On August 23, the government submitted a draft law on public procurement to parliament, registered under number 11520. It aims to improve Ukrainian regulations and incorporate European integration changes.
DOZORRO generally supports the concepts included in the draft law. There are several positive changes, including enshrining in law key wartime innovations like extensive 24-hour error correction and the allowance of auctions with only one bidder. Additionally, electronic contracts, measures to regulate qualifications for the e-catalogue, the participation of associations in procurement, and long-overdue raised thresholds are being introduced. At the same time, as is typical for a draft law of this scale, there is still room for improvement. Several gaps and risks need to be addressed during finalization to prevent abuses and corruption.
We outline the main changes introduced by the draft law and identify areas for further improvement.
Methods of procurement
1. Raising thresholds
Procurement of goods and services up to UAH 50 thousand and works up to UAH 200 thousand may not be reported on Prozorro. Within the range of UAH 50-400 thousand, goods must be purchased on Prozorro Market, if not available there, they can be purchased directly. For services there is a possibility to choose between Prozorro Market or a direct award contract. Tenders for goods and services, including those types of procurement aligned with EU standards, will now be mandatory for amounts starting from UAH 400,000 (up from UAH 200,000, and UAH 100,000 during martial law). The threshold for competitive procurement of works remains unchanged at UAH 1.5 million.
Discussions about raising the threshold for competitive procurement began even before the full-scale invasion, as rising prices mean that UAH 200,000 no longer goes as far as it used to. Since December 2015, when MPs passed the law with the current thresholds, prices have more than doubled by August 2024, with a cumulative inflation index of 235%.
2. New procedures
New procurement procedures have been proposed in line with the EU practices: innovative partnership, project competition, joint procurement, dynamic procurement system, aggregated procurement, reserved contracts. So far, their mechanism has not been sufficiently defined. The Ministry of Economy emphasizes that open tenders will no longer be the primary procurement procedure.
3. Changes to the list of exceptions to the law
The construction of a ring road around Kyiv was removed from the list of exceptions. Some of the exceptions were moved to the grounds for the negotiation procedure, such as the procurement of innovative medicines. At the same time, a number of new exceptions were added, such as security services required for the processing and sale of hydrocarbon raw materials and oil products.
4. Additional powers of the Cabinet of Ministers
The government will have the authority to determine which goods and services must be procured through the e-catalog (Prozorro Market), mandate procurement through the dynamic procurement system (DPS), and require the use of reserved contracts for specific procuring entities, goods, works, and services, along with setting their minimum annual share. This grants the CMU broad powers for targeted regulation.
5. Three-round auction becomes an option
A procuring entity must provide for the use of a three-round auction in the tender announcement in advance. This approach differs from the rules set out in Resolution No. 1178 of May 2023, where the three-round auction is a requirement, and the procuring entity can conduct procurement without it only after justification. So far, since the introduction of this rule in the Resolution, only 0.36% of open tenders have been held without an electronic auction.
6. Non-price criteria
Previously, the price criterion could not be set below 70%, but this limit will now be removed. There will be no predefined list of non-price criteria; instead, they will be non-exhaustive, allowing procuring entities to set them at their discretion. Specific criteria must be directly relevant to the subject of procurement.
7. Identity of procurements
The definition of identity of procurements has been defined and it is prohibited to announce identical procurements until the previous ones are canceled. This should help reduce the number of abandoned procurements that procuring entities simply decide not to complete. In 2021-2023, businesses lost almost UAH 7 million on such procurements. At the same time, in practice, assessing identity can be difficult.
8. Standard contracts
The Cabinet of Ministers will be able to approve a standard procurement contract for a specific procurement item, which procuring entities will be obliged to use.
Digitalization and transparency
9. Protection of personal data
It will be prohibited to require a copy/original passport of a citizen of Ukraine/foreigner’s passport in any form from participants.
10. To cancel a tender or change the contract due to price fluctuations or improvements in the subject matter, justification and documentary evidence will be necessary. Additionally, during the negotiation process, information about all parties involved in the negotiations, not just the winner, must be published.
