The President signed Law No. 3988-IX (draft law No. 11057), requiring procuring entities to publish information on material resource prices for routine repairs and construction on Prozorro. This is a step towards greater transparency of construction. However, this innovation will not resolve the issue of overpayments in this area, primarily because contract prices are often not final. Therefore, alongside publishing material costs at this stage, it is essential to ensure the publication of work acceptance certificates, which reflect the final prices for some procurements.
Meanwhile, several additions were made to the draft law for the second reading:
- Documents listing prices for material resources will also specify the country of origin for each item.
- Requirements for reporting on procurements were clarified to ensure the construction of military engineering and fortifications.
- Exceptions were added to the Law that are not related to construction transparency: for procurements involving hydrocarbons and for monopolists in the oil and gas sector (temporarily).
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On October 21, the President signed Law No. 3988-IX, commonly known in the procurement community as draft law No. 11057. It requires procuring entities to publish information on material resource prices on Prozorro for routine repairs and construction work. In April, we published a legal analysis of draft law No. 11057 and explained that it represents a step toward greater transparency in construction procurements. It has an excellent objective and could help prevent some forms of abuse. However, not all procurements will have final prices for materials published.
Let us highlight the main changes in this legislative initiative:
- documents listing material resource prices will become integral appendices to service procurement contracts for routine repairs and construction works;
- procuring entities will publish these appendices alongside procurement contracts in a machine-readable format, including the resource names, quantities, prices, and other details;
- If a contract or resource price changes, procuring entities will publish the updated information;
- separate rules are also provided for contracts concluded under the “design-build” principle.
In addition, since draft law No. 11057 was first registered in March and up until its final adoption in the second reading, it has undergone several amendments. Here’s more information about them.
Exception to the public procurement law for hydrocarbons
The public procurement law will not apply to the following procurements:
- from suppliers with at least five years of experience in Europe, Asia, North America, South America, or the Middle East (excluding sanctioned suppliers),
- if procurement items are goods, works and/or services, required for some hydrocarbon services.
An exception applies if both conditions are preserved. Only reports, contracts, and appendices will be published about such procurements.
In particular, this refers to scientific, technical, and/or engineering services for field exploration, well drilling, field development, production or its enhancement, ground preparation for transportation via main gas and oil pipelines, and processing.
It should be noted that this exception is not related to transparent construction. Currently, the Verkhovna Rada is working on a new draft law, No. 11520, on public procurement. The exception for hydrocarbons is likely to be removed, as the European Commission opposes exceptions not included in Directive 2014/24/EC.
New exceptions for monopolists in the oil and gas sector
The law will not apply to certain procurements until March 31, 2025:
- if the procuring entity operates in the transportation, distribution, storage, and supply of natural gas, oil and gas field development, or oil production,
- and simultaneously procures equipment for generating electric and/or thermal energy, as well as goods, works, or services necessary for the procurement, transportation, installation, connection, and operation of such equipment.
Those procuring entities will publish reports, agreements, and appendices about such procurements.
It is noteworthy that monopolists supplying thermal energy to consumers are not covered by this exception. However, like other procuring entities, they can still use paragraph 13, subparagraph 22 of the Specifics, which allows them to procure directly, for example, cogeneration plants and boiler houses.
An exception was also provided for cases where procuring entities in the gas and oil sector procure equipment for generating electric and/or thermal energy, as well as goods, works, or services necessary for such equipment, using funds from loans, borrowings, or grants from international and foreign organizations, banks, etc. If procurements are financed by a loan, borrowing, or grant for at least 50%, they will be exempt from the law’s provisions until the end of martial law. Reports, contracts, and appendices to them will also be available in the Prozorro system.
It should be noted that the Law and the Specifics already provide guidance on the rules to follow when procuring with donor funds. However, it was clearly necessary to address this issue in more detail for procuring entities in the oil and gas industry.
Specific rules apply to reporting procurements related to military installations
When preparing the draft law for the second reading, the requirements for reporting procurements of goods, works, and services necessary for the construction of military engineering and fortifications were clarified.
The scope of the procurement report will include the following: procuring entity, procurement item, and price (i.e. the contractor or supplier will remain unidentified). If the procurement is for routine repairs or construction, the report will be accompanied by documents containing price information for material resources in a machine-readable format.
If we compare this with the current rules, we can distinguish 2 nuances:
- The report will include pricing information on material resources; however, the following will not be published: the date of contract conclusion, contract number, procuring entity identification code, contractor information (name, code), quantity, and delivery terms for goods, works, or services.
This is likely due to security concerns; however, without information on the quantity of goods, it is impossible to assess whether the contract price is inflated. Therefore, incomplete product procurement reports are unlikely to be meaningful. This approach to reporting on procurements directly related to the construction of structures can be supported but it seems debatable and risky to extend it to procurements of “goods necessary for…” In practice, this can be widely interpreted.
- Under the current rules, procuring entities must upload the contract, appendices, justification for the procurement, and request information from the relevant bodies (or formations) for which the procurement was made, along with the report. However, they will be made public after the end of martial law.
The question arises whether these requirements will be maintained when Resolution No. 1178 is aligned with the Law’s provisions. It is important that the deferred publication of the contract, appendices, justification, and request is maintained.
The requirements for notifying amendments to service procurement contracts and/or prices for material resources in the above-mentioned procurement contracts were also clarified.
The updated reporting requirements will take effect 60 days after the Law comes into force.
For each material, the country of origin will be specified
Documents listing prices for material resources will also specify the country of origin for each item. We hope that, in practice, procuring entities and contractors will be able to accurately provide this information at the contract conclusion stage.
In conclusion, it is important to note that all these amendments and additions will remain in effect until the new Law on Public Procurement (draft law No. 11520) comes into force. Work on it is ongoing in the Verkhovna Rada, with negotiations currently underway with the European Commission. Among the suggestions we have put forward is a proposal to transfer the positive developments from draft law No. 11057 regarding the publication of material prices to the new Law, as well as to strengthen this step by publishing work acceptance certificates that include the cost of work performed and related expenses. At the same time, while working on the new draft law No. 11520, we do not support the introduction of new exceptions to the public procurement law, particularly if they are targeted and raise questions about the objective circumstances underlying them.
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.
