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BAE accused of improper conduct in US

Defence company attacked by Congressmen for lobbying politicians after loss of £1.8bn contract

A bitter feud is unfolding in the US over BAE Systems' loss of a big arms contract, amid claims of "improper contact" with US defence officials in a bid to get the decision reversed.

The dispute follows the award of a $3bn (£1.8bn) order for army trucks to one of BAE's rivals, placing a question mark over the long-term future of the company's Texas factory, its biggest outside Britain.

But the affair risks engulfing BAE in a row with the US Defense Department, which has become sensitive to any suggestions that its procurement processes are unfair.

Ten members of Congress wrote a strongly-worded letter to Defense Secretary Robert Gates last week complaining that actions by the "losing bidders" threatened the "integrity of the defence acquisition process".

The politicians support a defence company called Oshkosh, which in late August pulled off a surprise coup by winning an order for up to 23,000 trucks. BAE's plant at Sealy, near Houston, had held the contract for 17 years.

BAE, and another losing bidder, Navistar, complained last month to a US watchdog, the Government Accountability Office (GAO). BAE believes Oshkosh's tender cannot offer "best value" because of its rival's limited track record in making such trucks. The GAO is due to report in December, but Oshkosh is worried about the extent to which the larger BAE is using its political muscle on Capitol Hill to influence the outcome.

BAE's supporters are known to have mounted a vigorous campaign in Washington, spending $2.3m on lobbying so far this year, according to the Center for Responsive Politics. Oshkosh has spent just $180,000.

The Congressmen's letter, which does not mention BAE and Navistar by name, says: "We are concerned with the blatant efforts to affect the outcome of this independent, quasi-judicial review by attempting to raise protest issues through a public media campaign and through improper contact with DoD officials."

The letter continued: "We are also concerned that some have gone so far as requesting that the army provide highly confidential and sensitive source selection materials for their review."

The Congressmen declined requests by The Independent on Sunday for specific details about the alleged impropriety. Oshkosh and Navistar said they would not comment until after the GAO report is published.

BAE denies any wrong-doing, but says the truck procurement process had flaws. "We've been wronged," said a spokesman. "We're compelled to stand up for ourselves. The more we look at this, the more irregularities we find."

The stakes are high. BAE admitted on Wednesday in a Stock Exchange announcement that it could be forced to make a "significant" write-down on the value of a US business, Armor Holdings, if the GAO appeal fails.

As Europe's largest defence company, BAE earns most of its revenues from the US, where the annual $518bn arms budget dwarfs the rest of world's put together. But with US defence spending being squeezed, companies are fighting hard for every contract.