Elon Musk’s artificial intelligence startup, xAI, has secured a major contract with the U.S. General Services Administration (GSA) to provide its Grok chatbot to federal agencies, marking a significant milestone in the government’s ongoing push to expand the use of AI technologies across its operations. The agreement, announced on September 25, 2025, is set to run through March 2027 and positions xAI as a formidable competitor in the rapidly evolving federal AI marketplace, where it now stands shoulder to shoulder with tech giants like OpenAI, Google, Meta, and Anthropic.
According to Reuters, the deal allows federal agencies to purchase access to xAI’s Grok models for 42 cents per organization—a dramatic reduction compared to the $1 per year that OpenAI charges for its ChatGPT service. The price point, which covers an 18-month access period, is not just a shrewd business move but also a nod to Musk’s well-documented fondness for the number 42, a reference to The Hitchhiker’s Guide to the Galaxy.
The contract includes xAI’s latest and most advanced reasoning models, Grok 4 and Grok 4 Fast. As part of the agreement, xAI engineers will assist government agencies with implementation, ensuring that the technology is integrated smoothly into the complex web of federal operations. Agencies also have the option to upgrade to enterprise-level subscriptions that align with federal security standards, offering expanded features and higher usage limits.
This deal is a cornerstone of the GSA’s “OneGov Strategy,” launched in April 2025, which aims to standardize technology procurement and accelerate the adoption of AI across the federal government. Other suppliers under the OneGov program include OpenAI, Meta Platforms, Alphabet’s Google, and Anthropic. Earlier this week, Meta’s Llama model was also approved for agency use, making it available to federal customers at no cost, according to the GSA.
While the contract represents a major win for xAI, it has not come without controversy. Critics have pointed out that Grok has, at times, produced factually incorrect answers and politically skewed commentary. Advocacy groups have flagged instances where the chatbot generated offensive language or conspiracy-tinged claims, raising serious questions about the reliability and safeguards of generative AI in sensitive government contexts. These concerns initially delayed Grok’s approval earlier in 2025, as agencies weighed the risks of deploying such technology at scale.
Despite these reservations, the White House reportedly instructed the GSA in August to include Grok on the government’s vendor list "as soon as possible," reflecting a sense of urgency to harness the benefits of AI even as debates about safety and dependability continue. According to RTTNews, Elon Musk stated that the deal would help "rapidly deploy AI throughout the government for the benefit of the country." This sentiment underscores Washington’s growing reliance on sophisticated chatbots, even as policymakers and watchdogs remain vigilant about potential pitfalls.
The Grok chatbot is powered by xAI’s Colossus data centers, located in Memphis, Tennessee. In June 2024, xAI announced plans for the Colossus supercomputer at 3231 Paul R. Lowry Road, Memphis. The company is also building a second data center, Colossus 2, in South Memphis at 5420 Tulane Road. According to Commercial Appeal, Colossus 2 is expected to house 550,000 graphic processing units (GPUs) at launch—a staggering figure that highlights the scale of xAI’s ambitions. Musk announced in July that Colossus 2 would come online "in a few weeks," signaling a rapid expansion of the company’s infrastructure.
Property records show that in February 2025, xAI affiliate CTC Property LLC purchased 186.13 acres along Tulane Road, including parcels at 5408, 5414, and 5420 Tulane Road, where Colossus 2 is located. On July 27, ownership of these parcels was transferred to MZX Tech LLC, another xAI affiliate. And on July 16, MZX Tech LLC bought the former Duke Energy site in Southaven, Mississippi, which lies about 1.5 miles south of the Tulane Road properties, further cementing xAI’s presence in the region.
The GSA contract is not xAI’s only recent government win. The startup was also selected for a $200 million Pentagon contract to supply AI tools for defense, joining Anthropic, Google, and OpenAI as key players in the Department of Defense’s AI modernization efforts. This dual-track strategy—serving both civilian and defense agencies—positions xAI as a significant force in shaping how artificial intelligence is integrated into government workflows and national security operations.
Industry observers note that the aggressive pricing of Grok is not just about undercutting competitors; it’s also about capturing market share in a sector where trust, reliability, and cost-effectiveness are paramount. The inclusion of xAI engineers to help with implementation is a practical step, aimed at smoothing the adoption curve and addressing the technical hurdles that federal agencies often face when deploying cutting-edge technologies.
Yet, the elephant in the room remains the reliability and ethical implications of generative AI. As Reuters and other outlets have reported, Grok’s tendency to produce errant or biased responses has fueled broader doubts about the readiness of such systems for high-stakes government use. Advocacy groups continue to call for stronger safeguards and greater transparency around how these models are trained and monitored.
The GSA’s OneGov Strategy, by bringing together multiple AI vendors under a single procurement umbrella, aims to foster competition and drive innovation. But it also raises the stakes for ensuring that these powerful tools are deployed responsibly. The fact that Meta’s Llama model is being offered to agencies at no cost adds another layer of complexity to the competitive landscape, potentially forcing other vendors to rethink their pricing and support models.
For Musk and xAI, the federal contract is both a validation of their technology and a test of their ability to deliver on promises of safety, reliability, and value. The coming months will likely see federal agencies experimenting with Grok and its competitors, as they seek to balance the promise of AI-driven efficiency with the imperative of public trust and accountability.
As the government’s appetite for AI grows, the outcome of these early deployments will shape not only the future of public sector technology but also the standards by which all AI vendors are judged. For now, xAI’s Grok has earned its seat at the table—now it must prove it deserves to stay.