A few days ago, the Air Force announced it would cancel $5.3 billion worth of cybersecurity contracts. Those contracts were already budgeted.
Why did they cancel the contracts? And is that cancelation bad news for artificial intelligence (AI)?
I’ll put that into context.
The U.S. Air Force budget is one of the line items in the Defense budget.
That means the contracts that were canceled were already funded by the 2022 Defense budget.
So, they have nothing to do with the current Congressional squabbles over next year’s budget.
But here’s the thing – the Air Force backed away from awarding contractors that money.
Is the Air Force Canceling AI? Not So Fast…
Here’s where the plot thickens.
The Air Force isn’t taking the money off the contract table. Instead, it was overwhelmed by contractor enthusiasm. That created a wrinkle in logistics.
The Air Force didn’t have the capacity to process the more than 250 proposals they received.
That means the competition for those contracts was more than what the Air Force could handle.
As the Air Force just explained in its 30th update on this matter:
It is in neither the U.S. Air Force’s nor industry’s best interest to award far more prime contracts than the program and its supporting workforce can properly administer…
But this was no small contract – or in an unimportant area.
Instead, it was a large, well-defined Enterprise Cyber Capabilities contract. Code name EC2.
The EC2 award was crafted to upgrade national security imperatives.
These include command-and-control, planning and operations, vulnerability research, software and tool development, modeling and simulation, and threat assessment.
And this is where AI comes in.
Because you can’t have solid data or cybersecurity without state-of-the-art AI. But more on that in a moment…
This is a multiple-award Indefinite Delivery, Indefinite Quantity (IDIQ), 10-year (five-year base and five-year option period) contract.
Translated into English, that means it’s a contract built for the long haul. It’s a coveted category. For the industry, the eventual contract winners can rely on related funds for up to a decade.
Yet, the Air Force stopped the contract process about a year-and-a-half after it began – right before it was due to announce results.
The Air Force Spends Billions on Cybersecurity and AI Technology
The move is unusual considering the massive amount of funding the Department of Defense (DoD), including the Air Force, has been doling out in contracts over the years.
In fiscal year 2022, the government spent over $690 billion – the largest amount ever – on federal contracts. That’s more than the GDP of some governments.
Of that total, the Air Force spent over $80.35 billion on contracts. Of that, it allocated $1.4 billion for specific cybersecurity and technology initiatives. And a large portion of that went to five main areas.
You can see the breakdown of the five main areas where it directed those funds below…
Now, you may notice that the word “AI” doesn’t appear in these category names. That’s because its importance to cybersecurity is baked into the cake.
As a whole, only $3.3 billion worth of contracts were designated as AI contracts in 2022. That’s not a lot. But remember, you can’t have solid data or cybersecurity without state-of-the-art AI.
To me that means AI has been increasing in importance more quickly and seamlessly than classifications have kept up with.
With predictive analytics like AI, government defense systems are attempting to detect changes in security that may cause negative effects.
AI and machine learning are emerging as crucial tools in the fight against cyberthreats.
These advancing technologies can and will allow the DoD to identify, triage, and respond to potential threats faster than older systems – often in real time.
As Marine Corps Lt. Gen. Michael S. Groen warned in 2021:
Our networks are weapons, and, so, we have to treat them like weapons. We have to plan to protect them, make them resilient because everything that we’re going to do in an artificial intelligence or data-driven way will depend on the security [of] those networks.
With machine learning, AI can also allow defense systems to learn from an attack – real or simulated. This helps improve cyber-defensive and responsive capabilities.
That’s why EC2 seemed like such a slam dunk.
Remember, it was created to find better ways for the Air Force to avoid cybersecurity breaches. And machine learning is a way to detect those breaches and find solutions to avoid them.
Whatever Happens to EC2 Is Good News for AI
So, what happens now?
There are two paths that the Air Force could follow next.
The first is that it could establish an updated process for evaluating AI contracts. It’d be a smart move, since AI is a growing and hyper-competitive field.
In fact, my old firm, Goldman Sachs has projected that the AI market could grow to $200 billion by 2025. It is not that far off. And the government is one of the drivers of that growth.
Goldman also predicts that AI will comprise 4% of U.S. GDP, eclipsing the 2% of GDP attributed to past tech booms.
In preparation for that scenario, it’s likely that the Air Force will ask many of the companies that have already submitted proposals to re-submit them. That would mean they remain contenders.
The second path is that the Air Force could expand contracts with existing contractors, using the funds approved for the EC2 contracts.
In that scenario, companies that are already involved with the Air Force on EC2 focus areas could see a bigger pot of money.
Either way, there’s a clear need for Washington and the military to expand cybersecurity initiatives. And many companies want a piece of that pie.
The Air Force knows this. That’s why it encouraged interested vendors to “watch SAM.gov for future announcements.”
And here’s where AI comes in, too. Matters of national security, protection of infrastructure, and cyber-defense systems will be increasingly reliant on the potential capabilities AI brings.
We can’t afford to lose the international cybersecurity or technology battle.
That’s why the government will continue to spend billions of dollars on contracts with companies at the forefront of cybertechnology and AI.
In fact, Washington is scrambling to get a leg up on AI… to the tune of a just-announced $826 billion spending spree.
That’s why I recently put out an urgent briefing, The AI Ultimatum, where I shared details on my favorite AI company today.
It’s trading for only $0.26. And a major government announcement could send it soaring at any point. To learn more, click here to watch my AI Ultimatum briefing.
Editor, Inside Wall Street with Nomi Prins