9 April 2021

Svitlana Musiiaka, NAKO’s Senior Policy Expert

All defence procurement is under threat. On February 15, another deadline expired which was set by the President to develop and adopt the bylaws needed to implement the Law on Defence Procurement. These are orders, procedures, provisions which need to specify the procedures described in the law.

In general, the Ministry for Strategic Industries and the Ministry of Defence had to prepare up to 30 such regulations. So far, only six of them have been adopted. At the same time, experts say that those regulations are the most technical acts that do not introduce electronic defence procurement.

According to information available to NAKO, the remaining acts are still being developed, finalized or approved by ministries. The National Agency on Corruption Prevention (NAZK in Ukrainian) analyzed them and revealed many corruption risks. These are establishing benefits and advantages for individual producers; absence of the exhaustive list of cases and conditions that may be reasonable grounds to review the contract price; grounds that create conditions for bias at contract prepayment. Thus, it is difficult to say when these acts will be approved by the Cabinet of Ministers.

The acts had to be adopted by January 1, 2021. The responsible ministries had six months to do that. All possible deadlines were missed, so even if the rest of the documents are adopted in the coming days, the time to properly launch defence procurement in 2021 is already lost.

Blocked Defence Procurement: What Does It Mean?

The Law on Defence Procurement which Ukraine’s Parliament adopted in summer 2020 radically changes the principles on how the country’s defence procurement is organized and takes place. It ensures openness of procurement procedures, increases the transparency of their planning, provides effective democratic civilian control.

This law is supposed to replace the outdated Law on State Defence Order which is already 20 years old and the Law on Procurement of Defence Goods, Works and Services.  

According to the transitional provisions of the Law on Defence Procurement, the Law on State Defence Order remains partly in force while the other law turns fully invalid.  That is why it was so important to timely develop the necessary policies and procedures to ensure the smooth transition of defence procurement.

But as the new law was not implemented timely, there are currently gaps and contradictions in procurement procedures. Moreover, procurement for defence purposes takes place under the conditions when it’s regulated by two different laws which are sometimes mutually exclusive.

What is the threat?

In the worst-case scenario, the army and security forces will no longer be able to plan and procure defence goods, works and services for the coming years. The law provides short-term planning, i.e. for a year or three, and this planning is under threat. Manufacturers of weapons and military equipment will be forced to reduce or even stop production.

There is a high risk that the Armed Forces will not receive needed procurement timely. The negative impact on Ukraine’s economy and national security caused by slowdown in defence procurement is difficult to overestimate.

It also means more chaos and less accountability for public authorities in the defence procurement process. Now that the two laws are in force at the same time, there is an additional opportunity for abuse: it is possible to use a specific norm of law that is more advantageous. Or for example, to rely on the norm which requires nothing.

In such chaos, it is also quite likely that it will become even more difficult than before to plan and procure what the army and other security forces need.

The draft regulations developed by the ministries also demonstrate another risk: the outdated procedures which functioned under the previous laws are currently transferred to the new regulations.

If government regulations, despite significant delays, are not developed in a good quality manner, it will nullify all benefits of the new law. Old corruption schemes will remain. It will be simply impossible to apply the new law under the old schemes. 

As a result, the country will postpone the achievement of NATO standards for product quality and requirements standardization.

Defence procurement crisis: how will it be in practice?

According to the transitional provisions of the Law on Defence Procurement, the transition period ends on March 31. From April 1, the planning of defence goods, works and services should take place in a new way. If the high-quality regulatory framework is not developed by this deadline, there will be complete paralysis of defence procurement.

The key issues will be:

  1. In the absence of key documents such as the List of State Customers it will not be possible to make any procurement.
  2. Exercise measures of economic support and stimulation of the enterprises which execute state contracts can only be done only if the relevant regulatory base is available. If there is no such base, production programs will be curtailed, and production will be reduced.