Recently, members of the Verkhovna Rada Committee on Economic Development approved and recommended that Parliament consider and adopt as the basis the Draft Law on Amendments to the Law of Ukraine “On Public Procurement” and Certain Legislative Acts of Ukraine Regarding the Local Component (Localization) in Public and Defense Procurement (Draft Law No. 13392 of June 20, 2025, the Draft Law).
Its key provisions amend the Law of Ukraine on Public Procurement and also affect legislation on defense procurement and state financial oversight.
It is worth recalling that work is being carried out simultaneously on Draft Law No. 11520, which is being prepared for the second reading to harmonize Ukrainian public procurement legislation with the European Union Directives. However, this has not stopped MPs from attempting to further refine the existing law. This article analyzes the Draft Law on localization and how it may affect public procurement.
Summary
The Verkhovna Rada will consider Draft Law No. 13392, which aims to tighten localization requirements in an attempt to improve the effectiveness of this mechanism.
The Ministry of Economy will be granted the authority to establish a commission responsible for verifying compliance with localization requirements, reviewing complaints, and conducting on-site inspections of manufacturers. The Ministry itself will also be authorized to carry out such inspections. This authority is uncharacteristic for the Ministry of Economy, and without proper regulation of the grounds, procedures, and outcomes of inspections, it may create risks of abuse.
In addition, the Draft Law introduces a series of changes to the basic localization requirements, the procurement process, and the powers of the Ministry of Economy and oversight bodies.
Information about violations of localization requirements is proposed as an additional ground for launching a procurement monitoring procedure, even though the State Audit Service already oversees this issue. The State Audit Service may also be granted the power to recommend that the Ministry of Economy remove a product from the list of localized items.
The Draft Law proposes to incorporate localization requirements into every stage of the procurement process — from planning to the reporting on contract performance. Failure to comply would result in fines for suppliers and the termination or nullity of contracts.
Localization requirements may also extend to defense procurement, where the relevant provisions currently appear inconsistent. Most of the text, especially in the defense section, requires substantial refinement.
Transparency International Ukraine calls on Members of Parliament not to vote in favor of this Draft Law.
Basic requirements: products, thresholds, non-residents, and defense
First and foremost, a number of basic provisions are being revised. The list of products subject to localization will be expanded to include mechanized demining equipment (for humanitarian demining) and devices for detonating (neutralizing or destroying) explosive objects, including remotely operated ones.
The value threshold is also being revised and clarified: localization requirements will apply to products worth UAH million or more within the scope of a procurement item, unlike the current provision, which sets the minimum value of the procurement item at UAH 200,000. The provision regarding the procurement of works and services has also been clarified — the value threshold is now explicitly tied to the product that the procuring entity acquires into ownership.
Localization requirements will remain in force until December 31, 2032, which is one year longer than currently prescribed by the Law.
The Draft Law also specifies the procurement methods to which localization applies. The requirements will cover competitive procedures, negotiated procedures, and procurements conducted without using the electronic system. In other words, simplified procurement will remain outside the scope. Discussions may also arise regarding the applicability of these requirements to procurement through the electronic catalogue — it would be reasonable to explicitly mention this method if the drafters intended to extend localization requirements to it in the future.
Furthermore, the Draft Law proposes to introduce localization provisions into the Law of Ukraine on Defense Procurement. In this area, the degree of localization would essentially become a non-price criterion influencing the assessment of bids. Under certain provisions, the price of a localized product would be calculated with a coefficient of 0.75, effectively reducing it. A formula would apply to determine the price in cases where bids are submitted for both localized and non-localized products. Overall, the proposed amendments to the Law of Ukraine on Defense Procurement require the most revision and contain the highest number of inconsistencies.
As for non-resident suppliers, issues related to international treaties are to be regulated in the same way as currently described in Cabinet of Ministers Resolution No. 1178. In other words, localization requirements should not hinder the supply of products from countries with which Ukraine has concluded international contracts on government procurement, free trade, and similar arrangements. However, this exemption would apply only if documents confirming the country of origin of the products are provided: a certificate of origin, a certified declaration of origin, a declaration of origin, or a certificate of local product name. If these documents are not provided during the acceptance and transfer of the products, a procuring entity must terminate the contract. This latter provision appears somewhat disconnected from the rest, as neither the current Law nor the Draft Law contains any requirement to provide such documents during the acceptance-transfer process, nor do they specify the procedure for verifying them or where exactly they must be available at that stage.
How manufacturers will confirm localization
A prerequisite for the procurement of products subject to localization will be not only the required localization percentage but also the condition that the manufacturer has included the product in the list of products with a confirmed degree of production localization (the list of localized products).
