A Microsoft logo is seen in Los Angeles, California, U.S. June 14, 2016. REUTERS
The U.S. Defense Department canceled its $10 billion JEDI cloud-computing project on Tuesday, pulling the Trump-era award to Microsoft Corp (MSFT.O) and announcing a new multi-vendor contract expected to include its big tech rival Amazon.com.
The contract awarded by the Pentagon in late 2019 has been on hold after Amazon filed a lawsuit challenging the decision under then-President Donald Trump. Trump publicly derided then-Amazon CEO Jeff Bezos and repeatedly criticized the company.
Amazon said in 2019 the Pentagon decision was full of "egregious errors," which it suggested were a result of "improper pressure from Trump." The company cited a 2019 book that reported Trump had directed the Defense Department to "screw Amazon" out of the JEDI contract.
As recently as September the Defense Department re-evaluated the contract proposals and said Microsoft's submission was the best.
Under the new Biden administration, the Pentagon said Tuesday Amazon and Microsoft are the only companies that can meet the department's requirements but later noted that they are reaching out to other cloud providers in the next three months if they also meet the government's standards.
Other top cloud companies include Oracle Corp, Alphabet Inc's Google and IBM Corp.
The Pentagon hopes to have the first awards by April 2022 for its new Joint Warfighter Cloud Capability (JWCC).
John Sherman, acting chief information officer for the Defense Department, said he expects both Microsoft and Amazon will get cloud contracts. He said the need was urgent.
"I've got to get this now -- as soon as possible -- starting hopefully as soon as April," Sherman said.
Microsoft shares were down 0.5%, while Amazon traded up more than 4% and hit a record high after the news.
Microsoft said in a statement the company was confident it will "continue to be successful as the DoD selects partners for new work". Microsoft could submit a termination bid to recover costs of the scrapped project, Sherman said.
Amazon did not immediately comment.
The now-cancelled Joint Enterprise Defense Infrastructure Cloud (JEDI) contract was budgeted for as much as $10 billion and was part of a broader digital modernization of the Pentagon aimed at making it more technologically agile.
"We don't have an estimate yet, but I wouldn't latch onto the $10 billion figure," Sherman said.
"This plan involves a multi-cloud procurement by a full and open competition perhaps as soon as early 2025. For the near term, however, we are confident that a direct award path is absolutely required and appropriate to enable us to bring urgently needed enterprise cloud capabilities to the force," Sherman said.