine Refueling, Lubricant & Bilge

Pump Services umbrella contract. Besides conforming to all relevant rules, regulations, laws and industry standard best practices, the contractor our contractors are expected to play a leadership role in maximizing efficiencies and economies in performing these services. To that end, the state endeavors to partner with the most conscientious marine refueling, lubricant and bilge pump service providers who are committed and capable of optimizing the state’s marine refueling, lubricant and bilge pump service needs. The first solicitation only targets mobile marine refueling services. The state may (at a later date) may add other services which may include but is not limited to:- Barge marine refueling services- Fixed facility (dock) marine refueling services- Lubricant delivery services in a marine environment- Bilge Pump maintenance services in a marine environment

Contract Period: The initial term of this contract is 2-years from date of award with the option to extend for additional term(s) or portions thereof. Extension for each additional term shall be offered at the sole discretion of the State and are subject to written mutual agreement. The total contract term, including the initial term and all subsequent extensions, shall not exceed 10-years unless an emergency exists and/or special circumstances require a partial term extension. The State reserves the right to extend with all or some of the contractors, solely determined by the State.

Executive Summary: A recently enacted environmental rule intended to minimize the impact of a spill in a marine environment has also added demands to marine refuelers, lubricant and bilge pump service providers. Therefore, a new contract was necessary to address this new rule and requirements. The most immediate need is to address the mobile marine refueling requirements of Washington State Ferries (WSF) as the marine portion of the existing contract is scheduled to expire in May of 2007.

The marine refueling portion of the SmartBuying Fuel Contract 07705 met the needs of WSF but the new DOE mobile transfer rule (which went into effect in February 2007) dictates that the contractor be responsible for containing any spill that occurs during a refueling event. This new rule was under development at the time that the SmartBuying fuel contract was being developed and because the specifics were not know at the time, the Marine portion of the contract was purposely scheduled to expire after the first year so as to allow the state to the opportunity to take the most appropriate course of action depending upon the outcome of the new rule. During that time the contractor was obligated to fulfill both current and future rules, regulations and laws. Although the 07705 contract could be extended for as many as five years, the new rule proved to be more costly to the contractor than originally expected and therefore the contractor was not willing to extend without being compensated but the terms and conditions did not allow for this. Consequently, GA implemented its contingency plan which is the purpose of this contracting effort.

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Memo to File—Award 02207

Convenience vs.Mandatory use

This contract has been designated “MANDATORY ” use for state agencies requiring marine refueling, lubricant, or bilge pump services and “CONVEINIENCE” use for all other authorize contract users.

Estimated Annual Contract Worth:

Based on past and/or projected usage, it is estimated that the mobile marine refueling purchases will approximate 11,805,900 gallons of fuel annually. This estimate was provided solely for the purpose of assisting Bidders in preparing their response but the state cannot and did not guarantee any volume commitments.

Primary Users: Marine refueling services are intended to address the unique requirements of WSF but other authorized purchasers may utilize this contract to satisfy their marine refueling and maintenance service needs.

Stakeholder work: In the spring of 2005 a sourcing team representing DOT, WSF, DOC, DOE, King County Metro Transit and City of Seattle was assembled for the purpose of guiding the development of the SmartBuying Fuel contract. Additionally, GA sponsored two vendor forums and a biodiesel roundtable discussion. All of this input was leveraged in the construction of the resulting contract and a year later; all feedback suggests that the 07705 contract has been a success. Accordingly, since much of the stakeholder work has already been completed and is still relevant, only WSF, DOE, the AG and GA management provided input into the development of this contract.

Bid Development: The following lists the three primary goals of this effort:1. Ensure mobile marine transfers comply with all current and future applicable rules,

regulations and laws.2. Ensure that WSF and other authorized contract users receive the reliable and high

quality refueling services that they require.3. To develop contract that is viable for both the customer and the contractor and

achieves the maximum value.

