(Updated to include Oshkosh's response to the government's ruling on protests to its FMTV military-truck contract.)
) -- Truck-maker and defense contractor
lost a crucial battle with rivals Monday when a governmental watchdog group ruled that the Pentagon improperly awarded the Wisconsin company a multibillion-dollar contract to produce supply trucks for the Army.
Oshkosh, which has
specifically designed for use in Afghanistan, saw its share price tumble on the news. The stock closed Monday's regular session at $36.32, down $4.64, or 11.3%. Volume reached 14.1 million shares, more than seven times the daily average turnover in the name.
In August, Oshkosh won an Army contract to build a next-generation supply truck called the FMTV (short for Family of Medium Tactical Vehicles) -- a deal separate from the seminal M-ATV award. Oshkosh beat out the incumbent FMTV manufacturer, Britain's
, on price. The contract was for 23,000 trucks; industry observers have pegged its ultimate value to Oshkosh at between $2 billion and $3 billion.
According to one defense analyst, Loren Thompson of the Lexington Institute, Oshkosh underbid BAE's previous contract by 30%. BAE, meanwhile, whose Armor Holdings unit has built the truck for the last 17 years, underbid its own earlier FMTV deal by 21%, Thompson said.
After losing out to Oshkosh, BAE in September filed a protest with the Government Accountability Office, an investigative arm of Congress that keeps tabs on the spending of taxpayer money and, especially, on the appropriations process. A third bidder,
, also filed a protest.
Both companies argued that the Pentagon did nothing to asses the risks involved in turning over the contract to Oshkosh, a company with vast experience in military truck-building, but with none in assembling this specific type of vehicle. BAE and Navistar said that even though Oshkosh's bid may seem cheap on the surface, the risk of manufacturing and delivery delays could eventually make the deal a more costly one.
In a statement Monday, the GAO advised the Army to reopen the proposal assessment process, though the bidders won't need to resubmit their proposals, nor will the parties need to restart discussions or negotiations.
"Our review of the record led us to conclude that the Army's evaluation was flawed," Michael Golden, the GAO's general counsel for procurement law, said in the written statement.
But the GAO also ruled that several of the complaints made by BAE and Navistar were without merit, "including challenges to the evaluation of Oshkosh's price."
The GAO advised the Army to reasses the proposals based on Oshkosh's "capability evaluation factor," a somewhat muddy concept apparently meant to refer to a contractor's ability to produce vehicles on time and at cost. The GAO also told the Army to look again at Navistar's "past performance."
Oshkosh issued a response Monday afternoon. "We believe that our FMTV offer was, and continues to be, the best value for the U.S. Army, our troops and the U.S. taxpayer," said Oshkosh's chief executive, Robert Bohn, in a press release.
He said he believed the Army, which has 60 days to respond to the GAO recommendation, will ultimately maintain its contract with Oshkosh after reevaluating the competing bids.
If it doesn't work out that way, and the Army chooses to dump Oshkosh, the repercussions for the company would be significant. Though it had received a stop-work order from the Army as the GAO reviewed the protests, Oshkosh has been working under the assumption that the award would eventually receive the official greenlight.
The company has already started procuring parts on its own dime in preparation for ramping-up FMTV production, which would take place at Oshkosh's home-base factory in Wisconsin. Initial deliveries of the trucks and trailers wouldn't occur until late next year.
If the Army upholds the Oshkosh contract, both BAE and Navistar could lodge further protests with the GAO or file suit in the U.S. Court of Federal Claims. For its part, BAE has spent millions lobbying in Washington and has enlisted the support of several U.S. congressmen from Texas, where BAE manufactures the FMTV. Ten house members have, meanwhile, rallied behind Oshkosh, which has facilities in Wisconsin, Pennsylvania and Michigan.
-- Written by Scott Eden in New York
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Scott Eden has covered business -- both large and small -- for more than a decade. Prior to joining TheStreet.com, he worked as a features reporter for Dealmaker and Trader Monthly magazines. Before that, he wrote for the Chicago Reader, that city's weekly paper. Early in his career, he was a staff reporter at the Dow Jones News Service. His reporting has appeared in The Wall Street Journal, Men's Journal, the St. Petersburg (Fla.) Times, and the Believer magazine, among other publications. He's also the author of Touchdown Jesus (Simon & Schuster, 2005), a nonfiction book about Notre Dame football fans and the business and politics of big-time college sports. He has degrees from Notre Dame and Washington University in St. Louis.