LEGISLATIVE FRAMEWORK

1 What is the relevant legislation and who enforces it?

Public procurement in Ukraine is regulated by the Law on Public Procurement (effective from 30 July 2010) (the Law), which covers the entire scope of issues related to public procurements including procedures, framework agreements, dynamic procurement systems, sector procurements, remedies, etc. The enforcement of public procurement regulations is undertaken by the Ministry of Economic Development and Trade of Ukraine, the Antimonopoly Committee of Ukraine, the State Treasury Service and the courts.

2 In which respect does the relevant legislation supplement the EU procurement directives or the GPA?

Because the Law was passed with the purpose of adapting the Ukrainian legislation to the WTO requirements, it has been expanded to be compliant with the GPA. It contains no discriminatory or protective provisions, but contains anti-corruption norms and clauses specially tailored to the economic situation in Ukraine. Whereas the GPA provides for open, selective and limited tendering procedures, the Ukrainian law provides for open, two-stage tendering, price bidding (quoting), preliminary qualifications, procurements from a single bidder and electronic reverse auction (article 12 of the Law). While financial guarantees constitute mandatory elements of tender documentation under the GPA, provision of guarantees in Ukraine is mandatory only if stipulated by the contracting authority.

3 Are there proposals to change the legislation?

The public procurement legislation is being constantly amended; moreover there were a significant number of proposals to change some provisions of the Law in 2012 up to the beginning of 2013. A few of the more interesting ones are discussed below.

In January 2013 a draft law, 'On Amendments to the Law of Ukraine on Public Procurement (concerning alteration of terms and conditions)', was introduced before parliament. According to the draft it is proposed to include in the tender rules a condition that participants in procurement procedures should have their own production facilities or service centres in the territory of Ukraine. This condition is considered as interim and should be operative until 31 December 2015.

During the same period the Ukrainian government developed and presented a draft law, 'On Amendments to Some Legislative Acts of Ukraine on State Procurement', dated 28 January 2013. The draft proposes to provide legal guarantees to implement the right of customers to choose the electronic reverse auction by abolishing the mandatory use of kinds of guarantee in the case of public procurement of goods and services included in the list approved by the Cabinet of Ministers of Ukraine. The draft also proposes the monitoring of how operators of websites comply with legislation during public procurement and establishes the possibility to appeal decisions, actions or inactions of particular operators of websites that conflict with the Law.

In March 2013 a draft law, 'On Amendments to the Law of Ukraine on Public Procurement (concerning decrease of terms of tenders)', was registered within the parliamentary committee on economic issues. The draft proposes a significant decrease in the terms of providing tender procedures, especially in relation to open tendering (to be completed within 24 days).

4 Is there any sector-specific procurement legislation supplementing the general regime?

Yes, the Law on Public Procurement contains exceptions to its applicability. We would like to highlight some of those exceptions, listed in the Law. The procurement of goods, works and services for satisfying the priority demands of the state is governed by separate legal acts which supplement the general public procurement regime under the Law. For example, procurement of mass-media services for reporting on the activities of state bodies and bodies of self-governance, procurement of agricultural commodities, procurement of weapons and military equipment and other special-purpose goods are regulated by specific legislation. The specific legislation was enacted to regulate areas such as rail transport, mining, book manufacturing and agricultural equipment.

Some areas where procurement procedures are governed by separate laws are procurement carried out by legal entities exercising their activities in the area which is a natural monopoly, procurement concerned with the purchase of crude oil and its derivatives, centralised heat power supply, natural and oil gas, postal services, services of international financial institutions associated with the involvement of loans and procurement with regards to the Euro 2012 football championship finals in Ukraine.

APPLICABILITY OF PROCUREMENT LAW

5 Which, or what kinds of, entities have been ruled not to constitute contracting authorities?

Under the Ukrainian legislation, a certain number of authorities entitled to administer state funds according to the law may award contracts for government procurement and thus may be regarded as contracting authorities in a sense. The Law concerns state bodies, including those of the Autonomous Republic of Crimea, bodies of local self-government, other bodies, institutions and organisations defined by the Constitution and relevant laws.

There is still no definitive list of such contractual authorities. However, there is a specific list of goods and services exempt from the procurement procedures. Such goods and services include those containing state secrets, design and manufacturing of banknotes, state awards and other types of paper containing security features, services required for bank operations of state banks and banks containing state capital, goods and services carried out by a purchaser outside Ukraine (eg, a diplomatic mission), services required for the operation, maintenance and repayment of the state debt, goods and services required for running elections and referendums, electrical energy, etc.

