Summary The proposed Cloud and AI Development Act (CADA) introduces a sector-specific overlay to the existing EU public procurement framework, specifically targeting cloud computing services and AI systems. Under Article 33, Member States would be required to actively monitor and report on their use of innovation procurement procedures, with a specific mandate to promote the participation of small and medium-sized enterprises (SMEs). Crucially, Article 33(2) explicitly requires Member States to promote SME participation in the innovation partnership procedure foreseen under Directive 2014/24/EU and to promote pre-commercial procurement (PCP). While the procedural mechanics remain governed by the 2014 Directive, CADA would impose a strategic objective for Member States to award at least 25% of their relevant cloud and AI innovation procurement to innovative SMEs, integrating these mechanisms into national cloud and AI strategies.

Detail

The procurement of innovative cloud and AI solutions in the EU has historically relied on the flexibility provided by Directive 2014/24/EU (the "Classic Procurement Directive"). Specifically, the innovation partnership procedure (Articles 31–33 of the Directive) allows contracting authorities to partner with economic operators to develop and subsequently purchase innovative solutions that do not yet exist on the market. However, the 2014 Directive is a horizontal instrument; it does not contain sector-specific mandates for cloud or AI, nor does it impose strict EU-wide targets for SME participation in these specific innovation partnerships.

The proposed Cloud and AI Development Act (CADA), as set out in COM(2026) 502 final, addresses this gap by establishing a dedicated framework for monitoring and supporting innovation procurement in the cloud and AI space. Article 33 of the proposal does not replace the 2014 Directive but layers substantive strategic obligations on top of its procedural rules.

The Legal Foundation: Directive 2014/24/EU

The innovation partnership procedure under Directive 2014/24/EU is designed to stimulate innovation by engaging economic operators in the development phase. It is particularly relevant for AI and cloud technologies, where rapid iteration and co-development with providers are often necessary. Under the current Directive, contracting authorities have the discretion to use this procedure, but there is no obligation to prioritize SMEs or to report specifically on the outcomes of such procurements to the European Commission.

CADA's Additional Layer: Article 33

Article 33 of the proposed CADA introduces a rigorous monitoring and reporting regime, coupled with specific strategic objectives to foster a competitive European cloud and AI ecosystem.

1. Monitoring and Reporting Obligations

Article 33(1) imposes a binding obligation on Member States to monitor and report on their use of procurement of innovation in cloud computing services and AI systems. This is not merely a recommendation; it is a requirement to "actively report on their uptake of innovative cloud computing services and AI systems to the Commission."

Under Article 33(3), Member States must inform the Commission on a yearly basis of:

  • 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 the share of cross-border SME participation.
  • Measures taken to improve SME access to public procurement procedures.

2. Promoting SME Participation and the Innovation Procedure

A core objective of CADA is to reduce dependence on non-European, hyperscale cloud providers by strengthening the European supply base. To this end, Article 33(2) explicitly mandates that Member States take appropriate measures to ensure that the monitoring and reporting data are used to:

  • Identify barriers to SME participation.
  • Improve access of SMEs to procurement markets.
  • Support the design of simplified, proportionate, and SME-friendly procurement strategies, including the division into lots.
  • Promote the participation of SMEs in the innovation procedure foreseen under Directive 2014/24/EU.
  • Promote pre-commercial procurement (PCP) of cloud computing services and AI systems.

This provision is significant because it explicitly links the general innovation partnership procedure of the 2014 Directive to the specific goal of SME empowerment in the cloud and AI sector. It transforms the innovation procedure from a discretionary tool into a strategic lever for SME inclusion.

3. The 25% SME Target

Article 33(4) sets a clear, albeit aspirational, strategic goal: "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."

To achieve this, Member States must include plans on how they intend to reach this objective in their national cloud and AI strategies, which are required under Article 7 of CADA. This creates a direct link between national strategic planning and procurement outcomes.

4. Pre-Commercial Procurement (PCP) Integration

CADA explicitly links innovation procurement with pre-commercial procurement (PCP). Article 33(2) requires Member States to promote PCP as part of their strategy to support SMEs. PCP allows public authorities to fund the research and development phase of a solution before it is placed on the market, effectively de-risking innovation for SMEs that may lack the capital to bid for full-scale commercial contracts.

By mandating the promotion of PCP alongside the innovation partnership procedure, CADA creates a continuum of support for European AI and cloud startups. This aligns with the broader CADA objective of fostering innovation and reducing technological dependencies.

