January 26, 2016
In North America in the past several months, three defense contractors have complained to US and Canadian federal reviewers that they’ve been treated unfairly in procurement programs for new military vehicles. Lockheed Martin has complained about Oshkosh’s winning production of the JLTV in the US, General Dynamics has complained about BAE Systems and SAIC winning development of the ACV in the US, and Oshkosh has complained about Mack winning production of the MSVS SMP in Canada. The particulars of these cases differ, but the companies’ reactions indicate just how difficult getting military procurement decisions can be. In the case of the JLTV, the government’s reaction also indicates why sometimes the government needs the right to be wrong.

In 2005, the US Army and the US Marine Corps launched their Joint Light Tactical Vehicle (JLTV) program, aiming to replace armored Humvees with something much better protected against landmines. As the Defense Department’s Inspector General later found, hoping for the JLTV delayed the Mine-Resistant Ambush Protected (MRAP) vehicle program at least a year, at a cost of several hundred American fatalities—troops who would have survived in MRAPs, but did not in the lighter Humvees. MRAPs, however, are not all that mobile. So, in 2009, the Defense Department selected Oshkosh Truck to provide about 9,000 much lighter vehicles in the stop-gap MRAP All-Terrain Vehicle (M-ATV) program. In the meantime, the JLTV program proceeded through about six years of technology, engineering, and manufacturing development.

Shortly after Oshkosh finally won the JLTV production program back in September, Lockheed Martin filed a protest of the decision with the US Government Accountability Office (GAO). A lot of money was at stake: at almost $400,000 per vehicle, the forecast production run would amount to over $21 billion in revenue. Work on the program then stopped, in accordance with federal contracting procedures. In mid-December, perhaps sensing that the GAO was about to rule against it, Lockheed just sued the Defense Department in the Court of Federal Claims. The GAO then dismissed the case before it, as it never rules administratively on cases that have been taken to court. The Army, wanting its new trucks, promptly told Oshkosh to get back to work. In early January, Lockheed requested a stop-work injunction, which is now pending before the court. Late last week, Oshkosh and the government filed their counter-argument as to why work shouldn’t be stopped.

Along the way, the Canadian Department of National Defence (DND) was arguably doing a better job on mine-protection. In 2006, its troops in Afghanistan sortied into battle with rather robust RG31s from BAE Systems (now Denel), and pretty decent LAV-IIIs from General Dynamics. That same year, the DND announced a plan to replace a variety of aging military trucks with a Medium Support Vehicle System of Standard Military Pattern (MSVS SMP). But rather like the American JLTV, that project similarly took about ten years to bring to fruition.

Last July, Mack Defense won the contract to provide some 1,500 trucks and accoutrements, plus years of in-service support, to the Canadian Army (and the RCN and RCAF too) for about C$834 million. The plan was for Mack to deliver those trucks between the summer of 2017 and the autumn of 2018. But in early January, Oshkosh filed a complaint with the Canadian International Trade Tribunal that the process had been opaque and unfair. In Canada—perhaps uniquely in the world—military procurement is a joint affair of the DND and the centralized federal procurement office, Public Services and Procurement Canada (PSPC). By allied standards, their work has not had the best reputation for clarity and speed. Canada does, however, place an almost unique priority on ensuring that contractors—even American contractors—are treated fairly, allowing them to claim damages from the Crown if courts agree that they have not been.

But those aren’t all the protestations about military vehicles of late. In November, the US Marines awarded development contracts for a new Amphibious Combat Vehicle (ACV) to BAE Systems (working with Italy’s Iveco from its 8x8 SuperAV 8x8, and SAIC, working with Singapore Technologies from its 8x8 Terrex 2. The ACV project was the much less ambitious successor to the Expeditionary Fighting Vehicle (EFV) program. That fiasco began in 1996 when General Dynamics won the development contract from the Marines. The program consumed over $2 billion with delivery of only troublesome prototypes before Defense Secretary Gates terminated it in 2009. In early December, GD, which had more successfully built almost all the 8x8 troop carriers for the US Army, the Canadian Army, and the US Marines since the 1980s, separately complained to the GAO about the ACV. The particulars of the case prompted Loren Thompson of the Lexington Institute to wonder openly in Forbes this month Has Best Value Become An Excuse For Process Abuses?”

