Reform of the State Defense Procurement

On October 9, a roundtable was held in Kyiv to discuss the reform of the defense procurement system, in particular, a draft law to be submitted to the Verkhovna Rada within a month to replace the existing law “On State Defense Order”. The roundtable was organized jointly by the Verkhovna Rada (Parliament) of Ukraine Committee on National Security, Defense and Intelligence, the Independent Anti-Corruption Committee on Defense (NAKO) and the independent think tank “Ukrainian Institute of the Future”.

For the first time, key stakeholders, including representatives of state authorities, as well as state and private arms manufacturers and public experts, gathered for a discussion. In particular, the event was attended by MPs, representatives of the Ministry of Defense, the Ministry for Economic Development, Trade and Agriculture, the Office of the President of Ukraine, the Security Service of Ukraine, the State Concern “Ukroboronprom”, “League of Defense Enterprises of Ukraine”, the Association of Ukrainian Defense Manufacturers, and the Association “Ukrainian Defense and Security Industry”. The event was opened by the Chairman of the Verkhovna Rada of Ukraine Committee on National Security, Defense and Intelligence Oleksandr Zavitnevych. The event was moderated by Svetlana Panaiotidi, Deputy Minister for Economic Development, Trade and Agriculture.

Each participant was given an opportunity to speak about important aspects to be taken into account in the new legislation on state defense procurement.

“We are open to public discussions, to the engagement of experts and all stakeholders interested in the development of a new legislation”, said the committee’s deputy chairperson Maryana Bezugla.

NAKO Secretary General Olena Tregub presented the results of the “State Defense Procurement System Reform” study; in particular, she talked about the existing corruption risks and ways to minimize them. State defense procurement volumes are increasing every year, but the system remains inefficient and corruption-prone, hence, it needs to be reformed as soon as possible, says Tregub. She stressed that in the new legislation, the public wants to see increased levels of transparency and competitiveness, pricing regulation by the market mechanisms and the improvement of procedures of approval and control over the state defense procurement, including automation and digitization of the process.

“Now we are discussing the same problems we discussed 20 years ago. Nothing changed”, said Ivan Aparshin from the Office of the President of Ukraine. He said now we need to move from words to action, adding that the Office of the President is actively engaged in the discussion of the draft law on public procurement and is ready to cooperate on that with other state authorities and members of the public.

Advisor to Defense Minister Mr. Artur Pereverzev presented their proposals with regard to a new draft law on defense procurement. He said that excessive secrecy of defense procurement has a negative impact on this sector’s supplies. That is why the new draft law provides for two types of procurement: secret procurement and public procurement, whereas the latter can be organized with the help of Prozorro public procurement system. However, Pereverzev said that the new legislation in the field of defense procurement is not enough. In his opinion, the law “On State Secrets” should be changed as well: “It is necessary to find a balance to ensure this law observance and enforcement, so as to prevent leakages of really important information, which should be kept secret”.

Advisor to CEO of Ukroboronprom (Ukrainian Defense Industry) CEO Mustafa Nayem welcomed the removal of the costing information from the draft law as a positive development. However, he said the draft law needs to be further refined, as it contains a number of risks, in particular in the area of quality control. He stressed the need to clearly identify contractors and subcontractors in a defense procurement contract, as well as the scope of their work, since the lack of such details leads to significant risks and may result in conclusion of bogus contracts.

The chairman of the Association of Ukrainian Defense Manufacturers Vadim Kodachigov shared his experience of cooperation with the state in the field of defense procurement. In particular, he said none of the defense industry enterprises is working at even 50% capacity: “Our current total output comprises about US$ 700 million, including export worth of US$ 500 million and the internal consumption amounting to US$ 200-250 million. Our total production capacity is moderately set at US$ 3 billion. Our enterprises are not working at full capacity at all”.

The participants also discussed the general issues of state-owned enterprise management, problems of procurement secrecy classification, de-monopolization of export, as well as the need to create a central executive authority to handle the defense industry and a central procurement body under the Ministry of Defense. Finding the right balance between protecting and developing Ukraine’s domestic defense industry, on the one hand, and opening the Ukrainian market to foreign armament manufacturers, on the other hand, provoked an animated debate.

The roundtable concluded by identifying further ways of cooperation between state authorities, private entrepreneurs and representatives of the public with the purpose to refine the draft law on defense procurement and to reform the defense industry system on the whole.

The round table was organized under support of the UK Department for International Development (DFID) and the International Renaissance Foundation.


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