Defense Production Act Title Iii

SPECIAL NOTICE

DEFENSE PRODUCTION ACT TITLE III

ADVANCED DROP-IN BIOFUELS PRODUCTION PROJECT

1. Introduction

This is a Special Notice as defined in the Federal Acquisition regulation (FAR) 5.205 (c) to notify industry that the Defense Production Act (DPA) Title III Program anticipates possible issuance of a Broad Agency Announcement (BAA) which would request proposals from domestic sources to execute an Advanced Drop-In Biofuel Production Project. This project will use unique authorities of the DPA to achieve the goals of the Department of Defense (DoD). The BAA will invite domestic sources to propose to address the critical steps involved in the creation of an economically viable production capacity for advanced drop-in biofuels.

This notice is provided to industry to allow them to quickly respond to a rapid initiation of the DPA Title III Advanced Drop-In Biofuel Production Project when the BAA is published. Contractors should be aware that a BAA may be open for no more than 60 days for proposal submissions. A BAA may be published as early as June 2012.

The Government is aware that many contractors interested in this potential project will be unaccustomed to participating in competitive solicitations involving DPA Title III projects, including: cost-share agreements, the necessity for billings to the Government based on incurred (and documented) costs, various nuances of Title III capital investments (which frequently result in Government ownership of equipment), and other relevant factors. Interested firms are advised to review carefully all elements of this announcement and the referenced documents.

2. DPA Title III Program General Overview

The DPA Title III Program is managed within the Office of the Deputy Assistant Secretary of Defense for Manufacturing and Industrial Base Policy (MIBP) and executed by the Air Force Executive Agent Program Office, a component of the Manufacturing Technology Division (AFRL/RXM) of the Materials and Manufacturing Directorate, Air Force Research Laboratory. As the DoD Executive Agent for the DPA Title III Program, the Air Force is responsible for executing projects that ensure domestic production capability for technology items that are essential to national defense.

Title III of the Defense Production Act provides unique authorities, under which the Government may provide appropriate incentives to create, maintain, protect, expand, or restore the productive capacities of domestic sources (see below for definition) for critical components, critical technology items, and industrial resources essential for the execution of the national security strategy of the United States. The principal objective of all DPA Title III investments is to strengthen and expand these domestic productive capacities and to ensure Government access to critical technology items well into the future. Any contract/agreement awarded under the contemplated BAA will be awarded under the authority of Title III of the Defense Production Act of 1950 as amended (50 U.S.C. App. § 2061 et seq.).

DPA Title III projects provide incentives to domestic manufacturers to develop and/or adopt best business and marketing practices to achieve manufacturing capacity, quality, affordability, and economic viability requirements.

If a solicitation is issued, it will be restricted to domestic sources as defined in the DPA: “A business concern that performs in the United States or Canada substantially all of the research and development, engineering, manufacturing, and production activities required of such business concern under a contract with the United States relating to a critical component or a critical technology item; and that procures from business concerns (described as above) substantially all of any components and assemblies required under a contract with the United States relating to a critical component or critical technology item.”

3. Project Requirements and Objectives

A preliminary description of the project’s requirements follows. This informationis provided to allow interested contractors to determine whether or not their capabilities are likely to provide a proposal capable of meeting all the Government’s requirements.

3.1 Project Requirements

A proposal submitted under the potential BAA must be able to meet all of the following requirements:

3.1.1 Requirement 1: Biofuels must be produced domestically.

The proposed integrated biorefinery must be located within the United States or Canada and use a domestically-produced acceptable feedstock. Supply chains that will import feedstock from outside the United States or Canada will not be considered. This includes sugar used for microbial conversion processes.

