Will Defense Procurement Become More Transparent: Analysis of Draft Law 8381

Public discussions of food procurement for the military are in full swing, and MPs have already supported a draft law on the introduction of transparency in defense procurement in the first reading. 

Its main idea is to oblige government procuring entities to report to Prozorro on defense contracts for above-threshold amounts within 10 working days from the date of conclusion. We have analyzed what specific changes MPs propose and whether they will solve the existing problems.

How does the current legislation regulate this issue?

Nowadays, the features of defense procurement for the period of the legal regime of martial law are defined by the Resolution of the Cabinet of Ministers No. 1275.

According to its provisions, government procuring entities purchase most of the goods, works, and services without applying competitive procedures defined by the Laws of Ukraine “On Defense Procurement” and “On Public Procurement,” concluding direct contracts instead. The exceptions are some goods that must be purchased through framework agreements since January 1, 2023. However, the specified functionality in Prozorro does not work yet.

For direct contracts from UAH 200,000, the Features provide for deferred reporting. Within 180 days from the date of termination or abolition of martial law, government procuring entities must publish reports on procurement agreements concluded without the use of the EPS. Such procurement transactions are not included in the annual plan. Procurement reports containing restricted information are not planned to be published.

In addition, Resolution No. 1275 regulates reporting on direct contracts concluded under Resolution No. 169 since August 10, 2022, until its invalidation. For such cases, within 90 days from the date of termination or abolition of martial law, a report on the contract will be published, as well as the contract itself, all annexes and amendments to it.

Thus, the current legislation postpones reporting on defense procurement for the period after the Victory, and the society is deprived of information about such procurement.  

What does draft law 8381 propose? 

MPs propose to make several amendments to the Law of Ukraine “On Defense Procurement” (hereinafter referred to as the Law):

1. To oblige procuring entities, based on the results of direct defense procurement, to report to the EPS on the concluded contract within 10 working days from the date of its conclusion, starting with the cost of UAH 200,000 for goods and services, UAH 1.5 million — for works.

The proposed reporting is partial: the report indicates only the name of the government procuring entity (government procuring entity service), the name of the procurement item (indicating the unit of measurement for goods), the price per unit of goods, the price of works and services. Information constituting a state secret, as well as other information, is not made public.

1. For the procurement of services on provision of sets of food, food, and catering services for military units, the report adds a file on the cost of all components of these services: separate names of food (goods) indicating the unit of measurement and price for such a unit, as well as the cost of individual services.
2. If the procuring entity changes the essential terms of the contract in the part in which they were supposed to report, they must publish a notice of amendments with updated information.
3. The Final and Transitional Provisions solve the problem of unpublished contracts concluded in the past from February 24, 2022: procuring entities will publish the reporting on such contracts in the same volume, but within 90 days from the date of entry into force of the amendments.

In addition to the main changes in reporting, which will have an obvious impact on procurement practice, the initiators of the draft law propose some other provisions:

• The principles that the features of defense procurement for the period of martial law should correspond to: timeliness and compliance with the decisions taken to protect the national interests of Ukraine, ensure security and defense needs; competitiveness; efficiency of the use of funds, effectiveness; openness and transparency (except for information that constitutes state secrets and the disclosure of which may harm national security); prevention of corruption, abuse, and discrimination.
• From among the permitted types of procurement in Article 16 of the Law, simplified selection without the use of the EPS is excluded. However, it is enshrined that defense procurement for the period of the legal regime of martial law is carried out under section IV of the Law — and it still contains a reference to the “Features” from the Cabinet of Ministers with their inherent direct contracts.

In order for the provisions of the Law undergoing amendments to again prevail over the provisions of the Features defined by the Cabinet of Ministers, Article 30 of the Law stipulates that the Features of the Cabinet of Ministers must be determined in compliance with the requirements of this Article. Within a month from the entry into force of DL 8381, the Cabinet of Ministers must bring its acts into line.

Interestingly, among the principles that the Features of the Cabinet of Ministers must comply with, competition is provided. Given that most defense procurement is allowed to be carried out without the use of the EPS, the question arises how this principle will be implemented.

As a result, draft law 8381 proposes to open up some information on defense procurement, as well as to add some downright declarative provisions. Of course, any shift toward disclosing procurement data — preventing harm to national security — looks like a positive initiative. But the implementation of the idea of transparency in the draft law 8381 is not ideal.

What problems do we see in draft law 8381?

• Partial reporting will not make defense procurement fully transparent, and the published part of the data will not be enough for effective public control.

DL 8381 proposes to publish only the name of the government procuring entity (government procuring entity service), the name of the procurement item (with a unit of measure for goods), the price per unit of goods, the price of works, services, in the report on the contract.

Such partial reporting does not solve the existing problem because:

• without the text of the contract or at least part of it, we will not see what affects the price per unit of goods, which related services are purchased together with the goods and affect its price (terms of delivery and payment, storage, processing, etc.);
• moreover, without a published contract, it will be impossible to verify whether the procuring entity indicated all the items of the specification in the report; whether the content of the contract concluded in paper form corresponds to the information that the procuring entity published in the EPS;
• in the Prozorro system, procuring entities have the opportunity to choose a unit of measurement from a variety of options — for example, “piece,” “unit,” “jar,” “dose,” “kit,” “box,” “set,” “package,” “pack,” “box” – which makes the totality of these data chaotic and incompatible, they are almost impossible to compare correctly;
• information about the general name of the item without the name of the nomenclature item is not enough to check whether the price is not too high.

