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20 September, 2021
“Register of performers” of defence procurement: slow, opaque, and very important
Missiles, trucks, ammunition, and military uniforms are a small part of the large list of the Ukrainian army’s needs. For the army to be combat-ready, the government of Ukraine must supply the Armed Forces in a timely and high-quality manner. However, in practice, corruption scandals often suggest otherwise. The army often receives low-quality weapons, prices under government contracts are often higher than market prices, and, in some cases, purchases do not occur at all.

The Law on Defense Procurement is designed to change this situation for the better. However, little more than a year after its adoption, little has changed. Key elements of this reform have not been implemented at all or implemented with delays. The electronic register of selection participants and contractors is one of them. After much bureaucratic red tape, it was launched only in August this year. However, it is currently only in test mode.

At the same time, even experts who closely monitor the processes surrounding defence procurement find it difficult to understand what is happening with this register. Is the final version already working in test mode, or do are they planning to develop another one? Who is developing this register, the Ministry of Economy or the Ministry for Strategic Industries? And with what money? And, when the register finally works in full, will it mean the real beginning of implementing the Law on Defense Procurement? It is impossible to get most of the answers to these questions, because this information is designated “limited access.”
 
Why do you need a Register?
 
The register of participants in the selection and executors of public contracts is a complex name for an extremely important element of the defence procurement system. This information and analytical system should store information on anyone who can become a supplier to the security and defence forces. Without it, it is impossible to provide the Ukrainian army with weapons and military equipment really effectively and as transparently as possible. It should help make procurement competitive by providing up-to-date and transparent information on contractors. This will allow for quick monitoring of whether the process of selecting potential suppliers of weapons and military equipment is objective, as well as monitoring the progress of contracts.

Thus, the register is a key element needed for an effective defence procurement system. Its absence has significantly complicated and in some places halted important procurement processes. It would seem that, finally, more than a year after the adoption of the relevant law, the register has started working. However, restrained optimism disappears immediately after a detailed analysis, because the key questions about the register remain unanswered.
Who is handling the Register?
 
From a legal point of view, the Ministry for Strategic Industries is responsible for establishing, operating, and administering the register. However, this system, which was launched as a test-mode register, was developed in 2018 at the request of the Ministry of Economy. NAKO learned about this from the Ministry for Strategic Industries’ response to our official request, which we received in early August. Details on the cost of this development, its terms of reference, and other essential terms of the contract are classified, as the contract was concluded within the framework of the state defence order. However, if we assume that, as of 2018-2019, this system has already been developed and put into operation, then its owner should be either the customer, the Ministry of Economy, or the developer, the State Research Institute of Informatization and Modeling of the Economy (hereinafter, the Institute).
 
Thus, within the framework of implementing the Law on Defense Procurement, a separate register was not created until August this year. Instead, they probably used some of the old developments, which are not owned by the Ministry for  Strategic Industries at all.

This partly explains why in 2021, the register administrator was appointed opaquely and unreasonably. In March, the Cabinet of Ministers decided that the Institute, the developer of the system, should administer the register. However, the Institute was never transferred to the Ministry for Strategic Industries; rather, it was and remains under the Ministry of Economy. Moreover, the court even suspended the activities of this institution: the cassation appeal is currently being considered. Probably for these reasons, the Ministry for Strategic Industries was finally appointed administrator of the register in August this year. After that, the rhetoric of the Ministry for Strategic Industries changed. Now, it turns out, the ministry is developing the register independently.

Therefore, it is not very clear who is developing the register, and if the Ministry for Strategic Industries is doing it now, does the department have enough capacity and competency to develop the register on its own in a short time?  
 
Is there money for this register, and how much?
 
The budget of the Ministry for Strategic Industries did not plan for expenditures directly for purchasing services to develop or implement the register for the Ministry in 2020 or 2021. That is, the Ministry for Strategic Industries cannot and should not pay for the services of the specialists involved in creating or launching the register. However, one of the budget programs for 2021 provides funding of over 2.5 billion UAH. With these funds, the Ministry for Strategic Industries should finance the reform and development of the defence industry, the development and implementation of new technologies, and the expansion of existing defence industry capacity. We hope that the financing of the register is somewhere among these tasks because otherwise the funds to create and administer the system will have to be found in the budget for maintaining the ministry itself.
 
Why should a manufacturer be included in the register?
 
Why do companies need to be included in this register at all? If data on the manufacturer or supplier of goods, works, and services are entered into this system, then the legal entity has the opportunity to participate in the selection of executors of state contracts. For example, only companies listed in the register may be invited to participate in a selection for closed procurement.

As of the morning of September 20, 2021, only 12 business entities are included in the register: 3 state-owned enterprises, 6 limited liability companies, a private joint-stock company, and a natural person-entrepreneur. At the same time, the state concern Ukroboronprom alone includes more than 100 participants, most of whom are executors of the state defence order in previous years. The Association of Manufacturers of Arms and Military Equipment of Ukraine unites about 100 key private companies that produce weapons and military equipment. During the first month of the register, only 7 companies were included in it. If they continue at the same pace, it will take more than two years to enter all market participants in the register. Obviously, the country does not have this time.

The key questions about the registry - who, how much, and how - remain unanswered. This system should make defence procurement more competitive and transparent. However, at present, the register is not able to ensure even its own transparency. How will it be possible to establish defence procurement on the basis of such uncertainty?

Svitlana Musiiaka,
Head of Research and Policy Making, NAKO
For Censor.net