And the Winner Is ... Oshkosh! (By Gosh!)

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It was somewhat short of $12 billion, but I doubt Oshkosh (NYSE: OSK  ) will complain.

As the clock ticked down on the Pentagon's deadline for awarding a new contract for off-road MRAP armored vehicles, investors were getting nervous. In the end, though, the generals hit D-Day on the mark, awarding the first $1 billion installment on the contract yesterday evening to Wisconsin-based heavy industrialist Oshkosh Corp.

Investors, of course, had been told to expect 5,244 vehicles would be awarded, and at a total cost of $12 billion. Instead, U.S. Army Tank Command issued a contract for 2,244 MRAP All-Terrain Vehicles for just a billion and change. At this price, it looks like the Army may be able to buy its entire fleet of "M-ATVs" for as little at $2.5 billion -- a mere fraction of the expected cost.

Good news for Oshkosh, great news for taxpayers?
And it gets better. According to the Defense Department, Oshkosh's contract will be a "firm fixed priced delivery order" -- so no cost overruns on this one, folks. While the total program cost will ultimately exceed $2.5 billion, what with the expense of maintaining and servicing the vehicles, it still looks to be a far cry from $12 billion.

But the best news of all is for the troops in the field. Oshkosh apparently sensed it had this contract "in the bag," and began building M-ATVs even before it was awarded the contract. With several already in production, and plenty of underused manufacturing capacity to spare, Oshkosh avers that it can not only fulfill the Pentagon's production requirements on this order, but on follow-on orders as they arrive.

Settle down, lawyers
What's more, unlike past awards for production of the Army's new Joint Light Tactical Vehicle, where jilted bidders such as Textron (NYSE: TXT  ) immediately cried foul and filed lawsuits, or the Air Force's KC-X Tanker contract, where similar litigation has left rivals Northrop Grumman (NYSE: NOC  ) and Boeing (NYSE: BA  ) both cooling their heels, it looks like M-ATV will encounter no such difficulties.

No sooner had Oshkosh learned of its victory than it extended an olive branch to its vanquished foes, announcing it will subcontract some of the work to losing bidders like Force Protection (Nasdaq: FRPT  ) , General Dynamics (NYSE: GD  ) , Navistar (NYSE: NAV  ) , and/or BAE.

Foolish takeaway
That means less work for the lawyers, but more work (and profits) for the companies -- and faster delivery of the vehicles to the front lines in Afghanistan. Booyah, Oshkosh!

How could you have known that Oshkosh would win the contract? By reading the Fool, of course! Several commenters correctly predicted Oshkosh's victory yesterday.

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Fool contributor Rich Smith owns shares of Force Protection and Boeing. General Dynamics is a Motley Fool Inside Value recommendation. Why do we tell you this? Because The Motley Fool is positively militant about disclosure, that's why.

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  • Report this Comment On July 01, 2009, at 4:18 PM, RugbyVA wrote:

    Brogan: Defense Department to Add 3,000 M-ATVs to Oshkosh Order By End of July

    July 1, 2009 -- The Pentagon intends to increase its contract with Oshkosh by the end of July to include the 3,000 vehicles needed to meet its requirement for Mine Resistant Ambush Protected All-Terrain Vehicles, a senior program official said today.

    Just one day after the military awarded Oshkosh a nearly $1.1 billion contract for 2,244 vehicles, Marine Corps Brig. Gen. Michael Brogan said the Army and Marine Corps expect all 5,244 vehicles to be built by the end of March 2010.

    “We expect to place the remainder of the vehicles on order before the end of the month of July so that they have the entire order in their hands,” Brogan, program executive officer for MRAP, said during a briefing with reporters today. The order “will allow them to smooth their base with their suppliers, vendors and subcontractors so that they can do all their production planning and ensure they are capable of delivering the full 5,244 by the end of March,” he said.

    Brogan told reporters he believes the military has enough money from the fiscal year 2009 supplemental appropriations bill to pay for all of the vehicle production.

    “We're going to have to cash flow probably until '10 some of the spare parts, the field support representatives, some of the ancillary things that go along with the production,” Brogan said. “But I'm reasonably confident in saying we have enough money in hand to do the production.”

    He said today that the first 10 M-ATVs are expected this month, though he added that he anticipates Oshkosh “will exceed that quantity.

    “And they will ramp pretty quickly up to 1,000 vehicles per month, which we expect them to reach during December of this year,” he added, noting that vehicles will be built both at the company's Wisconsin facility and at that of subsidiary JLG Industries in McConnellsburg, PA.

    Some of the first vehicles to be received will be sent to Aberdeen Proving Ground, MD, “to go through a series of more thorough tests,” while others will be sent to Space and Naval Warfare Systems Command in Charleston, SC, “so that we can finalize the installation of government-furnished equipment,” Brogan said.

    According to the one-star, the military expects to have the first M-ATVs fielded to troops in October.

    He said during today's briefing that Oshkosh was the “clear winner” in the “hard-fought” competition.

    “The Oshkosh vehicle proved to be the most survivable platform,” he told reporters. “It also, in all of the mobility sub-criteria, was either the best or equal to every other offering so, when you put those all together, its technical weighting was superior to everyone else's.

    “At the end of the day, Oshkosh was superior in technical, it was superior in the production and it was the number two in cost, so it was clearly the winning vehicle,” Brogan added.

    He said the source-selection advisory committee unanimously recommended Oshkosh to the source-selection authority. The authority's decision was then evaluated by a peer review team led by senior DOD contracting officials who deemed the decision “one of the best source selections they had ever seen,” according to Brogan.