6 For which, or what kinds of, entities is the status as a contracting authority in dispute?

The Law is clear in providing types of entities authorised to administer the state funds. The interpretation of state funds is also expressly given. This includes state and state-funded enterprises, institutions and commercial companies where the state share in their stock capital exceeds 50 per cent, their subsidiaries thereto, enterprises and commercial companies where at least 50 per cent of the stock capital is owned by state and budget-supported enterprises, and commercial companies where the total state share of the stock capital exceeds 50 per cent. However the Law was recently amended and now it is applicable only to those commercial companies that are authorised to administer the state funds and that constitute one of the following:

  • a company that enjoys tax privileges;
  • a corporation that is exempt from the obligation to pay debt to the budget; or
  • a corporation that receives direct or indirect budget support.

Thus, the status of some state enterprises and utilities may be in dispute when the quota of shares specified is not definitely observed and when there is no open information that the entity meets all the requirements described above.

7 Are there specific domestic rules relating to the calculation of the threshold value of contracts?

The Law applies to procurements where the price of goods and services amounts to or exceeds 100,000 hryvna or the price of work amounts to or exceeds 1 million hryvna. The construction sector is an exception and the Law applies to procurements where the price of goods and services related to this sector amounts to or exceeds 300,000 hryvna.

8 Does the extension of an existing contract require a new procurement procedure?

According to article 40 of the Law, terms of the concluded procurement contract and the actual performance of the procurement should not derogate from the final terms of the tender specification until the obligations of the parties have been fulfilled (except for cases of an agreed decrease of the procurement volume or price). The extension of an existing contract is possible in case objective obstacles have arisen, such as acts of God, and therefore the performance of the contract is not possible in terms determined by it.

The extension of an existing contract is also possible for a period sufficient for procurement for the part of the following year in an amount which should not exceed 20 per cent of the sum specified in the contract signed the previous year.

In all other cases the extension of an existing contract requires a new procurement procedure. It should be noted that in some cases, as specified in the Law, such procedure may be simplified by continuing the procurement from a single participant.

9 Does the amendment of an existing contract require a new procurement procedure?

Article 40 of the Law forbids any amendments of the concluded procurement contract which differ from the final terms of the tender specification until the obligations of the parties have been fulfilled. With an exception for an agreed decrease of the procurement volume, for cases of price amendment (of an existing contract by not more than 10 per cent and not earlier than three months after contracting) or the improvement of the procurement object's quality without an increase in its price, the Law requires a new procurement procedure.

10 May an existing contract be transferred to another supplier or provider without a new procurement procedure?

The existing contract cannot be transferred (subcontracted) to another supplier or provider without a new procurement procedure as referred to in article 40 of the Law which prescribes the permanence principle as to the contract, including the permanence of the supplier or provider.

11 In which circumstances do privatisations require a procurement procedure?

Privatisation procedures are set out in the Law on Privatisation of State Property, which specifies auctions, tendering procedures and the stock exchange as the means by which the privatisation may be completed in compliance with the order approved by the fund of state property of Ukraine, the Antimonopoly Committee of Ukraine, the State Committee on Securities and the stock exchange.

12 In which circumstances does the setting up of a public-private partnership (PPP) require a procurement procedure?

There are no special rules in relation to PPPs. Article 6 of the Law on Public-Private Partnership prescribes that public procurements within a public-private partnership are regulated by the principal law on public procurement.

13 What are the rules and requirements for the award of works or services concessions?

See question 12.

14 To which forms of cooperation between public bodies and undertakings does public procurement law not apply and what are the respective requirements?

If the concept of an in-house contract is interpreted in light of the subordination and control relationships of entities that may result in an improper conclusion of the contract between the entities in question, then the provision of the Law on 'related parties' shall be applied. It sets out that participation shall be denied to 'related parties', which are:

  • those executing control over the bidder or being controlled by a bidder or being under a common control with a bidder;
  • natural persons or relatives of a natural person executing control over a bidder; or
  • officials or relatives of a bidder authorised to perform on behalf of a bidder legal acts aimed at the establishment, change or termination of legal relationships.

Exercising control is understood as one entity possessing, immediately or through a significant number of natural persons or entities, the largest share (holding of shares) in the stock capital of a bidder; holds the majority of votes in the management body of a bidder; or if no less than 20 per cent of shares in the stock capital of a bidder are concentrated within the entity. Also, as mentioned in question 5, there is a specific list of goods and services exempt from the procurement procedures.

