The International Comparative Legal Guide To: Public Procurement 2013 - 5th Edition - Government Contracts, Procurement & PPP

Originally published in The International Comparative Legal Guide to: Public Procurement 2013

1 Relevant Legislation

1.1 What is the relevant legislation and in outline what does each piece of legislation cover?

The principal legislative act regulating public procurement in Ukraine is the Law on Public Procurement, effective from July 30, 2010, which covers the entire scope of issues related to public procurement, including the procedures, framework agreements, dynamic procurement systems, sector procurements, remedies, etc. Within the last year, the Law on Public Procurement was amended several times and some significant changes in regulation were introduced.

1.2 Are there other areas of national law, such as government transparency rules, that are relevant to public procurement?

No, there are not.

1.3 How does the regime relate to supra-national regimes including the GPA, EU rules and other international agreements?

Generally, all international treaties ratified by Ukraine are considered to be a part of the national legislation and have priority over national laws in case of conflict. Even though Ukraine is a member of the WTO, it still holds an observer status for the GPA and thus is not subject to the GPA. However, because the Law on Public Procurement was developed in an effort to adapt the national legislation to the WTO requirements, compliance with the GPA has also been considered. The Law contains no discriminatory or protective provisions and includes anti-corruption clauses specially tailored to the economic environment in Ukraine.

Compared to the GPA, where open, selective and limited tendering procedures are specified, the Law distinguishes open tendering, two-stage tendering, price bidding (quoting), preliminary qualifications and procurements from a single bidder. Also, while financial guarantees constitute mandatory elements of the tender documentation under the GPA, requiring such guarantees from the bidder in Ukraine is left to the discretion of the purchaser. The procedures for procurements funded under international treaties by loans from the International Bank for Reconstruction and Development (IBRD), the International Finance Corporation (IFC), the Multilateral Investment Guarantee Agency (MIGA), the International Development Association (IDA), the European Bank for Reconstruction and Development (EBRD), the European Investment Bank (EIB) and the Nordic Investment Bank (NIB), and other international financial institutions are governed by the rules adopted by these institutions, or in the absence of such rules - by the mentioned Law on Public Procurement.

1.4 What are the basic underlying principles of the regime (e.g. value for money, equal treatment, transparency) and are these principles relevant to the interpretation of the legislation?

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, and prevention of corruption and abuse.

1.5 Are there special rules in relation to defence procurement or any other area?

The Law on Public Procurement contains exceptions for its applicability. Furthermore, within the last year, the list of exceptions from the applicability of the Law on Public Procurement has been significantly extended and thus includes procurement exceptions such as:

