In February, a federal judge temporarily blocked Microsoft (MSFT, Financial) from working on a $10 billion cloud services contract from the U.S. Department of Defense (DoD), which it was initially awarded in October 2019.
The Joint Enterprise Defense Infrastructure (JEDI) contract is a cloud computing contract meant to modernize the Pentagon. The contract is estimated to be worth up to $10 billion and will last approximately 10 years.
The block came after a lawsuit from Amazon.com (AMZN, Financial)’s web services arm, which alleged that the contract was awarded to Microsoft only because President Donald Trump dislikes Amazon CEO Jeff Bezos.
After a month of consideration, lawyers from the federal government asked the courts to allow the DoD “120 days to reconsider certain aspects of the challenged agency decision.” During this time, the cloud services departments of both companies will be allowed to submit “limited” revisions of their proposals for the contract, though they will not be allowed to propose new storage solutions. Specifically, the DoD plans to evaluate “online marketplace offerings” and technical approaches to a “specific price scenario.”
Since Amazon’s ultimate goal is to win the contract instead of Microsoft, Amazon representatives were not satisfied with this development, though they still considered it progress. An Amazon spokesperson stated the following on the matter:
“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.”
Who interfered with the contract?
It’s no secret that President Trump is not fond of Bezos. The president has taken to Twitter (TWTR, Financial) multiple times with insults such as “Jeff Bozo” and allegations that Amazon is “scamming” the post office.
In the latest chapter of the Trump versus Bezos saga, Amazon is claiming that the President’s anti-Amazon sentiment had the DoD too worried about political retribution to give fair consideration to its proposal for the JEDI contract.
In court documents, Amazon claimed that Trump's long-standing hostility towards Amazon and Bezos led to him influencing the JEDI contract award process. An anonymous source alleged that the president discussed with his advisors a plan to "escalate his Twitter attacks on Amazon to further damage the company" in April of 2018.
Thus, Amazon’s argument is that due to a combination of presidential critique on the part of Trump and fear of presidential rebuke on the part of the DoD robbed the company of a contract.
Will Amazon get the contract?
Given the president’s public dislike of Amazon, what are the chances of the company wresting the contract away from Microsoft? In my opinion, the chances are low, since the DoD has identified this issue as being time sensitive. A spokesperson for the DoD said:
“While we disagree with the Court’s decision, we must address the findings in the Court’s Order with the intent of ensuring our warfighters will get this urgent and critically needed technology as quickly and efficiently as possible. As such, the Department determined that the best and most efficient path forward is to conduct a re-evaluation of the proposals in order to address the Court’s noted concerns. The Department maintains the JEDI Cloud contract was awarded based upon a fair and unbiased source selection process. The process consisted of a fair evaluation of proposals based solely on the solicitation’s stated criteria and the proposals submitted.”
When time is one of the foremost considerations of a decision, it is easier to go along previous trains of thought. Since the DoD originally awarded the contract to Microsoft, it will thus need to consider whether the path of least resistance means keeping its previous agreement or changing to a new provider.
In order for Amazon to win the lawsuit, it would need to kick up enough trouble that the DoD would find it easier to grant it the contract. This is definitely a possibility; Amazon’s status as a fast grower indicates its management is more aggressively competitive compared to Microsoft, which has seen revenue growth slow to 12.6% per year over the past three years.
Disclosure: Author owns no shares in any of the stocks mentioned. The mention of stocks in this article does not at any point constitute an investment recommendation. Investors should always conduct their own careful research or consult registered investment advisors before taking action in the stock market.
Read more here:
- Oracle Corp Posts Best Growth in 2 Years
- Some Oil Stocks May Be 'Uninvestable' During the Price War
- Leading Renewable Energy Stocks to Consider as Oil Prices Plummet
Not a Premium Member of GuruFocus? Sign up for a free 7-day trial here.
