Defense Department Drastically Cuts Nearly $1B Cloud Contract

The Pentagon on Monday dramatically reduced the value of a nearly $1 billion contract it awarded last month to Virginia-based REAN Cloud—an Amazon Web Services partner—to provide cloud computing services to the Defense Department.

The Pentagon will reduce the size of the contract from $950 million to $65 million. The revision will limit its use to only U.S. Transportation Command rather than the entire Defense Department.

The decision, announced by Pentagon spokesman Col. Robert Manning in an off-camera press briefing, comes after intense scrutiny and pushback from tech companies—including a bid protest from Oracle—that are concerned over Amazon Web Services’ growing dominance in government and the Defense Department. Amazon Web Services, Amazon’s most profitable business, stood to gain more ground through REAN Cloud’s unique production contract before it was tweaked, as reported by Nextgov last week. REAN Cloud also can provide migration services to other cloud infrastructure providers, such as Microsoft’s Azure.

"After reviewing the production agreement recently awarded to REAN Cloud LLC, the Department has determined that the agreement should be more narrowly tailored to the original scope of the prototype agreement, which was limited to United States Transportation Command (USTRANSCOM) applications,” Manning said. “We applaud the Defense Innovation Unit Experimental's efforts to advance the Department's initiative to accelerate adoption of cloud technologies. After consideration, however, the Department has decided to modify the production agreement to descope the ceiling to $65,000,000 and limit the scope of work to services being only available to USTRANSCOM."

The announcement comes two days before the Pentagon is set to host an industry day, inviting hundreds of representatives from companies large and small to listen to officials regarding another massive cloud contract. This contract—which could be worth billions—could see one or more companies develop an enterprisewide cloud that Defense Department and military customers could use.