Why did Navistar pull its JLTV protest? Who knows, but here's what it means.

As I made brief mention yesterday, and as many have noticed in the news, Navistar pulled its short-lived protest of the Joint Light Tactical Vehicle (JLTV) Engineering & Manufacturing Development (EMD) contract award. In response to media queries, Navistar's spokeswoman simply suggested that the decision to file a protest was made hurriedly, as the Army had provided a short deadline. Perhaps it was based on what we might call a NATO standard: Not Altogether Thought Out. All the same, that doesn't fully explain why the protest was lodged at all, and why it was so quickly pulled.

For full disclosure, I must state that I haven't spoken with anyone at Navistar or in the Army Department about this, so I am just speculating. But Navistar did very recently hire a new CEO, Lewis Campbell, a thirty-year veteran of General Motors and Textron, who thus has some experience with industrial customers, and even consumers. It is possible that the protest was filed reflexively, without the involvement of higher headquarters, and that Lewis had to read about it in the newspapers. It is possible that Lewis has brought a new view on doing business, one that doesn't involve the near-equivalent of routinely suing one's customers. For it is reasonable to suggest that this contract protest thing has gotten a bit out of hand.

Back in 2005, I spent some considerable time advising military contractors in the US on whether and how they should lobby regarding possible decisions in the Base Realignment and Closure (BRAC) process. The shift of activities from a base at which a contractor had relatively poor customer relations to one at which it had relatively good customer relations could yield some advantage, so if one could craft a parallel argument for how the customer would benefit, the win-win would merit some marketing. On the other hand, pushing a solution with political authorities that would discomfit the more immediate military customer could come at a cost, albeit intangible.

Naturally, our team (there were several of us) did what quantitatively-oriented consultants do: we built some decision models. Without firm data on the outcomes of the four preceding BRAC rounds, we had insufficient data to guide us, and nothing more than expert opinion for some of our inputs. Modeling without data is scary, but it's a necessity for any manager facing a relatively unknown situation. Knowing this, we concentrated on the sensitivity analysis around those opinions, to see just how good or bad things would need to get to justify taking a stand.

Based on our models, we concluded that the expected payoffs to unwanted lobbying would indeed need to be relatively large to merit the potential loss of goodwill. And that's what I'm suggesting today about Navistar. After all, the company wasn't actually protesting its ejection from the process, as the Army made clear that any previously qualified bidder willing to pay its own way could come along for EMD. What Navistar was protesting was $60 million—the rough size of the individual EMD contracts, and spread over three years at that. They got theirs, the company seemed to say, so we want ours.

Now, all thing being equal, $60 million is better than not $60 million. Or, maybe the company was trying to juice its share price (NYSE:NAV), which had dropped by about eight percent. But in the big scheme of things, for a company like Navistar, $60 million in cash and a possibly transitory share price lift may not be worth a protest that's far from certain to succeed. After a while, even in a relatively transparent and rule-driven procurement process, that orderly military customer, accustomed to actually having his orders followed and his salutes returned, could get a little irritated. In a contracting market, that's really not good.

So I don't know if Lewis called this one back, or exactly what happened, but I commend Navistar on reigning things in. At face value, this looks like good business. There's a place for contract protests, but even if they aren't quite the nuclear option, they do merit sober consideration before one pushes that red button marked "reputation".

Comments

[Jaco van Heerden]

Sir, as far as we can determine Navistar was dropped mainly because of its unresolved legal issues with ATS and pending criminal case in that regard.

A blog has been active since May 2010 and over 30 open and directed letters send to decision-makers and various actions done in the US. As mentioned on this side the US decision-makers may not respond but has surely taken notice.

[James Hasik]

Jacob, I feel your pain. Legal disputes can be trying and irritating, and more so when they're with your customers or alliance partners. But I'm not sure that this particular case, or any case, affected the decision. Just today Navistar received a $282 million order to upgrade 2,300 MaxxPro Dash trucks for better survivability. If the US DoD really didn't want to do business with Navistar, it could have solicited that work from another OEM or from an MRO specialist. If Boeing can put new cockpits in Lockheed-built C-130s, I think that Oshkosh or GDLS could retrofit somebody else's MRAPs.