AI Policy Corner: Examining Cloud Procurement Reforms in the Department of Defense (S.5436)

✍️By Syona Kadidal

Syona is an undergraduate student in Psychological Sciences and Artificial Intelligence, as well as a Research Assistant at the Governance and Responsible AI Lab (GRAIL), Purdue University.

📌 Editor’s Note: This article is part of our AI Policy Corner series, a collaboration between the Montreal AI Ethics Institute (MAIEI) and the Governance and Responsible AI Lab (GRAIL) at Purdue University. The series provides concise insights into critical AI policy developments from the local to international levels, helping our readers stay informed about the evolving landscape of AI governance. This piece focuses on the bipartisan Protecting AI and Cloud Competition in Defense Act, which aims to restrict single vendor lock-in, expand market competition, and secure government data in Department of Defense technology procurement.

Background and Context

Over the past few years, the Department of Defense (DoD) has been leaning heavily on commercial cloud providers through multi-billion-dollar initiatives, like the Joint Warfighting Cloud Capability (JWCC). To counteract being locked in with a single vendor and to open procurement to emerging startups, Senators Elizabeth Warren and Eric Schmitt initially introduced the Protecting AI and Cloud Competition in Defense Act of 2024 (S.5436). The momentum of these reforms grew the following year when the White House issued directives to drive efficient acquisition of artificial intelligence, while explicitly warning federal agencies against costly dependencies on a single vendor. The bill was then bicamerally reintroduced in May 2025.

Key Components of the Bill

The bill mandates a strictly competitive award process for any cloud computing, data infrastructure, or foundation model provider that has entered into DoD contracts totaling $50 million or more over the previous five fiscal years. This effort actively helps small businesses and new startups enter the defense market.
It directs department leaders to prioritize multi-cloud technology and modular open-systems approaches to improve competition and cost efficiency. By restricting single-vendor dependence, the DoD aims to enhance system interconnectivity, which would allow smaller tech companies to integrate their tools directly into the military’s network, giving them a fair chance to compete without being boxed out by Big Tech companies.
It requires the Pentagon’s Chief Digital and Artificial Intelligence Office (CDAO) to update the Defense Federal Acquisition Regulation Supplement (DFARS) to guarantee that government-related data provided for AI development is not disclosed or used without authorization. Furthermore, military data stored on the vendor’s system must be strictly protected to prevent unauthorized access or misuse. Vendors would face consequences for non-compliance including fines, penalties, or termination of contract.

Potential Drawbacks

The broader cloud computing market is a $600 billion industry dominated by just three private companies: Amazon, Microsoft, and Alphabet. This creates a level of market concentration that can affect the growth of potential competitors in the market.
Because the DoD buys from the same commercial market, it faces the same anti-competitive barriers as any consumer. Tech giants charge penalty fees to move data and make switching systems difficult. Furthermore, exclusivity contracts may constrain AI developers to a single cloud provider, preventing them from offering their models on rival platforms, which could undermine the bill’s attempt to mandate open competition and interconnectivity.
The AI market heavily relies on partnerships between major cloud service providers and AI developers that often function as “de facto mergers.” A 2025 Federal Trade Commission report stated that these arrangements allow Big Tech companies to consolidate talent and resources while bypassing traditional antitrust scrutiny. These partnerships risk furthering the market dominance of Big Tech firms, which would complicate the DoD’s ability to truly diversify its vendor base.

Current Legislative Status

As explained above, Senators Elizabeth Warren and Eric Schmitt originally introduced the Protecting AI and Cloud Competition in Defense Act in December 2024. The legislation was later bicamerally reintroduced on May 15, 2025. Warren and Schmitt have continued to lead the effort in the Senate, while Representatives Pat Fallon, Sara Jacobs, and Chris Deluzio introduced the companion bill in the House.

Final Thoughts

The Protecting AI and Cloud Competition in Defense Act is a strong effort to ensure the DoD avoids significant and costly dependencies on a single technology vendor. However, simply mandating a competitive bidding process for contracts exceeding $50 million might not be a complete fix. To achieve their specific goal, procurement reforms must continuously contend with the data-transfer penalties, opaque pricing, and vertical integration of today’s cloud computing market.

Further Readings:

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