Public Procurement in Ukraine’s Reconstruction Projects: Key Legal Risks

Source: Yurydychna Gazeta

Ukraine’s reconstruction is not only about construction, but also a legal process of unprecedented scale. Public procurement serves as the primary mechanism for the distribution of billions of dollars in budget and donor funds. However, the high cost of projects automatically transforms procurement into a high-risk zone.

Any error – from incorrect planning to nuances in contract performance – can lead to the blocking of funding, legal disputes, or even criminal liability. Antitrust and Competition experts at Ilyashev & Partners Law Firm have analyzed the current situation and prepared a roadmap for businesses and contracting authorities.

Legal Regime of Procurement Under Martial Law

The legal basis for public procurement in Ukraine is the Law of Ukraine “On Public Procurement” dated December 25, 2015, which establishes the principles and procedures for competitive procurement, regulates the appeal mechanism, defines special rules for the procurement contract, and strictly limits changes to material terms.

At the same time, the legal regime of procurement during the period of martial law requires particular precision in determining the sources of regulation. For the duration of martial law, special Specifics for the implementation of public procurement of goods, works, and services for contracting authorities apply, as provided for by the Law of Ukraine “On Public Procurement” and approved by Resolution of the Cabinet of Ministers of Ukraine No. 1178. (We would like to take this opportunity to draw your attention to the fact that amendments and additions are constantly being made to the Specifics, the latest of which were made in March 2026; the provisions of the Specifics require constant monitoring).

Thus, contracting authorities were granted the right to carry out procurement without applying the procedures provided for by the Law in cases determined by resolutions of the Cabinet of Ministers of Ukraine. In particular, Resolution of the CMU dated November 11, 2022, No. 1275 (as amended) significantly expanded the list of grounds for applying simplified procedures and procurement without holding a tender.

The legal risk here lies in an overly broad interpretation of the grounds for deviating from standard procedures. The lack of clear criteria, combined with the discretionary powers of contracting authorities, creates an environment favorable for violations.

The mechanism for appealing the procurement procedure is specialized: the Antimonopoly Committee of Ukraine is designated as the appellate body; the complaint is filed through the electronic system in the form of an electronic document. This means that “procedural” disputes are concentrated before the conclusion of the contract, while after the signing of the contract, disputes regarding performance/amendments/payment prevail. Cancellation of the contract during this period will not make any practical sense.

In parallel, state financial control and monitoring of the procurement function; the key idea is that control can “cover” the period of the procedure, the conclusion of the contract, and the period of its validity. Such audits in reconstruction projects become practically inevitable due to the high profile of expenditures and the use of automated risk indicators.

Analysis of Key Legal Risks
Risks of Tender Documentation and Specifications

The documentation preparation stage is the most vulnerable. The most common violations we work with in the AMCU practice are:

• Discriminatory requirements: excessive criteria regarding experience, equipment, or personnel that artificially narrow the circle of participants.
• Technical specifications: description of the subject of procurement for a specific manufacturer.
• Errors in determining the expected value: this leads to the choice of the wrong type of procurement procedure, or the absence of real price bids.

Each of the above violations can be considered as an independent ground for appealing the terms of the procurement or its results to the Commission of the Antimonopoly Committee of Ukraine for the Review of Complaints on Violations of Public Procurement Legislation.

Corruption and Anti-competitive Risks

Reconstruction projects, given their significant financial volume, complex nature, multi-level system of involved executors, and long implementation period, objectively fall within the sphere of heightened corruption risk.

The practice of state financial control authorities, the Antimonopoly Committee of Ukraine, and law enforcement agencies indicates that the most common forms of illegal behavior in this area include:

• Anti-competitive concerted actions of bidders, in particular, coordination of price bids, terms of participation, or other behavior between formally independent competitors to ensure the victory of a predetermined participant.
• Systemic alternation of winners among a limited circle of interconnected or actually coordinated business entities, which may indicate the imitation of competition and the use of the procurement procedure as a tool for legalizing the previously agreed distribution of contracts.
• Artificial splitting of large procurements into parts smaller in value or volume to avoid the application of competitive procedures, reduce the level of publicity, weaken control, and circumvent statutory requirements regarding openness and transparency of procurement.
• Involvement of fictitious or formally nominal business entities as subcontractors or co-executors as an intermediate link for the transfer of funds in favor of related parties under the guise of payment for allegedly fulfilled obligations.

