Understanding synthetic intelligence spending by the U.S. federal authorities

In our prior collection of papers for Brookings, we explored the rise of nationwide synthetic intelligence (AI) technique paperwork and sought to make sense of what every nation was attempting to do and the way successfully they have been doing it. In our concluding paper, we targeted on the place the U.S. was lagging behind and proposed choices to treatment the lagging. Specifically, we beneficial three choices: 1) apply classes from the U.S. house race to invigorate expertise growth, (2) undertake a multi-national consortium strategy (much like NATO) and (3) create a strong partnership with one different nation.

Following the steerage of “Deep Throat” of Watergate fame, on this new collection of articles, we comply with the federal path of cash to grasp the federal marketplace for AI work, the {hardware}, software program, and providers being bought. We additionally monitor the important thing gamers who allocate the cash (legislators), spend the cash (program managers), and obtain the cash (distributors). Taken collectively, this collection supplies a complete have a look at federal IT spending, its course, and its key gamers.

Information and Methodology

The entire information for this collection has been taken immediately from federal contracts and was consolidated and offered to us by Management Join. Management Join has an intensive repository of federal contracts and their information varieties the idea for this collection of papers.

On this preliminary paper, we analyzed all federal contracts over the past 5 years that had the time period “synthetic intelligence” (or “AI”) within the contract description. As such, our dataset included 663 contracts of which 652 recognized a funding company, 556 recognized a NAICS code and 504 recognized a greenback worth, with contract values ranging as much as $192 million.


Out of the 15 NAICS code classes recognized in contracts, the information present that over 95% of the AI-labeled expenditures are in NAICS 54, which is for skilled, scientific, and technical providers. This class had over $1 billion in expenditures with a complete of 474 distinctive award pairs (agency-vendor) over the past 5 years. This isn’t stunning, as sometimes the federal authorities is among the largest sources of exterior funding for analysis and growth, which is the core service of NAICS 54. The second most steadily used code was NAICS 33 (manufacturing), with solely 16 distinctive awards valued underneath $7 million (0.5% of the whole expenditures), so it’s clear that NAICS 54 dominates. General spending for analysis and growth (of which NAICS 54 is a part of) has grown at a double digit charge for a number of years. This discovering suggests an immature market which is targeted on the event of analysis quite than a extra mature market which might be targeted extra on {hardware} and software program units.

Whereas there are 15 totally different funding companies inside NAICS 54, 53% of the contracts and 87% of contract worth sit inside the Division of Protection (DoD). Well being and Human Companies (HHS) and NASA are distant second to the DoD when it comes to variety of contracts (with 17% every). Taken collectively, these contracts solely symbolize 1.5% of whole contract spend for this code. Commerce and the Veterans Administration are the following largest by contract spend at roughly 4% every.

There are a complete of 307 totally different distributors with 474 contracts. No vendor offers with greater than three funding companies, which displays a really area of interest strategy for the seller group. Three distributors (AI Options, AI Sign Analysis and United Options) take care of three companies whereas fourteen totally different distributors take care of two companies and the remaining 290 distributors take care of a single funding company. Moreover, there are solely 62 firms with a couple of contract however there are 245 with only one. There is just one vendor with greater than 10 contracts (AI Options) and solely two others with greater than 5 (AI Sign Analysis and AI Biosciences).

Whereas there are 15 totally different funding companies inside NAICS 54, 53% of the contracts and 87% of contract worth sit inside the Division of Protection (DoD).

There are 327 funding agency-vendor dyads. Of all of the dyads, AI Options is the one vendor with greater than 5 contracts with a single funding company – 56 with NASA and 10 with DoD. There are 267 distinctive dyads the place just one contract exists. Once more, this displays a really fragmented vendor group that’s working in very slim niches.


Taken collectively, we see a highly-fragmented market which is dominated by smaller distributors who typically have a single contract for AI-related providers. Many of those distributors are small distributors and, for these distributors, the AI-related work represents a considerable share of their annual income. Apparently, co-location additionally options prominently. That’s, many of those distributors are positioned in shut proximity to their federal shopper and we suspect that prior relationships – private or skilled – could exist. We see these relationships as wholesome because it displays an ecosystem of distributors which are rising in response to particular wants.

