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Oracle Loses Challenge to $10 Billion Pentagon Cloud Contract

Oracle Corp. lost its legal challenge to the Pentagon’s $10 billion cloud contract on Friday, clearing the way for the government to award the contract to Inc. or Microsoft Corp.

Federal Claims Court Senior Judge Eric Bruggink dismissed the company’s argument that the contract violates federal procurement laws and is unfairly tainted by conflicts of interests. Bruggink said that because Oracle didn’t meet the criteria for the bid, it “cannot demonstrate prejudice as a result of other possible errors in the procurement process.”

The decision is a major blow to Oracle, which risks losing a share of its federal defense business if the Pentagon awards the contract to another cloud company. The ruling eliminates a headache for the Pentagon, which has been fending off challenges to its winner-take-all strategy in the cloud contract for more than a year.

“Oracle will likely be most threatened by this” decision, said Bloomberg Intelligence Analyst James Bach. “They stand to lose the most ground in the Defense market if the DOD decides JEDI is the end-all be-all.”

Oracle looks forward to “working with the Department of Defense, the Intelligence Community, and other public sector agencies to deploy modern, secure hyperscale cloud solutions that meet their needs,” company spokeswoman Deborah Hellinger said in a statement. She didn’t comment on whether the company plans to appeal the decision.

Elissa Smith, a Defense Department spokeswoman, said in a statement that the ruling “reaffirms the DOD’s position: the JEDI Cloud procurement process has been conducted as a fair, full and open competition, which the contracting officer and her team executed in compliance with the law.”

Amazon Web Services, which was also a defendant in the case, said in a statement that the company “stands ready to support and serve what’s most important – the DoD’s mission of protecting the security of our country.”

JEDI Project

The project, known as Joint Enterprise Defense Infrastructure cloud -- or JEDI, an acronym intended to evoke “Star Wars” imagery -- is intended to be the Defense Department’s general-purpose cloud for most of its systems and applications.

The Pentagon is investing in commercial cloud services, in which computing power and storage are hosted in remote data centers, to consolidate its existing technology products, embrace artificial intelligence and machine learning, and enhance its technical capabilities on the battlefield.

Vying for the contract became contentious as legacy tech companies such as Oracle and International Business Machines Corp. waged a fierce lobbying and legal campaign against the Pentagon’s decision to choose just one provider. Although they are long-time government contractors, those companies were late entrants to the cloud computing market and eyed market leader Amazon as a threat to their traditional revenue streams from the Defense Department.

In April, the Pentagon eliminated Oracle and IBM from the competition, leaving Amazon and Microsoft as the final contenders. Dana Deasy, the Pentagon’s chief information officer, has said the Defense Department expects to make an award in August.

Amazon Web Services was widely seen as the front-runner for the contest because it had already won a $600 million contract from the Central Intelligence Agency that helped it obtain much-needed security approvals. Microsoft is catching up to Amazon through its advancements in winning such clearances, as well as a recent cloud deal with the intelligence community and years of experience working with the Defense Department.

The ruling is a partial vindication for Pentagon officials who have battled months of allegations that its procurement process was corrupt, including the circulation of a 33-page anti-Amazon dossier around Washington that suggested improper personal relationships had given Amazon an edge. The Defense Department has also faced pressure from lawmakers, who criticized the deal for lacking enough competition from industry.

There are still potential hurdles for the Defense Department as it moves forward with the bid. Either Microsoft or Amazon could lodge a challenge of the contract with Government Accountability Office or in the Federal Claims Court if they were to lose. Oracle could also appeal the ruling in the Court of Appeals for the Federal Circuit.

On Friday, Chris Lynch, the former director of the Defense Digital Service, which designed the project, praised his former team for their work on the project.

“JEDI will immediately deliver much needed capabilities to the warfighter, deliver incredible capabilities that are built from the best tech, and it will change lives,” he tweeted. “Couldn’t be more proud.”

Contested Terms

Oracle’s lawsuit, which was filed in December, alleged that the Pentagon’s minimum requirements for the contract as well as its decision to pick just one winner violated federal procurement laws designed to ensure competition. The government has said choosing one winner would reduce security risks and better enable it to consolidate its technology products.

The suit also claimed that the procurement has been marred by conflicts of interest, including ties between former Defense Department officials and Amazon. At least two of the former employees were offered jobs at the company while working on the contract, according to the lawsuit.

The Pentagon determined in its internal review that the relationships had no adverse impact on the integrity of the acquisition process but said the department’s inspector general was looking into potential unethical conduct. Bruggink said in his ruling that the Defense Department’s determination on the allegations was not “arbitrary, capricious, an abuse of discretion, or otherwise not in accordance with law.”

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