5. Union Added Value Criteria

While Article 33 focuses on monitoring and SME access, it operates in tandem with Article 32 of CADA. Article 32 requires contracting authorities to include "Union added value" as a non-price award criterion in public procurement procedures for innovative cloud computing services and AI systems. This allows authorities to evaluate tenders based on their contribution to strengthening the European digital supply chain, such as the use of software or hardware designed or manufactured in the Union.

Under Article 32(2), these criteria must be:

  • Linked to the subject matter of the contract.
  • Not conferring unrestricted freedom of choice.
  • Expressly set out in the procurement documents.
  • Ancillary and not decisive in the award of the contract.

This ensures that while European innovation is prioritized, the procurement process remains compliant with international trade obligations and the principles of the internal market.

Relationship to the 2014 Procurement Directives

CADA does not replace Directive 2014/24/EU; rather, it operates as a sector-specific overlay. The procedural rules for launching an innovation partnership (e.g., publication of prior information notices, selection criteria, award procedures) remain governed by the 2014 Directive. CADA adds substantive requirements regarding who should win these contracts (SMEs), how the outcomes should be tracked (annual reporting to the Commission), and what strategic goals should be prioritized (technological sovereignty and reduced dependency).

The proposal explicitly states in Article 33(2) that Member States shall support the design of simplified strategies "including division into lots, where appropriate, promote the participation of SMEs in the innovation procedure foreseen under Directive 2014/24/EU and pre-commercial procurement of cloud computing services and AI systems." This confirms that the 2014 Directive provides the procedural vehicle, while CADA provides the strategic direction and targets.

Penalties and Enforcement

While Article 33 itself does not specify direct financial penalties for Member States failing to meet the 25% SME target (which is framed as an objective to be "pursued"), non-compliance with the reporting obligations under Article 33(3) could trigger infringement procedures by the European Commission for failure to implement EU law. Furthermore, the broader CADA framework includes penalties for cloud service providers (Article 24), but the obligations in Article 33 fall primarily on Member States and contracting authorities. In-house counsel must ensure that national procurement frameworks are updated to facilitate this reporting and to remove barriers to SME participation as required.

What this means for you

For in-house counsel, procurement officers, and compliance teams in the public sector or entities managing public procurement, CADA introduces a new layer of strategic and administrative responsibility:

  1. Update Procurement Strategies: Review your current use of innovation partnerships under Directive 2014/24/EU. Ensure that your procurement documents explicitly consider SME-friendly measures, such as lot division, as mandated by Article 33(2).
  2. Data Collection and Reporting: Establish internal processes to track the size of economic operators participating in cloud and AI innovation procurements. You will need to report annually to the relevant national authority on SME participation rates, contract values, and cross-border participation.
  3. National Strategy Alignment: Verify that your organization's procurement plans align with the national cloud and AI strategy required under Article 7 of CADA. This strategy must include a plan for achieving the 25% SME award target for innovative cloud and AI procurement.
  4. Pre-Commercial Procurement (PCP): Actively explore PCP opportunities. CADA explicitly encourages PCP as a tool to support SMEs. Compliance officers should be prepared to justify the use of PCP in innovation strategies to meet CADA's objectives.
  5. Union Added Value Criteria: When drafting tender specifications for innovative cloud or AI solutions, consider including non-price award criteria related to "Union added value" (Article 32). This allows you to prioritize solutions that strengthen the European digital supply chain, but you must ensure these criteria are linked to the subject matter, not decisive, and expressly set out in the procurement documents.

Common misconceptions

"CADA replaces the 2014 Procurement Directive." Incorrect. CADA complements the 2014 Directive. The procedural rules for innovation partnerships remain under Directive 2014/24/EU. CADA adds specific monitoring, reporting, and SME-promotion obligations for cloud and AI procurements.

"The 25% SME target is a hard quota with automatic penalties." Incorrect. Article 33(4) states that Member States shall "pursue as an objective" that at least 25% of procurement be awarded to innovative SMEs. It is a strategic target requiring planning and reporting, not a rigid quota with automatic financial penalties for missing it. However, failure to report on progress or to include plans in the national strategy may constitute non-compliance.

"Union added value criteria can be used to exclude non-EU providers entirely." Incorrect. Article 32(2) explicitly states that Union added value criteria must be "ancillary and not decisive in the award of the contract." They must be subordinate to core technical and financial criteria and cannot be used to unjustifiably restrict competition or violate international trade agreements.

"CADA only applies to public sector bodies." While the procurement obligations fall on contracting authorities, the monitoring and reporting requirements under Article 33 require Member States to actively manage the data. This creates a ripple effect where private sector entities participating in these procurements must also adapt to the new reporting and strategic requirements.

Related

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