Contracting

Microsoft and Amazon are at it again over a cloud computing contract

When the National Security Agency recently awarded Amazon a multi-billion-dollar cloud computing contract, Microsoft protested. With how the award is likely to ...

Tom Temin@tteminWFED

August 27, 2021 12:39 pm

10 min read

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When the National Security Agency recently awarded Amazon a multi-billion-dollar cloud computing contract, you can guess what happened. Once again, as in the Defense Department’s JEDI program, the deal is tied up in protest, only this time Microsoft is the protester. DoD eventually scrapped the whole program. With how the NSA award is likely to play out, Federal Drive with Tom Temin turned to a partner at the law firm Boies Schiller Flexner, Hamish Hume.

Interview transcript:

Tom Temin: Mr. Hume, good to have you on.

Hamish Hume: Great to be on Tom.

Tom Temin: Glad to have you in studio with us. And first of all, give us the status of this current NSA award. When did it happen and where does it stand right now?

Hamish Hume: So the NSA award to Amazon was made just about two weeks ago or a bit more in early August and was immediately challenged by Microsoft in front of the GAO. It’s not yet in court and therefore it’s not yet public. We can’t see Microsoft’s challenge. But it’s sitting there at the GAO and the GAO has said it expects to issue a decision by October 29.

Tom Temin: And this is a weird one, because it looks like son of JEDI or daughter of JEDI or child of JEDI, I guess, to be politically correct. Nowadays, multi-billion, multi-year single award. What do you think the NSA was thinking?

Hamish Hume: Well, it’s hard to tell, and it is very curious. It is said to be a $10 billion award, which is the same number they used for JEDI. And even though the NSA is under the Department of Defense, it is not 100% clear whether the NSA was part of the original JEDI contract, but one would assume that it was. And the very same month that Amazon obtained an injunction against the award to Microsoft of the JEDI contract in February 2020, is when the NSA announced that it was going to be issuing a solicitation for this new contract. So it’s complicated, and I’m happy to run through that chronology, but it does appear tied together but in ways that are not 100%. transparent.

Tom Temin: This is no way possibly a DoD insurance policy for JEDI.

Hamish Hume: You never know. I mean, JEDI has now the one other important update is a month before this award was made to Amazon in July of this year, a couple of months ago, DOJ announced that it was scrapping and canceling the JEDI contract, and Amazon obviously welcomed that news. It had been challenging it. Microsoft, I would say put out a notice saying they accepted it and understood it. But they obviously were not happy about it. So JEDI has been scrapped and an NSA award has been made the very next month, and that award is now being challenged.

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Tom Temin: Alright, there were a lot of grounds for the challenge. It was complicated in the JEDI case, because of officials that had worked in DoD that allegedly had a conflict of interest. And without relitigating that whole case, in your experience, and you have done a lot of protest litigation over the decades, how will this likely play out do you think?

Hamish Hume: Well, bid protest litigation is very hard to win. There’s a fairly high percentage when you’re at the GAO of the agency taking some corrective action to sort of dot the I’s and cross the T’s to do everything perfectly and get it all correct. But to really overturn an award particularly or an award of this magnitude is very, very difficult to do. We were fortunate to be able to do one for a company called Palantir against the US Army. But in general, it’s extremely difficult to do. I do think it’s worth going back to understand the nature of the awards the first time around because despite what I just said, Amazon was able to get an injunction to the first JEDI award on fairly narrow grounds, despite having sweeping claims and it’s complained about President Trump’s improper influence. They ended up getting that injunction on quite a narrow technical basis. But it proved to be what appears to have been a game changer

Tom Temin: Because in a lot of the public statements, Microsoft and Amazon traded barbs about who was more technically qualified. I mean, the reality is this probably Tweedledee, Tweedledum, when it comes to technology prowess between a company like Microsoft, a company like Amazon, so it could be maybe in the details of the percentage of pennies per transaction that happens in the cloud, which could add up to millions over the years. I don’t know. We really can’t tell at this point, though, can we?

