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  • The US Defence Department cancels its US$10 billion (A$13.35 billion) cloud-computing project on Tuesday
  • The move reverses a contract awarded to Microsoft, with a new one to be unveiled that could include Amazon
  • Amazon claims then-President Donald Trump had put improper pressure on military officials to steer the contract away from Amazon
  • While the Trump administration wanted a single provider, Biden’s is likely to parcel out the contract to multiple companies
  • The contract is prized not for its monetary value, but as a major vote of confidence that could bring in new clients

The US Defence Department cancelled its US$10 billion (A$13.35 billion) cloud-computing project on Tuesday, reversing a Trump-era contract awarded to Microsoft and unveiling a new one that’s expected to include Amazon.

In November 2019, Microsoft beat retail giant for the deal, known as the Joint Enterprise Defence Infrastructure Cloud, which is part of a wider modernisation of the Pentagon’s information technology systems.

The contract was coveted not for its monetary value, but for its prestige. The absolute dollars involved — US$10 billion (A$13.35 billion) over 10 years — is at most a nice-to-have, according to Michael Pachter, an analyst with Wedbush Securities. Last year, Amazon’s Web Services arm generated US$45.3 billion (A$60.46 billion) in sales and US$13.5 billion (A$18.02 billion) in operating profits.

However, both companies had been seeking for years to persuade businesses and governments that it was safe to shift computing work into their data centres. Meeting the security requirements for the US military would have therefore been a major stamp of approval that would have ultimately brought in a host of new clients.

But the contract has been on hold after Amazon filed a lawsuit challenging the decision under then-President Donald Trump, arguing Joe Biden’s predecessor had put improper pressure on military officials to steer the contract away from Amazon.

Amazon said in 2019 that the Pentagon decision was full of “egregious errors” and cited a book published the same year that reported Trump had directed the Defence Department to “screw Amazon” out of the JEDI contract.

According to Mark Moerdler, a senior research analyst at Bernstein, the cancellation of the old contract and the unveiling of a new one could actually benefit Microsoft, since the software firm has had two years during Amazon’s legal battle to invest in its technology.

“If there is now another competition, Microsoft is going in from a better position,” he said.

While the Trump administration wanted a single provider, Biden’s is likely to parcel out the contract to multiple companies. Such a move would put the US military more in line with the private sector, where cloud computing work is often split between several vendors to avoid being locked in to any specific one.

Other prominent cloud companies include Oracle, Google and IBM, with the latter two saying on Tuesday that they were interested in working with the US Government. However, they stopped short of saying whether they would enter the bidding process.

John Sherman, acting chief information officer for the Defence Department, said he expects both Microsoft and Amazon will get cloud contracts.

“I’ve got to get this now — as soon as possible — starting hopefully as soon as April,” he said.

Republican Senator Chuck Grassley praised the Pentagon’s decision to scrap the contract.

“The JEDI contract has been burdened by potential conflicts of interest, size, needless delays and its single awardee structure,” he said, adding that a fresh review process “will afford the program an opportunity for greater public trust and confidence”.

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