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2 business giants have contract disputes over CIA project

Usually when a company makes a bid on a services contract and the bid is accepted, there is a legal obligation on both parties to go forward. Earlier this year, observers in California and nationally saw the unfolding of one of the more interesting contract disputes when Amazon Web Services (AWS) beat out competitors for a $600 million contract to provide cloud computing to the Central Intelligence Agency. International Business Machines, however, protested the award.

That led to a report by the federal Government Accountability Office (GAO) that suggested that the CIA re-do some parts of its contract negotiations, giving IBM another chance to bid. To further complicate matters the GAO also stated that the AWS offer was superior. AWS filed a lawsuit against the GAO's recommendation to give IBM another chance to bid.

A judge of the U.S. Court of Federal Claims heard oral arguments by the parties recently. After the arguments, the judge ruled for Amazon and against IBM, which had intervened. Presumably, the judge may have applied the basic legal concept that the bid was duly accepted and the acceptance cannot be rescinded for purposes of reopening the bidding. According to an article in Reuters, it was reported that IBM would take an appeal from the decision.

Reuters reported that cloud computing is a service that lets companies rent computing power, storage and other services from shared data centers. This allows for saving costs and other managerial concerns. At first blush, however, it seems problematic that the CIA would be seeking to participate in a computing service that shares its facilities with other users from throughout the world.

\Nevertheless, whether such contract disputes occur in California, other states or on a federal level, they are generally subject to basic contract principles. For example, it's the general rule that once an offer is accepted by the offeree, in this case the CIA, it is legally bound because a contract has been formed. It could be considered a breach of contract for the CIA to renege on the AWS offer after it was accepted. The GAO report is therefore arguably out of order in trying to interfere with a legal transaction already consummated.

Source: Reuters, US court rules for Amazon.com in CIA cloud contract dispute, No author, Oct. 7, 2013

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