What Is the Colorado AI Act (CAIA) and Why Your Company Needs to Pay Attention

Updated: October, 2025

At a Glance: Key Takeaways

• • • First-of-its-kind AI regulation in the US: Colorado’s AI Act (SB 24-205) regulates high-risk AI systems influencing decisions in employment, housing, healthcare, and more.

    • Applies to businesses nationwide: Any company whose AI systems impact Colorado residents (regardless of location) must comply by February 1, 2026.

    • Strict duties for developers & deployers: Required steps include AI impact assessments, transparency reports, bias mitigation, and aligning with NIST and ISO/IEC 42001 standards.)  

The Colorado AI Act (CAIA), a first-in-nation AI compliance law, is something businesses can’t afford to ignore. If your business uses AI, builds AI tools, or deploys AI, especially in industries such as healthcare, media, marketing, consulting, consumer products, or tech, it’s particularly important to pay attention to this law. Colorado’s new AI regulation creates the first U.S. framework specifically designed to govern “high-risk” AI systems, the kinds that can shape real-life outcomes for people.

And here’s the kicker: you don’t even need to be based in Colorado for the law to apply to you.

Colorado’s Artificial Intelligence Act (SB 24-205), or CAIA, kicks off a major turning point in how states are starting to regulate AI going forward. Legal and reputational risks around AI are growing fast, especially as regulators push for fairness, transparency, and accountability. That means contracts, disclosures, and governance frameworks are already drawing scrutiny from regulators and business partners alike.

Why the Colorado AI Act Matters Even If You’re Not in Colorado

If your AI systems affect Colorado residents by contributing to decisions that influence their rights or access, you likely have to comply with CAIA. Examples are AI touching decisions about employment, healthcare, insurance, financial decisions, or education.

CAIA can be compared to the far-reaching requirements of the EU AI Act. Even if a company is headquartered outside Colorado, it must still conduct impact assessments, disclose AI use, and maintain documentation if it uses systems that affect Colorado residents.

A common misconception is that simply using a third-party AI vendor shields companies from liability. On the contrary, CAIA explicitly holds both developers and deployers accountable.

Both developers (those who build or substantially modify high-risk AI) and deployers (those who use or put into practice AI systems) are required to take proactive steps for preventing discrimination, transparency, design oversight, and disclose to consumers. For industries where AI is deeply integrated, for example media, healthcare, technology, and ecommerce, failure to comply with CAIA leads to regulatory, reputational and operational harm.

What Exactly Is CAIA (SB 24 205)?

CAIA’s full set of obligations goes into effect February 1, 2026. The law aims to protect consumers from harms caused by AI systems, particularly algorithmic discrimination, unfair or adverse consequential decisions, lack of transparency, and insufficient accountability.

CAIA is part of a broader wave of algorithmic accountability legislation. Its alignment with the NIST AI Risk Management Framework and ISO/IEC 42001 makes it easier for companies already adopting those frameworks to demonstrate compliance. By leaning into these standards, businesses can document their reasonable care, reduce exposure to enforcement, and meet the expectations of business partners who increasingly demand AI transparency.

The Colorado AI Act places clear legal duties on both developers and deployers of what it classifies as “high-risk AI systems”, tools that make or meaningfully influence important decisions. It also spells out who’s accountable, what must be disclosed, the level of oversight and risk management required, how consumers are informed, and what continuing obligations apply once the system is deployed.

Why NIST Matters for the Colorado AI Act (CAIA)

NIST stands for the National Institute of Standards and Technology, a U.S. federal agency under the Department of Commerce. It’s not a regulator, rather NIST creates standards, frameworks, and best practices that businesses around the world use to manage risk, cybersecurity, and AI governance.

If your company follows NIST standards, it proves that your organization is acting in good faith, which is exactly what regulators like Colorado’s Attorney General will look for when evaluating whether a company takes AI compliance seriously.

Understanding the Colorado AI Act’s Top 6 Definitions 

To figure out whether the Colorado AI Act applies to your company, it helps to understand a few key legal definitions. These terms decide who’s on the hook, when responsibilities apply, and what compliance really looks like.

High-Risk AI System
An AI system that either makes, or plays a meaningful role in making, a consequential decision. In other words, it must have more than just a minor influence on the final outcome.

Consequential Decision
A decision that has a real, tangible effect on a person’s life. For example, decisions about healthcare, insurance, employment, housing, financial terms, legal services, or education.

Developer vs. Deployer

Developer: Someone who builds, designs, or intentionally makes significant changes to a high-risk AI system.

