Introduction
The OMB Memorandum M-24-18 [2] [4], effective March 23, 2025 [2] [4], provides comprehensive guidance for contractors interested in supplying artificial intelligence (AI) solutions to federal agencies. This policy underscores responsible acquisition practices, risk management [1] [3], and the promotion of a competitive AI marketplace, building on previous executive orders and memoranda [4].
Description
Contractors interested in providing artificial intelligence (AI) solutions to federal agencies must familiarize themselves with the guidance outlined in OMB Memorandum M-24-18 [2], effective March 23, 2025 [2] [4]. This government-wide policy emphasizes responsible acquisition practices for AI systems and services, ensuring that agencies are equipped with the necessary information and tools to manage risks associated with AI while fostering a competitive marketplace [3]. The memorandum builds on previous executive orders and memoranda [4], mandating that agencies enhance their capabilities for acquiring AI systems [2], including necessary subcomponents [2], and transition from general principles to specific regulations governing procurement and use.
Key areas of focus include the implementation of performance-based acquisition techniques to evaluate proposals and monitor contracts, ensuring responsible procurement with particular attention to cybersecurity [2], incident reporting [2] [5], and the safeguarding of personally identifiable information (PII) [6]. Agencies are required to incorporate contractual terms that ensure vendors provide adequate protections against the misuse of enterprise-wide generative AI systems or services in violation of laws and policies [5]. Additionally, agencies must submit a strategic plan for AI acquisition coordination within 180 days [1], ensuring collaboration among key officials [1], including the Chief Information Officer and Chief Information Security Officer [1]. The CAIO Council [1], in conjunction with OMB and other agencies [1], will centralize information sharing on AI acquisition [1], including lessons learned [1], innovative practices [1], risk management mechanisms [1], and best practices [1].
Contractors should prepare for detailed documentation requirements [4], including comprehensive records of AI model training, testing [4] [5] [6], and evaluation processes [1] [2] [4] [5] [6]. This includes training logs, data utilized for training [6], and accountability for data management [6]. Furthermore, contracts should mandate transparency from vendors regarding AI capabilities to facilitate risk assessment and impact evaluations [1]. Contractors must comply with data protection requirements [2], report AI incidents within specified timeframes [2], and may need to disclose environmental impacts related to their AI systems [4]. Agencies must conduct thorough due diligence on the supply chain of vendor data and implement contractual requirements that ensure access to documentation related to AI model training [5].
For those offering generative AI (GenAI) systems [2], the Memorandum outlines specific contractual obligations [2], such as methods to distinguish generated content from real content and detailed documentation of the training and evaluation processes [2]. Agencies may also impose reporting requirements concerning the intended use of AI systems and the introduction of new AI features [6], while incentivizing the use of renewable energy [2]. Specific requirements for procuring general use enterprise-wide generative AI are outlined [5], urging agencies to include these in relevant contracts [5]. Vendors must document generative AI outputs and provide details on training and evaluation processes [5], including pre-deployment testing and mitigation steps for identified issues [5]. Additional safeguards are necessary for generative AI systems, including marking AI-generated outputs and preventing the generation of illegal content.
Contractors should anticipate a demand for thorough negotiations regarding the terms and conditions of their offerings [2], including knowledge transfer to agency staff and the prohibition of terms that restrict pricing information sharing [2]. To avoid vendor lock-in [1], contracts should require knowledge sharing [1], rights to code and data [1], and practices that promote portability and pricing transparency [1]. The emphasis on competition in the AI marketplace is crucial [4], with a focus on interoperability to facilitate data sharing and minimize switching costs [4]. Robust documentation of AI model development [2], transparent pricing practices [2] [4], and strategies for mitigating bias are essential.
As the AI market grows [2], contractors must prepare for performance-based acquisitions and modular contracting [2], ensuring they can meet additional deliverable requirements and negotiate data rights effectively [2]. The relationship between contractors and federal customers may be dynamic [4], necessitating careful negotiation of terms to accommodate additional requests and understanding of the technology [4]. Preparing in advance of the Memorandum’s implementation will be crucial for success in the federal AI market [2], particularly in light of increased regulatory scrutiny and the evolving landscape of AI procurement. Additionally, Congress is considering the PREPARED for AI Act [1], which would mandate the appointment of a Chief AI Officer in federal agencies [1], establish an AI risk classification system [1], and prohibit the use of AI for certain sensitive evaluations [1], creating a framework for safe AI procurement and use [1].
Conclusion
The implementation of OMB Memorandum M-24-18 will significantly impact the federal AI procurement landscape by establishing stringent guidelines and fostering a competitive environment. Contractors must adapt to these changes by ensuring compliance with documentation, transparency [1] [2] [4], and data protection requirements [2]. The evolving regulatory framework, including potential legislative actions like the PREPARED for AI Act, will further shape the responsibilities and opportunities for AI vendors in the federal market. Preparing for these developments will be essential for contractors aiming to succeed in this dynamic and increasingly regulated sector.
References
[1] https://www.lexology.com/library/detail.aspx?g=6e5d27ea-5bc7-4684-851a-4488d413da0c
[2] https://www.jdsupra.com/legalnews/omb-issues-guidance-to-agencies-on-7462935/
[3] https://www.presidency.ucsb.edu/documents/fact-sheet-key-ai-accomplishments-the-year-since-the-biden-harris-administrations-landmark
[4] https://www.lexology.com/library/detail.aspx?g=a799eea0-bcb5-4467-863f-39bb940eaf60
[5] https://www.lexology.com/library/detail.aspx?g=8a8b34c1-a648-4bf4-9ce3-a6284123e133
[6] https://www.crowell.com/en/insights/client-alerts/omb-releases-guidance-to-advance-federal-ai-acquisition