Hamish Hume: We cannot tell. And I’m not an expert on cloud technology. as such. However, it’s worth noting that despite what you say and what one would think about they must have similar technology. The injunction that Amazon one was based on a very technical point buried within the solicitation and the bid documents, that one of the requirements under just one of numerous scenarios in the original jet award was for the cloud storage system to be quote, highly accessible, which seems obvious, but they they had an offer or they had to ask for a specific definition of what is highly accessible mean. And the DoD says, well it means you have to have either online storage or replicated storage. And the whole lawsuit, the injunction boiled down to the definition of online storage, which meant it had to be available immediately without any human effort or input. And the judge held that Amazon prevailed on the injunction because the judge held that Microsoft’s bid did not satisfy that requirement. When you read the opinion, it talks about how Microsoft’s bid documents, instead of talking about online storage, talked about some other kinds of storage, the adjective, which is redacted, which is a great illustration of how even once these cases go to court and get decided, it’s very hard to tell sometimes what exactly they turned on. But right now, we really don’t know what Microsoft’s arguments are. They’re better off if they have a clean legal argument, because the standard is highly deferential on anything factual.

Tom Temin: We’re speaking with protest attorney Hamish Hume, he’s a partner at Boies Schiller Flexner. And there seems to be a bigger issue at work here. And that is over the years, the government has tried to get itself to set requirements, as opposed to technical specifications for everything it buys. This goes back to when Al Gore was vice president and the word three pages of specifications for ashtrays, that was the example that used back then. And so could it be that the government is trying to say we want a highly available cloud that’s really secure, and the reference standards for that, of course, and then the bidders are coming in with technical expressions of that requirement, and then fighting over the technical specifications, when really the government was trying to get a large requirement done.

Hamish Hume: Yes, I think what you’re talking about now is is a problem near and dear to my heart. From my old case, I think I think some of that is probably what’s going on. There’s even debate amongst the different industry players of exactly what a cloud facility means. It can mean different things to different people. It can mean infrastructure as a service platform as a service, it can sometimes even mean software as a service. There’s a National Institute of Standards and Technology definition of the cloud that people have to adhere to. But in general, the government would always like things done differently for it. And the law requires it to the maximum extent possible to buy what the commercial market makes available. And that was the legal ground on which we won the Palantir case. I don’t know that that’s going to be an issue in this case, because I think they are buying fixed price as a commercial item. But then they want it modified. Particularly DoD is always going to want things modified for its particular needs. And that may well end up being part of what is at issue in the current case, but we really don’t know.

Tom Temin: So one more piece of speculation, it could be over security, for example.

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Hamish Hume: Absolutely. And in fact, that was one of the issues that Oracle also challenged, the JEDI contract. They didn’t challenge the award, they challenged the original solicitation. And one of the things they challenged was there, there was a gating threshold requirement for any bidder had to have I forget was section 1.2, or something had to have at least two or three different physical locations with servers at least 150 miles apart. And that was obviously for national security reasons, although Oracle argued was unnecessary and shouldn’t have been at least a gating issue. So I would expect that national security issues and the security of the cloud will be central to any discussion of this. And the government will get enormous amounts of deference in court from that, which is why the only way to win one of these cases is to have a really clear legal defect or a very, very clear, factual defect that a judge will feel comfortable designing it on, because anything general or vague, they’re going to defer to the government.

Tom Temin: And of course, a leading DC law firm doesn’t go in with hunches when it goes into court, but based on your experience, and what little we do know of this, is your gut telling you that the NSA will prevail this time around?

Hamish Hume: I think if you’re a betting person, you would in these cases always bet on the government. And I think the NSA, it will have been a narrower contract than JEDI, I think they will have had the benefit of the JEDI litigation to look at. And that absent some really clear legal defect of some kind, I would expect they probably will prevail. And then the interesting question is, what is the rest of DoD going to do? Is there going to be a different kind of JEDI? There’s a talk in the press of the Joint Warfighter Cloud Capability that JWCC, instead of JEDI, they basically tried to spin the cancellation of JEDI as just technology making the original requirements obsolete to go to your earlier point. And they’re going to come out with new requirements that need to be met, and that it wasn’t because of the litigation. And maybe that’s completely accurate. I don’t know. But I’m sure the litigation contributed, at least to some degree. And so what remains to be seen whether they’re going to do it as a single request for the rest of the DoD, or different sub agencies within DoD will have different requests. And the other huge question is are they going to want a sole supplier, a sole vendor, which was what Oracle was complaining about with JEDI that it was it was crafted for only one winner or sometimes what they’ll do is they’ll have a group of winners to win the original contract and then they have subsequent task orders for specific tasks. And they’re actually supposed to favor that latter approach whenever possible.

Tom Temin: Protest attorney Hamish Hume is a partner at Boies Schiller Flexner. Thanks so much for joining me.

Hamish Hume: Absolutely, Tom. Thanks for having me.