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Unprecedented change doomed JEDI

The ongoing JEDI controversy comes to an end

Since the process began in 2017, it was widely speculated that the approach used with the Joint Enterprise Defense Infrastructure (JEDI) contract was too large and diverse to be fulfilled by a single vendor. The unprecedented global disruption brought on by COVID-19 during 2020 and 2021 quickly confirmed those suspicions. The shift to remote work, disruptions in global IT supply chains, and accelerated interest in cloud-delivered IT services only added to the rapid pace of change in the cloud market from 2017 to present day.

Two weeks ago the Pentagon officially announced its decision to cancel the $10 billion JEDI contract with Microsoft (Nasdaq: MSFT), with the Pentagon stating, “With the shifting technology environment, it has become clear that the JEDI cloud contract, which has long been delayed, no longer meets the requirements to fill the Department of Defense’s (DOD) capability gaps.” Since Microsoft won the JEDI contract in October 2019, the contract has been mired in controversy, with Amazon Web Services (AWS) (Nasdaq: AMZN) filing numerous protests and legal challenges on the award starting in November 2019.

While politically charged rumors continue to circulate around the initial JEDI contract award to Microsoft, TBR believes the DOD’s decision to cancel the contract goes beyond these assertions and was driven by the realities of a maturing cloud market, which is becoming increasingly hybrid. And, when combined with the fact that the JEDI requirements were constructed almost two years ago, the needs of the highly complex, inter-related federal agencies demanding cloud technologies necessitates a hybrid IT and cloud approach. In summary, the DOD’s updated contract approach will provide the individual agency stakeholders with the flexibility to select cloud services and solutions based on the existing capabilities and strengths of all the leading technology providers vying for the opportunity.

Understanding the evolving JEDI controversy

Microsoft won the JEDI contract in October 2019 and prevailed against a subsequent lawsuit by AWS in 2020 that prompted the DOD to review its source selection process. The award has been mired in a legal battle between AWS and Microsoft and two years after the initial award, there was seemingly no end in sight. The DOD intimated in January 2021 that its patience with the unending court battles was running out as its need for a cloud platform was “urgent” according to acting DOD CIO John Sherman. The protracted litigation was likely a factor in JEDI’s termination and industry observers speculated the next phase of legal wrangling would examine claims of inappropriate political influence over the vendor selection process, potentially dragging the case out even further.

In the cancellation announcement the DOD stated that the original JEDI concept no longer met the DOD’s needs due to “evolving requirements, increased cloud conversancy, and industry advances,” implying JEDI had lost relevance from both technical and procurement standpoints. The contract aimed to be the foundation of a general-purpose enterprise cloud for the DOD, while the agency’s other major cloud vehicles, milCloud 2.0 and Defense Enterprise Office Solutions (DEOS), would provide for the DOD’s fit-for-purpose cloud needs. Even as the JEDI contract languished in legal purgatory, milCloud 2.0 moved forward and is now available. DEOS is right on its heels.

Not only did the DOD’s cloud needs evolve, but the termination of JEDI strongly suggests the DOD wants maximum flexibility to choose the vendor providing the most mission-appropriate cloud services on an agency-by-agency basis, while concurrently avoiding the risk of over-reliance on a single contractor for the entire agencywide cloud platform.

JEDI will be replaced by the multicloud, multivendor, and likely multibillion-dollar Joint Warfighter Cloud Capability (JWCC) IDIQ (indefinite delivery/indefinite quantity) program. JEDI was to underpin the DOD’s Joint All-Domain Command and Control (JADC2) initiative to connect systems across all military branches in a single, unified network, as well as the DOD’s Artificial Intelligence and Data Acceleration (ADA) program. The absence of a DOD-wide, purpose-built enterprise cloud solution would eventually hamper the JADC2 initiative, even as several DOD departments had recently kicked off their own cloud programs while JEDI remained stuck in court. JWCC will retain JEDI’s overarching objective to facilitate the adoption of digital solutions in AI, analytics, automation, big data, machine learning and storage across DOD C5ISR (command, control, communications, computers, cybersecurity, intelligence, surveillance, and reconnaissance) IT infrastructures.

