"Surprised," Says Amazon As Pentagon Awards $10 Billion Deal To Microsoft

The Pentagon awarded its controversial $10 billion cloud computing business to Microsoft Friday evening, spurning a bid from Amazon, which had been expected to win the contract. President Donald Trump had expressed opposition to giving the lucrative award to a company led by Jeff Bezos, a regular target of his ire.

The announcement comes after an intense lobbying effort and a lawsuit filed by some of America's biggest tech companies, who accused the military of favoring Amazon in a process that has dragged on for more than a year. During that time, Trump and other administration officials made it clear that they did not want the contract to go to Amazon. Federal acquisition laws forbid politicians, including the president, from influencing contract awards.

Amazon Web Services, or AWS, pioneered the lucrative cloud computing business more than a decade ago and currently holds a leading 48 percent market share, according to market-research firm Gartner. Microsoft is the second largest with a 15.5 percent share.

The cloud computing contract, known as JEDI, is not only the military's largest information technology contract award in history, but also is expected to lead to other business across the federal government. Amazon was openly described by competitors and industry analysts as a clear front-runner due to its years of experience handling classified data for the CIA. The military also gave the company its highest data management certification. Microsoft's designation was one step below Amazon's.

Few thought Microsoft would beat out Amazon for the massive contract, and legal analysts said the president's role in the procurement will almost certainly become the subject of litigation.

"It's crystal clear here that the President of the United States did not want this contract to be awarded to one of the competitors," said Franklin Turner, an attorney with the law firm McCarter & English. "As a result its fairly likely that we will see a number of challenges that the procurement was not conducted on a level playing field."

"Microsoft should expect a near-term war, here," Turner said. "It's a virtual guarantee that Amazon is going to pull out all the stops to check the government's math on this one."

In a statement announcing the award, the Defense Department said: "The acquisition process was conducted in accordance with applicable laws and regulations."

All parties, the statement said, "were treated fairly and evaluated consistently with the solicitation's stated evaluation criteria."

"We're surprised about this conclusion," Amazon spokesman Drew Herdener said in a statement. "AWS is the clear leader in cloud computing, and a detailed assessment purely on the comparative offerings clearly lead to a different conclusion."

Microsoft spokesman Frank Shaw declined to comment. The company had initially been opposed to the idea of awarding such a massive contract to a single company, arguing such an approach would hamper innovation. "We believe the best approach is one that leverages the innovations of multiple cloud service providers," the company said early last year.

The JEDI contract is the Defense Department's approach to address the outdated, patchwork of computer systems that are frequently specific to an agency. U.S. military officials said earlier this year that the current disjointed approach has hindered the sharing of intelligence and made it difficult for military agencies to adopt artificial intelligence technology.

Rival nations, meanwhile, are investing deeply in those capabilities.

The contract calls for the military to use a technical infrastructure, known as cloud computing, where customers rent services from companies such as Amazon and Microsoft, rather than purchasing the hardware and software to operate in their own data centers. The design of the technology allows customers to tap into massive farms of servers as they need to. And because the tech giants manage the technology, it runs the latest version of software and is thought to have the highest level of security.

Trump has openly spoken out against Amazon and its chief executive. He has attacked the Bezos-owned Washington Post for its coverage of him by conflating it with Amazon's interests. The president has called the news organization the "Amazon Washington Post," while accusing it of publishing "fake news" and being a "lobbyist newspaper" for the company.

A retired Navy commander named Guy Snodgrass, who worked for former Defense Secretary Jim Mattis, alleged in a recently-published book that Trump sought to "screw" Amazon by locking it out of the JEDI contract, and the secretary refused to do so.

Soon after the Pentagon announced early last year that it would award the contract to a single tech company, a group of Amazon competitors that then included Microsoft, Oracle and IBM launched a highly-public lobbying campaign seeking to break the award up into multiple pieces. The Pentagon has refused to budge from its initial strategy for the JEDI contract. In April of last year Oracle co-chief executive Safra Catz brought it up in a dinner with President Trump.

More recently, the campaign against the single-award approach has been led by Oracle. The company's policy organization created a colorful one-page flow chart that featured photographs of Amazon executives as well as other defense officials in charge of the procurement, including Mattis, with the title "A Conspiracy To Create A Ten Year DoD Cloud Monopoly." The graphic, which was labeled "most wanted," later landed on Trump's desk, people familiar with the matter said at the time.

In a news conference in July, Trump said he had asked aides to investigate the JEDI contract because he had received complaints from Amazon's competitors.

"I'm getting tremendous complaints about the contract with the Pentagon and with Amazon. . . . They're saying it wasn't competitively bid," Trump said. "Some of the greatest companies in the world are complaining about it, having to do with Amazon and the Department of Defense, and I will be asking them to look at it very closely to see what's going on."

The president said he had heard complaints from "companies like Microsoft, Oracle and IBM," each of which were initial bidders along with Amazon.

Soon after, he retweeted a link to a Fox News segment that referred to the JEDI contract as the "Bezos bailout."

That same month - after a lawsuit and bid protests against the JEDI contract from Oracle and IBM were dismissed - the deal appeared to be headed in Amazon's favor.

But the White House in late July instructed Defense Secretary Mark Esper to reexamine the awarding of JEDI because of concerns that the deal would go to Amazon, officials close to the decision-making process told The Washington Post. The officials spoke on the condition of anonymity to talk freely about the private conversations.

In an interview with The Washington Post then, Esper acknowledged he had heard from "folks in the administration" about JEDI.

"I'm going to take a hard look at it," he said. "We're not going to be making any decisions soon until I'm comfortable with where it is and . . . then we'll look at what adjustments we need to make, if any."

Esper recused himself from the JEDI procurement process earlier this week, citing a conflict of interest. An IBM spokeswoman told The Post that Esper's son, Luke, "has been a digital strategy consultant with IBM Services since February. His role is unrelated to IBM's pursuit of JEDI."

A person familiar with Amazon's thinking said the company is "evaluating options" with regard to protesting the award. If Amazon filed a protest, the company would first need to raise concerns with the Government Accountability Office. If that agency ruled that the Defense Department award was justified, Amazon could then appeal the matter to the Court of Federal Claims.

Amazon this year chose to build a massive second headquarters, a few miles from the Pentagon's campus.

"Clearly, AWS was perceived as the front-runner to win this deal," said Stifel Nicolaus & Co. analyst Brad Reback. "It's a massively validating event for Microsoft."