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FMTV Contract Award And Protest Raises Industrial Policy Issues

Oshkosh (OSK) had a history of making heavy construction and emergency vehicles. It unfortunately was hit hard by the recession which severely reduced construction and limited cities and town budgets to buy new equipment. This led the company to have a major loss in 2008. They then changed their focus to trying to win heavy, armored truck contracts from the U.S. military and its Allies who were investing in Mine Resistant Ambush Protected (MRAP) to protect their troops from Improvised Explosive Devices (IED) in Afghanistan and Iraq.

They were able to win all of the new MRAP-ATV contracts to build a lighter, more maneuverable one for use in Afghanistan. The company has won several hundred million dollars worth of contracts for these vehicles. This led to a turn around and due to restructuring and the military work the company is going to make a profit for 2009.

Earlier this year the Wisconsin company bid on a contract to make replacement trucks for the U.S. Army. The Family of Medium Tactical Vehicles (FMTV) had been in production and service for over twenty years. This was just to be a follow on contract primarily to replace vehicles lost in operations since 2001. They had always been made at a plant in Sealy, TX which currently is owned and operated by a subsidiary of the English based BAE Systems (BAE.L). These contracts represent the majority of the work for the subsidiary and the plant is critical to Sealy's economy.

Oshkosh won the new FMTV contract despite bids from BAE and Navistar (NAV) both of whom have a long history of involvement in making military vehicles. These two companies had also lost the MRAP-ATV contract to Oshkosh. The two losing bidders protested to the Government Accountability Office (GAO) the award to Oshkosh. It was announced just a week ago that the GAO had upheld both protests and wanted the Army to review the award.

The GAO did not agree with all of the protesters points which included complaints that Oshkosh bid too low and could not meet that price as well as that they might not be able to ramp up production fast enough. The GAO did say that the Army had to review its use of the award criteria but did not agree on the price issue. The Army will now probably go back and write up how it did apply the source selection factors properly and try to justify the award to Oshkosh. It is hard to believe that they will redo the competition and award it to one of the losing firms. Several months have already been lost due to the protest.

Unfortunately that does not help BAE or Sealy who need the contract to build the FMTV. BAE Systems spent several billion dollars on investing in its U.S. subsidiary and the loss of that contract will harm their U.S. revenue and profit. Sealy is in even worse shape as without the FMTV plant running the city's economy will be seriously harmed. Of course the Wisconsin economy will grow as the work is moved there. That unfortunately is the problem right now with these large, single winner defense contracts. There often is no work to make up for losing the contract. That is why protests are prevalent and why companies fight hard for these contracts.

In this case it is sad that Sealy, TX will be devastated without the work. At the same time it is good for the U.S. military to get a product at a better price. The Defense Department's budget is not governed by keeping jobs here or there like some other countries. There are those in Congress who would like it to be which is why earmarks are so numerous. They allow Congressional Representatives to keep work and jobs in their districts. At a time when every dollar is needed to support operations overseas and the U.S. Government is running large deficits it would be hard to switch the focus of the defense budget to more of an industrial base concern.

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