The DOD will evaluate other cloud vendors, including Google (Nasdaq: GOOGL), IBM (NYSE: IBM) and Oracle (NYSE: ORCL), for future cloud procurements. However, AWS and Microsoft will remain the principal cloud competitors, at least at the outset, as the DOD stated that they were the only vendors able to meet DOD cloud requirements. AWS and Microsoft will receive RFPs by mid-October 2021 and notification of awards by April 2022. The DOD plans to have a more comprehensive multivendor cloud procurement vehicle in place by 2025, but for now, JWCC should address the DOD’s urgency to modernize its enterprise and tactical edge computing capabilities across all service branches.

Microsoft beats out Amazon after contentious competition for DOD’s JEDI award

Last Friday’s announcement of the massive U.S. federal government cloud contract led Senior Analyst John Caucis to publish a special report explaining how Microsoft won, why Amazon lost, and what it all means for the IT services vendors in the U.S. public sector space. “Regardless of why the DOD [Department of Defense] chose to announce the winner of the biggest single cloud contract to date in federal IT (and one of the biggest IT contracts in federal IT history) when it did, Microsoft is now poised to capture potentially billions in revenue as the DOD’s leading cloud vendor on JEDI [Joint Enterprise Defense Infrastructure], an award with a $10 billion ceiling and a potential 10-year life span if all options are exercised. Vendor selection for JEDI has been ongoing for over a year, plagued by multiple protests, internal investigations, and conflict-of-interest allegations by and between the initial four contestants, Amazon, IBM, Microsoft and Oracle. The acrimony kept the DOD from awarding JEDI by its original target date of April 2019, though the agency eliminated IBM and Oracle in April in the first ‘down-select’ of the vendor review process.”

Additional assessments publishing this week from our analyst teams

“Restructuring and automation efforts help Fujitsu reposition for profitable growth in its services business. However, the company may need to look outside its traditional client base to see tangible results throughout 2020.” — Kelly Lesiczka, Analyst

“From a cloud perspective, Fujitsu will align its strategy to its competitors’ strategies, which consist of encouraging customer migrations to hybrid and multicloud environments. However, TBR believes Fujitsu’s expertise in IT outsourcing will serve as a differentiator as Fujitsu looks to explore operational services within multicloud environments more heavily compared to industry peers. Fujitsu announced plans to invest ¥500 billion in its DX business over the next five years and to launch an independently operated consulting business, expected in January 2020, to meet its technology goals.” — Nicki Catchpole, Senior Analyst

“While Cognizant faced challenges within its mature industry segments in 2Q19, we expect the company improved its ability to scale digital solutions through additional acquisitions, such as Zenith Technologies, to offset pressure in 3Q19.” — Lesiczka

Tata Consultancy Services’ (TCS) Business 4.0 strategy focuses on expanding the company’s solution suite around next-generation offerings such as AI, analytics, big data, blockchain, cloud, IoT and security. Integrating this strategy across service delivery and got-to-market teams enables TCS to sustain its global brand awareness and creates opportunities to upsell existing clients and attract new logos seeking increasingly comprehensive digital transformations, which generates opportunities for longer-term and often larger-dollar outsourcing engagements.” — Kevin Collupy, Analyst

“TBR’s Global Delivery Benchmark shows that agile-based service delivery is speeding up vendors’ ability to deliver at scale, which is forcing vendors to hire more talent with specific skills to keep pace in this delivery model. As vendors continue to adjust business models to operate in an automation-enabled services environment, their inability to systematically and consistently monetize IP will further pressure profits.” — Boz Hristov, Senior Analyst

