Agency orders re-evaluation of $3 billion Army contract
Victoria Advocate
MILWAUKEE — A federal watchdog agency says a $3 billion U.S. Army contract awarded to Oshkosh Corp. should be reconsidered, giving two losing bidders another chance at the deal affecting thousands of jobs.
The Government Accountability Office ruled Monday that several key elements of the contract should be re-evaluated after losing bidders BAE Systems and Navistar Inc. filed protests.
The GAO said the Army should "make a new selection decision" on the fixed-price contract that calls for up to 23,000 military trucks and trailers.
Oshkosh won the contract in August. Production of the family of Medium Tactical Vehicles, or FMTV, is scheduled to begin in mid-2011 and could employ more than 2,000 people — not including jobs at suppliers.
Company executives said they're confident that Oshkosh will retain the work after the Army completes a review recommended by the Government Accountability Office — the investigative arm of Congress.
The majority of the losing bidders' protest claims were denied, including the challenge to Oshkosh's price for the trucks.
"We lost a bit of a battle, but I still think we are going to end up winning the war," Robert Bohn, Oshkosh chairman and chief executive officer, said in an interview.
"This is a huge contract that's a game changer for any company," Bohn said. "So it's not surprising that there were protests. This has been a political war and a tough business to win."
BAE Systems and Navistar had cast doubt on whether Oshkosh had a sufficient workforce and manufacturing capacity to build the vehicles and keep up with the rest of its booming military business.
The GAO acknowledged those concerns, saying the Army's evaluation of Oshkosh was flawed. The agency also said the Army should have given BAE Systems and Navistar's past performance as military-vehicle makers more consideration.
There were problems with the contract award process, said Michael Golden, GAO associate general counsel.
"We weren't saying that one company built a better truck than another," he said, but when the GAO finds a material flaw or misevaluation in the contract award process, the agency has to see how it affected the decision.
The Army now has 60 days to respond to the GAO recommendations.
Analysts have said the five-year truck contract is worth about $3 billion.
BAE Systems, a British defense contractor, praised Monday's decision which could give it another chance to retain the FMTV contract the company has held for years.
"This ruling is potentially good news for over 3,000 employees in Texas and Michigan who have built more than 56,000 FMTV vehicles for our nation's soldiers," the company said in a news release.
Twenty-five legislators from Texas pressured the Army to rebid the contract, since a BAE plant in Sealy, Texas could be closed if the company loses the FMTV work. They praised Monday's decision.
"This is a great day for BAE, its employees, and for Texas," U.S. Rep. Michael McCaul, R-Texas, said in a news release.
"The GAO has upheld what we have claimed from the beginning_that the Army's evaluation was flawed and that Oshkosh's bid to build the FMTV was not realistic. Based on the GAO's ruling, they should get a fair shot at a new and fair competition," McCaul added.
U.S. Rep. Tom Petri, R-Wis., also responded to the government ruling, saying it wasn't all negative for Oshkosh.
The GAO is not requiring a new competition for the award and rejected a number of the competitors' challenges.
"What the GAO is requiring is a second look at the capability of the three competitors to produce the FMTV as required. Oshkosh Corp. has been a successful manufacturer of specialty vehicles since 1917 and has capably supplied military vehicles for decades," Petri said.
Oshkosh is planning a $35 million expansion for the FMTV work. The Army has issued a "stop work" order on the contract, but Oshkosh is continuing to develop vehicle prototypes — at its own expense — so the company is ready for production in 2011.
Industry analysts say Oshkosh can handle the contract in addition to its other work, which includes orders for about 10,000 military vehicles destined for Afghanistan.
Oshkosh has multiple factories, including a Pennsylvania plant that previously made aerial-lift construction equipment.
"The idea that there's a risk in Oshkosh's ability to produce this truck for the Army is almost laughable," said analyst Charles Brady with BMO Capital Markets.
"BAE Systems has certainly had its share of issues in building the FMTV, including delivery and operating issues. They are far from being without flaws," Brady said. "Given BAE's past record, you could almost argue that they may pose a greater risk than giving the contract to a new supplier."
Oshkosh stands a better-than-average chance of keeping the FMTV contract award, said analyst Robert McCarthy with Robert W. Baird & Co.
Even when protests are sustained, he said, the original contract winner retains its award roughly 60 percent of the time.
With the FMTV award: "We believe price and capability are roughly equally weighted in the evaluation process," McCarthy said.
The contract is important to dozens of Oshkosh's suppliers, including companies in the Milwaukee area.
Hopefully, Monday's ruling is only a temporary setback, said Jim Kacmarcik, owner of Kapco Inc., a metal-stamping company in Grafton and an Oshkosh supplier.
"This isn't a death notice. I still think it looks strong for Oshkosh," Kacmarcik said.
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WHAT'S NEXT:
The Army has 60 days to respond to the Government Accountability Office recommendation that it re-evaluate the FMTV contract award made to Oshkosh Corp. The Army could reaffirm the award, or it could select BAE Systems or Navistar Inc. to build up to 23,000 trucks and trailers with an estimated value of about $3 billion.
The Army could ignore the GAO recommendation for a re-evaluation. But that's not likely because it would result in intense political backlash from legislators who believe that BAE Systems and Navistar did not get a fair shot.