DoD likely to split JEDI contract between Amazon and Microsoft, analyst says

The Pentagon, the headquarters of the U.S. Department of Defense. (DoD Photo)

Could Amazon and Microsoft end up sharing the Pentagon’s coveted $10 billion JEDI cloud computing contract?

That’s the likely scenario to play out in light of recent legal developments, according to Daniel Ives, a technology analyst with Wedbush Securities.

Wedbush Analyst Daniel Ives. (Wedbush Image)

This week the Department of Defense said it wants to “reconsider certain aspects” of its decision to award Microsoft with the contract, based on technical challenges presented by Amazon’s cloud computing arm.

Amazon Web Services sued the federal government after Microsoft emerged as the surprise winner of the JEDI contract last year. In additional to critiques about Microsoft’s online storage capability, Amazon has claimed that President Donald Trump’s personal animus toward Amazon improperly influenced the outcome of the JEDI competition.

Ives thinks that Amazon has a solid argument, and the Pentagon now faces two options: fight Amazon in court as part of a protracted battle that delays JEDI-related work.

Or, in the scenario he said is “now likely,” the DoD shares the bid between Microsoft and Amazon.

“While initially this was a single source contract, we believe the writing is on the wall that the Pentagon needs to likely break up this contract in order to move it along and start the procurement process given how critical the JEDI deal is to the overall DOD and longer term strategic global military operations/infrastructure,” Ives and Wedbush analyst Ygal Arounian wrote in a research note. “We will be closely watching the Pentagon’s next move to better gauge the process/timing/contract award of JEDI over the coming months to end this standstill.”

The JEDI contract involves overhauling the DoD’s technology infrastructure, allowing different branches of the military to share sensitive information in the cloud, while incorporating artificial intelligence technology. Amazon was considered a favorite to win the contract, which attracted other bidders including Oracle, IBM, and Google.

Speaking to GeekWire via phone on Friday, Ives said he expects the DoD to move the battle out of the courts and greenlight the new deal by late spring time.

“This is not something that can continue to get pushed out,” Ives said. “It’s important that it starts sooner rather than later.”

A federal judge issued a preliminary injunction last month preventing Microsoft and the Pentagon from proceeding with work on the contract pending the outcome of Amazon’s legal challenge.

A Pentagon spokeswoman, Rachel VanJohnson, told the Washington Post this week that the process of evaluating the bids was “fair and unbiased.”

“While we disagree with the Court’s decision, we must address the findings in the Court’s Order with the intent of ensuring our warfighters will get this urgent and critically needed technology as quickly and efficiently as possible,” she said. “As such, the Department determined that the best and most efficient path forward is to conduct a re-evaluation of the proposals in order to address the Court’s noted concerns.”

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