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Pentagon Watchdog Finds No Smoking Gun in Investigation of $10 Billion JEDI Award

By Lou Whiteman – Apr 15, 2020 at 12:57PM

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The Inspector General did say it was blocked from interviewing key witnesses able to discuss potential White House influence on the deal.

The Pentagon's Inspector General has weighed in on a controversial $10 billion cloud computing contract awarded to Microsoft (MSFT -1.27%), saying the Department of Defense followed proper procedures when picking Microsoft over Amazon (AMZN -3.01%) but offering a less decisive verdict on Amazon's claim that the White House influenced the outcome.

Last year, the Pentagon awarded the Joint Enterprise Defense Infrastructure (JEDI) contract to Microsoft, defying analysts' predictions that Amazon would win the contract. Amazon in November filed suit to try to reverse that decision, claiming that President Trump's long-standing feud with Amazon CEO Jeff Bezos had caused him to get involved and improperly influence Pentagon officials to steer the contract to Microsoft.

The IG review did not address the technical and financial merits of Microsoft's offering compared to Amazon, rather it was focused on whether the evaluation and selection process was in compliance with guidelines, and whether it was influenced by outside pressures. The review included more than 80 interviews, including the JEDI contracting officer, current and former program managers, attorneys, ethics officials, and other Defense Department officials.

Illustration of a secure cloud.

Image source: Getty Images.

In a 313-page report released Wednesday, the IG generally found the procedures were in compliance, although it did not some irregularities including the Defense Department accidentally improperly disclosing proprietary Microsoft information to Amazon.

On the subject of White House interference, the IG said it ran into issues trying to interview senior Pentagon officials because presidential communications privilege was asserted. The IG could only state that it found no evidence of influence in what it was able to review.

"We believe the evidence we received showed that the DoD personnel who evaluated the contract proposals and awarded Microsoft the JEDI Cloud contract were not pressured regarding their decision on the award of the contract by any DoD leaders more senior to them, who may have communicated with the White House," the report read. "None of these witnesses told us they felt any outside influence or pressure for or against a particular competitor as they made their decisions on the award of the contract."

The report also said that it is possible President Trump's repeated criticism of Amazon "may have created the appearance or perception that the contract award process was not fair or unbiased."

Amazon is currently fighting in court to have the contract rebid, and in March won a small victory when the Department of Defense requested 120 days to reconsider aspects of the award. But Amazon has since expressed concerns that the Pentagon is trying to use the window to tie up some loose ends in the contract and make the Microsoft deal less likely to be overturned by the court.

The Pentagon has made JEDI one of its top priorities, and senior officials are eager to get implementation work started.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. Lou Whiteman has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Amazon and Microsoft and recommends the following options: long January 2021 $85 calls on Microsoft, short January 2021 $115 calls on Microsoft, short January 2022 $1940 calls on Amazon, and long January 2022 $1920 calls on Amazon. The Motley Fool has a disclosure policy.

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