Can a non-EU provider partner with an EU SME to bid under CADA?

Yes, a non-EU provider can partner with an EU small and medium-sized enterprise (SME) to bid for cloud or AI contracts under the proposed Cloud and AI Deve

Summary Yes, a non-EU provider can partner with an EU small and medium-sized enterprise (SME) to bid for cloud or AI contracts under the proposed Cloud and AI Development Act (CADA). The proposal does not prohibit non-EU entities from participating in public procurement procedures. However, such partnerships are strategically vital for maximizing the "Union added value" score under Article 32, particularly when the partnership involves integrating hardware or software designed or manufactured in the Union. While Article 33 encourages Member States to award at least 25% of innovation procurement to SMEs, the "Union added value" criterion remains ancillary; it cannot override core technical and financial requirements, but it can serve as a decisive differentiator in closely contested bids.

Detail

The proposed Cloud and AI Development Act (CADA) establishes a framework to strengthen the EU's cloud and AI ecosystem, partly by reshaping how public authorities procure digital services. For non-EU providers, the critical strategic question is whether collaborating with an EU SME improves their competitive position. The answer lies in the specific mechanics of Article 32 (Union added value) and Article 33 (SME participation incentives).

The Strategic Role of Union Added Value

Under CADA, contracting authorities are required to include "Union added value" as part of the quality evaluation in public procurement procedures for innovative cloud computing services and AI systems. This is mandated by Article 32(1). The objective is to reward tenders that actively contribute to the development of a European cloud and AI ecosystem, rather than merely delivering a service.

Article 32(3) explicitly defines the scope of this evaluation. Contracting authorities may assess the extent to which a tenderer:

Contributes to strengthening the digital technology supply chain in the Union, including the use of software or hardware designed or manufactured in the Union (Article 32(3)(a)).
Has integrated technologies developed in the Union (Article 32(3)(b)).
Delivers the service, "to the greatest extent feasible with regard to market availability and technical requirements," through critical computing, storage and networking hardware components designed and/or manufactured in the Union (Article 32(3)(d)).

The Critical Nuance of Article 32(3)(d)

Article 32(3)(d) contains a vital provision for non-EU providers that is often misunderstood. It acknowledges that a blanket requirement for 100% EU hardware may not always be technically feasible. The text states that if it is not feasible to use EU-designed or manufactured components, the service may be delivered through hardware components from a third country, provided that these components "contribute to strengthening the security of supply and the development of a European cloud and AI ecosystem."

This creates a pathway for non-EU providers to score well on Union added value even if their core infrastructure relies on non-EU hardware. The key is the contribution to the ecosystem. A non-EU provider partnering with an EU SME can leverage this by demonstrating that the partnership:

Integrates EU Innovation: The EU SME provides critical software layers, security modules, or management tools designed in the Union that run on the non-EU hardware.
Enhances Supply Chain Resilience: The partnership introduces EU-manufactured components (e.g., specific accelerators or storage units) into the stack, even if the main server chassis is non-EU.
Meets Feasibility Constraints: The non-EU provider can argue that specific high-performance hardware is currently unavailable from EU manufacturers, but the overall solution still strengthens the EU ecosystem through the SME's contributions.

Thus, a non-EU provider is not disqualified by the use of third-country hardware; rather, they must demonstrate how their solution, potentially via an EU SME partner, mitigates dependency risks and fosters European technological development.

SME Participation and the 25% Target

CADA places significant emphasis on supporting SMEs to foster a diverse and competitive market. Article 33 outlines obligations for Member States to monitor and report on the procurement of innovation in cloud and AI. Specifically, Article 33(4) states that Member States shall pursue an objective that "at least 25% of their procurement for cloud computing services and AI systems be awarded to innovative SMEs."

