A new $3.4 billion DHS cloud contract could kick off a fierce battle between cloud giants like Amazon and Microsoft, analysts say

• The Department of Homeland Security is offering a massive cloud modernization contract worth $3.4 billion.
• The contract is in its early stages, but major cloud firms are already vying for the business, analysts say
• Unlike with JEDI, DHS is looking for a contractor instead of working with cloud firms directly and multiple providers will benefit. 
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The Department of Homeland Security is looking for a contractor to manage its massive move to the cloud, setting the scene for tech giants like Microsoft, Amazon, and Google to vye for the federal government's continued cloud investment, analysts say. 

Named the Data Center and Cloud Optimization (DCCO) Support Services contract, the $3.4 billion award is the agency's primary means for transitioning to the cloud and analysts say the major cloud providers have already been eyeing it, especially after the Pentagon's $10 billion Joint Enterprise Defense Infrastructure (JEDI) cloud contract was awarded solely to Microsoft.

DHS plans to close its own data centers in favor of a hybrid environment — a mix of data centers and cloud — that will be managed by a contractor that will act as liaison between the cloud providers and DHS. That means that unlike with JEDI, the major cloud providers won't bid for DCCO directly and that multiple providers will likely benefit. 

DHS released the final solicitation for the contract two weeks ago, and the first round of proposals is due on Thursday, Jan. 28th. Despite the contract being in its early stages, Alex Rossino, a senior principal research analyst at government contracting research firm Deltek, told Insider it would be "a major competition" and the big cloud players have "all been on it already,"  though he declined to comment on their tactics.

A Microsoft spokesperson declined to comment on the DHS contract and its involvement. Amazon, Google, IBM, and Oracle, who all bid for the JEDI contract, did not respond to a request for comment.

Becoming the new home for DHS data is a huge opportunity: Though the contract is smaller than JEDI, it's a chance for the cloud providers to be part of a federal agency's enormous migration to the cloud, and would likely pay dividends moving forward. 

Cloud providers will need to be prepared to host DHS data in a "FedRAMP-approved environment," Rossino said. FedRAMP certification — the stamp of approval that allows the government to use certified cloud products — is a long and expensive process that favors big companies with the resources to obtain it. As a prerequisite for any government business, Amazon, Google, Microsoft, IBM and Oracle have all achieved the federal authorization.

The agency first requested industry feedback on the contract in early 2019 and received over 100 responses, according to a DHS contract document. It has since pushed back deadlines for contract submission several times, citing feedback from industry, but anticipates awarding the contract after the final round of proposals in March.

The contract has several key differences from JEDI 

Analysts have compared the DHS contract to JEDI in scope, but DCCO is actually a departure from JEDI and, in some ways, a return to the norm.

DCCO goes through traditional contractors or systems integrators instead of letting the cloud providers bid directly, and relies on multiple cloud providers instead of using a single cloud. The Defense Department was widely criticized for its choice to use one cloud, with government officials and industry groups calling it a security risk and hurting innovation. Other agencies have also avoided the single-cloud approach: For example, the CIA awarded its Commercial Cloud Enterprise contract to AWS, Microsoft, Google, Oracle, and IBM in a secret deal worth "tens of billions" last November. 

DHS emphasized its reliance on multiple clouds to bidders, partially because its agency components like Customs and Border Protection (CBP) and Immigration and Customs Enforcement already rely on multiple providers. CBP currently works with AWS, Microsoft, Google, Oracle, and IBM according to contract documents. Amazon has made the most inroads in DHS, though: It is in the process of taking over the DHS biometrics database.

DHS currently operates two data centers: The first, nicknamed DC1, is located at the NASA Stennis Space Center in Mississippi and is government-owned but managed by General Dynamics IT, the IT services division of a massive defense contractor that works with AWS, Microsoft, Google, IBM, and Oracle. The contract winner will move DC1's infrastructure to the agreed-upon cloud providers.

The second DHS data center, nicknamed DC2, is located in Clarksville, Virginia and is owned and operated by Perspecta, an IT services firm that was formed out of HP Enterprise Services. Perspecta can manage both AWS and Microsoft, and its CEO described overseeing such hybrid environments at DHS as "our sweet spot." The firm also has a deeper relationship with Amazon however, including plans for a dedicated partnership for moving the data center to AWS.

Insiders say General Dynamics IT and Perspecta are likely to bid for the DHS contract, meaning their cloud partners are along for the ride as well. DHS told bidders it was open to their proposals for cloud partners, so it's possible all the major cloud providers, including Google, Oracle, and IBM could get DHS business, depending on the winning contractor.

DHS contracts controversial under Trump, a new beginning for Biden

Microsoft's contracts with ICE and CBP have come under fire during the Trump administration, but Biden's reversals could improve tech companies' relationships with the federal government.Atilgan Ozdil/Anadolu Agency/Getty Images

Working through a systems integrator or other contractor also allows Big Tech companies to shield their involvement with controversial federal agencies and will obscure how much they actually earn from those agencies. 

DHS oversees CBP's border security efforts, ICE's immigration enforcement, and USCIS's immigration services, for example, each of which sparked outrage among tech workers because of Trump-era policies. Microsoft, Amazon, Google, and Salesforce employees have all protested the use of their companies' clouds by ICE and CBP, but with DHS working through a contractor, it will be harder for outsiders to determine which cloud is being used for what.

President Biden has already reversed many of Trump's immigration policies since taking office last week, but it remains to be seen how that will change tech workers' opinions about their companies doing work with DHS. The liberal ethos of Silicon Valley aligns heavily with Biden's agenda though, and tech leaders have already praised the changes.

One test may come as soon as this summer, with a $100 million ICE Cloud contract for AWS and Microsoft Azure hosting expected to post after its current renewal expires. CBP is also expected to post a contract for cloud management and integration services this year that would weave together all five of its cloud providers, and software like Salesforce and Zoom. 

Though it's still early in the Biden administration, Rossino said IT modernization is already becoming a priority, and the president's $1.9 trillion COVID relief plan, which carved out a dedicated $10 billion for tech, is a good for cloud providers: "At least a big portion of that — if it was approved by Congress, which is a big 'if' actually — would obviously go to cloud."

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