I started the bounty quest to kill this fool and opted to use the 1st Recon guys to help. I start following them out to the factory where they set up shop and they instantly start shooting in the quest marker direction. I'm looked everywhere and checked every corpse... Driver Nephi is no where to be found. I checked the markers again and again, went inside the feind base. Nothing.

Is this quest bugged to where he doesn't appear with the group or is he just located somewhere far from the quest marker?

He should be the quest marker. I did this part of the quest (tailored for sniper characters BTW) the very same way and the driver dropped for me just fine.