For the period of martial law, military units of the Armed Forces of Ukraine (AFU) that are not permanently deployed may be supplied with disposable tableware. Under these circumstances, each service member is currently supplied with one disposable tableware set daily, which includes one deep plate, three shallow plates, spoons, and cups. This is regulated by Norm No. 1 of U-MOD Order No. 390 “On Approval of Standards for Provision of Tableware, Equipment, Inventory, and Detergents in the System of the Ministry of Defence of Ukraine” and amendments there to. The demand for disposable tableware has increased significantly since the beginning of the full-scale invasion, as a significant number of the Armed Forces personnel need to be provided with food in the combat zone. Despite the existence of Ukrainian manufacturers and importers of foreign products, it was not possible to meet the needs of the Armed Forces in full during 2023-2024, as StateWatch monitoring indicated.

Termination of procurements due to lack of bids

Between January and May 2024, the State Enterprise State Logistics Operator (the DOT, also known as the SLO) announced a total of 16 lots for the procurement of disposable tableware for a total expected cost of UAH 600.9 million. 66% of these tenders for the supply of 55 million sets worth UAH 397.6 million were declared unsuccessful. In 2023, 69% of U-MOD tenders worth UAH 146.6 million were cancelled, resulting in the failure to supply 18.9 million sets. These procurements did not take place due to the lack of bids.

During January-May 2024, the DOT procured 24.55 million sets for UAH 193.1 million. The tenders winners were: PLASTIC GROUP UKRAINE LLC and ANDREX LLC. Contracts worth a total of UAH 143.9 million (UAH 6.00-7.00 per set) were signed with PLASTIC GROUP UKRAINE LLC for the procurement of 21.55 million sets. Contracts with ANDREX LLC for the supply of 8 million sets amounted to UAH 61.2 million (UAH 6.00 per set). In 2023, the sole supplier of disposable tableware to the U-MOD was PLASTIC GROUP UKRAINE LLC, which was contracted for UAH 64.8 million worth of supplies (UAH 6.58 to 7.68 per set).

Limited number of bidders

Since 2023, only two suppliers have participated in the U-MOD and DOT tenders: PLASTIC GROUP UKRAINE LLC with a share of the contracted goods exceeding 80% and ANDREX LLC (less than 20%)³. According to StateWatch analysts who have spoken to market participants, since the beginning of the full-scale invasion, these are the only two companies that not only import finished goods but also produce them. 

However, these are not the only suppliers in Ukraine involved in public procurement through the Prozorro system. For example, military units and the National Guard of Ukraine entered into contracts with six other businesses, including LUKFORT UKRAINE LLC, TETRA AGROTRADE LLC, and ALFA PACK-EAST LLC, as well as three individual entrepreneurs. According to one of the suppliers, the market for disposable tableware is informally divided among different government customers, and only two manufacturers apply for U-MOD and DOT tenders: ANDREX LLC and PLASTIC GROUP UKRAINE LLC; while distributors apply for tenders of other state and municipal institutions. Thus, competition in the disposable tableware tenders is effectively limited to two suppliers who do not submit proposals for each of DOT procurements.

Reasons for unsuccessful procurements

Having spoken to the DOT bidders, StateWatch assumes that the key reasons for the lack of bids in some procurements are the limited production capacity of existing suppliers and their obligations to other state customers. Besides, businesses also mentioned problems with preparation of contracts and
unsystematic communication with DOT. The requirement in the tender documentation to supply goods manufactured no earlier than 2023 may also be a limiting factor for existing and new players. Some tenderers also mentioned tight deadlines for fulfilling the terms of the contract and the increase in the price of raw materials.

Expected price

In January-May 2024, the expected price of disposable tableware in the DOT procurements ranged from UAH 6.20-7.20 per set, and the prices in the contracts were UAH 6.00-7.00, respectively. According to the comments on Prozorro of suppliers, who did not submit a bid, the expected cost is lower than the market price due to the rise in the price of raw materials. One of the current suppliers told StateWatch that although it plans to increase the price of the set by 10-15% in September 2024, it does not believe the expected cost is the key problem with the DOT tenders. On the other hand, existing and potential bidders are forced to revise their prices throughout the year in line with fluctuations in raw material and electricity prices, while the DOT ties the expected price to the indicative cost set by the U-MOD at the beginning of the year and does not take into account the economic and political situation such as blocking the Polish-Ukrainian border in 2023-2024. Therefore, the development and implementation of a methodology for determining and revising the estimated cost when forming the List and procurement volumes will be one of the factors that will increase competition in the DOT tenders.

Risks

Failure to supply disposable tableware to the AFU can lead to outbreaks of acute intestinal infections and food poisoning among personnel, the risk of which is increasing in a combat zone. Moreover, military units that can use regular tableware should also be provided with disposable tableware in case of unforeseen events, such as lack of water and proper conditions for cooking. In addition, according to the regulatory framework, if needed, disposable tableware is also allowed to be provided to military educational institutions and children’s health camps of the Ministry of Defence, which can be an additional risk factor in case of supply failure. Thus, the small number of suppliers caused by artificial restrictions imposed by the participants of the public procurement market has led to a critical dependence of the Armed Forces on a few businesses when it comes to tableware supply. Therefore, without increased competition through the involvement of new suppliers, including foreign ones, the risk of further cancellations of tenders and disruptions in the supplies for the Armed Forces increases.

It’s recommended that

Ukraine’s Defence Ministry:

State Logistics Operator:

Conclusion

StateWatch think tank suggests that the U-MOD take into account the recommendations to deepen competition and eliminate the preconditions for the participation of a limited number of bidders.

Implementation of the changes suggested will help to:

(1) prevent artificial restriction of competition,

(2) simplify the entry procedure for new tenderers,

(3) prevent disruptions in supply to the Armed Forces warehouses during inflation and in case of unforeseen circumstances.

The preparation of the policy brief is part of the support programme of the Special Adviser on Defence, funded by the UK government, and implemented by the EDGE Foundation and StateWatch.

^{3. StateWatch’s analysis includes procurements by the U-MOD Department of Resource Provision and the State Enterprise State Logistics Operator from January 2023 to May 2024. Some procurements that took place under the defence procurement procedure, information on which is published on Prozorro in part, are not included in the monitoring.}