Pentagon awards $10 billion cloud contract to Microsoft over Amazon

The Pentagon announced Friday that it has awarded its $10 billion "war cloud" computing contract to Microsoft over rival Amazon.

The announcement from the Department of Defense (DOD) marked a surprising turn of events — for months, Amazon was viewed as the favorite to win the contract amid an increasingly political lobbying battle.

The Pentagon said that awarding Microsoft the Joint Enterprise Defense Infrastructure contract (JEDI) "continues our strategy of a multi-vendor, multi-cloud environment," adding that "the department’s needs are diverse and cannot be met by any single supplier."

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"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 contract will address critical and urgent unmet warfighter requirements for modern cloud infrastructure at all three classification levels delivered out to the tactical edge."

The JEDI contract will allow Microsoft to develop cloud-computing infrastructure for the U.S. military for up to 10 years, ending in October 2029, though it begins at only two. The deal could adds at least $10 per share to Microsoft's stock, and bolsters its position in the multi-billion dollar cloud-computing "wars."

For months, analysts and experts said Amazon was the obvious front-runner for the highly contested contract because its lucrative cloud computing arm, Amazon Web Services, is likely best equipped to meet the standards necessary to store the DOD's top-secret and classified data. The military has designated Amazon Web Services with the highest data management certification possible. 

But the intense political battle around the JEDI contract turned up a notch in July, when President TrumpDonald John TrumpFive takeaways from the Democratic debate As Buttigieg rises, Biden is still the target Leading Democrats largely pull punches at debate MORE called on the DOD to look "very closely" at whether the contract was written specifically for Amazon.

"I’m getting tremendous complaints about the contract with the Pentagon and with Amazon," Trump said at the time. "They’re saying it wasn’t competitively bid." 

Shortly after, the newly appointed Pentagon chief Mark EsperMark EsperPentagon chief: US giving Vietnam surplus ship for coast guard Talks stall on defense costs with South Korea Overnight Defense — Presented by Boeing — Stopgap spending bill includes military pay raise | Schumer presses Pentagon to protect impeachment witnesses | US ends civil-nuclear waiver in Iran MORE ordered a review into the contract, which had delayed the award of JEDI for several months.

Earlier this week, Esper recused himself from the process due to his son’s employment with one of the companies that sought the deal.

Over the past several months, a stream of Republican lawmakers have sent dueling letters to the DOD and White House urging them to delay the contract over the Amazon bias allegations, while others urged against delaying the contract any further.

Oracle, a smaller cloud-computing company, has acted as the prime JEDI antagonist, taking the DOD to court over claims that the cloud-computing procurement process was unfair and biased. A federal judge dismissed Oracle's claims over the summer, saying the company did not provide proper evidence. And multiple government investigations have cleared the DOD of the allegations.

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Still, concerns around JEDI have persisted, as lawmakers and advisers to Trump have raised the issue with the president. In August, the Defense Department's inspector general announced that it was looking into "matters related to" JEDI, which were referred to the office by "members of Congress and through the DOD hotline."

A speechwriter for former Defense Secretary Jim Mattis this week alleged that Trump wanted to "screw" Amazon by giving the contract to another company, according to an excerpt of his upcoming book published by The Washington Post this week. Trump regularly attacks Amazon founder Jeff BezosJeffrey (Jeff) Preston BezosHillicon Valley: Google to limit political ad targeting | Senators scrutinize self-driving car safety | Trump to 'look at' Apple tariff exemption | Progressive lawmakers call for surveillance reforms | House panel advances telecom bills Democrats raise privacy concerns over Amazon home security system Jeff Bezos: I'd 'rather govern than run' MORE, who owns The Washington Post, a paper Trump accuses of being biased against him. 

Daniel Ives, an equity analyst with Wedbush Securities, on Friday night said he "fully expect[s] Amazon and others to challenge this decision in the courts." 

Microsoft is a top government contractor and provides technology across a range of sectors, including the defense and intelligence communities. The company did not immediately respond to a request for comment on Friday.

"We're surprised about this conclusion," an Amazon Web Services spokesperson said in a statement on Friday night. "AWS is the clear leader in cloud computing and a detailed assessment purely on the comparative offerings clearly lead 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," the spokesman added.

The Defense Department said in its description of the contract on Friday that it will "provide enterprise level, commercial Infrastructure" to "support Department of Defense business and mission operations."

“The National Defense Strategy dictates that we must improve the speed and effectiveness with which we develop and deploy modernized technical capabilities to our women and men in uniform,” DOD Chief Information Officer Dana Deasy said.

“The DOD Digital Modernization Strategy was created to support this imperative. This award is an important step in execution of the Digital Modernization Strategy." 

The contract is expected to supercharge DOD's war capabilities, including on the battlefield. 

"Ultimately, this is a paradigm changer for Microsoft ... to be declared victor in this hard fought technology/K Street battle that took place over the last year," Ives wrote.

Tal Axelrod contributed