Tuesday, December 1

Pentagon says it will stick with Microsoft for $10 billion JEDI cloud contract

President Donald Trump speaks with Satya Nadella, Chief Executive Officer of Microsoft, and Jeff Bezos, Chief Executive Officer of Amazon during an American Technology Council roundtable in the State Dinning Room at the White House in Washington on June 19, 2017.
The Pentagon said Friday it will stick with Microsoft for a major cloud contract that has been disputed in court for months.The JEDI, or Joint Enterprise Defense Infrastructure, deal has become one of the most hotly contested contracts for the Department of Defense. The contract is intended to modernize the Pentagon’s colossal IT infrastructure and could be valued up to $10 billion for services rendered over as many as 10 years.

“The Department has completed its comprehensive re-evaluation of the JEDI Cloud proposals and determined that Microsoft’s proposal continues to represent the best value to the Government,” the Pentagon said in a statement. “The JEDI Cloud contract is a firm-fixed-price, indefinite-delivery/indefinite-quantity contract that will make a full range of cloud computing services available to the DoD. While contract performance will not begin immediately due to the Preliminary Injunction Order issued by the Court of Federal Claims on February 13, 2020, DoD is eager to begin delivering this capability to our men and women in uniform.”

The outcome represents a loss for Amazon, which challenge the award of the contract after the Pentagon gave it to Microsoft in October.

Amazon said in a scathing blog post Friday that it will continue to seek a review of the situation and that the Pentagon’s re-evaluation of the companies’ proposals simply validated the original decision to go with Microsoft.

“On JEDI, President Trump reportedly ordered former Secretary Mattis to ‘screw’ Amazon, blatantly interfered in an active procurement, directed his subordinate to conduct an unorthodox ‘review’ prior to a contract award announcement and then stonewalled an investigation into his own political interference,” Amazon wrote.

“While corrective action can be used to efficiently resolve protests, in reality, this corrective action changed nothing, wasted five months that could have been spent getting to the bottom of these serious concerns, and was designed solely to distract from our broader concerns and reaffirm a decision that was corrupted by the President’s self-interest.”

Microsoft shares briefly moved higher during Friday’s trading session following the announcement before closing down 1.4% for the day in a mostly down day for tech stocks.

“We appreciate that after careful review, the DoD confirmed that we offered the right technology and the best value. We’re ready to get to work and make sure that those who serve our country have access to this much needed technology,” a Microsoft spokesperson told CNBC in an email.

In November, Amazon Web Services, Amazon’s cloud computing unit, filed a lawsuit in the Court of Federal Claims protesting the JEDI decision. The company argued that President Donald Trump’s bias against Amazon and its CEO, Jeff Bezos, influenced the Pentagon to give the contract to Microsoft. Amid the legal battle, the Pentagon invited Amazon and Microsoft to revise and resubmit their proposals for the contract. A Justice Department representative was not immediately available for comment following the Pentagon’s statement.

Today’s decision could lead to more legal wrangling.

The lucrative contract, originally scheduled to be awarded in September 2018, drew scrutiny after Trump said last year that he was seriously considering taking a look at the JEDI contract.

“I never had something where more people are complaining,” Trump told reporters at the White House in July 2019. “Some of the greatest companies in the world are complaining about it,” he added, naming IBM, Microsoft and Oracle. The White House declined to comment.

Trump’s potential influence over the deal came into focus when a book charting then-Defense Secretary James Mattis’ tenure at the Pentagon claimed the president told Mattis to “screw Amazon” out of the contract.

The billionaire executive, who owns the Washington Post, has become a source of frustration for Trump. The president regularly criticizes the publication for its coverage of his administration. Trump has also gone after Amazon repeatedly for, as he claims, not paying its fair share of taxes and ripping off the U.S. Post Office.

Earlier this year, the Pentagon’s inspector general released a report saying that the award did not appear to be influenced by the White House.

However, the inspector general noted in its 313-page April report that it had limited cooperation from White House officials throughout its review and, as a result, it could not complete its assessment of allegations of ethical misconduct.

At the time, Department of Defense spokesperson Lt. Col. Robert Carver told CNBC in a statement that the inspector general’s report confirmed the Pentagon’s JEDI cloud procurement process was conducted “fairly and in accordance with the law.”

An AWS spokesperson suggested at the time that the report did not reveal all that much.

“It’s clear that this report couldn’t assess political interference because several DoD witnesses were instructed by the White House not to answer the IG’s questions about communications between the White House and DoD officials,” the spokesperson wrote in an email to CNBC. “The White House’s refusal to cooperate with the IG’s investigation is yet another blatant attempt to avoid a meaningful and transparent review of the JEDI contract award.”

In December, Amazon’s AWS chief Andy Jassy told CNBC that the cloud contracting was not adjudicated fairly.

“You know, there was significant political interference here,” Jassy said of the JEDI award in a conversation with CNBC’s Jon Fortt. “When you have a sitting president who’s willing to be very vocal that they dislike a company and the CEO of that company, it makes it difficult for government agencies, including the DoD to make objective decisions without fear of reprisal. And I think that’s dangerous and risky for our country.”

Credit: CNBC

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