Summary Under the proposed Cloud and AI Development Act (CADA), the requirement for Member States to include measures supporting small and medium-sized enterprises (SMEs) and small mid-caps (SMCs) in their national cloud and AI strategies is a binding legislative obligation. However, CADA does not mandate specific funding amounts or direct financial grants. Instead, it obliges Member States to plan and implement supportive measures, such as facilitating access to procurement markets and innovation procedures. These strategies are subject to continuous monitoring and assessment by the Commission every three years, with a specific objective for Member States to pursue awarding at least 25% of relevant innovation procurement to SMEs.

Detail

The Cloud and AI Development Act (CADA), proposed by the European Commission on 3 June 2026 (COM(2026) 502 final), establishes a comprehensive framework to strengthen Europe's cloud and AI ecosystem. A central pillar of this framework is the requirement for Member States to adopt national strategies that align with the Union's broader digital and industrial objectives. For in-house counsel, compliance officers, and public procurement authorities, understanding the precise nature of these obligationsβ€”particularly regarding SME and SMC supportβ€”is critical for ensuring national compliance and anticipating future regulatory expectations.

The Binding Obligation to Include SME and SMC Measures

Article 7 of the CADA proposal mandates that Member States establish national cloud and AI strategies within one year of the Regulation's entry into force. This is not a voluntary guideline; it is a binding requirement. Specifically, Article 7(2) outlines the minimum content these national strategies must include.

Crucially, Article 7(2)(b) requires that these strategies include:

"measures to accelerate the development and adoption of cloud and AI at national, regional and local level, particularly among public sector bodies, SMEs and SMCs, including by supporting the Centres for AI referred to in Article 5 as entry points to the European AI innovation ecosystem;"

This provision legally binds Member States to explicitly address the needs of SMEs and SMCs in their strategic planning. The obligation is to include measures that accelerate development and adoption. It does not, however, prescribe the exact nature of these measures beyond the requirement that they support the adoption of cloud and AI technologies. The text emphasizes acceleration of development and adoption, linking this support to the network of Experience and Acceleration Centres for AI (Centres for AI).

Planning vs. Funding: The Nature of the Obligation

A common point of confusion is whether CADA imposes a financial quota or a fixed funding mandate on Member States for SME support. The text of Article 7 does not impose a fixed financial obligation. The requirement is strategic and procedural: Member States must plan and include measures in their national strategies.

The focus is on creating an enabling environment rather than direct fiscal transfers. For instance, Article 7(2)(f) mentions "measures to support the development of cloud and AI capabilities... including through public procurement measures." This suggests that obligations may manifest as administrative or procedural changesβ€”such as simplifying procurement processes for SMEs or setting aside lots for small businessesβ€”rather than direct cash subsidies.

Furthermore, Article 33 of CADA reinforces the focus on SMEs in procurement. It requires Member States to monitor their use of procurement of innovation in cloud and AI and to take measures to identify barriers to SME participation. Article 33(4) sets a clear objective that Member States shall "pursue as objective that at least 25% of their procurement for cloud computing services and AI systems be awarded to innovative SMEs." While this is framed as an objective to be pursued, it is embedded within a monitoring and reporting framework, giving it significant regulatory weight. Member States must include plans in their national strategies (under Article 7) on how they intend to achieve this objective.

Monitoring and Assessment of National Strategies

The binding nature of Article 7 is reinforced by the monitoring mechanisms established in Article 7(5). This paragraph stipulates:

"Member States shall assess their national strategies at least every three years on the basis of key performance indicators and, where necessary, update them. The Commission shall monitor the adoption and revision of the national strategies."

This creates a continuous compliance loop. Member States cannot simply draft a strategy and file it away. They must:

  1. Notify the Commission: Member States must notify the Commission of their national strategies within three months of their adoption (Article 7(5)).
  2. Assess Regularly: They must conduct self-assessments every three years based on key performance indicators (KPIs).
  3. Update if Necessary: If the assessment reveals gaps or misalignments with CADA's objectives (including the SME/SMC support measures in Article 7(2)(b)), the strategy must be updated.
  4. Commission Monitoring: The European Commission actively monitors the adoption and revision of these strategies. While the proposal does not explicitly detail penalties for non-compliance with the content of the strategy in Article 7 itself, the failure to adopt a strategy or to notify it could lead to infringement proceedings under standard EU law enforcement mechanisms.

Role of the AI Board and Coordination

Article 7(6) assigns the European Artificial Intelligence Board (AI Board), established under the AI Act, the role of advising and assisting Member States in coordinating these national strategies. The AI Board is tasked with facilitating the exchange of best practices. This implies that while the obligation is national, the implementation is expected to be harmonized and coordinated at the EU level to ensure that SME support measures are consistent across the Union.

What this means for you

For in-house counsel and compliance officers, particularly those in Member State public bodies or large enterprises interacting with public procurement, the following actions are recommended:

  1. Monitor National Strategy Development: As the CADA proposal moves through the legislative process, track your Member State's draft national cloud and AI strategy. Ensure that Article 7(2)(b) requirements for SME and SMC support are explicitly addressed. If you are an SME, this strategy may outline specific support mechanisms, such as access to Centres for AI or simplified procurement pathways.
  2. Prepare for Procurement Changes: Article 33's objective of awarding 25% of cloud and AI innovation procurement to SMEs suggests a shift in public procurement practices. Compliance officers should prepare for more segmented procurement processes, potentially involving more lots and simplified administrative requirements.
  3. Engage with Centres for AI: Article 7(2)(b) links SME support to the Centres for AI. These centers, built on the existing European Digital Innovation Hubs, will serve as entry points to the European AI innovation ecosystem. Engaging with these centers early can provide access to testing, skills, and innovation support mandated by the national strategy.
  4. Document Strategic Alignment: If your organization is involved in drafting or implementing national digital strategies, ensure that documentation clearly reflects the inclusion of SME/SMC measures and the link to Centres for AI, as required by Article 7(2)(b). This documentation will be relevant for the three-year assessment cycle mandated by Article 7(5).

Common misconceptions

Misconception 1: CADA mandates direct financial grants for SMEs. Correction: CADA does not prescribe a fixed funding amount or mandate direct grants. The obligation under Article 7(2)(b) is to include measures that accelerate development and adoption. These measures are likely to be structural, such as improving access to procurement, providing technical support via Centres for AI, or simplifying regulatory hurdles, rather than direct cash transfers.

Misconception 2: The 25% SME procurement target is a strict legal quota. Correction: Article 33(4) states that Member States shall "pursue as objective" that at least 25% of procurement be awarded to innovative SMEs. While this is a strong policy directive embedded in a monitoring framework, it is phrased as an objective to be pursued, not a rigid, penalized quota. However, failure to make efforts toward this objective could be highlighted in the Commission's monitoring of national strategies.

Misconception 3: National strategies are one-time submissions. Correction: Article 7(5) requires Member States to assess their strategies every three years and update them if necessary. The Commission also monitors these revisions. This creates an ongoing compliance obligation, not a one-off administrative task.

Misconception 4: SME support is optional in national strategies. Correction: Article 7(2)(b) explicitly lists measures for SMEs and SMCs as part of the minimum content required for national strategies. Omitting these measures would likely constitute a failure to comply with the binding requirements of Article 7.

Official sources

Related

This is general information about a draft EU regulation, not legal advice.