How does CADA procurement aim to grow the European cloud and AI ecosystem?

As proposed, the Cloud and AI Development Act (CADA) transforms public procurement from a simple purchasing exercise into a strategic industrial policy too

Summary As proposed, the Cloud and AI Development Act (CADA) transforms public procurement from a simple purchasing exercise into a strategic industrial policy tool designed to grow the European cloud and AI ecosystem. The proposal mandates that contracting authorities evaluate tenders based on their contribution to a "European cloud and AI ecosystem" (Article 32) and sets a strategic objective for Member States to award at least 25% of relevant innovation procurement to innovative small and medium-sized enterprises (SMEs) (Article 33). This demand-side approach aims to reduce dependence on third-country providers, strengthen the EU's digital supply chain, and foster a diverse, competitive market of European innovators.

Detail

The Cloud and AI Development Act (CADA), as set out in the proposal COM(2026) 502 final, addresses a critical market failure: the EU's shrinking share of its own cloud market and the concentration of infrastructure in the hands of a few non-EU hyperscalers. To reverse this trend, the proposal leverages the immense purchasing power of the public sector. Rather than relying solely on supply-side subsidies, CADA creates a "pull" mechanism where public demand is explicitly directed toward solutions that strengthen European technological sovereignty and innovation capacity.

This strategy is operationalized through two distinct but complementary legal instruments within the Act: the introduction of "Union added value" as a mandatory award criterion and the establishment of specific targets for SME participation in innovation procurement.

Article 32: Mandating "Union Added Value"

The primary mechanism for ecosystem growth is Article 32, which fundamentally alters the evaluation criteria for public tenders involving innovative cloud computing services and AI systems.

Article 32(1) imposes a mandatory obligation on contracting authorities: "In public procurement procedures for innovative cloud computing services and AI systems, contracting authorities shall include, as part of the quality evaluation of the tender, non-price award criteria that allow them to evaluate the tenderer's contribution to the development of a European cloud and AI ecosystem."

This provision ensures that the "lowest price" or "most economically advantageous tender" is no longer determined solely by cost or generic technical performance. Instead, the tender evaluation must explicitly weigh how the proposed solution contributes to the Union's strategic autonomy.

The scope of this contribution is defined in Article 32(3), which lists specific factors authorities must be able to evaluate. Crucially, Article 32(3)(c) directs authorities to assess "the extent to which... the innovation required to deliver the service contributes to strengthening the security of supply and the development of a European cloud and AI ecosystem."

This criterion allows public buyers to reward vendors who:

Strengthen the digital technology supply chain in the Union, including the use of software or hardware designed or manufactured in the EU.
Integrate technologies developed in the Union, such as research results from EU-funded programmes.
Deliver services using critical computing, storage, and networking hardware components designed or manufactured in the Union.

By embedding these factors into the scoring methodology, CADA creates a market incentive for providers to invest in R&D, manufacturing, and innovation within the EU, rather than acting as mere resellers of third-country technologies.

However, the proposal maintains the integrity of the single market and the primacy of technical and financial criteria. Article 32(2) stipulates that these non-price criteria must be:

Linked to the subject matter of the contract.
Not conferring unrestricted freedom of choice.
Expressly set out in the procurement documents.
Ancillary and not decisive in the award of the contract.

This ensures that while Union added value is a mandatory consideration, it serves to differentiate between technically and financially viable bids rather than acting as a protectionist barrier that automatically excludes non-EU providers who cannot meet the specific criteria.

Article 33: Targeting SMEs and Innovation

While Article 32 broadens the scope of evaluation, Article 33 provides a targeted mechanism to ensure that the benefits of this new procurement framework reach the most dynamic segment of the European market: small and medium-sized enterprises (SMEs) and start-ups.

The EU's cloud and AI landscape is currently dominated by large incumbents. Article 33 seeks to diversify this by establishing a clear political objective for Member States. Article 33(4) 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."

To achieve this, the proposal requires Member States to:

Monitor and Report: Under Article 33(1) and (3), Member States must monitor their use of innovation procurement and report annually to the Commission on SME participation trends, including the number of contracts awarded and their share of total contract value.
Strategic Planning: Article 33(4) requires Member States to include plans in their national cloud and AI strategies (established under Article 7) detailing how they intend to achieve the 25% target.
Remove Barriers: Article 33(2) mandates measures to identify barriers to SME participation, improve access, and support the design of simplified, proportionate, and SME-friendly procurement strategies. This includes the division of contracts into lots, which is a proven method to make large public contracts accessible to smaller players.