The degree of localization will be confirmed based on the manufacturer’s performance of specific technological production operations. The Cabinet of Ministers will approve the procedure for defining such technological operations, as well as the costs that form part of the product’s production cost. The Cabinet will also approve the Procedure for the Formation and Maintenance of the List of Localized Products. Currently, it is only authorized to establish the procedure for confirming the degree of localization and the procedure for monitoring compliance.
The documents on the basis of which products were included in the list of localized products must be retained for at least three years from the date of inclusion. However, the Draft Law does not specify who bears this obligation or which exact documents must be stored.
Ministerial inspections
A considerable part of the Draft Law focuses on monitoring compliance with localization requirements. The Ministry of Economy will establish a Commission on Ensuring the Formation and Maintenance of the List of Localized Products and the Accuracy of the Information Contained Therein (the Commission). The Cabinet of Ministers will define the Regulation on the Commission. The Commission will be granted a number of powers, including:
- verifying the list of localized products and the documents based on which products were included, particularly whether the product was added by its manufacturer, whether the manufacturer actually performed the technological operations, and whether the required level of localization was achieved,
- considering complaints regarding non-compliance of products included in the list of localized products with the relevant requirements, including through on-site inspections of businesses to check the localization level of their products and the actual performance of production operations,
- involving representatives of control authorities and industry experts in on-site inspections, and
- submitting requests to the Ministry of Economy to exclude products from the list of localized products and providing it with recommendations on confirming the degree of product localization.
The Ministry of Economy itself will also conduct verification on-site inspections of business entities that have included their products in the list of localized products. The Cabinet of Ministers will determine the relevant procedure.
These provisions raise numerous questions. The Law will not define what constitutes “verification on-site inspections,” the grounds and procedures for conducting them, or the legal consequences for businesses and contracting authorities. The powers of the Ministry and its Commission will overlap. Moreover, such functions are inherently uncharacteristic for the Ministry of Economy — an institution that develops and implements public policy but does not belong to the system of controlling authorities.
Furthermore, the described powers bear clear features of state supervision (control) as defined in the Law of Ukraine on the Fundamental Principles of State Supervision (Control) in the Field of Economic Activity, while the mentioned inspections exhibit the characteristics of state supervision (control) measures. Article 4(4) of that Law stipulates that only by law may the methods and forms of state supervision (control) and sanctions for violations, as well as the list of violations that serve as grounds for issuing orders or instructions, be established. The Draft Law, however, does not define the business process for such inspections or specify sanctions for specific breaches of localization requirements. Collectively, this creates corruption risks.
The Draft Law also fails to clarify which supervisory authorities may participate in inspections and does not amend their sectoral legislation accordingly.
Although the explanatory note claims that the Draft Law will not require budget expenditures, in practice, assigning new functions to the Ministry of Economy and establishing and maintaining the Commission are unlikely to be cost-free.
In addition to inspections, the Ministry will analyze compliance with localization requirements, develop methodological recommendations for including products in the list of localized products, and engage with manufacturers. In its annual report on the functioning of the sector, the Ministry will also cover compliance with localization requirements, including quantitative and value indicators, broken down by procedures and procurement items.
What will change in the State Audit Service’s monitoring
The Draft Law also attempts to strengthen control over compliance with localization requirements by introducing new grounds and outcomes for procurement monitoring by the State Audit Service and amendments to the Law of Ukraine on the Basic Principles of State Financial Control in Ukraine.
The Draft Law proposes adding to the grounds for initiating procurement monitoring — media reports and information from civil society organizations indicating possible violations of localization requirements. However, this provision adds no real value, as the current Law already allows monitoring based on information from the media or CSOs regarding any violations of public procurement legislation, including localization rules. The proposed and existing grounds therefore overlap as general and specific categories.
Moreover, the provisions on monitoring results could even complicate the State Audit Service’s response to violations and limit its discretion in applying effective remedies. Under the Draft Law, if the financial control body identifies a respective violation of localization requirements, it must send a recommendation to the Ministry of Economy to exclude the relevant Product from the list of localized products.
However, this would apply only in cases where a product is present both in the list and in the tender proposal but fails to meet localization requirements — for instance, due to an insufficient localization percentage or inclusion by a non-manufacturer. In practice, other types of violations may occur, such as when a procuring entity procures a product that is not included in the list at all. For such cases, the Draft Law provides no response mechanism, effectively reducing the Service’s role to issuing recommendations for exclusion. From a legal standpoint, it would be far more effective to explicitly prescribe remedies for each type of violation.
It is worth noting that compliance with localization requirements is already part of the State Audit Service’s monitoring practice. For example, between 2023 and the first half of 2025, localization issues were mentioned in 815 procurement monitoring reports. Therefore, strengthening control is unlikely to be achieved merely by adding monitoring grounds.