In large-scale infrastructure projects, such schemes are particularly dangerous because they not only lead to direct financial losses but also make it impossible to properly control the actual volume, quality, and reality of the work performed, create conditions for inflating the cost of contracts, withdrawing budget funds, and further complicating their recovery.

Risks in the Performance of Procurement Contracts

After the conclusion of a procurement contract, an independent set of legal risks arises, related no longer to the choice of a supplier or contractor, but to the proper, conscientious, and lawful fulfillment of contractual obligations.

It is this stage that, in many cases, is the most conflict-prone, since the formal completion of the procurement procedure does not yet guarantee either the achievement of its economic goal or compliance with the requirements of the legislation during the contract’s further implementation.

One of the most common violations in this area is the unlawful change of material terms of the procurement contract. Legislative regulation in this part is built on the principle of the exhaustiveness of the grounds for making such changes; any deviation from the cases established by law should be regarded as a violation of the public procurement regime.

In practice, this may manifest itself in the form of an unjustified increase in the price of the contract, extension of the terms for fulfilling obligations beyond the grounds allowed by law, an actual change in the subject of procurement, or other adjustments that change the economic or legal balance of the contract contrary to the requirements of the legislation.

Such actions create the risk of declaring the corresponding changes illegal, call into question the legality of the further performance of the contract, and can be qualified as a way of circumventing the competitive procedure, the results of which were achieved under other conditions.

No less significant is the risk of non-compliance of the actually delivered goods, performed works, or provided services with the terms of the contract, technical specification, design documentation, or other mandatory requirements of the procurement.

Particular danger is posed by situations where the contracting authority signs acceptance certificates in the absence of real fulfillment of obligations, the presence of defects, a reduction in the volume of work, a deviation from the agreed technical parameters, or the delivery of products that do not correspond to the agreed characteristics.

This may indicate not only improper performance of the contract, but also the creation of formal grounds for the baseless write-off or transfer of budget funds, which, depending on specific circumstances, may result in both commercial-legal, as well as administrative or criminal-legal assessment of the behavior of the respective persons.

In addition, significant legal risks arise upon the termination of contractual relations, in particular in connection with the violation of the procedure for terminating the procurement contract, including through unilateral refusal to perform it.

Since a procurement contract is not only a civil or commercial law instrument, but also the result of a special public law procedure, its termination must take place taking into account both the general provisions of contract law and the special requirements of legislation in the field of public procurement.

Non-compliance with the established procedure, the absence of grounds provided for by the contract or the law for unilateral termination, improper documentation of the relevant decisions or actions of the parties, can cause such termination to be declared illegal, give rise to disputes regarding the volume of fulfilled obligations, the return of advance payments, compensation for damages, and the application of penalties.

Force Majeure in Public Procurement

In the conditions of martial law, unstable logistics, and destruction of infrastructure, the issue of force majeure acquires special practical importance; however, this very fact creates additional opportunities for abuse.

The most common mistake is to consider the fact of war itself (or a general letter from the Chamber of Commerce and Industry on the certification of force majeure circumstances in connection with the war) sufficient for exemption from liability or even from performance.

The practice of the Supreme Court emphasizes that a general letter from the CCI is not a force majeure certificate for a specific contract; the certificate does not have probative force as “the sole evidence”, and the key is the causal link between the circumstances and the impossibility of performing a specific obligation; the burden of proving this link lies with the party referring to force majeure.

Practically, this means that the contracts should provide for:

• strict deadlines for notifications;
• a list of evidence (logistics reports, orders on evacuation/restriction of access, confirmation of the destruction of warehouses, confirmation of a ban on imports, etc.);
• the obligation to minimize consequences;
• the procedure for partial performance;
• a mechanism for termination/replacement of the supplier without violating procurement requirements.

Liability of Participants in the Procurement Process: From Fines to Criminal Proceedings

Violations of the legislation in the field of public procurement are not limited only to the risk of cancellation of the procedure.

Depending on the nature of the violation, the method of its commission, the presence of intent, the consequences for public finances, and the circle of persons involved, such liability can occur both in administrative and criminal order.

• Administrative liability (Art. 164-14 of the Code of Administrative Offenses of Ukraine): covers violations of procurement legislation and provides for the application of fines for actions or omissions that contradict the established procedure for carrying out procurement.
• Criminal liability (Articles 190, 191, 358, 364, 368 of the Criminal Code of Ukraine): in cases where violations in the field of procurement go beyond formal non-compliance with the procedure and acquire the signs of a socially dangerous act.

