Date of publication: 14 February 2025
Volodymyr Adonin, Attorney at Law
Source: Business.Censor
On 24 January, the Verkhovna Rada registered Draft Law No. 12439 On Amendments to the Criminal Procedure Code of Ukraine to Improve Guarantees of Protection of Business Entities during Criminal Proceedings. One of the reasons for the adoption of this law is the introduction of additional guarantees for the protection of business entities. The proposed amendments are a significant step in this direction and beyond.
Unfortunately, this draft law is more focused on creating safeguards and restrictions for law enforcement officers after a business has already been involved in criminal proceedings and security measures have been applied to it.
Another draft law, which for some reason has been left forgotten by the Verkhovna Rada, looks more promising for preventing the above risks in the area of procurement. This concerns draft law No. 11276 dated 20 May 2024 On the Introduction of Measures Aimed at Reducing Unlawful Pressure on Business in Ukraine within Criminal Proceedings.
This draft law provides for amendments, in particular, to Article 88 of the Criminal Procedure Code of Ukraine On the Inadmissibility of Evidence and Information Related to the Suspect’s, Defendant’s Personality. The question arises as to how changes in the approach to the inadmissibility of evidence relate to business risks, or more precisely, to their prevention.
Below is the amendment proposed by the authors to supplement Article 88 of the Criminal Code of Ukraine:
“The issue of non-compliance with “the most economically advantageous tender (MEAT)” criteria in terms of price/tender specified in the procurement contract, which is determined based on the results of the procurement/simplified procurement procedure carried out in accordance with the requirements of the applicable law, cannot be grounds for recognising evidence as admissible for establishing material damage (losses) within the scope of criminal liability for a criminal offence under Article 185 of the Criminal Code of Ukraine.”
How could this amendment positively affect the risks not only for business but also for officials who procure services?
I believe that legal entities that have participated in public procurement over the past three years clearly understand what this is about, especially those who are involved in criminal proceedings against public sector officials.
In recent years, a number of criminal proceedings have been initiated in connection with the procurement of goods at inflated prices. Some of these proceedings have already resulted in convictions, but there have also been acquittals. Such criminal proceedings are usually initiated under two articles of the Criminal Code, namely Article 191 (misappropriation, embezzlement or possession of property by means of abuse of office) and Article 364 (abuse of power or office). The proceedings may also include derivative articles, such as official forgery, document forgery, money laundering.
The essence of such criminal proceedings comes down to one thing: the officials responsible for procurement made a decision to purchase goods at inflated prices.
The procedure for selecting and determining the winner of a tender and the criteria for such selection vary among different institutions that procure goods. Each industry has specific resolutions of the Cabinet of Ministers, the failure to comply with which ultimately determines the essence of a criminal offence. At the same time, in our opinion, most of these criminal proceedings should be classified under Article 367 of the Criminal Code of Ukraine, i.e. dereliction of duty.
However, improper performance of official duties combined with multi-million, and sometimes billion-dollar contracts, creates an opportunity for investigative authorities to catch a “big fish”, since public officials are not the ultimate target. The beneficiary of such contracts is business, for which such cases mean the prospect of asset seizure, remand in custody of executives with excessive bail, and the main wartime trend is plea bargains with the investigation involving multi-million dollar payments.
At the same time, there are regulations, the violation of which, according to the investigating authorities, forms the basis for this type of criminal proceedings. To be more specific, we will consider such violations using the example of defence procurement.
In accordance with Article 4 of the Law of Ukraine On Public Procurement, procurement planning is carried out on the basis of existing need for the procurement of goods, works and services. Planned procurements are included in the annual procurement plan. This law also defines the principles of procurement. Under martial law, according to CMU Resolution No. 169 dated 28 February 2022, state procuring entities in the defence sector could carry out public and defence procurement without applying standard procedures to meet the urgent needs of the state.
However, despite the simplification of procurement procedures, Resolution No. 169 stipulated that state procuring entities in the defence sector must adhere to the following principles of defence procurement:
- timeliness and compliance with decisions taken to protect Ukraine’s national interests, ensuring security and defence needs;
- efficient use of funds.
These changes significantly accelerated procurement procedures, which was critical in order to effectively meet government needs.
Given that Resolution No. 169 established the peculiarities of public and defence procurement under martial law, the Law On Defence Procurement continued to apply insofar as it did not contradict it.
The Law On Defence Procurement defined the criteria for evaluating bids submitted by tenderers, namely: price; price together with other criteria, which is used for complex or specialised procurement where the price accounts for at least 60%; additional criteria (payment terms, deadlines, life cycle support (warranties, maintenance), localisation of production (at least 25%); life cycle cost.
The following evaluation criteria may also be applied: level of operating costs; test results or fact of acceptance into service; the presence of a certified quality management system; the presence of NATO certification (AQAP); quality of performance of previously concluded similar contracts; quality plan; efficiency ratio; delivery schedule (indicating risks).
These criteria are applied by the state procuring entity in the defence sector to determine the winners of multi-stage negotiations, restricted and simplified tenders.
The most economically advantageous tender is the offer of the tenderer that meets all the criteria and conditions specified in the documentation and is recognised as the best based on the results of the evaluation of offers in accordance with the specified criteria.
In view of the above, price is not the only criteria on the basis of which the procuring entity should select the winner of the tender. If we also take into account the procurement principles that the state procuring entity in the defence sector must adhere to, then timeliness and compliance with decisions taken to protect Ukraine’s national interests and ensure security and defence needs are paramount, while the efficient use of funds comes second.
Thus, the following evaluation criteria are no less important than the price:
- the presence of certification confirming of the quality of goods;
- performance characteristics;
- delivery schedule.
Furthermore, procuring entities and tenderers should remember that if reliable information is received about the non-compliance of winner of the procurement procedure with the qualification criteria requirements, grounds or the fact that the tender proposal contains any inaccurate information that is essential for determining the results of the procurement procedure, the procuring entity shall reject the tender proposal of such a tenderer.
Bids submitted by the tenderes may also be rejected in accordance with the requirements set forth in Resolution of the Cabinet of Ministers of Ukraine No. 1178 dated 12 October 2022. For example, in accordance with the Specifics of Procurement (41), the procuring entity shall reject a tender proposal stating the reasons in the electronic procurement system if the tenderer, in particular, has indicated in the tender offer inaccurate information that is essential for determining the results of open tenders, which has been identified by the procuring entity in accordance with Article 29 of the Law On Public Procurement, the procuring entity has the right to request confirmation of the information provided by the tenderer from public authorities, enterprises, institutions, organisations in accordance with their competence.
Therefore, the business community and the public sector should adhere to the following recommendations:
- engage legal advisors before the start of the procurement procedure;
- formulate clear requests with all criteria for potential tenderers;
- send requests to as many potential tenderers as possible (including public ones);
- properly manage document flow with minimal use of messengers;
- adhere to the principle of equality for all tenderers;
- avoid informal meetings;
- draw up minutes on the results of reviewing commercial offers at all stages, with mandatory indication of the reasons for rejecting certain offers.
- business should prepare commercial proposals taking into account all procurement criteria, and in the event of changes to such proposals, indicate the reasons for the changes, with subsequent confirmation of their submission, receipt and review by the relevant commission.
Adherence to these principles and the engagement of legal advisors can prevent both business and public officials from falling into the trap of accusatory thinking.
Finally, it should be remembered that at the initial stage of the procurement procedure, one of its initiators or tenderes may already be a confidential employee of the investigating authorities and may commit provocative actions through his actions or hints.
