Canberra trusts its local companies to advise on how to adopt artificial intelligence but favours international tech giants when it comes to buying the actual systems, according to a new analysis of federal contracts.
New data has revealed local start-ups were confined to lower-value consulting and training contracts while the larger foreign firms were awarded larger multimillion-dollar platform deals.
Since 2015, foreign firms have secured about $38 million across 47 core artificial intelligence (AI) contracts, while local firms have earned $31 million despite winning more than double the volume (108 contracts).
The analysis, carried out by Australian and veteran owned firm Anywise, showed core AI spending has accelerated from about $2.2 million in 2024 to nearly $40 million by early September 2026.
Core AI was defined as direct investments in AI software, platform and specialist advisory services, excluding tech spending like generic IT staffing and hardware.
A deeper dive into the AusTender data showed Australian firms dominating labour and advisory contracts, securing $15.3 million in AI consulting compared to the $6.2 million won by foreign competitors.
Local firms also captured the majority of e-discovery contracts, which are typically used to locate digital information for legal cases or investigations.
However, the high-value contracts for foundational software and enterprise infrastructure overwhelmingly defaulted to global tech giants.
For instance, the Australian Taxation Office (ATO) awarded a limited tender worth $24 million to Teradata Australia, a subsidiary of the United States-based Teradata Corporation.
The agency's investment skewed the overall data with its massive $30.8 million spend, nearly 80 per cent of which flowed overseas.
Foreign firms won 36 contracts worth $13.4 million in biometric and speech software contracts as Australian developers won a single contract worth $36,300.
ACT independent senator David Pocock said he was concerned Australia was becoming too reliant on foreign firms for critical tech products and services.
"There is a clear national security imperative to developing greater sovereign AI capability in everything from skills to compute access to models", Senator Pocock said.
"Here in Australia - and in Canberra especially - we have companies developing really sophisticated AI and we need to be backing them with more Commonwealth contracts. I hear far too often that it's easier to sell to foreign governments than to the Australian government department that is just up the road."
For local founders like Trellis Data chief executive Michael Gately, escaping the advisory corner to win enterprise-scale platform deals remained a major hurdle.
Mr Gately said the issues stemmed from a systemic flaw in procurement frameworks rather than an aversion to Australian technology.
"I have met many senior public servants, and not one of them would want to disadvantage Australian businesses or the people they employ", Mr Gately said.
"There's no issue of backing Australians to succeed - we all want Australians to succeed. It points to more of a structural weakness, which is good, because it can be fixed."
The AusTender data also exposed a sharp divergence between departments, as some concentrated core AI spending locally, while others chose to exclusively pursue foreign tech.
Defence awarded nearly 95 per cent of its core AI contract value to Australian firms. Its proportional spending on local vendors was only topped by the Industry department, which kept all of its $2.79 million core AI spending onshore.
Conversely, operational agencies such as the Australian Federal Police ($4.48 million) and Services Australia ($2.68 million) directed 100 per cent of their core AI spending to foreign entities.
Mr Gately said the introduction of a guaranteed quota for local software vendors would help address the structural imbalance.
"A mandatory set-aside for software procurement for sovereignly controlled Australian technology companies, including AI, could deliver substantial productivity improvements to Australia that the Government is seeking to achieve", he said.
"This offers decision-makers in government agencies the permission and motivation to look more to local capability, particularly where trust and sovereignty matter most, such as health, welfare, education and critical infrastructure."
Despite the structural challenges, Mr Gately remained optimistic that Australia can shift from being consumers of global tech firms to producers of sovereign AI.
"Our hope is to continue to work with the government on this vital issue that technology, and in particular sovereign AI technology, can help improve productivity, increase employment and provide a better future for our children," he said.
