Microsoft Beats Amazon For $10B Pentagon JEDI Contract

So much for the idea that the JEDI program was set up for Amazon.

The U.S. Department of Defense has picked Microsoft to build a cloud storage system for the military under a 10-year, fixed-price contract that could be worth up to $10 billion.

The decision comes after a bidding process that has been dogged by controversy, with Oracle, which was eliminated from contending, filing an ultimately fruitless court challenge, alleging that the contract had been tailored for Amazon.

Amazon Web Services had been considered the favorite to win the contract due to its cloud work for the CIA and its commanding share of the cloud services market.

The Joint Enterprise Defense Infrastructure program is meant to replace the U.S. military’s poorly integrated, aged computer networks and clouds with a single cloud system that would encompass all networked assets, from soldiers on the ground to all of its combat aircraft and naval vessels.

The win could add $10 in value to Microsoft shares, Wedbush analyst Daniel Ives said in a client note, and is an indicator of Microsoft’s healthy chances in its competition with Amazon for the $1 trillion in cloud services spending the research firm expects over the next decade. “This is a game changer deal for Microsoft to win as this will have a ripple effect for the company's cloud business for years to come,” he wrote.

An Amazon spokesman declined to address whether the company would protest the award. “We’re surprised about this conclusion,” he said. “AWS is the clear leader in cloud computing, and a detailed assessment purely on the comparative offerings clearly lead to a different conclusion.”

Since the contract is being awarded in segments, Amazon isn’t out of the game, says Daniel Gouré, a vice president at the Lexington Institute, a Washington, D.C., defense think tank. “The Pentagon could go with a second source down the road once they're comfortable.”

In early August, the Department of Defense said it was holding up the award for review by the newly confirmed Secretary of Defense, Mark Esper, weeks after President Trump had publicly expressed concern over complaints by competitors that the bid was rigged for Amazon. Trump’s interest in the contract raised eyebrows given his frequent attacks on Amazon CEO Jeff Bezos, who also owns The Washington Post.

Some critics had warned that it could be a security risk to have a single cloud provider for all branches of the military as well as the CIA.

In late August, Microsoft was one of the winners of a lower-profile defense cloud contract: the Defense Enterprise Office Solutions program, or DEOS. The DoD and the General Services Administration awarded the $7.6 billion contract to a team led by General Dynamics to provide word processing and spreadsheets, email and file sharing through Microsoft Office 365 products hosted on its Azure cloud.

After a protest by the losing bidder, the GSA said earlier this month that it would revise the contract, but both the contenders’ bids were based on Office 365.

“Instead of Amazon being the huge 10,000-pound gorilla at the Pentagon, maybe it'll be Microsoft,” says Gouré.

IBM and Oracle were eliminated from bidding for JEDI in April by the DoD, which judged they were unable to meet its Impact Level 6 security requirements for the military’s most sensitive data. Google dropped out of the running last year after months of protests by employees who wanted the company to stop doing defense work.

It’s possible that Microsoft could meet with similar opposition from its workers after the surprise JEDI victory. In February, a group of Microsoft employees called for the company to drop an $840 million contract to adapt HoloLens augmented reality technology for use by the U.S. Army.

Source: Jeremy Bogaisky
https://www.forbes.com
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