Appeals Court Judges Question Pentagon’s $10 Billion Cloud Bid

(Bloomberg) -- A federal appeals court appeared open to requiring the Pentagon to revisit its disputed $10 billion cloud-computing contract, after Oracle Corp. alleged in a lawsuit that the bidding requirements unfairly shut out qualified contenders.

During oral arguments in the case on Wednesday, judges questioned the government’s assertion that Oracle wasn’t harmed by any errors the Pentagon made in developing the contract proposal or by any allegations of conflict of interest with Amazon.com Inc. because it wouldn’t have qualified for the contract anyway.

Oracle is fighting its exclusion from seeking the lucrative cloud-computing deal, known as the Joint Enterprise Defense Infrastructure, or JEDI. The Pentagon awarded the contract to Microsoft Corp. in October over market leader Amazon Web Services. The project, which is valued at as much as $10 billion over a decade, is designed to help the Pentagon consolidate its technology programs and quickly move information to warfighters around the world.

A ruling in favor of Oracle by the U.S. Court of Appeals for the Federal Circuit could force the Pentagon to either re-evaluate the companies’ proposals or rewrite the solicitation, letting losing vendors such as Oracle, Amazon, and International Business Machines Corp. participate.

The three-judge Federal Circuit panel is reviewing a July 2019 ruling from Court of Federal Claims Senior Judge Eric Bruggink, who ruled that while the Defense Department made errors, they didn’t matter because Oracle didn’t meet the minimum criteria for the bid. He added that while allegations about relationships between former Pentagon employees and Amazon were “sufficient to raise eyebrows” they didn’t give the company a competitive advantage.

Representatives for the Defense Department and Oracle didn’t immediately respond to requests for comment. A Defense Department official said last week that both the Government Accountability Office and the Pentagon inspector general have found that the JEDI contract strategy was “consistent with applicable laws and acquisition standards.”

On Wednesday, two of the appellate judges questioned the government’s justification for requiring that qualified bidders must have three existing data centers that are located at least 150 miles apart and have obtained a “moderate” security authorization from FedRAMP, a federal program that screens the security of cloud-computing vendors to the government.

Oracle argues that the minimum requirement unfairly restricted competition because the Defense Department knew that only Microsoft and Amazon would meet that standard at the time, though Oracle lawyer Craig Holman told the court on Wednesday that the company could qualify today. The government said it’s the Pentagon’s right to determine what requirements are best for its needs and that competition for the deal was robust.

“You’re asking us to assume the government was innocent of the impact of this qualification?” Circuit Judge Pauline Newman asked the government’s lawyer, William Rayel.

At least two of the judges also appeared to disagree with the government’s contention that relationships between Amazon and government employees who were working on the bid didn’t affect the procurement.

But Circuit Judge William Bryson said the conflicts of interest allegations may not be enough to toss the contract.

Were the court to decide “the contract is void if there’s any conflict of interest anywhere in the vicinity, that would just go way beyond anything we’ve recognized as appropriate,” Bryson said.

Separate Suit

The Pentagon is also facing a separate lawsuit in November by Amazon Web Services, Amazon.com’s cloud services unit, over claims the Pentagon failed to fairly judge its bid because President Donald 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 U.S. Postal Service to his ownership of The Washington Post, which heavily scrutinizes his administration.

In April, U.S. Court of Federal Claims Judge Patricia Campbell-Smith paused court proceedings on Amazon’s lawsuit to allow the Defense Department to take 120 days “to reconsider certain aspects” of the contract.

Campbell-Smith has yet to rule on most of the substance of Amazon’s lawsuit. 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.

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