For those who haven’t been following closely the Army’s problematic effort to buy a new truck: the Army awarded the $3 billion Family of Medium Trucks (FMTV) contract to Oshkosh in August. The competition’s losers, BAE and Navistar, promptly filed a protest. Last week, the Government Accountability Office released its report that said the competition was flawed.
On Friday, we featured comments from Oshkosh VP Andy Hove who said GAO found only a very minor and easily correctable flaw in the process and that the report did not call into question his company’s ability to deliver a new FMTV with a price tag that is $400 million less than that of competitor BAE.
This morning, BAE held a conference call with reporters to provide their evaluation of the GAO evaluation. BAE believes that GAO’s findings called the whole FMTV award into question and that the Army, and senior leadership from the Office of the Secretary of Defense, should step in and redo the competition, that according to Dennis Morris, president of BAE’s Global Tactical Systems. He called Oshkosh’s price quote “unbelievable,” and said that it’s actually less than BAE’s costs to build. Oshkosh’s business strategy is to get the contract now with a low bid and then make profits on sure to follow truck modifications and improvements down the road, he said.
It should be noted that GAO did not say Oshkosh’s price was unreasonable. The mistakes in the competition came in a pretty specific sub-factor that went into deciding whether Oshkosh had the capability to build the FMTV. The government auditors major sticking point was that the Army incorrectly said Oshkosh had all the needed tooling and equipment to build the trucks. They don’t, which Oshkosh acknowledges, and says they can easily procure.
Oshkosh claims that because they build more component pars in house that they were able to come up with a lower price. BAE says that’s baloney, because all of the truck builders get at least some of their components from outside and they know full well the costs of those parts. “The advantage volume costs Oshkosh quotes are not there, because we know the suppliers are quoting us all the same prices,” said BAE VP Chris Chambers. “There are several significant sized components that go onto different variants of the vehicles, where we have worked with supply chains for many years, where we know categorically that [Oshkosh’s] pricing going in is a large percentage under the current market price.”
“We’ve been doing this for 17 years… and if we truly believed that significant savings could come about because of in sourcing, it’s perfectly reasonable to assume that we would have followed that approach ourselves,” said BAE’s Al Crews.
In response to a reporter’s assertion that if Oshkosh wants to build at a loss, that’s the company’s issue, and is not the responsibility of the Army, Crews said the taxpayer could be left bailing out an insolvent Oshkosh if their loss-now, profit-later business strategy doesn’t pan out. "If Oshkosh is building these vehicles at a loss… the government is going to have to bail out Oshkosh in order to have these trucks to continue to be produced if they provided the government an unrealistically low price.”
Also, since the FMTV will now be built by two different firms, the Army is going to get hit with a larger support and sustainment bill than if it stuck with a single supplier, said Chambers. “This is not a commodity, it is not a truck, it’s a tactical wheeled vehicle, with a complex requirement for its armor and protection and mobility… Why therefore is it being treated in a simplistic way?”
The Army has 60 days from December 14 to act on the GAO’s recommendations and report its findings. Stay tuned, as this one looks like it’s far from over.
