From this article you will understand how tenders in Ukraine work, how tenders on road construction and repair are held, how non-Ukrainian companies can participate, what are the prices for road repairs, how much the Ukrainian government expects to invest in road construction, the milestones of UA infrastructure tenders and what mistakes are frequent during preparation for participation in UA tenders.
In spring 2019 the President of Ukraine announced the launch of the "Big Construction" state infrastructure project focusing on construction and repair of roads throughout Ukraine. During 2020 major Turkish companies entered Ukrainian market to participate in tenders on different types of construction and repair services. Recently the UKRAVTODOR reported that 4 056,6 km of Ukrainian national roads have already been repaired under the Big Construction1.
The newly adopted State Budget of Ukraine reveals, that during 2021 Ukraine plans to spend approximately UAH 64 billion on Ukrainian automobile road network and UAH 4.5 billion on State Fund of Regional Development (which administers funds for regional infrastructure projects)2. In addition, the Ministry of Finance of Ukraine reported, that as of the end of October 2020, UAH 16.3 billion of COVID-19 Response Fund were spent for road construction and repair, which leaves UAH 18.7 billion to spend for further infrastructure projects3.
Such infrastructure boom presents construction business with an opportunity to gain profits while Ukraine improves its infrastructure throughout the whole state.
GENERAL SEQUENCE OF INFRASTRUCTURE CONSTRUCTION TENDERS
The most common form of infrastructure construction tender ("ICT") from state bodies is the "open bidding". The interested state body ("Client") announces information in English about planned tender on online platform https://prozorro.gov.ua/en, which provides free access to all the interested parties. Such announcement includes:
- Location and other information about a road (its part), bridge or another infrastructure object to be constructed / repaired;
- Expected price of work;
- Timeframe of work delivery;
- Final date of application with participant's tender offer;
- Terms of payment;
- Amount of security payment and its terms;
- Tender documentation;
- Minimum step of lowering the price during auction;
Any interested party including non-Ukrainian companies may participate in open bidding by submitting its' tender offers and follow certain instructions.
FORMS OF PARTICIPATION
In case a company possesses means to execute tender works solely or with sub-contractor(s), it can apply with scans of its incorporation documents. For non-resident companies legalization of documents is necessary. In case the company is willing to use a sub-contractor, who is expected to receive at least 20% of price of a tender agreement, the company shall also indicate information about such sub-contractor in its tender offer4.
As for association of companies, non-resident company may participate in association with (a) another non-resident company(ies) or (b) with Ukrainian company.
Ukrainian law allows association of non-resident companies to participate in tenders without establishing a separate legal entity (usually in a form of consortium). In such case the tender offer of association shall include a document (agreement) proving an establishment of such association5.
On the other hand, participation in tender as association of non-resident and Ukrainian companies requires registration of a separate legal entity in Ukraine.
In any tenders all requirements for potential participants are listed in tender documentation ("TD"), which is published by the Client on the date of tender announcement. TD always includes an instruction for potential participants on how to prepare their tender offers.
In TD the Client may set one or few of the following qualification criteria for potential participants:
- Minimum set of necessary equipment, technical resources and technologies;
- Availability of workers of particular qualification with the necessary experience;
- Documented experience of execution of similar agreements (works);
- Financial capability to perform works under the tender.
- The TD also includes information on:
- final date of submitting a tender offer;
- minimum duration of tender offer (not less than 90 days from the final date of application with tender offer);
- tender offer language;
- amount and terms of security payment for participants;
- demand on revealing participant's subcontractor/co-performer, who is expected to earn not less than 20% of tender price;
- description and examples of acceptable mistakes in tender offer;
- another information the Client deems necessary to include.
In case a participant needs clarifications regarding TD, it can refer to the Client via its online cabinet. Respective questions may be submitted not later than 10 days before the end of the period of submitting a tender offer. The Client is obliged to refer with an answer within 3 days. In case the Client fails to answer within 3 days the system automatically suspends a tender until the Client publishes the answer.
Tender offer ("TO") is a set of documents and information, submitted by a participant in an online form via online platform where respective tender is held.
