Summary Under the proposed Cloud and AI Development Act (CADA), innovation procurement is a strategic tool to strengthen the EU's digital ecosystem. Article 33 requires Member States to actively monitor and report on their purchasing of innovative cloud computing services and AI systems, with a specific objective to award at least 25% of such contracts to small and medium-sized enterprises (SMEs). This monitoring framework works in tandem with Article 32, which mandates the inclusion of "Union added value" criteria in tender evaluations to favour European technologies and supply chains. Together, these provisions aim to drive demand for homegrown, innovative solutions while reducing dependence on third-country providers.

Detail

The Cloud and AI Development Act (CADA), as proposed in COM(2026) 502 final, represents a shift from passive regulation to active market shaping. While much of the Act focuses on supply-side sovereignty (such as the Union assurance levels), Title IV, Chapter II, Section 3 introduces critical demand-side measures. Public authorities in the EU are among the largest buyers of digital services; CADA seeks to leverage this purchasing power to stimulate the European market, foster innovation, and support smaller players.

Monitoring Innovation Procurement (Article 33)

Article 33 establishes a rigorous, data-driven framework for the monitoring of procurement of innovation in cloud and AI. It moves beyond simple record-keeping, imposing a duty on Member States to actively improve market access for innovative, smaller enterprises.

The core obligations under Article 33 include:

  • Active Monitoring and Reporting: Member States must monitor and report annually to the Commission on their use of innovation procurement for cloud computing services and AI systems. This reporting is not merely administrative; it must include specific data points: the size of economic operators participating, trends in SME participation (including the number of contracts awarded to SMEs and their share of total contract value), and the measures taken to improve SME access.
  • The 25% SME Target: The proposal sets a clear, ambitious performance indicator. Article 33(4) states that Member States shall pursue as an objective that at least 25% of their procurement for cloud computing services and AI systems be awarded to innovative SMEs. To achieve this, Member States must include specific plans in their national cloud and AI strategies (required under Article 7) detailing how they intend to reach this target.
  • Removing Barriers: The data collected under Article 33 must be actively used to identify barriers to SME participation. Member States are required to take measures to support simplified, proportionate, and SME-friendly procurement strategies. This explicitly includes the division of contracts into lots where appropriate, a proven method to make large-scale digital projects accessible to smaller firms.
  • Promoting Best Practices: To facilitate these goals, Article 33(5) encourages Union entities and contracting authorities to promote preliminary market consultations, matchmaking between public buyers and European SMEs/start-ups, and the development of public contract clauses that are favourable to innovative SMEs.

Union Added Value in Innovative Buys (Article 32)

While Article 33 provides the monitoring and strategic framework, Article 32 provides the specific legal tool for how to evaluate innovation and European origin during the procurement process itself.

Article 32 mandates that in public procurement procedures for innovative cloud computing services and AI systems, contracting authorities shall include non-price award criteria that evaluate the tenderer's contribution to the development of a European cloud and AI ecosystem. This is legally defined as "Union added value."

Key aspects of Article 32 include:

  • Mandatory Inclusion: For innovative procurements, these criteria are not optional. Contracting authorities must include them as part of the quality evaluation of the tender.
  • Specific Criteria for Evaluation: Authorities are empowered to evaluate the extent to which:
    • The tenderer contributes to strengthening the digital technology supply chain in the Union (e.g., using software or hardware designed or manufactured in the EU).
    • The tenderer has integrated technologies developed in the Union, including research and development results stemming from Union-funded programmes.
    • The innovation required to deliver the service contributes to strengthening the security of supply and the development of a European cloud and AI ecosystem.
    • The service is delivered, to the greatest extent feasible, through critical computing, storage, and networking hardware components designed and/or manufactured in the Union.
  • Proportionality and Limits: To prevent market distortion, these non-price criteria must be linked to the subject matter of the contract, expressly set out in the procurement documents, and must be ancillary and not decisive in the award. They cannot override core technical and financial criteria. The explanatory memorandum accompanying the proposal suggests a maximum weighting of 15 out of 120 points for these criteria to ensure they remain proportionate and subordinate to the primary performance requirements.

The Synergy Between Article 32 and Article 33

These two articles create a closed-loop policy mechanism. Article 32 provides the legal basis for public buyers to prefer European, innovative solutions without violating EU state aid or general procurement rules, provided the criteria are transparent, non-discriminatory, and linked to the contract subject.

Article 33 ensures that this preference mechanism is actually being used to help smaller, innovative European companies (SMEs) win contracts, rather than just large incumbents. By mandating the collection of granular data on SME participation, the Commission can assess whether the "Union added value" criteria are effectively driving the market toward the desired outcome: a competitive, sovereign, and innovative domestic cloud and AI ecosystem. If the 25% target is not met, the data triggers a requirement for Member States to adjust their strategies and remove identified barriers.

What this means for you

For public-sector procurement officers, CADA introduces new strategic responsibilities and reporting burdens regarding cloud and AI purchases.

  1. Update Your Procurement Strategies: If you procure cloud or AI services, you must review your tender documents to ensure they include non-price award criteria for "Union added value" as per Article 32, specifically for innovative procurements. Ensure these criteria are clearly defined, linked to the contract subject, and explicitly stated as non-decisive.
  2. Focus on SMEs: You are expected to actively facilitate SME participation. This means considering lot division, simplifying documentation, and engaging in pre-procurement market consultations. Aim for the 25% SME award target in your innovation procurements, as this will be a key metric in your national reporting.
  3. Prepare for Reporting: Your authority will need to collect and report specific data annually to the Commission. This includes tracking the size of economic operators, the number of contracts awarded to SMEs, and the financial value of these contracts. Establish internal data collection processes now to avoid administrative gaps later.
  4. National Strategy Alignment: Ensure your procurement activities align with your Member State's national cloud and AI strategy (under Article 7), which must include plans for achieving the SME procurement objectives. Your local actions contribute directly to the national target.

Common misconceptions

"Union added value criteria mean we must buy only European products." No. Article 32 allows you to evaluate the contribution to the European ecosystem as a non-price criterion. It must be ancillary and not decisive. You can still award contracts to non-EU providers if they offer better overall value on technical and financial grounds, provided the evaluation is transparent and proportional.

"Innovation procurement applies to all cloud and AI buys." No. Article 32 specifically applies to procedures for innovative cloud computing services and AI systems. Standard, off-the-shelf cloud services that do not involve significant innovation or R&D may not qualify under this specific provision, though general procurement rules still apply.

"The 25% SME target is a strict legal quota." Not exactly. Article 33(4) states Member States shall "pursue as objective" that at least 25% be awarded to innovative SMEs. It is a strong political and monitoring target. While failure to strive for it may be scrutinized in reporting and could lead to corrective measures, it is not necessarily a rigid legal quota that automatically invalidates a contract if missed, provided the Member State has taken appropriate measures to support SMEs.

"SMEs are automatically exempt from compliance costs." No. While CADA encourages SME-friendly measures and simplified procedures, SMEs awarded contracts must still comply with all relevant legal obligations, including data protection, cybersecurity, and any specific technical requirements of the contract. The support is in access and evaluation, not exemption from quality standards.

Related

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