design and manufacturing of banknotes, state awards and other types of paper containing security features, coins, their storage, transportation and accounting;
services required for bank operations of state banks and banks containing state capital;
goods and services carried out by a purchaser outside of Ukraine (e.g. a diplomatic mission);
goods and services subject to a state secret;
services required for the operation, maintenance and repayment of the state debt;
goods and services required for running elections and referendums;
electrical energy, its supply, transmission and distribution; goods, works and services that are procured with the aim of implementation of the programmes of the Global Fund to Fight AIDS, tuberculosis and malaria in Ukraine, performed according to the law;
goods and services connected with the operations of the National Bank of Ukraine on the provision of management of gold and forex reserves, their placement, purchase and sale in the secondary securities market, and currency intervention by purchasing and selling currency values on currency markets;
leasing services for non-residential premises, which have state or communal ownership, meant for housing budget institutions;
legal services connected with the protection of rights and interests of the state in foreign jurisdiction authorities in the processes of dispute resolution, involving Ukraine and foreign entities;
objects of governmental price control and services, which are purchased by the Agrarian Fund in accordance with Ukrainian legislation;
goods, which are purchased by the State Agency of Reserve of Ukraine and its affiliated enterprises, in the way of concluding agreements exclusively on the stock exchange in the order prescribed by the legislation and approved by the Cabinet of Ministers;
goods, which are procured by a budgetary funds administrator (trustee) in accordance with the Law On State Material Reserve, on the terms defined by the Cabinet of Ministers;
services on air transportation of persons to whom the public security is applicable under Articles 5 and 6 of the Law On State Protection of the Government of Ukraine and Officials; works concerning demolition of arbitrarily constructed objects, according to Article 38 of the Law of Ukraine on regulation of urban planning activities;
services concerning standardisation in construction; goods, works and services procured by universities and research institutions through own earnings;
gas and services concerning its transportation, distribution, supply, storage, financial instruments, transactions with derivatives and risk management, exchanges, auctions and other services used in international trade and finance practice concerning gas;
services concerning training of the scientific and educational workforce, and its retraining in accordance with the state demands;
purchase, lease of land, buildings or other immovable property or property rights for land, buildings, and other real estate;
services of arbitrators, or arbitration tribunals for the settlement of disputes, where the customer is a party; goods and services purchased directly for touring events of performers or creative teams, as well as cultural and tourist activities and festivals, which are of socio-political, cultural or historical importance;
feed for circus animals;
goods and services necessary for the creation of new stagings (concerts), manufacturing of film materials or audiovisual works;
various kinds of services concerning organisation and carrying out of training camps, sporting events and activities of a national and international level, and/or medical and pharmaceutical support for the national teams of Ukraine; financial services procured in connection with the issue, purchase, sale, or transfer of securities or other financial instruments;
educational services provided by foreign universities and research institutions for students, graduate students, or research and scientific employees abroad;
services concerning scientific or scientific-technical activities, funded on a competitive basis in the way specified in Article 34 of the Law of Ukraine on the scientific and scientific-technical activities; and
goods and services procured by the Deposit Guarantee Fund of Ukraine.

The Law on Public Procurement also defines strategic areas where procurement procedures are governed by separate laws. Some of them are:

1) Public procurement carried out by legal entities in the following areas:

production, transportation and supply of heat energy;
production, transmission and supply of electric energy;
production, transportation and supply of drinking water;
operation of a centralised water draining system; railway public services;
electric public transport services and operation of its facilities;
operation of service stations, ports and airports;
air navigation services for aircraft; postal services;
geological study (including research and mining) for oil and gas, coal deposits and other types of solid fuels; and
transportation, storage, refining of the petroleum and crude.

2) Public procurement concerned with the purchase of the following goods and services:

non-irradiated fuel elements (cartridges) for nuclear reactors;
crude oil and its derivatives;
electricity, including its transportation and distribution;
centralised heat power supply;
natural and oil gas, including its transportation, distribution and supply;
postal services;
telecommunications, including radio and television rebroadcasting (excluding mobile communications and Internet providers);
services of international financial institutions associated with the involvement of credits (loans);
services of training, research, teaching and working personnel, training and retraining (continuing education) on public order;
education services provided by foreign institutions outside Ukraine;
centralised water supply and drainage; and
maintenance of public amenities.

The Law of Ukraine on Public Procurement does not apply to the procurement of goods and services by enterprises of a militaryindustrial complex.

2 Application of the Law to Entities and Contracts

2.1 Which public entities are covered by the law (as purchasers)?

The Law concerns state bodies, including those of the Autonomous Republic of Crimea, bodies of local self-government, and other bodies, institutions and organisations defined by the Constitution and relevant laws.

The Law also applies to:

corporations, institutions and organisations founded by the mentioned public entities under special legislative or executive acts;
corporations with 50% or more stock owned by the state, other public entities, or other state corporations, institutions and organisations;
corporations with 50% or more stock owned by other corporations, which in their turn contain 50% or more stateowned stock; and
an association of such corporations.

It should be mentioned that the Law on Public Procurement will only be applicable to the aforesaid corporations or entities if procurement is entirely or partially funded by the state.

