NAKO Analyzed Corruption Risks in the State Rear Operator's Procurement
Defense Procurement
NAKO experts analyzed 210 procurement contracts for military supplies, fuel, and food carried out by the State Rear Operator (DOTA). The purpose of the analysis was to assess the effectiveness of non-lethal public procurement for the army, identify corruption risks, and provide recommendations for improving the procurement process.
Based on the analysis, NAKO experts highlighted four key corruption risks:
Direct Contracts
This is one of the biggest risks as direct contracts are often made at the discretion of the supplier, with no transparent competitive mechanisms in place. In 2024, DOTA conducted 148 competitive fuel procurements and 21 direct contracts. At the same time, one of the largest suppliers of oil to the Ministry of Defense, the company "KSM Protek," did not engage in open tendering and was evidently only contracting through direct contracts.
Consolidation of Procurement Items to Minimize Competition
When purchasing food for the army, DOTA organizes smaller procurement tenders with more participants and lots, while larger ones are the opposite. For example, in May 2024, DOTA held a tender for food sets for the second half of the year. In the tender for 3.8 billion UAH, 10 lots were announced, with 5 to 9 participants. In contrast, for tenders for 11 billion UAH, there were only 4 lots and 3 to 7 participants.
Unreasonably Short Delivery Times and Additional Contracts
DOTA enters into additional agreements mainly due to delays in the delivery of goods. However, timely supply of goods is critical under wartime conditions. Nearly every third contract with "Ukrnafta" for fuel procurement required extensions through additional contracts. Moreover, NAKO experts noted the short deadlines for the execution of many DOTA contracts. This could discourage market participants who are unwilling to pay penalties. For example, on November 14, 2024, DOTA held a tender for the procurement of over 150,000 ponchos (rain gear) with a delivery date of December 13. Under these conditions, only 75,000 ponchos were contracted, and most of the lots had only one participant.
Incomplete Check of Procurement Participants, Preference for Specific Suppliers
NAKO identified several cases of inadequate supplier checks. Specifically, in February 2024, DOTA signed a contract worth 217 million UAH for bulletproof vests with the company "MILIKON UA," which was established in 2022 with a charter fund of 160,000 UAH. NAKO experts found that "MILIKON UA" is linked to "Fortress Protection," a company that had participated in previous, canceled DOTA tenders. "Fortress Protection" was established in 2020, with a charter fund of 500 UAH. Both companies were founded by the same individuals and are distributors of the Israeli company "Masada Armor Soy." "MILIKON UA" signed documents with the Israeli company three days before the tender began, indicating the company's potentially fictitious activity, used specifically for the tender.
In light of this, NAKO recommends that the State Rear Operator:
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Collaborate with the Logistics Forces Command to develop a fuel procurement plan.
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Plan procurements in advance and increase their transparency to avoid direct contracts.
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Set realistic delivery time requirements.
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Increase the number of lots in tenders to avoid the consolidation of procurements and enhance competition, as well as reduce national security risks.
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Avoid signing excessive additional contracts that allow suppliers to evade penalties.
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Check counterparties and analyze previously signed contracts with suppliers for repetition and systematic issues.