Home News Pentagon Cancels a Disputed $10 Billion Technology Contract

Pentagon Cancels a Disputed $10 Billion Technology Contract

Pentagon Cancels a Disputed $10 Billion Technology Contract

The Defense Department said on Tuesday that it would not go forward with a lucrative cloud-computing contract that had become the subject of a contentious legal battle amid claims of interference by the Trump administration. The Pentagon had warned Congress in January that it might walk away from the contract if a federal court agreed to consider whether former President Donald J. Trump interfered in a process that awarded the $10 billion contract to Microsoft over its tech rival Amazon, saying that the question would result in lengthy litigation and untenable delays. The Defense Department said in a news release on Tuesday that the contract for the Joint Enterprise Defense Infrastructure, known as JEDI, “no longer meets its needs,” but it said it would solicit bids from Amazon and Microsoft on future cloud-computing contracts.

The Pentagon statement made for a quiet end to years of legal wrangling and dueling technology claims over what many considered to be the marquee contract for providing cloud-computing services to the federal government. A senior administration official said that soon after the Biden administration took office, it began a review that quickly concluded that the costly arguments over JEDI had been so long that the system would be outdated as soon as it was deployed. “With the shifting technology environment, it has become clear that the JEDI cloud contract, which has been long delayed, no longer meets the requirements to fill the D.O.D.’s capability gaps,’’ the Pentagon said in an announcement.

Instead, the Pentagon proposed a new cloud architecture called the Joint Warfighter Cloud Capability. And the Pentagon made clear that only Microsoft and Amazon Web Services had the capacity to build it. The Pentagon’s announcement suggested that it would buy technology from both companies, rather than awarding one large contract to a single provider, as it had for JEDI. Security concerns also played a role in the decision to seek cloud services from multiple companies, officials say. Recent breaches of cloud services have made it clear that there are vulnerabilities, and the Pentagon did not want to be dependent on one company for its technology.

The Defense Department’s decision represents a Pyrrhic victory for Amazon, which is the leading provider of commercial cloud-computing services and already has provided services to other parts of the federal government, such as the Central Intelligence Agency. The decision also comes days after Andy Jassy, the former head of Amazon’s cloud business, took over as chief executive from Amazon’s founder, Jeff Bezos. The appointment of Mr. Jassy accentuated the importance of cloud computing to big tech companies, which have built giant data centers all over the world to accommodate new business and government customers.

The 10-year JEDI contract was awarded to Microsoft in 2019 after a fight among Amazon and other tech giants for the deal to modernize the military’s cloud-computing systems. Much of the military operates on outdated computer systems, and the Defense Department has spent billions of dollars trying to modernize those systems while protecting classified material. Although some companies, including the business software company Oracle, lobbied for the Pentagon to break the contract into pieces and award them to multiple suppliers, the Defense Department pressed forward with its plan to use a single cloud provider, believing that would be the most seamless and secure approach.

Because of the size and security requirements of the JEDI contract, Amazon was widely considered the front-runner. When the award fell to Microsoft, Amazon sued to block the contract, arguing that Microsoft did not have the technical capabilities to fulfill the military’s needs and that the process had been biased against Amazon because of Mr. Trump’s repeated criticisms of Mr. Bezos, who also owns The Washington Post. “For Microsoft, this went from a lottery deal to a court nightmare,” said Daniel Ives, the managing director of equity research at Wedbush Securities. Microsoft said that Amazon’s claims of bias lacked evidence and that it was prepared to provide the necessary technology to the military, while the Defense Department said Mr. Trump had not played a role in the decision.

The Washington Post aggressively covered the Trump administration, and Mr. Trump often referred to the newspaper as the “Amazon Washington Post” and accused it of spreading “fake news.” He also said companies besides Amazon should be considered for the JEDI contract, and Amazon argued he had used “improper pressure” to sway the Pentagon as it selected a technology vendor. In April, a federal court said it could not dismiss the possibility Mr. Trump had meddled in the process. The court’s ruling set the stage for the Pentagon, which had argued that the extensive delays surrounding the contract caused national security concerns, to walk away from the contract.

“We understand and agree with the D.O.D.’s decision. Unfortunately, the contract award was not based on the merits of the proposals and instead was the result of outside influence that has no place in government procurement,” said Drew Herdener, a spokesman for Amazon. “We look forward to continuing to support the D.O.D.’s modernization efforts and building solutions that help accomplish their critical missions.” As the Biden administration examined the years-long effort to build a computing cloud, officials said they came to two conclusions: The legal challenges to JEDI could stretch on for years, and the technological concept was already outdated. Agencies that previously were using a single cloud provider — including the C.I.A. — were now looking for multiple providers. Even inside the military, the Army, Navy, Air Force, and other services were already looking at building their own clouds.

“The problem with the JEDI program is that it was a little like trying to sell a hula hoop in the 1980s,” said Mark Testoni, the chief executive of SAP National Security Services, which sells to the military and intelligence agencies. “Everyone was already moving to the cloud. And between the political problems and the technical problems, the only choice was to start again.” In its announcement, the Pentagon said nothing about how long it would take to conceive the newer version or how it would differ from JEDI’s complex structure, which planners took years to put together.

Nor did the Pentagon refer to the growing concerns about the security of cloud services. While such services are generally considered safer than storing data on individual computer servers, some major breaches over the past year have raised new worries about vulnerabilities of software used by both the Pentagon and by defense contractors. “The D.O.D. faced a difficult choice: Continue with what could be a yearslong litigation battle or find another path forward,” Toni Townes-Whitley, Microsoft’s president of U.S. regulated industries, wrote in a blog post responding to the decision. “We stand ready to support the D.O.D. as they work through their next steps and its new cloud computing solicitation plans.”