The U.S. Department of Defense has canceled its $ 10 billion JEDI cloud computing project, reversed the Trump-era award to Microsoft Corp, and announced a new contract that will include its rival Amazon and possibly other cloud players becomes.
The contract was coveted less for its dollar value than for its prestige: both companies have been trying for years to convince companies and governments that it is safe to move computing tasks to their data centers. Meeting all of the U.S. military’s security requirements would have been a visible seal of approval that would likely affect other corporate and government customers, analysts said.
It was widely expected that Seattle-based Amazon, the largest cloud computing provider, would win the contract. But when the Pentagon awarded the sole-supplier deal to Microsoft in 2019, the announcement gave “great credibility” to Microsoft, which had worked hard to catch Amazon after a late start with cloud technology, said Mark Moerdler, a senior researcher -Analyst at Bernstein.
However, the contract was suspended after Amazon filed a lawsuit against the decision under then-President Donald Trump alleging the former president put undue pressure on military officials to divert the contract from Amazon.
Trump publicly mocked then Amazon boss Jeff Bezos and repeatedly criticized the company. Amazon said in 2019 that the Pentagon’s decision was full of “egregious errors” allegedly due to “undue pressure from Trump”. The company cited a 2019 book that reported that Trump had ordered the Department of Defense to unscrew “Amazon” from the JEDI contract.
Microsoft and Amazon stocks both closed at record highs, with the online retailer up 4.7% and the software company’s stocks a cent higher.
Michael Pachter, an analyst at Wedbush Securities, said the absolute dollars – $ 10 billion (roughly Rs 74,780 billion) over a decade – are at most a nice-to-have for the cloud companies, with AWS alone having 45, $ 3 billion in sales and Rs 13.5 billion in operating profit for 2020. The value is in demonstrating the safety of the clouds, “but it becomes the needle “for both companies.
But the termination and the new contract could benefit Microsoft, Moerdler said, because the Redmond, Washington-based company had almost two years to invest in its technology during the litigation.
“If there is now another competition, Microsoft comes from a better position,” said Moerdler. Back in September, the Department of Defense re-evaluated the contract proposals, saying Microsoft’s submission was the best.
While the Trump administration wanted a single provider, the Biden administration has announced that it will likely distribute the project to multiple companies. Such a move would align the military more closely with private sector companies, many of whom split their cloud computing work among multiple vendors so as not to be tied to one vendor.
Other top cloud companies include Oracle Corp, Alphabet’s Google, and IBM. Google and IBM announced Tuesday that they were both interested in working with the federal government, but briefly stopped saying whether they would participate in the bidding process.
The Pentagon hopes to receive the first awards for its new Joint Warfighter Cloud Capability (JWCC) by April 2022.
John Sherman, acting chief information officer for the Department of Defense, said he expected both Microsoft and Amazon to receive cloud contracts. He said the need is urgent.
“I have to get this now – as soon as possible – hopefully in April,” said Sherman.
Microsoft said in a statement the company was confident “it will continue to be successful as the DoD selects partners for new work.” Microsoft could make a termination offer to cover the cost of the scrapped project, Sherman said.
Amazon’s cloud unit Amazon Web Services (AWS) agreed to the Pentagon’s decision to terminate the contract. Amazon said the original award was “not based on the values of the proposals, but the result of outside influence that has no place in public procurement.” AWS added that it looks forward to continuing to support the DoD’s modernization efforts and developing solutions that will help complete its critical missions.
In April, a judge refused to reject Amazon’s claims that the Trump administration interfered in awarding the Pentagon to Microsoft after suspending it indefinitely in February 2020.
The now-terminated Joint Enterprise Defense Infrastructure Cloud (JEDI) contract was valued at up to $ 10 billion (approximately Rs. 75 billion) and was part of a broader digital modernization of the Pentagon aimed at making it to make it technologically more agile.
“We don’t have an estimate yet, but I wouldn’t stick to the 10 billion (about 75 billion rupee) figure,” Sherman said, but added that the plan would likely include direct allocation of “much-needed” skills involve and then a “full and open” competition for multiple suppliers until the beginning of 2025.
Republican Senator Chuck Grassley praised the Pentagon’s decision.
“The JEDI contract has been weighed down by potential conflicts of interest, scope, unnecessary delays, and its structure with a single award winner,” said Grassley, saying a new review process “will give the program an opportunity to gain increased public trust and confidence.”
© Thomson Reuters 2021