3.1.2 Requirement 2: Biofuels must comply with EISA Section 526.

The biofuels shall comply with Section 526 of the Energy Independence and Security Act (EISA) of 2007. To comply, the biofuels must have lifecycle greenhouse gas emissions that are less than or equal to those of conventional petroleum derived fuels, as defined by the 2005 Petroleum baseline. This baseline is described in detail in “Development of Baseline Data and Analysis of Life Cycle Greenhouse Gas Emissions of Petroleum-Based Fuels,” published by the National Energy Technology Laboratory. The report is dated November 26, 2008 and can be downloaded from the following link:

3.1.3 Requirement 3: Biofuels must come from an acceptable feedstock.

For this project, the biofuels must come from an “acceptable feedstock” as defined for this project. To be an acceptable feedstock, the feedstock must be produced domestically, meaning in the United States or Canada. To be an acceptable feedstock, a feedstock must also fit at least one of the following categories:

1)Meets the definition of “renewable biomass” as defined here:

a)Materials, pre-commercial thinning, or invasive species from National Forest System land and public lands (as defined in section 103 of the Federal Land Policy and Management Act of 1976 (43 U.S.C. 1702)) that –

(1)Are byproducts of preventive treatments that are removed

(a)To reduce hazardous fuels;

(b)To reduce or contain disease or insect infestation, or

(c)To restore ecosystem health

(2)Would not otherwise be used for higher-value products; and

(3)Are harvested in accordance with –

(a)Applicable law and land management plans; and

(b)The requirements for –

(i)Old growth maintenance, restoration, and management direction of paragraphs (2), (3), and (4) of subsection (e) of section 102 of the Healthy Forests Restoration Act of 2003 (16 U.S.C. 6512); and

(ii)Large-tree retention of subsection (f) of that section; or

b)Organic matter that is available on a renewable or recurring basis from non-Federal land or land belonging to an Indian or Indian tribe that is held in trust by the United States or subject to a restriction against alienation imposed by the United States, including –

(1)Renewable plant material, including –

(a)Organic material grown for the purposes of being converted to energy; and

(b)Algae; and

(2)Waste material, including –

(a)Crop residue (including cobs, stover, bagasse and other residues);

(b)Other vegetative waste material (including wood waste and wood residues);

(c)Animal waste and byproducts (including fats, oils, greases, and manure); and

(d)Food waste and yard waste.

2)Biomass that is segregated from municipal solid waste (MSW) or municipal sewage sludge (MSS or “biosolids”) are acceptable feedstocks, so long as appropriate considerations are made for the costs of segregation, collection, processing, and transportation.

No plant based material that is generally intended for use as food may be employed as a feedstock. Corn starch and sugars derived from sugarcane or beets and oils derived from soy, canola, sunflower, peanut, etc., normally recovered using conventional food processing methods, are excluded from eligibility for this project. The determining factor will be the typical use of the material in commerce.

3.1.4 Requirement 4: The biofuels must be suitable for military operational use.

The targeted fuels are for military operational use, and as such, must be either currently approved/certified or will be approved and certified JP-5, JP-8 and F-76 equivalents by the time a commercial-scale biorefinery would become operational. The DoD has indicated that it intends to purchase biofuels that meet approved specifications and are a “drop in fuel” that can utilize existing infrastructure, are delivered to DoD fully blended with conventional petroleum product counterparts JP-5, JP-8 and F-76, and are ready for use.

Requirement 5: The proposed Integrated Biorefinery must have a rated capacity of at least 10 million gallons of neat biofuel per year.

The proposed Integrated Biorefinery must be able to produce at least 10 million gallons of neat biofuel per year. The offeror must have formed (or have credible plans for forming) effective teaming/business arrangements that encompass all aspects of a fully integrated value chain (from feedstock to blending to delivery) required to produce this quantity of military fuels.

Requirement 6: The proposal must indicate that the offeror will commit to at least 50% cost share for both Phase 1 and Phase 2.

The Government anticipates using a Technology Investment Agreement, which requires that the offeror provide at least 50% cost share. Furthermore, the Government will only consider proposals from offerors that are willing and able to fund at least 50% of the cost and absorb the associated risk.