“In the latest Digital Transformation Insights report on Digital Marketing Services, TBR notes that as the most mature digital transformation process, customer experience process has compelled buyers to embark on omnichannel projects to unify insights and processes across the customer life cycle and deliver more personalized experiences to end consumers. While macroeconomic headwinds will taper revenue growth, AI-enabled user experience solutions will continue to create entry points for customer acquisitions compelling vendors to recalibrate investment strategies.” — Hristov

Leidos’ 3Q19 revenue is expected to rise between 4% and 6% year-to-year to between $2.68 billion and $2.73 billion as the company’s backlog continues to reach new highs, owing to a strong, sustained pace of net-new contract bookings across defense, civilian and particularly, healthcare areas. Leidos also successfully defended its position on a handful of large projects during 3Q19, including the $2.9 billion, 10-year NASA End-User Services & Technologies (NEST) program and the $927 million IT and logistics support contract with the Transportation Security Agency (TSA).” — Caucis

CACI’s revenue is projected to increase between 15% and 20% year-to-year to between $1.34 billion and $1.4 billion in 3Q19. A revenue result for CACI anywhere in the projected range would represent another record level for the company, reflecting the tight alignment of its differentiated solutions with high-priority spending areas in the defense and intelligence markets. CACI is beating out incumbents on large-scale program recompetes and effectively defending its incumbency on its own legacy engagements, while the strength of its fiscal performance points to a high-value solutions mix highly relevant to its core customer set. $1 billion in acquisitions made in 1Q19 are also bolstering CACI’s top-line, though concurrently generating margin pressures.” — Caucis

Booz Allen Hamilton’s (BAH) revenue is expected to increase between 9% and 11% year-to-year to between $1.76 billion and $1.79 billion in 3Q19, consistent with the company’s plan to aggressively execute on its FY2020 growth objectives during the first half of the fiscal year (calendar 2Q19 and 3Q19).  BAH is realizing balanced growth across its government-focused business lines, while growth in its Global Commercial business has been more variable. Irrespective, BAH continues to book a strong volume of IT modernization, advisory and security-focused engagements.” — Caucis

“To further reduce churn and increase revenue, T-Mobile is building a more robust customer ecosystem by launching new value-added services, expanding its IoT portfolio, and entering new markets such as video and residential broadband.” — Steve Vachon, Analyst

AT&T’s network investments in areas including 5G, NFV, SDN and IoT are providing the foundation for businesses to support digital transformation initiatives to enhance efficiency and customer experience. AT&T is preparing to support next-generation digital solutions by fostering network innovations at its six global AT&T Foundry centers as well as working with multiple leading technology providers including Dell Technologies, IBM, Microsoft, Samsung and Hewlett Packard Enterprise.” — Vachon

Microsoft outduels Amazon for JEDI

Microsoft beats out Amazon after contentious competition for DOD’s JEDI award

Late on the afternoon of Friday, Oct. 25, the Department of Defense (DOD) announced it had selected Microsoft (Nasdaq: MSFT) for its lucrative Joint Enterprise Defense Infrastructure (JEDI) cloud contract, the Pentagon’s plan to adopt a general-purpose cloud infrastructure first announced in November 2017. The notification of JEDI’s winner came at an odd time — we saw the first notification of Microsoft’s win at 6:30 p.m. EDT. Releasing news or documents late on a Friday afternoon is sometimes referred to as a “Friday news dump” by members of the media, a technique that can thwart in-depth media analysis of bad news or unfavorable developments affecting the story’s source.

Regardless of why the DOD chose to announce the winner of the biggest single cloud contract to date in federal IT (and one of the biggest IT contracts in federal IT history) when it did, Microsoft is now poised to capture potentially billions in revenue as the DOD’s leading cloud vendor on JEDI, an award with a $10 billion ceiling and a potential 10-year life span if all options are exercised. Vendor selection for JEDI has been ongoing for over a year, plagued by multiple protests, internal investigations, and conflict-of-interest allegations by and between the initial four contestants, Amazon (Nasdaq: AMZN), IBM (NYSE: IBM), Microsoft and Oracle (NYSE: ORCL). The acrimony kept the DOD from awarding JEDI by its original target date of April 2019, though the agency eliminated IBM and Oracle in April in the first “down-select” of the vendor review process.

