Defense procurement. Side view

Defense procurement.  Side view

From year to year, Ukraine actively transforms defense procurement procedures. It all started with the adoption of the law “On Public Procurement” in 2016. At that time, the authorities assured: the law was created on the basis of European and global practices of public procurement.

Subsequently, special laws were adopted regulating procurement for defense needs, all of which met the high standards of NATO and EU member states.

Today, the topic of defense procurement has gained tremendous publicity. Reform remains the priority task of every minister.

However, it is important to stop in the flow of news and analyze whether there is a real need for fundamental changes. Is our procurement really lagging behind EU or NATO practices? In this publication, we will compare Ukrainian pre-war procurement with foreign counterparts.

For a better understanding, we will give examples both from our own practice and from the results of research on foreign purchases. Please note that the description of extensive and complex foreign purchases has been simplified for better understanding.

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Therefore, the types of procedures specified in the Law “On Defense Procurement” fully correspond to European and American practices. The adoption of this law at one time ensured the harmonization of defense procurement rules with the standards of NATO and EU partner countries, in particular in the part related to the Defense Directive 2009/81/EU.

However, starting in 2022, the government embarked on the path of additional reform and defining the features of procurement for the period of martial law.

Since then, the following have been implemented:

  • purely direct contracts (already cancelled);
  • two-stage framework agreements for material support (already canceled);
  • open tenders, taking into account the general features for the period of martial law;
  • simplified procurement in accordance with the Law “On Public Procurement” and not the Law “On Defense Procurement”;
  • request for price offers;
  • closed procurement procedures (direct contracts) for certain categories of goods.

February 1, 2023 the government introduced a new type of defense procurement – framework agreements, according to which procurement will be carried out by the State Rear Operator and the State Service for Special Communications and Information Protection.

The introduced framework agreements are almost identical to the framework agreements provided for by the Law on Public Procurement. The key difference is that the qualification documents of the selected suppliers will not be publicly available – only the customer, AMCU and DASU will have access to them.

To what extent such a mechanism will ensure transparency, competition and unbiased determination of the winner is still unknown.

Therefore, the question of whether our country needs to accumulate new and new procurement features, instead of returning to the Law on Defense Procurement, remains open.

In addition, Ukrainian and Western defense procurements have identical problems: embezzlement scandals, corruption schemes, difficulties with the execution of contracts, etc. In support of this thesis, we will cite several key theses from the Western media in the field of defense procurement.

  • Military contractors convicted in $7 million procurement fraud scheme.

  • Laboratory Corporation of America (LabCorp) will pay $2.1 million to settle allegations that it overbilled the Department of Defense for genetic tests.

  • Military contractors are raising prices for planes, submarines and missiles for the US Department of Defense.

And this is only for 2023. Therefore, we suggest not to idealize US or European defense purchases. Instead, borrow the best American and European practices, carry out reasonable and expedient reforms. For this, it is necessary to prioritize the following issues:

  • Digitization and reduction of bureaucratic procedures.
  • Implementation of clear criteria under which direct contracts outside of Prozorro may be entered into with defense suppliers under martial law conditions.
  • Constructive dialogue between business and government.
  • Establishing market prices for goods and services.
  • The government’s understanding of the specifics of a defense supplier’s work in wartime.
  • Clear and transparent market terms of contracts.
  • Adequate requirements for the supplier.
  • Reducing pressure on defense suppliers from law enforcement agencies.
  • Adoption by the government of decisions justified by regulatory necessity, and not by public pressure.

The material was prepared by Councilor Daria Kotova and Lawyer Sviderska Yana.

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