Microsoft wins $9.7bn Department of Defense contract aimed at software consolidation

The US Department of Defense (DoD) has awarded Microsoft a $9.69 billion contract for the use of its products and services, in a cost-management measure intended to reduce software fragmentation within the US military.

The five-year deal, dubbed the ‘Microsoft Department of War Enterprise Software Agreement II Core Enterprise Technology Agreement’, will see the entire US military consolidate its software licences and streamline its procurement processes.

Funding allocated to the deal comes from existing budget for Pentagon software rather than new funding from Congress, including spending currently allocated to Microsoft 365 licences.

In its official contract announcement, the DoD acknowledged its ongoing reliance on Windows Enterprise Operating System and Office Professional Plus. It also stated that the deal includes special licence bundles such as Microsoft’s “Disconnected No Cloud Access”, which allows Microsoft workloads including AI tools to run in offline, isolated military environments.

Once complete, the DoD will have a single point of purchase for Microsoft enterprise licences, a move away from the siloed, duplicative approach previously standard across the military.

Dell Federal Systems, a unit that sits within Dell Technologies’ public sales segment, is the primary contractor for delivering the licences. It will provide Microsoft 365 software along with on-premises licences and advanced cloud capabilities.

The DoD accesses commercial cloud computing via the Joint Warfighting Cloud Capability, a multi-vendor enterprise cloud contract with Amazon Web Services, Google Cloud, Microsoft Azure, and Oracle.

In recent years the department has intensified technology spending further, having requested almost $29.5 billion for AI infrastructure in its fiscal year 2027 budget.

At the start of May, the DoD signed agreements with eight prominent AI companies – Amazon Web Services, Google, Microsoft, Nvidia, OpenAI, Oracle, Reflection AI, and SpaceX – to develop technology for deployment on its private networks.