I have two observations about all this. The first concerns this allegation of abuse—a harsh term in the American military lexicon. To get at the question, let’s review some more recent history. For years, value-for-money has been a bedrock of British military procurement policy. Of late, and as verified by the GAO, American practice has increasingly taken the opposite tack: seeking the lowest-priced but still technically acceptable (LPTA) proposal. As Brian Schultz and David Dotson of the Defense Acquisition University recounted in the November-December issue of Defense AT&L, that has caused consternation in industry, and to some extent even in government. But the selection process for the JLTV was firmly fixed on value, as was the process in Canada for the MSVS. The DND’s internal audit of the MSVS program in 2014 thought that the strategy was sound, noting that

     To ensure best value, the bid evaluation weighting between price and technical criteria was a reasonable ratio, with less emphasis on technical merit than other fleets. As well, the second highest technical score may be considered if the bid price is [redacted] percent lower than the bidder with the highest total score.

Price is measured in dollars, whether George Washington or the Queen is on the banknote. Value is harder to denominate, which causes consternation for both economists in their estimates and procurement officials in their buying decisions. Scoring the value on a monetary scale is necessarily a judgement call, and in a three-step process. The people designing the bidding process must decide on evaluation scales. Sometimes they can rate fuel economy or top speed quantitatively, but sometimes must rate other attributes categorically—with labels like good and very good. Next, they must decide how to value those differences—how much to pay for another kilometer per hour, or a judgement of a step-change to very good. Finally, the people evaluating bids (usually a different set entirely) must determine how each entrant performs, and rate each observation somewhere on those squishy spectrums. 

Before we continue, take a moment to note provenance of all this equipment, from South Africa, Italy, Canada, the United States, Singapore, and elsewhere. With so much engineering talent around the world, few of these things get developed as purely national projects anymore. The global nature of the products is matched by the transnational nature of the procurement challenge. There’s an old joke about weapon systems built by lowest bidders, and it’s true the world over. To the contrary, that’s why the JLTV was to be procured as no simple truck, a point emphasized by all the firms involved. Back in December, Oshkosh’s new CEO Wilson Jones told the Credit Suisse conference that the award had changed how the Pentagon viewed the company, recasting it from commercial truck builder to real “technology leader.” For the buyer in government, reaching beyond simple approaches is essential with most major projects, so military procurement is a challenging job the world over.

The second observation concerns that urge for fairness. Treating contractors with transparent and even-handed processes is pretty arguably the right thing to do, and practically, it’s also being a good customer. Slighted contractors may take their efforts elsewhere; even in the huge American market, they may underinvest in the next big thing. With billions at stake, as Sydney Freedberg wrote a few years ago about an early round with the JLTV, rejected bidders have “little to lose by gumming up the works for everyone else,” even if it slowed down “the already dysfunctional acquisition system even more.” And to be fair, protesting smaller contracts has actually become comparatively rare recently. As Daniel Gordon wrote in the spring 2013 issue of Public Contract Law Journal, it is now “rare for a protestor to win a protest” and “even rarer for a winning protest to go on to obtain the contract”.

But fairness cannot be the overriding concern. Perhaps, if General Dynamics’ protest of the ACV delays a procurement—regardless of whose kit is eventually chosen—then the US Marines will be fine all the same. Perhaps  if they need to land on a beach in the next few years, their current Amphibious Assault Vehicles (AAVs) will still work well. Perhaps those aging trucks will continue to serve the Canadian Army while the tribunal sorts things out. But in that counter-filing in the US, the Army’s JLTV project manager argued that stopping work would “introduce unnecessary and untenable risks” for soldiers and marines. That might seem breathless, but as with the MRAP, every additional month without work on the program is another month with only M-ATVs. They’re very good, but not as mobile. And as much as we’d like to hope that will be enough, today’s defense secretary occasionally talks ominously about more boots on the ground. At a certain point, strategic urgency trumps procedural justice.

James Hasík is a senior fellow at the Brent Scowcroft Center on International Security.