Summary The proposed Cloud and AI Development Act (CADA) introduces a targeted framework to break the dominance of large hyperscalers in public cloud and AI procurement. Under Article 33, Member States are legally required to identify and remove barriers preventing small and medium-sized enterprises (SMEs) from bidding. Key measures include mandating the division of contracts into lots, promoting preliminary market consultations, and facilitating matchmaking between public buyers and innovative SMEs. The Act sets a strategic objective for Member States to award at least 25% of their innovation procurement in cloud and AI to SMEs, supported by annual reporting and national strategies.

Detail

The Cloud and AI Development Act (CADA), as proposed in COM(2026) 502 final, recognises that the public sector's massive purchasing power can be a decisive lever to reshape the European cloud and AI market. Currently, the market is characterised by a high concentration of non-EU providers, which often creates a barrier to entry for smaller, innovative European firms. To counter this, CADA moves beyond general principles of competition to impose specific, actionable obligations on Member States and contracting authorities to actively foster SME participation.

The core of this intervention is Article 33, titled "Monitoring of procurement of innovation in cloud and AI." This article establishes a cycle of monitoring, barrier removal, and active facilitation designed to integrate SMEs into the supply chain for sovereign cloud and AI technologies.

The 25% Strategic Objective

While CADA does not impose a rigid quota on every individual tender, it establishes a clear, binding strategic target for Member States. Article 33(4) states that Member States shall pursue the objective that at least 25% of their procurement for cloud computing services and AI systems be awarded to innovative SMEs.

This is not a passive aspiration. Member States are required to include concrete plans in their national cloud and AI strategies (as mandated by Article 7) detailing exactly how they intend to achieve this objective. These strategies must outline the specific measures and timelines for increasing SME market share in the public sector.

Monitoring and Reporting: The Accountability Mechanism

To ensure the 25% target is not merely rhetorical, Article 33(1) requires Member States to monitor and report on their use of innovation procurement. This data-driven approach is designed to identify where the system is failing SMEs.

Under Article 33(3), Member States must inform the Commission on a yearly basis with specific data points:

  • The size of the economic operators participating in such procurement.
  • SME participation trends, including the number of contracts awarded to SMEs, their share of the total contract value (as a percentage), and, where available, the share of cross-border SME participation.
  • The specific measures taken to improve SME access to public procurement procedures.

This annual reporting creates a feedback loop, allowing the Commission and Member States to assess whether current strategies are effective or if additional interventions are required.

Removing Barriers: Simplified Strategies and Contract Lots

One of the most significant hurdles for SMEs in public procurement is the administrative and financial burden of responding to massive, monolithic tenders. Large cloud infrastructure projects often require guarantees and technical capacities that only the largest global players can provide.

Article 33(2) directly addresses this by obliging Member States to take appropriate measures to ensure that their monitoring and reporting are actively used to:

  1. Identify barriers to SME participation in procurement procedures.
  2. Improve access of SMEs to procurement markets.
  3. Support the design of simplified, proportionate, and SME-friendly procurement strategies.

A critical tool explicitly mentioned in Article 33(2) is the division into lots. By breaking down large cloud or AI projects into smaller, manageable lots, contracting authorities can allow SMEs to bid for specific components (e.g., a specific data centre region, a niche AI model, or a specific software module) rather than being forced to compete for the entire ecosystem. This approach lowers the entry threshold and allows SMEs to leverage their agility and specialised expertise.

Furthermore, Article 33(2) explicitly promotes the participation of SMEs in:

  • The innovation procedure foreseen under Directive 2014/24/EU (the Public Procurement Directive).
  • Pre-commercial procurement of cloud computing services and AI systems.

These mechanisms are designed to allow public buyers to co-develop solutions with SMEs before the market is fully mature, reducing the risk for both parties and fostering innovation.

Active Facilitation: Consultations, Matchmaking, and Clauses

CADA goes beyond structural changes to require active engagement from public authorities. Article 33(5) mandates that Union entities and contracting authorities promote three specific activities to bridge the gap between public buyers and innovative SMEs:

  1. Preliminary Market Consultations: Authorities must engage with the market before launching a formal tender. For SMEs, this is a vital opportunity to understand the buyer's needs, clarify technical requirements, and tailor their innovative solutions accordingly. This reduces the risk of non-compliance due to misinterpretation and ensures that the tender specifications are realistic for smaller providers.
  2. Matchmaking: Authorities are required to promote matchmaking between public buyers and innovative solutions provided by European SMEs and start-ups. This addresses the information asymmetry that often prevents SMEs from knowing about relevant opportunities or buyers from knowing about the capabilities of smaller, innovative firms.
  3. SME-Favourable Contract Clauses: Authorities must promote the development of public contract clauses that are favourable for innovative SMEs. This could include flexible payment terms, reduced security deposits, or clearer intellectual property rights provisions that protect the SME's innovations while ensuring the public sector's needs are met.

