Anthropic is rejecting the Pentagon’s latest offer to change their contract, saying the changes do not satisfy the company’s concerns that AI could be used for mass surveillance or in fully autonomous weapons.

The Pentagon and Anthropic are at odds over restrictions the company places on the use of Claude, the first AI system to be used in the military’s classified network.

Defense Secretary Pete Hegseth told Anthropic CEO Dario Amodei on Tuesday that if Anthropic does not allow its AI model to be used “for all lawful purposes,” the Pentagon would cancel Anthropic’s $200 million contract. In addition to the contract cancellation, Anthropic would be deemed a “supply chain risk,” a classification normally reserved for companies connected to foreign adversaries, Hegseth said.