US Army Upholds $3 Billion Cargo-Truck Contract For Oshkosh

The U.S. Army on Friday upheld a $3 billion cargo-truck contract awarded to Oshkosh Corp. (OSK) following a review of protests filed over the Army's evaluation of bids for the contract.

Oshkosh said the Army lifted the stop-work order issued in September in response to objections raised by BAE Systems (BAESY, BA.LN) and Navistar International Corp (NAV). The Wisconsin-based specialty-truck builder expects to begin production of the trucks later this year.

"We are very pleased the Army affirmed its original decision that Oshkosh Corp.'s bid clearly represents the best overall value for the Army, the taxpayers" and soldiers, said Oshkosh Chairman and Chief Executive Robert Bohn in a written statement.

In August, Oshkosh was awarded a five-year contract to supply up to 12,415 trucks and 10,926 trailers valued at $3.02 billion. The Army's initial order is for 2,568 trucks worth about $281 million.

The trucks are part of the Army's long-running Family of Medium Tactical Vehicles, or FMTV, program. The FMTV series features up to 17 different truck models for a variety of uses with payloads from 2.5 tons to five tons.

In December, the U.S. Government Accountability Office upheld two protest issues of limited scope dealing with Oshkosh's production capacity and Navistar's past performance as a defense contractor. The GAO recommended that Army re-evaluate those parts of the companies' bids.

The GAO, however, dismissed the majority of the issues raised in the protests, including complaints that Oshkosh's price for the trucks is unrealistic and exposes the Army to production disruption if the company is unable to cover its production costs.

The Army on Friday didn't provide details about its re-evaluation process but noted that a peer review of its process was conducted by the Secretary of Defense's office.

The loss of the FMTV contract is likely to be particularly disruptive for BAE, the incumbent contractor for the trucks. The company has said as many as 3,200 workers in Texas, Michigan and Ohio could lose their jobs when BAE quits building the trucks.

BAE's Texas-based Land & Armaments Group and Stewart & Stevenson Services --a company acquired by BAE--have built more than 56,000 FMTV trucks since 1991.

"BAE Systems is disappointed with the Army's decision," said Bob Murphy, president of the Land & Armaments Group, in a written statement. "Our goal now is to work with the Army to ensure a low-risk transition of FMTV production and secure an uninterrupted supply of these critical vehicles to our soldiers."

Representatives Navistar didn't immediately respond to requests for comments.

Oshkosh's stock on Friday closed down 2.9%, or $1.18, at $38.33 a share. Navistar ended down 0.2%, or nine cents, at $39.11. BAE shares in New York closed down 2.76%, or 61 cents, at $21.50.

-By Bob Tita, Dow Jones Newswires; 312-750-4129; [e-mail]