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Pentagon's JEDI contract review may lead to award split for Microsoft, Amazon

The U.S. Department of Defense's request to review its decision to award a $10 billion cloud-computing contract to Microsoft Corp. increases the likelihood that the government may split the deal between Microsoft and Amazon Web Services Inc., experts say.

The Defense Department on March 12 requested in a court filing that it be granted 120 days to look into aspects of its award decision on the 10-year Joint Enterprise Defense Infrastructure, which was earlier challenged by AWS.

The Defense Department will review an alleged pricing evaluation error during the procurement process for JEDI, a contract designed to provide an umbrella cloud system for intelligence agencies.

Daniel Ives, an analyst with Wedbush Securities, said in a March 13 note that he expects the reevaluation to result in a split contract between Microsoft and AWS.

"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 wrote.

In a March 13 statement, Microsoft spokesman Frank Shaw said the company believed the contract was awarded properly on its merits, but reviewing the concerns raised in Amazon's court challenge was "the fastest way to resolve all issues and quickly provide the needed modern technology to people across our armed forces."

"We remain confident that Microsoft's proposal was technologically superior, continues to offer the best value, and is the right choice for the DoD," Shaw wrote.

The department's request to reevaluate the JEDI decision could prove fruitful for AWS. The cloud-computing unit of Amazon.com Inc. has been locked in a monthslong legal battle with the Pentagon and Microsoft over allegations that officials were improperly swayed by U.S. President Donald Trump to steer the cloud contract away from Amazon for political reasons. A preliminary injunction was granted Feb. 13 by Judge Patricia E. Campbell-Smith of the Court of Federal Claims.

The DOD may also decide to reopen the bid to multiple contractors, said Michael Hettinger, president and founding principal of government relations firm Hettinger Strategy Group, in an interview. Other firms that competed for the JEDI contract included International Business Machines Corp., Oracle Corp. and Alphabet Inc.'s Google LLC.

"There's also the possibility they could flip it and give [the JEDI contract] to AWS," Hettinger said. "If they flip it and give it to Amazon, Microsoft is going to take the same action that Amazon has been taking for the last six months. I think we're still a ways from being done here."