Public Procurements in Ukraine: Highlights for Foreign Bidders
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Asters is a full-service independent national law firm that has maintained a strong presence in Ukraine since 1995. The firm provides efficient transactional legal advice and represents clients on a broad spectrum of matters arising in the course of doing business in Ukraine. Asters’ capability is based on one of the largest teams of professionals, including 14 partners and more than 60 attorneys.
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Asters is a holder of the 2012 Client Service Law Firm of the Year — Ukraine Award from Chambers Europe and also a two time holder of International Law Office Client Choice Award for Ukraine. The firm is highly recommended in Ukraine by major international reviews, including IFLR1000, Chambers Global and Chambers Europe, The Legal 500 and PLC Which Lawyer? Asters’ lawyers are distinguished by the world’s best peer review-based surveys such as Best Lawyers, Expert Guides, and Who’s Who Legal.
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The impressive volume of public procurement market and amounts of contracts awarded makes the public procurement market of Ukraine fairly attractive for both Ukrainian and foreign businesses. Over the first half of 2013, more than 68,000 contracts were awarded for a total amount of approximately UAH 117 billion (EUR 10.7 billion), more than a half of which has been awarded through bidding procedures. On Public Procurement Act of Ukraine of 1 June 2010 (the Public Procurement Act) provides for non-discriminatory treatment of foreign entities that participate in public procurement stating that “domestic and foreign participants participate in procurement procedures on equal terms”. Nevertheless, foreign companies are in no big hurry to enter this market, in particular, due to a lack of transparency in public procurement regulation and certain degree of favoritism shown by procuring entities with respect to some participants. Another important concern for potential participants is whether there are efficient legal remedies that could allow for a proper protection of the bidders’ rights and an efficient and prompt dispute resolution with procuring entity.
Public Procurement Sector
Foreign companies may participate in any of the following types of public procurement procedures:
1) Procurement made using public funds (funds from the state and local budgets and special purpose funds);
2) Procurement of entities operating in specific sectors made using public or private funds (such as those specified in Directive 2004/17/EC Coordinating the Procurement Procedures of Entities Operating in the Water, Energy, Transport and Postal Services Sectors of 31 March 2004, but broader).
In case of procurement made using public funds, public procurement procedures shall apply if the value of goods or services in question reaches UAH 100 million (App. EUR 9,200); UAH 300,000 (App. EUR 27,600) — in case of construction goods and services and UAH 1 million. (App. EUR 92,000) — in case of works.
As regards procurement at the own expense of entities operating in specific sectors, public procurement procedures shall apply if the value of goods or services procured reaches UAH 5 million (App. EUR 460,000) or UAH 10 million (App. EUR 920,000) — in case of works.
Types of Procedures
The Public Procurement Act provides for the following types of procurement procedures:
— open bidding (including framework agreements);
— two-stage bidding;
— request for price quotations;
— pre-qualification of participants;
— single-source procurement; and
— electronic reverse auction (not in place yet).
Over 54% of public procurement contracts are awarded via tender procedures, out of which 44% — via open bidding. It is worth noting that in practice open bidding is the most common public procurement procedure where foreign entities may effectively participate. However, framework agreements for up to 4 years are still rarely used as they have been in place for a short time. As for single-source procurement, this in the main concerns purchases from natural monopolies or companies enjoying exclusive or special rights.
Information on Procurement
Information on expected and held procurement procedures is publicly available. Under a general rule, a notice on open bidding should be posted on the website of the Authorized Entity (Ministry for Economic Development and Trade) no later than 30 days prior to the opening of submitted tenders (website address: https://tender.me.gov.ua/EDZFrontOffice/menu/en/interAnnounceSearch).
The notice in English shall be made in an international newsletter on public procurement of the Authorized Entity and on its website if the expected value of procurement exceeds:
— For goods: EUR 200,000;
— For services: EUR 300,000;
— For works: EUR 500,000.
