AI Contract Spending Set to Grow in Federal Market | Government

By John K. Higgins

Mar 9, 2021 6:18 AM PT

The United States government is trying to get smarter about getting smart. Throughout the federal government, and especially in defense and national security, artificial intelligence (AI) is getting an increased amount of attention, including the adoption of hefty AI budgets. That should lead to increasing contract opportunities for information technology vendors with high competence in AI.

Federal civilian and defense contract spending for artificial intelligence and machine learning (AI/ML) is likely to grow to $4.3 billion in fiscal year 2023, according to a recent report from Bloomberg Government.

In the defense sector, AI/ML contract spending was estimated at $1.4 billion in 2020, with projections reaching $2 billion in 2021; $2.4 billion in 2022 and $2.8 billion in 2023.

Civilian agency contract spending for AI/ML was estimated at $606 million in 2020, also according to the Bloomberg Government analysis. In 2021, the amount of such spending will reach $945-million and will grow to $1.16 billion in 2022 and hit $1.44 billion in 2023.

AI Spending Growing Quickly

One notable example of the fast pace of federal AI/ML investing is the U.S. Defense Department’s Joint Artificial Intelligence Center (JAIC). Established in June 2018, JAIC was involved in awarding three major contracts between May and October of 2020 with a total potential contract value of more than $1.4 billion.

In addition to contract spending, federal agencies are investing heavily in AI/ML research — with such spending reaching $1.5 billion in fiscal 2020. The 2021 budget for AI research activities at the National Science Foundation (NSF) alone was $868 million.

The surge in federal spending has occurred in parallel with policy directives initiated during former president Donald Trump’s administration, which are likely to be continued with the incoming Biden administration.

In January, the U.S. Congress adopted the National Defense Authorization Act of 2021 (NDAA) which includes a host of provisions designed to implement the Trump administration’s AI policies, including the creation of a National Artificial Intelligence Initiative Office.

“The expansion of AI research funding and coordination by the new National AI Initiative Office places the federal government in a more prominent role in AI research,” noted Mark Lyon, a partner and chair of AI practice at Gibson Dunn and Crutcher. The AI office will be housed in the White House Office of Science and Technology Policy (OSTP).

Programs Supported by Congress

The provisions in the NDAA received bi-partisan support, a good omen for contractors with an interest in federal AI/ML activities. Enactment of the provisions “sends a signal to both our allies and adversaries that the United States will continue to be a global leader in the development and adoption of trustworthy artificial intelligence,” said Representatives Eddie Bernice Johnson (D-TX) and Frank Lucas (R-OK) in a joint statement. Johnson is chair, and Lucas is ranking member, of the House Committee on Science, Space, and Technology.

Some of the AI/ML contracts that have been awarded have been large in value and ambitious in substance. In the defense sector, several contracts awarded by the JAIC are reflective of the scope of such projects:

  • In October 2020 JAIC awarded contracts to five companies for software development, machine learning, cognitive and systems engineering, operations research, and user experience design. The companies included Redhorse, Cyber Point International, Elder Research, Barbaricum, and Enterprise Resource Performance. The companies were awarded five-year competitive blanket purchase agreements, with a potential value of $100 million for each firm.
  • The JAIC, working through the Defense Information Systems Agency (DISA), awarded a four-year task order contract with a potential value of $106 million to Deloitte Consulting. The company will design and build the Joint Common Foundation (JCF) Artificial Intelligence development environment for JAIC. Deloitte will operate as the lead system integrator of all contractor service solutions for the JCF and “will provide, operate, maintain, secure, and enhance the JCF with platforms and tools that can be shared and distributed to end-users across the DoD enterprise,” according to the JAIC.
  • In May 2020, Booz Allen Hamilton received a five-year contract with a potential value of $800 million awarded through the General Services Administration (GSA) and the Department of Defense to provide artificial intelligence services to support the JAIC. Under the task order award, Booz Allen will support the JAIC’s Joint Warfighting National Mission Initiative, “as the prime systems integrator in the development of new AI technologies and products to improve operational effectiveness in all domains,” according to the company.

Federal civilian AI/ML investments are also gaining support. For example, in September 2020 the GSA awarded a $9 million contract to Deloitte Consulting and Esper Inc. to support a federal program for utilizing artificial intelligence to modernize government regulatory activities.

Also, the U.S. Customs and Border Patrol has been active in awarding a series of contracts designed to use analytics and AI in connection with remote camera surveillance towers at U.S border locations; and the U.S. Treasury Department’s Bureau of the Fiscal Service has launched a study to assess whether artificial intelligence capabilities like machine learning and natural language processing can be used to facilitate funding management for government agencies.

Continuing Pace of Contracting

The momentum for utilizing AI/ML will likely continue within the Biden administration.

“We expect that the Biden administration will increase spending for non-defense related AI research. While President Trump proposed doubling the AI research and development budget near the end of his term, his administration primarily treated AI as a geopolitical tool and focused on funding defense-related AI research,” said Gibson Dunn’s Lyon.

“President Biden’s campaign platform committed $300 billion to non-military technology research and development, which includes AI. While it is unclear how exactly this budget will be allocated, President Biden’s decision to elevate the OSTP to a cabinet level position speaks to his administration’s apparent intent to promote the use of AI for scientific progress,” Lyon told the E-Commerce Times.

“Overall, I think we can expect a great deal of continuity between the Trump and Biden Administration approaches when it comes to investment and policy around artificial intelligence,” said Chris Cornillie, federal market analyst at Bloomberg Government. Last year the Trump administration pledged to double federal research and development investments in AI and quantum information science over two years, he said.

“I would expect AI funding to remain on that trajectory under Biden, given its implications for national security and economic competitiveness,” Cornillie told the E-Commerce Times.

Policy Continuity Likely

These significant and growing investments in AI/ML are rooted in policies supportive of the emerging technology. “I expect a lot of continuity on the policy side as well, in terms of encouraging federal agencies to adopt AI and publicizing training data sets for public consumption,” said Cornillie.

“There have been no indications that President Biden plans to disavow any of the commitments or proposals made during the last presidential term with respect to the government agencies with AI-related mandates, such as the OSTP, the NSF, and the National Institutes for Science and Technology (NIST),” Lyon said.

President Biden’s appointments to the leadership at the OSTP “suggest a stronger emphasis on accountability and regulatory oversight for breakthrough technologies like AI,” he noted. The NDAA included a legislative mandate for NIST and “we expect that the new administration will support the development of technical standards and guidelines to promote trustworthy AI systems,” Lyon said.

Both Lyon and Cornillie agreed that whether Trump’s “light touch” policy on regulating AI will be continued is yet to be determined.


John K. Higgins has been an ECT News Network reporter since 2009. His main areas of focus are U.S. government technology issues such as IT contracting, cybersecurity, privacy, cloud technology, big data and e-commerce regulation. As a freelance journalist and career business writer, he has written for numerous publications, including
The Corps Report and Business Week.
Email John.

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