Amazon was once the ostensible front-runner, but Microsoft’s approach to hybrid cloud may have won out in the end

Amazon won the $600 million cloud award with the CIA in 2013, beating out AT&T (NYSE: T), IBM and Microsoft, an engagement many industry observers expected would act as a springboard for Amazon to future cloud work in the federal IT sector. After JEDI was announced in late 2017, industry analysts believed Amazon, the market share leader in the cloud space, and its ongoing cloud work in the U.S. Intelligence Community (IC) would help clear the way to victory on JEDI. Amazon’s alliance with VMware (NYSE: VMW) was key to winning the CIA cloud work, as VMware was estimated to be hosting between two-thirds and three-quarters of government workloads running on the cloud at the time. Amazon had also enhanced the security of its cloud offerings to accommodate defense- and intelligence-grade data assurance needs by steadily obtaining new authorizations to host government data at increasingly higher security levels. As the vendor selection process for JEDI moved along, however, concerns arose that JEDI’s single-source structure would diminish the DOD’s flexibility in choosing cloud vendors and technologies. There were also indications during 2019 that the DOD’s cloud migration strategy was increasingly favoring a more piecemeal and unhurried transition to the cloud. The DOD’s evolving cloud preferences seemed to shift the JEDI competition in favor of Microsoft’s hybrid cloud approach that blends exiting IT infrastructures with new cloud systems while leveraging partners to a greater degree in the migration process. 

The JEDI contract: We don’t see the force; do you?

Considerable ink has been sacrificed parsing both the wisdom and the potential winners and losers of the Joint Enterprise Defense Infrastructure (JEDI) contract award, which is estimated to be worth up to $10 billion over 10 years. TBR wrote two commentaries around the topic in June that handicapped the potential bidders and outlined the fundamental consumption model shifts triggered by continued technological innovations changing public sector procurement factors from affordability to governance compliance — or from “wallet to will.”

The impetus for revisiting the contract flows from the Pentagon again pushing back the timeline on submitting proposals by three weeks. That the Department of Defense once again pumped the brakes despite a desire to accelerate modern technology procurement, while simultaneously ending the Q&A portion of the solicitation period, highlights the tensions and challenges created by the shift from wallet to will.

At TBR, we continue to question the efficacy of a single-source contract for cloud infrastructure services. This concept of working with one cloud vendor for compute was leading edge in the commercial space about a decade ago as enterprises wrestled with how to automate the seamless movement of applications and data between on-premises and cloud compute instances. With this technological problem largely addressed in the hybrid cloud era, the new technological challenge facing leading enterprises is automating that seamless deployment across multiple cloud environments.

In this adoption of new, consumerized technologies, we see the disruptive forces aiming at the public sector IT market opportunity. The Pentagon seeks a single-source captive solution, betting on one firm’s ability to stay ahead of the market on innovation for a decade. Such a bet makes little sense to TBR or to the industry executives with whom TBR has discussed the JEDI contract structure. Furthermore, much has been written lately about the concept of asymmetric competition, which postulates that open platforms actually shorten the competitive advantage windows technological innovations provide to technology vendors. In short, being able to exploit leading edge technology requires that companies lessen their reliance on single-source vendors rather than doubling down on them.

It has been argued that military strategists plan how to fight battles without fully appreciating the changes in warfare they will face going forward. Awarding a single-source, 10-year contract for technology innovation sounds like a continuation of that misaligned planning process. In the private sector, such deals trigger business exits from improper planning. In the public sector, the exposure to lagging strategic planning manifests in threats to national security.