Deployer: A company or individual that actually uses or implements the system in practice. In many organizations, the same business might play both roles.

Algorithmic Discrimination
Unlawful or unfair treatment that disadvantages people based on protected characteristics, such as race, gender, age, or disability. It’s not just about intentional bias; even unintentional effects can count.

Substantial Factor
This means the AI system meaningfully contributes to the outcome of a consequential decision, even if it’s not the only factor involved.

What CAIA Requires: Duties for Developers & Deployers

CAIA sets out explicit obligations that are ongoing beyond initial deployment. One strategic component of CAIA is the “rebuttable presumption of reasonable care,” which can serve as a legal safe harbor. Developers and deployers who can demonstrate that they followed CAIA’s requirements, including proper documentation, public disclosures, and consumer transparency, will have a stronger defense if enforcement or scrutiny occurs.

For Developers

If you build or substantially modify a high-risk AI system, you must:

• • Use reasonable care to guard against known or reasonably foreseeable discrimination risks in how your system is meant to be used.
  • Provide the deployer with the documentation required to complete an impact assessment. For example, developers should provide deployers with: how the system was evaluated, data governance, training data sources, mitigation of bias, intended outputs, and how the system should and should not be used.
  • Maintain a public inventory or use-case statement that shows which high-risk systems you’ve developed or modified, how you manage discrimination risk. Keep this updated if you modify the system.
  • Disclose to the Colorado Attorney General (and known deployers or developers) any known or reasonably foreseeable risk of discrimination, within 90 days after discovering it or receiving a credible report.

For Deployers

If you use high-risk AI systems:

• • Adopt a risk management policy & program covering the system’s full lifecycle: design/procurement, deployment, monitoring, and updates.
  • Conduct impact assessments before deployment, at least annually, and whenever there’s an intentional and substantial modification.
  • Disclose to consumers when a system will make, or be a substantial factor in making, a consequential decision before the decision occurs. Include plain-language description, contact info, purpose, and explanation of how decisions are made.
  • Maintain public summaries of your high-risk systems, disclosure of what data is used, how risk is managed, etc.
  • Notify the Colorado Attorney General of discovered or likely discrimination within 90 days.

Exemptions & Protections

Businesses with fewer than 50 full-time employees can qualify for certain exemptions, for instance, if they don’t use their own data to train a high-risk AI system or meet other specific conditions.

The law also allows companies to protect trade secrets or proprietary information when disclosure could harm legitimate business interests.

Enforcement, Penalties, & Safe Harbors

Violating the Colorado AI Act is an “unfair or deceptive trade practice” under the state’s Consumer Protection Act. This is a serious classification with massive financial and reputational consequences.

Thoroughly documenting, maintaining consistent disclosures, and doing transparent impact assessments will show that your company acted in good faith. That’s a key point to show if regulators come knocking.

What You Should Be Doing Now to Prepare for CAIA and Build an AI Governance Framework

Now’s the time for companies to get proactive: review your internal processes, create or refine policies, train your teams, and revisit your vendor contracts to make sure everyone’s aligned.

It’s also smart to appoint an internal AI compliance lead, or even better, set up a cross-functional AI governance committee that brings together legal, data science, compliance, and product leaders.

That team can help keep documentation, impact assessments, and consumer disclosures consistent across departments by integrating explainability tools into your model-development workflow, especially for high-risk AI. It’s a forward-looking way to meet both your legal and ethical responsibilities.

Ready to Prepare for the Colorado AI Act?

Gouchev Law helps companies design AI governance frameworks, update contracts, and ensure compliance before the 2026 deadline.

Case Study: How a Healthcare AI Vendor Prepares for CAIA

Background

A midsize healthcare company based outside Colorado developed AI tools that clinics use to interpret imaging scans, helping identify early disease indicators and recommending whether a patient should receive additional testing or treatment.

Challenges Identified

• • The imaging model showed higher error rates for certain demographic groups (for example, older adults and some ethnic populations) in historical testing.
  • Vendor Agreements didn’t include clear rights to review raw performance data or known limitations.
  • There was also no standard process for notifying patients when AI contributed to a diagnostic decision.

Steps Taken for CAIA Compliance

• • Audit & Data Assessment
  • Impact Assessment Templates
  • Vendor Contract Revision
  • Consumer Disclosure & Human Review
  • Public Transparency & Inventory
  • Establish Risk Management Policies and Internal Reporting Tools

Result
Gouchev Law guided the healthcare company through every step of compliance, helping it earn partner trust, cutting legal risk, confidently responding to potential Attorney General inquiries, and strengthening its reputation as a market leader in fairness and ethical AI.

