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Pentagon Watchdog Clears Microsoft’s Cloud Win Over Amazon

Naomi Nix and Tony Capaccio

(Bloomberg) -- The Defense Department’s watchdog found no evidence that the Pentagon’s controversial decision to award a $10 billion cloud-computing contract to Microsoft Corp. was the result of interference from President Donald Trump, though it said its probe was limited by the White House.

The 317-page report issued Wednesday by the inspector general’s office also found that giving the JEDI contract to a single company -- Microsoft -- rather than dividing it among competitors was “consistent with applicable acquisition standards.”

While the Joint Enterprise Defense Infrastructure project was hotly disputed by rival technology companies from the start, the project gained broader attention when Trump publicly expressed concern about the assumption that the contract would go to Amazon.com Inc.

After Microsoft was given the award instead, Amazon Web Services, Amazon’s cloud services unit, filed a lawsuit alleging that political interference by Trump cost the company the cloud deal. Amazon said in the suit that the Defense Department failed to fairly judge its bid because Trump viewed Amazon Chief Executive Officer Jeff Bezos as his “political enemy.”

In its report, the inspector general’s office said, “We believe the evidence we received showed that the DoD personnel who evaluated the contract proposals and awarded Microsoft the JEDI Cloud contract were not pressured regarding their decision on the award of the contract by any DoD leaders more senior to them, who may have communicated with the White House.”

But the report also said the White House limited cooperation with the inquiry. The inspector general said the assertion of a “presidential communications privilege” resulted in the Defense Department general counsel instructing officials “not to answer our questions about potential communications between White House and DoD officials about JEDI.”

Claiming Vindication

While Amazon’s lawsuit is still in the courts, the Defense Department declared vindication from the inspector general’s findings.

“This report should finally close the door on the media and corporate-driven attacks on the career procurement officials who have been working tirelessly to get the much needed JEDI cloud computing environment into the hands of our front-line warfighters while continuing to protect American taxpayers,” Lieutenant Colonel Robert Carver, a Pentagon spokesman, said in a statement.

Microsoft spokesman Frank Shaw said in a statement that the “report makes clear the DoD established a proper procurement process.”

Jon Palmer, deputy general counsel for Redmond, Washington-based Microsoft, said in a blog post that Amazon “bid high and lost. Should Amazon be allowed a do-over on JEDI?”

Amazon spokesman Drew Herdener said in a statement on Wednesday night that the inspector general’s findings say “nothing about the merits of the award, which we know are highly questionable.”

Amazon has asked the U.S Court of Federal Claims to require that the Pentagon to broaden the scope of a reevaluation that the government requested after a judge said the Defense Department might have misjudged part of Microsoft’s pricing proposal for the work.

But the Project on Government Oversight, an advocacy group, said the inspector general’s findings underscore that the JEDI award was riddled with ethical problems and the appearance of improper influence by Trump.

“Add to that the White House’s inappropriate refusal to participate in the inspector general’s investigation, and we have a $10 billion mess on our hands,” Scott Amey, the group’s general counsel, said in a statement.

The Pentagon has said that JEDI, with its acronym inspired by “Star Wars,” is intended to help bring American military technology into the modern era. The Defense Department is investing in commercial cloud services, which host computing power and storage in remote data centers, to improve data security and speed up real-time sharing of information across the military. The contract is valued at as much as $10 billion.

The inspector general examined dueling allegations of misconduct surrounding complaints that former employees with ties to Amazon may have structured the deal to favor the company, as well as the assertion that Amazon lost out because of Trump’s antipathy toward Bezos, who also owns the Washington Post.

Amazon’s lawsuit cites a book by Guy Snodgrass, a speechwriter to former Defense Secretary Jim Mattis, who alleges that Trump told Mattis in 2018 to “screw Amazon” and lock it out of the bid. Mattis didn’t do what Trump asked, Snodgrass wrote.

The inspector general’s office said Mattis couldn’t recall whether Trump made that comment, but he said “I knew his dissatisfaction with Amazon. I mean I knew that loud and clear.” Mattis also told the watchdog that the book by Snodgrass was “full of inaccuracies.”

Oracle’s Accusations

The Pentagon inspector general’s office also examined allegations, surfaced by Oracle Corp. in a lawsuit challenging the terms of the contract solicitation. Oracle said the bid was tailor-made for Amazon and was fatally tainted by conflicts of interest between the Defense Department and the e-commerce giant.

At least two former Defense Department employees were offered jobs at Amazon while working on the contract, according to the lawsuit. Oracle is appealing a July ruling from the U.S. Court of Federal Claims that dismissed its legal challenge to the cloud contract.

In one case, the inspector general concluded that Deap Ubhi -- a former Amazon employee who soon went back to the company -- violated procurement regulations through his “false statements and his failure to disclose his employment negotiations and job acceptance with Amazon.”

But the watchdog added that Ubhi’s “minimal and limited contributions were largely discarded and did not affect the conduct or outcome of the JEDI Cloud procurement.” Ubhi didn’t immediately respond to an emailed request for comment.

The inspector general also concluded that Stacy Cummings, a deputy assistant secretary of defense, violated ethics requirements when she participated in a matter related to the procurement while owning stock in Microsoft valued between $15,001 and $50,000 but that her participation didn’t influence the decision. Cummings couldn’t immediately be reached for comment.

The Pentagon watchdog cleared two other former Defense Department officials -- Sally Donnelly, a former top aide to Mattis, and Anthony DeMartino, who also worked in the defense secretary’s office -- of misconduct. Both had consulted for Amazon before working at the Defense Department.

(Updates with Amazon statement, in 11th paragraph)

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