Important Changes in Public Procurement Rules in Ukraine

After a failed attempt in February-March 2010 (due to the President's veto) the long-debated Law on Public Procurement (the "Law") was finally signed by the President on 23 June 2010. The Law came into effect on the date of its official publication, 30 June 2010, but will only become fully operational 30 days after this date. Before that moment public procurement continues to be governed by the still-valid Resolution of the Cabinet of Ministers on Procurement of Goods, Works and Services for State Funds of 17 October 2008 No 921 (the "Resolution 921").

Thresholds for application of procurement procedures remain unchanged and the number of procurement procedures is reduced

Like Resolution 921, the Law will apply to all state entities purchasing goods or services worth at least UAH 100,000 or works worth at least UAH 300,000. The Ministry of Economy remains the government agency overseeing and coordinating public procurement but, in an important change, its decisions can now be reviewed by the Antimonopoly Committee of Ukraine ("AMC"). The addition of this new level of review was one of the most important issues in contention in the run-up to the Law's adoption. One of the objections President raised while vetoing a previous draft of this law was that decisions of the Ministry of Economy were not subject to external review. President's opinion prevailed and is now reflected in the Law.

The Law reduces the variety of procedures which can be employed in public procurement abolishing such procedures as restrictive participation tender and reduction procedure. Under the new Law public procurement will be conducted only through one of the five procedures: (i) open tender; (ii) two-level auction or tender; (iii) request for a quote; (iv) preliminary qualification of participants; and (v) direct purchase from a single participant. To be employed, the single participant procedure must be justified by the purchaser and approved in each particular case by the Ministry of Economy.

Exceptions from procurement procedures under the Law are narrowed

The Law has significantly reduced the list of exceptions from the public procurement requirements which the Resolution 921 previously contained. Some of the most important previously exempt purchases which now must comply with the general procedures under the Law include: (i) the purchase of financial and other related services by the state oil & gas monopoly Naftogaz; (ii) the purchase of services related to attraction of financial resources and repayment of debts (except for the sovereign debt); (iii) legal services related to representation of Ukraine in proceedings in foreign jurisdictions.

Most importantly, the Law eliminates the Cabinet of Ministers' right to issue an ad hoc decision excluding certain goods, services and works from the procurement procedures, which was a powerful tool for circumventing public procurement requirements and which existed under Resolution 921.

At the same time, the Law exempts purchase of services by state-owned banks (e.g. Ukreximbank) and banks recapitalized by the state (e.g. Rodovid Bank and Ukrgazbank) from the public procurement procedures.

Opportunities for international and foreign participants in public procurement procedures are improved

Under the new Law international and foreign participants are now generally granted equal access to the public procurement regime in Ukraine. Previously, Resolution 921 provided that the goods, services and works could be procured only from Ukrainian companies unless the required goods, services and works were not produced or provided in Ukraine. The new Law guarantees in principle that foreign and local participants enjoy equal rights in the procurement procedures.

Antimonopoly Committee will hear challenges to procurement procedures

Under the Law the AMC is to replace the Ministry of Economy as a competent authority to review challenges related to public procurement. The AMC must create a special body within its system competent to review these claims. The initiation of proceeding at the AMC will not automatically stop the procurement procedures but a procurement agreement cannot be signed during the AMC review. The AMC must complete review within 30 days after it receives the complaint. Challenges against signed procurement agreements will be reviewed by the courts.

For further information please contact

Armen Khachaturyan
Senior Partner

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