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Pentagon's Cloud Project Under Fire as Award Nears

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07/07/2019 | 05:45am EST

By John D. McKinnon

WASHINGTON -- The Pentagon plans to award a long-awaited cloud-computing contract next month, but the huge program -- expected to cost up to $10 billion -- faces mounting complications from congressional scrutiny and a court challenge.

Amazon.com Inc. and Microsoft Corp. were designated in April as finalists for the contract, drawing complaints from rival companies including Oracle Corp. and International Business Machines Corp., which say the contract-award process was skewed from the start to favor Amazon -- an allegation both the Pentagon and Amazon dispute.

Defense Department emails obtained by The Wall Street Journal could give the contract's opponents more ammunition, providing a new window into Amazon's interactions with Pentagon officials in the months leading up to the announcement of the massive cloud deal, known as Joint Enterprise Defense Infrastructure, or JEDI.

The emails show that on March 31, 2017, then-Defense Secretary Jim Mattis attended a dinner in London with Teresa Carlson, vice president of Amazon's business selling cloud services to governments, though an organizer of the dinner said cloud computing never came up. That dinner helped lay the groundwork for a meeting in August of that year between Mr. Mattis and Amazon founder Jeff Bezos, the emails show.

Pentagon officials with ties to Seattle-based Amazon also helped arrange meetings for Ms. Carlson with Mr. Mattis's chief of staff and other Pentagon officials around the same time, according to the emails, which the Journal obtained under the Freedom of Information Act. The emails didn't lay out what was discussed.

An Amazon spokesman said its cloud subsidiary, Amazon Web Services, has "received no preferential treatment in any procurement as a result of any meetings, one-on-one or otherwise, with DoD officials."

Pentagon spokeswoman Elissa Smith also defended the bidding process, calling it "open, transparent and full," and said no one in the secretary's front office participated in drafting the solicitation for bids.

Oracle has challenged the procurement process in the U.S. Court of Federal Claims, charging that a former Amazon employee working at the Pentagon helped shape the deal to favor Amazon, and then returned to work for Amazon. Oracle's suit is scheduled for a court hearing this week. The Pentagon says that employee didn't affect the bidding process.

Oracle says the pre-bid meetings between Pentagon officials and Amazon executives support its contention that the Pentagon had Amazon in mind when it drafted proposals for the project.

"It is highly irregular that the Secretary of Defense attended a small, private dinner for 'off-the-record' discussions with an Amazon sales executive," said Kenneth Glueck, who runs Oracle's Washington office.

Sen. Chuck Grassley (R., Iowa), said the emails bolster his belief that the Pentagon should restart the bidding process.

"We shouldn't have to tolerate conflicts or appearances of conflicts of interest in any government contracting process," Mr. Grassley said in a statement.

Winning the JEDI contract would cement Amazon's status as a major player in Washington. It already has built a large federal-government cloud business and has lobbied on issues ranging from internet and privacy policy to the U.S. Postal Service and government supply contracting.

The Pentagon said it plans to award the contract by the end of August. But the defense appropriations bill passed by the House on June 19 stipulates that no funds be spent to move data to the JEDI cloud until the Defense Department explains how it plans to later transition to multiple cloud providers, the government's stated preference.

The emails obtained by the Journal show that during the London meeting, Mr. Mattis said he would be interested in meeting with Amazon's chief executive, Mr. Bezos. About five months later, Mr. Mattis met with Mr. Bezos as part of a broader West Coast swing that included visits to Alphabet Inc. unit Google and a Pentagon innovation unit in Silicon Valley.

Mr. Mattis didn't respond to requests for comment through Stanford University's Hoover Institution, where he is a fellow.

A few weeks after the meeting with Mr. Bezos, Mr. Mattis's then-deputy, Patrick Shanahan, said the Pentagon would take "aggressive steps" to move more rapidly to cloud computing, according to a memo date-stamped Sept. 13, 2017.