This doesn’t imply that the bigger conventional expertise companies equivalent to RAND, Northrop Grumman, Accenture, IBM, Booz Allen Hamilton and Raytheon are absent from these contracts. Nevertheless, like with their smaller counterparts, these bigger companies are nonetheless establishing beachheads the place AI may probably match. If historical past holds, we might count on these bigger companies to comparatively shortly explode of their general contractual presence given their beforehand current relationships with federal choice makers and their historic willingness to accumulate smaller companies to shortly scale up.

From the shopper aspect, the massive variety of comparatively small contracts reveals that the federal authorities remains to be very a lot in an experimental part of buying AI and is probably going on the lookout for particular use instances the place AI is acceptable. This could clarify the deal with research-based contracts versus {hardware} and software-based contracts. From a danger administration standpoint, it is a good concept. With numerous small distributors every having a single contracts, we understand that the federal government is adopting a method of letting a thousand flowers bloom, with the hope that this can result in ultimately determining the most effective strategy to AI.

Nevertheless, there’s additionally a darker future that would probably outcome if this strategy is taken. As mentioned beforehand, the U.S. is considerably behind in AI growth and, specifically, trails China by a considerable margin. In our evaluation of China’s nationwide AI plan, it’s clear that the Chinese language nationwide authorities is taking the lead on the event of AI methods and initiatives. In the meantime, different entities, such because the personal sector, are very small gamers within the plan. Which means that China can shortly establish the most effective prospects for AI and direct substantial funding on a couple of initiatives which would seem to have the very best diploma of success.

Against this, the U.S. plan is far more of a collaborative strategy, with the federal authorities, personal industries and universities all anticipated to play an energetic position. Whereas we have now little doubt that the U.S. technique will ultimately yield good outcomes, it would possible be a extra slowly evolving technique since preferential therapy will not be being given to essentially the most promising concepts. Not less than at current, the main focus seems to be on cultivating all kinds of initiatives quite than specializing in a extra slim set.

The one main focus space for the U.S. federal spending on AI is inside the DoD. It seems that the DoD is getting used as an incubator of types for AI initiatives, regardless of being solely one in every of many companies envisioned to take action within the U.S. nationwide plan. However, given the DoD’s willingness to spend on new applied sciences, it’s not stunning that that is the most important focus space. We might count on that, over time, different federal companies could be far more keen to put money into AI.

Whereas the U.S.’s broad strategy to AI will possible yield advantages sooner or later, it’s prone to be a way more slowly evolving technique than the one embraced by China. Additional, the extra diversified U.S. technique makes it difficult for federal venture/program managers to share insights developed from the person initiatives. Which means that the federal authorities is essentially relearning the identical classes from a number of initiatives, which isn’t a time-efficient technique.

The present framework for fixing this coordination situation is the Nationwide Synthetic Intelligence Initiative Workplace (NAIIO), which was established by the Nationwide Synthetic Intelligence Initiative Act of 2020. Underneath the Act, the NAIIO is directed to:

maintain constant help for AI R&D, help AI training…help interdisciplinary AI analysis…plan and coordinate Federal interagency AI actions…and help alternatives for worldwide cooperation with strategic AI…for reliable AI programs.

Whereas the intent of this Act and its formal construction are admirable, the present federal spending doesn’t appear to mirror these lofty objectives. Quite, we’re seeing a federal market that seems to be far more chaotic than fascinating, particularly given the lead China already has on the U.S. in AI actions.


The federal marketplace for AI is in its very early levels however already we see how the market is probably going going to maneuver within the coming years. Whereas we predict that the diversified strategy taken by the U.S. is prone to ultimately repay, it’s equally prone to trigger the U.S. to fall even additional behind China over the following a number of years. Enhancing the facility and course of NAIIO could be a wonderful first step to deliver construction to this chaotic market.

Constructing on the findings from this paper, additional papers on this collection will discover the multi-faceted relationships between federal program managers, AI consulting companies, and elected representatives.