Department of Veterans Affairs Cancels $36 Million Cloud Contract


The Department of Veterans Affairs has terminated a $36 million contract with HP Enterprise services, initially announced last November. The reason cited was a material change in the agency’s requirements. Remember that “Cloud First” mandate? It apparently doesn’t quite fit in this case.

The initial contract was for five years, with the VA intending to move 600,000 personnel to Microsoft Office 365 for department-wide e-mail and calendaring. It never left the test account stage. Now even those test accounts are gone.

The contract was terminated out of convenience, meaning the cancellation was not the contractor’s fault and was driven by changes in requirements. This will cost the VA approximately $150,000 for services performed, plus what could be a sizeable termination settlement, according to an FCW article.

The VA is the second largest government agency—the Department of Defense is largest – so this was a big win for all involved, beyond the contract size. This win was important not only for HP, the systems integrator, but for Microsoft’s Office 365. The cloud version of Office has been in need of validation, and has received it in some regards with big wins elsewhere. It has strong footing in verticals like education, but government is highly sought after. There’s a mentality that if it’s secure enough for government use, its secure enough for businesses.

What kind of enterprise email system the VA is going to use is up in the air for now. The terminated contract brings up a variety of questions. Is the government starting to question the cloud?  As FCW points out, the VA’s Deputy CIO for Architecture, Strategy and Design, Paul Tibbits, told an audience at 1105 Media’s Enterprise Architecture Conference that he questioned the cost-effectiveness of moving to the cloud.

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About the Author

Jason Verge is an Editor/Industry Analyst on the Data Center Knowledge team with a strong background in the data center and Web hosting industries. In the past he’s covered all things Internet Infrastructure, including cloud (IaaS, PaaS and SaaS), mass market hosting, managed hosting, enterprise IT spending trends and M&A. He writes about a range of topics at DCK, with an emphasis on cloud hosting.

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