Certain suppliers dominate the centralised procurement of some equipment for the AFU. In the 2023-2024 period, dominant suppliers were contracted for more than 50% of the goods from the UMOD’s Resource Support Department (UMOD RSD) and DOT in categories such as footwear, bulletproof vests, helmets, headsets and tactical goggles.
From StateWatch’s perspective, this situation is the result of shortcomings in strategic procurement planning that have been ongoing since 2014. The main issues include:
In particular, some categories of military equipment, such as tactical headsets, have not been produced in Ukraine. In addition, the UMOD’s reliance on a single supplier for certain types of goods (e.g. bulletproof vests and footwear) has led to an almost complete lack of competition in tenders.
It is worth noting that regular contracts with the UMOD allowed the leading bidders to considerably increase their production capacity in comparison to their competitors. This has further reinforced their dominance in the logistics procurement market.
The rapid growth in the number of AFU after the start of the full-scale invasion created additional significant challenges for the UMOD logistics system. This situation caused a number of problems. Firstly, even large national manufacturers are often unable to fully meet the needs of the AFU. Secondly, smaller companies face obstacles in obtaining the necessary documentation from the UMOD or do not have sufficient production capacity to compete effectively.
Consequently, the AFU are critically dependent on a limited number of suppliers for certain categories of goods. This has resulted in the systematic cancellation of tender procedures due to a lack of competitive bids, which has caused significant disruptions in the supply of strategically important goods to the AFU.
The main reasons for the emergence of dominant suppliers are:
StateWatch Monitoring Results
StateWatch think tank conducted a monitoring of suppliers of tactical equipment to the AFU. The purpose of the monitoring is to identify dominant suppliers in order to further develop recommendations for market expansion.
Research Object:
The monitoring identified 4 companies with signs of dominance:
The share of contracted goods from these companies is equal to or greater than 50% based on the procurement results. It should be noted that no single supplier has been identified as dominant in the gloves’ category.
Monitoring Methodology
The monitoring was conducted using publicly accessible information from the Prozorro e-system. The sample was limited to those suppliers for which procurement data was published in the aforementioned system during the period between 2023 and 2024. A portion of the data on non-lethal procurement by the UMOD for the period between 28 February 2022 and 23 April 2023 was removed from Prozorro. This information was subsequently made public only in part. Some procurement procedures in 2023-2024 were conducted without the use of Prozorro as defence procurement, which also affects the comprehensiveness of the data.
The monitoring was conducted over two main periods: (1) June to December 2023: the analysis of UMOD RSD tenders; (2) January to May 2024: the analysis of DOT tenders. It is noteworthy that since December 2023, DOT has become the primary procurer of non-lethal goods for the Armed Forces of Ukraine.
A supplier with signs of dominance is considered to be the winner of the tender with a share of 50% or more in the quantity of contracted goods based on the results of procurement by the UMOD RSD and DOT between June 2013 and May 2014.
Footwear (CPV code 18810000-0, 18815100-6)
The analysis of footwear supplies to the AFU revealed a significant imbalance in the distribution of contracts. In the category of “summer and winter boots” there is a near-total dominance of one supplier: Talanlegprom LLC – 99,64% of the market, UIC KROK LLC – 0,36% of the market.
The monopoly position of Talanlegprom LLC can be attributed to the specific requirements set forth by the UMOD in its technical specifications. The key condition that effectively restricts competition is the requirement for all bidders to display the logo of the Talan Corporate Group on their footwear. This requirement has been in place for winter and demi-season footwear since at least 2015, and for summer footwear since 2020.
The aforementioned specifications resulted in the imposition of artificial restrictions on the participation of other companies in footwear tenders. In contrast, Talanlegprom LLC was awarded a series of systematic and long-term contracts from UMOD RSD, which enabled the company to expand its production capabilities. Consequently, Talanlegprom has become a crucial supplier of footwear to the AFU since the onset of the Anti-Terrorist Operation/Joint Forces Operation.
In March 2022, the Central Directorate for Development and Maintenance of Material Support of the AFU (Directorate) amended the technical specification for winter military footwear. The revised technical specification “Winter boots with high ankle” incorporated a sole pattern featuring triangular elements that were analogous to the Talan boot logo. Concurrently, the technical specifications from 2020 remained applicable to summer footwear, which also exhibited a sole pattern bearing resemblance to the Talan logo.
The revised technical specifications prompted a negative response from business representatives and the volunteer community. Despite the criticism, the Directorate officials did not modify the specifications. Instead, they published a letter from Talanlegprom LLC on the UMOD website, which permitted the reproduction of the tread pattern on the sole of the boots for the AFU.
“At the same time, Talanlegprom Limited Liability Company does not object to the replication, manufacture and copying by other manufacturers (suppliers) within the technical specifications for ‘Summer Boots’ TS А01Х.45279-267:2020(01) and ‘Winter Boots with High Ankle’ TS AO1XJ.14755-362:2022(01) of the sole protector pattern as part of the supply of footwear for the Defence Forces of Ukraine,” the letter of 14 September 2023 reads.
Since April 2024, the situation at the DOT tenders has begun to change. In addition to Talanlegprom LLC, other suppliers began to participate in the bidding process. However, they were unable to secure a contract due to the lack of a certificate of completion of similar contracts.
The technical specifications set by the Directorate continue to impose artificial restrictions on competition in the bidding process. Nevertheless, the price of Talan’s footwear remains cost-effective for the needs of the AFU.