Contract Pricing MethodologyBecause fuel pricing fluctuates from one day to another, the Oil Price Information Service (OPIS) subscription service has become the defacto standard for basis of establishing fuel contract prices. OPIS regularly reports the fuel prices at the refueling terminals (also referred to as the “Rack”) throughout the nation and even includes biodiesel prices (currently the Tacoma rack only). Prior to the SmartBuying fuel effort, the state utilized the OPIS weekly average index as the basis for establishing contract pricing. However, because of the recent price volatility, the weekly average pricing is no longer relevant as it always reflects last week’s averages. Therefore, to promote increased competition and to neutralize the complaint, the state moved to the OPIS daily pricing beginning the SmartBuying fuel contract 07705. Previous contract prices incorporated an OPIS plus bid margin. For example: if the contract price was OPIS + 10¢ and fuel cost $1.00 per gallon then the contractor would make 10¢ per gallon. If the cost per gallon of fuel was $3.00 then the contractor would still only make 10¢ per gallon.

The problem with this methodology is that the contractor must pay B&O taxes and incur finance charges based on the total sale price. That means as fuel costs go up, the contractor’s profit margins are eroded when using an OPIS plus pricing methodology. This forces bidders to pad their margins to protect themselves from the impact of market fluctuations. To deter bidders from padding their margins and to increase competition by

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Memo to File—Award 02207

making the opportunity more viable, the state (in consultation of the vendor community) changed the contract pricing methodology to include a service fee (which addresses how much it costs the hauler to service a tank) plus an OPIS price multiplier (which addresses the cost of the product to be delivered).

Recognizing that the cost of servicing a tank costs approximately the same regardless of the amount of fuel to be delivered, this methodology appropriately compensates the hauler for the service rendered. The OPIS price multiplier allows the contractor a means of recovering the hauler’s cost of the fuel and can be used to mitigate the affect of B&O tax and finance charges. For example, the B&O tax rate is .0047 and therefore if a bidder purchases & sold fuel at rack price and proposes an OPIS multiplier of 1.0047 then the impact of B&O tax as described above would be neutralized. Consequently, if appropriately applied this pricing methodology allows the bidder to protect their profit margins from the impact of market fluctuations.

This pricing methodology was successful applied to the fuel contract 07705 however this contract allows for price adjustments should unforeseen market conditions warrant such action and as long as the contractor’s profit margins remain unchanged.

Liquidated DamagesPrior to the release of the IFB, our AG recommended modifications to the Liquidated Damages language to address what a reasonable cost the state might incur should the contractor default and the state would thereby need to rebid the contract. Below is what I used as the rationale for arriving at the $110,000 figure. Prior to doing so, I consulted with UM Dale Colbert who has a history of fuel contract oversight. This information was included as a Remark in PCMS prior to the release of the IFB.

If a contractor defaults on the mobile marine refueling service, the estimated liquidated damages are projected to be $110,000. Explanation: Emergency Deliveries: 2 months of emergency deliveries at spot market prices 11,400,000 annual gallons/6=1,900,000 gallons for 2 months x $.02 =$38,000. Plus: Rebid Activities: The equivalent of 2.5 FTE's x 2 months = 320 hours x 2.5 FTE x $90 fully loaded FTE= $72,000

I discussed the $110,000 liability clause at the pre-bid conference and no concerns or objections were voiced but rather the attendees expressed satisfaction that the state was going to hold the contractor liable so as to protect against an unscrupulous vendor from capturing the contract and later fail to perform.

Insurance RequirementsThe same insurance requirements that were incorporated into the SmartBuying fuel contract 07705 were used in this contract as this language remains relevant.

Review ProcessPrior to release, the IFB was reviewed, revised and approved by WSF (Paul Brodeur, Scott Davis), the AG (Linda Sullivan Colglazier) and GA UM (Dale Colbert).

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Memo to File—Award 02207

Pre-Bid: Although 163 vendors were notified of this bid opportunity, a total of 9 attended the pre-bid conference representing GA-OSP (3) Associated Petroleum (3), Rainier Petroleum (3)—(see embedded pre-bid sign-in sheet).

