DOD cancels $10 billion JEDI contract at center of Microsoft and Amazon feud

The Department of Defense is canceling its $10 billion Joint Enterprise Defense Infrastructure (JEDI) cloud contract. The Pentagon said it “initiated contract termination procedures” in a press release it shared on Tuesday, noting “the Department has determined that, due to evolving requirements, increased cloud conversancy, and industry advances, the JEDI Cloud contract no longer meets its needs.”

With JEDI, the Defense Department had planned to modernize its IT infrastructure, but the contract hadn’t moved forward since the Pentagon awarded it to Microsoft in 2019 on account of a legal challenge from Amazon. One month after JEDI went to Redmond, Amazon filed a formal challenge with the US Court of Federal Claims, alleging the Pentagon showed “unmistakable bias” when it evaluated the two companies.

When the lawsuit was eventually unsealed later that same year, it came out that Amazon believed it lost the contract due to interference from former President Donald Trump. According to the company, Trump “used his power to ‘screw Amazon’ out of the JEDI Contract as part of his highly public personal vendetta against Mr. Bezos, Amazon and The Washington Post.”

Following an internal audit, the Pentagon's inspector general released a report that said it found no evidence that the Trump Administration had interfered with the procurement process. At the same time, it noted that several White House officials did not cooperate with the probe. As such, it could not definitively determine whether the administration had affected the process.

Shortly after the Defense Department announced it wasn’t moving forward with JEDI, Microsoft published a blog post on the decision. “We understand the DOD’s rationale, and we support them and every military member who needs the mission-critical 21st century technology JEDI would have provided. The DOD faced a difficult choice: continue with what could be a years-long litigation battle or find another path forward,” the company said. “The security of the United States is more important than any single contract, and we know that Microsoft will do well when the nation does well.”

Microsoft went on to say the episode highlights the need for lawmakers to look at the challenge process. "The 20 months since DOD selected Microsoft as its JEDI partner highlights issues that warrant the attention of policymakers: when one company can delay, for years, critical technology upgrades for those who defend our nation, the protest process needs reform," it said.

"We understand and agree with the DOD’s decision. Unfortunately, the contract award was not based on the merits of the proposals and instead was the result of outside influence that has no place in government procurement," a spokesperson for Amazon said. "Our commitment to supporting our nation’s military and ensuring that our warfighters and defense partners have access to the best technology at the best price is stronger than ever. We look forward to continuing to support the DOD’s modernization efforts and building solutions that help accomplish their critical missions.”

Alongside the cancelation, the Pentagon announced a new multi-vendor contract called the Joint Warfighter Cloud Capability (JWCC). The agency plans to collect proposals from both Amazon and Microsoft. It contends they're the two vendors best suited to meet its needs, though it also plans to see if other companies can help it modernize its IT infrastructure. The Defense Department told CNBC and other outlets during a call that it expects to award the first direct JWCC contracts in 2022, with the procurement process to open more broadly as soon as 2025. It also said the litigation with Amazon wasn't the primary reason for the cancelation of JEDI. “The mission needs have been our primary driver on this,” John Sherman, the DOD acting chief information officer, said.

Update 3:29PM ET: Added comment from Amazon.