Inside Microsoft’s massive AI agreement with the U.S. — what it means for taxpayers and tech

The US government could receive over $3 billion worth of AI assistance from Microsoft over the next year.

Earlier this week, Microsoft and the US General Services Administration (GSA) jointly announced an agreement that provides cloud services to government agencies at no cost or at a discount. AI services that are part of the deal include Microsoft 365 Copilot at no cost for up to 12 months.

Discounts will also be available to federal agencies on Microsoft 365, Azure Cloud Services, Dynamics 365, and cybersecurity and monitoring tools.

Microsoft will deliver over $3 billion in cost savings within the first year of the agreement. The deal could end up saving significantly more since discounts are available for up to three years.

The GSA is an independent agency of the US government. It manages federal property and provides government agencies with contracting options.

The goal of the agreement is to help government agencies adopt AI tools. Microsoft's services will be offered throughout the government.

Federal agencies will have the option to access a unique version of the Microsoft 365 Copilot suite that's only available to the federal government. As part of the agreement, there are no per-agent fees for AI agents.

Azure discounts will be offered to agencies, and data egress fees will be waived entirely. Those fees are usually incurred when data is transferred out of Azure data centers.

Discounted pricing will be available to federal agencies for up to 36 months.

Measuring the impact of Copilot

I recently spoke with Nerdio VP of Product Amol Dalvi to discuss the roadblocks to organizations adopting Copilot. While my meeting did not address the recent agreement between the US government and Microsoft, Dalvi provided insight into the challenge of assessing how useful Copilot is.

Many organizations want to measure Copilot and other AI tools strictly in terms of return on investment (ROI). Like balancing a checkbook, they want to be able to see how much is spent on a tool and how much money the tool "saves." But in reality, it's difficult — or impossible — to measure ROI in financial terms.

Instead, the value of Copilot should be looked at in terms of impact. Dalvi explained that Copilot should be measured in terms of productivity gains.

Does using the tool save time? Can human experts better use their time elsewhere since Copilot can handle tasks and streamline particular workflows?

Through its agreement with the US government, Microsoft is giving federal agencies the chance to measure the impact of Copilot without having as high an overhead cost. The discounts and free access to certain products allow agencies to see the real-world changes AI can have.

What Microsoft and the US government have said

Several government employees and members of Microsoft's staff commented on the agreement.

GSA Deputy Administrator Stephen Ehikian:

"GSA is proud to partner with technology companies, like Microsoft, to advance AI adoption across the federal government, a key priority of the Trump Administration. We urge our federal partners to leverage these agreements, providing government workers with transformative AI tools that streamline operations, cut costs, and enhance results."

Federal Acquisition Service (FAS) Commissioner Josh Gruenbaum:

"GSA is accelerating access to AI for federal agencies and delivering on the President’s AI Action Plan. OneGov represents a paradigm shift in federal procurement that is leading to immense cost savings, achieved by leveraging the purchasing power of the entire federal government. We appreciate Microsoft’s partnership in this modernization and its commitment toward an interoperable digital federal ecosystem."

Microsoft Chairman and CEO Satya Nadella:

"For more than four decades, Microsoft has partnered with the U.S. Government to serve the American people. With this new agreement with the U.S. General Services Administration, including a no-cost Microsoft 365 Copilot offer, we will help federal agencies use AI and digital technologies to improve citizen services, strengthen security, and save taxpayers more than $3 billion in the first year alone."

Nadella also took to X (formerly Twitter) to share the news:

"This collaboration is about empowering public servants with the tools they need to deliver on their missions more effectively and securely. By bringing the latest advances in cloud and AI — including Azure, Microsoft 365 Copilot, Dynamics 365, and our security platforms — backed by industry-leading security and compliance certifications, we aim to help agencies modernize systems, improve citizen services, and advance their technology transformation goals."

Chris Barry, Corporate Vice President, US Public Sector Industries, Microsoft:

"As GSA seeks to transform government in this new era of AI, Microsoft is committed to leading as the government’s essential partner in delivering the tools necessary to help federal agencies harness the power of AI to advance the public good."

Federal agencies can opt in to any or all of the offers through September 2026, giving those agencies a year to assess which tools should be implemented.

As the race to modernize government tech intensifies, Microsoft’s $6 billion cloud and AI deal marks a pivotal moment — not just for cost savings, but for shaping how federal agencies work in the years ahead.

With free Copilot access, deep discounts across Office and Azure, and a strategic push into AI infrastructure, this agreement could redefine the public sector’s digital future. Whether it’s a bold leap forward or just the beginning, one thing’s clear: the tools of tomorrow are already arriving in Washington.