Government auditors have ruled that the Pentagon “did not properly exercise authority granted to it” when it awarded a $950 million cloud-computing contract to Rean Cloud, a Virginia-based start-up that migrates legacy computer systems to the cloud and advertises itself as an Amazon Web Services partner. The decision, announced Thursday, upheld an earlier protest brought by Oracle.
The ruling lent clarity to the Defense Department’s March 5 decision to abruptly slash the contract to a fraction of its earlier value, cutting the contract ceiling from $950 million to $65 million and dramatically limiting the scope of work. The Defense Department offered little explanation for its decision at the time, and the contractor did not know about the decision until it was contacted by reporters.
The contract had been awarded by the Pentagon’s Defense Innovation Unit Experimental (DIUx) office, a California-based agency set up to help connect the U.S. military with commercial tech companies. It was initially pushed forward under a specification known as “other transaction authority,” a procurement vehicle that allows agencies to rapidly scale up specific contract wins after an initial prototype is proved to work. Such agreements are seen as a faster alternative to traditional competitive procurement processes, which can take months or years.
In this case, Rean Cloud won a competitively procured award from the U.S. Transportation Command. It was then granted a contract with up to a $950 million ceiling that would have allowed it to move a variety of defense agencies’ legacy systems to the cloud.
Rean Cloud functions as an all-purpose integrator that moves legacy computer systems into a cloud-based format, facilitating agencies’ migration to cloud services offered by companies such as Amazon Web Services, Oracle and Microsoft.
But the award drew immediate criticism by companies that compete with Amazon Web Services, which emerged as an early leader in the government cloud-computing space, thanks to an earlier $600 million award from the Central Intelligence Agency. (Amazon.com chief executive Jeffrey P. Bezos owns The Washington Post.)
In response to the award, software giant Oracle filed a bid protest with the Government Accountability Office calling the contract an “egregious abuse” of established procurement processes in favor of a company that it said “serves as a front for [Amazon Web Services].”
Rean Cloud founder Sekhar Puli disputed the characterization in a February interview with The Washington Post, saying that agency officials would ultimately decide which cloud service to use.
“There is a perception that this is an Amazon contract, but there is little to no truth on that,” Puli said. Customers “can pick any cloud they want, and our platform would support all of that.” He acknowledged, however, that almost all of the company’s federal work leading up to the contract award had involved Amazon.
In its decision Thursday, the GAO determined that the Pentagon did not comply with the preconditions required for entering into an “Other Transaction Agreement,” recommending that the Army end the agreement and either follow a competitive procurement process or “review its other transaction authority” to determine whether it can comply with those preconditions.
The full decision was not released because it contained proprietary or sensitive details, the GAO said in its release.