The monitoring information is up to date as of 2 April 2024.  

From 1 to 31 March 2024, a state agency of the Ministry of Defence of Ukraine, the State Logistics Operator (DOT), announced 97 procurements (196 lots) on Prozorro for a total expected value of UAH 9.8 billion. 

A total of 126 companies took part in the DOT tenders, while the average number of bids per tender was about 4.5 tenderers. It is noteworthy that 75% of procedures (73 out of 97 announced) were held under the simplified procurement procedure, i.e. with the possibility to invite at least 1 tenderer. 

In March, the DOT concluded 120 contracts totalling UAH 12.5 billion based on the results of procurements initiated both in March and earlier. The largest contract was signed for the purchase of meal kits for the Armed Forces with Food Grand company for UAH 1.6 billion (UAH 118 per kit). 

StateWatch think tank analysed the largest contracts concluded by the State Logistics Operator and outlined the main challenges in the DOT procurement process in March 2024. 

Considering that the part of the DOT procurements are closed or are conducted without the use of an electronic platform (defence procurement), information on which is published on Prozorro in part, the monitoring included only those procurements the data for which is available to the public. 

Largest contracts for the supply of food packages according to the Catalogue

In March, the largest contracts were signed for the purchase of meal kits for the Armed Forces of Ukraine. After two unsuccessful attempts to hold open food tenders in February, on 15 March, the DOT posted on Prozorro 13 contracts concluded under the direct contracting procedure with suppliers for a total of UAH 8.8 billion (average cost of UAH 111.49 per kit). Four contracts worth a total of UAH 3.1 billion were signed with Cherkasy Meat Plant LLC, five contracts with Tviy Hlib LLC worth UAH 1.4 billion, and two contracts with Busk Cannery LLC (UAH 1.4 billion). Food Grand LLC (UAH 1.6 billion) and Ug Prod Torg LLC (UAH 1.3 billion) were also awarded contracts. None of these businesses participated in previous DOT food tenders but were subcontractors to several previous MoD suppliers. Under the terms of the contracts, supplies will be made in 12 regions: Volyn, Rivne, Zhytomyr, Vinnytsia, Khmelnytskyi, Kyiv, Chernihiv, Cherkasy, Mykolaiv, Kherson, Odesa, and Kirovohrad.

At the same time, in April, it was reported that some of the contracted companies had not fulfilled the terms of their contracts. Thus, Tviy Hlib LLC and Cherkasy Meat Plant did not execute the agreement. This led to logistical disruption and compelled the DOT to promptly seek alternative counterparts. As a result, the DOT started cooperation with six additional companies and redistributed logistic routes. The majority of these companies are the previous MOD food counterparts. According to the available information as of April 25th on Prozorro and data from DOT, StateWatch had analyzed the current situation with food contracts.

In March, the DOT also procured drinking water for the military, signing 12 contracts totalling UAH 410 million (average price is UAH 3.22 per litre). Obolon PRJSC won 11 tenders and signed worth UAH 381 million contracts. Another UAH 28.9 million was awarded to Aquaplast, which won one tender. Thanks to competitive bidding, the average price per litre was UAH 3.46, which is 39% cheaper than in contracts before the DOT started operating.

Top 5 signed contracts for the procurement of other categories of goods

Other major contracts signed include contracts for the purchase of uniforms for the military. The DOT procured nearly 207,000 pairs of summer boots worth UAH 486.7 million (UAH 2,366.49 per pair), which will be supplied by Talanlegprom LLC. In addition, 100,000 summer suits were purchased for UAH 419.4 million (average price of UAH 4194.2 per item) and 300,000 ponchos for UAH 206 million (average price of UAH 666 per item). The winner of one of the largest tenders was Ukrnafta PJSC, which will supply 8910 thousand tonnes of fuel for RT jet engines worth UAH 398.9 million (UAH 44800 per tonne). 

Among 97 tenders announced in March: 

• 73 procurements (172 lots) were held under a simplified procedure, i.e. with the possibility of inviting at least one participant; 
• 1 procurement (1 lot) – at the tenderer’s request; 
• 5 procurements (4 lots) – through direct contracting procedure; 
• 14 procurements (14 lots) – under the defence procurement procedure, the data on which is limited; 
• 5 procurements (5 lots) – through open tenders with special features (at least 1 tenderer is allowed to submit an offer above the expected value).

