The "food mafia" and eggs at 17 hryvnias a piece, whether summer or winter jackets for the Armed Forces, the Hrynkevychs' case. In 2023, Ukrainian society was shaken by a series of high-profile corruption scandals in the Ministry of Defense, which made it clear that the rules of defense procurement needed to be changed here and now.
At the same time, while striving to eliminate corrupt practices that Ukraine inherited from the Soviet system of governance, the needs of the Armed Forces should be taken into account first and foremost. The military must be provided with everything they need: weapons, uniforms, and food. After all, even the slightest delay or gap in defense procurement can cost lives in the context of active hostilities.
Monitoring of defense procurement during martial law
After the start of the full-scale invasion, the Cabinet of Ministers of Ukraine adopted changes to procurement procedures, which resulted in the classification of all defense-related contracts and a "shift" to direct contracts with suppliers.
Despite the fact that the monitoring was as limited as possible, in March 2023, the NAKO analyzed the existing corruption risks and prepared an analytical report outlining the state of defense procurement at that time. Among the key recommendations of the NAKO were the (re)launch of an effective procurement agency, increased parliamentary and public control over procurement, and the development of new legislation that would make defense procurement transparent in a full-scale war.
Return to Prozorro
In the summer of 2023, the Ministry of Defense returned its logistics procurement to the Prozorro electronic procurement system, which was the first important step in fighting corruption. This resulted in savings of about UAH 8 billion, including UAH 3.8 billion in food costs.
In addition, the Ministry of Defense has set maximum market prices for food. Previously, suppliers could actually set their own prices. They supplied cheap food at an inflated cost, while underpricing expensive food. The total amount of the food package remained low, but expensive products were hardly supplied. The Ministry of Defense emphasized that price ceilings prevent such abuses. For example, at one of the tenders, the Ministry of Defense set the maximum price for cabbage at 14.54 UAH/kg, while it was previously supplied at 28 UAH/kg.
New architecture of defense procurement
At the end of 2023, the Ministry of Defense launched a radical procurement reform in line with NATO standards. It is a transition to a two-tiered system, according to which the Ministry of Defense forms procurement policy, and two state agencies carry out direct procurement. From now on, the State Logistics Operator is responsible for logistics procurement, and the Defense Procurement Agency is responsible for weapons for the Armed Forces.
"Since 2017, NAKO has been actively promoting the idea that defense procurement should be professionalized and separated from the ministry's function. In fact, during the full-scale invasion, this reform finally took place," says NAKO Executive Director Olena Tregub.
First successes of the State Logistics Operator
The State Logistics Operator purchases "non-lethal" products for the Armed Forces: food, clothing, fuel and lubricants, medical equipment, etc. Despite the fact that the State Logistics Operator, established in December 2023, has not yet reached its full capacity, the agency has already shown good results.
In the six months of its operation, the State Logistics Operator has concluded 391 contracts for more than UAH 47 billion, with 94% of procurement being made through Prozorro. Savings amounted to more than UAH 13 billion. The state logistics operator managed to create transparent competitive conditions and attract companies that had not previously supplied goods to the Armed Forces.
Reboot of the Defense Procurement Agency
Starting from January 1, 2024, all arms procurement will be carried out exclusively by the Defense Procurement Agency. In the first quarter of 2024, the agency signed about 200 contracts – more than in the entire year of 2023.
A change in management, namely the appointment of Maryna Bezrukova as the head of the agency, contributed to the radical reboot of the agency. "Her successful experience in reforming procurement at Ukrenergo will help the agency become an important element of national security, providing the Armed Forces with technological and effective weapons," commented Deputy Defense Minister Dmytro Klimenkov.
The agency is currently working on the transition to long-term contracts. Thus, the Defense Procurement Agency has already signed six three-year contracts with Ukrainian manufacturers of drones, armored vehicles, and shells.
"We always prefer Ukrainian manufacturers when they are able to produce the weapons we need. Currently, contracts with Ukrainian manufacturers account for more than 70% of all signed agreements. Both public and private," says Maryna Bezrukova.
The next step is to establish supervisory boards for State Logistics Operator and Defense Procurement Agency
The next step towards transparency in defense procurement should be the high-quality formation of supervisory boards for the State Logistics Operator and the Defense Procurement Agency. Selection to the supervisory boards has been ongoing since March, with lists of candidates being compiled by independent recruiting agencies.
"The supervisory boards will oversee the procurement of these agencies, compliance with regular audits and other anti-corruption compliance practices. That is why they should include people with an impeccable reputation, who are fully trusted by both Ukrainian society and the international community," Olena Tregub is convinced.
During martial law, the rules for competitive selection of independent members of supervisory boards do not apply to agencies, so other mechanisms for implementing democratic civilian oversight should be developed. According to Svitlana Musiyaka, Head of Research and Policy Development at NAKO, this could include publishing a shortlist of selected candidates, holding open interviews, presenting strategies for the work of the supervisory board from the selection participants, etc.
