The monitoring information is up to date as of 2 October 2024.
In September 2024, the State Logistics Operator (the DOT, also known as the SLO) announced UAH 3.8 B tenders. The agency successfully concluded contracts worth UAH 3.5 billion, but had to cancel UAH 1.7 B tenders. StateWatch analysts examined the effectiveness of the agency’s September procurements and developed proposals for systemic process improvement.
Overall, in September, the agency announced a total of 26 tenders (58 lots) with an expected value of UAH 3.8 B. Most procurements – 48 lots worth UAH 2.9 B – were conducted under the simplified procedure. It is worth noting that in September, for the first time, the DOT introduced a closed framework agreement for purchasing food, conducting two procurements under this mechanism. A total of 32 companies joined the tender during the month, but the activity of participants was one of the lowest for the entire period of the DOT’s operation – an average of two bids per tender.
In turn, the agency concluded 54 contracts worth UAH 3.5 B based on the results of tenders announced both in September and earlier. The DOT signed contracts worth more than 50% of the contracted funds for the purchase of fuel and lubricants, about 40% was allocated for material support, mostly for the purchase of sleeping bags (UAH 1.3 B), and the remaining amount was used to purchase food (9%) and other services (less than 1%).
Considering that part of the DOT procurements are conducted under closed procedure or without the use of an electronic platform (defence procurements), information on which is published on Prozorro in part, the monitoring includes only those procurements the data for which is available to the public.
First food procurement under the closed framework agreement procedure
In September 2024, the State Logistics Operator implemented the closed framework agreement procedure for the first time for food procurements, which is only allowed for the DOT and the Department of Support of the State Service of Special Communications and Information Protection of Ukraine Service. The procurement was conducted in two stages. First, an open qualification of suppliers was held, and then the DOT allowed nine market participants to bid: Fabryka Smaku LLC, Yuh Prod Torh LLC, Trade Granit Invest LLC, Okhtyrka Meat Product LLC, Atomservice LLC, Adelin LLC, Mit Prom LLC, Kontrakt Prodrezerve 5 LLC, and Buskiy Cannery LLC.
At the second stage, in accordance with the law, the procuring entity issued a request for price quotes from qualified participants of the framework agreement. The procedure was conducted through a closed electronic auction – information about the bidders’ offers, their prices and documentation was not available to the general public on the Prozorro e-platform. Instead, in addition to the procuring entity, this data is available to the Antimonopoly Committee, the State Audit Service and law enforcement agencies. However, later the DOT published the contracts on its official website.
Based on the results of the concluded contracts, it is planned to supply 8 M ration packs worth a total of UAH 908 million. The first contract was signed with Adelin LLC for the supply of 2.7 M ration packs worth UAH 301.32 M (UAH 111.60 per pack) for the Rivne region and neighbouring regions. The second contract was with Trade Granit Invest LLC for 5.3 million ration packs worth UAH 606.8 million (UAH 113.77 per pack) for the Lviv region and adjacent areas.
It is noteworthy that in October, the DOT cancelled the cooperation with Trade Granit Invest LLC on food supply contracts for the Donetsk region and banned the company from participating in tenders for up to one year. The reason was the use of a cancelled canned pork test protocol during the supply for the military. However, there were no reports of the contract cancellation concluded under the closed framework agreement for military units in the Lviv region.
Top largest DOT contracts
In September, the State Logistics Operator concluded the largest contracts for the purchase of fuels and lubricants. PJSC Ukrnafta will supply diesel fuel worth UAH 1.06 billion, A-80 petrol worth UAH 315.2 million and aviation fuel worth UAH 275.3 million. It is important to note that the company achieved significant savings on fuel contracts: UAH 112.4 million was saved on diesel, UAH 23 million on aviation fuel, and UAH 17.1 million on petrol. The top procurement category also included a food contract: the agency contracted 2.7 million ration packs for UAH 301.3 million (UAH 111.6 per pack). The contract for the supply of 60,000 sleeping bags for UAH 260.3 million сloses the top five deals.
In September, DOT also concluded a number of contracts for the procurement of 320,000 sleeping bags worth a total of UAH 1.32 billion. The average price per item was UAH 4118.46, with savings of UAH 1.95 million. The largest batches will be supplied by SUPERFORM LLC, AnVa LLC and YUKA GROUP LTD, 60 thousand items each, and TOP-TEX LLC (50 thousand). The remaining volumes will be supplied by GREEN-MODA LLC (35 thousand), NIKA-TEXT PLUS LLC (30 thousand), TUSMO LLC (15 thousand), ASTRA LUX PJSC (4 thousand) and TEXTIL-CONTACT LLC (6 thousand). All contracts provide for deliveries by July 2025.
