By Roxana Tiron - 09/10/09 10:52 PM EDT
The British defense contractor took a severe blow last month when it lost an estimated $3 billion contract for Army trucks. It has manufactured those vehicles for the last 17 years. Defense analysts consider it extremely rare when an incumbent company is not rewarded a renewed contract.
Wisconsin-based specialty truck manufacturer Oshkosh Corp. won both contracts.
The U.S. arm of BAE last Friday formally protested the Army’s FMTV award to Oshkosh with the Government Accountability Office (GAO), the congressional watchdog.
BAE hired the powerful law firm Wiley Rein LLP to help with the GAO protest. It is the same company that worked with Boeing Co. on its successful protest of the Air Force’s $35 billion refueling tanker contract.
BAE is also elevating its lobbying campaign on Capitol Hill, targeting key lawmakers on the defense committees and professional staff.
Linda Hudson, BAE’s Land & Armaments president, said her company filed the protest because it believes the Army’s evaluation of the contract proposal was flawed. BAE also believes that the Army gave incumbent BAE and challenger Oshkosh the same ratings in areas such as proposal risk.
“The evaluation process was not done in accordance with the detailed selection criteria” initially released by the Army, Hudson said in a phone interview.
“We also think that there are flaws in the evaluation criteria, which is not consistent” with lawmakers’ and the Obama’s administration’s goal of reforming the Pentagon’s buying practices.
Hudson also said that Oshkosh’s bid on the fixed-price contract was too low to be workable.
“This is a fixed-price contract … and if you can’t perform to your price there are numerous historical examples when the program has to be bailed out or canceled,” said Hudson, who on Thursday was named one of 50 most powerful women in business by Fortune magazine.
“No one took into account our incumbency, our experience, our qualified design. A huge mistake was made from an acquisition perspective,” she added.
Chance Prigge, a spokesman for Oshkosh, said in a statement e-mailed to The Hill that the company is reviewing the matter.
“We can confirm that our customer informed us that protests on the FMTV contract have been filed, and pursuant to the contract we received a stop-work order. Until we know further details, we really can’t comment,” Prigge said in the statement.
The Army declined comment because "the FMTV acquisition is currently in litigation," said a spokeswoman in an e-mailed statement.
Hudson and other BAE representatives are making the case to the defense authorizers and appropriators that the contract pricing should have received independent evaluation. Hudson argues that the Army did not notify Congress, as is customary with large contract awards.
“This competition was not handled the way Congress would expect it to be handled,” Hudson said.
Lawmakers are likely to scrutinize the contract award to Oshkosh, because as a result of the FMTV contract award, the Wisconsin company now holds the majority of contracts for military trucks, said a source familiar with the issue who asked not to be identified. Having a monopoly on the military truck business could raise some questions about future performance, risks and pricing, the source added.
Apart from M-ATV and FMTV, Oshkosh holds the contract for the Army’s heavy mobility tactical trucks. The company also has the contract for the Marine Corps’s medium tactical vehicles. Oshkosh owns the proprietary designs for its heavy trucks, making it the sole contractor for those vehicles. However, the Army owns the designs for FMTV, making it easy for the service to compete the program and pick the companies that can produce the vehicles.
The FMTV program includes 17 different trucks and trailer models, based on a common chassis, that vary by payload and mission.
Another competitor, Navistar International Corp., filed a separate protest on the same contract. The GAO is expected to rule on the protests by mid-December.
BAE will build the FMTV for the Army until the end of 2010, when its contract expires. BAE Systems, Inc., which is a British-owned U.S. company, in 2007 purchased Armor Holdings, a U.S. company that has held the contract since 1991. The program is expected to generate $2 billion for the company this year, the same amount generated in 2008, said Hudson. Congress has provided about $12 billion for the program since its inception.
BAE is also taking its case to lawmakers whose states and districts would be hit hard.
Sealy, Texas, where BAE has been manufacturing the trucks, stands to lose about 3,000 jobs if the company doesn’t ultimately win back the FMTV contract. But Ohio and Michigan could also be hit with some layoffs, according to Hudson.
Sen. Kay Bailey Hutchison (R-Texas), a defense appropriator, this week sent a letter to GAO asking for an investigation of the Army’s plans to buy new trucks.
“BAE has expertly manufactured the U.S. Army’s FMTV fleet for 17 years, and the sudden loss of the contract will cost more than 3,000 Texans their jobs,” Hutchison said in a statement.
Hutchison is expected to resign in order to run for governor of Texas next year. The Army’s support for some of its workhorse vehicles, such as trucks, is now shifting to the increasingly powerful Wisconsin delegation, which will throw its support behind Oshkosh. Rep. David Obey (D-Wis.) is the chairman of the House Appropriations Committee, while Sen. Herb Kohl (D-Wis.) is also a defense appropriator.
The FMTV and M-ATV contracts will give a much-needed cash injection to Oshkosh, which faced the possibility of bankruptcy earlier this year due to diminished demand for its commercial construction vehicles. Sources tell The Hill that Oshkosh also made a key hire this year: Andrew Hove as the president of its defense unit. A former Army officer, Hove was BAE’s vice president for combat systems.