The Pentagon Just Awarded $9 Million for AI-Written Code. Is This the Future of Defense Contracting?
By WALLY ANGEL, ROSE FINANCIAL SOLUTIONS
Last week, a small software company called Picogrid won a $9.3 million Air Force contract for counter-drone integration software.
That's not the story. The story is how that software was built: by artificial intelligence.
Not AI-assisted. Not AI-reviewed. The integration code itself was written by AI—and it's performing at a level that would have been impossible 12 months ago.
"When we first started integrating platforms, we were looking at about a month, month and a half," Picogrid cofounder Martin Slosarik told Breaking Defense. "Now we're looking at less than a day for most platforms."
At a recent company hackathon, they integrated seven different military systems in 70 minutes. If you're a commercial technology firm watching the defense market, or a government contractor who bills for software integration work, that should get your attention.
The Acceleration Curve
Last summer, Slosarik described his company's AI coding tools as equivalent to "an entry-level software engineer that needed heavy supervision." The AI could do about 60% of the work; humans finished the rest. Six months later? "We're really at 95 percent, 98 percent." That's a 35-point capability jump in under a year. And the curve isn't flattening—it's steepening.
Picogrid's Legion software is a "universal translator" that connects incompatible military systems. The AI writes the integration modules that let different sensors, jammers, and weapons talk to each other. They've now completed nearly 100 integrations, partnering with Palantir, Northrop Grumman, and a 50-company ecosystem.
The catalyst? Ukraine. When Operation Spiderweb's drone strikes destroyed a third of Russia's strategic bomber fleet last June, the Pentagon realized it had a counter-drone problem—and no time for traditional timelines.
The Pentagon's AI Gold Rush
Picogrid isn't an outlier. They're the leading edge of a deliberate Pentagon strategy. In January, Secretary Pete Hegseth rolled out major AI reforms, consolidating innovation offices under CTO Emil Michael. "The old era ends today," Hegseth declared. "We're done running a peacetime science fair while our adversaries are running a wartime arms race." The reforms launched seven new AI initiatives—from Swarm Forge (drone swarm combat) to Agent Network (AI battle management) to Ender's Foundry (AI-powered simulations).
The Defense Innovation Unit followed with a $100 million prize competition for AI software that lets any soldier control drone swarms using plain English voice commands. The message is clear: The Pentagon is buying commercial. They want Silicon Valley speed, not Beltway bureaucracy. OTAs bypass FAR compliance. Prize competitions have 10-day-to-prototype timelines. A single front door for technology companies is emerging.
If you're a commercial tech firm that's been hesitant about defense, the barriers to entry just got lower.
What Commercial Firms Should Do Now
The window to establish yourself in AI-enabled defense contracting is narrowing. Here's the playbook:
- Enter through the side doors. OTAs, CSOs, and SBIR/STTR programs let you compete without full FAR compliance infrastructure. DIU, AFWERX, NavalX, and the Army Applications Lab are actively seeking commercial solutions.
- Build compliance—but right-size it. You don't need a $500K ERP to win your first defense contract. QuickBooks with proper configuration can pass a pre-award survey. The goal is auditability, not complexity.
- Partner before you prime. Picogrid integrated with Palantir and Northrop before pursuing their own contracts. Subcontracting to established primes builds past performance with lower risk.
- Document your AI processes now. When auditors eventually ask how your AI-generated code was produced, you'll need answers. What training data? What validation? What human oversight? Build the habit early.
- Get your cost structure right from day one. Indirect rates matter. The difference between a successful defense expansion and a compliance nightmare often comes down to setup. Get expert guidance before you need it.
The Bottom Line
The Picogrid contract is a signal, not an anomaly. The Pentagon has made AI acceleration a strategic priority. Seven major initiatives are launching. $100 million in prizes is on the table. A small company just proved AI can write production-grade defense code faster than anyone thought possible. The defense tech boom is real. The commercial-to-defense pipeline is open. The future of defense contracting is being written right now. Some of it is being written by AI.
Are you ready?
Next week: AI is writing defense code—but is your cost accounting ready? I'll break down the compliance questions no one is asking, from CAS 418 to DCAA audits of non-human work.
Wallace Angel
Wallace “Wally” Angel is a strategic CPA with more than 20 years of experience in the government contracting and consulting environments with companies ranging from start-ups to $800M. His government contracting expertise includes FAR and DCAA compliance, indirect rate calculation, forward pricing, proposal writing, pricing, and cradle to grave contracts management and system design and implementation. In his position as Partner, Financial Operations, Wally serves as a trusted advisor to the C-suite in controllership and cash management, revenue recognition, system design and implementation, and full financial planning and analysis.
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