Pentagon Wants Time to Reconsider Award of JEDI Cloud Contract to Microsoft

The win by Microsoft has been challenged by Amazon on multiple grounds.

Lawyers for the Defense Department filed a request on Thursday to reconsider its award of a massive $10 billion cloud contract to Microsoft  (MSFT) - Get Report over cloud rival Amazon  (AMZN) - Get Report.

The Pentagon said it wants 120 days to “reconsider certain aspects of the challenged agency decision.” In its legal brief to the Court of Federal Claims, the Pentagon said it was asking for the reconsideration based on Amazon’s argument that its offerings and pricing had been inaccurately assessed by the Pentagon.

The judge in the case, Patricia Campbell-Smith, has not made a ruling yet but was expected to approve the re-evaluation request, according to the New York Times.

Amazon has also challenged the award on the grounds that President Trump interfered in the decision owing to his feud with Amazon founder Jeff Bezos.

An Amazon spokesperson said that “we are pleased that the DoD has acknowledged ‘substantial and legitimate' issues that affected the JEDI award decision, and that corrective action is necessary. We look forward to complete, fair, and effective corrective action that fully insulates the re-evaluation from political influence and corrects the many issues affecting the initial flawed award.” 

Wedbush analyst Dan Ives said he sees the Pentagon’s request as a sign that the award will eventually be split between Amazon and Microsoft.

“While initially this was a single source contract, 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 note on Friday morning.

In February, Judge Campbell-Smith issued a temporary injunction stopping Microsoft from working on the contract after she agreed with Amazon on the pricing issue.

The 10-year contract was a surprise win for Microsoft over cloud leader Amazon and is seen as even more valuable for potentially leading to other government cloud contracts.

Microsoft shares were rising 2.8% in early afternoon trading on Friday, while Amazon was up 1.0%. 

Microsoft and Amazon are holdings in Jim Cramer’s Action Alerts PLUS Charitable Trust Portfolio. Want to be alerted before Cramer buys or sells these stocks? Learn more now.