At the beginning of July, the Cabinet of Ministers made further changes to the procurement rules under martial law. This time, the number of exceptions to tenders has increased, and we will see some direct contracts only after Victory. But there is also good news: now, the list of all documents that procuring entities require from participants will need to be included in a separate appendix to the tender documentation. If these documents are not included, the tender offer cannot be rejected due to their absence. Among other new changes, localization requirements have been further aligned to better comply with international agreements. Additionally, procuring entities and participants will have more flexibility in indicating locations, thus mitigating risks. Let’s consider the changes in more detail.
Localization requirements exclude goods from countries that are signatories to international agreements
An exception has been added to the localization rules: localization does not need to be applied if the country of origin of the goods:
– is a party to the Public Procurement Agreement dated April 15, 1994 (as amended);
– has concluded other international agreements with Ukraine that include provisions on public procurement, such as free trade agreements;
– is a party to the Public Procurement Agreement, to which Ukraine has joined.
Currently, the Final and Transitional Provisions of the Law include a provision stating that localization rules do not apply to procurements governed by the Law of Ukraine “On the Accession of Ukraine to the Public Procurement Agreement”, or to provisions on public procurement in other international treaties to which Ukraine is a party.
It’s interesting that the new provision added to the Specifics does not include references to value thresholds. Instead, it ties the exception to localization rules solely to the origin of goods from specific countries that are parties to international agreements. So there are no price thresholds for this exception — a point further confirmed by the Ministry of Economy in its webinar. The Ministry advised to check the list of countries included on the website of the World Trade Organization.
In addition, the Ministry of Economy emphasized that localization requirements should be applied to each product individually. It is advised to differentiate between products according to the list in Clause 6-1 of the Final and Transitional Provisions. For example, 10 generators would be considered one product, and 5 transformers would be another. Each of these components needs to be assessed to determine if it exceeds localization cost thresholds.
We remind you that Transparency International Ukraine has long advocated for the abandonment of localization in public procurement. In particular, recently our Ivan Lakhtionov explained in detail why the changes will not make localization more effective.
More exceptions to competitive procedures
In response to the challenges of wartime, the government added several scenarios to the Specifics where procuring entities can enter direct contracts for amounts above the threshold, bypassing tenders. New direct procurements included:
- Procurement of goods necessary for the repair and restoration of equipment for the implementation of joint activity agreements concluded by JSC Ukrzaliznytsia (paragraph 20).
To apply this exception, a joint activity agreement must be concluded with the aim of enhancing the state’s defense capability during the period of martial law. When reporting on such procurements, procuring entities will have the option not to register procurement agreements and their annexes in the system until September 1, 2024.
- Procurement of goods, works, and services necessary for the construction of military engineering, technical, and fortification facilities; execution of mobilization tasks (orders); measures related to the preparation and implementation of territorial defense tasks; and execution of contracts containing restricted information (paragraph 21).
The option to enter a direct contract for such procurements was added in response to the needs of territorial communities that assist in defense, especially in the eastern regions.
To qualify, such procurements must meet urgent needs identified by the Armed Forces of Ukraine, other military formations, law enforcement agencies, the State Emergency Service, and military universities. Goods, works, and services procured under this provision must then be transferred to the requester’s account.
Requests from the Armed Forces, other military formations, law enforcement agencies, the State Emergency Service, or universities must be approved by their authorized officials. The request must include a justification of urgent procurement needs in accordance with paragraph 13 (direct contract). The Ministry of Economy defines urgency primarily by its main feature: unpredictability. This occurs when the assistance of the Armed Forces or other defenders is suddenly needed, and it could not have been previously planned. It advises caution with these procurements, as regulators will verify whether the urgency of the need is genuine.
When reporting on such procurements, procuring entities will have the option not to register procurement agreements and their annexes in the system until September 1, 2024.
- Procurement and rental of gas piston, gas turbine cogeneration plants, gas turbine plants, block-modular boiler houses (including their components), as well as procurement of goods, works, and services related to their construction and commissioning, in preparation for the heating season of 2024/25 (paragraph 22).
This exception is clearly due to the destruction of the energy infrastructure and the urgent need to establish alternative heating sources in cities where thermal power plants have been destroyed.
- In addition to procurements for the protection of facilities in the electric power, nuclear, coal, and oil and gas industries, objects of the “critical infrastructure of the rail transport sub-sector of the transport and postal sectors” were added. The exception was also extended to include priority emergency and reconstruction works on railway infrastructure and the repair of traction and rolling stock (paragraph 15).
When reporting on such procurements, procuring entities will have the option not to register procurement agreements and their annexes in the system until September 1, 2024.
