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The contract was for Microsoft's cloud products. Not locally hosted Exchange.

The suite of products in question includes, among other things, remotely hosted Exchange.

For which there are perfectly adequate alternatives that do not involve Microsoft -- e.g. Google Apps.

Anyone who thinks that Google Apps are a "perfectly adequate" alternative to Exchange has never worked at a company of over 100 users with different needs and desires.

> there is no alternative which is qualitatively equivalent to MS exchange

You say that as it was a bad thing. I would be very happy if I hadn't to accommodate most of my professional communications around the idiosyncrasies of Exchange and the combination of Outlook, Entourage, Mail/iCal and Evolution clients.

This is government work. The US government continues to award contracts to companies that consistently fail -- either massively over budget, extremely late, incomplete, non-functional, or (most often) some combination of all four.