I walked through the entire IFB from start to finish and encouraged attendees to identify any issues, concerns, errors, objections or feedback in general (all the way up to the bid closing date). Both firms expressed satisfaction with the bid and no objections were voiced. Some clarification was requested and discussed. Amendment 2 was issued to formalize the clarification. Notes were drafted by OSP Contract Consultant Cheral Jones. The notes were only used for the purpose of drafting Amendment 2 and the pre-bid notes (embedded) were not disseminated so as to protect the integrity of the process and information provided to bidders.

Amendments:1-3 Amendment 1 addressed the questions raised in advance of the pre-bid conferenceAmendment 2 addressed the feedback received at the pre-bid conferenceAmendment 3 added language to the invoicing requirements per the request of WSF.

Bid process: Prior to the bid development, Unit Manager Dale Colbert and I met with DOE and they indicated that it was their expectation that many of the refuelers would form an alliance and contract with an established Oil Spill Response Organization (OSRO) so as to minimize the costs associated to conforming to their new Mobile Transfer rule. However, much to their dismay, many of the haulers who have historically provided mobile marine refueling no longer offer mobile marine refueling. For example, Southern Counties, Reinhard, Pettit Oil are other haulers who have supplied WSF fuel over the past two years and were in a positioned to compete in this bid opportunity but elected not to participate.

Timeline:02/23/07 Completed First Draft of IFB02/26/07 Sent Draft IFB out for Peer Review (Dale C, Paul B, Scott D, Linda C)03/05/07 Posted IFB03/13/07 Amendment 1-Addressed email questions received prior to pre-bid conference03/15/07 Pre-Bid Conference03/21/07 Posted Amendment-2 03/26/07 Posted Amendment-303/29/07 Bid Closing Date03/29/07 Completed Price Evaluation03/30/07 Solicited References for both bidders04/05/07 Received the last of the reference questionnaires and completed evaluation04/16/07 Award recommendation reviewed and approved by AG and GA Management04/18/07 Met with Rainier Petroleum to validate compliance to bid requirements04/18/07 Sent award notice to bidders

Participation:WEBS Summary (WEBS Bid ID=2165):

Total Minority Owned 1Total Minority & Woman Owned 2Total Woman Owned 2

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Memo to File—Award 02207

Total Webs Vendors Notified 163

Bid Evaluation:The bid closed on the scheduled date and time without incident. Only two bids were received (Associated Petroleum and Rainier Petroleum). Below is the outcome of the 4 phases of the bid evaluation process:

Phase I—Initial ScreeningBoth bids were reviewed and deemed responsive. Both bidders included the required BQ9000 letter from Imperium Renewables (Formally know as Seattle BioDiesel) and the BQ9000 certification certificate was also included. The letters clearly identified that the Imperium Renewables will conform to the required biodiesel specifications

Responsiveness: Associated Rainier Purchase Card Accepted? No response NoReceived Bid On Time? 3/29/2007 10:47 3/29/2007 11:58 Signed Offer & Award? Y YElectronic Copy of Bid Response? Y YHard copy of price worksheets? Y YAll items priced? Y YBQ 9000 Letter? Y YLetter indicates specification compliance? Y YIncluded 3 References? Y Y

Phase II—Price ScoringPoints were allotted to each item to be bid in the price worksheets. The bidder with the lowest BID EVALUATION price is to receive the maximum points allotted for that item. All other bidders’ point totals for that item are to be proportionate to the lowest BID EVALUATION price. Below is the sample calculation that was included in the IFB which describes how points will be awarded.

Example: (Lowest BID EVALUATION price) ÷ (Bidder’s BID EVALUATION price) x Weighting = Price points $100 ÷ $200 x ( 60pts) = 30 Price points

The bidders’ price points for all requested items would then be totaled. The bidder with the highest price point total would automatically advance to Phase III of the evaluation. Additionally, only those bidders whose total price points are within 10,000 points of the bidder with the highest point total will be eligible for Phase III of the evaluation.

