Federal AI adoption could widen the small-business contracting gap

As federal agencies speed up AI adoption, small businesses may face a tougher path into government contracting if they lack the staff and systems to process dense solicitations and compliance requirements. The shift could reshape competition for federal awards, with implications for local jobs, supplier diversity and taxpayer value.

Why it matters: - Federal contracts support local payrolls, specialized suppliers and jobs in manufacturing, construction, technology, defense and professional services. - When more qualified businesses can compete, agencies get more supplier choices and taxpayers benefit from stronger competition. - When the cost and complexity of participation rise, qualified small firms may be shut out, narrowing the supplier base available to agencies. - The stakes are especially high for small businesses because they remain a major part of the federal marketplace. - The U.S. Small Business Administration reported that small firms received nearly 28% of federal prime-contract dollars in fiscal year 2025, worth $179 billion. - Including prime contracts and subcontracts, federal awards to small businesses totaled nearly $273 billion and supported an estimated 1.2 million jobs.

What happened: - The federal government is accelerating both its adoption and acquisition of artificial intelligence. - Office of Management and Budget policy directs agencies to speed responsible AI use and improve how the government buys AI. - OMB’s AI acquisition guidance emphasizes efficient and competitive procurement, performance monitoring, risk management, protection of government interests and reduced vendor lock-in. - The modernization push is starting to intersect with small-business contracting, where firms with limited proposal, compliance or technology capacity may struggle to respond quickly.

The details: - Federal opportunities can include dense solicitations, amendments, attachments, eligibility rules, certifications, performance requirements, deadlines and contract clauses. - Larger contractors can spread that work across business-development, legal, proposal and compliance teams. - In a smaller company, the owner or a small staff may have to handle every step while also running the business. - AI does not make a company qualified for federal work and should not make legal, pricing or compliance decisions without human review. - Responsibly designed AI tools can help a business organize requirements, compare an opportunity with its capabilities, identify missing information, track deadlines and surface questions for expert judgment. - Natasha Broxton, founder and CEO of Select Auto Parts & Sales in Milwaukee, said the goal is not to use AI to make a small business look like a large contractor. - Broxton said the goal is to help qualified businesses understand requirements faster, protect time and make better decisions without sacrificing compliance. - Broxton developed an internal AI assistant called Monique GPT to support the human-led review of contracting opportunities and the organization of submission requirements. - Select Auto Parts used that workflow in a successful federal-contract submission that led to a multiyear award, according to company records. - The award is evidence of what can happen when a capable small business has systems that help move from information to action. - Confidential business and contracting information must be protected. - AI outputs must be checked against original solicitation documents. - Owners remain responsible for the accuracy of submissions, the promises they make and the company’s ability to perform.

Between the lines: - AI could create a new contracting divide if businesses with large teams and large technology budgets gain an edge over equally qualified smaller firms. - A qualified local supplier may never compete if the right opportunity is buried under too much information or found too late. - Communities can lose jobs and revenue when capable firms stay outside the federal supplier base. - Agencies can also lose access to specialized knowledge, local capacity and new competitors. - Broxton said chambers, procurement assistance providers and economic-development organizations can help by teaching practical AI literacy alongside contracting fundamentals. - Government-contracting education has traditionally focused on registration, certifications, capability statements, market research and proposal development. - AI readiness and workflow design may now need to sit alongside those basics for firms with limited time and staff. - The public choice is not between technology and human judgment. - The broader question is whether small businesses will get the training and access needed to use both.

What's next: - Small businesses may need to add AI readiness to their contracting toolkit as procurement becomes more technology-driven. - A practical screening process can start with five questions: Is the company eligible, is the work within its real capability, can it meet the deadline, can it perform profitably and what must be submitted to stay compliant? - AI can help organize the evidence, but people must make the decision. - Maintaining a broad and competitive supplier base will likely require modernization on both sides of the marketplace. - For interviews, keynote presentations and executive workshops with Natasha Broxton, visit speaking information.

The bottom line: - Federal AI adoption could improve procurement efficiency, but without training and access for small firms, it may also widen the gap between well-resourced contractors and qualified local businesses.