At the beginning of the full-scale war, on March 20 of 2022, the Cabinet of Ministers approved Decree No 335 “On Some Issues of Paying for Goods, Works and Services to Meet Needs of the Security and Defense Sector under Martial Law.”
The decision of the government specified that, at the wartime, the price to supply goods, perform works and provide services to meet needs of the security and defense sector as well as other goods, works and services to surely meet security and defense of Ukraine was determined based on costs calculations made by a state contractor. At the same time, price calculations include all taxes and fees, production, administrative, operational and other expenses of the contractor in connection with the production of goods, performance of works and provision of services. The given decision was prompted by a drastic need of supplying goods, services and works to repel the full-scale invasion of the Russian Federation and, according to the chair of the parliamentary Committee on National Security and Defense, Oleksandr Zavitnevych, “conclusion of direct contracts.”
Besides, the aforementioned decree of the Cabinet of Ministers did not include the word “profit” in the relevant paragraph. Later, following the audit of the state companies and private manufacturers of weaponry, this technical error led to claims on the side of the State Audit Service against 81 companies in regard to such “profit” in the amount of 2.4 billion UAH. According to Letter No 220/6339 of the Ministry of Defense dated June 5, 2023, the revision materials had been transferred by State Audit Service of Ukraine to law enforcement agencies and included into two criminal proceedings. Additionally, 17 proceedings were registered.
In order to avoid the indicated problem, the Cabinet of Ministers corrected the technical problem on July 18, 2023. The government found ‘Decree No 335’ invalid and passed a new order under No 736 specifying that the profit (remuneration of the supplier) was included into the price of goods. Later, on September 19, the Verkhovna Rada of Ukraine, upheld Decree No 10071 and, in fact, by 306 votes of the lawmakers, overturned all decisions of the State Audit Service regarding “losses for the state” in the aforementioned format.
Consequently, the Cabinet of Ministers is obliged to ensure that all state defense procurements contractors receive compensation of all economically grounded expenses as well as their profit. In turn, on October 27, the State Audit Service of Ukraine welcomed the return of profit into the price by sending its proposal to the Ministry of Defense. Also, to secure the decision of the parliament, the State Audit Service of Ukraine prepares its proposal in the form of a draft decree in order to resolve the situation in the sphere of defense procurements.
According to the obtained information, in addition to the aforementioned Decree of the Verkhovna Rada “On Support of the Defense and Industrial Complex of Ukraine at the Wartime,” the prime-minister assigned the Ministry of Defense to develop a proposal to approve another governmental document which would finally settle the described problem. However, it is still unclear who this will, in fact, help to ensure retroactive effect of the by-law. Thus, we can conclude that, as of December 4 of 2023, the
problem of paying for goods, services and works for the Defense Forces under martial Law still remains unresolved.
This material was developed under the Support Adaptive Defence Reforms project led by the UK Special Defence Advisor Team (SDA), funded from the British Government’s Integrated Security Fund (ISF) budget. The project delivery partners are EDGE-Alinea International and StateWatch.