Nov. 3 (Bloomberg) -- BAE Systems Plc has yet to receive about $245 million in payments from the U.S. Army because the largest European defense contractor is late on delivering tactical trucks or hasn’t completed upgrades of an improved model, according to service officials and data.

The Army is withholding about $123 million in payments on 1,159 Family of Medium Tactical Vehicle trucks that are about two months behind schedule, Kevin Fahey, the official overseeing the purchase, said in an Oct. 22 e-mailed statement that the Army said was still accurate as of yesterday. The rest of the unpaid money is for 1,075 of another batch of 4,393 vehicles on which BAE encountered “challenges” in adding a new bomb- resistant cab, Fahey said.

BAE’s Land and Armaments unit, based in Rockville, Maryland, makes the FMTV trucks at a plant in Sealy, Texas. BAE started falling behind on deliveries in the summer of 2008, the U.S. Government Accountability Office told Congress on Aug. 13.

The Army put BAE on contract in April 2008 to start building trucks with a new bomb-resistant armored cab as part of its long-term armor strategy, as well as a new fuel-tank fire suppression system.

“They struggled through it a little” in meeting the new requirements, including engineering and testing issues with the new cab, Fahey said in an Oct. 6 interview. While Army officials weren’t pleased, BAE “tends to be a good contractor in terms of being responsive,” he said.

“When we incorporated the new design we had some production issues,” BAE executive Linda Hudson said in an Oct. 6 interview. “These were the same kinds of problems you always encounter when you introduce a design change,” said Hudson, who last week was promoted to chief of BAE’s U.S. operations from president of the Land and Armaments unit.

Deliveries

BAE Systems since April has delivered 4,623 trucks with new fortified cabs, many of which are being sent to Afghanistan. That’s about 200 more than the number still waiting completion at the Sealy facility.

Some of the money hasn’t been received because trucks “are just awaiting shipping instructions,” Chris Chambers, BAE’s vice president and general manager of its Sealy plant, said in an Oct. 20 interview. Payment has also been withheld for paperwork and contractual issues in order to come up with a final price, he said.

“BAE has not been paid for the trucks that it has not delivered yet,” Chambers said. “By the end of this year we will be back on schedule.”

Separately, BAE in August lost a $2.7 billion FMTV follow- on contract for about 23,000 trucks to Oshkosh Corp. and is protesting the award. The GAO is set to rule on the protest by Dec. 14.

To contact the reporters on this story: Tony Capaccio in Washington at acapaccio@bloomberg; Gopal Ratnam in Washington at gratnam1@bloomberg.net.

Last Updated: November 3, 2009 09:21 EST