Summary Under the proposed Cloud and AI Development Act (CADA), Member States are required to pursue a specific objective: at least 25% of their public procurement for cloud computing services and AI systems must be awarded to innovative small and medium-sized enterprises (SMEs). This is established as a strategic target rather than a rigid, automatic quota for every individual tender. To ensure this objective is met, Member States must include concrete plans in their national cloud and AI strategies and submit detailed yearly reports to the European Commission on their progress, barriers, and measures taken to improve SME access.

Detail

The proposed Cloud and AI Development Act (CADA), COM(2026) 502 final, introduces a targeted demand-side measure designed to reshape the European cloud and AI market by fostering competition and innovation among smaller players. Article 33 of the proposal specifically addresses the "Monitoring of procurement of innovation in cloud and AI," establishing a framework to boost the participation of SMEs in public sector contracts.

The 25% Objective: A Strategic Mandate

The core of the SME provision is found in Article 33(4), which 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."

The legislative phrasing "pursue as objective" is significant. In EU law, this typically denotes a binding obligation to strive toward a specific result, rather than a strict "hard quota" that would automatically render a specific procurement procedure void if the exact percentage is not achieved in a single tender. Instead, it imposes a duty of result on the Member State as a whole over a defined period. Member States must actively design their procurement landscapes to ensure this aggregate target is met. The target applies specifically to "innovative SMEs," distinguishing them from general SMEs by focusing on those driving technological advancement in the cloud and AI sectors.

National Strategies: The Planning Mechanism

To prevent this objective from remaining a mere aspiration, Article 33(4) explicitly links the target to the broader national planning framework. It mandates that "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 direct legal chain of accountability:

  1. Article 7 requires Member States to adopt national cloud and AI strategies within one year of CADA's entry into force.
  2. Article 33(4) requires these strategies to contain specific, actionable plans to reach the 25% SME award rate.
  3. These plans must detail the measures Member States will take to lower barriers, such as simplifying administrative procedures, dividing contracts into smaller lots, or providing specific support for SMEs.

By embedding the target into the national strategy, CADA ensures that the 25% objective is not an isolated metric but a central pillar of each Member State's digital sovereignty and innovation policy.

Monitoring and Yearly Reporting

Transparency and accountability are enforced through a rigorous reporting mechanism. Article 33(3) obliges Member States to inform the Commission on a yearly basis. The report must include specific data points to allow the Commission to assess whether the 25% objective is being met and to identify systemic issues. 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.
  • The share of the total contract value awarded to SMEs, expressed as a percentage.
  • The share of cross-border SME participation, where data is available.
  • The specific measures taken to improve SME access to public procurement procedures.

This annual cycle allows the Commission to monitor trends across the Union, compare performance between Member States, and intervene if certain countries consistently fail to make progress toward the objective.

Enabling Measures: Lots and Market Consultations

Beyond the target itself, Article 33(2) and Article 33(5) provide the tools necessary to achieve it. Article 33(2) requires Member States to use the monitoring data to "identify barriers to SMEs participation" and to "improve access of SMEs to procurement markets." It explicitly mentions supporting the design of "simplified, proportionate and SME-friendly procurement strategies, including division into lots, where appropriate."

Dividing large contracts into smaller lots is a critical mechanism, as it allows SMEs to bid for specific components of a larger project without needing the massive financial or technical capacity required for the whole. Furthermore, Article 33(5) encourages Union entities and contracting authorities to promote "preliminary market consultations" and "matchmaking between public buyers and innovative solutions provided by European SMEs and start-ups." This proactive engagement helps public bodies understand the capabilities of the SME market and allows SMEs to tailor their offerings to public needs before tenders are launched.

What this means for you

For public procurement officers, national strategy planners, and innovative SMEs, the proposed CADA creates a new operational reality for cloud and AI procurement.

For Public Procurement Officers:

  • Strategic Alignment: Your procurement planning must now explicitly account for the 25% objective. While you cannot arbitrarily reject the most economically advantageous tender, you must structure your procurement strategies (e.g., lot division, simplified criteria) to maximize the opportunity for innovative SMEs to win.
  • Documentation: You must maintain detailed records of SME participation. Your national authority will need this data to compile the yearly report to the Commission. Ensure your internal systems can track the number of contracts and the value awarded to SMEs.
  • Early Engagement: Actively use preliminary market consultations. Engage with SMEs and start-ups early to understand the market landscape and to design tenders that are accessible to them.

For Innovative SMEs:

  • Increased Visibility: The 25% target creates a structural demand for your services. Public bodies will be under pressure to find and award contracts to innovative SMEs to meet their national reporting obligations.
  • Better Access: Look for tenders that are divided into smaller lots, as these are specifically designed to be accessible to smaller operators.
  • Advocacy: If you face barriers in accessing public procurement, report them. The data you provide during market consultations or through national feedback channels will feed into the Commission's annual assessment of barriers.

For National Governments:

  • Strategy Integration: The 25% target must be a headline item in the national cloud and AI strategy. You must draft a clear plan detailing how you will achieve this, including specific legislative or administrative changes to procurement rules.
  • Data Collection: Establish robust mechanisms to collect and verify SME participation data annually to ensure accurate reporting to the Commission.

Common misconceptions

"The 25% target is a mandatory quota for every single tender." Reality: This is incorrect. Article 33(4) sets the target as an objective for Member States to "pursue" across their overall procurement activities for cloud and AI. It is an aggregate target, not a per-contract mandate. Procurement officers must still award contracts based on the most economically advantageous tender, but they must structure their overall portfolio to meet the 25% share.

"Only micro-enterprises count toward the target." Reality: The term "SME" in CADA refers to the standard definition in Commission Recommendation 2003/361/EC, which includes small and medium-sized enterprises. The target specifically targets "innovative SMEs," which can encompass a range of company sizes provided they meet the innovation criteria. It does not exclude small mid-caps (SMCs) if they are innovative, though the primary focus is on the broader SME category.

"This applies to all public spending, not just cloud and AI." Reality: The 25% objective is strictly limited to "procurement for cloud computing services and AI systems" as defined in the regulation. It does not apply to construction, general office supplies, or other public procurement categories unless they are explicitly part of a cloud or AI service contract.

"Member States can ignore the target if they claim it's too difficult." Reality: While the target is an "objective," the requirement to include a plan in the national strategy (Article 33(4)) and to report yearly on progress and barriers (Article 33(3)) creates a high level of accountability. Failure to make genuine efforts or to report on the measures taken to achieve the target could lead to significant scrutiny from the Commission and potential political pressure to reform national procurement practices.

Related

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