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Microsoft Vendors Win a $7.6 Billion Deal for Pentagon Software

Naomi Nix

(Bloomberg) -- Vendors led by General Dynamics Corp. were awarded a contract for as much as $7.6 billion to provide Microsoft office software for the Pentagon, the Defense Department and General Services Administration said.

While the Microsoft Office 365 productivity software is cloud-based, the contract isn’t related to the hotly disputed “JEDI” cloud project that the Pentagon has yet to award. Amazon.com Inc. and Microsoft Corp. are the two remaining competitors for that prize, which may reach $10 billion.

The project awarded Thursday, called Defense Enterprise Office Solutions, or DEOS, will provide tools including word processing, email, file-sharing and spreadsheets.

“We view some of these broader government modernization plans and cloud initiatives as another growth vector for Microsoft’s commercial cloud segment,” KeyBanc analyst Brent Bracelin wrote to clients.

The agencies said they chose a bid from General Dynamics’ CSRA unit and partner companies for a contract that the Defense Department estimates at as much as $7.6 billion over 10 years, including a five-year base period and opportunities to renew.

‘Multi-Cloud Strategy’

“DOD’s cloud strategy includes both general purpose and fit-for-purpose clouds. DEOS is a great example of a fit-for-purpose cloud that supports our multi-cloud strategy,” Defense Department Chief Information Officer Dana Deasy said in a statement.

Thursday’s announcement comes as the Pentagon is preparing for implementation of the controversial cloud-computing contract for Joint Enterprise Defense Infrastructure, or JEDI. Pentagon said the JEDI contract is intended to be the primary data repository for Pentagon data, while other cloud vendors will be used for other projects.

In April, the Pentagon eliminated Oracle Corp. and International Business Machines Corp. from the competition for the JEDI contract.

Oracle has said it plans to appeal a court ruling that dismissed its legal challenge of the JEDI contract. New Defense Secretary Mark Esper ordered a review of the contract after President Donald Trump endorsed criticism by Oracle and other companies that the bidding process was tilted to favor Amazon, the top cloud-computing provider.

Trump has often attacked Amazon founder Jeff Bezos, who also owns the Washington Post.

(Updates with analyst comment in fourth paragraph. An earlier version of this story had an incorrect name for Microsoft’s product.)

To contact the reporter on this story: Naomi Nix in Washington at nnix1@bloomberg.net

To contact the editors responsible for this story: Sara Forden at sforden@bloomberg.net, Mark Niquette, Larry Liebert

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