Could Amazon Lose the Pentagon JEDI Project?

New Secretary of Defense Mike Esper apparently wanted to start his term by making some noise. He accomplished that on Thursday by announcing a review of the bidding for a $10 billion contract for the Pentagon’s Joint Enterprise Defense Infrastructure (JEDI) program. Among the bidders on the contract are Amazon.com Inc. (NASDAQ: AMZN | AMZN Price Prediction), International Business Machines Corp. (NYSE: IBM), Microsoft Corp. (NASDAQ: MSFT) and Oracle Corp. (NYSE: ORCL).

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As recently as late June, the Defense Department’s chief information officer, Dana Deasy, said the contract would be awarded to either Amazon or Microsoft by the end of August. Last August, Oracle filed a protest over the bidding process, a protest that was denied in November by the Government Accountability Office (GAO). Undeterred, Oracle filed a lawsuit in December with the U.S. Court of Federal Claims. That claim was denied in mid-July.

IBM filed a similar protest with the GAO in October that was dismissed in December. By the time the Court of Federal Claims ruled against Oracle last month, both Oracle and IBM had been eliminated from further consideration for the JEDI contract.

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Esper was confirmed as the new Defense Secretary less than two weeks later, and a week after that he announced the review of the JEDI contract. In his confirmation hearings, Esper had promised Senator Jeanne Shaheen (D-NH) that he would discuss the contract with the Pentagon’s inspector general before making the award.

Esper’s announced review also follows comments from the president, who expressed his doubts about whether the contract actually had been competitively bid. Trump claimed he had heard complaints about the bidding from Microsoft, Oracle and IBM. In a comment during a July 18 meeting with Netherlands Prime Minister Mark Rutte, the president responded to a question about the cloud services contract: “They’re saying it wasn’t competitively bid. I never had something where more people are complaining. I will be asking them to take a look at it very closely to see what’s going on because I have had very few things with so much complaining.” The president also has a long-standing beef with Jeff Bezos, Amazon’s CEO and owner of the Washington Post.

Pentagon spokesperson Elissa Smith issued a statement Thursday: “Keeping his promise to members of Congress and the American public, Secretary Esper is looking at the [JEDI] program. No decision will be made on the program until he has completed his examination.”

After the news broke Thursday, Amazon stock slid about 2% to close the day down 0.6% at $18.55.32. Shares declined another 0.8% in Friday’s premarket to trade at $1,840.07, in a 52-week range of $1,307.00 to $2,050.50. The stock’s 12-month consensus price target is $2,261.27.
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