DoD Awards Massive 'JEDI' Deal To Microsoft Over "Surprised" Amazon

Update (1950ET): Well that didn't take long. Bloomberg reports that Amazon is weighing a legal challenge to the decision due to alleged Trump interference, according to a person familiar with the matter.

As a reminder, President Trump stunned technology companies, the Defense Department, and lawmakers in July when he openly questioned whether the pending contract was being competitively bid amid concerns the deal favored Amazon.

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As we detailed earlier, Jeff Bezos will remember this day for a while...

Not only did Microsoft's Bill Gates overtake him as the richest man in the world, but against the odds-on favorites, Amazon, Microsoft was just awarded a hotly contested contract to provide cloud computing services to the Pentagon, the Defense Department said in a statement on Friday night.

“Today the Department of Defense has taken another step forward in the implementation of our Cloud Strategy with the award of an enterprise general-purpose cloud contract to Microsoft,” the Pentagon said in a statement.

“This continues our strategy of a multi-vendor, multi-cloud environment as the department’s needs are diverse and cannot be met by any single supplier. This contract will address critical and urgent unmet warfighter requirements for modern cloud infrastructure at all three classification levels delivered out to the tactical ed

The Defense Department said the base contract period is two years with a $1 million guarantee.

The department said it “projects that user adoption will drive an estimated $210 million of spending during the two-year base period. The DOD will rigorously review contract performance prior to the exercise of any options.”

Microsoft shares are up 2% after-hours on the news...

The contract - known as the Joint Enterprise Defense Infrastructure (or JEDI) and worth up to $10 billion - was the subject of a major lawsuit by Oracle which accused the Pentagon of favoring rival Amazon Web Services in the procurement process.

In July, the WSJ publicized new evidence showing that senior Amazon executives met with senior DoD officials, including then-Defense Secretary James Mattis, to discuss the project before the bidding even began, while the decision over the program was expected this month. 

Oracle eventually lost out on the project after losing a critical court case against the Pentagon and Amazon, allowing the DoD to move forward with either Amazon or Microsoft. 

And while Amazon shares are down modestly on the news (for now), a loss of government confidence in AWS (which generated $2.2 billion of net income in the first quarter, up 57% year-over-year and representing two thirds of the consolidated total) could be significant.

As a D.C.-based observer told ADG in April:

“The AWS story, as sold to enterprise customers and the Street, is built upon the [C.I.A] reference case and the cash that has come in from that deal.” 

It remains to be seen how Microsoft’s employees will react to this news. Last year, a number of Microsoft employees posted an open letter asking the company not to bid for the contract.

In a written statement, Amazon said it was "surprised" by the decision.

“We’re surprised about this conclusion,”

Amazon “is the clear leader in cloud computing, and a detailed assessment purely on the comparative offerings clearly led 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.”

Did the Trump-Bezos war just escalate?