Synergy with Union Added Value

The SME support measures in Article 33 work in tandem with the "Union added value" criteria established in Article 32. Under Article 32(3), contracting authorities must evaluate how a tenderer contributes to strengthening the digital technology supply chain in the Union. This includes the use of software or hardware designed or manufactured in the Union and the integration of technologies developed in the Union.

For SMEs, this is a strategic advantage. Unlike large non-EU providers, European SMEs can often demonstrate a direct, tangible contribution to the European supply chain. By combining the procedural support of Article 33 (lots, matchmaking) with the award criteria of Article 32 (Union added value), SMEs are better positioned to win contracts against larger, non-European competitors.

Implementation Timeline and National Strategies

The effectiveness of these measures relies on national implementation. Member States must integrate these SME-support measures into their national cloud and AI strategies (Article 7). These strategies must be adopted within one year of CADA's entry into force and updated every three years. The European Artificial Intelligence Board (established by the AI Act) will assist in coordinating these strategies, ensuring a consistent approach across the Union.

What this means for you

If you are an SME, start-up, or innovative provider of cloud computing services or AI systems, the proposed CADA creates a more accessible pathway to public sector contracts. Here is how you can leverage these new provisions:

  • Participate in Preliminary Consultations: Do not wait for the official tender notice. Actively monitor public authorities' announcements for preliminary market consultations. Use these sessions to showcase your innovative solutions, ask clarifying questions, and influence the drafting of the tender specifications to ensure they are accessible to smaller providers.
  • Structure Modular Offerings: Since Article 33(2) encourages the division of contracts into lots, structure your services to be modular. Be prepared to bid for specific components of a larger project (e.g., a specific AI model training service or a regional data centre node) rather than attempting to win the entire contract.
  • Engage in Matchmaking Events: Look for matchmaking events facilitated by public authorities, the European Digital Innovation Hubs (EDIHs), or the proposed Centres for AI. These events are designed to connect you directly with public buyers who are actively seeking innovative SME solutions.
  • Highlight Your European Supply Chain Value: When bidding, explicitly articulate how your solution strengthens the European digital supply chain. Emphasize the use of EU-designed hardware, software, or R&D results, as these are key criteria under Article 32 that can give you an edge.
  • Advocate for SME-Friendly Clauses: When engaging with public buyers, advocate for the use of contract clauses favourable to innovative SMEs, as promoted by Article 33(5). This might include requesting flexible payment terms or specific intellectual property protections that are standard for innovative SMEs.
  • Monitor National Strategies: Keep a close watch on the national cloud and AI strategies of Member States where you wish to operate. These documents will outline the specific plans for achieving the 25% SME target, giving you early insight into upcoming procurement opportunities and policy shifts.

Common misconceptions

Misconception 1: CADA guarantees that SMEs will win 25% of all contracts. Reality: The 25% figure is a strategic objective for Member States to pursue across their overall procurement of cloud and AI services, not a mandatory quota for every single tender. The final award decision still depends on the technical and financial merits of the bid, provided the procurement is conducted in accordance with public procurement rules.

Misconception 2: Only "start-ups" benefit from these measures. Reality: The term "SME" is defined in accordance with Commission Recommendation 2003/361/EC. This includes small and medium-sized enterprises, not just start-ups. The measures apply to all entities falling within this definition, including established SMEs that are innovating in the cloud and AI sector.

Misconception 3: CADA overrides existing public procurement laws. Reality: CADA complements existing EU public procurement directives, such as Directive 2014/24/EU. It introduces specific obligations and criteria for cloud and AI procurement but does not override the general principles of transparency, non-discrimination, and equal treatment. The innovation procedures and lot divisions mentioned in CADA are already available under the current directives; CADA simply makes their use mandatory and targeted.

Misconception 4: SMEs are exempt from the sovereignty (Union Assurance) requirements. Reality: While CADA supports SMEs, it does not exempt them from the Union Assurance Levels (Levels 1–4) established in Article 16 and Annex II. SMEs bidding for public contracts must still meet the relevant assurance level required by the contracting authority, depending on the sensitivity of the data and the public order relevance of the service. The support measures are designed to help SMEs access the market, not to bypass technical security requirements.

Misconception 5: The 25% target applies to all public procurement, not just innovation. Reality: The 25% target specifically applies to procurement of innovation in cloud computing services and AI systems. It is a targeted measure to foster the development of new technologies and capabilities, rather than a blanket target for all routine IT procurement.

Official sources

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