- Amazon lost a contract worth as much as $10 billion to provide cloud services to the Department of Defense when the Pentagon selected Microsoft as the winner last week.
- Amazon still hasn't said whether it plans to challenge the loss, though most experts agree that it probably will. In the aftermath of the initial announcement, a person familiar with the matter said the company was "evaluating options."
- Amazon generally has two options to protest the decision: file a formal protest or file a legal claim through the federal court system.
- Experts say Amazon might have a case if it could prove political interference unfairly affected the outcome of the bidding process — particularly given that an upcoming book makes the claim that President Donald Trump ordered former Defense Secretary James Mattis to "screw Amazon" out of the JEDI contract.
- By the same token, though, Amazon may choose to let it slide: While JEDI is expected to be worth $10 billion over 10 years, its minimum guaranteed payout is a relatively meager $1 million over two years. Amazon may decide it's not worth fighting for a deal that doesn't meaningfully affect its business.
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Experts expect Amazon to act quickly to challenge its stunning defeat by Microsoft in the battle for a major Pentagon cloud-computing contract — and President Donald Trump's reported attempt to interfere in the bidding process could give the company a compelling case.
Amazon Web Services is "still evaluating options," a person familiar with the matter said in the aftermath of the award of the $10 billion Joint Enterprise Defense Infrastructure (JEDI) contract. Under the terms of the deal, the Department of Defense will move sensitive information to the Microsoft cloud.
The decision was a major upset for Amazon, which was considered the front-runner for the contract because of its dominant position in the market, high security clearance, and existing relationship with the CIA.
Many in and around the cloud-computing industry expect Amazon to challenge the decision. And the political circumstances around the deal might just give it the perfect case that the award to Microsoft should be revisited.
Trump is known not to be a fan of Amazon and CEO Jeff Bezos, who owns The Washington Post — which has published coverage critical of the president. Trump wanted to "scuttle" the bidding process for JEDI, according to CNN, and is said to have ordered then-Defense Secretary James Mattis to "screw Amazon" out of the deal.
It's no sure thing — especially considering that experts previously told Business Insider that Microsoft likely won the JEDI deal on its own merits as a cloud heavyweight. But if Amazon could demonstrate the possibility that politics, not technology, were a driving factor in the decision, it could very well rain on Microsoft's parade.
Amazon's options
Amazon has two primary options if it wants to challenge the Pentagon's decision.
The first is to file a protest with the Government Accountability Office (GAO), the federal agency that provides auditing services for Congress.
Amazon can request a debriefing with the Department of Defense over the JEDI decision-making process. Once that's accomplished — and it may have already happened, though it's not clear — Amazon has 10 days to file a protest with the GAO. If Amazon chooses, it could take advantage of its right to request "enhanced debriefing procedures," which would force an automatic pause on the whole process for as many as 100 days.
However, some, including the Bloomberg Government analyst Christopher Comilie, expect Amazon to skip over the GAO and go directly to the second option: challenging the JEDI decision through the Court of Federal Claims, the federal court that hears monetary claims against the US government, including claims related to contracts.
"Given some of the president's past statements about Amazon and the recent revelations in the Snodgrass memoir about a plan, 'screw Bezos,' Amazon might decide they have a better chance in the Court of Federal Claims," Comilie told Business Insider, referring to the upcoming book by Guy Snodgrass.
Potential outcomes
Steven Schooner, a professor at George Washington University specializing in government-procurement law, said that the company could likely make a reasonable claim that political interference derailed the Pentagon's ability to conduct a fair bidding process consistent with federal law.
"Frankly, there's not much precedent for the president placing a thumb on the scale on a procurement of this magnitude," Schooner wrote in an email to Business Insider.
"Common sense suggests that a judge could easily conclude that government officials were unable to exercise independent judgment in selecting Microsoft if Amazon can demonstrate, as a matter of fact, that president clearly directed DOD officials to ensure that Amazon not be fairly considered or awarded the contract," he said.
Still, winning a case on the basis of improper influence is difficult, Schooner said. Amazon would not only have to prove political pressure was applied to the process but also that the pressure actually affected the outcome, he said. Department of Defense Chief Information Officer Dana Deasy already told a Senate committee that this wasn't the case, Bloomberg reported.
"Conventional wisdom suggests that Amazon will protest, and they have a strong case in light of the president's inappropriate and improvident public comments on the subject," he said. "That's not an outrageous position, but this is by no means a slam dunk."
Indeed, there's already some precedent here during the JEDI saga.
Earlier, Oracle challenged the JEDI bidding process in the Federal Court of Claims, arguing it was "riddled with improprieties" that largely favored Amazon — including undisclosed employment and bonus offers to Department of Defense officials — and that the Pentagon set unfair criteria.
A federal-claims judge ultimately rejected Oracle's protest and denied the company's bid to be reconsidered for the contract, finding "individual conflicts of interest did not impact the procurement." Which is to say, the judge in the case acknowledged that there were conflicts but found that they didn't unfairly tilt the playing field.
Amazon could find itself having to climb a similar hill, with similar results.
Is it worth it?
Assuming Amazon does prove its case, a number of things could happen. In an absolute best-case scenario, AWS could end up with the JEDI contract — though Microsoft would likely not let that happen without a fight.
At the bare minimum, it could recoup any cost involved with bidding on the deal from the DOD. Schooner also said the DOD might opt to leave JEDI in Microsoft's hands but try to appease Amazon by making a separate award for a different project, which would have the benefit of not slowing the wheels.
But not everyone agrees Amazon has enough incentive to challenge the decision.
While the JEDI contract has the potential to be $10 billion over 10 years, the minimum guarantee is for two years and $1 million. The Department of Defense has the option to renew the contract three times and has said it would "rigorously review contract performance" before exercising any of those options.
That gives it the legal wiggle room to move to Amazon midproject, in the event that Microsoft finds itself unable to fulfill the terms of the contract. That's an unlikely turn of events but possible, given that Amazon Web Services holds a higher security clearance level than Microsoft.
Besides, as experts previously told Business Insider, while the JEDI contract would have been a nice feather in Amazon's cap, losing the deal is unlikely to have a material impact on its dominance of the cloud.
Amazon Web Services booked $9 billion in revenue in the past quarter alone; losing out on the deal is certainly meaningful but hardly a make-or-break for the business. Through that lens, it might not be worth opening the can of worms that would come with challenging the decision.
"I don't think it's a meaningful blow to AWS in any way," Alex Zukin, the managing director at RBC Capital Markets, told Business Insider.
