In December, the congressional Government Accountability Office had upheld protests filed by losing bidders BAE Systems Plc and Navistar International Corp, telling the Army to go back and reevaluate the bids, as well as Navistar's past performance.
In a statement issued late on Friday, the Army said it decided the Oshkosh bid was still the best one in late January, and a peer review conducted by top Pentagon officials subsequently affirmed the Army's decision.
As a result, the Army said it was lifting a stop work order, which would allow Oshkosh to resume work on the trucks.
The five-year contract, which runs through September 30, 2014, covers production of over 23,000 Family of Medium Tactical Vehicles (FMTV), including production of up to 12,415 trucks, 10,926 trailers, and associated services. The total estimated contract value is $3.023 billion.
Defense consultant Jim McAleese said the decision was in line with expectations, and would result in savings for the Army of over $1 billion.
Oshkosh, which is also building all-terrain armored trucks for use in Afghanistan and heavy tactical trucks for the Army, welcomed the news, and said it remained committed to delivering high-quality, high-performing vehicles on time.
Oshkosh surprised analysts when it won the medium truck contract last August, beating out incumbent BAE Systems, which had been making the trucks for the Army for 17 years.
Oshkosh said it was the only current manufacturer of both medium and heavy tactical wheeled vehicles in the U.S. defense industry, and had produced more than 70,000 military-class vehicles in its manufacturing facilities.
Oshkosh's manufacturing facilities have ample production capacity for all current and pending military vehicle programs, including the FMTV and the MRAP All Terrain Vehicle (M-ATV), as well as any surges in production, the company said in a statement.
It said its advanced and integrated assembly line facilities allowed simultaneous production of several different vehicle models and variations.
The company noted that it had exceeded delivery requirements for seven consecutive months on the MRAP-ATV contract, under which it is building thousands of all-terrain vehicles for troops to use in Afghanistan.
No comment was immediately available from BAE Systems or Navistar.
Senator John Cornyn, a Republican from Texas, where BAE builds the current FMTV trucks, called the Army's decision ill-informed.
It would be difficult to think of a worse time to shut down this manufacturing operation, given today's harsh economic climate and our nation's renewed war effort overseas, Cornyn said in a statement.
(Reporting by Andrea Shalal-Esa; Editing by Gary Hill)