Summary As proposed, the Cloud and AI Development Act (CADA) would mandate Member States to actively monitor public procurement of innovative cloud and AI services to improve access for small and medium-sized enterprises (SMEs). Under Article 33, contracting authorities would be required to identify barriers to SME participation and implement simplified, SME-friendly procurement strategies, such as dividing contracts into lots. Member States would also be expected to pursue an objective of awarding at least 25% of their procurement for cloud computing services and AI systems to innovative SMEs.

Detail

The proposed Cloud and AI Development Act (CADA) introduces specific measures in Title IV, Chapter II, Section 3, to strengthen the position of small and medium-sized enterprises (SMEs) in the public procurement of cloud computing services and AI systems. These provisions are designed to ensure that the push for technological sovereignty and innovation does not inadvertently exclude smaller European providers who lack the resources to compete with large hyperscalers. The core of these protections and support mechanisms is found in Article 33, which outlines obligations for Member States and contracting authorities to foster an inclusive procurement environment.

Monitoring and Barrier Identification

Under Article 33(1), Member States are required to monitor and report on their use of procurement of innovation in cloud computing services and AI systems. This monitoring is not merely administrative; it serves as a diagnostic tool. Article 33(2) explicitly mandates that Member States take appropriate measures to ensure this monitoring is actively used to identify barriers to SME participation in procurement procedures.

The goal is to pinpoint structural or procedural hurdles that prevent SMEs from bidding. Once identified, these barriers must be addressed through the design of simplified, proportionate, and SME-friendly procurement strategies. Article 33(2) specifically cites the division into lots as a key strategy to make tenders more accessible to smaller entities. By breaking down large, complex procurements into smaller, manageable lots, contracting authorities can lower the entry threshold for SMEs, allowing them to compete for specific components of a service rather than having to provide an entire end-to-end solution.

The 25% Innovation Objective

CADA sets a clear quantitative target to drive market share for smaller innovators. 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 plans in their national cloud and AI strategies (as required by Article 7) detailing how they intend to meet this 25% target. This transforms the goal from a vague aspiration into a measurable policy outcome that national governments must actively work towards. It signals to the market that a significant portion of public spending on cloud and AI is reserved for or targeted at innovative smaller players, provided they can meet the technical and sovereignty requirements.

Active Support and Matchmaking

Recognizing that SMEs often struggle with the complexity of public tendering processes, Article 33(5) places positive obligations on Union entities and contracting authorities to facilitate SME involvement. These authorities must promote:

  • Preliminary market consultations: Engaging with the market early to understand capabilities and needs, which helps SMEs tailor their offerings.
  • Matchmaking: Actively connecting public buyers with innovative solutions provided by European SMEs and start-ups.
  • Favourable contract clauses: Developing public contract clauses that are favourable for innovative SMEs. This may include payment terms, liability limitations, or intellectual property rights arrangements that reduce the financial risk for smaller providers.

Furthermore, Article 33(3) requires Member States to report annually to the Commission on SME participation trends. This includes data on the number of contracts awarded to SMEs, their share of the total contract value, and the share of cross-border SME participation. This transparency allows the Commission to assess whether the measures are working and where further intervention might be needed.

Context within the Sovereignty Framework

It is important to note that these SME protections operate within the broader sovereignty framework of CADA. While Article 33 encourages SME participation, the cloud services procured must still meet the Union assurance levels defined in Annex II. For many standard public sector activities, this means Union assurance level 1 (Article 30(2)). For activities contributing to public order, higher levels (2, 3, or 4) are required (Article 30(3)). SMEs must therefore be able to demonstrate compliance with these sovereignty criteriaβ€”such as data remaining within the Union and the provider being established in the Unionβ€”to qualify for these protected procurement opportunities.

What this means for you

For cloud service providers and data centre operators, particularly those classified as SMEs or small mid-caps (SMCs), these provisions represent a significant opportunity to access public sector markets that have historically been dominated by large international players.

Prepare for Lot-Based Tenders: Anticipate that large public cloud tenders will increasingly be split into smaller lots. Structure your service offerings to be modular and interoperable so you can bid on specific components (e.g., storage, specific AI models, or edge computing nodes) rather than needing to provide a full-stack global solution.

Engage in Market Consultations: Do not wait for the tender to be published. Actively seek out preliminary market consultations promoted by contracting authorities. This is your chance to influence the technical specifications and demonstrate your innovative capabilities before the formal bidding process begins.

Demonstrate Innovation: To benefit from the 25% objective, you must be classified as an "innovative SME." Ensure your technical documentation and marketing materials clearly highlight the innovative aspects of your cloud or AI solutions. Be prepared to provide evidence of your innovation status when bidding.

Understand Sovereignty Requirements: While CADA supports SMEs, it does not lower the bar for sovereignty. Ensure your infrastructure, data handling, and corporate structure meet the criteria for at least Union assurance level 1. If you aim for higher levels, ensure you have the necessary audits and certifications in place, as these will be prerequisites for participating in tenders for critical public sector functions.

Leverage Matchmaking: Participate in matchmaking events and platforms established by public authorities. These are designed to connect you with buyers who are specifically looking for European, innovative solutions. Building relationships with public procurement officers early can help tailor your offerings to their specific needs.

Common misconceptions

Misconception 1: CADA guarantees SMEs will win contracts. CADA does not guarantee that SMEs will win any specific contract. Article 33(4) sets an objective for Member States to pursue a 25% award rate for innovative SMEs. This is a target for public spending, not a quota that overrides the requirement for the most economically advantageous tender. SMEs must still compete on quality, price, and technical merit.

Misconception 2: SMEs are exempt from sovereignty requirements. Some providers assume that being an SME exempts them from the strict Union assurance levels. This is incorrect. All cloud services procured by public authorities must meet the minimum assurance level (Level 1) or higher, depending on the risk assessment. SMEs must comply with the same data localisation, establishment, and security criteria as larger providers to participate in these tenders.

Misconception 3: The 25% target applies to all cloud procurement. The 25% objective specifically applies to procurement of innovation in cloud computing services and AI systems. It does not necessarily apply to routine, non-innovative cloud maintenance or legacy system migrations. The focus is on driving innovation and reducing dependencies through new, advanced solutions.

Misconception 4: Contracting authorities must use SME-friendly clauses in every tender. Article 33(5) requires authorities to promote the development of favourable clauses and engage in matchmaking. It does not mandate that every single tender includes specific SME-favourable terms. However, the trend will be towards more standardized, SME-friendly frameworks, especially for innovation procurement.

Related

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