Summary Under the proposed Cloud and AI Development Act (CADA), cloud and AI service providers do not strictly need to manufacture hardware in the EU to win public tenders, but doing so significantly boosts their score under the "Union added value" criteria. Article 32(3)(d) establishes a preference for critical computing, storage, and networking hardware designed and/or manufactured in the Union. However, this preference is explicitly conditional: it applies only "to the greatest extent feasible with regard to market availability and technical requirements." If EU hardware is unavailable or technically insufficient, providers may use third-country hardware, provided it contributes to the security of supply and the development of the European ecosystem. Crucially, this criterion is ancillary and not decisive in the award of the contract, meaning technical performance and price remain the primary drivers.

Detail

The proposed Cloud and AI Development Act (CADA), COM(2026) 502 final, introduces a sophisticated procurement framework designed to leverage public spending to strengthen the European cloud and AI ecosystem. For providers bidding on public contracts, the distinction between a mandatory requirement and a scoring criterion is vital. The proposal does not impose a blanket ban on non-EU hardware; rather, it creates a structured incentive mechanism to favor European supply chains where feasible.

The Legal Basis: Article 32 and Union Added Value

The core mechanism for favoring European hardware is found in Article 32 of the CADA proposal, titled "Union added value." This article mandates that contracting authorities include specific non-price award criteria in public procurement procedures for innovative cloud computing services and AI systems. These criteria are designed to evaluate a tenderer's contribution to the development of a European cloud and AI ecosystem.

Article 32(1) requires contracting authorities to include "non-price award criteria that allow them to evaluate the tenderer's contribution to the development of a European cloud and AI ecosystem."

Article 32(2) sets strict guardrails for these criteria to ensure they do not distort the internal market or violate procurement principles:

  • They must be linked to the subject matter of the contract.
  • They must not confer unrestricted freedom of choice on the contracting authority.
  • They must be expressly set out in the procurement documents or in the contract notice.
  • Most critically, they must be "ancillary and not decisive in the award of the contract."

This legal framing ensures that the primary drivers of procurement remain technical merit, security, and price. The Union added value criterion acts as a differentiator among technically equivalent bids, allowing authorities to favor providers who actively reinforce the European digital supply chain without excluding superior offers solely based on origin.

The Hardware Criterion: Article 32(3)(d)

The specific provision regarding hardware is Article 32(3)(d). It instructs contracting authorities to evaluate the extent to which:

"the service is delivered, 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, or, where this is not feasible, through hardware components from a third country that contributes to strengthening the security of supply and the development of a European cloud and AI ecosystem."

This provision establishes a nuanced, three-tiered assessment for hardware sourcing:

  1. Primary Preference for EU-Origin Hardware: The baseline expectation is that services are delivered using "critical computing, storage and networking hardware components" that are "designed and/or manufactured in the Union." Providers who can demonstrate that their infrastructure relies on such hardware will score higher on this specific award criterion. The use of "and/or" means that either design or manufacturing within the Union is sufficient to meet the preference.

  2. The Feasibility Caveat: The requirement is explicitly qualified by the phrase "to the greatest extent feasible with regard to market availability and technical requirements." This is a critical safeguard for providers. It means that if EU-manufactured hardware is not available in the market (market availability) or does not meet the specific technical performance requirements of the tender (technical requirements), the provider is not penalized for using non-EU hardware. The burden of proof lies in demonstrating this infeasibility.

  3. The Third-Country Exception with Conditions: Where EU hardware is not feasible, providers may use hardware from a third country. However, this is not a free pass. To still score positively under this criterion, the third-country hardware must "contribute to strengthening the security of supply and the development of a European cloud and AI ecosystem." This suggests that simply using the cheapest global hardware may not suffice; the provider must articulate how their choice mitigates supply chain risks, diversifies sources, or supports broader European strategic autonomy goals.

Scope: "Critical" Hardware Components

The criterion specifically targets "critical computing, storage and networking hardware components." This implies that not all hardware in a data centre or cloud stack is subject to this scoring. Peripherals, non-critical networking gear, or standard office equipment likely fall outside the scope of this specific evaluation. The focus is on the core infrastructure that underpins the cloud and AI services being procured.

