Summary Under the proposed Cloud and AI Development Act (CADA), a contracting authority can be removed from the common procurement framework if it fails to comply with its obligations under the governing agreement. Article 38(8) explicitly mandates that the Steering Committee establish "transparent and non-discriminatory" rules and specific procedures for terminating the participation of a contracting authority that breaches the agreement. Removal is not an arbitrary power of the Commission; it is a procedural consequence of non-compliance, ensuring that the framework remains robust and trustworthy for all participating entities.

Detail

The CADA proposal creates a centralized procurement mechanism to leverage the collective purchasing power of the EU public sector for cloud computing services, data centre services, software, and AI systems. This mechanism relies on a formal agreement between the European Commission and participating Member States, which serves as the legal foundation for "participating entities" (including contracting authorities of Member States) to join and benefit from centralized activities. However, this participation is strictly conditional.

The Legal Basis for Termination The primary provision governing the removal of a contracting authority is Article 38(8) of the CADA proposal. This article states:

"The Steering Committee shall also set out the rules and procedures governing the termination of participation in the agreement of a contracting authority of a Member State that has failed to comply with its obligations under the agreement."

This clause establishes a clear cause-and-effect relationship: termination is a remedy for a "failure to comply." It prevents the Commission or the Steering Committee from exercising discretionary power to arbitrarily expel participants. Instead, the removal process must be triggered by a breach of the specific obligations outlined in the agreement. These obligations, detailed in Article 38(1) and Article 38(3), include adherence to the practical arrangements, financial contributions, and the strategic direction of procurement activities.

Role of the Steering Committee The Steering Committee, composed of the Commission and representatives of participating Member States (Article 38(4)), holds the exclusive authority to define the specific rules for termination. Article 38(8) further requires that the conditions for accessionβ€”and by logical extension, the rules for terminationβ€”be "transparent and non-discriminatory." This imposes a high standard of procedural fairness: the criteria for removal must be objective, clearly communicated in advance, and applied equally to all participating contracting authorities, regardless of their size, location, or the Member State they represent.

Procedural Safeguards and the "Rules and Procedures" Requirement While the CADA text does not enumerate the specific steps of the termination procedure (leaving this to the Steering Committee's future implementing rules), the statutory requirement for "rules and procedures" implies a formal administrative process. Based on general principles of EU administrative law and the text of Article 38(8), this process would likely include:

  1. Identification of Non-Compliance: A breach of the agreement is identified by the Commission or another participating entity.
  2. Notification: The contracting authority in question must be formally notified of the alleged failure to comply.
  3. Opportunity to Remediate: Given the requirement for "rules and procedures" and the principle of proportionality, the framework would likely allow a defined period for the authority to rectify the breach before termination is finalized.
  4. Decision: The Steering Committee applies the pre-established rules to decide on the termination of participation.

Context of Obligations Contracting authorities participate as "participating entities" under Article 37(1). Their specific obligations include contributing to the costs of procurement activities through fees levied by the Commission (Article 40(1)) and adhering to the strategic direction of procurement procedures approved by the Steering Committee (Article 38(5)). Failure to pay fees, misuse of centralized contracts, or deviation from the agreed procurement strategies could constitute the "failure to comply" that triggers the termination mechanism under Article 38(8).

What this means for you

For in-house counsel and compliance officers in public sector bodies, the risk of termination from the CADA procurement framework represents a significant operational and reputational threat. Loss of participation means losing access to economies of scale, standardized secure cloud solutions, and the legal simplifications provided by the central purchasing body mechanism.

Key Compliance Actions:

  1. Scrutinize the Agreement: Once the agreement under Article 38 is finalized, your team must review the specific "rules and procedures" for termination mandated by Article 38(8). You must understand exactly what constitutes a "failure to comply." Is it a minor administrative delay, a missed payment, or a material breach of strategic alignment?
  2. Monitor Financial Obligations: Ensure the timely payment of fees as determined under Article 40. Non-payment is a clear, objective metric for non-compliance and is likely to be a primary trigger for termination proceedings.
  3. Align with Strategic Direction: The Steering Committee approves the strategic direction of each procurement procedure (Article 38(5)). Ensure your authority's procurement needs and usage patterns align with these approved strategies to avoid accusations of misuse or deviation from the agreement.
  4. Internal Governance: Establish internal controls to monitor compliance with the CADA agreement. Document all interactions with the Commission and the Steering Committee. If a potential breach is identified, act immediately to remediate the issue before the Steering Committee initiates formal termination procedures.

Common misconceptions

Misconception 1: The Commission can unilaterally expel a contracting authority. Correction: No. While the Commission manages the day-to-day procurement activities, the rules for termination are set by the Steering Committee (Article 38(8)). The Commission cannot act outside the pre-established rules agreed upon by the Member States.

Misconception 2: Termination is immediate upon any breach. Correction: Unlikely. The requirement for "rules and procedures" implies a structured process. Administrative law principles within the EU suggest that proportionality and the right to be heard will apply. Minor breaches may lead to warnings or demands for remediation rather than immediate expulsion.

Misconception 3: Only Member States can be terminated; individual contracting authorities are safe. Correction: Article 38(8) specifically refers to the termination of "a contracting authority of a Member State." Participation can be at the sub-national level (Article 38(7)), meaning local or regional authorities can be individually removed from the framework without affecting their national government's participation.

Related

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