3.2 Project Objectives

The goal of this project is to establish one or more complete value chains capable of producing the biofuels. This includes feedstock production, conversion and processing, blending, transportation, and logistics, as well as the design, retrofit, construction, operation, validation, and qualification of domestic, commercial-scale, integrated biorefineries (IBRs). The Government intends that the IBR will form business partnerships with suppliers and customers to establish the complete value chain.

The contemplated effort will include the design, construction and/or retrofit, and operation of a domestic commercial-scale IBR that meets a minimum annual 10 million gallon neat fuel production capacity objective. The IBR will be capable of producing drop-in liquid transportation fuels targeted for military operational use, and as such, must be either currently approved/certified or will be approved and certified JP-5, JP-8 and F-76 equivalents by the time the biorefinery becomes operational.

Additionally, the total enterprise envisioned in this effort is expected to include a capability to blend the biofuel product with petroleum-based equivalent fuels in order to meet approved certifications and specifications, which may include blends of up to a maximum 50/50 ratio. Capabilities and/or facilities to store and transport the resulting product will also be an element of the project.

Awardees selected for the anticipated project will be required to share at least 50% of the cost. See the “Cost Share Guidance” attached to this Special Notice for information regarding what types of expenditures are counted as acceptable cost share.

Proposals may include constructing new facilities or modifications to an existing facility (including adding equipment or modules) where it is economically and technically advantageous to do so.

The Government is seeking integrated biorefinery projects that have the necessary technical and economic performance data to validate their readiness for scale-up to commercial production quantities. The scale-up factor (the ratio of production capacity for the proposed commercial scale facility to the production capacity already demonstrated in a demonstration or pilot scale facility) will be an important proposal evaluation criterion, where lower scale-up factors suggest higher readiness for scale-up and lower technical risk. In general, “integrated biorefineries” employ various combinations of feedstocks and conversion technologies to produce a variety of products, with the main focus on producing biofuels. Co- or by-products can include additional fuels, chemicals (or other materials), and heat and power. These integrated biorefineries would produce, as their primary product, liquid transportation biofuels that support the Section 526 of the Energy Independence and Security Act (EISA) of 2007.

The Government intends to foster regional integrated supply chains. If multiple value chains are established, each would employ a different combination of feedstocks and mature conversion technologies to produce a variety of products, with the principal focus on producing and delivering biofuels. The Government expects to make awards to multiple offerors based on best value to the Government. The Government values diverse technical approaches with regard to biomass feedstocks, conversion processes, and geographic locations. The value of investing in a diverse portfolio of IBRs is that it increases the range of biofuel production capabilities in order to reduce overall project risk. (Note that the Government is not seeking diversification within any particular proposal, but rather, between proposals.)

As the objective of this project is to establish a commercial scale IBR; no research and development activity should be proposed for this project. Note that the technology for producing heat and power by conventional means (e.g. stoker or fluidized bed boilers, co-firing with coal, etc.) is an established technology, and the BAA is intended to address converting feedstocks to liquid transportation biofuels rather than to heat and power. Hence, for the BAA, proposals that propose biorefineries producing heat and power or products other than liquid transportation biofuel as the primary product would be considered technically unacceptable and would not be considered for an award.

4. Anticipated Phases

The Government anticipates that multiple Phase 1 awards may be made, funded by as much as $30 million of DPA Title III funds (overall, to be split among multiple awards). Reference paragraph 3.2 herein for the cost share requirement of at least 50%. Phase 1 will cover project planning, Architectural/Engineering Design, planning and initiation of regulatory approvals, and other activities. (See Phase 1 activities detailed below.) As a rule of thumb, an offeror’s cost for designing a facility (which is the primary expense for Phase 1) should not exceed 7-8% of the expected facility construction cost (which is the primary expense for Phase 2). Offerors are advised to consider this rule of thumb when determining the level of funding to propose for Phase 1.

During or after Phase 1, the Government expects to invite Phase 1 contractors to submit a comprehensive proposal for a Phase 2 effort. All, some, or none of the selected Phase 1 contractors may be awarded funding to continue into Phase 2. The selection of one or more Phase 2 contractors for award will be based on an evaluation of each contractor’s Phase 2 proposal (both technical and cost/price aspects) todetermine the overall merit of the proposal in accordance with the evaluation criteria stated in the solicitation.

