Pentagon Says It Was Caught Off-Guard by $950 Million Cloud Deal

(Bloomberg) -- The Pentagon's Silicon Valley-based innovation unit awarded a $950 million contract to a little-known company with ties to Amazon.com Inc. last month without alerting senior officials in Washington who are crafting the military's broad acquisition strategy to move defense data onto cloud servers.

With little explanation, the Defense Department announced Monday that it's reduced the award to REAN Cloud LLC to $65 million. “We are refocusing this agreement because it is in the best interests of the Department,” Navy Commander Patrick Evans, a spokesman, said in an email.

Defense officials “were not aware of the production agreement prior to it being announced,” Evans said. After the super-sized award by the unit known as Defense Innovation Unit Experimental (DIUx), officials asked for a pause in additional orders “so that leadership could take the time to better understand how this agreement fits into the Department's overall plans for Cloud adoption,” he said.

The large contract to REAN fed concern among other contractors that the Pentagon is planning to give what could be a multibillion-dollar contract for comprehensive cloud services solely to Amazon. REAN is described on its website as a “premier consulting partner” to Amazon's cloud services unit, Amazon Web Services LLC, and its site boasts a catalog of services build on the AWS cloud.

Oracle, Microsoft

Companies including Oracle Corp. and Microsoft Corp. have pushed for open competition with awards to multiple vendors. Both companies are members of the Coalition for Government Procurement, an industry group that wrote in a November letter that “a single award DoD Enterprise Cloud Acquisition contract would lock-in DoD to a single cloud approach, and, by so doing, give rise to performance and national security risks.”

The Pentagon's swift turnabout on a contract that was awarded without the knowledge of senior officials feeds the impression of an unsteady roll-out for the broader cloud competition. In December, Bloomberg News obtained an order to senior officials from Ellen Lord, the Defense Department's chief weapons buyer, that they make no public comments about the sensitive cloud award while internal discussions continued.

Related story: ‘Star Wars' Dazzle Stripped From Pentagon Cloud Memo

A month later Pentagon officials issued -- and quickly -- rescinded a memo from Deputy Defense Secretary Pat Shanahan that was laced with “Star Wars” reference. He announced a new “Central Cloud Computing Program Office” -- or “C3PO” -- to “acquire the Joint Enterprise Defense Infrastructure (JEDI) Cloud.”

--With assistance from Ben Brody

To contact the reporter on this story: Tony Capaccio in Washington at acapaccio@bloomberg.net.

To contact the editors responsible for this story: Bill Faries at wfaries@bloomberg.net, Larry Liebert, Sara Forden

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