This target creates a powerful incentive for non-EU providers to form consortia or subcontracting arrangements with EU SMEs. By partnering with an EU SME, a non-EU provider helps the contracting authority meet this statutory objective. Article 33(2) further encourages Member States to improve SME access by dividing contracts into lots and promoting pre-commercial procurement.

While Article 33 sets a target for awards to SMEs, it does not mandate that every contract must be awarded to an SME. However, in a bid where technical and financial scores are equal, a consortium that includes an EU SME may be favored because it aligns with the Member State's obligation to pursue the 25% target. The partnership signals a commitment to the EU's industrial policy, which is a core objective of CADA.

Proportionality and Ancillary Nature of Criteria

It is crucial to understand the legal hierarchy of these criteria. Article 32(2)(d) explicitly states that non-price award criteria, including Union added value, must be "ancillary and not decisive in the award of the contract." This means that technical performance, security, reliability, and price remain the primary drivers of the award decision.

Furthermore, Article 32(2)(a) requires that these criteria be "linked to the subject matter of the contract." A partnership with an EU SME must therefore offer tangible, technical benefits related to the cloud or AI service being procured. A superficial partnership with no substantive technical integration—such as a non-EU provider simply hiring an EU SME for administrative support—would likely not satisfy the requirement to strengthen the digital supply chain or integrate EU technologies.

What this means for you

If you are a non-EU cloud service provider or data centre operator looking to bid for EU public contracts under the proposed CADA, consider the following strategic actions:

Form Strategic Consortia: Identify EU SMEs that specialize in areas where you lack local presence or specific EU-aligned capabilities. Look for partners offering open-source middleware, local compliance expertise, or EU-designed hardware components. This aligns your bid with Article 32(3)(a) and (b).
Leverage the Hardware Nuance: If your solution relies on non-EU hardware, explicitly reference Article 32(3)(d) in your tender documentation. Explain that while specific components are from a third country due to market availability, the overall solution contributes to the security of supply and the EU ecosystem through the integration of EU-designed software or complementary hardware provided by your SME partner.
Highlight the SME Target: Make it clear to contracting authorities that your bid helps them meet the 25% SME procurement target outlined in Article 33(4). Frame your partnership not just as a commercial arrangement, but as a mechanism to support the Member State's statutory objectives.
Ensure Technical Primacy: Remember that Union added value is ancillary. Ensure your core technical proposal is robust, compliant with all CADA requirements (including data sovereignty and cybersecurity standards), and competitive on price. The partnership should enhance, not replace, your technical merit.
Demonstrate Integration: Provide evidence of how the EU SME's technology is integrated into your solution. Show how the partnership strengthens the digital supply chain, rather than just listing the SME as a subcontractor.

Common misconceptions

Misconception 1: Non-EU providers are excluded from EU public cloud contracts. CADA does not ban non-EU providers from bidding. Instead, it introduces criteria that favor solutions contributing to the EU ecosystem. Non-EU providers can still win contracts by demonstrating strong technical merit and, where possible, partnering with EU entities to boost their Union added value score.

Misconception 2: Partnering with an EU SME guarantees a higher Union added value score. While partnering with an EU SME can improve your score, it is not automatic. The partnership must demonstrably contribute to the objectives in Article 32(3), such as strengthening the supply chain or integrating EU technologies. A superficial partnership with no substantive technical integration may not yield significant points.

Misconception 3: Union added value is the most important factor in the award decision. No. Article 32(2)(d) clearly states that Union added value criteria must be "ancillary and not decisive." Technical quality, security, and price remain the primary factors. Union added value serves as a tie-breaker or a minor differentiator, not a replacement for core performance requirements.

Misconception 4: Non-EU hardware cannot be used in any EU public cloud bid. Article 32(3)(d) allows for the use of third-country hardware if it is not feasible to use EU-designed or manufactured components. The key is to show that even with non-EU hardware, the overall solution contributes to the security of supply and the development of the European cloud ecosystem, often through the integration of EU components or software provided by a partner.

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