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Public Procurement in Ukraine: New Rules for the Same Game

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.

Author: Armen Khachaturyan, Yevgen Kravtsov, Nikolai Sorochinskiy
Source: Ukrainian Law Firms 2011. - p.90-91