11. Electronic contracts
It will be possible to create and publish procurement contracts in the form of an electronic document on Prozorro.
12. Publication of court decisions
On Prozorro, court decisions on the invalidation of procurement results and/or a procurement contract will be published. The system will also display the reversal of such decisions.
13. Further electronization
If the information in the files contains information that differs from the information in the electronic fields, the electronic fields will prevail. There will be no need to certify copies of documents with a physical signature if there is an electronic signature. In the tender proposal, files will only need to be uploaded with the information for which there are no electronic fields.
Participation of business in procurement
14. Reduction of the minimum deadline for submitting proposals
The minimum deadline for submitting tender proposals will be reduced to 7 days, as currently stipulated by wartime rules (instead of the standard 15 days). This shortened timeframe also applies to the procurement of works. However, based on our analysis of the impact of submission terms on competition in procurement of works, this term was extended to 15 days. The draft law should reflect this extension as well.
15. Bidders will be able to submit variant bids, and this raises many questions about its application in practice, i.e. how the variant bid will be considered alongside the main tender offer.
16. Extension of the 24-Hour Rule
Bidders will be able to correct deficiencies in their bids using the 24-hour mechanism in all cases except if the bid proposal was not provided or there was a change in a procurement item during the correction. Documents provided by participants to address deficiencies must be created or issued by the deadline for submitting bids, except for those created by participants themselves.
17. Similar to the wartime rules, the new draft law will permit proposals exceeding the estimated value to be submitted and considered, provided that the procuring entity specifies this in the tender documentation. It will also be possible to select the winner from a single participant who submitted a tender proposal.
18. Stricter restrictions on Russians, Belarusians and Iranians
A tender proposal will be rejected if the participating company has any ownership percentage by Russian / Belarusian / Iranian citizens (previously, the threshold was 10%).
Control and protection of rights
19. The State Audit Service will be able to monitor all procurements that are reported in Prozorro
. So far, only a part of procurement is subject to monitoring in the law. Auditors will also be obliged to explain to procuring entities how to eliminate violations, confirm in the system whether they have been eliminated, and publish information on bringing procuring entities to justice, for example, the fine imposed.
20. The State Audit Service will be able to suspend transactions under contracts with significant violations: procurement from Russians, Belarusians and Iranians (or related to them), failure to comply with the AMCU decision, purchase without application of procurement procedures under the Law, payment before procurement, division of the procurement item, as well as conclusion of a contract on terms other than those specified in the tender documentation/tender proposal. The Treasury will not register budgetary obligations, in particular, if there is a decision to suspend operations.
21. An attempt to solve the problem with auditors’ access to personal data
According to the draft law, the authorized persons will be required to give consent to the transfer of personal data contained in their electronic signatures to state control bodies for the purpose of imposing administrative penalties. This provision aims to address the current issue where auditors are unable to complete reports on violators due to a lack of personal data. However, we believe this measure is insufficient, as not all necessary data is included in the electronic signature, and such data is required for more than just administrative penalties. The presence of such a large amount of publicly accessible data may pose a problem in terms of European standards for personal data protection.
22. Changes to the appeal to the Antimonopoly Committee
Not only the complainant and the procuring entity, but also another participant, the winner, will be able to participate in the consideration of the complaint if the decision on its tender proposal is appealed. The parties will be able to pay for the services of experts and specialists engaged by the AMCU. The procuring entity will have to report in more detail on the implementation of the AMCU’s decision.
Areas for improvement
There is still much to correct and improve in the draft law, including potentially harmful proposals, regulatory gaps, and editorial inaccuracies. Additionally, there are several unresolved issues in public procurement that this draft law does not yet address.
Key risks:
- Insufficient regulation of new procedures and options for tender proposals. The draft law describes new procedures in very general terms, raising questions about how they will be implemented within the electronic system and conducted.
