I don't think it's SPECIFICALLY the rekognition contract, but that is the broad stroke. Microsoft has a strong ethics review process for all things AI, and routinely turns down fat projects because they don't pass ethical muster. The contracts that rekognition is designed to bid for, are largely in the grey zone where MS would turn a lot of things down. Government regulation would help lower the cost of Microsoft's ethics policy.

Most likely. You'll rarely see a corporation encourage the government to do anything unless it helps them or hurts their competition.