Microsoft to Expand Pentagon Ties With $10 Billion JEDI Contract

Microsoft Corp. said its seeking to expand its partnership with the Pentagon after winning the sought-after JEDI cloud-computing contract valued at as much as $10 billion over a decade, dealing a blow to the market leader Amazon.com Inc.
The decision, which was announced by the Defense Department late Oct. 25, may be challenged by Amazon, which was the front-runner, according to a person familiar with the matter, because President Donald Trump weighed in on the bidding process. The terms of the competition were also hotly contested by another rival, Oracle Corp.

The Pentagon has said the cloud project, known as the Joint Enterprise Defense Infrastructure, or JEDI, is intended to help bring American military technology into the modern era.

“We look forward to expanding our longstanding partnership with DoD,” Microsofts U.S. Regulated Industries President Toni Townes-Whitley said in a statement, calling the evaluation process rigorous.

The Defense Department is investing in commercial cloud services, which host computing power and storage in remote data centers, to improve data security and speed up real-time sharing of information across the military.

The Pentagon said the contract was expected to be completed by 2029.

Amazon, which won a lucrative cloud contract with the Central Intelligence Agency in 2013, was long seen to have the upper hand in the competition. But politics entered the picture. Trump has long been at odds with Amazons Chief Executive Officer Jeff Bezos. Bezos also owns the Washington Post, which Trump claims has treated him unfairly in its coverage

“Were surprised about this conclusion,” said Douglas Stone, an Amazon spokesman. He added that the company was “the clear leader in cloud computing, and a detailed assessment purely on the comparative offerings clearly lead to a different conclusion. We remain deeply committed to continuing to innovate for the new digital battlefield where security, efficiency, resiliency, and scalability of resources can be the difference between success and failure.”

Trump surprised the industry earlier this year when he openly questioned whether the contract was being competitively bid.

A new book by Guy Snodgrass, a speechwriter to former Defense Secretary Jim Mattis, alleges that Trump, in the summer of 2018, told Mattis to “screw Amazon” and lock it out of the bid. Mattis didnt do what Trump asked, Snodgrass wrote. Mattis has criticized the book.

Amazon was believed to be the front-runner until late Oct. 25.

The decision is a big boost for Microsofts cloud business.

“This is a paradigm changer for Microsoft,” said Daniel Ives, an analyst at Wedbush Securities who has a “buy” rating on Microsoft. “Its a landmark win that will change the cloud computing battle over the next decade. Its a shocker to Amazon and Bezos to lose it. But for Microsoft, it signals a new era of growth in cloud. This adds $10 to the stock in my opinion.”

The White House did not respond to a request for comment.

Amazon Web Services, the retail giants cloud computing arm, has a wide lead in the business of selling cloud services to businesses and governments, with $32.5 billion in sales during the most recently reported 12 months. Microsoft, which doesnt break out comparable sales for its Azure unit, likely pulled in a fraction of that, analysts say.

In a statement released late Oct. 25, the Defense Department said that “the acquisition process was conducted in accordance with applicable laws and regulations. The process cleared review by” the U.S. General Accounting Office and the Court of Federal Claims.

“All offerors were treated fairly and evaluated consistently with the solicitations stated evaluation criteria,” the department added, saying that “additional contracts are planned for both cloud services and complimentary migration and integration solutions necessary to achieve effective cloud adoption.”

The Pentagons inspector general said in a separate statement late on Oct. 25 that it had “not found evidence that we believe would prevent the DoD from making a decision about the award of the contract.” The watchdog agency, which was leading a review by a “multidisciplinary team of auditors, investigators, and attorneys,” was aiming to have its work done by the end of November.

The Defense Department had come under criticism for its handling of the winner-take-all project, which was marred by accusations of improper ties between former Pentagon officials and Amazon. Oracle and International Business Machines Corp. waged a fierce lobbying and legal campaign over the decision to choose just one provider, arguing it would imperil the Pentagons data and stifle innovation. Both companies were later eliminated from the competition, but Oracle filed suit.

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