The Department of Defense announced Tuesday that it is canceling the $ 10 billion cloud contract that has been the subject of a legal battle between Amazon and Microsoft. But it is also announcing a new contract and soliciting suggestions from both cloud service providers, where both will likely get a reward.
The Joint Enterprise Defense Infrastructure (JEDI) deal has become one of the most tangled contracts for the Department of Defense. In a press release on Tuesday, the Pentagon said that “the JEDI cloud contract no longer meets its requirements due to evolving requirements, increased cloud capabilities and advances in the industry.”
Microsoft stocks lost about 0.4% after the news and Amazon stocks rose 3.5% after hitting a 52-week high.
The battle for a cloud computing project doesn’t seem to be over yet. The Pentagon said in the press release that it continues to need enterprise-level cloud capabilities and announced a new multi-vendor contract known as the Joint Warfighter Cloud Capability.
The agency said it plans to seek proposals for the contract from both Amazon and Microsoft, adding that they are the only cloud service providers that can meet their needs. But, it added, it will continue to do market research to see if others could meet its specifications as well.
The lucrative JEDI contract was intended to modernize the IT operations of the Pentagon for services provided for up to 10 years. Microsoft received the cloud computing contract in 2019, beating the market leader Amazon Web Services.
A month later, Amazon’s cloud computing unit AWS filed a lawsuit in the US federal court to protest the JEDI decision.
The company argued that President Donald Trump’s bias towards Amazon and its then CEO Jeff Bezos influenced the Pentagon to give the contract to Microsoft.
Last year the Pentagon Inspector General released a report that the award did not appear to have been influenced by the White House.
However, the Inspector General noted in the 313-page report released in April 2020 that he had had limited cooperation with White House officials throughout his review and was therefore unable to complete his assessment of the ethical misconduct allegations.
Microsoft said in a blog post on Tuesday it understood the Pentagon’s decision to terminate the JEDI contract, but said the litigation over it showed the need for reform.
“The 20 months since the DoD selected Microsoft as a JEDI partner highlight issues that deserve policymakers’ attention: If a company can postpone critical technology upgrades for those who defend our nation for years, the protest process must reformed, “said Toni Townes-Whitley, president of US Regulated Industries at Microsoft, wrote.
Townes-Whitley added that the DoD’s decision “does nothing to change the fact that, after careful review by professional procurement personnel, the DoD decided that Microsoft and our technology best met their needs, not just once, but twice. The Inspector General’s finding that there has been no evidence of interference in the procurement process and does not change the fact that the DoD and other federal agencies – large corporations, in fact, around the world – select Microsoft to meet their cloud computing and digital transformation needs on a regular basis. “
Amazon did not immediately respond to CNBC’s request for comment.
A Pentagon official said on a call with reporters that the litigation itself is not necessarily the main reason for the change in approach. Given that the landscape had changed in the meantime, the agency found that their needs had changed too.
“Mission needs were our primary reason for doing this,” said John Sherman, DoD deputy chief information officer.
The DoD said that for the new contract, its cloud provider must meet several criteria, such as working at all three classification levels (i.e. unclassified, secret or top secret), available worldwide, and having top-notch cybersecurity controls.
The agency said it anticipates the new contract value will be billions, although it is still setting the maximum. The contract should last up to five years, including a three-year performance base period and two one-year option periods.
The Pentagon expects the JWCC “to be a bridge to our longer-term approach,” said Sherman. He said the department expects to see the direct rewards from the contract around April 2022 and open wider competition as early as 2025.
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