AI Firms Race to Offer Feds Low Cost Contracts
Artificial Intelligence & Machine Learning
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Next-Generation Technologies & Secure Development
OpenAI, Anthropic Launch $1 Year-Long Offerings as Critics Warn of Vendor Lock-In
Artificial intelligence firms are making a bid for federal business with bargain basement offers of access to high-end models for just $1 a year, for the first year. The apparent giveaway raises concerns the government is setting itself up for vendor lock in and may be unable to diversify its use of AI tools when the introductory price runs out.
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The federal government – the largest buyer of goods and services on Earth – announced a series of additions in recent days to the General Services Administration’s multiple award schedule, with OpenAI’s ChatGPT, Anthropic’s Claude and Google’s Gemini all obtaining a streamlined path into the federal marketplace. Those companies then began launching competitive bids, including OpenAI, which is offering all federal agencies access to ChatGPT Enterprise for just $1 for one year – plus unlimited advanced-model use for the first 60 days.
Anthropic matched OpenAI’s deal on Tuesday, rolling out a nearly identical $1-per-agency offer to all three branches of government and included both Claude for Enterprise and Claude for Government for a full year.
GSA Acting Administrator Michael Rigas celebrated the news in a statement saying “AI holds immense opportunities” in revolutionizing employee and citizen experiences. Critics told Information Security Media Group the efforts could backfire by locking agencies into the first contract they set up to bring the emerging technology to their organizations.
The $1 a year offers undermine fair competition, disregard commercial pricing norms and expose agencies to long-term vendor lock-in with no transparency or pricing guarantees beyond year one, said to Nicolas Chaillan, former chief software officer of the U.S. Air Force and founder of Ask Sage, a generative AI platform partly designed for government teams.
“What happens when that $1 turns into a seven-figure renewal with no room to negotiate?” Chaillan said, describing the contract offers as “a lock-in strategy dressed up as a pilot.”
“What happens when agencies build entire workflows around a single model they can’t easily replace?” he added. “Locking into a single model undermines the resilience and adaptability the government needs in the AI era.”
Multiple legal analysts said the unusually low pricing now being offered to federal agencies could trigger legal and procurement concerns, potentially violating Federal Acquisition Regulation provisions that require payment terms for commercial products to be “appropriate or customary in the commercial marketplace” and not structured to avoid competition. They said that a $1 unlimited license might not meet the definition of a commercial off-the-shelf product if tailored solely for government use, and that generative AI platforms like ChatGPT may fall short of Federal Risk and Authorization Management Program and Federal Information Security Management Act requirements, creating added risks for data security and oversight.
Federal acquisition regulations were “designed to prevent exactly this kind of below-market pricing,” said a former federal contracting officer who oversaw technology acquisitions. The former officer, granted anonymity to speak about potential legal risks for AI firms offering steeply discounted government contracts, called the recent wave of $1 bids “extremely concerning” and said the practice “completely disadvantages smaller firms that can’t just give their products away.”
The contracts fall under GSA’s new “OneGov” strategy to streamline federal information technology purchases, centralize buying power and strengthen cybersecurity through standardized contracts. Procurement analysts have warned for months that the approach may sideline smaller vendors and undermine efforts to promote flexible, nontraditional procurement models, with early deals including a 71% Google Workspace discount for agencies and a 70% discount from Adobe on its Paperless Government Solution (see: Why GSA’s OneGov Strategy May Face Implementation Hurdles).
If the government can easily obtain an inexpensive and effective AI tool, it will integrate it into its operations and automation, making the tool hard to replace, said John Savio, vice president of the public sector at cybersecurity firm Black Duck.
“The strategy with well-funded startup companies is to offer services or software below cost to capture market share, then raise pricing once the customer begins to generate value from it,” Savio said.
GSA did not respond to questions about how it will prevent ultra-low-cost introductory contracts from creating long-term vendor lock-in that limits agencies’ access to competing solutions. The agency also did not address what safeguards exist to ensure it identifies and mitigates potential security and compliance risks.