Summary Under the proposed Cloud and AI Development Act (CADA), Member States are required to pursue a specific objective: awarding at least 25% of their public procurement for cloud computing services and AI systems to innovative small and medium-sized enterprises (SMEs). This obligation, set out in Article 33(4), is not a standalone target but must be integrated into national cloud and AI strategies under Article 7, which must include concrete plans to achieve it. To ensure accountability, Member States must monitor participation trends and report specific data points to the Commission annually under Article 33(3), covering contract numbers, value shares, and cross-border participation.

Detail

The proposed Cloud and AI Development Act (CADA), COM(2026) 502 final, represents a strategic shift in how the EU approaches public procurement in the digital sector. While previous instruments like the Data Act focused on switching and interoperability, CADA introduces demand-side measures designed to actively shape the market by fostering a competitive, European-based ecosystem. A cornerstone of this approach is the explicit empowerment of innovative small and medium-sized enterprises (SMEs) and start-ups.

Article 33 of the proposal establishes a comprehensive framework for "Monitoring of procurement of innovation in cloud and AI." This article moves beyond voluntary guidelines to create binding obligations for Member States to track, report, and actively pursue the inclusion of innovative SMEs in their cloud and AI procurement activities.

The 25% Innovation Target: Article 33(4)

The central metric driving this framework is found in Article 33(4). The text of the proposal 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" is legally significant. It establishes a clear, quantifiable benchmark for national performance without creating an immediate, rigid quota for every individual tender. This approach acknowledges the varying maturity of national markets and the specific availability of innovative SMEs in different regions. However, the obligation is not merely aspirational. The regulation couples this objective with mandatory planning and reporting mechanisms to ensure that Member States take concrete, measurable steps toward this goal. Failure to demonstrate progress toward this 25% threshold would be visible in the annual data submitted to the Commission, potentially triggering further scrutiny or recommendations.

The target specifically applies to "innovative SMEs," distinguishing them from standard small businesses. This distinction aligns with CADA's broader goal of driving technological sovereignty and innovation, ensuring that public funds support entities developing cutting-edge cloud and AI solutions rather than just maintaining legacy systems.

Integration into National Strategies: The Article 7 Link

To prevent the 25% target from becoming a disconnected statistic, Article 33(4) explicitly links it to the broader national planning framework. The provision mandates: "Member States shall include, in their national strategies referred to in Article 7, plans on how they intend to achieve this objective."

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 cover key objectives, governance frameworks, and measures to accelerate adoption across public and private sectors. By embedding the SME procurement target into these strategies, CADA ensures that the goal is treated as a foundational element of national digital sovereignty and industrial policy.

This linkage has several practical implications:

  1. Strategic Alignment: National strategies must not only state the 25% target but also outline the specific pathways to reach it. This includes identifying barriers, defining the scope of "innovative SMEs" within the national context, and setting intermediate milestones.
  2. Governance Responsibility: The creation of these plans requires coordination between ministries responsible for digital affairs, economic development, and public procurement. It ensures that procurement officers are not working in isolation but are guided by a national roadmap.
  3. Long-term Commitment: Since national strategies must be assessed and updated at least every three years (per Article 7(5)), the plan to achieve the 25% target becomes a recurring, evolving commitment rather than a one-time declaration.

Monitoring and Annual Reporting: Article 33(3)

Accountability for the 25% objective is enforced through a rigorous monitoring and reporting regime detailed in Article 33(3). Member States are obligated to monitor their use of innovation procurement in cloud computing services and AI systems and to inform the Commission on a yearly basis.

The regulation specifies the exact data points that must be reported annually:

  • The size of the economic operators participating: This requires Member States to categorize bidders and winners by size (e.g., SME vs. large enterprise).
  • SMEs participation trends: This includes granular data on:
    • The number of contracts awarded to SMEs.
    • Their share of the total contract value, expressed as a percentage. This is the critical metric for calculating progress toward the 25% target.
    • Where available, the share of cross-border SMEs participation. This data point is vital for assessing the single market dimension of the target, ensuring that the ecosystem is not just national but European.
  • Measures taken: Member States must report on the specific actions implemented to improve SME access to public procurement procedures.

This annual reporting cycle creates a transparent feedback loop. It allows the Commission to aggregate data across the Union, identify systemic barriers, and assess the effectiveness of national strategies. If a Member State consistently fails to move toward the 25% objective, the data provides the evidence base for the Commission to issue recommendations or, in extreme cases, to consider further legislative or policy interventions.

Measures to Improve Access and Remove Barriers

Meeting the 25% target requires active intervention to remove structural barriers that often disadvantage smaller players. Article 33(2) mandates that Member States take appropriate measures to ensure that the monitoring data is actively used to:

  • Identify barriers to SME participation.
  • Improve access of SMEs to procurement markets.
  • Support the design of simplified, proportionate, and SME-friendly procurement strategies.
  • Promote the division of contracts into lots where appropriate, a critical mechanism for allowing SMEs to bid on portions of large cloud or AI projects.
  • Promote the participation of SMEs in innovation procedures foreseen under Directive 2014/24/EU and pre-commercial procurement.