The above website should also provide for the following data: plan of procurement contracts for each procuring entity in a current year, the decisions of the procuring entity and various announcements for participants.
A contract notice should contain, inter alia, the following information:
— works or services being procured, the name of procuring entity, its contacts;
— address where tender documentation can be obtained;
— address and deadline for submitting of bidding proposals;
— address, date and time for opening of tenders;
— money deposit for the bidding if so required by procuring entity (such deposit should not exceed 5% of the expected value of procured goods/services and 1% of procured works).
There is unrestricted access to notices and bidding documentation, which become available upon simple registration as a website user. However, since 2011, there is no obligation for a procuring entity to post bidding documentation in English and, therefore, potential foreign participants may miss some attractive procurement deals.
Among others a procuring entity may establish the following qualification requirements for participants:
— appropriate qualification and experience of employees;
— expertise in performing similar contracts;
— financial standing and absence of bankruptcy proceedings;
— availability of equipment and facilities, including own manufacturing capacities and/or service centers across Ukraine.
The last of the above-mentioned qualification criterion has been in place since 2013, however, in most cases, non-compliance with it does not prevent foreign companies from participating in procurement procedures. Procuring entities are not bound to establish such criterion in every single case and they often omit to detail this qualification requirement, especially given that both laws and enforcement practice are silent as to what standards “facilities” or “service centers” should meet. In practice, foreign businesses may ensure compliance with such qualification criterion at minimum costs by creating a small service center with one or two employees or a representative office with required facilities (e.g. office, warehouse, transport).
In addition to established qualification requirements procuring entities set a number of their own requirements. Due to obligation to reject any candidates that have previously violated public procurement laws and due to prohibition on participation of affiliates, the procuring entities often ask the candidates to provide various picces of evidence in this respect. Also, in many cases procuring entities may request certificates on the absence of tax liabilities, etc.
In practice participants may face difficulties with tender documentation. In this case it is better to address all the issues and queries directly to the procuring entity without any delays. Since normally tender proposals are thoroughly verified for compliance with qualification requirements any smallest or formal inconsistency may serve as a ground for rejection. Even if qualification requirements seem to be excessive, unjustified or impossible to fulfill by the candidate as required instead of hoping for “reasonableness” of the procuring entity it is advisable to ask the procuring entity to amend the requirements or to bring a claim in this respect to the Appellate Authority (the Antimonopoly Committee of Ukraine).
Remedies available to the participants of public procurement procedures are generally similar to those provided under EU Council Directive 89/665/EEC On the Coordination of the Laws, Regulations and Administrative Provisions Relating to the Application of Review Procedures to the Award of Public Supply and Public Works Contracts of 21 December 1989.
Any person whose rights and/or interests related to the public procurement procedure have been violated by actions (omissions) of the procuring entity can bring a claim against such actions (omissions) to the Appellate Authority within 14 days since the violation became known. However, claims in relation to bidding documentation may be filed no later than the bid submission deadline. Submission of a claim to the Appellate Authority is subject to a fee of approximately EUR 450 in case of procurement of goods and services, and EUR 1,370 — in case of procurement of works. The claims against procuring entities are reviewed by the Appellate Authority within 30 business days. The procedure is adversarial. In its decision the Appellate Authority may not go beyond the scope of the claim and the claimant may not add any new allegations to its claim.
Submission of a claim does not automatically suspend the procurement procedure, although the Appellate Authority has the right to suspend the procedure. In practice, during the review of claims regarding the competitive bidding documents only the disclosure of bidding proposals is suspended. Within the review period the procuring entity may not enter into any contracts, which shall be considered null and void. As regards the complaints in relation to procuring an entity’s actions after the contract award such claims are subject to review in court.
On average the Appellate Authority reviews up to 700 claims per year and satisfies about 70% of them. As for now, the Appellate Authority has proved to be an objective and unbiased body where impartial decisions can be sought. This fact has become an important encouraging factor for both national and foreign companies when they choose to participate in public procurement in Ukraine.