After years of squabbling between the government and some of the top U.S. tech giants over the cloud-computing contract, the Pentagon has cancelled its $10 billion cloud-computing contract awarded to Microsoft Corp. in 2019, suggesting it expects to split the work between Microsoft and rival Amazon.com Inc. instead.

“With the changing technology environment, it has become evident that the long-delayed JEDI Cloud contract no longer fits the requirements to satisfy the DoD's capability gaps", said the Defense Department.

The Pentagon faced lengthy legal objections from Amazon over the original $1 million contract issued to Microsoft. Amazon said that the Microsoft award was stained by politics, citing then-President Donald Trump's animosity toward Amazon CEO Jeff Bezos.

Earlier the project was known as the Joint Enterprise Defense Infrastructure and designed as a sole-source contract, and has been hotly contested.

However, now the Pentagon announced a ‘multi-vendor’ project, stating that it "intends to seek proposals from a limited number of providers, primarily Microsoft and Amazon Web Services”, the only two businesses it believes are capable of achieving its requirements. Other vendors will be evaluated if they can demonstrate that they meet the contract's criteria.

According to a Pentagon information sheet, the Defense Department plans to impose standards such as the ability to manage sensitive data at different classification levels, global availability of cloud services in tactical contexts, and strengthened cyber security controls.

The Justice Department, which has been defending the Defense Department's position, contacted Amazon and Microsoft a day before the new policy was announced. Although the initial feedback indicated nothing terrible, the Acting Chief Information Officer John Sherman said, "we don't have agreement with them yet”.

To outline the new approach, Sherman said he will contact Oracle Corp., International Business Machines Corp., and Alphabet Inc.'s Google. “For the next three and a half months, the door will remain open as we do market research” on additional competitors and whether they can meet the requirements.

Oracle, which had previously applied for the JEDI contract but was not selected. IBM on the other hand said that it was studying the new Pentagon approach, and Google said it was looking forward to discussing it with Pentagon officials in separate statements.

Amazon Web Services, had long been viewed as a strong contender to lead the Pentagon's Joint Enterprise Defense Infrastructure project, or JEDI. The project's goal was to store and handle massive volumes of classified data, allowing the US military to improve battlefield communications and apply artificial intelligence to improve war planning and fighting skills.

Almost as soon as the JEDI contract was given to Microsoft in October 2019, it was beset by legal challenges. Amazon Web Services, the losing bidder, went to court, claiming that the Pentagon's process was inaccurate and unfair, and that it had been unfairly influenced by politics.

The Pentagon had hinted that it would cancel the contract earlier this year, stating in May that it was obligated to reassess its options after a federal judge rejected a Pentagon request to dismiss crucial elements of Amazon's lawsuit in April.

The Pentagon reaffirmed Microsoft as the contract winner five months later, but development remained halted due to Amazon's legal appeal.

The JEDI project began with Microsoft receiving a $1 million contract as the first step in a 10-year arrangement with a potential value of $10 billion. The project that will replace it is a five-year program, with Sherman estimating that the contract value will be in the billions. Sherman stated that the government will discuss the amount Microsoft would be compensated for the cancellation of its 2019 contract.