The drafters also propose including compliance with localization requirements among the main tasks of the State Audit Service under the Law of Ukraine on the Basic Principles of State Financial Control in Ukraine. A corresponding clarification is also proposed regarding its right to review documents. However, these amendments appear unnecessary, as localization requirements already fall within the scope of public procurement legislation, and compliance is therefore already subject to the Service’s oversight and control measures.
Localization at every step: how the procurement process will change
Localization requirements for the procurement item and the method for confirming compliance will need to be defined both in procedures and in procurements conducted without using the Prozorro system. The announcement will have to specify that the procurement concerns a product included in the list of localized products, while the tender documentation must contain requirements regarding the degree of localization and obliges participants to submit the relevant information and supporting documents.
In practice, the obligation to include localization requirements in tender documentation already stems from existing law, as such provisions are legally mandated, and any procurement carried out without compliance would constitute a violation. However, the Draft Law does not specify which supporting documents must be required. Mentioning this additionally in the announcement seems unnecessary, except perhaps for the purpose of automated analysis. This may require the creation of additional fields in the Prozorro system.
The drafters propose adding several new grounds for rejecting tender proposals, including non-compliance with the required degree of localization; failure by the participant to provide information and supporting documents for a product from the list of localized products; inclusion of a product in the list by an entity other than its manufacturer. The latter ground would evidently require the procuring entity, during the review of tender proposals, to also examine the documents uploaded to the list of localized products. It is worth noting that if a localization requirement is already included in the tender documentation, non-compliance is already covered by the existing rejection ground — “non-compliance with the requirements established in Article 22(2)(1) of the Law regarding the participant’s compliance with legislation.”
Violations of localization requirements will constitute grounds for declaring a procurement contract, or a contract concluded outside the Prozorro system, null and void. Essential terms of the contract will include a clause on a fine for a supplier amounting to at least 25% of the contract price, payable to the procuring entity if the delivered product does not meet the required degree of localization and/or the list of production technological operations or was included in the list of localized products by a non-manufacturer.
In our view, it would be more logical first to include as an essential term a basic requirement stipulating that the product must comply with localization requirements, since no such clause currently exists in the contract itself. Moreover, it is unclear how the procuring entity could verify whether the product complies with the “list of production technological operations” without having the necessary supervisory powers or resources.
Reports on procurement transactions conducted without using the electronic system, as well as reports on contract performance, will also be required to include information and supporting documents regarding the degree of production localization. While this may facilitate oversight in the first case, it appears redundant for the second, as the contract will already have been executed (or terminated, or expired). Consequently, even if such documents are missing from the performance report, it will be impossible to conduct procurement monitoring at that stage. Duplicating requirements at early and late stages of the procurement process will likely only result in procuring entities re-attaching the same documents previously submitted with the tender proposal (assuming the system technically allows it).
Conclusions
Transparency International Ukraine calls on MPs not to vote for this Draft Law. Above all, they should reject the idea of on-site inspections by the Ministry of Economy and the commission it establishes.
Such powers are unnatural for the Ministry, which is not a supervisory authority. Moreover, it appears that the Ministry’s inspection powers will overlap with those of the Commission. The Law will not define what “verification on-site inspections” are, on what grounds and in what order they will be conducted, or what legal consequences and sanctions for businesses and procuring entities they may entail. Together, these factors create a high risk of abuse and corruption. The proposed approach may also contradict other laws, including the Law of Ukraine on the Fundamental Principles of State Supervision (Control) in the Field of Economic Activity.”
In all other aspects, the Draft Law requires substantial revision:
- The provisions on defense procurement demand special attention — in some places, they are almost unintelligible due to the way they are written. Implementers will also need a clear understanding of when the localization indicator should be treated as a non-price criterion and when its absence should result in bid rejection.
- Certain provisions may be impossible or extremely difficult for procuring entities to implement due to a lack of powers and resources. For example, verifying at delivery whether a product complies with the list of technological operations. Additional difficulties may arise from missing procedures: the Draft Law requires terminating a contract if documents confirming the country of origin are missing, but it does not specify who must provide them, when, to whom, or where they must be available.
- Some provisions could hinder the ability of oversight bodies to respond effectively to violations — for example, the rule requiring the State Audit Service to merely issue recommendations to the Ministry of Economy to exclude a product from the list of localized products, even though other types of violations might require different corrective measures. From a legal standpoint, it would be far more effective to define remedies for each type of violation explicitly.
- Some parts of the text add no normative value or duplicate existing regulation, such as the additional grounds for procurement monitoring or the amendments to financial control legislation. Other provisions lack practical sense while requiring technical changes to the Prozorro system (for example, adding localization information to contract performance reports).
- It would also be advisable to close existing gaps by explicitly defining the procurement methods to which localization requirements will apply — including those used during martial law — and by clarifying who must keep documents for three years and which specific documents this obligation covers.
This material is funded by the European Union. Its content is the sole responsibility of Transparency International Ukraine and does not necessarily reflect the views of the European Union.
