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Pentagon Considers Dropping Microsoft JEDI Effort

By Lou Whiteman - May 10, 2021 at 12:09PM

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The controversial contract award might fall apart in the face of prolonged litigation.

The Pentagon is reportedly considering dumping a $10 billion cloud-computing contract awarded to Microsoft (MSFT -0.23%) that has been delayed due to criticism from lawmakers and continued litigation by Amazon (AMZN 0.74%).

In 2019, the Pentagon awarded the Joint Enterprise Defense Infrastructure (JEDI) contract to Microsoft, surprising analysts who had expected Amazon to win the contract. Amazon filed suit to try to reverse that decision, claiming that President Trump's long-standing feud with CEO Jeff Bezos had caused him to get involved and improperly influence Pentagon officials to steer the contract to Microsoft.

Illustration of a secure cloud.

Image source: Getty Images.

Last year, the Pentagon's inspector general found no smoking gun that would indicate foul play, but the verdict was far from decisive. And in April, a federal judge denied a Pentagon motion to dismiss much of Amazon's case.

Given the continued uncertainty, the Pentagon is now considering pulling the plug on JEDI, according to a Wall Street Journal report. The newspaper cited comments by Deputy Secretary of Defense Kathleen Hicks, who said the prospect of lengthy litigation could bring the future of the procurement "into question."

JEDI is an ambitious effort to consolidate many of the Pentagon's data systems under one roof, in theory allowing better and more speedy access to data and providing the foundation for the department to continue to develop artificial intelligence capabilities. But the scale of the effort, and the winner-take-all nature of the contract, have made it a target of critics who claim the Pentagon would be better served by awarding a series of smaller, more-targeted contracts.

Teresa Kersten, an employee of LinkedIn, a Microsoft subsidiary, is a member of The Motley Fool's board of directors. John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Lou Whiteman owns shares of Microsoft. The Motley Fool owns shares of and recommends Amazon and Microsoft. The Motley Fool recommends the following options: long January 2022 $1,920 calls on Amazon and short January 2022 $1,940 calls on Amazon. The Motley Fool has a disclosure policy.

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