Microsoft Wins $10 Billion Pentagon Contract

Ruben Fields
February 22, 2020

The Pentagon has awarded a $10bn (£8bn) cloud-computing contract to Microsoft, following a heavily scrutinised bidding process in which Amazon had been seen as the favourite. "This award is an important step in execution of the Digital Modernisation Strategy".

Microsoft beat out Amazon in the final round for this lucrative contract after the two cloud giants beat out other competitors like IBM and Oracle in an earlier round.

The decision, which was announced by the Defense Department late Friday, may be challenged by Amazon, according to a person familiar with the matter, because President Donald Trump weighed in on the bidding process. While that contract is now under protest, whoever wins will be delivering Microsoft 365 email and applications to the DOD.

The latter statement appeared created to address previous criticism about awarding such a large deal to one company. There has been, and undoubtedly will be more, speculation that President Trump influenced the decision through public comments about it in recent months.

This week, U.S. Defense Secretary Mark Esper removed himself from reviewing the deal due to his adult son's employment with one of the original contract applicants, IBM Corp IBM.N .

Amazon was considered the lead contender to provide technology for the JEDI program but critics argued that the bidding process favored the Seattle-based technology titan. "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".

The Department of Defense wants to replace its ageing computer networks with a single cloud system.

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Deasy also said the DOD "continues to assess and pursue various cloud contracting opportunities to diversify the capabilities of the DoD Enterprise Cloud Environment".

With the contract being victor take all, Microsoft has found itself to be the new backbone of the U.S Defense Department and its investments in its cloud platform is continuing to pay dividends.

JEDI was controversial from the word go, with many technology experts in and around government raising concerns that a single cloud was risky for a variety of reasons.

The announcement marked the end of a long process that had pitted tech giants Microsoft, Amazon, Oracle and IBM against each other. Oracle and IBM unsuccessfully sued to block the award. That lawsuit led to the revelations that in fact some individuals did have potential organizational conflicts of interest however a judge, a DOD review and an inspector general review agreed that the solicitation was not tainted by internal ties to outside vendors.

What is interesting here is not just the size, nor that President Trump had said he was considering getting involved.

This figure, along with the margin contraction in the retail business in the wake of increased investment, helps explain the negative stock reaction to Amazon's quarterly report.

Trump surprised the industry earlier this year when he openly questioned whether the contract was being competitively bid. Great companies are complaining about it.

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