Thiel’s Palantir Wins Battle Over Army Combat Data System

(Bloomberg) -- A Palantir Technologies Inc. unit won a second chance at a contract to build the next phase of the U.S. Army's integrated combat data system, an undertaking potentially worth hundreds of millions of dollars.

The Army failed to adequately consider commercially available options for the system, effectively shutting out the Silicon Valley firm from bidding, a federal judge ruled on Monday. The judge barred the Army from awarding the contract and ordered it to restart the process of evaluating technology that already exists. The ruling puts Palantir USG back in the running.

At stake is the Army's planned upgrade of its Distributed Common Ground System, a project that it's been developing for more than 15 years at a cost of more than $6 billion. The firm that ends up winning the assignment will probably have a hand in designing the rest of the system and likely will become a key player in future iterations, meaning a steady stream of future revenue.

“You have to follow the dictates of the statute,” U.S. Court of Federal Claims Judge Marian Blank Horn in Washington said during a hearing, criticizing the Army for failing to conduct the level of analysis required by law. “The statute is not meaningless.”

Palantir, a data-mining company co-founded by Peter Thiel, contends the DCGS system is plagued with problems and that its battle-tested Gotham Platform works better. DCGS is designed to utilize sensors and databases to give commanders combat-relevant information about weather, terrain and enemy threats.

Bid Challenge

Thiel, a billionaire technology entrepreneur, co-founded PayPal and is a Facebook Inc. board member. In a contrast with many of his Silicon Valley peers, he's a strong supporter of Republican presidential nominee Donald Trump and has pledged to donate $1.25 million to his campaign. Thiel, who spoke at the party's national convention in July, reiterated his support for Trump in a speech Monday in Washington.

Defense Secretary Ash Carter has made outreach to Silicon Valley a priority during his tenure, including opening the outpost Defense Innovation Unit Experimental, known as DIUx, which promises to cut red tape in tech acquisitions. Carter has also recruited technologists from Palantir and other big tech companies to work on short-term projects inside the Pentagon through the Defense Digital Service.

Palantir sued the U.S. in June after losing a challenge to the Army's bid-solicitation process that preemptively ruled out any commercially available solutions. Palantir contended its unit had been unlawfully barred from competing for the contract and offering what it touted as a proven, state-of-the-art system originally developed with financial aid from the Central Intelligence Agency.

“These DCGS program owners seem more intent on protecting their own failed program than on adopting a far superior commercially available technology that has been proven to work,” Palantir said in its complaint. “The Army's procurement officials are refusing even to consider buying the product that its troops on the ground are consistently telling Army headquarters they want.”

Judge's Ruling

Horn on Monday admonished the military and its attorneys several times, at one point responding to a question from Justice Department lawyer Domenique Kirchner about further work on the bid-award process by saying she didn't think her injunction was being taken seriously.

The U.S. had previously asked Horn to throw out the case, saying the firm couldn't sue before the contract was awarded. The judge delivered Monday's decision from the bench. A written opinion, which is more than 100 pages long, is not yet ready for publication and will first be issued under seal to allow the parties time to request redactions, she said.

Horn, who acknowledged the tension between both sides, said she didn't find that the Army acted in bad faith or with bias. Still, she reiterated the need for a more complete analysis.

Hamish Hume, Palantir's attorney, said after the hearing that while Horn's order requires the Army to conduct a commercial analysis, “it does not compel a result.”

“It compels a hard look” that should include consideration of Palantir's platform, he said. In a statement e-mailed after the hearing, Hume said the decision is “a victory for taxpayers, whose money has been routinely wasted on lengthy and ineffective development efforts” and gives “innovators like Palantir a fair chance to compete.”

Nicole Navas, a spokeswoman for the U.S. Justice Department, declined to comment on the court's decision.

“The decision announced today was an oral summary, and is to be followed by the issuance of a formal opinion,” Army spokeswoman Cynthia Smith said in an e-mail. “Following the formal guidance, the Army will proceed based on a review of the full opinion.”

The case is Palantir USG Inc. v. U.S., 16-cv-784, U.S. Court of Federal Claims (Washington).

--With assistance from Lizette Chapman and Nafeesa Syeed To contact the reporter on this story: Andrew Harris in Washington at aharris16@bloomberg.net. To contact the editors responsible for this story: David Glovin at dglovin@bloomberg.net, Mark Milian at mmilian@bloomberg.net, Michael Hytha, Joe Schneider