Olena Tregub: What Exactly Does Ukroboronprom Procure?

Ukroboronprom tender committee has introduced changes to tender documentation concerning procurement of consulting services for the amount of UAH 130 million. The concern has undertaken the commitment to have independent audit done in compliance with international standards.

This procurement was announced back in 2017, but it is yet to happen.

Changes in the Tender Pertaining to Corporate Governance Assessment

The main reason for the delay with holding the tender was the absence of a supervisory board, since it is the supervisory board that, according to the Concern’s Charter, has to initiate the audit. Moreover, the supervisory board is responsible for the receipt of audit results and ensuring elimination of the identified violations as well as implementation of recommendations provided. The absence of the supervisory board was the very reason why the NAKO stopped its collaboration with Ukroboronprom concerning the procurement in question.

Thanks to NAKO’s active stance at the beginning of 2018 and significant support of international partners, the operation of supervisory board was restored, with Kyiv Polytechnic Institute rector Mykhailo Zghurovskyi being the appointed head of the board. After that, amendments were introduced to the tender for procurement of advisory services, including an independent audit.

Ukroboronprom is only at the beginning of its way towards building corporate governance. Other big state-owned enterprises (Ukrzaliznytsia, Ukrposhta, Naftogaz and others) have already implemented modern corporate governance mechanisms, including introduction of supervisory boards consisting of independent members. Ukroboronprom did not participate in the process.


That is why, as NAKO is suggesting, one of the tasks of the tender is to assess Ukroboronprom’s corporate governance. According to the new version of the tender documentation, the contractors will analyze the corporate structure of the Concern in great detail as well as the role of the supervisory board; they will also provide recommendations concerning their improvement.

Consultants have to answer the following questions: what is the role of the supervisory board? how is it formed? what tasks are assigned to the supervisory board? what procedures regulate its activity? As the result of their work, the consultants will compile a report with risk assessment connected with corporate governance and recommendations concerning their mitigation.

It is expected that as the result of transformation of the corporate structure, the supervisory board, as the representative of Ukraine’s interests in Concern management, will receive better management tools and a guarantee of greater independence in managerial decision-making.

The end purpose of the corporate governance assessment is implementation of corporate governance standards approved by the Organization for Economic Cooperation and Development.


Changes in the Tender Concerning the Financial Audit
Procurement of the international financial audit has been included in the tender documentation, while previously, only financial review and diagnostics were included. What is important to understand, the procedure of financial audit is fully explained and governed by the Ukrainian legislation, while “comprehensive review and diagnostics” are not explained in any regulatory act.

In collaboration with international experts who have experience with audit of defense institutions, the NAKO has provided recommendations how to formulate the assignment for independent financial audit.

Today, the procurement contains the provision exactly on “financial audit based on International Standards on Auditing.” It sets the bar for the contractor quite high. This change guarantees not only objective assessment of corruption risks in Ukroboronprom in compliance with international standards, but also efficient use of funds spent directly on the audit.

Transparency of Audit and Access to Information

To ensure effective inspection, auditors now have guaranteed access to all the necessary information. This is a key prerequisite for the proper result. The current version of the documentation presupposes that if access to “secret” information is required, authorized agencies will provide such access in accordance with the Ukrainian legislation.

The contractor will analyze the military industrial complex enterprises which belong to Ukroboronprom’s corporate structure. It will provide recommendations concerning its improvement to the Supervisory Board, which has to create an auditing committee which, in its turn, will eliminate the identified violations.

Furthermore, the audit results will be made publicly accessible. Monitoring and implementation of results, in particular concerning elimination of violations, will be provided by the Supervisory Board of the Concern together with Ukrainian and international partners.

Today, we are going back to monitoring of this procurement. We hope that international consulting companies will participate in the bidding. The deadline for participation in the tender is 18 June 2018. Find out more about the procurement here.