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

By Rich Smith - Updated Apr 6, 2017 at 1:43AM

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And Oshkosh is generous in victory.

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.

Victory through superior defense investing:

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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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Stocks Mentioned

Oshkosh Corporation Stock Quote
Oshkosh Corporation
$83.20 (0.27%) $0.22
Navistar International Corporation Stock Quote
Navistar International Corporation
The Boeing Company Stock Quote
The Boeing Company
$165.04 (-0.88%) $-1.46
Textron Inc. Stock Quote
Textron Inc.
$64.40 (-0.02%) $0.01
General Dynamics Corporation Stock Quote
General Dynamics Corporation
$228.76 (-0.17%) $0.40
Northrop Grumman Corporation Stock Quote
Northrop Grumman Corporation
$477.59 (-0.09%) $0.45
Force Protection Inc. Stock Quote
Force Protection Inc.

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