THE PROCUREMENT PROCEDURES

15 Does the relevant legislation specifically state or restate the fundamental principles for tender procedures: equal treatment, transparency, competition?

The principles of public procurement set out in the Law include fair competition, maximum efficiency, openness and transparency of all procurement stages, non-discrimination of bidders, objective and impartial evaluation of bids, prevention of corruption and abuse.

16 Does the relevant legislation or the case law require the contracting authority to be independent and impartial?

Yes. Article 11 of the Law specifies that the tendering procedures shall be conducted by a specially designated tender committee, which acts according to the principles of impartiality and collegiality.

17 How are conflicts of interest dealt with?

Article 11 mentions an absence of conflict of interest among the principles on which a tender committee should function. Membership of a committee must not create a conflict between the interests of a customer and bidders or between interests of bidders if such a conflict may influence the objectivity and impartiality of decision-making as to the winner of the tender. The committee must not consist of officials or representatives of the bidders, members of their families and also of deputies of the parliament of Ukraine, and the parliament of the Autonomous Republic of Crimea and of local governments.

18 How is the involvement of a bidder in the preparation of a tender procedure dealt with?

For the purpose of the organisation and conduct of tendering procedures, special bodies (ie, tender committees) are established whereby conflicts of interest shall be avoided and impartiality ensured. Thus, representatives or parties related to the participants must not be involved in the activities of tender committees.

19 What is the prevailing type of procurement procedure used by contracting authorities?

Article 20 of the Law defines open tendering as the prevailing procurement procedure.

20 Can related bidders submit separate bids in one procurement procedure? If yes, what requirements must be fulfilled?

No, according to article 17 of the Law, if the tender offer was submitted by a bidder related with another bidder or bidders they shall be excluded from a tender procedure

21 Are there special rules or requirements determining the conduct of a negotiated procedure?

Rules on two-stage tendering, as referred to in articles 33 and 34 of the Law, provide for a negotiated procedure. In the course of the first stage the participants are invited to provide their preliminary tender bids, including technical and economic parameters, without quoting the price. Then the contracting authority enters into negotiations with the bidders to clarify the terms and make amendments to the tender documentation. During the second stage the accepted participants provide their final tender bids with price quotations. The rest is regulated by the rules of open tendering.

22 When and how may the competitive dialogue procedure be used? Is it used in practice in your jurisdiction?

The two-stage procurement procedure in Ukraine is regarded as adequate for the competitive dialogue under EU legislation. This procedure is undertaken when a contracting authority cannot identify or compile a list of goods (works, services) to be procured or when all bids submitted do not meet the tender requirements; in this case preliminary negotiations are necessary to reach an optimal decision on the procurement and to define the means best suited to satisfy the requirements.

23 What are the requirements for the conclusion of a framework agreement?

The conclusion of a framework contract is not specifically regulated by the current legislation.

24 May a framework agreement with several suppliers be concluded? If yes, does the award of a contract under the framework agreement require an additional competitive procedure?

See question 23.

25 Under which conditions may the members of a bidding consortium be changed in the course of a procurement procedure?

There are no specific requirements as to this issue.

26 Are unduly burdensome or risky requirements in tender specifications prohibited?

Provisions on tender documentation state that necessary and relevant technical and quality characteristics, a detailed description of the subject, technical requirements, references to standard characteristics, experience in relevant area etc, of the subject to be procured be included. No reservations regarding 'burdensome or risky requirements' are mentioned.

27 What are the legal limitations on the discretion of contracting authorities in assessing the qualifications of tenderers?

The qualifications of tenderers shall be assessed by a contracting authority on the basis of qualification criteria and bid evaluation tactics as indicated in the tender documentation. For estimation of tender bids, relevant expert organisations or separate experts may be engaged whose recommendations may be used when determining the winner of a procurement procedure. Article 28 gives a list of criteria that must be used while assessing the qualifications. For procurement of goods, works and services, which are supplied not on the basis of a specially developed technical project, and for which a constant market exists, the criteria in assessing is price. For certain complex procurements (for example consultancy, scientific research, experiments) it is price together with other criteria, such as quality, terms of payment, terms of performance, after-sales service, operating costs, transferring of the technology and training of administrative, scientific and operating personnel including the use of local resources, which are proposed by the bidder. Article 28 also states that if criteria other than price are being used for determining the best tender bid, the value equivalent thereof is to be specified in the tender documentation. Consideration of price shall constitute not less than 50 per cent.

