Every time the Pentagon announces another massive AI contract, I watch contractors scramble in the wrong direction.
Last summer, the Department of Defense awarded contracts to Anthropic, Google, OpenAI, and xAI. The headlines were everywhere. Contractors saw those numbers and started asking, "How do we get in on that?"
Here's what they missed: while they were chasing those flashy announcements, small businesses quietly captured hundreds of millions in AI contract dollars through channels nobody was watching.
The Numbers Nobody's Talking About
According to Deltek's analysis of federal AI spending from FY 2022 to 2024, small businesses accounted for 35% of total AI contract obligations. That's not a typo. More than a third of federal AI spending went to small businesses.
Even more telling: small business AI awards grew 34% over three years, jumping from $554 million in FY 2022 to $740 million in FY 2024.
The math is clear. A handful of companies split the Pentagon headlines. Hundreds of small businesses divided up nearly as much through systematic positioning in the right places.
Where the Smart Money Actually Goes
The real story isn't in Defense spending at all.
Defense represents 72% of federal AI obligations. But here's the catch: Defense spending grew only 1% during that three-year period.
Civilian agency AI spending? It grew 20%.
The agencies with accelerating budgets, expanding use cases, and less competition from billion-dollar primes are the ones small contractors should be targeting. That's where the growth is. That's where the entry points exist.
What's Changed Recently
If you've been sitting on the sidelines, the landscape shifted significantly in 2025.
New OMB guidance changed how agencies evaluate AI vendors. There's increased emphasis on transparency, documentation, and demonstrating that your AI solutions are accurate and unbiased. Contractors selling AI capabilities need to understand what agencies are looking for before submitting proposals.
GSA's FedRAMP 20x program is making it faster and cheaper for AI companies to get government authorization. That opens doors for smaller vendors who couldn't afford the traditional process.
And the conversation is changing. The shift is moving from "Do we have AI?" to "Is our AI safe, accurate, and worth the investment?"
That's good news for contractors who can demonstrate real value instead of just riding hype.
The Contract Vehicles That Actually Work
Small businesses winning AI work aren't competing head-to-head with OpenAI. They're using specific paths that favor their positioning.
The data shows agencies relied heavily on certain vehicles for AI purchases:
- Alliant 2 handled $3.5 billion in AI-related awards over three years
- IAC MAC processed $1 billion
- GSA Multiple Award Schedule continues expanding AI access
The Perplexity deal from late 2025 is instructive. GSA structured a OneGov agreement offering enterprise AI to agencies at a fraction of normal cost. That's not about the revenue for Perplexity. It's about making federal AI adoption frictionless.
The direction is clear: the government wants to buy AI quickly, through simplified channels, from vendors who can prove their solutions work.
What Agencies Actually Want
Most AI proposals fail for the same reasons.
Agencies aren't just checking compliance boxes. They're looking for vendors who can demonstrate:
- Technical readiness that matches their mission needs
- Governance frameworks that scale with the project
- Clear ownership of risks around model accuracy, bias, and data handling
- Practical implementation that fits existing workflows
The requirements matter. But compliance alone doesn't win work. Agencies are picking vendors who solve real problems with ready-to-deploy solutions.
The Path Forward
Here's what I'd tell contractors asking about AI opportunities:
Stop watching the Pentagon headlines. The big awards to major tech companies create teaming possibilities, not direct competition. The actual opportunity is in the civilian agency growth, the simplified acquisition channels, and the systematic positioning that puts you in front of buyers before solicitations drop.
Small businesses have already proven they can capture significant AI market share. The question is whether you're positioned to be part of that or still chasing contracts designed for companies with billion-dollar valuations.
The razzle dazzle is entertaining. The systematic work is what wins.
FAQ
Do I need to be an AI company to win AI contracts? No. Many AI contracts go to integrators, consultants, and service providers who can implement AI solutions rather than develop them. The key is demonstrating how you'll deploy AI capabilities to solve agency problems.
What's the most accessible entry point for small businesses? Simplified acquisitions and subcontracting arrangements offer lower barriers than competing for prime contracts. Teaming with GSA Schedule holders who have AI offerings creates immediate access to federal buyers.
Which agencies are growing their AI spending fastest? Civilian agencies collectively grew AI spending 20% from FY 2022 to 2024, compared to 1% growth at Defense. Agencies like VA, HHS, and DHS have expanding AI use cases and often face less competition from major primes.
How do I know if my AI solution meets federal requirements? Agencies are looking for vendors who can demonstrate transparency in how their AI works, document their governance approach, and show clear ownership of risks. Review your target agency's published AI policies for specific evaluation criteria.
Is it too late to get into the federal AI market? No. The market is still expanding, and simplified authorization processes are making it easier for new vendors to enter. Small businesses increased their share of federal AI spending over the past three years, and that trend is expected to continue.
Sources
Federal AI Spending Data:
- Deltek GovWin IQ, "Federal Artificial Intelligence Spending Trends, FY 2022-2024"
- Small business AI obligations: 35% of total, $740M in FY 2024
- Growth rate: 34% increase from FY 2022 ($554M) to FY 2024 ($740M)
- Defense share: 72% of total AI obligations
- Defense growth: 1% over three-year period
- Civilian growth: 20% over three-year period
- Contract vehicles: Alliant 2 ($3.5B), IAC MAC ($1B), GSA MAS ($231M)
- Source: https://iq.govwin.com/neo/marketAnalysis/view/Federal-Artificial-Intelligence-Spending-Trends-FY-2022-2024/8401
- Deltek GovWin IQ, "Small Business AI Spending FY 2022-2024: A Rising Share of Federal Contract Dollars"
DoD AI Contracts (July 2025):
- Multiple sources confirming $200M contracts to Anthropic, Google, OpenAI, and xAI
- Nextgov/FCW, August 2025
- ExecutiveGov, July 2025
GSA Perplexity OneGov Agreement:
- GSA Press Release, "GSA and Perplexity Sign First Direct to Government Deal to Accelerate AI Adoption," November 19, 2025
- $0.25 per agency, 18-month term
- First direct-to-government OneGov agreement for frontier AI
- Source: https://www.gsa.gov/about-us/newsroom/news-releases/gsa-perplexity-sign-first-direct-to-gov-deal-11192025
FedRAMP 20x Program:
- FedRAMP.gov, "Announcing the initial 20x Phase 2 pilot participants," December 10, 2025
- First AI Prioritization authorizations completing January 2026
- Source: https://www.fedramp.gov/2025-12-10-announcing-the-initial-20x-phase-2-pilot-participants/
- FedRAMP.gov AI Prioritization Page
- Source: https://www.fedramp.gov/ai/
OMB AI Procurement Guidance:
- OMB Memorandum M-25-22, "Driving Efficient Acquisition of Artificial Intelligence in Government," April 3, 2025
- OMB Memorandum M-26-04, "Increasing Public Trust in Artificial Intelligence Through Unbiased AI Principles," December 2025
- Requirements for AI transparency and documentation
- Source: https://www.whitehouse.gov/wp-content/uploads/2025/12/M-26-04-Increasing-Public-Trust-in-Artificial-Intelligence-Through-Unbiased-AI-Principles-1.pdf
Industry Analysis:
- GovWin IQ, "White House Expands Stance on Federal AI Regulation," December 2025
- ExecutiveGov, "OMB Seeks to Advance Unbiased AI Principles Via New Memo," December 2025
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