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New Amazon bias charge likely to delay Pentagon's cloud contract

(Bloomberg) --A new Pentagon investigation into whether a former employee’s connections to Amazon.com Inc. corrupted a $10 billion cloud contract is likely to delay the agency’s decision to choose a winner for the massive deal.

The Defense Department review of alleged conflicts of interests, part of an ongoing court battle, has prompted the government to backtrack on parts of the extensive procurement process, after having spent 18 months on it. The Pentagon previously had said it was planning to announce a winner by April.

Department of Defense spokeswoman Elissa Smith said Monday in a statement that the new probe and the underlying litigation "are expected to impact the award date." She said she had no additional information about the timeline or anticipated award date.

The Pentagon said in a court filing made public Friday that it’s reviewing new information regarding Deap Ubhi, a former employee at a high-level Pentagon technology unit, and "possible personal conflicts of interests" related to the cloud procurement.

Cloud Data Center

Oracle Corp., which opposes the Pentagon’s plan to give the contract, known as the Joint Enterprise Defense Infrastructure, or JEDI, to a single vendor, had sued in federal court to stop the award. Amazon is widely considered to have an edge over Oracle and several other large tech companies for the deal.

Oracle’s lawsuit alleges that Ubhi helped design the contract to favor Amazon while negotiating to sell his company to the e-commerce giant.

The government asked the U.S. Court of Federal Claims to pause proceedings in Oracle’s lawsuit so that the Pentagon could review the “new information” that it only became aware of this month. The judge in the case, Eric Bruggink, granted the request on Feb. 19 and directed the government to file a status report within five days of deciding whether conflicts of interest affected the procurement’s integrity.

Ubhi, who had worked at Amazon before joining the government -- and rejoined the online retailer once he left the Pentagon -- did disclose some Amazon contacts to his Pentagon superiors. As a result, Ubhi had to recuse himself from working on the agency’s cloud-computing procurement.

A Pentagon contracting officer determined in July that Ubhi’s potential conflicts didn’t compromise the integrity of the procurement, according to the government’s filing.

After completing the new Ubhi investigation, the contracting officer, Chanda Brooks, will make a "competitive range determination," in which the companies that are realistic contenders for the award, based on the project’s requirements, are named. Then it will take at least three more months to pick a winner, the government said in its filing.

Besides Oracle and Amazon, International Business Machines Corp. and Microsoft Corp. have also submitted bids for the project.

“If she hasn’t issued the competitive range determination until now, you are largely past the April time frame,” said Stan Soloway, who was a deputy undersecretary of defense under President Bill Clinton and is now president of a Washington-area consulting firm, Celero Strategies. “You are not going to make April 1st.”

The latest Ubhi development may bolster Oracle’s argument that terms for the JEDI project violate federal procurement standards and are unfairly tailored for Amazon. If the judge finds the procurement process was corrupted, he could send the Pentagon back to the drawing board. Oral argument is scheduled for April 4.

Alternatively, the Pentagon could argue, and the court could agree, that Ubhi’s discussions with Amazon -- and any new information about them -- didn’t affect the cloud contract one way or the other. The Oracle suit, first filed in December, alleges that the Pentagon failed to properly investigate whether the procurement was unfairly compromised by conflicts, including by ties between at least two former Defense Department officials and Amazon.

Ubhi, one of the officials, formerly worked at Amazon Web Services, the company’s cloud unit. He left AWS in 2016 to join the Defense Digital Service, the Pentagon’s technology-focused division, as a product director. While there, he worked on the JEDI procurement and advocated “robustly” in favor of pursuing a single-award strategy for the procurement, according to Oracle’s lawsuit.

The lawsuit cites a Sept. 29, 2017 message to Ubhi from Defense Digital Service lawyer Sharon Woods that said “I get nervous when I hear these arguments about multiple clouds. I really need to better understand from you [Ubhi] why one provider makes sense.” In a message dated Oct. 9, 2017, Woods said Ubhi would be attending an internal Defense Department meeting on its cloud strategy because he “has a specific way he wants to tackle this [one versus multiple providers].”

Ubhi didn’t immediately respond to a request for comment and Amazon declined to comment. The Department of Defense said it’s continuing to investigate the potential conflicts.

Ubhi arrived at the Pentagon a decade after he co-founded burrp! Inc., an app for reviews of restaurants in India, according to his LinkedIn profile.

In October 2017, Ubhi disclosed to the Defense Digital Service a potential partnership between Amazon and another startup he founded, Tablehero, a restaurant reservation and online ordering service. Ubhi then recused himself from working on the procurement and two weeks later resigned from the Defense Department, according to the lawsuit.

In court documents, the government has argued that Ubhi was only involved in the JEDI procurement in its early stages. It also has claimed that, even after Ubhi’s recusal, there was a "robust debate" within the department about whether to make one or multiple contract awards. Even the deputy secretary of defense was open "to the first cloud contract being single source OR multiple source” and tasked the JEDI cloud team to “layout all options and recommendations,” according to an internal email cited by the government and dated Nov. 10, 2018.

“Evidence of bias or improper conduct could hurt Amazon Web Services’ chances of working on JEDI or lead to the Pentagon having to go back and rethink its entire strategy,” Bloomberg Government analyst Christopher Cornillie said in an email. “Either way, it could be a major setback for Pentagon officials who have been pushing for closer ties to Silicon Valley and a more commercial approach” to buying information technology.

Oracle’s lawsuit makes similar conflict-of-interest arguments against Anthony DeMartino, a former deputy chief of staff in the secretary of defense’s office. Prior to joining the Pentagon, Amazon Web Services was a DeMartino client when he worked at a consulting firm, SBD Advisors, records show.

While at the Pentagon, DeMartino "obtained briefings on the procurement for the Secretary of Defense and Deputy Secretary of Defense, directed JEDI Cloud activities, and participated in JEDI Cloud strategy meetings," according to Oracle’s lawsuit.

The government argues Oracle is "wildly" overstating DeMartino’s involvement in the procurement, which was limited to administrative activities.

The new developments in the case emerge after Oracle suffered a string of losses in its push to force the Pentagon to re-think the cloud project. In January, Bruggink, the federal claims court judge, denied Oracle’s request to seek more documents and interviews related to potential conflicts of interests for the court to review before issuing a final ruling.

"Although Oracle has highlighted the possibility that Mr. DeMartino and Mr. Ubhi could have been motivated to steer the solicitation in a direction that would benefit AWS, many of the facts that Oracle lists" don’t require further discovery, Bruggink wrote in his order. "Additionally, some of the “facts” are unsupported by any evidence, casting only suspicion on Mr. DeMartino and Mr. Ubhi."

In November, the U.S. Government Accountability Office rejected Oracle’s conflict-of-interest allegations in a separate protest. The watchdog agency said the evidence it reviewed indicated that neither DeMartino nor Ubhi had substantive input into the contract’s terms or the procurement process.

Tech companies including Oracle banded together in an informal coalition last year to urge the Defense Department to split the contract among several suppliers. They said the winner-take-all approach would lock the Pentagon into a single vendor and would heighten security risks. The department has said that making multiple awards under current acquisition law would be a slow process that could prevent it from quickly delivering new capabilities.

The Pentagon released a draft of the contract requirements in March 2018 and a final version in July.