Defense Contractors Jockey for Pentagon Post-JEDI Cloud Profits

Defense contractors who anticipated the military’s urgent demand for high-performance computing while the Pentagon’s $10 billion cloud computing program languished in federal court, see in its demise opportunities to expand their foothold in the rapidly evolving market.

While the Joint Enterprise Defense Infrastructure was on hold during a four-year saga, contractors took advantage of the uncertainty to carve out a role as cloud “integrators.” Dozens of companies earned millions of dollars in contracts brokering access to cloud services from Amazon Web Services Inc. or Microsoft Corp.—in some cases, both—even as these companies battled Pentagon lawyers in court.

Defense officials last week officially scuttled Microsoft’s $10 billion JEDI program amid worries that ongoing litigation could further delay implementation of high-performance computing tools seen as critical to success on the modern battlefield.

Its planned replacement, a new multibillion-dollar Joint Warfighter Cloud Capability (JWCC) contract, set to be split between Amazon and Microsoft, “absolutely presents an upside” for other companies, too, said Gary Wang, vice president of Peraton Corp.’s cloud and application technologies business.

Even without JEDI, cloud computing is big business at the Pentagon: more than a dozen cloud programs generated a combined $2.4 billion in contract spending during the government’s 2020 fiscal year, according to Bloomberg Government data. Now, with JWCC, the stakes are even higher.

Federal acquisition is “driven almost equally between process and relationships,” Larry Allen, a procurement expert and president of Allen Federal Business Partners, told Bloomberg Government in an email.

And as the two largest U.S. cloud providers prepare to re-enter the defense cloud market as direct competitors, many cloud services contractors are seeking to capitalize on their longstanding relationships with defense and military agencies to preserve their foothold in the cloud market or even compete for new users.

“Never count out established companies offering proven technologies to customers who are comfortable with them,” he said.

Photo: Sgt. 1st Class Marisol Walker, U.S. Army via DVIDS

The Pentagon

Marketing the Tactical Cloud

Since Pentagon officials hinted in January that they might cancel JEDI, federal contractors have offered their own programs as a ready-to-go alternative or even enterprise-scale replacements. General Dynamics Corp.’s milCloud 2.0 contract generated $59 million in spending over a three-year period, including $41 million in fiscal 2020 alone. It’s the third largest defense contractor by 2020 sales, and a company perhaps better known for producing submarines and armored vehicles than IT systems.

“milCloud 2.0 is available today and ready to meet the DoD’s critical and urgent enterprise cloud requirements,” wrote Amy Gilliland, president of General Dynamics’ IT business, in a statement to Bloomberg Government. Gilliland touted milCloud’s artificial intelligence capabilities and security credentials—including pending authorization to house classified data, which the company expects to receive “later this summer.”

In 2019 General Dynamics unveiled a sharply designed website, replete with tactical imagery, to market the program to defense customers. A header on the homepage reads: “milCloud 2.0 is here to help meet the challenge, providing mission partners the very latest cloud technology at competitive prices with the highest levels of performance and security.”

Like several other cloud projects underway at DOD, Pentagon employees and contractors can use milCloud 2.0 to access Amazon Web Services cloud products and services in addition to General Dynamics’s own proprietary tools. This could bring milCloud in direct competition with the proposed JWCC for Amazon Web Services users.

The same can be said for Science Applications International Corp., a defense systems integrator making inroads in the federal cloud market. Its $784 million Cloud One contract with the U.S. Air Force offers access to both Amazon Web Services and Microsoft products and services.

Systems integrators and other federal contractors can often persuade their customers to bypass larger, preferred contract vehicles like the JWCC using selling points such as pricing, innovative features, and speed, Allen told Bloomberg Government. They can “justify alternative acquisition methods if they are ultimately in the government’s best interest,” he said.

Timing is on the side of the incumbents. Potential customers can start taking advantage of their services now, whereas they may have to wait until the Pentagon awards contracts for JWCC, currently scheduled for mid-2022.

Integration ‘Critical’

As some cloud contractors look to lock in new customers, others—like Wang, from Peraton Corp.—see the Pentagon’s new enterprise cloud contract as an opportunity.

Peraton became a major market player virtually overnight through a merger with Perspecta Inc., one of the top cloud services brokers to the Defense Information Systems Agency as well as the Department of Health and Human Services.

By shifting to a multicloud strategy centered on Amazon and Microsoft, Pentagon leaders are offering their users greater flexibility to choose the right environment that fits their unique needs, said Wang. But doing so also introduces greater complexity. Customers will need to ensure that data and software developed in one cloud environment is compatible with the other. For that reason, the DOD may end up relying on systems integrators more so than it might have under JEDI.

“Integration solutions will be critical,” said Wang.

Asked whether the department was planning a separate procurement to find cloud support contractors for the JWCC program, acting DOD chief information officer John Sherman said last week that the department would handle most of the work internally. The Cloud Computing Program Office (CCPO) will take on the role of primary systems integrator. For now, contractors will have to watch and wait.

But with an organization as vast as the Department of Defense and with such a diverse array of mission requirements, the CCPO will revisit the question of whether to bring on additional support, said Pentagon spokeswoman Jessica Maxwell, in response to questions from Bloomberg Government.

“As JWCC adoption ramps up, the Department will begin to assess any additional integration requirements at both the enterprise and mission owner levels,” she said.

To contact the reporter on this story: Chris Cornillie in Washington at ccornillie@bgov.com

To contact the editors responsible for this story: Gregory Henderson at ghenderson@bloombergindustry.com; Heather Rothman at hrothman@bgov.com