Cancelled and failed procurements
In September, 10 tenders (28 lots) totalling UAH 1.73 B were declared failed. Among the unrealized procurements worth the largest amounts were lots for the purchase of body armours, winter jackets, and headsets.
In particular, the DOT failed to procure 21.2 thousand modular body armours (Type 2, Level P, Type 5, complete set 1-5) due to the lack of bids. The expected value of the lot was UAH 604.2 M with a price of UAH 28.5 thousand per item. The other three lots were successfully procured, with suppliers UKRTAC.UA LLC and scientific production enterprise TEMP-3000 LLC expected to deliver 39,000 sets by mid-December.
In addition, the procurement of 203.5 thousand thermal jackets worth UAH 244.2 M (UAH 1,199 per item) had to be cancelled due to the discrepancy between the approved funding and the expected procurement value. Since the procedure does not allow for changes during the announced procurement, it was impossible to continue the tender. StateWatch has previously explained the problem with the discrepancy between the estimated and expected values. This situation was caused by a systemic problem in the calculation of procurement values. There is a difference between the two key indicators:
Recently, the authority to determine the estimated value was transferred from the Ministry of Defence to the DOT. This allowed the agency to independently formulate both estimated and expected procurement values, taking into account the economic situation. However, the DOT is still limited in its actions, as it has to work within the budget and the List of Goods and Services approved by the end of 2024. This means that the expected value of procurement must be determined within the estimated value approved a year ago, without taking into account current market prices. StateWatch assumes that when trying to announce the procurement at market prices, the DOT did not take into account budgetary constraints.
The Agency also cancelled the procurement of special headsets worth UAH 306.8 million due to the requirements challenged in court by one of the bidders and the inability to make changes within the announced procedure. Thus, the procurement of 26 thousand headsets worth UAH 11.8 thousand per item was cancelled by the decision of the Sixth Administrative Court of Appeal. On 24 September, the court partially satisfied the MIK LLC’s complaint regarding the wrongfulness of the procuring authority’s request to provide documents on the compliance of headsets with NATO standards. The DOT demanded test reports that would comply with MIL-STD-810 and EMC-MIL-STD-461 standards, but the court determined these to be the standards of the US Department of Defence, not NATO. Therefore, although the Kyiv District Administrative Court initially dismissed MIK’s claim, the appellate court found that such a contradictory requirement violated the principles of transparency and competition in procurement. The court also found that the procuring entity had ignored the Ukrainian standard for technical specifications and refused to amend the tender documentation during the clarification stage.
Challenges
In September, the key challenge for the DOT was court appeals against tender documentation. The cancellation of the procurement of special headsets worth UAH 306.8 million due to incorrect technical requirements is indicative. MIK LLC successfully appealed to the Sixth Administrative Court of Appeal against the requirement that the goods comply with NATO standards. The court found a legal conflict: the procuring entity mistakenly demanded test reports which would correspond to the US military standards MIL-STD-810 and EMC-MIL-STD-461, identifying them as NATO standards. The DOT also ignored the Ukrainian standard TC A01XJ.00737-450:2023 (01) and refused to correct the documentation at the clarification stage. Due to the imperfect preparation of the tender documentation, the procurement of 26,000 headsets worth UAH 11,800 per item had to be cancelled. This indicates the need for a more thorough legal preparation of technical requirements and greater flexibility in interaction with bidders.
As for September 2024, the problem with the procurement of body armours for the Armed Forces remained. Out of the planned 60.2 thousand items worth UAH 1.7 billion, the DOT managed to procure only 39 thousand items. UKRTAC.UA LLC and TEMP-3000 LLC agreed to supply body armours for UAH 28,500 each, although the market price ranges from UAH 34,000 to 36,800. The situation is likely to last until the end of 2024, as the DOT is obliged to comply with the approved List of Goods and Services. It specifies not only the number of body armours required but also their cost, which does not take into account market fluctuations. As a result, certified manufacturers whose prices are much higher (Kharkiv Plant of Personal Protective Equipment LLC and Ukrainian Armour LLC – UAH 35,000, Acropolis LLC – UAH 34,000) do not submit their bids. Systemic changes are expected starting from 2025, when the List will be formed based on the prices determined directly by the DOT. This should make the procurement process more flexible and adapted to market realities.
Moreover, in September, the DOT introduced a closed framework agreement for the first time for the procurement of food, which is regulated by Cabinet of Ministers Resolutions No. 122 and No. 1275. However, in the announcements, the agency specified the procedure title – “Request for Bids Using a Framework Agreement” – which is not mentioned in the Law of Ukraine On Public Procurement and the aforementioned Resolutions.
Recommendations
to the MoD:
to the DOT:
The 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 Prozorro e-system.
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.
