Oracle, DoD face-off over cloud contract rests on single award rationale

If nothing else, Oracle Corp. has kept the federal community entertained over the last few years. First, the software giant submitted a stingingly candid commentary on the Obama administration’s IT modernization efforts, detailing three false narratives perpetuated over the last decade.

Now, Oracle offered a biting rejection of the Defense Department’s Joint Enterprise Defense Infrastructure (JEDI) cloud contract just 11 days after the Pentagon released the final solicitation.

Oracle’s protest of DoD’s decision to make JEDI a single source, single award is almost as aggressive of a takedown as was the company’s IT modernization comments.

“This anti-competitive RFP violates law and regulation, and creates significant risk that DoD will award a 10-year, $10 billion contract to a company that will not offer the best value for all the potential JEDI Cloud user’s current and future cloud service needs,” Oracle’s lawyers write.  “The DoD determination and findings oddly intimates that DoD will receive proposals for firm fixed prices to meet DoD’s future, unarticulated tactical cloud computing needs (classified and unclassified) for the next 10 years and today can determine the single best value cloud computing technological leader over the next 10 years when some — if not most — of the impactful technology has yet to be developed.”

While the Government Accountability Office reviews and analyzes the JEDI case under a November deadline, we asked three federal acquisition lawyers for their take on the case. None are associated with Oracle or the case, and all are offering their opinions based on Oracle’s public filings.

Federal News Radio talked to Steve Schooner, Nash & Cibinic professor of Government Procurement Law and co-director of the Government Procurement Law Program at the George Washington University. FNR also spoke with Antonio Franco, a partner with PilieroMazza PLLC, and Charles Tiefer, a professor of Government Contracting at the University of Baltimore Law School.

Of Oracle’s three arguments about why the RFP is flawed, which is strongest?

Franco: Oracle’s strongest argument is that the Department of Defense has not established that a single award is appropriate for such a large, long term contract. With multiple award contracts offering more options to accommodate technological innovations, competition among multiple contractors seems more appropriate under the FAR. Putting aside questions about the rationale for the large single award, Oracle also raises legitimate questions about compliance with the FAR.

Tiefer: Oracle’s strongest argument is that Defense’s restriction of JEDI to a single awardee violates the policy of both Congress, by the Federal Acquisition Streamlining Act (FASA) law, and the FAR regulation, to compete task and delivery orders.  Congress, by the FASA law, and the FAR regulation do not intend that there be only one competition at the beginning, and then monopoly award of delivery orders, in a 10-year contract for billions of dollars of services.

The JEDI contract concerns services that are very rapidly changing and evolving, and Defense just doesn’t justify skipping competitions over task orders for the next decade. It violates common sense to set up what is basically a monopoly contract for such services.

Schooner: If GAO determines that the contracting officer’s underlying determinations and findings was defective, that’s a much easier case. Maybe my favorite/best technical/micro-level argument is the lack of finite scope criticism. The RFP does not purport to identify the “specific tasks to be performed” in contract year one, much less over the 10-year period of performance. In other words, there is no baseline for apples-to-apples comparison.

Oracle writes, “The RFP neither establishes the prices that DoD will use across the contract term nor identifies the specific tasks to be performed. Both the pricing and the cloud service offerings are dynamic. The same is true of the commercial marketplace of third party software DoD seeks to access.” That’s all part and parcel of the “RFP does not provide a reasonable basis to assess the relative price to DoD of making a single award …” Oracle writes.

Did Oracle make a good enough case to show that they were actually prejudiced enough by the RFP?

Tiefer: Oracle made a convincing case that they are actually prejudiced. They show that the only way DoD could find a loophole to make a single award was to find the unbelievable. Namely, Defense would have to credibly set out now the details for competing on a firm fixed price for all future task orders. But, Oracle cannot be obliged to set genuine firm fixed price bids for the highly diverse future task orders, impossible to anticipate this far in advance, for which the details are, of course, quite unavailable.