28 Are there specific mechanisms to further the participation of small and medium enterprises in the procurement procedure?

There are no specific mechanisms for small and medium enterprises.

29 What are the requirements for the admissibility of alternative bids?

According to article 25 of the Law every bidder is entitled to submit only one bid per lot.

30 Must a contracting authority take alternative bids into account?

See question 29.

31 What are the consequences if bidders change the tender specifications or submit their own standard terms of business?

Tender bids must be submitted in accordance with the requirements of tender documentation. Bidders have a right to change their tender bids until the term allocated for filing thereof ends. Such amendments may be considered by a contracting authority if received before the end of the term for filing tender bids. If any tender bids do not correspond to the specified qualification requirements, a contracting authority is obliged to decline the non-compliant tender bids and notify the participant within seven calendar days.

32 What are the award criteria provided for in the relevant legislation?

A contracting authority shall accept a tender bid that is found to be the best and best suited to satisfy its needs as a result of assessment undertaken in accordance with the tender documentation. For the list of criteria see question 27.

33 What constitutes an 'abnormally low' bid?

The current legislation does not define this particular term, but in the case of an 'abnormally low' bid, anti-competitive collusion aimed at distorting the results of the tender may be inferred.

34 What is the required process for dealing with abnormally low bids?

Not relevant in this jurisdiction.

35 How can a bidder that would have to be excluded from a tender procedure because of past irregularities regain the status of a suitable and reliable bidder? Is the concept of 'self-cleaning' an established and recognised way of regaining suitability and reliability?

Registers of unfair competitors are not maintained under the current legislation so bidders with past irregularities cannot be determined. At the same time, pursuant to article 17 of the Law, a contracting authority shall reject the proposal of a bidder if it (as a natural person) or its officers have an outstanding conviction for a crime, which is connected to the procurement procedure, or for any other lucrative crimes. Hence, in order to be eligible to bid, the bidder must be discharged or released from the conviction in the order established by law.

REVIEW PROCEEDINGS AND JUDICIAL PROCEEDINGS

36 Which authorities may rule on review applications? Is it possible to appeal against review decisions and, if so, how?

The current legislation enables the tender results to be challenged by filing an according complaint with:

  • the purchaser;
  • the Antimonopoly Committee of Ukraine (AMC), which has special authority in the public procurement sector; or
  • the court.

Upon receiving a complaint, the purchaser may voluntarily rectify the issues regarding the procurement procedure, including a temporary suspension of the tender.

Complaints regarding public procurements are reviewed in the AMC by a dedicated administrative panel. The conclusion of procurement contracts during the review of the complaint in the AMC is forbidden. Following the review, the AMC may oblige the purchaser to cancel the tender results entirely or partially, provide documents, remove discriminatory terms, etc.

The AMC decisions may be appealed to the Kiev district administrative court. Disputes regarding the procurement contracts may also be submitted to court. The court may rule to cancel the tender results and invalidate the procurement contract.

It should be mentioned that only tender participants and third parties whose rights and interests are directly affected by the purchaser's decision are entitled to file a complaint, regardless of where the complaint is filed.

37 How long does an administrative review proceeding or judicial proceeding for review take?

If a complaint is submitted to the AMC, according to article 18 it has to adopt a decision within 30 working days from the moment of receiving the complaint. It is also stated that the moment of the receipt is defined by the moment of registration of such a complaint by the AMC. As regards court reviews of a complaint, it takes approximately two to four months in the court of first instance, and up to three months in the appellate and cassation court.

38 What are the admissibility requirements?

Two types of review applications may be distinguished: those filed before conclusion of the contract and those contesting the tender results. Each tenderer that believes it has suffered or is likely to suffer losses caused by violation of procurement procedure by the contracting authority may contest such acts. Violation of the rules of tender procedures, resolutions passed, acts or omissions of the contracting authority are contested by the tenderers. Exempt from such review are the choice of procedure made by a participant and the decision of a contracting authority to decline all tender bids.

The three major areas allowing judicial review comprise breach of the rules of procurement procedure by the contracting authority, violation of competition law (discrimination against participants) and non-compliance of tender documentation with legal requirements, the last being the most common ground of objection (eg, omission of essential terms in the tender documentation).

Referring to review in a judicial proceeding, it is important that violated rights and interests and the relevant provisions of the law should be specifically articulated, along with the causal relationship between particular violations of procurement procedure. It is also important that unlawful decisions made by the contracting authorities be expressly indicated.