2.2 Which private entities are covered by the law (as purchasers)?

This is not prescribed in Ukraine.

2.3 Which types of contracts are covered?

The law concerns all types of procurement contracts where the purchaser is an entity mentioned in question 2.1, and all other contracts entirely or partially funded by the state. Exceptions are contracts related to areas mentioned in question 1.5.

2.4 Are there financial thresholds for determining individual contract coverage?

The Law applies to procurements where the price of goods and services amounts to or exceeds UAH 100,000.00 (in construction - UAH 300,000.00), or the price of work amounts to or exceeds UAH 1 million.

2.5 Are there aggregation and/or anti-avoidance rules?

It is prohibited to conclude state-funded contracts in circumvention of the public procurement procedure, with exceptions set forth by the Law. It is also prohibited to artificially subdivide the contract in order to avoid the procedure. Additionally, such contracts may be invalidated through court by interested parties or state bodies.

2.6 Are there special rules for concession contracts and, if so, how are such contracts defined?

Procurements within a public-private partnership, including those under concession contracts, are subject to the general public procurement procedure.

3 Award Procedures

3.1 What types of award procedures are available? Please specify the main stages of each procedure and whether there is a free choice amongst them.

Procurements may be carried out through:

open tendering;
two-stage tendering;
price bidding (quoting);
preliminary qualifications;
procurements from a single bidder; and
electronic reverse auction.

Open tendering is the most common procedure for public procurements. Any interested party may become a bidder. Notices on all upcoming tenders are published in a dedicated newspaper on public procurement and are also made available on the public procurement section of the Ministry of Economy's official website. Following the official publication, every prospective bidder is entitled to receive a free copy of the tender specification. Tender specifications may require the bidder to provide a tender guarantee. Tender bids must be submitted in writing and signed by the bidder. Each bidder may submit only one bid per lot. Submitted bids are opened after the deadline in the place and time specified in the published tender notice. All bidders and their authorised representatives are allowed to be present at the tender opening, which is then documented into a separate report. The purchaser then decides on the winning bidder from the number of bidders whose bids were not rejected under the provisions of the Law on Public Procurement (at least two), considering the criteria and evaluation methods set out in the tender specification. The purchaser must accept the offer of the winning bidder and conclude a relevant procurement contract on the day the winning bidder is determined.

A two-stage tender takes place when: (i) the purchaser is unable to determine the exact technical specifications or type of goods (services) to be procured and an optimal decision requires preliminary negotiations with the bidders; and (ii) the procurement concerns scientific research, experiments, complex design, development or construction.

In the first stage, bidders are required to submit preliminary bids without price quotations. In the second stage, the purchaser invites bidders (at least two), whose preliminary bids were not rejected under the general requirements, to submit a final bid with the price quotation.

Procurements through price bidding (quoting) are carried out for goods (services) with a constantly active market, provided that the total price does not exceed UAH 200,000.00 (approx. EUR 20,000.00). The purchaser sends out price inquiries to at least three bidders. The bidder whose proposal meets the purchaser's requirements and offers the best value for money is awarded the contract.

Preliminary qualifications take place when the procurement requires a preliminary evaluation (qualification) of the bidders regarding their financial, technical and organisational capacity. Bidders who have met all qualification requirements are entitled to participate in the next stage, typically an open tender.

