Summary As proposed, the Cloud and AI Development Act (CADA) would require public authorities to include "Union added value" as a non-price award criterion in procurements for innovative cloud and AI systems, but it strictly limits this criterion to be "ancillary and not decisive." To balance this EU preference with open competition and WTO GPA compliance, CADA mandates that these criteria must be linked to the contract's subject matter and explicitly prohibits them from conferring unrestricted freedom of choice on the contracting authority. Furthermore, the framework allows for third-country hardware in the supply chain if it contributes to strengthening supply security, ensuring that the EU preference does not amount to outright market exclusion.

Detail

The proposed Cloud and AI Development Act (CADA) introduces a nuanced mechanism to strengthen the European cloud and AI ecosystem without violating international trade obligations or stifling competition. The core of this balance is found in Article 32, which establishes the "Union added value" criterion for public procurement. This provision is designed to incentivize the development of a resilient European digital supply chain while maintaining a level playing field that respects the principles of non-discrimination and open competition inherent in EU public procurement law and the World Trade Organization Agreement on Government Procurement (WTO GPA).

The Legal Architecture of Article 32

Under Article 32(1), contracting authorities procuring innovative cloud computing services and AI systems must include non-price award criteria that evaluate the tenderer's contribution to the development of a European cloud and AI ecosystem. This is not a mandatory quota or a reserved market for EU providers; rather, it is a quality evaluation factor intended to signal market direction towards technologies that reinforce the Union's digital sovereignty and security of supply.

However, the proposal imposes strict guardrails to prevent this criterion from becoming a de facto protectionist barrier. Article 32(2) sets out four mandatory conditions for these non-price criteria, which act as a legal firewall against arbitrary discrimination:

  1. Subject-matter link: The criteria must be "linked to the subject matter of the contract." This ensures that the evaluation is relevant to the specific service or system being procured, rather than being a generic political preference unrelated to the performance of the contract.
  2. No unrestricted choice: The criteria must "not confer unrestricted freedom of choice on the contracting authority." This prevents arbitrary decision-making and ensures that the evaluation is based on objective, pre-defined parameters that all bidders can anticipate.
  3. Transparency: The criteria must be "expressly set out in the procurement documents or in the contract notice." This guarantees that all bidders, including non-EU entities, are aware of the evaluation metrics from the outset.
  4. Ancillary and not decisive: Crucially, the criteria must be "ancillary and not decisive in the award of the contract." This legal phrasing is pivotal. It means that while Union added value is a positive factor, it cannot override the core technical and financial performance requirements. The primary drivers of the award must remain the quality, functionality, and cost-effectiveness of the offer, preserving open competition.

Evaluating Contribution to the Ecosystem

Article 32(3) details the specific aspects contracting authorities may evaluate under this criterion. These include:

  • The extent to which the 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.
  • The integration of technologies developed in the Union, including research and development results stemming from Union-funded research and development programmes.
  • The contribution of the innovation required to deliver the service to strengthening the security of supply and the development of a European cloud and AI ecosystem.
  • The delivery of 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.

The Third-Country Hardware Fallback

A critical component of CADA's balance between preference and open competition is the flexibility built into Article 32(3)(d). This provision acknowledges that a fully EU-designed hardware supply chain may not always be feasible due to market availability or technical requirements. Therefore, it allows for the use of hardware components from a third country, provided that such use "contributes to strengthening the security of supply and the development of a European cloud and AI ecosystem."

This fallback mechanism is explicitly designed to preserve open competition and ensure compliance with international commitments, such as the WTO GPA. It prevents the criterion from becoming an absolute barrier to entry for non-EU providers or components. By allowing third-country hardware if it enhances supply security, CADA avoids the pitfalls of rigid local-content requirements that could be challenged as discriminatory. It shifts the focus from the origin of the component to its strategic value and reliability within the broader ecosystem. The phrase "to the greatest extent feasible" further reinforces that the EU preference is conditional on market reality, preventing the creation of artificial scarcity.

Alignment with WTO GPA and National Treatment

The explanatory memorandum and recitals of CADA emphasize that the proposal is consistent with the Union's international commitments, including the WTO GPA. The GPA allows for measures necessary to protect public morals, order, or safety, and to protect human, animal, or plant life or health, provided they are not applied in a manner that constitutes a means of arbitrary or unjustifiable discrimination. By making the Union added value criterion ancillary and non-decisive, and by linking it to legitimate public interest objectives such as security of supply and digital resilience, CADA aims to stay within these permissible bounds.

The requirement that criteria be "ancillary and not decisive" serves as a safeguard against allegations of violating national treatment principles. It ensures that non-EU bidders are not automatically excluded but are evaluated on a nuanced scale where their contribution to the EU ecosystem is one factor among many. This approach seeks to harmonize the EU's strategic autonomy goals with its legal obligations to maintain an open and non-discriminatory procurement market. The proposal explicitly states that the criterion relating to European added value "should not be decisive for award of the contract and should be applied in a manner that preserves the primacy of technical and financial criteria directly connected to the performance requirements."

What this means for you

For in-house counsel and compliance officers, the introduction of Union added value criteria under CADA necessitates a proactive review of procurement strategies, particularly for innovative cloud and AI systems.

  1. Procurement Strategy Adjustment: You must anticipate that future public tenders will include non-price criteria evaluating the EU origin or strategic value of the supply chain. Ensure that your technical and commercial bids explicitly address how your solution contributes to strengthening the EU digital ecosystem. This may involve highlighting the use of EU-designed software, integration with EU-funded research outcomes, or the security benefits of your supply chain.
  2. Documentation and Evidence: Compliance with Article 32 requires clear, documented evidence. Prepare detailed documentation on the origin of your hardware and software components, the location of design and manufacturing, and any contributions to EU security of supply. Be ready to demonstrate how third-country components, if used, meet the fallback criteria of enhancing supply security.
  3. Legal Risk Assessment: Monitor the legislative process closely, as the final text may refine the "ancillary and not decisive" threshold. Engage with legal counsel to assess the risk of challenges based on WTO GPA national treatment obligations, particularly if the weighting of these criteria in practice appears to disproportionately favor EU providers.
  4. Engagement with Authorities: Participate in pre-procurement consultations to understand how contracting authorities intend to implement these criteria. Advocate for transparent, objective, and proportionate application of Article 32 to ensure a fair competitive environment.

Common misconceptions

Misconception 1: CADA mandates exclusive use of EU hardware and software. This is incorrect. Article 32(3)(d) explicitly allows for the use of third-country hardware if it contributes to strengthening supply security. The criterion is about evaluating contribution, not imposing a ban on non-EU components.

Misconception 2: Union added value will be the decisive factor in awarding contracts. The proposal strictly forbids this. Article 32(2)(d) states that the criterion must be "ancillary and not decisive." The primary award criteria must remain technical and financial performance. Union added value is a tie-breaker or a quality enhancer, not the sole determinant.

Misconception 3: This violates the WTO GPA's national treatment principle. CADA is designed to comply with international obligations. By linking criteria to the subject matter, preventing unrestricted choice, and ensuring the criterion is ancillary, the proposal aims to fit within the GPA's exceptions for public security and order. The third-country hardware fallback further mitigates discrimination risks.

Misconception 4: All cloud procurements are subject to this criterion. Article 32 applies specifically to "innovative cloud computing services and AI systems." Standard, non-innovative procurements may not trigger this specific requirement, though broader public procurement rules on sustainability and security may still apply.

Related

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