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Amazon Vows to Fight After Pentagon Reaffirms Microsoft's $10 Billion Cloud Award

By Lou Whiteman - Sep 4, 2020 at 9:44PM

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Amazon continues to fight for a return of the JEDI competition.

The Pentagon on Friday reaffirmed its decision to give Microsoft (MSFT -0.74%) a massive $10 billion cloud computing contract, but runner-up Amazon (AMZN -1.44%) has vowed to press on against what it called a "politically corrupted contract award."

The Department of Defense's October 2019 awarding of the Joint Enterprise Defense Infrastructure (JEDI) contract raised eyebrows at the time, as analysts viewed Amazon as the front-runner. Amazon in November filed suit to try to reverse the award, claiming that President Donald Trump's long-standing feud with the company and its CEO Jeff Bezos caused him to steer the contract to Microsoft.

Illustration of a secure cloud.

Image source: Getty Images.

The Pentagon in March said it would reconsider part of its award process, but the department's inspector general found no smoking gun to suggest that bias against Amazon contributed to the result.

In a brief statement issued Friday, the Defense Department said it had completed its review and "determined that Microsoft's proposal continues to represent the best value to the government."

Amazon Web Services (AWS), the company's cloud unit, lamented in a blog post that the Pentagon failed to take corrective action, saying the fight isn't over.

"AWS remains deeply concerned that the JEDI contract award creates a dangerous precedent that threatens the integrity of the federal procurement system and the ability of our nation's warfighters and civil servants to access the best possible technologies," the company wrote. "The question we continue to ask ourselves is whether the President of the United States should be allowed to use the budget of the Department of Defense to pursue his own personal and political ends."

Amazon's court case disputing the award was paused while the Pentagon reconsidered the decision, but it appears the company intends to resume the litigation. That likely means that despite the Pentagon's Friday ruling, Microsoft will remain on standby.

Defense contractors often dispute large contract awards, but with the Pentagon eager to begin JEDI implementation, Amazon will need to tread carefully to avoid angering a major potential customer. 

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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