39 What are the deadlines for a review application and an appeal?

An application for review before conclusion of the contract shall be filed within 14 days from the day on which the subject received a message about a relevant decision or act of the purchaser, which violates his rights, or from the day on which he became (or ought to have been) aware of his rights being violated. Complaints about tender documentation can be submitted in any term, but no later than the last day for submitting bids. Decisions of the AMC or purchaser can be appealed to the court within one month from the day when the decision was delivered or the interested party found out about the decision.

40 Does an application for review have an automatic suspensive effect blocking the continuation of the procurement procedure or the conclusion of the contract?

According to article 18 of the Law an application for a review does not suspend the procurement procedure, but the AMC may adopt such a decision. The AMC can do it on its own initiative or upon receiving a relevant application from the complainant. However it should be noted that conclusion of procurement contracts during the review of the complaint in the AMC is forbidden in any case.

41 Must unsuccessful bidders be notified before the contract with the successful bidder is concluded and, if so, when?

Under article 29 of the Law, a contracting authority shall notify all unsuccessful bidders in writing within three working days of the tendering results, with indications of the grounds for rejection of their proposals.

42 Is access to the procurement file granted to an applicant?

A contracting authority shall send or provide tender documentation to a participant free of charge within three working days from the day an application for provision of necessary documents is received.

43 Is it customary for disadvantaged bidders to file review applications?

The number of review applications lodged has substantially increased in recent times. Subject to frequent objections are government procurement procedures in the coal industry, purchase of computer and office equipment, furniture, medical equipment, etc. However, the number of applications sustained remains at a very low level, and 20 to 35 per cent of complaints are not admitted at all.

44 May a concluded contract be cancelled or terminated following a review application of an unsuccessful bidder if the procurement procedure that led to its conclusion violated procurement law?

Judicial practice proves that an existing contract may be terminated by a court decision if a suit challenging the procurement procedure in question is lodged and finally upheld.

45 Is legal protection available to parties interested in the contract in case of an award without any procurement procedure?

Legal protection in this case resembles that in the instance above (question 44). Specifically, control of procedures is exercised by the authorised entity, the Ministry of Economic Development and Trade, and the State Treasury. The latter performs its functions by maintaining a record of data on government procedures, conducted by verifying that the existing procurement contracts comply with the relevant reports on the results of the procurement procedures undertaken. In practice, the State Treasury ascertains whether the procurement contracts are concluded in accordance with the Law; if not, it decides that the payments should not be allowed.

46 If a violation of procurement law is established in an administrative or judicial review proceeding, can disadvantaged bidders claim damages? If yes, please specify the requirements for such claims.

There are general rules on damages compensation that may also be applicable. These rules are prescribed by the Civil Code of Ukraine, according to which a person or entity who suffered damage may apply to the court for remedies. Reimbursement of lost profit is also possible under national legislation. However, it should be noted that there is very little relevant practice relating to reimbursement of damages and lost profit caused by violation of procurement law, therefore such claims do not seem to be successful.

It should be noted that the Law also establishes the responsibility of tender committee members for procurement law violation. Therefore, an interested party whose rights or interests were harmed by such violation may appeal to law enforcement authorities in order to make perpetrators accountable.

Update and trends

During the period from March 2012 to date the core legislative act on public procurements was amended 10 times. There are also a few amendments that are at different stages in the parliamentary procedure, some of which are discussed in this chapter. Thus the area of public procurements in Ukraine is dynamic and subject to permanent review. The major trend in this period was the reduction in the scope of application of the Law on Public Procurement, resulting in the exclusion of participants in some industry sectors from legal regulation. Thus procurements being made by universities and research institutes at their own expense were excluded from the scope of the Law, as well as procurements of natural gas and related services being made by NJSC, Naftogaz of Ukraine, at its own expense.

In addition, according to recent amendments, customers of procurements regulated by the Law are not obliged to submit an annual plan with amendments to an authorised body and to the State Treasury Service of Ukraine, and are not obliged to publish it on their website or on the website of the main public accounts managing body.

In recent years also the scope of application of the single participant tendering procedure has increased. However, open tendering remains the prevailing procedure in public procurements.

Taking into account the content of draft laws that are under consideration it may be inferred that in the near future the legislature will amend the public procurement tender procedure to make it more transparent and to ensure competitiveness during tender. It is also possible that the requirements for participants may become stricter.

Originally published by Getting the Deal Through – Public Procurement 2013, by Law Business Research Ltd.

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