Oshkosh Truck (NYSE:OSK)
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Defense contractor BAE Systems PLC (BA.LN, BAESY) wants the U.S. Army to commence a comprehensive review of a truck contract awarded to Oshkosh Corp. (OSK) that could lead to the contract being rebid.
BAE Systems stopped short of calling on the Army to rebid the entire contract, but complained Monday that the Army's original evaluation of the offers was riddled with shortcomings and permitted unrealistic assumptions about the costs and production capacity needed for the Family of Medium Tactical Vehicle, or FMTV, program.
"A lot of things were excluded," said Dennis Morris, president of Global Tactical Systems for U.K.-based BAE Systems, during comments to reporters. "The Army should step back and take look at the entire acquisition approach. This is a big program of high importance" to U.S. soldiers.
BAE and Stewart & Stevenson Services, a company acquired by BAE earlier this decade, have built more than 56,000 FMTV trucks since 1991. Oshkosh expects to begin producing the same trucks beginning in late 2010.
BAE and rival truck maker Navistar International Inc. (NAV) protested the Army's decision in August to award a five-year, $3 billion contract to Wisconsin-based Oshkosh for as many as 23,000 the cargo trucks and trailers. The Government Accountability Office last week upheld two narrow protests from the companies dealing with Oshkosh's production capacity and Navistar's past performance as a military contractor. But the GAO rejected most of the companies' other objections, including complaints about Oshkosh's price.
BAE executives said the GAO largely focused on procedural issues and did not probe the cost and production capacity assumptions in Oshkosh's bid. BAE contends that Oshkosh's $3 billion price is unrealistic and does not cover the company's expenses for the machinery to build the trucks and components for the trucks from outside suppliers. BAE said Oshkosh's pricing puts the Army at risk for production disruptions if the contract puts Oshkosh under financial stress.
"We still believe the pricing offered is significantly low and unreasonable in a number of ways," Morris said. "We know Oshkosh's price. Their price is actually less than our costs."
BAE's $3.4 billion offer was about 20% below the price the company currently charges the government for the FMTVs. Oshkosh executives said last week the company was able to underbid the incumbent contractor's offer because of its ability to obtain parts at a discount as a high-volume customer of key component makers for the FMTVs.
Oshkosh already builds military trucks, as well as specialized commercial trucks, such as fire trucks and cement mixer trucks.
-By Bob Tita, Dow Jones Newswires; 312-750-4129; email@example.com