The Pentagon put out a draft request for proposals on the cloud project in March 2018, followed by a formal request in July.

Mr. Mattis's scheduling calendar from early 2017 also shows he met with at least two other business leaders whose then-companies are in the cloud-computing business: Bill Gates, the retired founder of Microsoft, and Eric Schmidt, the former Google CEO and chairman who in recent years has headed a Defense Department modernization task force. Google and Microsoft both declined to comment.

Oracle has had high-level contacts of its own over the JEDI deal. Oracle co-CEO Safra Catz, a public supporter of President Trump and a member of his transition team, attended a White House dinner with the president last year where another guest complained about how the JEDI deal had been skewed to favor Amazon. Ms. Catz, who hadn't planned to bring up the issue, expressed agreement, according to a person familiar with the matter.

The White House said Mr. Trump has played no role in the procurement, and Oracle's Mr. Glueck said Ms. Catz's contact with Mr. Trump came after the Pentagon had already decided on its cloud approach. He said that single contact pales in significance compared with Amazon sales representatives' multiple meetings with key defense officials, including Mr. Mattis, while the Pentagon's new approach to cloud computing was being weighed.

The London dinner was held at 5 Hertford Street, a private sanctuary for A-listers in politics, business and entertainment, according to a document reviewed by the Journal. The attendees included Sally Donnelly, an aide to Mr. Mattis who had previously been a Washington consultant for Amazon.

Ms. Donnelly "always adhered to all ethical and legal obligations" during her Pentagon service, her lawyer, Michael Levy, said in a statement. He said she played no role and exerted no influence in connection with the JEDI contract.

The Pentagon emails show that Ms. Donnelly was involved in arranging meetings between Amazon and Pentagon officials, including the one between Messrs. Mattis and Bezos.

Scheduling such meetings wouldn't have violated any ethics rules, said Ms. Smith, the Pentagon spokeswoman. Ms. Donnelly and Anthony DeMartino, another former Amazon consultant who also served in the secretary's office, fulfilled all ethics requirements, she added. Mr. DeMartino didn't respond to requests for comment.

The London dinner was partly organized by Graeme Lamb, a retired lieutenant general with U.K. special forces who is now a partner in C5 Capital, a London-based venture-capital firm that has partnered with Amazon on tech incubators in the Middle East and Washington.

Mr. Mattis requested the dinner, Gen. Lamb said. He said the meeting focused on the needs of military veterans and that cloud computing didn't come up.

In one follow-on email to another defense official after the London dinner, however, an aide to Mr. Mattis sought to facilitate an April meeting between the secretary and Mr. Bezos. The aide wrote that "the SD [Secretary of Defense] and Ms. Donnelly had dinner with Teresa Carlson during the London trip; at the dinner, the SD expressed interest in meeting with Bezos at some point."

The aide added: "Purpose of the discussion would be for Bezos to impart his thoughts/observations on DoD's relationship with the tech sector."

The awarding of the JEDI contract was already delayed once while the Pentagon investigated the role of Deap Ubhi, who worked at Amazon both before and after a 2016-2017 stint with the federal government. It was Mr. Ubhi who Oracle says helped steer the JEDI procurement process to favor Amazon, a charge the company and the Pentagon dispute. Mr. Ubhi didn't responded to requests from comment.

Although the Pentagon concluded the bidding process hadn't been adversely affected, it referred the matter to its own inspector general for further investigation. The inspector general declined to comment.

--James V. Grimaldi contributed to this article.

Write to John D. McKinnon at john.mckinnon@wsj.com

Stocks mentioned in the article
ChangeLast1st jan.
AMAZON.COM -0.24% 1887.46 Delayed Quote.0.91%
HUDSON'S BAY COMPANY 0.00% 10.9 Delayed Quote.10.32%
MICROSOFT CORPORATION -0.48% 165.7 Delayed Quote.5.58%
ORACLE CORPORATION -0.91% 54.72 Delayed Quote.4.06%
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