Brookings recently published a paper which studied AI spending by the U.S. federal government. Three recommendations were put forward in the paper. Firstly, apply lessons from the U.S. space race to invigorate talent development. Secondly, adopt a multi-national consortium approach and, thirdly, create a robust partnership with one other country.  

The study follows the federal trail of money to understand the federal market for AI work, the hardware, software and services being purchased. It also tracked the key players who allocate the money, spend the money and receive the money.  

The dataset for the study included 663 contracts, of which 652 identified a funding agency, 556 identified a NAICS code, and 504 identified a dollar value, with contract values ranging up to $192 million.  

Major expenditures 

According to the study, out of the 15 NAICS code categories identified in contracts, over 95% of the AI-labeled expenditures are in NAICS 54, which is for professional, scientific, and technical services. The category had over $1 billion in expenditures, with a total of 474 unique award pairs over the last five years.  

While there are 15 different funding agencies within NAICS 54, 53% of the contracts and 87% of contract value sit within the Department of Defense (DoD). Health and Human services and NASA are distant from the DoD in terms of contracts.  

Market analysis 

As per the study, the US market is dominated by smaller vendors who generally have a single contract for AI-related services. Many of these vendors are smaller, and for these vendors, the AI-related work represents a substantial percentage of their annual revenue. The co-location also features prominently. Many of these vendors are located in close proximity to their federal clients and are suspected of having prior personal or professional relationships. 

Larger firms such as RAND, Northrop Grumman, Accenture, IBM, Booz Allen Hamilton and Raytheon are still establishing where AI could possibly fit. And from the client side, the large number of relatively small contracts shows that the federal government is still very much in an experimental phase of purchasing AI and is likely looking for specific use cases where AI is appropriate.  

However, there is also a darker future that could potentially result if this approach is taken. The U.S. is significantly behind in AI development and, in particular, trails China by a substantial margin. While on the other hand, the Chinese national government is taking the lead in developing AI strategies and projects.  

The Brookings research states that the U.S plan is much more of a collaborative approach, with the federal government, private industries and universities all expected to play an active role. DoD is being used as an incubator of sorts for AI projects despite being only one of many agencies envisioned to do so in the U.S. national plan. 

According to the study, it can be concluded that the federal market for AI is in its very early state, but already it can be visualized how the market is likely to move in the coming years. 

Click here to read the Brookings report