Summary Under the proposed Cloud and AI Development Act (CADA), the costs of joint procurement activities carried out by the European Commission are funded through fees levied on participating entities (Member State contracting authorities, Union entities, and partner organisations). As proposed in Article 40, these fees must be set in advance, be proportionate to the estimated costs of the activities, and be sufficient to cover all direct and indirect expenses. The revenue generated constitutes internal assigned revenues, meaning the funds are ring-fenced to finance the specific procurement operations rather than flowing into the EU's general budget. Initial establishment costs may be covered by the general budget but must be reimbursed by participants over a period not exceeding three years.

Detail

The proposed Cloud and AI Development Act (CADA) establishes a robust framework to strengthen the EU's cloud and AI ecosystem, with a specific demand-side mechanism designed to leverage the collective purchasing power of the public sector. A cornerstone of this strategy is the ability of the Commission to act as a central purchasing body for Member States and other public entities, as outlined in Article 37. To ensure the sustainability and fairness of this mechanism, the proposal details a specific funding model in Article 40, which operates independently of the general EU budget for ongoing operations.

The Fee-Based Funding Model

The core principle of the CADA funding model is that the beneficiaries of the procurement activities bear the costs. Article 40(1) explicitly states that the costs arising from procurement activities carried out pursuant to Article 37 shall be jointly financed by the participating entities through fees levied by the Commission.

Participating entities include:

  • Contracting authorities of Member States.
  • Union entities (institutions, bodies, offices, and agencies).
  • Partner organisations selected by the Commission.

This model ensures that the financial responsibility for the procurement process aligns directly with those who benefit from the resulting contracts. It prevents the initiative from becoming a drain on the general EU budget while ensuring that the Commission has the necessary resources to manage complex, large-scale procurement procedures for cloud, AI, and software services.

Principles for Setting Fees

The proposal imposes strict constraints on how these fees are calculated and applied to ensure fairness and transparency. Under Article 40(4), the fees must adhere to three key principles:

  1. Set in Advance: Fees must be established before the procurement activities commence. This provides participating entities with the financial predictability required to plan their budgets and integrate these costs into their procurement strategies.
  2. Proportionate to Estimated Costs: The fee structure cannot be arbitrary. It must reflect the estimated costs of the specific activities for which fees are chargeable. This ensures that entities only pay for the actual administrative and operational burden incurred by the Commission.
  3. Sufficient to Cover Costs: The fees must be sufficient to cover all direct and indirect costs incurred by the Commission in connection with the procurement activities. This includes the costs of developing and maintaining the common procurement platform, managing the procurement process, and providing any ancillary support services.

Furthermore, Article 40(4) mandates that fees must be determined in a cost-effective way, reflecting practices of comparable procurement frameworks. This ensures that the CADA mechanism remains competitive and does not impose higher administrative costs than existing national or bilateral joint procurement arrangements.

Internal Assigned Revenues

A critical legal and financial feature of this model is the classification of the revenue generated. Article 40(3) stipulates that revenues generated by the fees shall constitute internal assigned revenues within the meaning of Article 21(3), point (a), of the Financial Regulation (Regulation (EU, Euratom) 2024/2509).

This classification has two major implications:

  • Ring-Fencing: The revenue is assigned specifically to cover the costs of the procurement activities carried out pursuant to Article 37. It is not merged into the general EU budget pool for unrestricted use. This ensures that the funds generated by the procurement framework are immediately available to finance its own operations.
  • Surplus Handling: The proposal is clear that the mechanism is designed for cost recovery, not profit generation. Article 40(3) states that any revenue remaining after covering the costs of the procurement activities shall be entered into the general budget of the Union. This prevents the creation of a profit center within the Commission and ensures that any surplus benefits the broader EU budget.

Initial Establishment Costs and Reimbursement

Recognizing that new frameworks often require upfront investment before they can generate fee revenue, the proposal includes a transitional provision. Article 40(2) allows for the initial establishment costsβ€”such as the development of the common procurement platform and the initial setup of the joint procurement frameworkβ€”to be initially borne by the general budget of the Union.

However, this is not a permanent subsidy. The same article mandates that these initial costs must be reimbursed by the participating entities over a period not exceeding three years from the date on which they were borne by the Union. This ensures that the long-term financial sustainability of the framework is maintained, with the participating entities eventually covering the full cost of the system they utilize.

Governance and Implementation

To ensure the fee structure is applied consistently and transparently, the Commission is empowered to adopt implementing acts. Article 40(5) specifies that these acts must lay down detailed rules for determining the fees, including:

  • The estimated costs attributable to the procurement activities.
  • The individual amounts of the chargeable fees.
  • The manner and conditions under which the fees are to be paid.

These implementing acts are adopted in accordance with the examination procedure referred to in Article 46(2), ensuring a level of democratic control and scrutiny. Additionally, the Steering Committee established under Article 38(4) provides a governance mechanism where participating entities have a strategic oversight role, including the approval of the strategic direction of procurement procedures, which indirectly influences the cost structure and fee justification.

What this means for you

For public-sector procurement officers and financial managers, the CADA joint procurement funding model introduces a new but transparent cost structure.

Budgeting for Participation: You must anticipate that participating in the EU-level joint procurement framework will incur a fee. When planning your cloud and AI procurement strategies, these fees should be included in your cost calculations. However, the proposal suggests that these fees are designed to be proportionate and may be offset by the significant economies of scale achieved through joint procurement, potentially lowering the overall cost of the cloud services themselves.

Predictability and Transparency: The requirement for fees to be set in advance and proportionate to costs provides a high degree of financial predictability. You will be able to see the fee structure before committing to the procurement process, allowing for better financial planning and avoiding unexpected administrative surcharges.

Cost Efficiency: The proposal aims to ensure that the fee structure reflects best practices in comparable procurement frameworks. This suggests that the EU-level framework will strive to be competitive in terms of administrative costs, potentially offering a more efficient alternative to fragmented national procurement processes where administrative overheads might be higher.

Reimbursement of Initial Costs: If the framework launches with initial costs covered by the EU budget, be aware that these costs may be reimbursed by participating entities over a three-year period. This could mean a gradual increase in fees or a specific reimbursement clause in the initial agreements, which should be monitored closely during the early years of the framework's operation.

Common misconceptions

Misconception 1: The EU budget fully funds the joint procurement activities.

  • Reality: While the EU budget may cover initial establishment costs, the ongoing operational costs are funded by fees from participating entities. The revenues are internal assigned revenues, meaning they are ring-fenced for this purpose and do not rely on annual budgetary allocations.

Misconception 2: Fees are a source of profit for the European Commission.

  • Reality: The fees are designed strictly as cost-recovery mechanisms. Article 40(3) explicitly states that any revenue remaining after covering costs is entered into the general budget of the Union. The Commission does not retain these funds as profit.

Misconception 3: Participating entities have no say in the fee structure.

  • Reality: While the Commission sets the fees via implementing acts, the process is subject to the examination procedure. Furthermore, the Steering Committee under Article 38 provides a governance mechanism where participating entities can influence strategic decisions, including the strategic direction of procurement procedures which directly impacts cost drivers.

Related

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