Pentagon cancels $10 billion JEDI cloud contract

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The Department of Defense announced Tuesday that it has canceled a $10 billion cloud contract that has been the subject of a legal battle between Amazon and Microsoft.

The JEDI deal, or Enterprise Defense Shared Infrastructure, has become one of the Department of Defense’s most tangled contracts. In a press release Tuesday, the Pentagon said that “due to evolving requirements, increased cloud conversation, and industrial advancement, the JEDI Cloud contract no longer meets its needs.”

But the struggle over the cloud computing project does not seem to be completely over yet. The Pentagon said in a press release that it still needs enterprise-grade cloud capability and announced a new multi-vendor contract known as Joint Warfighter Cloud Capability. The agency said it plans to solicit offers from both Amazon and Microsoft on the contract, adding that they are the only cloud providers that can meet its needs. But it added that it will continue to do market research to see if others can also meet its specifications.

Microsoft shares fell slightly after the news and Amazon shares barely moved.

The goal of the lucrative JEDI contract was to modernize the Pentagon’s IT operations for services provided over a period of up to 10 years. Microsoft was awarded the cloud computing contract in 2019, overtaking the market leader, Amazon Web Services.

A month later, Amazon’s cloud computing unit filed a lawsuit in the US Court of Federal Claims to protest the JEDI decision.

The company argued that President Donald Trump’s bias against Amazon and its CEO, Jeff Bezos, influenced the Pentagon to award the contract to Microsoft.

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

However, in the 313-page report published in April 2020, the inspector general noted that he had limited cooperation from White House officials throughout the review period and, as a result, was unable to complete his assessment of the allegations of ethical misconduct.

Microsoft said in a blog post that it understood the Pentagon’s decision to cancel the JEDI contract, but said the legal dispute over it illustrates the need for reform.

“The 20 months since the Department of Defense selected Microsoft as its JEDI partner highlights issues that warrant the attention of policymakers: When one company can delay, for years, important technology upgrades for those who defend our nation, the protest process needs to be reformed,” Tony Townes-Whiteley, President of US Regulated Industries at Microsoft, wrote.

Townes-Whiteley added that the DoD decision “does not change the fact that not once, but twice, after careful review by professional procurement staff, DoD has determined that Microsoft and our technology best meet their needs. It does not change the DoD” inspector’s finding General that there is no evidence of interference with the procurement process. And it doesn’t change the fact that the Department of Defense and other federal agencies – in fact, large companies around the world – choose Microsoft to support their cloud computing and digital transformation needs on a regular basis.”

Amazon did not immediately respond to CNBC’s request for comment.

The Department of Defense said that its cloud vendor for the new contract must meet several criteria, such as operating at the three classification levels (ie unclassified, classified or top secret), be available worldwide and have first-class cybersecurity controls.

The agency said it expected the value of the contract to be in the billions, although it was still setting the maximum value. It expects the contract to run for 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 approach in the long run,” acting chief information officer for the Department of Defense John Sherman told reporters Tuesday. He said management expects to realize the direct rewards through the contract around April 2022 and open up broader competition as soon as possible by 2025.

This story is being updated. Check again for updates.

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