HUNTER engineering company Varley Group is angry at being cut out of a five-year contract to build hundreds of heavy truck bodies for the army.
Defence Materiel Minister Mike Kelly says there is nothing he can do as long as the German head contractor maintains the required 35 per cent Australian content in the $1.6 billion job.
But opposition defence spokesman Senator David Johnston and Paterson MP Bob Baldwin have vowed to get to the bottom of the controversy, saying Varley has been badly treated by the German contractor Rheinmetall AG.
They were joined by state Newcastle MP Tim Owen, who said he had been told "across the table" by Rheinmetall about two months ago that Varley had the contract.
"They were telling us how Varley was an integral part of their operation in Australia," Mr Owen said.
Rheinmetall spokeswoman Hannelore Duczek said the winning subcontractor was an Australian company that would be doing the assembly work in Australia.
"We are still in the final stages of the selection process and under the preferred bidder arrangements another Australian company is number one and Varley is number two, and is still in the game."
She said Rheinmetall would meet the Australian content requirements.
But Mr Baldwin disputed this, saying he believed Rheinmetall had given the work to an English company, Marshall Vehicle Engineering, which was using a Melbourne defence and security supplier, Tectonica.
Rheinmetall announced its contract win on July 23, saying it and Germany's MAN Truck and Bus AG would work with "local (Australian) partner companies" to supply "an extensive fleet of advanced logistical vehicles".
It said it had beaten rival bids from top European and American competitors.
Varley managing director Jeff Phillips said his company had worked with Rheinmetall for more than a year and believed it won the right to supply specialist bodies for 600 trucks in the 2500-truck contract.
He said Varley was already supplying vehicle bodies to the army in a separate contract to replace light vehicles such as Land Rovers.
"But something has changed since the contract was announced and it looks like we've been cut out," Mr Phillips said.
The contract was worth tens of millions of dollars and would have created 75 jobs for five years.
Senator Johnston said Labor could not wash its hands of the controversy, as the government would know "down to the last nut and bolt" where its money was going.
But Mr Kelly, who will be defence minister should Labor win the election, said it was commonplace for subcontract details to be worked out after the head contract was signed.