Bulletproof Vests (CPV code 35811300-5)
In the “bulletproof vests” category, the situation is similar to the footwear market. There is also a dominant supplier here – TEMP-3000 LLC, which received 64.69% of the total volume of orders. Other bidders are significantly inferior to the leader in terms of the volume of ordered goods. Kharkiv Plant of Personal Protective Equipment (KhPPPE) LLC received orders for 21.10% of the goods, and UKRTAC.ua LLC received 14.21%.
The dominance of TEMP-3000 LLC in the bulletproof vest market can be attributed to similar factors to those that led to the success of Talanlegrom in the footwear market. Since 2014, the company has been awarded a series of substantial contracts from UMOD, which enabled it to significantly expand its production of armour plates in Ukraine. As a result, the company was able to offer lower prices at UMOD RDS and DOT tenders, compared to competitors that had to import components.
However, in 2024, with the growing demand for bulletproof vests and procurement planning focused on the prices and capacity of a single manufacturer, DOT encountered several challenges:
To partially address the problem, in May 2024 DOT entered into direct contracts with UKRTAC.ua LLC and KhPPPE LLC to purchase bulletproof vests from other suppliers using the saved funds. This was done in response to the urgent need of the Logistics Forces Command.
Nevertheless, as of the beginning of July 2024, the situation remains critical – over 90,000 sets of bulletproof vests required to meet the AFU’s needs by the end of the year have not yet been contracted.
Helmets (CPV code 5811300-5)
In the “helmets” category, the situation on the public procurement market appears to be more balanced than in the case of bulletproof vests, although there is still a clear leader. Contracts were signed with three suppliers, with the distribution of shares between them as follows: TEMP-3000 LLC – 54.91%, KM Disti LLC – 37.25%, and Ak-Investprom LLC – 7.84%.
It is noteworthy that the two largest suppliers, TEMP-3000 and KM Disti, are Ukrainian manufacturers of helmets. Ak-Investprom LLC, on the other hand, is a distributor of helmets produced by the Bulgarian manufacturer MARS Armor Ltd.
TEMP-3000’s dominance in this market can be attributed to two key factors: firstly, its ability to offer competitive pricing, and secondly, the absence of offers from other participants in certain tenders.
Tactical Goggles (CPV code 35811300-5)
In the “tactical goggles” category, DOT successfully completed 11 lots, signing agreements with two suppliers. The distribution of shares of contracted goods between them is as follows: KM Disti LLC (Ukrainian manufacturer) – 64.01%, MIK LLC (distributor of Taiwanese products) – 35.99%.
KM Disti LLC has established a dominant position in this market, which can be attributed to two key factors: firstly, the absence of competitors in certain procurement processes, and secondly, the exploitation of tender documentation requirements by select suppliers.
For example, the tender of 25 January 2024 demonstrates the problem of limited competition. Only one company, KM Disti LLC, submitted a proposal. Due to the limited alternatives, DOT was compelled to enter into an agreement with the sole bidder. This raises concerns about the effectiveness of the process of attracting participants and potential barriers to entry.
The procurement dated 3 April 2024 demonstrates the impact of bidders’ misuse on the tender results. In this case, three companies participated, but two of them – MIK LLC and TS Trade Ukraine LLC – did not provide the required certificate of experience in executing similar contracts at the last minute, despite having a history of executing such contracts. As a result, DOT was forced to sign a contract with KM Disti.
Headsets (CPV code 35812300-2, 35811300-5)
In the “headsets” category, there is a division of contracted goods between three distributors: Sewing Factory GALANT LLC – 65.71%, MIK LLC – 20%, and Ekstrim-Teks LLC – 14.29%. It should be noted that none of these companies are manufacturers; they all act as distributors of headsets.
A total of 35,000 tactical headsets of two models were contracted: PELTOR Comtac 3M (made in Sweden) and Sordin Headband (made in China).
Sewing Factory GALANT LLC’s dominant position in this market is attributable to two key factors: firstly, the company’s ability to submit the most economically viable proposals, and secondly, the availability of a complete set of permits, which other participants lacked.
Gloves (CPV code 18420000-9, 35811300-5)
In the “gloves” category, orders are more evenly distributed among several suppliers: Superform LLC (Chinese supplier) – 38.2%, Sewing Factory GALANT LLC (Ukrainian manufacturer) – 24.43%, Kharkiv Plant of Personal Protective Equipment (KhPPPE) LLC (Ukrainian manufacturer) – 14.34%, Olteks LLC (Ukrainian manufacturer) – 13.96% and Ekstrim-Teks LLC (Ukrainian manufacturer) – 9.07%.
It is important to note that although the largest market share is held by a company that supplies products from China, the other three suppliers are Ukrainian manufacturers.
In contrast to other categories of tactical equipment, the market for gloves is characterised by a more balanced distribution of market shares, with no clear dominance of a single supplier.
What is Proposed to Amend?
The Ministry of Defence of Ukraine (UMOD) is recommended to:
The State Logistics Operator (DOT) is recommended to:
Conclusion
StateWatch think tank suggests that the UMOD take into account the recommendations aimed at increasing competition and eliminating conditions that facilitate the dominance of certain suppliers of logistics goods.
The implementation of the proposed changes is intended to achieve three key objectives:
The implementation of these recommendations has the potential to markedly enhance the efficiency, transparency and resilience of the defence procurement system.
The policy brief was developed under the UK Special Defence Advisor’s programme, funded by the British Government, and delivered by EDGE Foundation and StateWatch.
