Pentagon's Next Cloud Contract Could Be Worth Billions

The Defense Department’s developing cloud strategy has put the tech industry on edge.

According to an internal strategy document obtained by Nextgov, the Pentagon aims to award a 10-year cloud computing contract—potentially worth billions—to a single company by the fourth quarter of 2018.

The contract would call on one commercial cloud service provider to host unclassified, secret and top secret Defense Department data, and the Pentagon’s approach mirrors the CIA’s enterprisewide approach to cloud four years ago, which resulted in a 10-year, $600 million contract with Amazon Web Services. AWS has since invested heavily to provide capabilities across all data classification levels.

The similarities between the Defense’s early cloud strategy and the CIA’s has rival tech companies worried that the department’s acquisition may lean toward AWS. In any case, such a massive contract could disrupt the $100 billion federal IT market and leave the winner in a position to dominate it for years to come.

Industry fears were further stoked last week when Pentagon acquisition chief Ellen Lord essentially confirmed the department’s intent. Lord chairs an executive steering committee to accelerate cloud adoption created by Deputy Secretary Patrick Shanahan and backed by Defense Secretary Jim Mattis, who visited Seattle and Silicon Valley earlier this year.

“We are, no kidding, right now writing the contract to get everything moved to one cloud to begin with and then go from there,” said Lord, speaking Dec. 3 at the Reagan Defense Forum. "A fundamental shift we're making is to move the entire DOD to the cloud so our data can be shared and leveraged and we can do big data analytics.”

Lord perhaps realized the weight of her words and ordered senior officials not to publicly discuss the Pentagon’s cloud adoption effort “to reduce the amount of misinformation” being discussed publicly, according to Bloomberg. Some publications reporting on Lords’ remarks appeared to conflate a single-award contract with a sole-source contract, in which the department would issue a contract without competition from other companies.

Pentagon spokesperson Patrick Evans clarified to Nextgov that the Cloud Executive Steering Committee “is not planning this acquisition to be a sole source to any cloud service provider.”

“The CESG is aggressively analyzing information in order to determine how many contracts will best meet DOD's needs. The contracting action will be a full and open competition. It is too early to reach any conclusions at this time,” Evans said.

Still, the tech industry is spooked, and nearly every company that isn’t Amazon is speaking out against the Pentagon’s perceived plans because a departmentwide cloud contract would have massive consequences. Defense spends $40 billion on information technology annually and accounts for close to half the entire federal government’s tech spending.

“The Defense Department would be making a big mistake” if it awarded a single massive contract to one vendor, said Sam Gordy, general manager for IBM Federal. Gordy said Defense would be better off creating a common infrastructure and awarding a commercial cloud services contract to multiple vendors to host department data.

IBM is not alone in its criticism. The Professional Services Council, which represents more than 400 tech companies, called on the department to “avoid vendor lock-in” and advised against limiting the number of contract awards in its response to the Defense Department’s request for information.

“DOD is heterogeneous and comprises organizations that vary greatly in terms of size and specific mission needs,” the recommendations state. “DOD should at least consider a multi-cloud contract should RFP responses indicate an advantage to doing so.”

As outlined by the Joint Enterprise Defense Infrastructure (JEDI) strategy, Defense intends to issue a draft solicitation by the second quarter of 2018 for a cloud that “all DOD organizations” would be able to access.

Alex Rossino, senior principal research analyst for Deltek, said a single enterprise cloud contract “is just not necessary” given the host of existing cloud service contracts across the Defense landscape. Each military service has their own enterprisewise cloud vehicles, and Defense just awarded Falls Church, Virginia-based contractor CSRA a $500 million contract to build an internal cloud for Defense users dubbed milCloud 2.0. Defense customers can also procure cloud services from other governmentwide contracting vehicles, like Alliant 2 or the Schedule 70 series run by the General Services Administration.

The import placed on the directive from the Pentagon’s top leadership may halt or stall existing Defense cloud contracts, Rossino said, especially if the inevitable contract becomes the de-facto way to buy cloud across the entire military.

“If this contract becomes a ‘thou-shalt-use’ contract, it cuts out anybody who isn’t on the contract,” Rossino said.

However, Katell Thielemann, research vice president at Gartner, Inc., said industry fears “are overblown.” Were a single vendor to capture this Defense contract, she said other cloud providers would still have countless opportunities to win business.

“Even if DOD were to issue a contact to one vendor in short order, it doesn’t mean that’s the only cloud provider they’ll deal with,” she said. “It’s highly unlikely that only one cloud vendor will become the only player in what is a huge, fragmented complex in the ever-evolving DOD environment.”

Thielemann views Defense’s push to cloud as a technological epiphany that emerging technologies need to factor into the changing character of war. The department, she said, now seems to understand that it needs the same rapid pace of innovation Silicon Valley and other tech hubs are known for.

“What is really striking to me is that for the first time, DOD is articulating that emerging technologies adoption is an imperative,” Thielemann said. “It used to be, ‘Oh, we need to move to cloud to save money on data centers.’ Now, the discussion is that failure to do so puts us as a military disadvantage. The narrative has changed.”

Dave Mihelcic, former chief technology officer at the Defense Information Systems Agency, told Nextgov cloud adoption was something the Pentagon’s IT arm could never quite get right in part because it didn’t know what it did wrong.

“If I was able to give the cloud steering group any advice as they digest the results of the RFI, it’d be that they should be going out and looking at those who’ve attempted to utilize cloud and look at what have been the disablers,” Mihelcic said.

Mihelcic said a multi-vendor approach would keep the department from ever relying too heavily on a single vendor.

“We’re not going to live in a world of a single cloud or computing technology, we’re going to live in a world of many clouds and legacy systems,” Mihelcic said.