Procurements from a single bidder is an exceptional procedure which takes place upon approval of the Ministry of Economy and after successful prior negotiations with the bidder in cases where: the procurement concerns works of art or protection of IP rights;

the procurement is carried out with a winner of an architectural or art contest;
the procurement concerns services for scientific-research, and scientific and technical design activities that underwent competitive selection under the procedure set out by the Cabinet of Ministers of Ukraine;
there is a monopoly on the goods (services) to be procured; there is an urgent need in the goods (services) connected with specific economical and social circumstances, including cases where they are immediately required to mitigate the consequences of industrial accidents, acts of God, etc.;
there is a need to conduct some additional construction works, not included in the initial project, but crucial for the performance of the initial project, provided that the contract will be awarded to the initial executor of the works, if such work is technically or economically linked to the main contract;
the purchaser has previously cancelled the tender due to the insufficient number of bidders;
there is a need to carry out an additional procurement from the same bidder in order to unify and provide compatibility with goods, technologies, works or services already purchased, if the substitution of the previous supplier may lead to incompatibility or other technical problems;
the procurement concerns goods on stock exchanges; the procurement concerns goods in case of business activity termination, including bankruptcy; and
there was a cancellation of the results of the electronic reverse auction, which was conducted in the way established by the Law of Ukraine on Public Procurement for the second time.

Electronic reverse auction is a new procedure established by the recent Law of Ukraine on Amendments to the Law of Ukraine on Public Procurement (on the introduction of a system of electronic public procurement). The Law introduces the brand new procedure of procurement in electronic form, which involves open bidding in the auction by the method of price reduction. Such bidding is performed on the special electronic site on the Internet operated by the authorised operator and involves usage of the digital signature of the contract (lot).

Given the results of the electronic reverse auction, the customer signs a purchase agreement with the party who offered the lowest price (within the fixed minimum) or (in cases established by the Law) with another participant.

The procedure of electronic reverse auction shall be applied when a client performs public procurement in respect of goods and services included in a list approved by the CMU, provided that the expected value of the purchase of such goods or services amounts to or exceeds UAH 100,000.00 (in construction - UAH 300,000.00), and the value of works amounts to or exceeds UAH 1 million.

3.2 What are the minimum timescales?

The period for review, evaluation and determination of the winning bidder should not exceed 20 business days following the tender opening.

In case of a shorter procurement, the period for review, evaluation and determination of the winning bidder should not exceed 10 business days following the tender opening.

3.3 What are the rules on excluding/short-listing tendeers?

A bidder is denied participation in the tender (preliminary qualification) and his bid is rejected by the purchaser if:

1. the purchaser has sufficient proof that the bidder has offered, promised or implied that it will reward any of the purchaser's officials or a public officer in any way (i.e., with gifts, valuable objects, job proposals, offers of services, etc.) in order to influence the results of the tender;

2. the bidder is found to conspire with another bidder;

3. the bidder has been lawfully held liable for acts of corruption in the area of public procurement;

4. the individual or official behind the bidder has been lawfully prosecuted for a crime in the area of public procurement or for other lucrative crimes;

5. the bidder is found to be an associate of another bidder;

6. the bidder has not submitted proof of his legal capacity to conclude the contract; or

7. the bidder has been declared bankrupt or is under liquidation procedures.

Bids may also be rejected by the purchaser if the bidder has overdue tax obligations or operates his business in contradiction to the provisions of his charter.

Short-listing is used in two-stage tendering and preliminary qualifications.

3.4 What are the rules on evaluation of tenders?

The purchaser determines the winning bidder from the number of bidders whose bids were not excluded in accordance of the Law (at least three), based on criteria and methods of evaluation determined in the tender specifications. Such criteria are:

1. in the case of the procurement of goods, works, or services, which are produced or performed upon specifications that are not separately developed, and there is a permanent market for such goods, works, or services: price; and

2. in the case of a procurement which has a complicated or special nature (such as expert research, experiments or development, etc.): price and other criteria, such as:

quality of performance of works and services;
terms of payment;
period of performance;
warranty service;
operating costs; and
the transfer of technologies and the training of management, scientific and production personnel, including the use of local recourses, for the performance of services and production of goods, which are the subject of the bid.

3.5 What are the rules on awarding the contract?

A procurement contract is concluded in written form, in accordance with the civil legislation and the model (template) contract adopted by the Ministry of Economy. The terms of the concluded procurement contract and the actual performance of the procurement should not derogate from the final terms of the tender specification.