In particular, abuses during the organization or conduct of procurement related to the illegal seizure of budget funds or other property, depending on the established circumstances, can be qualified, among other things, under Article 191 of the Criminal Code of Ukraine as misappropriation, embezzlement of property, or seizure of it through abuse of official position.

If we are talking about the use of official powers contrary to the interests of the service to obtain an illegal benefit for oneself or other persons or to cause harm to the rights and interests protected by law, the question of applying Article 364 of the Criminal Code of Ukraine may arise, while the receipt by an official of an illegal benefit in connection with the commission or non-commission of actions within the procurement procedure can constitute the corpus delicti of a criminal offense provided for by Article 368 of this Code.

Separately, it should be taken into account that the submission of deliberately unreliable information, falsified supporting documents, or other forged materials for participation in the procurement procedure may, depending on the method of commission and consequences, lead to criminal liability for fraud in accordance with Article 190 of the Criminal Code of Ukraine and/or for forgery of documents, their sale or use under Article 358 of the Criminal Code of Ukraine.

Thus, an offense in the field of public procurement should be considered not only as a violation of a special procedure, but also as an act that, under certain conditions, transforms into a ground for applying a full range of measures, including criminal prosecution of the guilty persons.

Practical Recommendations for Mitigating Legal Risks for Contracting Authorities

Based on the analysis performed, contracting authorities are recommended to:

• implement internal procedures for checking tender documentation before its publication, involving independent legal advisors with experience in public procurement;
• ensure proper documentation of the process of making all decisions within the framework of procurement procedures, including in cases of using negotiated procedures and simplified procurements;
• when implementing projects with donor funds, systematically carry out a comparative analysis of compliance with the donor’s requirements and national legislation at each stage of the procedure.

Use Prozorro Market

A separate recommendation to contracting authorities is to conduct public procurement through Prozorro Market. This tool allows for the maximum simplification of the process, as the contracting authority does not need to develop tender documentation and independently verify the participants. The qualification of suppliers is carried out by the catalog administrators.

For goods from UAH 100,000, this is a real “safe harbor”. This removes the risk of appeals to the AMCU regarding discrimination and automates the choice of the winner. In addition, Prozorro Market also helps during audits by the State Audit Service of Ukraine (SASU).

The use of the market allows for a reduction in the procurement period to 5–7 days and minimizes the administrative burden on the authorized person. From a legal point of view, a request for proposals in the catalog practically levels the risks of appeals to the AMCU regarding discriminatory terms, because the technical task is formed on the basis of standardized categories. This ensures compliance, high delivery speed, and real savings of budget funds due to high competition among already verified suppliers.

Practical Recommendations for Mitigating Legal Risks for Participants in Procurement Procedures

Participants in procurement procedures should:

• conduct a thorough legal review of tender documentation for discriminatory or unclear requirements, and timely using the appeal mechanism through the AMCU;
• maintain full documentation confirming compliance with qualification criteria at all stages of preparation and participation in the tender;
• avoid any forms of anti-competitive concerted actions, including informal ones, remembering that liability occurs regardless of the form of fixing the agreement;
• when performing contracts, immediately and in writing, notify the contracting authority of any circumstances that may affect the terms or volume of performance, thereby forming an evidentiary base in case of disputes.

We also recommend registering and participating in procurement through Prozorro Market. The key advantages of using the electronic catalog are the absence of paperwork:

• the participant submits only a price bid;
• no certificates of no criminal record, absence of debt, or work experience at the submission stage. Verification takes place at the stage of entering the catalog;
• protection from subjectivism: the contracting authority cannot set “specific” requirements for a specific manufacturer, as it chooses a product from an already existing list;
• fast result: the procedure lasts from 2 working days, and the decision on the winner is made by the system automatically based on the lowest price;
• predictability: an ideal tool for companies working with standard goods and striving for systemic sales to the state with minimal legal risks.

Public procurement in Ukraine’s reconstruction projects functions in conditions of multiple legal risks. Minimizing these risks requires a comprehensive approach: improving the legislative framework, increasing the institutional capacity of contracting authorities and control bodies, wide involvement of independent legal advisors, as well as effective coordination between the national control system and the oversight mechanisms of international donors.

Ilyashev & Partners’ practice shows that legal support of reconstruction projects by qualified advisors from the very beginning is significantly less expensive than eliminating the consequences of legal violations at late stages of project implementation. In this context, the role of lawyers who help to do everything at an appropriate safe level can hardly be overestimated.