7 Things The Judge Didn't Like About IBM's CIA Cloud Legal Battle With Amazon

Order In The Court

IBM lost a huge CIA cloud computing contract to Amazon Web Services last month after an eight-month legal battle. To add insult to injury, a judge in the case had some choice words for the tactics IBM's legal team used in his written opinion on the case, which was published Nov. 8.

In the document, Judge Thomas C. Wheeler of the U.S. Court Of Federal Claims said IBM used "gamesmanship" to get the CIA to re-open bidding on the 10-year, $600 million deal in June, three months after the agency had chosen AWS to build its cloud.

Wheeler also called the U.S. Government Accountability Office (GAO) recommendation in June to re-open bidding for the contract "irrational," suggesting that IBM had no chance of winning the deal anyway.

CRN combed through Wheeler's written opinion on the case and here presents a rundown of some of his more scathing assessments of IBM's tactics.

History Of The AWS-IBM Dispute

Before we get into the details of Judge Wheeler's ruling, here's a quick rundown of the AWS-IBM dispute.

The CIA picked AWS over IBM on Feb. 14 to build what was described as a replica of the AWS running in the CIA's own data center.

IBM filed a protest in March to block the CIA deal, and in June, the GAO upheld parts of it and recommended the CIA re-open bidding.

In July, AWS sued the government to have the deal re-instated, and it won that ruling in early October. IBM finally gave up when the government said any further delays could harm national security.

AWS is the top public cloud player, but the CIA contract calls for a private cloud. That's what made this win doubly significant: Not only has IBM ruled the roost for decades in government IT, but AWS moving into the private cloud space could open a new front in the cloud wars.

IBM's Controversial Bid On CIA Cloud

IBM's pricing estimate for the CIA contract is central to the controversy. The CIA gave each vendor six cloud use cases and asked them to come up with an estimate of how much they would cost. One of these cases, called "Scenario 5," describes a "hosting environment for applications which process vast amounts of information in parallel on large clusters," according to the CIA's RFP.

IBM and Amazon were asked to submit bids for a cluster capable of processing 100 TB of "raw input data entirely on direct attached storage," according to the RFP. The bids were supposed to reflect the estimated cost of running analytics on this data continuously for the course of one year.

IBM submitted a bid last October that was in line with what AWS and one other unnamed company had bid. But in December, it emerged that IBM had "adopted a dramatically different interpretation for Scenario 5" that significantly dropped the price of its bid, Wheeler said in his ruling.

The Consequences Of IBM's Lower Bid

According to Wheeler, IBM intentionally changed its interpretation of Scenario 5 so it could submit a lower price and thereby gain an advantage. And if it didn't win the CIA deal, IBM could cry foul and protest the pricing evaluation, Wheeler said in his written opinion.

That's how it played out: When IBM protested the deal, it claimed there was no common way of evaluating each vendor's estimate for what the CIA cloud would cost. The GAO agreed and recommended in June that the CIA re-open bidding. "Given the absence of a rational alternative explanation, it is obvious that when IBM deviated from its initial approach, it did so as a way to manipulate the situation in its favor," Wheeler said in the document.

"IBM respectfully but strongly disagrees with the court's unwarranted assertions. Our position remains the GAO's findings were appropriate and the contract should have been rebid," an IBM spokesperson said in an emailed statement.

IBM's Beef With The CIA's Security Requirements

IBM's protest also claimed that the CIA modified the terms of the cloud contract after it had picked AWS.

The CIA contract called for the winner to ensure that all software in its cloud be free from viruses. AWS argued that it should only be responsible for vetting the software it provided, and not third-party software, and the CIA agreed.

After the CIA picked AWS, IBM said removing the third-party software security requirement amounted to an unfair alteration of the contract. The GAO agreed as part of its June recommendation to re-open bidding.

Wheeler noted that before the CIA awarded the deal to AWS, IBM itself tried to have the third-party software security requirement removed. "IBM's objection was not raised in a timely fashion and therefore should have been barred," Wheeler said in the document, calling the GAO decision to uphold IBM's protest "irrational."

Why The CIA Picked AWS Even Though IBM's Estimate Was Cheaper

AWS's estimated price for the CIA cloud was around $148 million, whereas IBM's was about $94 million. Despite the discrepancy, the CIA picked AWS, and there are a couple of reasons for this, Wheeler said in the ruling.

IBM's guaranteed minimum was $39 million, while AWS's guaranteed minimum was $25 million. Wheeler said because IBM's $39 million figure was "nearly double the anticipated Year 1 amount for IBM's services," the CIA would've likely had to "make a large year-end payment to IBM." What's more, the CIA saw that IBM's contract proposal would have allowed it "to request restructuring of the entire agreement after Year 2 if the service price in that year did not exceed the guaranteed minimum," Wheeler said in the ruling.

These terms allowed IBM "to propose a low price for the agency's proposal evaluation purposes, but then to argue for negotiation of a higher price in the later years of performance," Wheeler said in the ruling.

Amazon's Cloud Was Better Than IBM's, Judge Says

Wheeler makes clear his opinion that IBM did not lose the CIA cloud deal because of pricing and contract issues, but "because of the overall inferiority of its proposal."

For example, IBM didn't show that its auto-scaling capabilities could meet the CIA's requirements, Wheeler said in the ruling.

"Even if IBM's arguments regarding the price evaluation and modified solicitation requirement were persuasive, it remains implausible that there would be any effect on the outcome of the procurement. AWS's offer was superior, and the outcome of the competition was not even close," Wheeler said in the document.

"AWS's offer was superior in virtually every way but price, and IBM's advantage in that area was likely not as great as IBM attempted to make it appear," Wheeler said ruling.

If Anyone Was Wronged Here, It Was Amazon, Says Judge

Wheeler also makes the point that AWS suffered more than IBM from the delay stemming from the legal battle, noting that "improper corrective action in the form of reopening competition is not harmless."

"The unfairness inherent in such an action is that the winner must resubmit a new proposal with the information from its original offer already disclosed. In effect, AWS would have to bid against its own winning proposal," Wheeler said in the document.

AWS, for its part, just seems pleased to have the controversy behind it. "Amazon Web Services is pleased that the legal process has validated the CIA's selection of AWS to assist the CIA with this transformative project to implement proven, innovative commercial cloud technology," an AWS spokesperson said in an emailed statement. "AWS presented the Agency with the superior and best value solution. We look forward to a successful relationship with the CIA."