Summary Under the proposed Cloud and AI Development Act (CADA), Article 38 establishes the mandatory legal gateway for joint public procurement of cloud computing services, AI systems, and software. Before the European Commission can execute any procurement activities on behalf of Member States under Article 37, it must enter into a specific agreement with at least two Member States. This agreement serves a dual purpose: it lays down the practical arrangements for the joint procurement and is deemed to satisfy the joint procurement agreement and mandate requirements of Article 168(2) and (3) of the Financial Regulation (Regulation (EU, Euratom) 2024/2509). This mechanism enables participating public authorities to bypass standard national tender procedures while retaining strategic oversight through a dedicated Steering Committee.

Detail

The CADA proposal introduces a transformative mechanism for the EU public sector to procure digital infrastructure. By enabling the European Commission to act as a central purchasing body, the Act aims to leverage collective buying power, reduce dependencies on non-European providers, and accelerate the deployment of sovereign cloud and AI technologies. Article 38, titled "Arrangements for the procurement activities by the Commission," sets out the precise, non-negotiable conditions under which this joint procurement framework operates.

The Prerequisite Agreement: A Strict Condition Precedent

Article 38(1) establishes a strict precondition for any joint procurement activity. It explicitly states: "Before any procurement activity to be carried out under Article 37, the Commission and at least two Member States shall enter into an agreement laying down the practical arrangements for the procurement activities carried out by the Commission under this Chapter."

This agreement is not merely an administrative formality; it is the foundational legal instrument that unlocks the Commission's authority to act. The text clarifies that this agreement "shall be deemed to satisfy the requirements of the joint procurement agreement and mandate referred to in Article 168(2) and (3) of Regulation (EU, Euratom) 2024/2509." By satisfying these specific requirements of the Financial Regulation, the agreement legally empowers the Commission to act as a central purchasing body for the participating entities, effectively creating a unified procurement vehicle that supersedes fragmented national approaches for the covered services.

Scope, Mandate, and Operational Responsibility

Once established, the agreement functions as a formal mandate. Article 38(2) specifies that the agreement "constitutes a mandate for the Commission to procure on behalf of, or in the name of, the participating entities within the meaning of Article 168(3), point (e), of Regulation (EU, Euratom) 2024/2509." This mandate allows the Commission to conclude framework contracts, operate dynamic purchasing systems, or act as a wholesaler for data centre services, cloud computing services, software, and AI systems.

The scope of the agreement is broad but strictly defined. Article 38(3) requires the agreement to include practical arrangements for:

  • The participation of entities.
  • The decision-making process for the choice of procedure and applicable conditions.
  • The evaluation of requests for participation and tenders.
  • The award of contracts.
  • The applicable law and competent jurisdiction.

Crucially, while the agreement sets the strategic direction, the operational responsibility remains firmly with the Commission. Article 38(3) notes that "The Commission shall remain responsible for the operation and management of procurement activities, including for deciding on the launch of a procurement procedure, the type of procedure and of contract, and the award of contracts." This separation ensures that while Member States set the agenda, the Commission executes the complex procurement processes efficiently.

Governance: The Steering Committee

To ensure that the procurement activities align with the strategic interests of the Member States, Article 38(4) mandates the establishment of a Steering Committee. This committee is composed of the Commission and one representative from each participating Member State at the national level. Member States that accede to the agreement at a later stage are also represented in this committee.

The Steering Committee's role is primarily strategic rather than operational. Article 38(5) outlines its responsibilities, which include:

  • Providing strategic oversight of the procurement activities.
  • Proposing the strategic direction of the procurement agenda for a fixed period.
  • Approving the strategic direction of each procurement procedure before it is launched by the Commission to ensure compliance with the framework established by CADA.

The Committee may also appoint additional representatives from other Union entities, contracting authorities of Member States, and partner organisations selected by the Commission. Article 38(11) further states that the Steering Committee shall adopt its rules of procedure following a proposal from the Commission, ensuring that the governance structure is adaptable to the needs of the participating entities.

Accession, Participation, and Flexibility

The agreement is designed to be scalable and inclusive. Article 38(6) allows contracting authorities of participating Member States, Union entities, and partner organisations selected by the Commission to accede to the agreement after it has entered into force. Once they accede, they are considered "participating entities" in the procedures in which they elect to participate.

The Steering Committee determines the conditions for accession, which must be transparent and non-discriminatory. Article 38(8) requires the Committee to set out rules regarding size, minimum amounts, and other objective criteria for contracting authorities to join. It also establishes procedures for the termination of participation if a contracting authority fails to comply with its obligations.

