Army Trucks: Contractor Tax Ploy Highlights Flawed Selection Process

The winning bidder in the Army’s recent award of a contract for 23,000 trucks is providing fresh evidence that the service erred in assessing its qualifications to carry out the contract. Wisconsin-based Oshkosh Corporation is seeking $40 million in state and local tax breaks to assist in construction of a high-tech painting facility necessary to execute the contract. The fact that the company needs to build such a facility renews doubts about how the Army could have decided Oshkosh is just as a capable as incumbent truck producer BAE Systems — a decision that resulted in awarding the contract solely on the basis of the unrealistically low price bid by Oshkosh.

The electro-coating or “E-Coat” facility is essential to assuring that trucks produced under the Family of Medium Tactical Vehicles (FMTV) program do not develop corrosion during decades of operation. BAE Systems already has two E-Coat units at its truck plant at Sealy, Texas that it uses to electrostatically paint large and small parts for the trucks. Under the “build-to-print” contract that it won in August, Oshkosh will need to manufacture trucks nearly identical to the BAE trucks so that the vehicles can be utilized interchangeably in the Army’s fleet. Trucks from both companies will be equipped with an armored cab so that they can be used by troops in Iraq and Afghanistan.

Oshkosh bid 30% below the current price of the trucks, even though it will have to produce very similar vehicles from the same blueprints using many of the same suppliers as BAE Systems. The Army stated in its original solicitation that it would rigorously analyze the prices proposed by offerors to determine whether they were realistic, because lowball bids in previous competitions had resulted in cost overruns and production delays. But the service failed to apply any measures of realism to the improbably low Oshkosh bid, and then proceeded to compound its risk by making price the sole determinant of which company won the contract.

Under the terms of the solicitation, price was supposed to account for only 40% of the source-selection criteria. Contractor capability was to account for an additional 40%, and past performance was to be 20%. But the Army decided all three bidders (including commercial truck manufacturer Navistar) were equal in capability and past performance, so price became the only discriminator as to which company offered the best package. How Oshkosh could be rated equal in past performance to the 20-year incumbent producer of FMTV trucks is a mystery, since it has never produced them. And the company’s bid for tax breaks to construct a facility essential to contract execution highlights the fact that it lacks plant, tooling, skills and other industrial capabilities equal to those of BAE Systems. It doesn’t even have a validated design for the armored cab.

The FMTV award thus appears to be a case study in unprofessional acquisition practices. The Army has assumed great risk by mis-rating the qualifications of bidders and then accepting an unrealistically low bid from an offeror that has not previously manufactured the product. Having rated all the offerors excellent in virtually every category of capability and past performance, the service can’t claim the incumbent was doing a poor job. More importantly, it also can’t explain how the company that won the new contract can possibly meet its obligations without exceeding the price that was bid.