Pentagon, Oracle Face Off in Court Over $10 Billion JEDI Award

(Bloomberg) -- The Pentagon's fraught, three-year effort to build up its cloud-computing technology meets its next test on Friday as it faces off in a U.S. appeals court against Oracle Corp., which is challenging the terms of a $10 billion contract awarded to Microsoft Corp.

Oracle is fighting a Court of Federal Claims ruling that the company wasn't harmed by any errors the Pentagon made in developing the contract proposal or by any conflict of interest with Amazon.com Inc. because it wouldn't have qualified for the contract anyway.

The case, and a separate one brought by Amazon, are the latest in a series of legal and political challenges to the cloud-computing project, known as the Joint Enterprise Defense Infrastructure, or JEDI, contract. The project, which is worth as much as $10 billion over a decade, is designed to allow the Pentagon to consolidate its technology programs and quickly move information to war-fighters around the world.

“For the Defense Department, the Oracle challenge is another giant pothole in the road but it's something that it has to drive through,” said Charles Tiefer, a procurement law professor at the University of Baltimore School of Law.

The government wants the judge to reject Oracle's arguments that the contract was fatally tainted by conflicts of interest allegations involving Amazon, saying those claims are irrelevant since the deal was awarded to Microsoft.

“Microsoft winning the JEDI contract has mooted Oracle's allegations that” Amazon “obtained an unfair competitive advantage in the competition,” the government said in a filing.

As the appeals court hears Oracle's case, the Pentagon also faces vendor bias allegations in a separate lawsuit by Amazon, which is suing the Defense Department over claims that political interference by President Donald Trump cost it the contract.

Amazon Web Services, Amazon's cloud services unit, filed its lawsuit in November over claims the Pentagon failed to fairly judge its bid because Trump viewed Amazon Chief Executive Officer Jeff Bezos as his “political enemy.” Trump has long criticized Bezos over everything from the shipping rates his company pays the United States Postal Service to his ownership of The Washington Post, which heavily scrutinizes his administration.

If Oracle wins its appeal, it could ironically also end up helping its arch-rival Amazon. The court could force the Pentagon to either reevaluate the companies' proposals or rewrite the solicitation, allowing the losing vendors such as Oracle, Amazon, and International Business Machines Corp. to bid again, according to procurement experts.

“If Oracle wins its challenge to its exclusion from seeking the award then there might be new pressure on the Defense Department to go back to square one,” Tiefer said.

Read more: Amazon Adopts Rivals' Playbook to Fight JEDI Cloud Bid Loss

Winning its appeal may be difficult for Oracle. Federal Claims Senior Judge Eric Bruggink said in July 2019 that Oracle's challenge to the procurement failed because it didn't meet the minimum criteria for the bid. Bruggink also ruled that the conflicts of interest allegations were “sufficient to raise eyebrows” but didn't give Amazon a competitive advantage.

“The appellate court could surprise us, but don't hold your breath,” Steven Schooner, a professor at George Washington University Law School, said in an email. “Given Oracle's standing hurdle, it's hard to see the appellate court” ordering the Pentagon to rewrite the solicitation “despite the egregiousness of the conflicts of interest detailed in the trial court's decision.”

Oracle contends that at least two former Pentagon employees were offered jobs at Amazon while they worked on the contract. In one case, Deap Ubhi, who had worked at Amazon before joining the government, helped craft the JEDI procurement for weeks after accepting a job offer in October 2017 from AWS, according to the lawsuit.

Ubhi had advocated heavily in favor of the single-source approach-- a strategy that Oracle said violates procurement rules designed to encourage industry competition for government contracts. Government lawyers argued that using just one company would keep the Pentagon's data safer and reduce technical complexity of the project.

Amazon said in court papers that Oracle's lawsuit was based on “suspicion and innuendo” and the company didn't obtain any “competitively useful” information through those employees. Government lawyers also argued that the workers' input on the JEDI procurement was minimal.

Meanwhile, Amazon's JEDI lawsuit remains in limbo. In April, U.S. Court of Federal Claims judge Patricia Campbell-Smith paused court proceedings on the company's lawsuit to allow the Defense Department to take 120 days “to reconsider certain aspects” of the contract, including a narrow technical part of the companies' price proposals.

Campbell-Smith has yet to rule on most of the substance of Amazon's lawsuit, which uses comments and actions by Trump and the Defense Department to try to prove that the Pentagon bowed to political pressure when making the award. The Defense Department's inspector general found in April that the contract award wasn't affected by any interference from Trump, though it said its probe was limited by the White House.

Amazon declined to comment. Representatives of Oracle and the Defense Department did not respond to requests for comment.

The Federal Circuit is unlikely to issue a final decision in Oracle's case for several months, which Tiefer said leaves open the possibility that a ruling in either case could help Amazon.

“At this stage, Amazon may see anything that upends the award as beneficial to it even if the price is that it is now competing against Oracle,” he said.

The case is Oracle America Inc. v. U.S., 19-2326, U.S. Court of Appeals for the Federal Circuit (Washington). Amazon's bid protest is Amazon Web Services Inc. v USA, 19-01796, U.S. Court of Federal Claims (Washington).