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Home News Archive Year-End Updates – Volume 1

Year-End Updates – Volume 1

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land_fmtv_familyFirst in a series of updates to previously reported stories-

The FMTV Protest


Earlier in December 2009, we reported that GAO had sustained not one, but two, separate protests of the Army's decision to award the next Family of Medium Tactical Vehicles (FMTV) to Oshkosh, Inc., replacing the BAE Systems' subsidiary, Stewart & Stevenson-who had been producing FMTV trucks for almost 20 years.

Just before Christmas, InsideDefense.com carried a story that quoted a BAE Systems executive as saying that the bid evaluations should be "reexamined in the context of the Weapon Systems Acquisition Reform Act." Readers of this site will recall that we reported on the Act here. We subsequently discussed the Act in the context of the KC-X aerial tanker completion, reporting whispers that the draft KC-X RFP might violate the Act, and thus be illegal, because it allegedly converted the "best value" competition in to a "low-price, technically acceptable" completion, and failed to address several mandatory requirements of the Act.

The InsideDefense.com article also reported-

BAE officials were also highly critical of Oshkosh's price estimate. Though GAO denied BAE and Navistar's claims that the Army failed to reasonably evaluate the realism of Oshkosh's price, [BAE executives] stressed that auditors did not validate the price.

'While the GAO supported that the Army's process was adequate under the circumstances, we still believe that the pricing offered is still significantly low, and it's unbelievable in a number of cases,' [BAE] told reporters, adding that in some instances the total price proposed by Oshkosh [was] below BAE's cost.

Additionally, [BAE] contended that an unrealistic offering on a firm-fixed-price contract could have serious repercussions for the service.

'Any statement that the contractor is the one who ultimately bears the risk needs to be taken with a grain of salt because if you have a situation where Oshkosh is required to build these vehicles, and they're building these vehicles at a loss and they incur significant financial difficulties -- who is going to step in and take over this contract and build these trucks? … And if the answer is that there is not someone available, then the government is going to have to bail out Oshkosh in order to have these trucks [continue] to be produced."

A separate InsideDefense.com article provided more details into the FMTV bid evaluation "flaws". According to the article, Oshkosh's bid listed more than "100 items of key tooling and equipment" that it would have to obtain should it be awarded the contract. According to the article-

In its evaluation of Oshkosh's proposal, the Army called it 'an excellent approach,' but the selection decision stated Oshkosh already had the necessary equipment. The source-selection authority told GAO officials that the quote from the decision was inaccurate and that she 'understood the RFP as merely requiring offerors to demonstrate a 'credible plan' for obtaining the required key tooling and equipment.'

'We think that the solicitation's ground rules for evaluating the key tooling element clearly intended to differentiate between existing and non-existing production capabilities,' GAO state[d], adding that the [evaluators] 'failed to reasonably consider the comparative risk in Oshkosh's ability to procure, install, and 'prove out' the required key tooling and equipment.'

With respect to the past performance rating given to Navistar, InsideDefense.com reported that GAO decided that "Navistar received only an adequate rating for its MRAP work based on some adverse comments from the Marine Corps program manager. However, the Army … could not produce the … negative comments and ratings because the response was not saved electronically and the paper copy was shredded." Because GAO could not review the supporting documentation, they could not conclude that the adverse past performance rating was reasonable, and hence sustained Navistar's protest.

A couple of points before we move on:

  • The idea that the Weapon Systems Acquisition Reform Act should be applied to the KC-X competition has some appeal, because that evaluation scheme has not yet been finalized. Applying the same requirements retroactively to the FMTV competition lacks the same appeal, because it would be subjecting a completed evaluation to requirements ex post facto. We would opine that doing so would impermissibly taint the competition.
  • BAE's complaints about Oshkosh's pricing may have a grain of truth to them--in that if Oshkosh is locked into prices that result in a loss per vehicle produced, that could negatively impact the company's financial capability. That said, the FAR is clear (at § 3.501) that the practice of ":buying-in" is not prohibited. The only prohibition is on buying-in with the intention of "getting well" through unnecessary or overpriced change orders, or through inflating prices of follow-on contract work. It may, in fact, be the case that Oshkosh is able to offer prices significantly below BAE Systems' cost, given the various overhead structures, allocation of corporate home office expenses, and other cost accounting practices. Each cost proposal was thoroughly reviewed by DCAA auditors, and we assume that any deviations from established or disclosed cost accounting practices would have been flagged.
  • The evaluation of the tooling is a bit tricky. GAO contends that the evaluation criteria "clearly intended to differentiate between existing and non-existing production capabilities" and, since Oshkosh didn't have tooling while BAE Systems did, BAE Systems should have been rated higher in this area. First, we're not sure that BAE Systems should necessarily have been rated higher-if Oshkosh could procure the tooling without impacting the delivery schedule, then the matter is one of risk. The Army evaluators may well have been willing to take the addition risk in return for Oshkosh's lower prices. After all, that's what a "best value" tradeoff analysis is all about.
  • · Navistar's negative past performance evaluation should be easy to deal with. All the evaluators would seem to need to do is obtain the same comments from the original sources and show that the initial evaluation was supported.

In short, unless the Army seriously misevaluated the offers, or seriously misled the GAO, we don't think the original award to Oshkosh will be changed. But we've been wrong before ….

 

Newsflash

In March 2009, Nick Sanders’ article “Surviving Government Audits: Have the Rules of Engagement Changed?” was published in Government Contract Costs, Pricing & Accounting Reports (4 No. 2 GCCPAR P. 11). Apogee Consulting, Inc. is proud to announce that Mr. Sanders’ article was selected for reprint and publication in Thomson West’s The New Landscape of Government Contracting.  Mr. Sanders, Apogee Consulting’s Principal Consultant, joins such distinguished contributors as Professors Steven Schooner and Christopher Yukins, Luis Victorino and John Chierachella, Joseph West and Karen Manos, Joseph Barsalona and Philip Koos and Richard Meene, and several others.  The text covers a lot of ground, ranging from the American Recovery and Reinvestment Act (ARRA) to Business Ethics and Corporate Compliance, and includes several articles on the False Claim Act and the Foreign Corrupt Practices Act.  In addition, the text includes the full text of many statutory and regulatory matters affecting Government contract compliance.

 

The book may be found here.