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Franco: Oracle has made a credible claim of prejudice as the GAO does resolve doubts about prejudice in favor of the protestor when an agency allegedly violates procurement regulations. Oracle has raised legitimate issues for the GAO’s review. If the GAO ultimately finds that no procurement regulations have been violated, the GAO can decide the case on the merits. Finding that Oracle has not been prejudiced by the alleged procurement violations to avoid a decision on the merits would be unfortunate as Oracles raises important questions about a huge contract.

Schooner: Neither DoD nor commercial technological marketspace leaders can accurately predict where the still nascent cloud computing industry will be or who will lead it five years from now, much less 10. With quantum computing, blockchain, artificial intelligence and machine learning, internet of things and other technologies actively disrupting a disruptive technology, the only constant is change. DoD knows this, which leads to this obvious “duh” moment. Firm fixed price contracts looking ahead 10 years for evolving technologies is professional guesswork.

Relying on, or expecting to hold a contractor to, those FFP prices is unrealistic, a fool’s errand, inconsistent with experience, delusional, irresponsible — fill in the blank with something that rhymes with arbitrary and capricious. The DoD determination and findings oddly intimates that DoD will receive proposals for FFPs to meet DoD’s future, unarticulated tactical cloud computing needs — classified and unclassified — for the next 10 years and today can determine the single best value cloud computing technological leader over the next 10 years when some – if not most – of the impactful technology has yet to be developed.

What legal questions remain outstanding about this entire procurement?

Schooner: Challenging the nature of a stated requirement or the basic acquisition strategy – in a vacuum – is a tough road to hoe. Agencies are entitled to a fair amount of discretion in most acquisition planning disciplines. The bar should be relatively low for DoD to demonstrate there was a rational basis for this strategy. The Competition in Contracting Act of 1984 and the Federal Acquisition Regulation suggest a strong open market, i.e. full and open competition, bias. Nonetheless, closing a market, even a large market, for a long period of time is not in and of itself objectionable. DoD frequently closes massive markets through industry consolidation.

The Navy relies on a single shipyard for nuclear aircraft carriers and two shipyards for nuclear submarines. The Air Force selected a single air frame for the next generation of in-flight refueling. The Army did the same with its new sidearm, or modular handgun system. The reality is that sustaining competitive markets typically involves purchasing excess capacity or subsidizing potential competitors, longstanding, common practices that have fallen out of favor over the last few decades.

Franco: This procurement likely raises a number of other legal questions which I have not been able to evaluate. The one question that does come to mind was how the DoD is going to reconcile its supposed need to support a “common environment” for artificial intelligence and machine-learning requirements when the department has recognized it will always have multiple cloud environments. The DoD contemplates cloud users to include all of the DoD, including the Coast Guard, Intelligence Community, countries with which the United States has defense arrangements, and federal government contractors. How does DoD reconcile the conflicting goal of having multiple cloud environments with the common environment the procurement seeks to develop?  If the agency decides that it needs to go with one common environment, it means that the huge cloud market may be the domain of one contractor for the next 10 years. It is questionable whether that serves the government’s best interest and offers the best value.

Tiefer: The key remaining legal question is how much backing the top leadership of DoD can give to its nominal findings that the RFP can justify a single award for 10 years based on firm fixed prices. Another legal question for the JEDI contract, not covered in this protest, is whether DoD is setting up this RFP so that it is tilted in favor of Amazon because of Amazon’s unique credential of a past CIA contract. The super-high level of classified treatment for the CIA is unnecessary for 99 percent of what DoD handles, and for Amazon to have a high preference just for that limited aspect is for the tail to wag the dog.

Oracle’s long term view

GAO has until November to make a decision. But Schooner said this initial protest by Oracle may be more about setting the groundwork for future complaints.

“Also, even if Oracle doesn’t prevail, the protest may build a record that could potentially constrain DoD or tie DoD’s hands once the competition actually begins,” Schooner said. “In other words, Oracle may simply be seeking to obtain additional information and create a record upon which to build a subsequent protest, once Oracle is excluded from the competition or DoD actually chooses its JEDI partner.”

The one thing is clear in all of this, it will be a lot of fun watching this saga unfold and hopefully all parties involved will learn something about listening.

Read more of the Reporter’s Notebook