If President Trump intervenes in the $10 billion JEDI cloud contract, both Amazon and Microsoft could end up as losers
- Amazon and Microsoft, the finalists in the Pentagon's $10 billion JEDI contract, could both end up as the losers as Trump steps into the process.
- Trump said he wanted to look into the contract after hearing complaints from "great companies."
- If Trump chooses to intervene, he could either delay the JEDI award, or cancel it outright - which would undermine both Amazon and Microsoft, who would have to go back to the drawing board.
- Amazon is considered the frontrunner in the contract, and analysts see Trump's public feud with Amazon CEO Jeff Bezos as a key factor in his possible intervention.
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After overcoming a legal challenge from Oracle, the Pentagon looked set to announce the winner of the $10 billion JEDI cloud contract in late August. Amazon and Microsoft were the finalists in the bidding process, with Amazon Web Services widely expected to walk away the winner.
But then President Donald Trump stepped in.
Suddenly, the fate of one of the biggest public cloud deals ever was unclear - especially given President Trump's public feud with Amazon CEO Jeff Bezos.
"This is not good news for Amazon as Trump looks under the cover of the JEDI deal," Wedbush analyst Daniel Ives told Business Insider. "There are risks for Microsoft as well … The biggest risk is around delaying timing and potentially looking at the possibility of not single-sourcing the deal."
Trump said Thursday that he was looking into the Pentagon's Joint Enterprise Defense Infrastructure, or JEDI, project, a platform that will store and manage sensitive military and defense data.
Trump told reporters: "We're getting tremendous complaints from other companies. Some of the greatest companies in the world are complaining about it." He mentioned Microsoft, Oracle and IBM, according to news reports.
In fact, only Oracle and IBM had protested through official channels - complaining that it was only slated to go to one cloud vendor, in a world where most large organizations use several cloud platforms in concert. Oracle went so far as to make an ill-fated legal challenge, alleging improprieties on Amazon's part in the bidding process.
So far, Trump has said only that he's looking into the matter. But even that level of intervention is extraordinary, said Christopher Cornillie, a Bloomberg Government analyst who covers government IT contracts.
"It's exceedingly rare for a senior political official to publicly intervene in an ongoing procurement," he told Business Insider. In fact, the White House "declined to do that" when the JEDI issue was raised to Trump in April 2018, he added.
Amazon and Microsoft's options
Cornillie said that if Trump chooses to intervene, he could either ask the Pentagon to delay the award pending an investigation, or to cancel the contract outright.
"In that case, the Pentagon could be forced to go back to the drawing board with its enterprise cloud contract, which would be most detrimental to Amazon - the favorite to win the contract in its current form," he said.
But he noted that there are laws that "limit political interference" in government contracting. If the JEDI contract is cancelled, "Amazon and/or Microsoft may have recourse to sue the government for damages."
"If the president were to attempt to intervene in the procurement, Amazon could make the case that the White House overruled Pentagon procurement officials and a federal judge in a way favorable to its competitors," he said.
Oracle and other critics had argued that it didn't make sense for the Pentagon to award such a major contract to just one vendor. Cornillie said it's possible Trump shares the view offered by the JEDI contract critics "that entrusting so much of the Pentagon's data to a single company poses a security risk."
But Cornillie also noted that that view "runs counter to the analysis of his own Defense Department, which has stated repeatedly that JEDI is vital to national security."
Oracle declined to comment on Trump's statements. In an email, an IBM spokesperson told Business Insider: "IBM has long raised serious concerns about the structure of the JEDI procurement. We continue to believe that the Department of Defense and our men and women in uniform would be best served by a multi-cloud strategy."
Trump vs. Bezos
On the other hand, Cornillie said, Amazon's frontrunner status in the contract fight and Trump's bitter public feud with Amazon CEO Jeff Bezos, who is also the owner of the Washington Post, were factors in the unexpected twist in the JEDI saga.
"The president has made his feelings about Amazon, Jeff Bezos, and the Washington Post well-known, and he may find the prospect of denying Amazon a $10 billion contract irresistible," he said.
Ives of Wedbush echoed this view: "Given the ongoing Trump vs Bezos battle royale this can add a further wrench in the JEDI bake-off...Ultimately, this looks to be another round in the Bezos-versus-Trump boxing match on the horizon."
Got a tip about Amazon, Microsoft, IBM, Oracle or another tech company? Contact this reporter via email at bpimentel@businessinsider.com, message him on Twitter @benpimentel. You can also contact Business Insider securely via SecureDrop.