On August 28, the U.S. Army’s Tank, Automotive & Armaments Command awarded a $4 billion contract to the Oshkosh Corporation to build 23,000 medium-size trucks. The award was an upset win for Oshkosh, which beat commercial truck manufacturer Navistar and incumbent military contractor BAE Systems. BAE has been building the same Army trucks under a program called Family of Medium Tactical Vehicles (FMTV) since 1991. Coming on the heels of a June award for mine-resistant vehicles that the military will use in Afghanistan, the win was especially sweet for Oshkosh, which had been facing possible bankruptcy due to reverses in its construction-vehicle business.
However, a review of the truck award reveals fundamental mistakes on the part of the Army Command. First, the Army accepted a wildly unrealistic cost estimate from Oshkosh without making any serious attempt to determine whether it was valid. Second, it rated the three offerors as equal in terms of risk and capability, even though BAE Systems was already building the trucks and Oshkosh had stated it was under stress prior to the award. Third, it rated the offerors equal with regard to past performance, when in fact only BAE had directly relevant experience — a key indicator of success in a competition where the winner would have to build trucks to the demanding specifications the incumbent is already meeting.
In combination, these mis-steps nearly guarantee that the protests lodged by the losing teams will be sustained when the Government Accountability Office rules on them later this year. But the truck award raises more far-reaching questions about the competence of Army source selections, because the errors were so egregious. Consider the issue of cost realism, a central concern in acquisition reform. Despite lack of facilities, workforce and relevant experience, Oshkosh bid 30% below what BAE is charging for building the same trucks today. BAE bid below its current asking price too, and but not that low — even though it already has a production process in place. Army personnel accepted the bids at face value without any effort to independently verify them, and in fact made cost the sole determinant of the award.
Cost was not supposed to drive the outcome of what was originally billed as a “best value” (as opposed to lowest price) competition. The capabilities and past performance of the offerors were collectively weighted more heavily, since any fool can make a lowball bid. But the Army’s anonymous source-selection authority decided the three teams were equal in all other metrics, leaving cost as the only variable in comparisons. Rating Oshkosh as equal to the incumbent in production capability seems preposterous on its face. Oshkosh will have to build facilities, install tooling, hire workers and secure suppliers that BAE already has in place. In addition, it will have to develop and test an armored cab for its trucks that BAE has already certified, in a fraction of the time that BAE took to validate its design.
And then there is the matter of past performance. BAE has been successfully producing FMTV trucks for nearly two decades. Oshkosh has never produced them. Does that sound like a situation in which the past performance of the offerors should have been rated equal? Obviously, the Army extrapolated experience from other programs to conclude that Oshkosh could match the incumbent. But it ignored a host of factors that would make any such inference suspect — like the fact that Oshkosh’s contract for mine-resistant vehicles takes precedence under law due to its urgency, and therefore will impede efforts to repeat efficiencies seen in earlier programs. What this all adds up to is a procurement disaster in the making, a conclusion GAO analysts should have little difficulty reaching.