In the explanatory note, sensitive information includes the location, identification data of the procuring entity and the supplier/contractor, the number, place and terms of delivery of goods (performance of the contract), the total price of the contract. And if the concealment of geographic information and identification data is quite logical in wartime, then the issue of total number and total price raise questions. Moreover, to determine whether the price per unit is reasonable, you need to calculate the components, information about the terms of payment and delivery (without specifying the place of delivery, but with information about the frequency, distance, term of payment, other pricing conditions).

Some procurement analysts hold the position that most information about defense procurement of civilian goods is not sensitive (except the place of delivery).

• Will the full reporting remain planned after the Victory?

As already noted, the current Resolution No.1275 obliges procuring entities to report on direct contracts in the field of defense after the end of martial law: within 180 days for contracts concluded under Resolution No.1275, within 90 days for contracts concluded under Resolution No.169 in the period from August 10, 2022. For agreements under Resolution No.169, the publishing of the agreement itself is envisaged, as well as all annexes and amendments to it (!), which cannot be said about DL 8381. It turns out that the amount of reporting under such contracts may be even less than already provided.

Given that DL 8381 will oblige the Cabinet of Ministers to bring its acts into line within a month, the question arises whether the rules on full reporting after the Victory will remain in force. We see two risks: 

1. If DL 8381 enters into force in the proposed wording, and Resolution No.1275 remains unchanged, then it is likely that procuring entities will have to report twice on the same contracts: first in the manner provided for by the updated Article 30 of the Law, then in the manner of Resolution No.1275. Thus, DL 8381 establishes the priority of Article 30 of the Law over the Features of the Cabinet of Ministers. But reporting after the end of martial law (under Resolution 1275) in fact does not contradict the partial reporting within 10 working days from the date of conclusion of the contract (under the Law) and potentially they can coexist.
2. If the Cabinet of Ministers brings Resolution No.1275 in line with DL 8381 and excludes the provisions on deferred reporting from it, the situation will become even more threatening. After all, then the public will never receive other information about direct contracts in the field of defense, except for the price per unit, the name of the item, the name of the procuring entity. Such a step will be difficult to call an introduction of transparency.

In addition, from the threshold of reporting on contracts in the amount of UAH 200,000 for all procurement items (under Resolution 1275), draft law 8381 returns to the threshold of UAH 1.5 million for works. This narrows the volume of procurement transactions for which reports will be published.

1. Emphasis on food procurement: the response to public demand, which can be extended to other procurement.

Reporting on the cost of all components of services under the contract is provided only for food procurement. Procuring entities will have to upload information about individual food items (with unit of measurement and unit price) and the cost of individual services in a separate annex (file).

But it is obvious that the procurement item can have components (nomenclature items, assortment) with different prices for each, not only in food procurement. Therefore, the need to publish reports with this information is relevant not only for the procurement of food services.

According to the current version of DL 8381, for non-food procurement, the report will contain “the name of the procurement item (indicating the unit of measurement for goods), the price per unit of goods, the price of works, services.” Therefore, it does not seem sufficiently defined how procuring entities will report on contracts with a complex item (except for food), which consists of several items, each of which has its own price. The question arises which safeguards will function so that procuring entities are not limited to reporting the price of only one position out of several provided for by the contract.

1. The mechanism of control over reporting and its completeness is not prescribed. 

Unfortunately, DL 8381 does not contain proposals on how to control the completeness, timeliness, reliability of information in contract reports, as well as what legal consequences should occur if the procuring entity violates any of the reporting norms.

Currently, clause 63 of the Procedure No. 363 provides that control in the field of defense procurement is carried out in accordance with the requirements of Articles 14 and 15 of the Law of Ukraine “On Defense Procurement.” The operation of other provisions of this Procedure in relation to control is suspended for the period of validity of the legal regime of martial law. In turn, Articles 14 and 15 of the Law provide for control measures at the generalized level. Without the introduction of control measures — for example, similar measures to those for public procurement — DL 8381 will likely have limited impact on procurement practices.

1. The complexity of the technical implementation of the proposed changes in the EPS.

In practice, the implementation by procuring entities of the provisions provided for by DL 8381 may be complicated by technical difficulties.

For example, in the event of amendments in the conditions reported by the procuring entity, they must publish a notice with information in the same volume as in the report. But the previously entered information is overwritten when introducing a new one, and there are difficulties with the introduction of higher prices than the primary ones in the EPS. We hope that these issues will be resolved technically.

Summarizing the above, despite the inherently correct principles laid down in DL 8381 — in practice, this draft law will not become a panacea, but will disclose only part of the information on defense procurement.

Transparency International Ukraine supports the idea of DL 8381, but it will not solve systemic problems in the field of defense. A systemic solution to the problem of defense procurement should begin with planning the procurement itself and determining what is really sensitive information that cannot be published because it can be used by the enemy. The rest of the information about such procurement should be public. And procurement should be carried out competitively through Prozorro.

Author: Anna Kuts, Legal Advisor at Transparency International Ukraine

The material was prepared within the framework of the USAID/UK aid TAPAS Project/Transparency and Accountability in Public Administration and Services.