Furthermore, Article 33(5) encourages Union entities and contracting authorities to go beyond passive compliance. It explicitly promotes:

  • Preliminary market consultations: Engaging with the market before launching a tender to understand capabilities and shape requirements.
  • Matchmaking: Facilitating connections between public buyers and innovative European SMEs and start-ups.
  • Favourable contract clauses: Developing public contract clauses that are specifically designed to be accessible to innovative SMEs.

These provisions recognize that achieving the target requires a cultural and procedural shift in public procurement, moving away from risk-averse, large-contract models toward agile, innovation-friendly approaches.

What this means for you

For public-sector procurement officers, national policymakers, and SMEs operating in the cloud and AI sector, the proposed CADA framework transforms SME engagement from a voluntary "nice-to-have" into a monitored regulatory objective. Here is how different stakeholders should prepare:

For National Policymakers and Strategy Leads

  1. Audit Your Article 7 Strategy: If your national cloud and AI strategy is already drafted or in development, verify that it explicitly includes a plan to achieve the 25% innovative SME procurement target. If not, you must develop a roadmap. This plan should detail specific tactics, such as mandatory lot-splitting, simplified qualification criteria, or the use of framework agreements that lower entry barriers.
  2. Establish Data Infrastructure: You cannot report what you cannot measure. Ensure your national procurement databases can capture and disaggregate data by company size (SME vs. large enterprise) and origin (domestic vs. cross-border). You will need to track not just the number of contracts, but the total contract value awarded to SMEs to calculate the percentage accurately.
  3. Coordinate Across Ministries: The 25% target sits at the intersection of digital policy, economic development, and procurement law. Establish a working group to ensure that the measures taken to improve SME access are consistent across all relevant ministries.

For Public Procurement Officers

  1. Simplify and Split: To meet the 25% target, you must actively remove barriers. Consider breaking large cloud or AI procurement projects into smaller, manageable lots that SMEs can realistically bid for. Avoid overly complex technical requirements that favor only large incumbents with extensive resources.
  2. Engage Early: Leverage the "preliminary market consultations" encouraged by Article 33(5). Engage with innovative SMEs before a tender is launched to understand their capabilities and shape requirements that are realistic for smaller players.
  3. Use Innovation Procedures: Familiarize yourself with the innovation procurement procedures available under the Public Procurement Directives. These tools are designed specifically for engaging with SMEs and start-ups in the development of new solutions.

For Innovative SMEs

  1. Monitor National Strategies: Keep an eye on the national cloud and AI strategies published by your Member State. These documents will outline the specific plans to reach the 25% target and may highlight upcoming procurement opportunities or support programs.
  2. Prepare for Data-Driven Reporting: As Member States begin reporting annually, the pressure to demonstrate SME participation will increase. Ensure your company is ready to be identified as an "innovative SME" in procurement databases and that you can demonstrate the innovative nature of your cloud or AI solutions.
  3. Leverage Matchmaking: Actively participate in the matchmaking events and preliminary market consultations promoted under CADA. These are designed to connect you directly with public buyers looking to meet their 25% targets.

Common misconceptions

Misconception 1: The 25% target is a mandatory quota for every single tender. Correction: Article 33(4) states that Member States shall "pursue as objective" the 25% figure. It is an aggregate national target, not a per-procurement quota. A single tender does not need to be split to ensure 25% goes to SMEs, but the total procurement spend in the sector must trend toward this figure. However, failure to make progress toward this objective will be visible in the annual reports required by Article 33(3).

Misconception 2: Only domestic SMEs count toward the target. Correction: The regulation specifically encourages cross-border participation. Article 33(3) requires reporting on the "share of cross-border SMEs participation" where available. The goal is to strengthen the European cloud and AI ecosystem, not just national ones. Procurement officers should not impose unjustified local restrictions that exclude SMEs from other Member States.

Misconception 3: This applies to all public procurement. Correction: Article 33 specifically targets "procurement for cloud computing services and AI systems." It does not apply to general public procurement (e.g., buying office supplies, construction services, or standard IT hardware). The focus is strictly on the digital infrastructure and AI tools that underpin the EU's technological sovereignty.

Misconception 4: SMEs must be the sole winners of contracts. Correction: The target measures the value of contracts awarded to innovative SMEs. This can include SMEs winning individual lots in a larger framework agreement, or SMEs partnering with larger entities in a consortium, provided the contract value attributed to the SME is correctly calculated. The key is ensuring that innovative SMEs have a meaningful share of the total procurement spend in this sector.

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