Defense Department fuel dispute with oil firms could total $2 billion

The Defense Department may have to pay more than $2 billion if its fuel suppliers win underpayment claims. ChevronTexaco Corp. the latest to file a claim, is one of nearly 30 companies to maintain the government underpaid for jet fuel over an 18-year period ending in 1999.

Dec 12th, 2001


By the OGJ Online Staff

WASHINGTON, DC, Dec. 12 -- The Defense Department may have to pay more than $2 billion if its fuel suppliers win underpayment claims, an attorney representing several oil companies said Tuesday.

ChevronTexaco Corp., the latest to file a claim, is one of nearly 30 companies to maintain the government underpaid for jet fuel over an 18-year period ending in 1999 (OGJ Online, Dec. 10, 2001).

Chevron supplied the agency with 6.7 billion gal of fuel between 1981 and 2000. It argues the government violated federal regulations by using indexes published by the Department of Energy and private companies to adjust fuel prices during the term of its contract.

Given the magnitude of the claims, there is "broad industry momentum" for other government fuel suppliers to go to court over the matter, said J. Keith Burt, an attorney with McKenna and Cuneo LLP.

One company, Pride Cos. LP, took its allegations to court last year and won a $60 million judgment. The court ruled that the DESC should have paid up to 10% more for the fuel.

Burt represented Pride and the refiner MAPCO Alaska Petroleum Inc. in a similar 1992 case.

The Defense Energy Support Center has rejected claims from nine fuel suppliers. More claims are expected and the agency said it would review each case independently. There has been no decision on the $354 million Chevron claim, officials said.

DESC is a Defense Department agency that buys jet fuel, gasoline, and diesel for military uses.

DESC said fuel suppliers' claims are subject to the Contract Disputes Act, a statute that allows the contractor to appeal the denial of its claim to either the Board of Contract Appeals or the US Court of Federal Claims. Contractors have 90 days from receipt of the denial to appeal to the board, or 1 year to file suit in court.

Close to 30 companies, representing nearly every major jet and gasoline supplier, may sue, depending on further DESC decisions. The dispute however, will not mean that military aircraft will be grounded, parties on both sides of the claim stressed.

"We will continue to buy fuel from firms who have filed claims and are awarded contracts through the normal competitive process," a DESC spokesman said.

The legal battle may be protracted. Burt said that about 90% of the claims by ChevronTexaco and other companies are for contracts made before 1996, when the government relied heavily on monthly petroleum prices reported by the Energy Information Administration. After 1996, DOD used private market indexes to help determine fair market value.

DESC said it and suppliers had agreed to the method in which fuel values were calculated and that practice is still accepted.

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