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24 March, 2023
Efficient procurement agency, increased parliamentary and public control and new legislation as ways to ensure transparency of defense procurement

Ways to ensure more effective and transparent defense procurement, which Ukraine critically needs today, and further steps that should be taken to achieve this aim were discussed during a conference in Kyiv. 

The effective work of the newly launched Defense Procurement Agency, increased parliamentary and public control over defense budgetary appropriations, and implementation of Law on Defense Procurement are only some of the ways to address the problem – the experts concluded.

On March 24 NAKO presented its analytical brief on defence procurement during martial law. During the presentation which took place in Kyiv Svitlana MusiiakaNAKO’s Head of research and policy, spoke about the critical challenges in the new defense procurement system, legislation changes after the full-scale invasion, and ways to achieve transparency.

The following speakers also partook in the discussion: The event welcomed such high profile speakers as: Anastasiia Radina, head of the Parliamentary Committee on Аnti-Сorruption Policy, Denys Sharapov, Deputy Minister of Defence, Nelly Stelmakh, an expert of the Defence Procurement Reform Project. The other participants included the representatives of the government, the Ministry of Defence, and foreign embassies.

Musiiaka updated the audience on the main challenges in the defence procurement during the martial law and possible solutions on the way to achieve transparency in this area. She also reminded about the selected milestone developments in defense procurement legislation in recent years.

In July 2020, the Law On Defense Procurement was voted on and it was expected to come into force, declassifying a significant part of the state defense contracts, creating a competitive and transparent environment in the military market.

But a year after that it became obvious that the implementation of the Law was not as good as it could be, so the Cabinet of Ministers revived the abolished procedures for another year, and in 2021 two systems for classified procurement were in place at the same time.

On January 1, 2022, the Law had to fully come into force and in January-February 2022 some good steps were taken. The Parliamentary Committee approved a consolidated 3-year plan for classified procurement.

After the full-scale Russian invasion the Cabinet had to adopt emergency procedures so in March 2022 the old defence procurement contracts were classified, and a shift to direct contracts took place. Thus, state agencies could not use procedures stipulated by the defence procurement law and the law on public procurement.

Another milestone was that in June 2022 Defense Procurement Agency was established.

“It is supposed to be responsible for classified defense procurement; however, its competencies still do not fully refer to its title. There is almost no publicly available information on establishing a Defense Procurement Agency for the open defense procurement procedures. Its creation was mentioned in the MoD statements but no further steps have been taken,” Musiiaka said.

The so-called ‘egg scandal’ revealed how important the issue of defence procurement is now for the Ukrainianian society. Musiiaka reminded that in January 2023 Ukrainian media published information that Ukraine’s Ministry of Defence allegedly buys food supplies for the military at inflated prices, while the supplier companies are close to several MoD officials.

According to Musiiaka, the parliament’s reaction to the scandal was fast and firm. The Committee for National Security, Defense and Intelligence decided to inspect the supplier companies and amend the defense procurement legislation. The Committee on Anti-Corruption Policy initiated a corresponding draft law which was developed with the help of the field-specific NGOs. In February 2023, the parliament adopted draft law No. 838 making partial reporting on some defense procurement mandatory.

As of March 2023, these are the key characteristics of defense procurement:

  • State contractors can conduct certain types of procurement without proper procedures established by the laws On Public Procurement and On Defense Procurement;

  • 3-year procurement plans are suspended;

  • Information on almost all the defense procurement can be published only after martial law ends.

NAKO’s experts expect that these changes have resulted in narrowing the possibilities for companies to participate in selection processes for defense procurement contracts as the announcements were no longer publicly available.

The amended law on defense procurement provides for:

  • state procuring entities should publish core information about direct contracts in the Prozorro system within 10 working days from the date of its conclusion, if the cost equals or exceeds UAH 200,000 for goods and services and UAH 1.5 million for work;

  • Any amendments to the essential terms of agreements should be made publicly available, too. The report must contain: the name of the procuring entity (customer); the name of the procurement item (with the units of measurement); price per unit of each item; price of works and services.

However, the amended law failed to revolutionize defense procurement. This solution is only a partial one as challenges remain and they need to be addressed.

Thus, NAKO points out the following problems in defence procurement:

  • Increased secrecy and decreased civilian oversight;

  • Low level of competition;

  • Non-functional Register of selection participants and executors of state defense contracts;

  • Lack of a functional authorized procurement agency for defense procurement;

  • Suspended implementation of the Law on Defense Procurement.
     

    Meanwhile, the decisions taken by the government to minimize the corruption risks in defence procurement are not enough, said Anastasiia Radina, head of the Parliamentary Committee on Anti-Corruption policy. Ukraine’s Defence Ministry decreased some of the prices in their contracts whereas other prices remain higher than market ones, she explained.

    “It allows for some degree of transparency, which is publication of information about price per item in non classified procurement, which is food, some equipment or clothes. But this, of course, doesn’t cover classified procurement such as weapons and military equipment,” Radina said.

    The Law is necessary but not enough to ensure effective allocation of public funds in defense procurement, it is not enough to change and solve the whole complex of problems. Public funds should be used in the most effective “budget friendly” ways, according to Radina.

    “Currently the defense budget makes half of the state budget of Ukraine, this is an incredible amount of money and unfortunately it’s not enough to cover Ukraine’s extraordinary needs. That is why we must guarantee the efficient and transparent use of every budget hryvnia," Radina emphasized.

    Denys Sharapov, Deputy Minister of Defense pointed out that the MoD supports openness and transparency but during martial law Ukraine needs to be careful in order not to disclose information to the enemy.

    “We would like to discuss ways to move forward that will be acceptable for us together. We are interested in a dialogue with the society, and partners. Recently we have had quite productive conversations with the Ministry of Economy, Parliament Committees, indeed we were sometimes criticized but we have received some constructive suggestions from them,” Sharapov said.

    The Deputy Defense Minister went on to say that Defense Procurement Agencies are really an effective tool to transform the entire system. He believes that the newly created agency in Ukraine will enhance the MoD capabilities “In half a year of the agency's existence, it has already reached agreements with a number of countries, similar agencies abroad,” the official said.

    NAKO has suggested a list of possible solutions of how to ensure transparency in defense procurement. The following steps are needed:

  • to ensure the effectiveness of defense procurement by properly launching the authorized procurement agency/agencies and building its/their capacity;

  • to strengthen parliamentary oversight and democratic civilian control over defense budgetary appropriations;

  • to ensure the development of policy-based governance in MoD acquisition processes alongside procurement agency development;

  • to reduce the excessive secrecy in defense procurement by adopting new legislation on state secrets and classified information.

  • Following a constructive discussion, the participants of the meeting agreed to hold such discussions with various stakeholders involving the public on a regular basis.

    NAKO is grateful to the Foreign, Commonwealth and Development Office and the UK’s Special Advisory Team for the financial support of NAKO’s work area on increasing transparency in Ukraine’s procurement and this event in particular.