A federal judge Thursday ordered a temporary block on the JEDI cloud contract, which was awarded to Microsoft, in response to a suit filed by Amazon. Shares of Microsoft fell on the news, while Amazon's stock was down slightly.
A court notice announcing the injunction was filed on Thursday but wasn't public. It's unclear why the documents were sealed.
The Joint Enterprise Defense Infrastructure, or JEDI, cloud computing contract is intended to modernize the Pentagon's IT operations. The contract could be worth up to $10 billion for services rendered over as many as 10 years. Microsoft was awarded the contract on Oct. 25.
Amazon's cloud-computing arm, Amazon Web Services, is instructed to earmark $42 million for any "costs and damages" that could be incurred in the event that the "injunction was issued wrongfully," the filing states. Amazon must file a notice with the courts indicating it has obtained the $42 million by Feb. 20. Microsoft and Amazon must respond to the filing by Feb. 27.
Microsoft and the Department of Defense criticized the ruling.
Frank Shaw, Microsoft's corporate vice president of communications, told CNBC in a statement: "While we are disappointed with the additional delay we believe that we will ultimately be able to move forward with the work to make sure those who serve our country can access the new technology they urgently require. We have confidence in the Department of Defense, and we believe the facts will show they ran a detailed, thorough and fair process in determining the needs of the warfighter were best met by Microsoft."
Department of Defense spokesperson Lt. Col. Robert Carver said, "We are disappointed in today's ruling and believe the actions taken in this litigation have unnecessarily delayed implementing DoD's modernization strategy and deprived our warfighters of a set of capabilities they urgently need. However, we are confident in our award of the JEDI cloud contract to Microsoft and remain focused on getting this critical capability into the hands of our warfighters as quickly and efficiently as possible.
Last month, AWS filed a formal motion asking the court to pause Microsoft's work on the JEDI cloud contract, claiming the evaluation process included "clear deficiencies, errors and unmistakable bias." The court granted that motion on Thursday.
In April, the Defense Department announced that Amazon and Microsoft were the two finalists to provide the contract, ruling out other contenders, such as IBM and Oracle. Then in July, President Donald Trump said he was looking into the contract after IBM and other companies protested the bidding process. Microsoft was ultimately awarded the contract last October.
Amazon has been protesting the move, saying that it was driven in part by Trump's bias against the company. Trump often criticizes Amazon and its CEO Jeff Bezos, who also owns The Washington Post, claiming the newspaper unfairly covers his administration.
Court documents filed last December laid out in greater detail why AWS is challenging the decision. In them, AWS alleged Trump launched "behind-the-scenes attacks" against the company, which caused it to lose out on the cloud contract. AWS has called for the Defense Department to terminate the award and conduct another review of the submitted proposals.
Earlier this week, Amazon said in newly unsealed court documents that it's looking to depose Trump, Defense Secretary Mark Esper and former Defense Secretary James Mattis as part of its protest of the JEDI cloud contract award. Amazon argues that it needs to hear from Trump to learn the scope of his involvement in the bidding process.
Amazon's top spokesperson Jay Carney told CNBC on Wednesday that the company is protesting the decision to make sure the award process was "free of political interference."
"All we're trying to do through this protest and this request for a legal review is to ensure that a proper decision was made on behalf of U.S. taxpayers," Carney, a former press secretary for President Barack Obama, told CNBC when asked about Amazon's move to depose Trump.
Microsoft has been staffing up in preparation for working on the JEDI project, despite Amazon's protest. The company made attempts to lure talent from defense contractors and other companies, while there were numerous job openings for people with security clearances. Brad Smith, Microsoft's president and chief legal officer, told CNBC that the company was "moving even faster" since the JEDI contract was awarded.