UPDATE 1-OshKosh stops work on US Army trucks after protest

Tue Sep 8, 2009 1:49pm EDT

* Oshkosh must stop work on big Army truck contract

* GAO to rule on losing bidders' protests by Dec. 14

* BAE says Army did not properly evaluate the bids (Adds details of protests, byline, analyst comments)

By Andrea Shalal-Esa

WASHINGTON, Sept 8 (Reuters) - OshKosh Corp (OSK.N) said on Tuesday that it received a stop-work order from the U.S. Army on a multibillion-dollar truck contract after two losing bidders, Britain's BAE Systems PLC (BAES.L) and Navistar International Corp (NAV.N), filed protests last week.

Oshkosh won the five-year contract for the Army's Family of Medium Tactical Vehicles (FMTV) on Aug. 27, unseating incumbent BAE Systems in a deal valued by analysts at around $2 billion.

The fixed-price deal calls for Oshkosh to build up to 23,000 vehicles and trailers, and provide support services and engineering.

BAE -- which builds the current mid-size trucks at its Sealy, Texas plant -- and Navistar filed protests over the Army contract award last week with the Government Accountability Office, the congressional office that handles bid protests.

The GAO is due to rule on the issue by Dec. 14.

Oshkosh declined to comment on the protests, but said the Army told it to stop work on the program.

"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," Oshkosh said in a statement.

Oshkosh had begun working on the first delivery order under the contract, a deal valued at $281 million for production and delivery of 2,568 trucks and trailers. Initial test vehicle deliveries had been planned for mid-2010, followed by delivery of production vehicles later that year.

In a research note titled, "Moan, moan, moan," Rob Stallard of Macquarie Securities said protests now appeared to be "standard practice for the industry."

Oshkosh shares were up 9 cents at $32.42 in mid-day trading.

BAE Systems, whose shares lost around 4 percent when the ruling was announced last month, said it decided to file the protest after carefully analyzing information supplied by the Army.

"After a detailed analysis of the information provided by the Army, the company believes that the Army did not properly evaluate the proposals," BAE said in a statement.

BAE will continue to produce FMTV vehicles for the Army until the end of 2010, but had planned for the contract to be extended.

Defense analyst Loren Thompson of the Virginia-based Lexington Institute, said the protests had a good chance for success, given that Oshkosh had underbid incumbent BAE by about 30 percent, even though it had not built the trucks before, lacked the workforce needed to complete the orders, and had no existing relationships with suppliers for the trucks.

"This could easily turn into a procurement scandal," Thompson said, questioning the Army's decision to consider the three bids equally low risk in terms of all factors except price, especially given concerns that heavily leveraged Oshkosh was facing bankruptcy after the collapse of demand for its commercial construction vehicles.

"I don't see any way that a company with Oshkosh's capabilities can substantially underbid the incumbent and come in on price and on schedule," Thompson said.

Jim McAleese, a Virginia-based defense consultant, said BAE urgently needed to win several large contracts to shore up shareholder support after losing the FMTV deal to Oshkosh, and a separate contract for lighter Mine Resistant Ambush Protected (MRAP) trucks being built for use in Afghanistan.

"The challenges to BAE are material," he said. (Reporting by Andrea Shalal-Esa and John Bowker, editing by Gerald E. McCormick and Maureen Bavdek)

Comments (0)
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.