Pentagon Cloud Bid in Congress's Crosshairs Amid Amazon Concerns

(Bloomberg) --Lawmakers charged with funding the Pentagon have asked the Defense Department to justify why the agency is planning to give a single company a multi-year contract for cloud services worth billions of dollars.

The $1.3 trillion spending bill proposed Wednesday by Congress directs the Defense Department to offer a "framework" for how it will acquire cloud computing services for all of its entities within 60 days of the bill’s enactment.

"There are concerns about the proposed duration of a single contract, questions about the best value for the taxpayer, and how to ensure the highest security is maintained," according to the directive, which is attached to the spending measure.

Asked about the rationale behind that language, House Appropriations Committee spokeswoman Jennifer Hing said, “the Committee has concerns about any contract that limits commercial competition by locking the Department into 10-year contracts with no exit strategy.”

Navy Commander Patrick Evans, a Pentagon spokesman, had no immediate comment on the language about the cloud award.

The Pentagon announced earlier this month that it would choose one vendor for the contract, prompting criticism from Microsoft Corp., International Business Machines Corp. and industry groups representing rivals such as Oracle Corp., which are worried that the move will favor Amazon.com Inc.’s dominant position in the market.

The directive is considered to be partially binding guidance for how the spending plan should be implemented. The Pentagon would receive $654.7 billion for fiscal year 2018 as part of the government spending agreement. The guidance emerged the same day as bidders competing for the project were due to submit comments on the cloud proposal, which the Pentagon intends to award by Sept. 30.

Tech companies jockeying for a piece of the multi-billion dollar cloud contract are urging the Pentagon to choose multiple providers, arguing that a single-source approach will stifle innovation and increase security risks, according to Roger Waldron, the president of the Coalition for Government Procurement, which represents Oracle, Microsoft, IBM and Dell Inc., among other firms.

Amazon Web Services, which is the market leader by revenue, is widely seen as the frontrunner because it already won a $600 million cloud contract from the Central Intelligence Agency in 2013, showing the company can secure and manage sensitive government data. The company has a head start in obtaining higher levels of federal security accreditations than some of its competitors, enabling the company to handle sensitive and top-secret government data.

The Seattle-based company leads the cloud infrastructure market with 44.2 percent, followed by Microsoft’s Azure with 7.1 percent, China’s Alibaba Group Holding Ltd. with 3 percent and Alphabet Inc.’s Google Cloud Platform at 2.3 percent, based on total cloud industry 2016 revenue, according to research firm Gartner Inc.

The House may vote on the spending measure as soon as Thursday, though that schedule could slip. The Senate would follow. Current government funding runs out at the end of the day Friday.