A procurement contract should include the following essential provisions: the description of the goods (services), their quality and quantity; the contract price and payment conditions; the rights and duties of the parties; delivery terms and destination; liability; and the contract term and conditions for decreasing the procurement volume and/or price. The contract is deemed ineffective if the parties have not reached an agreement on all the essential provisions.

3.6 What are the rules on debriefing unsuccessful bidders?

If a bidder was denied participation in the tender or a bid was rejected, the purchaser is obliged to send a notice regarding the denial, indicating the reasons for the denial, to the bidder within three working days from the date of such decision. Likewise, the purchaser is obliged to ensure the privacy of information provided by participants during the entire procurement period.

The notices on tender results are published in a dedicated newspaper on public procurement and are also made available on the public procurement section of the Ministry of Economy's official website. Following the official publication, every prospective bidder is entitled to receive a free copy of the tender specification.

3.7 What methods are available for joint procurements?

Joint procurement in Ukraine is performed through concluding framework contracts in the order determined for procurements carried out through open tendering, two-stage tendering, and preliminary qualifications.

The features of the framework agreements, the order for determining the principal purchasers and the cooperation between the principal purchaser and the other purchasers is determined by the Cabinet of Ministers.

A framework agreement should be concluded between a few purchasers (at least three).

The notice on all upcoming tenders under a framework agreement should specify:

the period of agreement, which cannot exceed 4 years;
the number of participants; and
the names and addresses of the purchasers.

The purchaser evaluates bids and determines the winning bidder on the basis of criteria, determined in the framework agreement, considering special requirements to the procured item, which can also be determined in the bidder invitation.

3.8 What are the rules on alternative bids?

As mentioned in question 3.1, each bidder may submit only one bid per lot.

4 Exclusions and Exemptions (including inhouse arrangements)

4.1 What are the principal exclusions/exemptions and who determines their application?

The exclusions/exemptions as to the procedure of public procurement, the applicability of the Law on Public Procurement and the areas in which public procurement is regulated by separate laws, are set out in the Law on Public Procurement itself, as mentioned in question 1.5.

4.2 How does the law apply to "in-house" arrangements, including contracts awarded within a single entity, within groups and between public bodies?

The current legislation does not directly set exemptions under the Law on Public Procurement for in-house arrangements, i.e. contracts between public bodies (the Teckal principle).

5 Remedies and Enforcement

5.1 Does the legislation provide for remedies/enforcement measures and if so what is the general outline of this?

The existing legislation enables the tender results to be challenged by filing an according complaint with (1) the purchaser, (2) the Antimonopoly Committee of Ukraine (the AMC has special authority in the public procurement sector), or (3) the court.

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

2. 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.

3. The AMC decisions may be appealed to the 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 (violated) by the purchaser's decision are entitled to file a complaint, regardless of where the complaint is filed.

5.2 Can remedies/enforcement be sought in other types of proceedings or applications outside the legislation?

The invalidation of a contract (a procurement contract in this case) is a general remedy available under Ukrainian civil law, while the possibility to set aside acts and decisions of public bodies (the AMC in this case) is a general remedy available under the Ukrainian law on administrative procedure. A remedy in the form of placing a party under an obligation to act in a particular way (refrain from certain actions) is available both under Ukrainian civil and administrative procedural laws.

5.3 Before which body or bodies can remedies/enforcement be sought?

Please see question 5.1.

5.4 What are the limitation periods for applying for remedies/enforcement?

A complaint may be filed with the AMC within 14 days following the purchaser's decision or action in violation of the complainant's rights or the day the complainant found his rights to be violated. If a complaint regarding the tender is filed with the purchaser or the AMC, the resulting decision may be appealed to the court within 30 days following such decision and this term may not be extended.