The anticipated Phase 2 effort is envisioned to include facility modifications, facility construction, commissioning and performance testing. Assuming the technical evaluation warrants the decision to proceed with Phase 2, the Government anticipates potential award(s) of up to $70 million, with additional resources potentially available based on the demonstrated outcomes of the Phase 1 effort and funding available at that time. (See Phase 2 activities detailed below.) Reference paragraph 3.2 for the cost share requirement of at least 50%. Title III projects may require that a contractor purchase manufacturing and test equipment to create or expand the targeted production capacity. Government appropriated funds may be used to purchase equipment for use on a Title III project. Title III funds may also be used to purchase and/or upgrade or expand existing facilities. Title III funds shall not be used to purchase real property such as land or buildings or the construction of new buildings.

4.1 Phase 1 Activities: Planning, Design, and Regulatory Approvals

The primary activities for Phase 1 are to finalize a Comprehensive Facilitization Plan, update the Comprehensive Business Plan and complete the IBR design. The contractor will finalize private financing arrangements and complete any regulatory requirements that should be satisfied prior to the start of Phase 2.

Examples of activities and deliverables for Phase 1 are the following. Contractors will be responsible for proposing a Phase 1 Statement of Work that is appropriate for the proposed effort; what follows is only a guideline.

• Complete and submit a design/drawing package to enable the contractor to build (or modify) and equip a fully functional Integrated Biorefinery (IBR). Provide information regarding the A/E design work to the Government in a Comprehensive Facilitization Plan.
• Update the Comprehensive Business Plan that was submitted as part of the Phase 1 proposal. Address the key aspects of establishing an economically viable Integrated Biorefinery (IBR). Include a Marketing Plan section to assess the market for the IBR’s fuel products and co-products, and describe how sales to those markets will be achieved.
• Prepare/provide plans and commitments for private financing of the IBR. Finalize any arrangements for project funding from non-government sources, and Federal, State, or Local government funding (other than DPA Title III funding) that support the project objectives.
• Develop plans and commitments for off-take agreements from the Defense Logistics Agency and any other customers for the specified advanced biofuels or co-products.
• Prepare/provide plans and commitments from feedstock suppliers and any other key suppliers in the IBR’s supply chain.
• Prepare/provide plans for certifying fuels to JP-5, JP-8, and F-76 standards and acquiring any other relevant certifications for biofuel.
• Prepare/provide documentation of the existing process workflow, performance capability, and quality levels. Update the current baseline metrics for all key production processes, materials, and products.
• Complete National Environmental Policy Act (NEPA) data collection and documentation and obtain NEPA determination and approval. Implement any NEPA mitigation action plan requirements. Obtain regulatory permits. Complete a compliance plan for all remaining environmental and regulatory requirements.
• Prepare/provide a risk management plan for Government approval. Update the detailed risk mitigation plan.
• Continue to refine and finalize the Phase 2 plan, including all efforts necessary to permit, build, equip, qualify and operate the facility. Identify all costs, materials, equipment, and personnel needed to achieve the proposed production capacity. Include a detailed budget and schedule. Prepare and submit a Phase 2 proposal to the Government.
• Cooperate with an independent engineer (hired by the Government) in a third-party validation of the demonstration-scale technical data.
• Conduct project management, administration, and reporting.
• Submit other deliverables as required per the negotiated agreement.

4.2 Phase 2 Activities: Construction, Commissioning and Performance Testing

The primary activities for Phase 2 are to implement the Comprehensive Business Plan and the Comprehensive Facilitization Plan that were developed in Phase 1. Phase 2 contractors will modify existing facilities, build facilities (with the contractors cost share only), procure and install production equipment, establish management and quality systems, establish necessary personnel resources, and test and qualify the production process for biofuels. The Comprehensive Business Plan finalized in Phase 1 will identify measurable objectives that the contractor will attain by the conclusion of Phase 2.