New reporting procedure for direct contracts and their amendments
Starting September 1, 2024, new reporting rules will apply to direct contracts concluded under paragraph 13 of the Specifics. For contracts concluded under most grounds, the requirements remain unchanged: publish the contract itself, its annexes, and the justification for why the contract was awarded directly, along with the report. The requirements for justifications remain the same.
The changes in reporting on concluded contracts will affect only certain categories of direct contracts — those concluded under clause 13, paragraphs 13, 15, 17, 18, 20, and 21 of the Specifics. In particular, these procurements are related to:
- protection of critical infrastructure facilities of the fuel and energy sector;
- protection and restoration of electric power, nuclear-industrial, coal-industrial and oil and gas complexes, including the construction of protective structures;
- software and equipment for the Main Situation Center of Ukraine;
- procurement of natural gas by a special entity;
- repair and restoration of equipment under joint activity agreements of JSC Ukrzaliznytsia; and
- procurements at the request of the Armed Forces of Ukraine, the State Emergency Service, etc.
Procuring entities will be required to report on such procurements within 10 working days by uploading the procurement agreement, its annexes, and the received request (if applicable) to the Prozorro system. However, these documents will be published only 90 days after the end of martial law.
Special rules for reporting changes will also be introduced for these procurements starting from September 1, 2024:
– If the parties amend the essential terms and conditions of the procurement contract related to the protection of critical infrastructure facilities in the fuel and energy sector, as well as the protection and restoration of facilities in the electric power, nuclear industry, coal industry, and oil and gas complexes, including the construction of protective structures (paragraphs 13, 15), the procuring entity must publish these changes on the EPS within three working days from the date they are incorporated into the contract. However, such amendments will be made public only 90 days after the end of martial law.
– If the parties amend procurement contracts concluded under paragraphs 17, 18, 20, 21 (related to software and equipment for the Main Situation Center of Ukraine, procurement of natural gas by a special entity, repair and restoration of equipment under joint activity agreements with JSC Ukrzaliznytsia, and procurement at the request of the Armed Forces of Ukraine, State Emergency Service, etc.), the procuring entity must upload these changes to the EPS along with the notification of amendments. However, such amendments will be made public in the system only 90 days after the end of martial law.
As explained by the Ministry of Economy during the webinar, the shift in timing until September 1 is because the functionality of the Prozorro system will undergo some changes.
Fewer hidden requirements in tender documents
The long-standing wish of many bidders finally came true. Now, procuring entities must include a separate appendix in the tender documentation listing the documents and/or information that participants are required to provide as part of their tender offer.
Moreover, if a participant does not provide documents or information that were not listed as required in the tender application, the procuring entity will no longer be able to reject their tender offer because of this.
The Ministry of Economy hopes that this update will simplify processes for procuring entities and participants, allow procuring entities to review their requirements, and contribute to the future digitization of tender documentation.
This innovation raised many questions in the procurement community. From what we understood in the Ministry of Economy’s webinar, a separate appendix can be included in the file with the tender documentation. However, the body will soon publish a draft of the sample tender documentation, which will reflect its perspective on this and other related matters.
More variations on how to specify a location
Now, if disclosing location information in Prozorro poses a security threat to a procuring entity and/or a vendor (contractor, service provider), the location of such procuring entity, vendor (contractor, service provider), place of delivery of goods, performance of work, or provision of services can be indicated by using a settlement name.
This option applies to procurement contracts, reports on their implementation, notifications of changes to the contract, and general information in the system.
According to the latest changes, instead of specifying a settlement, an administrative-territorial unit (region, district, city, district within a city, settlement, or village) may be indicated. These changes are due to concerns that some settlements are small, making it easier for the enemy to pinpoint delivery locations, especially with the capabilities of satellite photos. So now, instead of an address, only a region may be specified.
Conclusions
In summary, we support the new requirement to include a separate appendix in the tender documentation listing the required documents from participants. This change will simplify the preparation of tender offers and streamline compliance checks. We have no objections to the new methods of indicating location.
The new exceptions from competitive procedures appear mostly justified. The localization requirements for foreign goods have become more lenient, which should provide relief to distributors and representatives of foreign companies selling equipment in Ukraine. In many cases, customers may not even need to calculate the value thresholds. We reiterate our call for the complete abolition of localization in public procurement, as it has proven ineffective and will continue to be so.
Note that for many procuring entities, the changes came as a surprise: not all of them monitor government regulations and specialized groups daily. It would be appropriate for future changes to have a delayed entry into force — at least a week — allowing time for the current version of the resolution to be updated on the “Legislation of Ukraine” portal.
Announcing the changes in advance would allow the procurement community to participate in their development, helping to avoid errors, conflicts, and inaccuracies that sometimes occur in the texts. However, the Ministry of Economy’s efforts to conduct explanatory activities and address the questions of procuring entities are highly valuable.
This publication was prepared as part of the Digital Transformation Activity project funded by USAID and UK Dev.
