GAO Rules Against Pentagon's Experimental $950 Million Cloud Deal

The Government Accountability Office determined the Defense Department “did not properly exercise the authority granted to it” in February when it awarded a $950 million contract for cloud migration services to Virginia-based REAN Cloud, according to a press statement released today.

The statement outlined GAO’s decision to sustain a bid protest filed by Oracle America on Feb. 20. In its sustainment, GAO recommended the Defense Department “terminate” its contract with REAN Cloud and compete the contract through traditional competitive procedures or take other action, such as issuing a sole-source justification.

The February deal garnered attention due to the eye-popping amount and because the department awarded it without a traditional government procurement. U.S. Transportation Command made the award to REAN Cloud using an other transaction production authority based on a prototype project they worked on last year with the Defense Innovation Unit-Experimental, or DIUx.

GAO's ruling, which was issued under a protective order, concludes Defense did not use competitive procedures to select the parties for the contract and that a successful prototype of the project was not completed.

GAO recommended that the agency terminate the production OTA, and either “use competitive procurement procedures in accordance with statutory and regulatory requirements; prepare the appropriate justification required by the Competition in Contracting Act of 1984 to award a contract without competition; or review its other transaction authority to determine whether it is possible to comply with the statutory preconditions for entering into a production OTA.”

Shortly after Oracle filed a bid protest, Defense officials March 5 narrowed the scope of work and said it would limit use to change the ceiling to $65 million. The migration services, once available to the entire department, were also limited to only TRANSCOM applications. According to GAO, the written contract still lists the not-to-exceed value at $950 million, but the Defense Department told investigators it advised REAN Cloud that task orders would not exceed $65 million.

OTAs are purchases that aren’t governed by the Federal Acquisition Regulation and only some agencies have the authority to use them. As such, GAO has narrow oversight on purchases made this way: It can determine whether the agency has the authority to buy what it is buying with an OTA. Otherwise, companies with grievances must make their case in U.S. Court of Federal Claims.

Operating outside the traditional rules and solicitation process means OTAs can be awarded within weeks or months. That speed is part of the appeal. Over the last few years, Congress loosened the rules the Defense Department operates under in an effort to keep a technological edge over adversaries.

And agencies with OTA in their repertoire are using them. In Defense’s case, REAN Cloud is the second major production OTA award. California-based cybersecurity company Tanium captured a contract worth up to $750 million from the U.S. Army Network Enterprise Technology Command last year.

The Defense Department has 60 days to accept GAO’s recommendations or decline them. If the Defense Department declines, GAO is required to alert Congress.