Summary As proposed in the Cloud and AI Development Act (CADA), Member States are required to pursue an objective that at least 25% of their public procurement for cloud computing services and AI systems is awarded to innovative small and medium-sized enterprises (SMEs). This is not a rigid, per-tender legal quota that automatically invalidates a contract if missed, but a strategic target that Member States must actively work towards through concrete planning. To ensure accountability, Article 33(4) mandates that Member States include specific plans on how to achieve this objective within their national cloud and AI strategies (required under Article 7), and must report annually on progress to the Commission.

Detail

The proposed Cloud and AI Development Act (CADA), COM(2026) 502 final, seeks to reshape the European cloud and AI ecosystem by reducing dependence on non-European providers and fostering a competitive, innovative domestic market. A critical mechanism for achieving this is public procurement, which represents a substantial portion of demand for these technologies. To prevent market consolidation by large incumbents and to ensure that smaller, agile innovators can compete, CADA introduces a specific quantitative target for SME participation.

The 25% Objective: A Strategic Target

The core provision is found in Article 33(4) of the proposal. The text explicitly 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."

This phrasing is legally significant. The use of "pursue as objective" indicates a binding obligation to strive for the result, rather than a strict "shall award" mandate that would impose a hard cap or automatic penalty for every individual tender that falls short. The target applies to the aggregate procurement activity of Member States over time, serving as a directional compass for national procurement policies.

The focus on innovative SMEs is deliberate. CADA aims not just to support small businesses generally, but to drive the adoption of novel technologies, open-source solutions, and cutting-edge AI models that larger, established providers may be slower to adopt. This aligns with the broader CADA goal of strengthening the Union's technological sovereignty and innovation capacity.

Integration into National Strategies (Article 7)

To ensure this 25% objective translates into action rather than remaining a mere aspiration, CADA links it directly to the national planning framework established in Article 7.

Article 7 requires Member States to adopt national cloud and AI strategies within one year of the Regulation's entry into force. These strategies must cover key objectives, governance frameworks, and measures to accelerate adoption. Crucially, Article 33(4) adds a specific requirement to this planning process:

"Member States shall include, in their national strategies referred to in Article 7, plans on how they intend to achieve this objective."

This creates a two-step compliance loop:

  1. Planning: Member States must draft a concrete roadmap within their national strategy detailing the mechanisms they will use to reach the 25% threshold. This could involve breaking down large contracts into smaller lots, simplifying tender documentation, reducing financial turnover requirements, or establishing dedicated innovation procurement windows.
  2. Implementation: The strategies must be updated at least every three years based on key performance indicators, ensuring the plan evolves as the market changes.

Monitoring, Reporting, and Transparency

CADA establishes a robust monitoring framework to track progress toward the 25% target. Under Article 33(3), Member States are obligated to inform the Commission on a yearly basis. The required data includes:

  • The size of the economic operators participating in such procurement.
  • SME participation trends, specifically the number of contracts awarded to SMEs and their share of the total contract value (as a percentage).
  • Measures taken to improve SME access to public procurement procedures.

This annual reporting ensures transparency and allows the Commission to assess whether Member States are making genuine progress. While the text does not prescribe specific sanctions for missing the target, the public nature of the reporting and the requirement to justify the "plans" in the national strategy create significant political and administrative pressure to comply.

Supporting Measures for Contracting Authorities

To assist Member States and individual contracting authorities in meeting this objective, Article 33(5) outlines specific actions they should promote:

  • Preliminary market consultations: Engaging with potential suppliers early to shape tenders that are accessible to SMEs.
  • Matchmaking: Facilitating connections between public buyers and innovative European SMEs and start-ups.
  • Favorable contract clauses: Developing public contract clauses that are specifically favorable for innovative SMEs, reducing administrative and financial barriers.

These measures are designed to address common hurdles SMEs face, such as complex legal requirements, high bonding costs, and a lack of visibility into upcoming opportunities.

What this means for you

For public-sector procurement officers, digital transformation leads, and SMEs seeking public contracts, the 25% target in CADA represents a shift from voluntary "SME-friendly" rhetoric to a structured, measurable policy goal.

For Public Authorities and Procurement Officers

  1. Review Your National Strategy: Check your country's national cloud and AI strategy (required by Article 7). It must contain a specific plan for achieving the 25% SME award target. If your authority's current procurement practices do not align with this plan, you may need to adjust your tendering processes.
  2. Design SME-Friendly Tenders: You are strongly encouraged to break large cloud or AI procurements into smaller, manageable lots. This allows SMEs to bid for specific components (e.g., a specific AI module, data migration services, or niche cloud security tools) rather than competing for entire infrastructure overhauls dominated by hyperscalers.
  3. Engage Early: Utilize preliminary market consultations to understand the barriers SMEs face. Adjust tender requirements accordingly, such as avoiding excessive financial turnover thresholds that exclude smaller innovators.
  4. Track Your Data: Start collecting granular data on your current SME procurement rates for cloud and AI. You will need to report this annually to the Commission under Article 33(3). Knowing your baseline is the first step to hitting the 25% target.
  5. Focus on Innovation: The target specifically mentions "innovative SMEs." Look beyond traditional IT suppliers and consider start-ups and small tech firms that offer novel AI solutions, open-source tools, or specialized cloud services.

For SMEs and Start-ups

  1. Monitor National Strategies: Your national government must publish a plan to reach the 25% target. This plan should outline specific opportunities and simplified procedures for SMEs.
  2. Prepare for Matchmaking: Expect increased public-private matchmaking events facilitated by national authorities to connect you with public buyers.
  3. Leverage "Innovation" Status: If your solution is innovative, highlight this in your bids. The 25% target is specifically designed to favor innovative SMEs over established, non-innovative incumbents.

Common misconceptions

Misconception 1: The 25% is a hard legal quota for every single tender. No. Article 33(4) states that Member States shall "pursue as objective" the 25% target. It is a strategic goal for the aggregate of procurement activities over time, not a mandatory minimum for each individual contract. A single tender may still be awarded to a large provider if it offers the best value or meets specific technical requirements that only a large provider can fulfill. However, the overall portfolio of procurement must trend toward the 25% mark.

Misconception 2: This only applies to small businesses, excluding mid-caps. The definition of SME in CADA follows Commission Recommendation 2003/361/EC, which includes small and medium-sized enterprises. While the specific 25% metric is tied to the SME definition, the broader goal of CADA is to diversify the supplier base away from hyperscalers. Mid-cap companies may also benefit from measures designed to support smaller, innovative players, though the specific target is strictly for SMEs.

Misconception 3: Member States can ignore this target if no SMEs bid. While the target is an objective, the requirement to include a plan in the national strategy (Article 7) and to report annually (Article 33(3)) creates accountability. If no SMEs are bidding, it suggests that the procurement environment may not be accessible enough. Member States are expected to use the supporting measures in Article 33(5), such as matchmaking and simplified procedures, to improve participation. Ignoring the lack of SME participation without taking corrective action would likely be seen as a failure to "pursue" the objective.

Misconception 4: The target applies to all public procurement. No. The target is specific to procurement for cloud computing services and AI systems. It does not apply to general public procurement for goods, works, or other services outside these specific technological domains.

Related

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