Integration with Other Union Added Value Criteria

Manufacturing hardware in the EU is just one component of the broader "Union added value" score. Article 32(3) lists other factors that contracting authorities must evaluate:

  • Article 32(3)(a): 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.
  • Article 32(3)(b): The extent to which the tenderer has integrated technologies developed in the Union, including research and development results stemming from Union-funded research and development programmes.
  • Article 32(3)(c): 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.

Therefore, a provider that uses EU-designed hardware but also integrates Union-developed software stacks, leverages EU-funded R&D, and demonstrates a robust supply chain strategy may achieve a higher overall Union added value score than a provider that merely assembles hardware in the EU but relies on non-European software ecosystems.

What this means for you

If you are a cloud service provider, data centre operator, or AI system developer preparing bids for public sector contracts under the prospective CADA framework, you should take the following strategic steps:

1. Audit Your Hardware Stack

Identify all "critical computing, storage and networking hardware components" in your infrastructure. Determine their design and manufacturing origins. Distinguish between components that are "designed" in the EU, "manufactured" in the EU, or both.

2. Map Feasibility and Document Gaps

For each critical component, assess whether an EU-designed or EU-manufactured alternative exists that meets your technical performance requirements.

  • If EU hardware is available: Prepare to highlight this in your bid.
  • If EU hardware is NOT available: Document the specific reasons (e.g., lack of market availability, performance gaps). Be prepared to justify why EU alternatives were not feasible.
  • If EU hardware is technically insufficient: Provide evidence of the technical requirements that cannot be met by current EU offerings.

3. Prepare Evidence for Third-Country Hardware

If you must use third-country hardware due to infeasibility, prepare a robust justification explaining how your choice still "contributes to strengthening the security of supply and the development of a European cloud and AI ecosystem." This could include:

  • Diversified supply chains that reduce single-point failure risks.
  • Long-term contractual safeguards against disruption.
  • Investments in European R&D or local assembly that support the ecosystem.

4. Adopt a Holistic Union Added Value Strategy

Do not focus solely on hardware. Review Article 32(3)(a)-(c) to ensure your bid also highlights:

  • Integration of technologies developed in the Union.
  • Use of Union-funded R&D results.
  • Contributions to the European supply chain beyond just hardware.

5. Monitor Tender Documents and Weighting

Pay close attention to the specific weighting of the Union added value criterion in each tender. While Article 32(2)(d) states that these criteria must be "ancillary and not decisive," their impact can be decisive in competitive bids where technical and price scores are close. Ensure your bid explicitly addresses the feasibility caveats and the security-of-supply contribution.

Common misconceptions

Misconception: "I must use only EU-made hardware to bid."

  • Reality: No. Article 32(3)(d) explicitly allows third-country hardware where EU hardware is not feasible due to "market availability and technical requirements." The criterion is about maximizing EU origin where possible, not an absolute exclusion of non-EU hardware.

Misconception: "The hardware criterion will decide the contract."

  • Reality: No. Article 32(2)(d) states that non-price award criteria, including Union added value, must be "ancillary and not decisive in the award of the contract." Technical merit, security, and price remain the primary factors. The hardware criterion serves as a tie-breaker or differentiator.

Misconception: "Any hardware manufactured in the EU scores equally."

  • Reality: The criterion specifically targets "critical computing, storage and networking hardware." Peripherals or non-critical components may not carry the same weight. Furthermore, the hardware must be designed and/or manufactured in the Union; mere assembly without design or manufacturing value-add may not qualify.

Misconception: "Third-country hardware automatically scores zero."

  • Reality: No. If EU hardware is not feasible, third-country hardware can still score if it "contributes to strengthening the security of supply and the development of a European cloud and AI ecosystem." Providers must demonstrate this contribution through their bid.

Misconception: "CADA replaces existing procurement rules."

  • Reality: CADA supplements existing public procurement directives. It adds a specific sectoral layer focused on sovereignty and ecosystem development, but it operates within the broader framework of EU procurement law.

Related

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