Hard copy price sheets of both bidders were reviewed and it was discovered that although Rainier Petroleum’s bid prices were more aggressive to Associated Petroleum’s bid prices, the “bid evaluation” prices were much higher than Associate Petroleum’s. After further review, it became apparent that Rainier did not enter their bid prices in the price worksheet identified in Amendment 2 as instructed but instead they used the outdated price sheet that was embedded in the IFB. However, the state was soliciting bid prices and price worksheets were used to model the total projected costs based on the combination of the bidder’s proposed service fee and the bidder’s proposed OPIS multiplier for evaluation purpose only. Prior to bid opening, Rainier Petroleum detected an error in the biodiesel bid

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Memo to File—Award 02207

evaluation formula which was corrected in Amendment 2. Nonetheless, Rainier’s bid prices remain relevant even though they were entered into the wrong price worksheet. Therefore, Rainier Petroleum’s propose bid prices were entered into the price worksheet identified in Amendment 2 and Rainier’s “Bid Evaluation” prices were then correctly calculated and then evaluated. I validated that Associated Petroleum prices were correct entered in the correct price worksheet.

As discussed in the bid development section above, the intent of the bid pricing methodology was to provide bidders with a means of protecting their profit margins from the impact of market fluctuations as well as any unforeseen costs. Therefore, besides requiring the bidder to propose a service fee for each vessel and an OPIS price multiplier for diesel and biodiesel, bidders were also required to propose an emergency deliver fee. Since it cannot be known how often WSF might require an emergency delivery, asking bidders to identify an emergency delivery fee not only justifiably compensates the bidder for this service but was intended to prevent bidders from padding their bid to compensate for the unknown emergency delivery occurrences. Both bidder’s participated in the SmartBuying fuel contract 07705 and proposed an emergency delivery fee ranging from $75 to $150. There were 95,000 price points available and of these, 1,000 points were allotted to the emergency delivery fee. If we were to apply the emergency delivery prices proposed in the 07705 solicitation, below would be the outcome:

(Lowest Emergency Delivery price) ÷ (Bidder A Emergency Delivery price) x Weighting = Price points $75 ÷ $150 x ( 1,000 pts) = 500 Price points for Bidder A

(Lowest Emergency Delivery price) ÷ (Bidder B Emergency Delivery price) x Weighting = Price points

$75 ÷ $75 x ( 1,000 pts) = 1,000 Price points for Bidder B

However, in this solicitation, both bidders elected to essentially give the emergency delivery fee away with the hope of capturing all the available emergency delivery points as Rainier Petroleum proposed an emergency delivery fee of $1 and Associated Petroleum proposed 1¢ emergency delivery fee. Accordingly, this strategy gave Associated Petroleum a significant point advantage with regard to the 1,000 available emergency delivery points. As a result, Associated Petroleum received all 1,000 emergency delivery points whereas Rainier Petroleum received only 10 of the 1,000 emergency delivery points. Throughout the bid process, neither of the bidders voiced any concern about the emergency delivery fee point weighting and both bidders appear to have adopted a similar strategy. Although Rainier’s proposed refueling pricing was superior to Associated Petroleum’s, the 990 emergency delivery point advantage allowed Associated Petroleum to come within 109 points of Rainier. Because Associated Petroleum was within 10,000 points of Rainier, in accordance with IFB terms, both bidders’ reference questionnaires were to be evaluated.

Phase III—Reference PointsBecause ferry transportation is considered a critical service, WSF petitioned for an improved level of assurance that the successful bidder will be able to comply with the DOE regulations as well as provide the high quality reliable service they require. At the pre-bid conference both bidders praised the increased emphasis on reference evaluation and both agreed that either of the two companies are able to meet the new DOE rule. Therefore, 2,500 points were available points for as many as 4 references for a total of not more than 10,000 reference points. In the SmartBuying fuel solicitation only 5,000 points was allotted to references.