Cancelled and unsuccessful procurements

In February, 10 procurements worth UAH 467.8 million were cancelled, and 39 procedures worth UAH 12.1 billion were declared as such that had not taken place. Among the largest unsuccessful procurements, Statewatch analysts noted the following tenders:

• In early March, a UAH 10.8 billion tender for the purchase of meal kits was declared as such that had not taken place due to the simultaneous withdrawal of bids by bidders who disagreed with the DOT requirements regarding penalties and logistics. Earlier, a similar procurement (11 tender procedures) was also cancelled due to lawsuits filed by bidders. Therefore, the DOT announced the procurement for the third time, not through an open tender procedure, but by signing direct contracts with suppliers;  
• a tender for the procurement of 350,000 sleeping bags worth UAH 761.2 million was not held due to a lack of bids;
• On 27 March, due to a technical glitch in the Prozorro e-platform that restricted bidders’ access to the platform, the DOT cancelled Lot no. 2 for the procurement of 7,000 tonnes of diesel fuel DP-L-Euro5-B0 worth UAH 306.9 million. Users had technical difficulties when using the e-platform, and it did not allow bidders to submit their bids and participate in the tender. As a result, the tender was cancelled;
• Due to the rise in the price of raw materials, the price of the procurement item at some tenders was higher than the expected value, as reported by the bidder. For example, the procurement of 35 million disposable tableware items worth UAH 218.4 million (6 out of 7 lots in the procedure) was cancelled due to the lack of bids from the market.

The main reasons why the DOT procurements did not take place or were cancelled:

• disagreement of participants with the tender requirements and subsequent withdrawal of bids;
• lack of bids;
• glitch in the Prozorro system;
• discrepancy between the expected value of the procurement item and the market price.

StateWatch analysts have identified the following challenges in the DOT procurements in March:

For the second month in a row, the biggest challenge for DOT are open tenders for food procurements, which failed twice due to the bidders’ refusal to comply with the new procurement rules and accept high penalties. This forced the DOT to announce the procurement for the third time, but this time by signing direct contracts with suppliers, i.e. without holding an auction and using the Prozorro e-platform. On 15 March, the DOT published 13 contracts worth a total of UAH 8.8 billion (average cost of UAH 111.49 per kit).  Even though the contracts were signed with companies that had not previously participated in the bidding process, which indicates that the range of suppliers has expanded, large retailers did not participate in the auction, as they are still not interested in cooperating with state-owned enterprises. Moreover, in the course of fulfilling the signed contracts, two of the five suppliers failed to fulfil their obligations in full, forcing the DOT to urgently conclude an agreement with other companies and redistribute supplies among other contracted businesses. 

In addition, due to the large number of bids and the low quality of tender documents prepared by bidders, the DOT specialists had to spend considerable time explaining the mistakes to the bidders. This, in turn, resulted in the inability to meet the terms and conditions of a number of tenders in accordance with the specified deadlines. In the end, the tight deadlines for the goods delivery and the long period of bids consideration led to the cancellation of the procedures.

The agency still faces problems while establishing the expected value of goods. In at least one procurement (for the purchase of disposable tableware), one of the bidders reported a low expected value, which did not correspond to the market prices of goods that had risen due to the increase in raw material prices. The inadequate expected value at the tender resulted in the cancellation of the procurement due to the lack of bids. 

Recommendations: 

• Increase the number of the DOT-authorised persons to speed up the review of tender documents for bidders.
• Develop an anti-crisis plan  to find alternate suppliers in case of force majeure or in case the contracted counterparties fail to fulfil their obligations. 
• Initiate the introduction of “framework agreements” for long-term contracts.
• Revise the requirements in the tender documentation to expand the range of potential bidders in food procurements.
• Extend the goods delivery time to allow a wider range of bidders to participate in procurements.
• Explicitly take into account logistics timeframes and force majeure events when supplying goods to the frontline.
• Initiate the establishment of an internal commission that would also include the DOT representatives to assure the quality of food supply services. 

DOT, which has been responsible for procuring fuel, uniforms, and food for the military since December 2023, was established as part of the anti-corruption procurement reform of the Ministry of Defence. The agency’s total annual budget is nearly UAH 95 billion. Of this amount, the agency is supposed to receive a commission of 0.4% of the executed contracts (this should not exceed UAH 250 million per year). Procurements are carried out through the e-system Prozorro. 

The monitoring of the DOT procurements is part of the support programme of the Special Adviser on Defence of the UK Embassy in Ukraine, implemented by the EDGE Foundation and StateWatch.