Naomi Nix and Tony Capaccio (Bloomberg) -- Oracle Corp. lost a challenge to the Pentagon’s $10 billion cloud contract, as the Government Accountability Office dismissed its argument that the winner-take-all contest violates federal procurement standards and unfairly favors Amazon.com Inc.
The GAO decision issued Wednesday deals a blow to Oracle’s push to expand its federal defense contracts, leaving the tech company with fewer options to improve its chances of winning the award. It also frees the Pentagon to pursue the single-source solution it has opted for all along.
“The Defense Department’s decision to pursue a single-award approach to obtain these cloud services is consistent with applicable statutes (and regulations) because the agency reasonably determined that a single-award approach is in the government’s best interests for various reasons, including national security concerns, as the statute allows,” Ralph White, the GAO’s managing associate general counsel for procurement law, said in a statement.
He said the agency also rejected Oracle’s “allegations concerning conflicts of interest” on the project.
The GAO’s announcement follows a months-long lobbying campaign in Washington by Oracle, International Business Machines Corp. and Microsoft Corp. They argue the Defense Department should split the contract among several suppliers to prevent vendor lock-in and reduce security risks for the Pentagon’s data.
“The result of this protest reinforces what has been the narrative of this competition,” said Bloomberg Intelligence analyst James Bach. “Amazon is likely still the front-runner with Microsoft running behind them.” He added that “we shouldn’t be surprised if this goes to Microsoft.”
Oracle fell 1.4 percent to $48.84 on Wednesday at the close of trading in New York.
“Oracle believes that both the warfighter and the taxpayer benefit most from a rigorous and truly competitive process,” Deborah Hellinger, an Oracle spokeswoman, said in a statement after the GAO decision. “We are convinced that if given the opportunity to compete, DoD would choose Oracle Cloud Infrastructure for a very substantial portion of its workloads.”
Amazon and Microsoft declined to comment on the GAO ruling, and IBM didn’t respond to requests for comment.
While the Defense Department declined to comment officially, Chris Lynch, who has helped shape the cloud project as director of the Pentagon’s Defense Digital Service, said on Twitter, “Today matters. Our team did such an amazing job.”
Losing bidders can still file additional protests with the GAO or in the federal courts once the contract is awarded. The Pentagon has said it will choose a winner by April.
The Pentagon released in July its final requirements for the project, known as the Joint Enterprise Defense Infrastructure cloud, or JEDI, which involves transitioning massive amounts of Defense Department information to a commercially operated cloud system. Amazon, the dominant provider of cloud services, is widely perceived as the front-runner for the deal because it already won a cloud contract for the CIA that has been praised by Defense Secretary Jim Mattis.
At least nine companies have at some point coordinated their opposition in Washington to the government awarding the contract to a single provider, Bloomberg News has reported. IBM also submitted a challenge last month to the GAO over the terms of the JEDI contract.
While the agency’s decision probably answered many of the questions raised by IBM, the watchdog agency will still have to prepare a separate decision for the Armonk, New York-based company.
Under the law, the GAO can deny protests or sustain them and recommend that the federal agency overseeing the project make changes to the solicitation. An agency isn’t required to act on the GAO’s recommendations, but if it doesn’t Congress will be notified.
The Defense Department has said that making multiple awards for the cloud contract under current acquisition law would be a slow process that “could prevent DoD from rapidly delivering new capabilities and improved effectiveness to the warfighter that enterprise-level cloud computing can enable.”
Wednesday’s decision “gives validity to the argument that the DoD has been pushing this whole time about why they want to go to a single cloud vendor,” Bach said.
The GAO has sustained only 2.6 percent of defense protests filed since 2008, the Rand Corp.’s National Defense Research Institute reported in January, but “the majority of relief to protesters takes the form of corrective actions” by the contracting agency while a challenge is pending before the GAO or withdrawn based on the potential for solving issues short of a decision.