In Ukraine, the State Defence Order (SDO) is defined as, “A means of State regulation of the economy to meet the needs for national security and defence”. Thus, its purpose is to provide defence-related supplies, services and works to the 16 State entities (henceforth Contractors), tasked with maintaining and protecting Ukraine’s national security. To gain a clearer understanding of the SDO concept, it is feasible to divide it into two components, a) the annual consolidated document named “State Defence Order”, and, b) the measures in place for its implementation. The implementation of the SDO involves procurement planning, procedures for selecting contractors and signed contracts implementation under full control and subsequent reporting on results at each separate stage.
Together, over 130 of state institutions and enterprises (both private and state-owned) take part in these SDO processes. Each, in different steps and on different levels. Notably, only about 40% of the SDO is effectuated by state enterprises. Simultaneously, it should be noted that the State Defence Order is 60% is executed by the private sector and in some areas (for example, vehicle technology) private sector share reaches 90%.
Since 2014, and the onset of active hybrid aggression waged by Russia, public sector funding of the Military-Industrial Complex (MIC) has increased a hundredfold. In 2018, the State Defence Order (SDO) share was at least 10% of the budget expenditures for financing of the security and defenсe sector. This enabled the Ministry of Defence (MoD), as the biggest contractor, to spend UAH 21 billion (approximately USD 786 mln.) on acquisitions, modernisation and the maintenance of armaments and military equipment (AME) in one year. In 2019, the plan for the MoD’s share is about UAH 25 billion (approximately USD 981 mln.).
Increased funding, should lead to better capabilities and capacities. However, an injudicious practice exists within the very formulation of the SDO. Namely, it is not formulated based on the specific needs of the Armed Forces of Ukraine (or any other security service). Rather, it is based on the financial resource, allotted by the state budget. This in itself encourages responsible high-ranking officials, affiliated with business, to arrange a “profitable” supplies of armament and military equipment.
The figures are significant. Yet, the content of the SDO is classified, thus hidden from democratic control and oversight. Other Ukraine’s defence and security procurement system remains alarmingly opaque. It relies upon non-competitive procedures, some remain rooted in Soviet and pre-war times. The current state of affairs is difficult to change without a full review of the legislation governing defence procurement.
This is why the Independent Defence Anti-Corruption Committee (NAKO), a joint initiative of Transparency International UK Defence and Security, has undertaken this study. Its aim was to identify SDO-related corruption risks and formulate recommendations for their resolution.
The publication is available here:SDO_eng_NAKO_compressed