Usually, a potential participant has from 30 days up to few months to prepare and apply with its tender offer. Each participant may submit only one TO per tender6.
The TO should indicate a price offer, which cannot exceed the expected price, set by the Client.
In case the TO is submitted by the non-Ukrainian company, it should include legalized Ukrainian translation of all the documents, originally concluded in another language. This issue proves to be important as on practice many foreign participants make mistakes in translation creating mismatch between translated documents and TD requirements. Such mismatch may lead to disqualification due to document's incompliance with TD.
After a TO is submitted, the system will automatically reveal it on online platform and send a respective notification to the participant.
In case it is required by the TD, the TO shall include bank guarantee, proving participant made a security payment for participation in tender.
A participant may amend the submitted TO or withdraw it without losing its security payment before the end of the period of submitting tender offers.
ASPHALT BATCH ISSUES
ICT usually requires for a participant to provide a proof that he has access to a batch plant. It is made to be sure that the winner has access to asphalt mix to perform construction works properly.
Thus, in its TD the Client usually specifies three options for a choice of participant:
- having a batch plant in participant's ownership. In this case a participant along with his TO needs to provide scan copy of the document proving ownership of a batch plant;
- having rented or leased batch plant. In this case participant needs to provide scan copies of lease / rental agreement, act of acceptance and a confirmation letter from an owner;
- having supply of asphalt mix. In this case a company may participate in tender without a straight access to a batch plant. However, a participant needs to provide in his TO scan copies of asphalt mix supply agreement and guarantee letter from a supplier proving participant's capability to provide an uninterrupted supply of an asphalt mix.
Under Ukrainian legislation a batch plant should be certified according to the State Standards of Ukraine7,8.
Security Payment for Tender Offer
In ICT the Client may include obligation for participants to provide security for its tender offer. As a rule, such security should be made in a form of bank guarantee from a Ukrainian bank.
The amount of security payment shall not exceed 3% of expected price of work9. The proof of security payment (bank guarantee) should be submitted jointly with a tender offer.
In its TD the Client always specifies amount of such security and duration of its validity.
The security payment returns to participants after the end of its duration unless:
- participant withdraws its tender offer during its validity period;
- winning participant refuses to sign agreement with the Client after the end of an auction;
- winning participant fails to promptly provide information regarding absence of reasons for disqualification;
- winning participant fails to provide security payment for execution of agreement with the Client;
If a participant met all the requirements regarding security payment return, the Client informs the bank which issued a respective guarantee and security payment transfers back to a participant. Otherwise, security payment shall be transferred to the state/local budget.
Security Payment for Tender Agreement Execution
In case it is set in the TD, after the end of auction the winner shall make a security payment for future tender agreement. Such security payment shall also be made in a form of bank guarantee. Amount of security payment is set in TD, but in any case, it cannot exceed 5% of the price of a tender agreement10.
Such security payment shall be returned to the winner in case:
- the winner successfully executes the works under tender agreement; or
- the court decides that tender results or tender agreement are invalid and thus such security payment shall be returned;
- other terms of security payment return are set by the Client in a tender agreement.
After the time for submission of TOs has ended, all TO prices are automatically revealed.
The system automatically sets time and date of an auction and analyses the prices offered by participants. Before auction begins all offered prices are revealed from the lowest to the highest.
After all the TOs are appraised, the Client evaluates the most economically efficient TO and checks if it meets the TD requirements. In case such TO is inconsistent with the TD, the Client rejects it and moves to the next most economically efficient TO.
As soon as appraisal of TOs is finished, the system publishes protocol of review of each TO. In this protocol the Client reveals which TOs were rejected / approved for participation in an auction.
The system automatically sets time and date of auction, which cannot be earlier than 5 days from the day of publishing the protocol of review.
The procedure also foresees situation with abnormally low price. The participant who submitted an abnormally low price shall explain such abnormality within 1 business day from publishing the protocol of review. In case a participant cannot explain such price, the Clint rejects it's TO11.
