Amazon Wins Over IBM in $600 Million CIA Cloud Contract Dispute

When the CIA gave a $600 million cloud computing contract to Amazon (NASDAQ: AMZN) earlier this year, IBM (NYSE: IBM) appealed to the Government Accountability Office (GAO) – stating that Amazon Web Service’s (AWS) bid does not fall within the set criteria within the contract.

While GAO stated that AWS’s bid was “the superior technical solution” compared to IBM’s bid, IBM’s lower price tag of $93.9 million compared to Amazon’s $148.1 million contributed to GAO’s recommending the CIA to reopen the bidding on the contract.

After GAO sided with IBM and stated that CIA failed to properly evaluate the bids on the contract, Amazon promptly sued the agency. This week, U.S. Federal Court ruled in favor of Amazon in this high profile dispute and reversed the recommendation made by GAO.

“We are disappointed with the ruling from the U.S. Court of Federal Claims, reversing the GAO’s recommendation to reopen the competition and correct flaws in the bidding process,” IBM spokesman Clint Roswell stated. “IBM plans to appeal this decision. This court decision seems especially inappropriate in light of the current times, since IBM’s bid was superior in many ways, including being substantially more cost-effective. In addition, IBM has for decades supplied the government with proven mission-critical operations. The company remains committed to provide secure, reliable and robust cloud solutions to federal agencies.”

IBM’s heavy investment on data center infrastructure counted on receiving high demand from the government and corporate clients while Amazon initially centered around on providing services to small startups.

The loss of the $600 million contract caused by the ruling will be a significant blow to IBM’s data center infrastructure and will give AWS traction in gaining more government and corporate clients.

Amazon has “arrived as a serious player, due to this award,” stated research director Shawn McCarthy from IDC Government Insights. “That will change things going forward.”

With Amazon already providing around 70 percent of the public 'Infrastructure as a Service' (IaaS) market, companies such as IBM, Hewlett-Packard (NYSE: HPQ), and Oracle (NYSE: ORCL) will need to maintain their clients against Amazon’s growing presence among large corporations.