On Thursday, a federal court in Washington ordered Microsoft to halt ongoing work on the Joint Enterprise Defense Infrastructure (JEDI) project.
Amazon had in December last year, filed a suit challenging the process through which the $10 billion cloud-computing contract was awarded.
In response to the suit, Judge Patricia E. Campbell-Smith of the Court of Federal Claims, ordered work to stop on the project until the case filed by Amazon is resolved.
The military cloud-computing systems was a high priced deal that stoked the nerves between Microsoft and Amazon last year. Amazon was seen as the favorites to win the contract until the Department of Defense awarded it to Microsoft in October last year. Amazon’s web services (AWS) is the clear leader when it comes to cloud and IT services and storage space on the internet. The decision of the Department of Defense sprang protest from Amazon who alleged that the process was rigged in favor of Microsoft.
Amazon’s claim has emanated from its founder, Jeff Bezos’ soured relationship with Donald Trump. Bezos who also owned Washington Post has been indirectly attacked by Trump due to the newspapers’ critical coverage of his administration. Trump has accused it of being partisan and spreading fake news, calling it; “Amazon Washington Post.”
Amazon’s decision to challenge the contract was further fueled by details of former Defense Secretary Jim Mattis’ book which alleged that Trump sought to screw Amazon by locking the company out of bidding for the JEDI contract.
At the news of the court ruling, Microsoft had lost $17 billion in value. The computing company stock which is valued at $1.4 trillion lost 1% of its market capitalization on Thursday. Amazon shares reportedly rose briefly before turning negative.
Amazon is asking the court to allow it to depose Trump and Defense Secretary Mark Esper. The internet giant said their testimony will help in determining if there is presidential intervention in the contract process. Although Esper had recused himself from the deal due to his son’s work relationship with IBM, Amazon is arguing that if there’s a foul play he’d be aware.
“The question is whether the president of the United States should be allowed to use the budget of D.O.D to pursue his own personal and political ends,” said an Amazon spokesman.
The Defense Department has denied the allegations and also frowned at the requested deposition involving Trump and Esper.
Microsoft said the process has been thorough and transparent, and they are disappointed in the court ruling that will result in delay of the contract execution.
“We are disappointed in the additional delay, we will ultimately move forward with the work to make sure those who serve our country can access the new technology they urgently require.
“We believe the facts will show they ran a detailed, thorough and fair process in determining the needs of the warfighter were best met by Microsoft,” Frank Shaw, Microsoft vice president said in a statement on Thursday.
The Defense Department has maintained that the bidding process violated no protocol to show favoritism.
“The acquisition process was conducted in accordance with applicable laws and regulations. All offerors were treated fairly and evaluated consistently with the solicitation’s stated evaluation criteria,” the Department said in October.
The case appears to be escalating and would likely end in a major legal battle between Amazon and Microsoft. Amazon has made another filing this month seeking an injunction that will prevent it from losing the profit it would have made from the deal.
Judge Campbell-Smith has asked Amazon to pay a $42 million collateral deposit to the court in case it later determines that the injunction was wrongfully issued against Microsoft and it needs to be paid damages.
Daniel Ives, an analyst for Wedbush Securities with a keen interest in the JEDI contract called the preliminary injunction “prudent decision” and said the $42 million will not be a burden to Amazon.
Ives added that the JEDI contract will add $40 billion into the coffers of Microsoft in the coming few years. The US Government has been using computer systems dating back to 80s and 90s, and the modernization is crucial to Trump’s administration’s quest for a better equipped military.
It is unlikely the federal court will overturn the contract since Amazon is counting deeply on the testimony of White House witnesses – Trump and Esper.