There's a new snag for Amazon in the winner-take-all $10 billion Pentagon cloud contract, and it could be good news for Microsoft (AMZN, MSFT)

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The Department of Defense has agreed to investigate some of the central complaints Oracle raised in a lawsuit.
Oracle is suing to keep the Pentagon from granting the $10 billion JEDI cloud computing contract to Amazon, which is far and away the favorite to win the bid.
This is a half-step win for Oracle that may simply delay the inevitable.
On the other hand, some in the industry are predicting that Amazon's struggles could be a windfall for another of Oracle's competitors: Microsoft.

The Department of Defense has agreed to investigate some of the central complaints raised by Oracle in a lawsuit. The suit has been Oracle's method to wrestle a $10 billion cloud computing contract out of the waiting hands of Amazon, who has long been considered the front-runner for the winner-take-all deal.

On Tuesday, the Pentagon's lawyers asked for a stay — meaning a postponement — in Oracle's lawsuit, which no one, not even Oracle, opposed. The motion asking for the stay was sealed, the Wall Street Journal reported.

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But, when granting the stay, the court indicated that the Pentagon was asking to investigate the claims raised in the suit, according to the court filing, as seen by Business Insider.

Specifically, Judge Bruggink wrote, with emphasis ours:

"For good cause shown, the court grants the government’s unopposed motion to stay this case while the Department of Defense reconsiders whether possible personal conflicts of interest impacted the integrity of the JEDI Cloud procurement. The government is directed to file a status report within five days of a final decision by DoD."

The Joint Enterprise Defense Infrastructure program (JEDI) is a 10-year contract up to $10 billion that would have the Pentagon using a single cloud provider for much of its general computing needs. As Amazon blows its competition away in the cloud computing market — not just in market share, but in the number of features its cloud offers — it has for a long time been considered the frontrunner to win the contract.

But competitors including Google, Microsoft and Oracle have complained that the Pentagon was going to to use just one provider, likely Amazon, instead of dividing the bounty up among a number of companies. Google has since dropped out of the running for the contract, citing ethical concerns, and fears that it lacked certain capabilities to fulfill the contract.

Oracle has tried a number of methods to influence and stop this train, including reportedly having CEO Safra Catz raise the issue during a dinner with President Trump, as well as a failed formal protest with the General Service Administration (GSA), the organization that handles government contracts.

Ultimately, Oracle sued, alleging that two former DoD staff members involved with the deal had ties to Amazon, creating a conflict of interest that unfairly tipped the scales in favor of Amazon. The most serious allegation was against Deap Ubhi, who was an Amazon employee before he came to work for the government on the JEDI contract process, and then rejoined Amazon after.

Oracle also previously asked the court to allow it to look at loads of documents involving Amazon's bid for the contract. In a motion at the time arguing that Oracle should not be granted such documents, Amazon leapt to Ubhi's defense, saying that Oracle "wildly overstated" Ubhi's involvement in the JEDI process — which was limited to seven weeks of market research — until he recused himself from the process. He recused himself "upon AWS’s expression of interest in a start-up that he owned," Amazon said at the time.

The person taking over the contract for the Pentagon looked into his potential conflict of interest and concluded it didn't impact the deal, and that Ubhi didn't get any farther than drafting a table of contents of potential items to include before bowing out. Ubhi could not be immediately reached for comment.

And so, it seems the Pentagon is opting to stop the lawsuit train and investigate.

Interestingly, this doesn't put Amazon out of the running by a long shot. The company's cloud services are so advanced that even former Microsoft CEO Steve Ballmer, Microsoft's largest shareholder, chose AWS to host his basketball team's new technology. Ballmer told Bloomberg that even though he "bleeds" Microsoft, AWS had the better technology to run CourtVision, his new mobile video technology for fans of the Los Angeles Clippers.

And, even if Oracle's saber rattling does cause the Pentagon to split the contact between multiple cloud vendors, it's not foregone that Oracle would be one of them. The most likely next choice would be Microsoft, and some industry observers believe Microsoft has a growing shot to take the whole thing.

Read: 'Google, this is bogus as hell' — one of the fathers of the internet blasts Google for how Chromecast behaves on his home network

Amazon did not immediately respond to a request for comment.

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