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19 January, 2021
Saving Defence Procurement: What will the Ukrainian Army fight with?

One of the greatest achievements in 2020 in the security and defence sector is the adoption of the Law “On Defence Procurement”. The law adopted by the Verkhovna Rada of Ukraine on July 17 radically changes the framework for the organization and carrying out defence procurement. It provides open defence procurement procedures, significantly increases the transparency in their planning, and ensures effective democratic civil control. The main provisions of the Law came into force on 01 January 2021, and one would think that in the first days of the new year it should change the situation for the better. However, that has not been the case.

In order for the new rules to work, about 30 statutory instruments should have been developed or revised before the beginning of the new year. We are talking about orders, procedures, regulations, etc., which should specify the procedures presented in the Law. The Ministry of Strategic Industries and the Ministry of Defence of Ukraine, together with other ministries, are primarily responsible for the development of such draft documents. It is now evident that the ministries failed to make timely preparations for the Law “On Defence Procurement” to operate properly early in the year.

Two laws will be in effect simultaneously

On January 1, the Law “On Defence Procurement” came into force and will be applied simultaneously with the “old” Law “On State Defence Order”. Such coexistence can lead to collisions and contradictions. For example, in case there are two opposite provisions in these laws, it will be unclear which of them is to be implemented.

At the same time, the Law of Ukraine “On Peculiarities of Making Procurement of Goods, Works and Services for Guaranteed Ensuring of the Defence Needs” which established the rules for “open” procurement, ceased to be effective. Since new defence procurement procedures at the level of statutory instruments have not been developed, this might significantly impede or even make it impossible to meet the defence industry needs for the requisite goods and services.

More chaos and less responsibility

What does it mean for Ukraine? In the worst-case scenario, the army and national security, defence and law enforcement agencies will be unable to plan and carry out procurement of defence goods, works and services in the coming years. The law provides for short-term planning, that is, for 1-3 years, which is now at risk. Manufacturers of weapons and military equipment will have to cut or even halt production. There is a high risk that the Armed Forces will not receive adequate support, and it is difficult to overestimate the negative effects on the economy and national security of Ukraine of the slowdown in defence procurement.

The fact that regulatory legal acts were not drafted on time also entails more chaos and less responsibility for state agencies in defence procurement. Two laws will now be in effect simultaneously. Thus, one will be able to use a specific regulation of a more beneficial law or, for example, rely on a noncommittal provision.

In the chaos, it is likely that planning and meeting the Armed Forces and other law enforcement agencies’ procurement needs will become even more difficult than before.

In case of failure to develop regulatory documents (though it did not happen on time, it still needs to be done) or in case of their improper development, this will negate all the benefits of the new law. The old corruption schemes will remain, thus making it impossible to apply it.

This may also delay the achievement of NATO standards for product quality, standardization of requirements, etc.

Draft acts exist, but they have not yet been published

Is it really that difficult to draft regulatory legal acts to implement this law? It’s no doubt that this process is complicated and time-consuming. Firstly, the text of these documents should be prepared. At the same time, according to independent experts, this process must be open and involve representatives of stakeholders and relevant non-governmental organizations. The draft decisions must then undergo interdepartmental review. In some cases, the adoption of decisions by the Cabinet of Ministers or registration of a normative legal act with the Ministry of Justice may be required.

However, there was plenty of time to do that (six months). Besides, a number of independent experts assisted state agencies in drafting the Law and volunteered to help with its implementation.

At the end of December, the Ministry of Defence of Ukraine and the Ministry of Strategic Industries publicly announced that the draft regulatory legal acts had already been developed. However, these documents have not yet been made public, and there is no information on their approval by other departments.

Disrupted procurement: Reality in 2021?

To sum up, the risks are as follows:

1. The lack of key documents, for example, the List of Public Sector Customers, may result in disruption of any procurement process. Closed procurement procedures require the adoption of a number of instruments, in particular, the Procedure for forming the expected cost of defence goods, works, and services purchased under a non-competitive procedure; the procedure for negotiating and concluding public contracts with sole contractors; Standard forms of public contracts for closed defence procurement procedures etc. The Law states that closed procurement cannot be carried out without such instruments.

2. Economic support and provision of incentives for enterprises executing public contracts (agreements) may also be implemented only within an appropriate regulatory framework. Otherwise, the termination of manufacturing programmes and production cuts may be inevitable.

3. A significant achievement, such as the establishment of procurement processes through the NATO Support and Procurement Agency, might be at risk in case of failure to approve as soon as possible the list of relevant international organizations and their representative offices responsible for procurement of defence goods, works and services.

The electronic register of selection participants and holders of public contracts (agreements) is also extremely important: it should be developed and effectively implemented. Such a register is essential for a number of processes specified in the Law, namely, competitive procurement procedures, impartial selection and evaluation of contract holders, full-scale procurement monitoring, etc. The cost of creating the Register, developing and configuring the relevant software, and making changes to the Prozorro system should be reflected in the ministries’ respective budgets.

NAKO, together with experts, sent a letter to the relevant committee of the Verkhovna Rada of Ukraine, pointing out the possible risks and proposing practical steps to address the situation. Whether such risks will be managed remains to be seen.

Svitlana Musiiaka,
NAKO policy expert