Pentagon slashes cloud contract Grocers worried by food-box plan for aid recipients

CHRISTIAN DAVENPORT AND AARON GREGG

Faced with criticism over how it awarded a contract to move agencies to the cloud, the Pentagon on Monday slashed a deal awarded to an Amazon partner, cutting the amount from nearly $1 billion to no more than $65 million, while dramatically limiting the scope of work.

When the Pentagon awarded the $950 million contract to Herndon, Va.-based Rean Cloud last month it was immediately hit with criticism for showing favoritism to a partner of Amazon Web Services, or AWS, which industry officials fear has an inside track on the Pentagon’s cloud computing work. (Amazon founder Jeff Bezos owns

Moving its computing systems to the cloud has become a priority for the Pentagon, which says it will allow it to innovate faster at a time when it fears it is losing its technological edge over potential adversaries, such as China.

The move to curtail the value of Rean’s contract by more than 90 percent comes just two days before the Pentagon is set to host what’s known as an “industry day,” a chance for companies interested in bidding on the Pentagon’s cloud computing contract to hear from government procurement officials.

And it follows weeks of criticisms from some in industry that the procurement wasn’t being handled properly — claims that Pentagon officials strongly denied. Those criticisms peaked last month when Rean won the $1 billion contract to migrate defense agencies’ systems to the cloud. Rivals said it made no sense to pick a company to migrate the services, when the ultimate cloud provider had not yet been chosen.

In response to the Rean award, Oracle filed a bid protest with the Government Accountability Office last month that called the procurement “an egregious abuse” of the procurement process for a contract it charged was “shrouded in secrecy.” And it argued that Rean “serves as a front for AWS” and that its close relationship to Amazon Web Services created a conflict of interest.

Industry officials also lamented the fact that the Pentagon did little to announce the award to Rean, which largely became public when the company issued a news release touting the contract.

Officials with Rean and Amazon Web Services, which already holds a $600 million contract to provide cloud services for the CIA, did not immediately respond to requests for comment.

Last month, Rean founding partner Sekhar Puli said that while the vast majority of the company’s federal work has been with Amazon Web Services, this contract was specifically worded to allow his company to work with any cloud provider that agencies might ask for.

“There is a perception that this is an Amazon contract, but there is little to no truth on that because we were very careful on wording the contract to say it could work with any cloud service provider,” Puli said. “We are not deciding on what cloud the customer should be on. They can pick any cloud they want and our platform would support all of that.”

But since the Pentagon has not yet awarded the larger contract, estimated to be worth billions of dollars over many years, for the Pentagon’s cloud system, it shouldn’t have awarded such a large contract to start moving its systems to the cloud, rivals argued.

“If in fact you’re going to have an open competition and an industry day to have a multivendor opportunity for the cloud, then how does it makes sense to spend a billion dollars to move to Amazon’s cloud before you’ve made the decision of what cloud you’re moving to?” Oracle Senior Vice President Ken Glueck said at the time. “You would think they’d pick what cloud they want to go to first then decide what migration service system needed to move, if any.”

On Monday, the Pentagon backed away from its initial award, saying in a statement that after reviewing the contract it decided “the agreement should be more narrowly tailored” so that Rean would build a prototype service for a single agency, the U.S. Transportation Command, instead of many different agencies within the Department of Defense.

The Pentagon was also criticized because the $950 million contract was awarded by an arm of the Pentagon, known as the Defense Innovation Unit experimental, created to harness the technology and innovation of Silicon Valleytype companies that have traditionally shied away from Pentagon work.

The procurement, a followon to a smaller competed contract, was awarded under what is known as an Other Transaction Authority, a way for the Pentagon to procure goods and services quickly, without being subject to the bureaucratic federal acquisitions process. But industry officials said that a $1 billion award under that authority was unusually high.

Bill Shook, a government contracting attorney who has represented Microsoft as well as firms that work with Amazon Web Services, said Rean should not have been eligible for an Other Transaction Authority contract because cloud services are already available in the commercial market. KRISTEN De GROOT AND GENE J. PUSKAR

RANKIN, Pa. — Finding fresh food in this tiny riverside community that was hit hard by the steel industry’s decline has always been a challenge. Then, seven years ago, Carl’s Cafe opened.

The grocery store, near new government housing, offers cooking classes and a source of fresh, healthy food. Proprietor Carl Lewis even has customers sign a pledge: If he provides fresh produce, they’ll buy it. Five such purchases, and they get their sixth free.

About half his customers pay with benefits from the federal Supplemental Nutrition Assistance Program (SNAP), so the government’s proposal to replace the debit card-type program with a pre-assembled box of shelf-stable goods delivered to recipients worries him and other grocery operators in poor areas about their patrons’ nutrition, and their own bottom line.

“If half of your business goes away, it’s going to hurt,” Lewis said.

The idea called “America’s Harvest Box” was floated in February in the Trump administration’s 2019 budget proposal, tucked inside a plan to slash SNAP by roughly $213 billion, or 30 percent, over the next 10 years. Households that receive more than $90 in SNAP benefits each month — roughly 81 percent of households in the program, or about 16.4 million — would be affected.

Grocery store trade associations, as well as nonprofits like The Food Trust, argue that removing food stamp recipients’ ability to buy their own provisions could undermine recent successes in eliminating “food deserts.”

“This notion that they need to be told what to buy is not borne out by the data,” said Alex Baloga, president and CEO of the Pennsylvania Food Merchants Association. “We want to provide healthy, affordable products to everybody, and we want to give customers a choice to take these dollars and make the best decision for their families.”

Cache Flanagan, a shopper at Carl’s Cafe who has two children ages 6 years and 10 months, wondered: “What will be in it? What about food allergies? Do we get options to pick from? Whatever they decide to put in that Harvest Box isn’t going to be fresh.”

Brandon Lipps, administrator for the Agriculture Department’s food and nutrition service, told The Associated Press in an interview last week that he wants retailers to play a role, and stressed that SNAP recipients would still receive 60 percent of their benefits in cash to spend at grocery stores.

Small stores in rural communities could also benefit, Lipps said, arguing that recipients who typically travel long distances to large supermarkets for groceries would get shelf-stable goods in their box and be able to shop at their local grocer for produce.

“The market is changing in how people get their food,” Lipps said. “I think we in the government have a duty to be changing with that market.”

The Harvest Box model would have the federal Agriculture Department procuring foods, Lipps acknowledged, but it would also rely heavily on states.

“We left the distribution to states, and there are a lot of models in that,” Lipps said. “That could include distribution through a grocery store, or a grocery store participating in distribution.”

Some grocers worried about their revenues simply fear communities could lose an institution.

“A lot of people appreciate the in-store experience down here,” said Todd Vowell, president of a company that operates supermarkets in Alabama and Mississippi bearing his family’s name. “It’s still a community gathering place where customers make friends and see old friends, and they would miss out on that if they aren’t coming to a grocery store.”