Notably, Article 38(7) clarifies that "The participation of a contracting authority of a Member State shall not be conditional on that Member State's participation." This is a critical provision: it allows individual public bodies (e.g., a specific ministry or regional authority) to join the framework even if their national government has not formally acceded, provided they meet the criteria set by the Steering Committee. This flexibility ensures that the procurement mechanism can be utilized by sub-national entities without waiting for national-level political alignment.

Legal Effect, Derogations, and International Access

A key benefit of this framework is the legal certainty it provides to contracting authorities. Article 39(1) of CADA, which works in tandem with the Article 38 agreement, states that a participating entity is "deemed to have fulfilled its obligations under applicable Union public procurement law where it acquires supplies or services by means of contracts awarded by the Commission under this Chapter."

Furthermore, Article 38(9) introduces a significant derogation from the standard requirements of the Financial Regulation. It allows the Steering Committee to approve the participation of contracting authorities from EFTA States and Union candidate countries "without the need for a bilateral or multilateral treaty provided for such possibility." This provision significantly lowers the barrier for international partners to access the EU's collective procurement power for cloud and AI services.

What this means for you

For in-house counsel, procurement officers, and compliance teams in public sector bodies, the Article 38 agreement represents a streamlined but regulated path to procuring complex digital services. Here is what you need to know:

  • The Agreement is a Pre-condition: You cannot simply request the Commission to procure services on your behalf. The foundational agreement between the Commission and at least two Member States must be in place first. Monitor the publication of this agreement in the Official Journal or on the Commission's procurement portal, as no procurement activity under Article 37 can legally commence without it.
  • Strategic Oversight via Steering Committee: If your Member State is a signatory, ensure that your national representative on the Steering Committee is actively engaged. The Committee approves the strategic direction of each procurement procedure (Article 38(5)). This is your primary opportunity to influence the scope, priorities, and strategic direction of the joint procurements before they are launched.
  • Accession is Conditional: If your specific contracting authority is not automatically covered by your Member State's signature, you must accede to the agreement individually. Review the transparent and non-discriminatory conditions set by the Steering Committee (Article 38(8)), which may include minimum spending thresholds, entity size, or other objective criteria. There is no automatic right to join for every individual public body.
  • Compliance Relief: Once you are a participating entity and acquire services through the Commission's central purchasing activities, you are deemed to have fulfilled your public procurement obligations under Union law (Article 39(1)). This significantly reduces the administrative burden of running separate tender procedures for complex AI and cloud services, provided you adhere to the agreement's terms.
  • Cost Recovery: Be aware that the Commission will levy fees to cover the costs of these procurement activities. Article 40 specifies that these fees are set in advance, are proportionate to estimated costs, and are sufficient to cover direct and indirect costs. Ensure your budget accounts for these administrative fees in addition to the cost of the services themselves.
  • International Participation: If you are a contracting authority from an EFTA state or a candidate country, you may be able to participate without a bilateral treaty, subject to the Steering Committee's approval under Article 38(9).

Common misconceptions

Misconception 1: The Commission acts as a simple vendor. The Commission is not selling its own services. It is acting as a central purchasing body (Article 37(3)). It procures on behalf of or in the name of participating entities. The legal contract is between the supplier and the participating entity (or the Commission acting as their agent), not between the supplier and the Commission as an end-user.

Misconception 2: Any Member State can join at any time without conditions. While accession is possible after the agreement enters into force (Article 38(6)), it is subject to conditions set by the Steering Committee. These conditions must be transparent and non-discriminatory but may include objective criteria such as minimum contract values or entity size (Article 38(8)). There is no automatic right to join for every individual public body.

Misconception 3: The Steering Committee manages the day-to-day tender process. The Steering Committee provides strategic oversight (Article 38(5)). It approves the strategic direction and the agenda, but it does not manage the operational details of the procurement. The Commission retains responsibility for the operation and management of the procurement activities, including the actual award of contracts (Article 38(3)).

Misconception 4: The agreement replaces national procurement law entirely for all cases. The agreement satisfies the requirements for joint procurement under the Financial Regulation (Article 38(1)). However, participating entities must still comply with the specific conditions laid out in the agreement. Furthermore, the agreement only covers the specific procurement activities conducted by the Commission under Chapter IV of CADA. Other procurements by the same entity remain subject to standard national and EU public procurement directives.

Misconception 5: A Member State must participate for its authorities to join. Article 38(7) explicitly states that the participation of a contracting authority of a Member State is not conditional on that Member State's participation. This allows sub-national entities to join independently, provided they meet the Steering Committee's criteria.

Related

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