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Memo to File—Award 02207

Rainier If the bidder qualified for Phase III of the evaluation, in accordance with IFB terms, OSP would solicit reference questionnaires from the references identified in the bidder’s response and from WSF if applicable (see section 8.6 of the IFB). However, Rainier took it upon themselves to solicited references questionnaires in advance of the bid closing and our office received two of them were received before the bid closed. I reviewed the two references received and both were properly completed, signed by the person identified as the reference in the bidder’s response and were sent from the references company fax machine. Therefore, both references were deemed responsive and I solicited the third reference identified in Rainier’s response as well as one from WSF. I received all completed questionnaires in a timely manner and all 4 of Rainier’s references were deemed responsive.

Associated PetroleumI received all 4 of the reference questionnaires solicited from the reference names identified in Associated Petroleum’s bid response. One for the references (Kimberly Boyd) sent a revised reference questionnaire but the only difference was that she failed to check the box identifying if the service performed was in a marine environment or not. However, this had no impact on the results and the bidder was only required to have one marine refueling reference and Associated Petroleum already supplies WSF with fuel so they already met the minimum requirement. Therefore, all 4 of Associated Petroleum’s references were deemed responsive.

Compliance: Rainier Petroleum has been an active participant in the development of the DOE mobile transfer rule. Both bidders indicated in the Pre-Bid conference that they would not challenge one another in the compliance of the new rule. DOE and USCG is responsible for policing compliance of mobile transfer rules but I did meet with Rainier Petroleum on April 18, 2007 to ensure that their paperwork was in order and it would appear that their will satisfy the requirements of DOE and the USCG. I also verified that their certificate of insurance liability conformed to the insurance requirements identified in the IFB. Therefore, Rainier Petroleum has successfully demonstrated that they will be able to conform to the requirements set forth in the IFB.

Award Criteria: 95,000 price points were available and 10,000 points were available for references. In accordance with IFB terms, The bidder who complies with IFB requirements and possesses the highest point total (Price Points + Reference Points = Bidder’s final score) will be awarded the mobile marine refueling service contract. The Scoring summary identified below indicates the outcome and in accordance with IFB terms, Rainier Petroleum is the apparent successful bidder.

ScoringSummary

FinalPointTotal

Clinton Mukilteo

Anacortes Fauntleroy Port Townsend

Bremerton Point Defiance

Reference Points

Associated 103,841 8,664 40,839 19,248 2,824 19,943 2,424 9,90088,397 8,161 38,412 18,160 2,638 18,733 2,2954,544 423 1,991 938 139 971 821,000 80 436 151 47 239 47

Total Cost $30,556,567 $2,687,750 $13,754,419 $6,295,333 $699,628 $6,566,337 $553,101

Rainier 104,050 8,674 40,940 19,259 2,811 19,933 2,434 10,000

89,368 8,238 38,887 18,293 2,669 18,932 2,3504,672 435 2,048 964 142 999 84

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Rainier PetroleumReferences

Associated PetroleumReferences

Memo to File—Award 02207

10 1 4 2 0 2 0Total Cost $30,173,920 $2,657,041 $13,570,175 $6,239,717 $685,305 $6,487,819 $533,863

209 ←Point Difference$382,647 ←Price Difference

Savings: The annual projected price difference between the bidders favors Rainier Petroleum by $382,647 ($30,556,567 – $30,173,920 = $382,647). The current contractor is Associated Petroleum and I inserted their current contract prices into the 02207 price sheet and found that Rainier’s pricing will save WSF a projected $267,558 annually as compared to current contract pricing.

Conclusion: Both bidders have an established reputation for providing quality, reliable marine refueling service and both are equipped to conform to the new environmental rules. The bid process validated this so the only differentiator was pricing. In this competition Rainier Petroleum won and in this case, the bid process has revealed that it is the best interest of the state to award Rainier Petroleum.

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