From $1B to nothing: GAO rules against REAN cloud deal after Oracle protest

After receiving a nearly $1 billion deal to help streamline the Defense Department’s cloud migration efforts, contractor REAN Cloud will now likely get nothing.

The Government Accountability Office announced Thursday it sustained a protest that cloud vendor Oracle filed against the deal in February, claiming DOD’s use of a so-called production other transaction agreement (OTA) for the award did not comply with federal law. GAO said the department should terminate the agreement and “use competitive procurement procedures in accordance with statutory and regulatory requirements” for the services.

A production OTA allows the military to scale the production of a successfully prototyped technology without entering into a full-scale federal contract, significantly cutting back on the time and work it takes to put new tech in the hands of the men and women on the battlefield. The department awarded its first production OTA late last year.

In the case of this deal, the U.S. Transportation Command — with the innovative contracting assistance of the Defense Innovation Unit Experimental — issued a traditional OTA to REAN Cloud last year to migrate dozens of its legacy applications to the cloud. After the success of the original OTA, DIUx and TRANSCOM extended a production OTA to REAN for $950 million, allowing the rest of DOD to use the contractor’s services.

But the production OTA at that value didn’t last long. In March, DOD decided to draw back the scope of the agreement, cutting its price tag by more than 90 percent to just $65 million and limiting work to be performed only for TRANSCOM.

The Pentagon isn’t bound to follow GAO’s recommendations, but agencies almost always do, or they risk the office reporting the matter to Congress. In this case, GAO also gave DOD the options to create a justification for awarding the OTA without open competition or to go back through and review “the statutory preconditions for entering into a production OTA” and make a winning case for its use in this scenario — both of which are very unlikely.

GAO’s decision is significant because it comes at a time when the appetite to use OTAs to prototype and acquire new technologies is perhaps the greatest it’s been at the Defense Department since it received authority to used them in 1989. Congress expanded the authority in the 2016 National Defense Authorization Act to allow “successful prototype projects to serve as justification for follow-on production contracts without the need for further competition,” which was used for the REAN agreement, as DIUx explains in its annual report from earlier this year. In 2017 alone, DIUx awarded 48 prototype agreements for $104 million, according to the report.

The decision on the REAN Cloud contract shows that the Pentagon’s urge to rush into awarding OTAs won’t go unchecked. It also highlights the brutal competition for cloud providers vying for a piece of business with the DOD. While REAN Cloud itself is not a cloud provider — it describes itself as “a global cloud systems integrator and managed service provider” — it heavily touts its work with Amazon Web Services and, to a lesser degree, Microsoft Azure, which are both major competitors of Oracle’s.

Meanwhile, this protest sustainment comes as the Pentagon looks to award a much larger, multi-billion-dollar commercial cloud contract later this year under the Joint Enterprise Defense Infrastructure cloud program.

That contract also comes with controversy, as the department plans to issue a single award for the entire scope of the deal, leaving many, particularly those in industry, worried the procurement will cut down on open competition and handcuff the DOD to a single cloud technology for the better part of a decade. Despite those concerns, DOD told Congress recently it will continue with the procurement as is, defending that anything else would prevent a swift and effective migration.