The year 2010 saw a turning point for legal regulation of public procurement in Ukraine. After almost two years of uncertainty and volatile regulation and after one failed attempt in February-March 2010 (due to the President's veto) the long-debated public procurement (the Procurement Act) was finally signed by the President on 23 June 2010. The Procurement Act came into effect on the date of its official publication, 30 June 2010, but became fully operational only on 30 July 2010. Prior to that date for almost two years public procurement was governed by the Resolution of the Cabinet of Ministers On Procurement of Goods, Works and Services for State Funds of 17 October 2008 No.921 (Resolution 921). Resolution 921 was amended by the Cabinet of Ministers of Ukraine 26 times and its defects were often used to circumvent the principles and procedures of public procurement. Now after adoption of the new Procurement Act there is some hope that the procurement process will become more stable and more transparent.
Thresholds for Application of Procurement Procedures Remain Unchanged and the Number of Procurement Procedures is Reduced
Like Resolution 921, the Procurement Act 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 (AMCU). The addition of this new level of review was one of the most important issues in contention in the run-up to the Procurement Act's adoption. One of the objections the President of Ukraine brought up while vetoing a previous draft of the Procurement Act was that decisions of the Ministry of Economy were not subject to external review. The President's opinion prevailed and is now reflected in the Procurement Act.
The Procurement Act reduces the variety of procedures which can be employed in public procurement, abolishing such procedures as restrictive participation tender and reduction procedure, which were rarely used even under the old rules. Under the Procurement Act public procurement will be conducted only through the following 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. In order to be used, the single participant procedure must be justified by the purchaser and approved in each particular case by the Ministry of Economy. As to open bidding (generally the most often used form of public procurement), the main criterion for choosing the winner is still the price.
Establishing More Transparent Rules for Competitors
The Procurement Act has significantly reduced the list of exceptions from the public procurement requirements as compared to the list of exceptions which Resolution 921 contained. Some of the most important previously exempt purchases which used to be exempt but now must comply with the general procedures under the Procurement Act include: (i) the purchase of financial and other related services by the state oil & gas monopoly Naftogaz, (ii) the purchase of services related to attracting financial resources and repayment of debts (except for sovereign debt) and (iii) legal services related to representation of Ukraine in proceedings in foreign jurisdictions.
Most importantly, the Procurement Act eliminates the right of the Cabinet of Ministers 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 was available under Resolution 921.
At the same time, the Procurement Act exempts the purchase of services required for maintaining banking operations by state-owned banks (Ukrex-imbank and Oschadbank) and banks recapitalized by the state (e.g. Rodovid and Ukrgazbank) from the public procurement procedures.
Also the Procurement Act prohibits changes in terms and conditions (including the price) of procurement contracts based on bidding results and provides for a very limited list of exceptions to this prohibition, which in practice may cause necessity of termination of contracts and a repetition of the bidding exercise, when prices for goods changed dramatically within a year.
Opportunities for International and Foreign Participants in Public Procurement Procedures are Improved
Under the Procurement Act international and foreign participants are now generally granted equal access to the public procurement regime in Ukraine. Previously, Resolution 921 provided that 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 Procurement Act guarantees as a matter of principle that foreign and local participants enjoy equal rights in procurement procedures.
Antimonopoly Committee will Hear Challenges to Procurement Procedures
The new Procurement Act establishes a new procedure for challenging the outcome of public procurement procedures. Under the Procurement Act the AMCU replaces the Ministry of Economy as the competent authority to review such challenges. Taking up its new duties under the Procurement Act, the AMCU created the Permanent Administrative Commission of the AMCU for Examination of Complaints Regarding Violations of Public Procurement Legislation (the Commission), a new specialized body within the AMCU system competent to review such complaints. The initiation of proceeding at the Commission does not automatically stop the procurement procedures but a procurement agreement cannot be signed while review by the Commission is pending. The Commission must complete its review within 30 days of receipt of the complaint. Challenges against signed procurement agreements must be reviewed by the courts.
Approval of State Procurement Using the Procedure of Purchase from One Participant
Resolution No.668 enacted by the Cabinet of Ministers of Ukraine on 28 July 2010 established the procedure for obtaining the Ministry of Economy's authorization for the purchase from participant procurement procedure.
Under the Procedure approved by the Resolution, in order to obtain such approval the potential state purchaser must submit to the Ministry of Economy a number of documents required under the Resolution. The Ministry of Economy must then grant or refuse its authorization within 15 business days. In this situation refusal is possible, if (i) not all documents have been submitted, (ii) the Ministry finds that there is no sufficient reason to employ the procedure of purchase from one participant, (iii) the documents contain inaccurate information or (iv) the state purchaser or non-resident supplier are subject to the special foreign trade regime in the form of individual licensing or temporary suspension of international trade operations. In general, the procedure of purchase from one participant appears to be more transparent and well-regulated under the new Procedure than used to be the case in recent years. However, there is still a fairly substantial amount of discretion in the hands of the Ministry of Economy in the decision-making process.
State Procurement in Connection with EURO-2012
The On Preparations for and Organization in Ukraine of the Final Part of the 2012 European Football Championship Act of Ukraine (the EURO-2012 Act) determines a special procedure for state procurement for goods, works and services required for preparing and organizing the UEFA European football championship to be hosted jointly by Ukraine and Poland in 2012. The Ukrainian government is placing very high priority on preparations for this championship and the issue of preparations is constantly discussed by government officials and the media alike. It is not unexpected, therefore, that special rules have been created for public procurement in this sector. Under the EURO-2012 Act purchases using funds administered by the government agency in charge of preparation for EURO-2012, the National Agency for the Preparation of EURO-2012, is governed by the EURO-2012 Act and not the Procurement Act. The Procurement Act itself allows for exceptions from its procedures under special laws such as EURO-2012 Act. The EURO-2012 Act in turn provides that purchases under this Act can be conducted using the procedure of purchase from one participant without the need to obtain permission from the Ministry of Economy. Such simplified purchases can be organized only after approval by the National Agency for the Preparation of EURO-2012.