Summary Yes, Member States can and are encouraged to set SME procurement targets higher than the 25% benchmark established in the proposed Cloud and AI Development Act (CADA). Article 33(4) frames the 25% figure as a minimum objective that Member States "shall pursue," rather than a strict legal cap or maximum limit. This wording explicitly permits national authorities to adopt more ambitious goals to better support small and medium-sized enterprises (SMEs) and start-ups. Any such higher ambitions must be formally documented in the Member State's national cloud and AI strategy, as required by Article 7, which mandates that plans to achieve these objectives be included in the national strategy.

Detail

The proposed Cloud and AI Development Act (CADA), COM(2026) 502 final, seeks to reshape the European cloud and AI ecosystem by leveraging public procurement to reduce dependencies on third-country providers and foster domestic innovation. A central pillar of this strategy is the support of "innovative SMEs." However, the legislative text carefully balances a Union-wide baseline with the flexibility for Member States to pursue higher national ambitions.

The Legal Basis: Article 33(4) as a Floor, Not a Ceiling

The core of the 25% figure is found in Article 33(4) of the proposal. The text states:

"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."

The phrasing "pursue as objective" combined with "at least" is legally significant. It establishes a minimum baseline of ambition. The use of "at least" confirms that 25% is the floor; the Regulation does not impose a ceiling. Consequently, a Member State is fully within its rights to set a target of 30%, 40%, or higher if its national industrial policy deems it necessary to stimulate the local market.

The proposal does not restrict Member States from exceeding this threshold. Instead, it acknowledges that different Member States may face different market conditions and may wish to drive faster adoption of European SMEs. The obligation is to pursue the objective, meaning the target must be actively worked toward, but the specific numerical target can be higher than the Union minimum.

The Strategic Link: Article 7 National Strategies

While Member States have the freedom to set higher targets, they cannot do so in a vacuum. The proposal creates a strict governance link between procurement targets and national strategic planning.

Article 7 requires Member States to establish "national cloud and AI strategies" within one year of the Regulation's entry into force. These strategies must include measures to support the development of cloud and AI capabilities, including "public procurement measures."

Crucially, Article 33(4) explicitly ties the SME target to this strategic framework:

"Member States shall include, in their national strategies referred to in Article 7, plans on how they intend to achieve this objective."

This creates a two-step compliance mechanism for higher ambitions:

  1. Declaration: If a Member State decides to set a target higher than 25% (e.g., 35%), this decision must be explicitly stated in the national cloud and AI strategy.
  2. Planning: The strategy must also include a concrete "plan on how they intend to achieve this objective." This means simply stating a higher number is insufficient; the Member State must outline the specific measuresβ€”such as dividing contracts into lots, simplifying procedures, or providing targeted supportβ€”to ensure the higher target is realistic and achievable.

Monitoring and Reporting Obligations

Regardless of whether a Member State adheres to the 25% baseline or pursues a higher ambition, the monitoring obligations under Article 33 remain rigorous. Member States must report to the Commission annually on:

  • The size of economic operators participating in such procurement.
  • SME participation trends, including the number of contracts awarded to SMEs and their share of the total contract value.
  • Measures taken to improve SME access to public procurement.

This reporting ensures transparency. If a Member State sets a high target (e.g., 40%) but fails to report progress or implement the necessary measures, the Commission can assess whether the Member State is effectively "pursuing" its objective. The data allows the Commission to evaluate the effectiveness of the Regulation and the diversity of the European cloud ecosystem.

Why Higher Targets Matter

The explanatory memorandum of the proposal highlights that the EU's market share for cloud providers has stagnated, with three non-EU hyperscalers controlling over 70% of the market. By setting higher SME targets, Member States can:

  • Accelerate Sovereignty: Directing more public spending to European SMEs helps build a resilient, sovereign supply chain.
  • Stimulate Innovation: SMEs are often the source of disruptive innovation. Higher procurement targets can provide the revenue stability needed for these firms to scale.
  • Signal Market Direction: Public procurement acts as a primary signal to the market. A higher target signals a strong political commitment to European innovation, encouraging private investment.

What this means for you

For public procurement officers, national policymakers, and SMEs, the flexibility to set higher targets offers a strategic lever to drive change.

For National Policymakers

  • Audit Your Ambition: Review your draft national cloud and AI strategy (required under Article 7). If your current draft only mentions the 25% baseline, consider whether a higher target aligns with your national industrial goals.
  • Draft the Plan: If you set a higher target, ensure your strategy includes a detailed "plan on how they intend to achieve this objective" as mandated by Article 33(4). This plan should detail specific procurement reforms, such as mandatory lot division or pre-commercial procurement.
  • Coordinate with the Commission: Be prepared to report annually on your progress. The Commission will monitor whether the "pursuit" of the objective is genuine and effective.

For Public Procurement Officers

  • Check National Mandates: Before launching a tender for cloud or AI services, verify if your Member State has adopted a target higher than 25% in its national strategy. Your procurement documents should reflect this higher ambition.
  • Design for SMEs: To meet higher targets, you must actively design tenders that SMEs can win. Article 33(2) and (5) encourage measures such as:
    • Dividing contracts into lots to make them accessible to smaller players.
    • Promoting preliminary market consultations to engage SMEs early.
    • Developing public contract clauses favorable to innovative SMEs.
  • Track Metrics: Start tracking the percentage of your cloud and AI procurement awarded to innovative SMEs immediately. Even if the final Regulation is not yet in force, establishing a baseline will help you demonstrate progress toward your national target.

For SMEs and Start-ups

  • Know Your Market: If your Member State has set a higher target, there is a stronger political mandate for public bodies to award you contracts.
  • Engage Early: Use the "preliminary market consultations" encouraged by the Regulation to signal your capabilities to contracting authorities.
  • Leverage Support: Look for support from the "Centres for AI" established under Article 5, which are tasked with helping SMEs access the innovation ecosystem.

Common misconceptions

Misconception 1: The 25% target is a maximum limit. Some may interpret "at least 25%" as a ceiling that prevents Member States from going higher. In reality, "at least" sets a floor. The Regulation explicitly allows Member States to set higher targets, provided they are documented in their national strategies and accompanied by a plan to achieve them.

Misconception 2: The target applies to all SMEs. The target specifically applies to "innovative SMEs." Not every small business automatically qualifies. The focus is on SMEs that provide innovative cloud computing services or AI systems. Procurement officers must ensure their evaluation criteria correctly identify and reward innovation, not just small size.

Misconception 3: The target applies to all public procurement. This target is specific to the procurement of "cloud computing services and AI systems" as defined by CADA. It does not apply to general public procurement for other goods or services (e.g., office supplies or construction). Procurement officers must carefully scope their tenders to ensure they fall within the CADA definition of cloud computing services (referencing the NIS2 Directive definition in Article 2(1)).

Misconception 4: Setting a higher target is optional without consequences. While the target is an "objective," the requirement to monitor and report on it (Article 33(3)) creates a strong compliance mechanism. If a Member State sets a high target but fails to report progress or implement the necessary measures, it may face scrutiny from the Commission regarding its failure to "pursue" the objective effectively.

Related

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