5.5 What remedies are available after contract signature?

Complaints regarding the conclusion and performance of a procurement contract are reviewed in court. The claimant may invalidate the contract or enjoy other contractual remedies provided by Ukrainian civil law.

5.6 What is the likely timescale if an application for remedies/enforcement is made?

The AMC is supposed to render a decision within 30 days from receiving a complaint. As regards court reviews of a complaint, it takes approximately 2-4 months in the court of 1st instance, and up to 3 months in the appellate and cassation court.

5.7 Is there a culture of enforcement either by public or private bodies?

Petitions regarding tenders are a daily event and most tenders, particularly large or significant ones, reach the courts. Apart from exceptional cases, petitions are always filed by interested private entities rather than by a public or other petitioner.

5.8 What are the leading examples of cases in which remedies/enforcement measures have been obtained?

The most common are cases on the cancellation of the tender results and invalidation of the resulting procurement contracts. The courts have frequently denied complaints which included a request for a remedy not provided for by the law (e.g. a request to declare a tender as not having been carried out) or did not contain sufficient proof that the complainant's rights had been violated. The AMC frequently deals with cases of anticompetitive collusion between tender participants.

5.9 What mitigation measures, if any, are available to contracting authorities?

Open tendering specifications may require the bidder to provide a tender guarantee. Such requirement should be indicated in notices on all upcoming tenders and in tender specifications.

If the tender guarantee is required, the tender specifications should contain conditions and essential terms of such guarantee, including the amount, sort, validation period and the reservations on the cases when the tender guarantee will not be returned to the bidder.

The amount of a tender guarantee shall not exceed:

1% of the expected procurement contract price in case of works procurement; and
5% of the expected procurement contract price in case of goods or services procurement.

A tender guarantee will not be returned to the bidder in the following cases:

withdrawal of a bid by the bidder after the expiry of its submission term;
the winning bidder failed to sign the procurement contract;
the winning bidder failed to provide a guarantee of the contract performance after accepting the bid, if it was determined in tender specifications; and
the winner of the bidding procedure failed to ensure the procurement contract implementation after accepting his bid, if the granting of such guarantee is included in the bidding documentation.

The purchaser is obliged to return the tender guarantee to the bidder in the following cases:

expiration of the tender guarantee period, determined in the tender specifications;
procurement contract conclusion with the winning bidder; withdrawal of a bid by the bidder before the expiry of its submission term; and
completion of the procurement, in case the procurement contract has been signed with none of the bidders.

6 Changes During a Procedure and After a Procedure

6.1 Does the legislation govern changes to contract specifications, changes to the timetable, changes to contract conditions (including extensions) pre-contract signature? If not, what are the underlying principles governing these issues?

The purchaser may amend the tender specification on conditions set forth in the Law on Public Procurement. The bidder may also amend their bids at any time until the deadline for the bid submissions. The 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.

6.2 To what extent are changes permitted post-contract signature?

The essential provisions of a procurement contract should not be changed, until the parties thereto fulfill their obligations, except for cases of:

a decrease of the procurement volume or price;
a price change of less than 10 percent per unit in case of price fluctuation for such goods on the market, on the condition that such change will not increase the amount specified in the contract and will occur not earlier than three months after its conclusion;
improvements of the procurement quality, on condition that such improvements will not increase the amount specified in the contract; and
extension of the contract duration and the performance of obligations in case such extension is justified.

7 Privatisations and PPPs

7.1 Are there special rules in relation to privatisations and what are the principal issues that arise in relation to them?

Privatisation procedures are set out in the Law on Privatisation of State Property, which prescribes that privatisation objects may be sold through auctions, tendering procedures and the stock exchange, in accordance with guidelines adopted by the State Property Fund, the Antimonopoly Committee and the Securities and Exchange Commission.

7.2 Are there special rules in relation to PPPs and what are the principal issues that arise in relation to them?

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

Ukraine: The International Comparative Legal Guide To: Public Procurement 2013 - 5th Edition