Aerospace & Defense

Alleged Conspiracy Dogs Pentagon's $10 Billion War Cloud Contract

In late July, the U.S. Department of Defense began accepting proposals for a contract to provide the Pentagon with a cloud program known as the Joint Enterprise Defense Infrastructure (JEDI). Proposals are due September 17, and the original schedule called for a winner to be named by the end of this year. That almost certainly will not happen.

The inside track for the contract is believed to be held by Inc. (NASDAQ: AMZN), which already has a contract to provide classified cloud services with its Amazon Web Services (AWS) to the Central Intelligence Agency. Alphabet Inc. (NASDAQ: GOOGL), Microsoft Corp. (NASDAQ: MSFT), International Business Machines Corp. (NYSE: IBM), Oracle Corp. (NYSE: ORCL) and others are expected to submit bids on the contract. But there have been suggestions that the competition may be rigged.

According to a detailed report at Defense One, an intelligence and security firm named RosettiStar has compiled a dossier suggesting that senior Pentagon officials colluded with private company officials to write the contract in a way that favors Amazon:

The dossier insinuates that a top aide to Defense Secretary Jim Mattis worked with Mattis and others to steer the contracting process to favor Amazon Web Services, or AWS — and enrich the aide. The aim of the dossier seems clear: to prevent the deal from going solely to AWS, the odds-on favorite in part because it operates the CIA’s classified commercial cloud. Far less clear, however, is who backed its creation and distribution.

The conspiracy, if one exists, centers on the role of Sally Donnelly, a “trusted advisor to senior military officials,” according to Defense One. She left government service in 2014 and founded her own consulting firm, SBD Advisors, to help active and retired military commanders figure out what to do after leaving active service. She also hired the former chair of the Joint Chiefs of Staff, Mike Mullen, and other former Pentagon officials to work for the firm.

SBD Advisors also consulted with several companies, including Amazon. In 2017, Donnelly sold her stake in the firm to serve as a senior advisor to Defense Secretary James Mattis.

The RosettiStar dossier suggests that Donnelly sold only part of her interest in SBD and retained a stake so that she could profit from a win by front-runner AWS. According to Defense One, before she joined Mattis, she set up a prearranged payment schedule that paid her in three installments, one immediately and two that would occur after she reentered government service. The total value of her stake in the firm was $1.56 million.

Defense One commented:

What’s clear is that there’s a broad battle among tech industry heavyweights to position themselves for JEDI. It pits traditional tech and defense contractors that have served the military and government for decades against Amazon and Google, relative newcomers to the defense space that threaten to disrupt the multibillion-dollar defense technology market.

Oracle already has taken the unusual step of filing a pre-award bid protest and, no matter who wins, other protests are virtually certain to be lodged. A delay in the bidding schedule is a good thing for Amazon’s competitors. It gives them more time to meet the Top Secret/Sensitive Compartmented Information standard that the Pentagon requires. So far AWS is the only cloud provider that meets that requirement, but both Microsoft and IBM are reportedly close.

The JEDI war cloud, as it is known, is expected to reshape American warfare by “absorbing, processing, and analyzing intelligence, sensor, and troop data, and by facilitating communications through the Defense Department’s worldwide network,” according to Defense One. And it could be just the first of future large and lucrative federal cloud contracts.

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