Preparing Now: Colorado AI Compliance Checklist

To stay ahead, and avoid last-minute compliance panic, start by following steps to build your Colorado AI governance framework:

• • Map all AI tools and their use cases.
  • Adopt one unified governance policy that covers all AI systems, not just high-risk ones.
  • Define roles clearly, who develops, who deploys, and who oversees compliance.
  • Audit your data and model performance to detect bias and identify risks early.
  • Review vendor and contract terms to ensure third-party tools include audit rights, performance metrics, and the required documentation.
  • Build out AI governance infrastructure: risk-management policies, impact-assessment templates, and workflows for human review and appeals.
  • Update customer disclosures, privacy policies, terms of service, and user notices, so they reflect your AI obligations.
  • Comply with frameworks such as NIST or ISO/IEC 42001 to strengthen your legal defense and show responsible practices.
  • Document your models, i.e. model cards, data sheets, and risk summaries.
  • Create an AI compliance playbook for handling consumer inquiries and data-subject appeals transparently.

Do You Need an AI Lawyer

How companies interpret CAIA’s terms such as “substantial factor,” “consequential decision,” “reasonable care,” or “intentional and substantial modification” will make all the difference.

Working with an AI law firm will set you up for AI compliant contracts, disclosures, and policies. AI lawyers will make sure your framework and systems pass compliance review. The right legal team can also help you stay ahead of new rulemaking to avoid last-minute scrambling and costly surprises.

Why CAIA Is a Strategic Opportunity for Responsible AI

Compliance with the Colorado Artificial Intelligence Act is a chance for companies to:

• • Build trust
  • Align with global standards such as NIST and ISO
  • Demonstrate leadership in ethical technology
  • Be ahead of the curve as more states adopt similar laws

How Gouchev Law Helps Companies Build AI Governance Frameworks

Colorado’s Artificial Intelligence Act demands clear actions: assess risk, mitigate bias, ensure human review and corrections, disclose to consumers, and govern AI systems.

To prepare, Gouchev Law can help you audit your systems, update contracts, work on transparency, and get legal help to have a forward-looking CAIA compliance roadmap. You can read here about how an AI Lawyer can help your contracts.

Turn AI Compliance Into a Competitive Advantage
Gouchev Law helps companies design responsible AI programs that meet CAIA, NIST, and global standards — while protecting innovation and minimizing risk.

Common Questions Companies Ask About the Colorado AI Act

Does CAIA apply to machine learning systems that only assist decisions?
Yes, if the system is a “substantial factor” in a consequential decision, it qualifies, even if it doesn’t make decisions in and of itself. In other words, the law isn’t limited to independent decision-making.

Do you need to be in Colorado to be subject to the Colorado AI Act?
No. What matters is whether your AI systems affect Colorado residents, whether you’re doing business in Colorado, or making systems available to CO residents.

Are employee-facing tools included?
Yes. AI used for internal purposes fall under CAIA.

Can we wait until 2026 to act?
Technically, yes. But it’s a bad idea. Company wise AI governance takes time, from legal reviews, new contracts, to IT updates, and internal training.

What happens if you miss the February 2026 deadline?
You expose your organization to regulatory risk, public scrutiny, and enforcement under Colorado Consumer Protection Act. And you also lose the “reasonable care” defense.

What counts as a “consequential decision” under the Colorado AI Act?
Any decision that materially affects someone’s rights or opportunities. If the AI influences these outcomes even partially, CAIA likely applies.

Is generative AI covered by CAIA?
Only in certain situations. If the output is used in consequential decision‑making CAIA applies.

Are small businesses or startups exempt or lightly regulated?
Maybe. Deployers with fewer than 50 employees may get relief if they don’t train systems using their own data, meet other disclosure and documentation requirements. But even small companies need to comply with transparency, impact assessments, corrections and appeals.

What kind of disclosures are required when AI affects someone?
When an AI system will make or substantially influence a consequential decision, you must notify the person, give plain‑language info about what system is used, what data, how it works, contact info. If decision is adverse, you need to show why and how AI contributed, allow correction, and do human review where possible.

What happens if the business doesn’t to comply with the Colorado AI Act?
Penalties, enforcement actions, risks of legal liability under overlapping laws (anti‑discrimination, consumer protection, privacy).

Disclaimer: The information in this article is for general information purposes only. Nothing in this article should be taken as legal advice for any individual case or situation. This information is not intended to create and viewing it does not constitute an attorney-client relationship.

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