Amazon Facing “Epic Battle” for CIA Cloud Services

International Business Machines Corp. (NYSE:IBM) has successfully protested a deal between Amazon.com Inc. (NASDAQ:AMZN) and the Central Intelligence Agency for cloud-computing services.

The U.S. Government Accountability Office sided with IBM regarding Amazon’s $600 million contract with the CIA. The GAO claims that the spy agency waived a contract requirement for Amazon and failed to properly evaluate prices. The ruling recommended that the CIA reopen negotiations with other companies, including IBM.

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IBM has been a long-time federal contracter, while Amazon is much newer to that market. IBM received about $1.5 billion in awards in the fiscal year ending September 30, 2012. Amazon has only recently made a dedicated government sales division. Currently about 300 government agencies use the company’s services, according to a statement from Amazon in May. If Amazon gets the CIA deal, the spy agency would help the company sell its cloud-computing services to other businesses and federal agencies.

The CIA hasn’t responded to the recommendations from GAO, which is a branch of Congress, but as a rule agencies generally listen to the GAO’s advice. Amazon also has not yet given a comment on the ruling. The deal is being heavily disputed because it represents “probably one of the largest cloud contracts in government,” said Allan Holmes, director of technology research for Bloomberg Government.

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“We now anticipate the reopening of the contract proposal process, and look forward to competing for the opportunity to serve this important federal agency on this vital program,” said Clint Roswell, an IBM spokesman.

“There’s an epic battle that’s going to be waged in the coming years,” said Vivek Kundra, the Obama administration’s former technology chief, about cloud-computing services in a March 2012 interview. “Companies that are going to continue to operate the way they are…I actually don’t know what their business is going to be five to six to seven years from now.”

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