- Non-price criteria. Overall, DOZORRO does not oppose this tool. However, there are many concerns. These criteria have rarely been used in Ukraine, and launching them without limiting their share is a risky move.
- The Cabinet of Ministers has been granted extensive authority to determine who and what should be procured through e-catalogs, dynamic procurement systems (DPS), and reserved contracts, as well as what share of annual needs should be covered by these methods — this gives the government significant influence over procurement. This also restricts the rights of procuring entities.
In addition to the above, it is important to pay attention to the following issues:
- The method for determining the estimated value of procurement items or their price in direct procurement remains unresolved. The method for determining the estimated value will be approved by the procuring entity, which is risky as it allows them to set the rules for the amount to be invested in the tender. There is no mention of abuse safeguards that the CMU could implement.
- The maximum security for performance of the contract for the procurement of works has increased from 5% to 10%, which may negatively affect competition in large procurements.
- The deadline for submitting tender proposals for works is set at a minimum of 7 days, which is too short. It should be extended, as was done in CMU Resolution No. 1178 following our study.
- The draft law doesn’t solve the problems with CPOs that we highlighted in our study. These include issues such as determining the estimated value of procurement; monitoring procurements, specifically the actions and decisions of the procuring entity when procurement is conducted by a CPO (particularly during the contract execution stage); regulation of non-aggregated procurement; the inability to reject bidders with whom procuring entities had negative experience of cooperation, and the inability to conduct non-competitive procurement if open tenders have failed twice etc.
- Currently, there is no mandatory monitoring of high-value procurements, nor are there necessary adjustments to the duration of the stages in such procurements. No specific measures have been defined to address the elimination of violations in procurements.
- Alternatively, procuring entities can procure goods and services valued between UAH 50 and 400 thousand “according to the procedures determined by the administrator of the electronic procurement system.” This is incorrect because, by its nature, the Prozorro administrator does not possess rule-making authority.
- With the new definition of procuring entities, some may fall outside the scope of the law. This refers to institutions that will use public funds but are not established by state bodies, local governments, or the president — such as churches or public organizations that receive budget funds.
- The business qualification process for Prozorro Market remains unresolved, and there is no provision for appealing this qualification to the AMCU.
- The new rules regarding price changes in the contract are risky. It will be possible to increase the price per unit of certain goods — without limits on size or frequency — if their price fluctuates, including for food items. Moreover, if the price of a product, service, or work includes costs for gasoline, electricity (which applies to many items), or food products, the price can be adjusted freely and at any time. Documentary confirmation of price fluctuations in the market is intended as a safeguard, but it remains to be seen whether this will be sufficient.
In summary, the draft law represents a step toward aligning our legislation with EU rules and advancing the field overall. New procurement methods will emerge, electronicization will advance, the influence of the State Audit Service will grow, and threshold limits will be raised. Procuring entities will have more choices: whether to use a three-round auction or not, what criteria to set apart from the price, what procedure to choose, and how to determine the estimated value.
While allowing more freedom in decision-making, it is important to implement safeguards to prevent abuse of this freedom. For example, it is necessary to detail new procurement procedures, centrally regulate the process for determining estimated value, and consider developing a method for applying non-price criteria.
There are both positive and negative changes for businesses. For example, the 24-hour mechanism will enable more errors in tender proposals to be corrected, and the protection of personal data will be enhanced. However, for the procurement of works, the minimum period for submitting proposals is reduced to 7 days, and the maximum amount of tender security is increased from 5% to 10%. At Prozorro Market, the business qualification process remains unresolved, and there is no provision for appealing these qualifications to the AMCU.
Additionally, several issues remain unresolved by the draft law, such as those concerning the operations of centralized procurement organizations. Also, the Cabinet of Ministers is granted extensive powers to regulate the field, which is risky.
Therefore, the draft law still requires refinement by the Verkhovna Rada.
This publication was prepared with the financial support of the European Union. Its content is the sole responsibility of Transparency International Ukraine and does not necessarily reflect the views of the European Union.
