Well from what I know the Army did want the AR-15 to start with (remember they had M16 A1s) but Colt was not prepared to allow local licensed manufacture and yes they were expensive. There was also the question of the Government of the day and the fact that they were an American product. The Steyer is technically advanced and has some nice features but it has fiddly small parts (seen the piston and gas adjuster!) and oddities like the sling swivel mount which holds the but pad and trigger mechanism in-place. It is one thing to shoot something on the range and another to look after it in the field. Apparently it is not that popular with many of the troops (probably those who have used ARs).
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