Furthermore, Article 33(5) encourages Union entities and contracting authorities to actively promote preliminary market consultations, matchmaking between public buyers and innovative European solutions, and the development of contract clauses favorable to innovative SMEs.

Demand-Side Industrial Policy in Action

Together, Articles 32 and 33 represent a coherent demand-side industrial policy. By mandating that public buyers value "Union added value" and by setting a specific target for SME innovation procurement, CADA aims to:

De-risk Investment: Public procurement provides a guaranteed market for European innovators, reducing the financial risk of developing new cloud and AI technologies.
Stimulate Supply: The criteria in Article 32 encourage providers to locate R&D, manufacturing, and supply chain activities within the EU to qualify for higher scores.
Diversify the Market: The focus on SMEs in Article 33 prevents market consolidation and ensures a pipeline of new, agile European competitors.

This approach complements the sovereignty framework (Articles 16–18) by ensuring that even when a public body is not required to procure the highest assurance levels, it still directs its spending toward solutions that build European capacity.

What this means for you

For public-sector procurement officers, policy makers, and European cloud providers, the proposal introduces significant changes to the procurement landscape.

For Public Procurement Officers

You will need to revise your tender documentation and evaluation methodologies to comply with the new mandatory criteria.

Integrate Union Added Value: You must include non-price award criteria in all tenders for innovative cloud and AI services. These criteria must explicitly evaluate the tenderer's contribution to the European ecosystem, such as the use of EU-designed hardware or the integration of EU-developed technologies.
Balance the Score: Ensure these criteria are "ancillary and not decisive" as per Article 32(2)(d). They should complement, not override, technical and financial requirements.
Target SMEs: Actively structure your tenders to meet the 25% SME innovation target. This may involve dividing large contracts into smaller lots, simplifying administrative requirements, and conducting preliminary market consultations to engage smaller innovators.
Data Collection: Implement systems to track and report SME participation data, as Article 33(3) requires annual reporting to the Commission on contract values and participation trends.

For European Cloud and AI Providers

The proposal creates a distinct competitive advantage for providers who can demonstrate a strong "Union added value."

Highlight Local Innovation: When bidding for public contracts, explicitly document how your solution strengthens the EU supply chain, uses EU-manufactured components, or leverages EU-funded R&D.
SME Collaboration: Larger providers may find it beneficial to partner with innovative SMEs to meet the criteria and potentially share in the 25% target allocation.
Strategic Alignment: Align your R&D and manufacturing strategies with the criteria in Article 32(3) to maximize your scoring potential in public tenders.

For Policy Makers

Member States must now integrate these procurement objectives into their national cloud and AI strategies.

National Planning: Develop concrete plans under Article 33(4) to achieve the 25% SME target.
Capacity Building: Provide training and guidance to contracting authorities on how to apply the "Union added value" criteria effectively and fairly.

Common misconceptions

"CADA bans non-European cloud providers." No. Article 32 does not prohibit non-European providers. It requires that their bids be evaluated against criteria that measure their contribution to the European ecosystem. A non-European provider could still win a contract if they can demonstrate significant Union added value (e.g., by manufacturing hardware in the EU or integrating EU-developed software), provided they also meet the technical and financial requirements. The goal is to incentivize European development, not to create an isolated market.

"The 25% SME target is a rigid legal quota." Article 33(4) states that Member States shall "pursue as objective" the 25% target. While this creates a strong political and strategic mandate, and requires reporting and planning, it is framed as an objective to be pursued rather than a strict, punitive quota that automatically invalidates contracts if not met. However, the requirement to report progress creates significant accountability.

"Union added value criteria can override technical quality." Article 32(2)(d) explicitly states that non-price award criteria must be "ancillary and not decisive in the award of the contract." Technical merit, security, and financial viability remain the primary drivers of the award. The Union added value criterion is designed to break ties or differentiate between otherwise comparable bids, ensuring that the winning solution also contributes to the EU's strategic goals.

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