Via Grant's "Almost Daily",

Lobby horse

The Department of Defense’s forthcoming $10 billion cloud computing award, known as JEDI, has been mired in controversy and allegations of misconduct involving Amazon.com, Inc.’s web services division (AWS). Does a potential scandal involving AWS and Uncle Sam present a risk to the continuation of Amazon’s unparalleled success?

On May 24, Amazon competitor Oracle Corp. which vied for the JEDI contract and was eliminated from contention (AWS and Microsoft Corp. are the remaining bidders), filed an updated complaint with the U.S. Court of Federal Claims alleging that the procurement process for JEDI has been rife with conflicts of interest.

Oracle alleges that at least two employees, Deap Ubhi and Anthony DeMartino, improperly influenced the process to favor AWS at the expense of other competitors, as detailed by Almost Daily Grant’s on April 18. On March 4, the Federal News Network reported that the DoD Inspector General and FBI’s Public Corruption Unit have opened a joint investigation into the JEDI procurement process.

The updated court filing contains no shortage of explosive allegations:

The Department of Defense deviated from its procurement policy and did not require Ubhi, [redacted] or DeMartino (and many others) to complete conflict of interest forms and sign nondisclosure agreements prior to JEDI involvement. Consequently, several DoD officials with clear financial interests in AWS participated in JEDI in violation of applicable laws and regulations.

Mere sour grapes from a losing contestant? In its filing, Oracle cites correspondence on the Slack messaging platform suggesting that Ubhi (who worked at AWS from 2014 to 2016 before joining the Pentagon, and then returned to AWS in November 2017) pressed senior DoD official Jane Rathbun to favor a single-award approach, which is widely believed to favor AWS:

In one message, Ubhi reports “we just won this conversation’ because ‘Jane R. is now moved to our side and is supportive of a single provider.” Ubhi later advised the Defense Digital Service team to “check your email, and see Jane coming to the light”. . . In subsequent messages, Ubhi noted it “puts multi vs. single to bed once and for all hopefully (at least from a technical standpoint.” Ubhi later indicated to [DDS general counsel Sharon] Woods that he was not worried about the “single vs. double” awardee approach and “if there are people in the building (Pentagon) that (he) need(s) to go see and school, or ally, let’s do that too.”

Beyond lobbying DoD officials to structure JEDI as a winner-take-all, Oracle claims that Ubhi used his position to accumulate intelligence about competitors cloud capabilities, while preparing for his return to Amazon:

In mid-September 2017 (during his employment discussions with AWS), Ubhi helped set up the Google Drive to act as DoD’s “repository for *everything*” JEDI related. Ubhi and the DDS team subsequently convinced all DoD JEDI participants “to data dump” everything into the Google folder. Ubhi managed untold amounts of nonpublic and acquisition sensitive JEDI-related information based on his access to the JEDI Google drive. At some point prior to rejoining AWS, Ubhi synced the Google Team Drives to his laptop.

Amazon will have a hard time distancing itself from Ubhi’s conduct, if Oracle’s allegations are accurate:

AWS knew of Ubhi’s central JEDI role as AWS courted Ubhi to rejoin AWS. AWS also knew that Ubhi had not recused himself as legally required. Still neither Ubhi nor AWS notified DoD of the employment negotiations. On October 2, 2017, Ubhi emailed AWS advising that he is “running point on all [JEDI] industry touch points.”

Apart from the criminal investigation into JEDI, Congress has taken a dim view of the winner-take-all approach to the massive contract. In its 2020 budget released on May 20, the House Appropriations Committee stated that due to concerns about committing to a single provider for a 10-year term:

The Committee directs that no funds may be obligated or expended to migrate data and applications to the JEDI cloud until the Chief Information Officer of the Department of Defense provides a report to the Congressional Defense Committees on how the Department plans to eventually transition to a multi-cloud environment, as described in its January 2019 Cloud Initiative Report to Congress.

That follows an early April decision from the C.I.A. to shift to a multi-cloud strategy by 2021, after signing a $600 million contract with AWS in 2013.

No matter what happens with the government investigation, the competition is collectively taking aim at AWS. Today, Microsoft and Oracle announced an agreement to connect cloud computing units by linking their respective data centers, as well as letting users log into either company with a single user name.

As for Amazon, a $10 billion award over 10 years doesn’t stand out as critical, considering the company reported $242 billion in revenue and $11.4 billion in net income over the 12 months ended March 31. But a loss of government confidence in AWS (which generated $2.2 billion of net income in the first quarter, up 57% year-over-year and representing two thirds of the consolidated total) could be significant. As a D.C.-based observer told ADG in April: “The AWS story, as sold to enterprise customers and the Street, is built upon the [C.I.A] reference case and the cash that has come in from that deal.”