    Though he said the possibility of protests from competitors remains a “wild card,” Brogan maintained that the decision was “detailed, it was impartial and we are confident in the result.

    “So it's certainly within the rights of the offerors to protest,” he continued. “I don't believe it's in the best interest of the warfighter, and I don't believe that a protest will prevail because we did a good job and we have the documentation to back up the decision.”

    Brogan acknowledged today that getting M-ATVs to theater will pose a “significant transportation challenge.”

    Because additional forces -- as well as the basic equipment they use -- are arriving in Afghanistan, the “air bridge into Afghanistan is completely full,” according to Brogan.

    “We're going to have to shoehorn the deliveries of the MRAP All-Terrain Vehicles into that already clogged air bridge,” he told reporters.

    The military plans to fly over all of the vehicles early on but “our goal is to as soon as we can transition to surface [transportation] so that we can move large quantities of vehicles all at the same time,” he added.

    Brogan said today that the fielding process would be sped by lessons learned in the original MRAP effort. In particular, he told reporters, the military has moved government-furnished equipment installation “as much as possible upstream into the production process so that we're not brute-forcing it into the vehicles at Charleston.”

    Additionally, work at SPAWAR will be eased because of the single vehicle variant.

    In the original MRAP effort, “we had not just five manufacturers, but we were buying category 1 and 2 vehicles from several of them, and then multiply that by all of the unique GFE configurations for the services -- we ended up into hundreds of different variations of vehicles that we processed at SPAWAR.

    “That number's going to be significantly reduced based on the fact that we're going to have one manufacturer building one truck; that much of the installation for the bracketry and the racks is going to be done by the vendor as part of the production process, so we won't be grinding, welding and repainting in Charleston; and the services have -- as much as they can -- agreed on a common core set of government-furnished equipment,” Brogan said.

    He expressed confidence in the ability of Oshkosh -- working with JLG -- to manufacture all of the vehicles without additional teaming arrangements.

    “Their truck is very simple to build. It is an assembly process rather than a manufacturing process, it does not require a great deal of welding so it lends itself very well to a production-line environment,” Brogan explained. “So we're pretty confident that they can meet what they put in their proposal, and we have that confidence because we visited all of their prime production sites as well as their suppliers and vendors all the way down to the third tier.” -- Marjorie Censer

  • Report this Comment On July 01, 2009, at 6:46 PM, TMFDitty wrote:

    Thanks for the post, RugbyVA.

    Dare I say it? It almost sounds like the Pentagon has figured out how to buy stuff efficiently.


  • Report this Comment On July 01, 2009, at 7:25 PM, xetn wrote:

    I am curious why you think this is all good news, unless you happen to own OSK. All this is really doing is taking several billion out of the private sector at taxpayer expense. The real question is why we need to spend this money at all. This is no different that TARP or bailouts or stimulus programs of the federal government and is INFLATIONARY!

    One of the biggest problems with any socialist program is that the planners can never answer "how many" because they have no pricing/profit incentives. They can just wrangle a budgeted amount, and spend, spend, spend regardless of whether these systems are needed.

  • Report this Comment On July 01, 2009, at 11:05 PM, jrusso9722 wrote:

    You're curious as to why we need to spend this money? Why this is good news? Then you state "One of the biggest problems..........."

    One of the biggest problems is IGNORANCE, and an attempt to mouth off, posture,about stupid budget wrangling, etc. !!! If you're mother, father, sister, brother was subject to being dissembowled in the night, in Afganistan, YOU would hope they had an Oshkosh M-ATV to seek protection in.

  • Report this Comment On July 02, 2009, at 1:18 PM, dynamicdriver wrote:

    Other entries were pretty darn good, but Oshkosh was awarded this contract because they were close to bankruptcy and the government did not want another company to fail...especially when OSK is responsible for existing HEMTT and MTVR vehicles. The olive branch was extended because they do not have the capacity to build these trucks.

  • Report this Comment On July 02, 2009, at 3:16 PM, RugbyVA wrote:

    Not sure why dynamicdriver has such a problem with OSK but this is not the first post of his that does not make sense.

    One would have to believe the government selected an inferior product from OSK to send to support our troop in theater just because “did not want another company to fail”. Given this vehicle will be protecting the sons and daughters we have asked to go to Afghanistan, in no way would the military send anything but the most survivable and mobile system available.

    No matter your position on if and/or why we should be in Iraq or Afghanistan, you have to support the soldiers and Marines this government has sent into harms way. I’d rather spend money on this vehicle than on banker’s bonuses and Las Vegas getaways our TARP money has been used for by the likes of AIG.

  • Report this Comment On July 02, 2009, at 5:30 PM, phatboy62 wrote:

    Just a thought for dynamicdriver. It's obvious to me you have no idea how dependable and tough an Oshkosh Corp. vehicle is. Be it a HEMTT,MTVR or any other truck.The proof is in talking to the soldiers who risk their lives every day,going out into harms way and listening to them tell us how confident and safe they feel knowing they will make it back because they were in an Oskhosh Corp. vehicle. Just one question for you dynamicdriver,------ do you have a job?

  • Report this Comment On July 03, 2009, at 12:36 AM, JavaChipFool wrote:

    When looking at military contract awards, I wonder how the marines compare to the army and air force. The Osprey had problems, anything else any9one knows about?

    In my experience doing some contract work on the California desert bases- Ft Irwin-army, Edwards-airforce and MCAGCC-marines, the marines are the organizational efficiency winners hands down.

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