The tender auction is held in three phases in real-time mode. Revealed price offers are placed from the highest to the lowest without mentioning names of participants. The highest price is the starting price. Before each following phase new starting price is set depending on the previous phase bidding.
During each phase each participant may lower its price only once. The minimum lowering step may be set in percent or monetary amount.
Each participant has access via his online cabinet to information regarding its price position, prices from the highest to the lowest without names of participants.
After the end of auction, the system automatically sends notification to the winner.
CONCLUDING TENDER AGREEMENT
After the winner is evaluated, appraised and checked for compliance with TD requirements, the Client publishes his decision on intention to conclude a tender agreement.
To give participants time to appeal the tender results (if needed), the tender agreement cannot be concluded within 10 days from the date of publishment of decision on intention to conclude a tender agreement, but not later than within 20 days after such publishing. In exceptional case this term may be exceeded up to 60 days.
If any of participants submits an appeal, the term for concluding a tender agreement shall be suspended until such appeal is resolved.
Before concluding a tender agreement, the winner shall provide the Client with the proof of authority to sign an agreement and copy of a license for execution of works under the agreement (if needed).
The terms of a tender agreement shall correspond to the content of TO.
The essential provisions of ICT agreement (price, subject of agreement and terms) cannot be changed after concluding an agreement unless, inter alia12:
- amount of public procurement is reduced;
- exceeding duration of agreement validity and duration of works is necessary and is properly documented;
- price shall be reduced due to market volatility or changes in taxes.
Information about such changes shall be published on the tender online platform.
Current Ukrainian tender legislation allows any company meeting TD requirements to participate in ICTs. Combined with a current focus of Ukrainian government on improvement of state infrastructure this provides opportunity for foreign companies to engage in ICTs, participate in a fair competition and gain profits. One of the most crucial things in order to succeed is a thorough preparation of documents and its' translation, which requires prior analysis of published TD requirements, current Ukrainian legislation and prompt reaction to competition.
1. Ukravtodor, "The Results of Construction and Repair of National Roads in 2020", Access Date: February 3, 2021, https://ukravtodor.gov.ua/press/news/rezultaty_budivnytstva_ta_remontiv_dorih_derzhavnoho_znachennia_u_2020_ rotsi.html
2. The Law of Ukraine "On State Budget of Ukraine on 2021", https://zakon.rada.gov.ua/laws/show/1082-20#Text
3. The Ministry of Finance of Ukraine, "More Than Half of the Total Amount has Already Been Spent from the COVID-19 Response Fund", Access Date: February 3, 2021, https://mof.gov.ua/en/news/z_fondu_borotbi_z_covid-19_uzhe_vitracheno_ponad_polovinu_koshtiv-2508.
4. Art. 22, p. 2, sub-p. 18 of the Law of Ukraine "On Public Procurement".
5. Art. 26, p. 10 of the Law of Ukraine "On Public Procurement".
6. Art. 10, p. 1, sub-p. 1 of the Law of Ukraine "On Public Procurement".
7. SSU B.V.2.7.-119:2011. Asphalt concrete mixes and road and airfield asphalt concrete mix. Technical specifications. National standard of Ukraine. Kyiv, Ukraine, 2012. http://ksv.do.am/GOST/DSTY_ALL/DSTU1/dstu_b_v.2.7-119-2011.pdf
8. SSU B.V.2.7.-127:2015. Asphalt concrete mix and stone mastic asphalt. Technical specifications. National standard of Ukraine. Kyiv, Ukraine, 2015. https://ukravtodor.gov.ua/4489/standarty_ta_normy/dstu_b_v_2_7-127_2015_sumishi_asfaltobetonni_i_asfaltobeton_shchebenevo-mastykovi__tekhnichni_umovy/dstu_b_v_2_7-127_2015.pdf
9. Art. 25, p. 1, sub-p. 3 of the Law of Ukraine "On Public Procurement".
10. Art. 27, p. 3 of the Law of Ukraine "On Public Procurement".
11. Art. 29, p. 14 of the Law of Ukraine "On Public Procurement".
12. Art. 41, p. 5 of the Law of Ukraine "On Public Procurement".
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.