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The public procurement market in Ukraine has been rapidly developing despite the ongoing war and is expected to experience even greater growth in the post-war period. This opens up attractive business opportunities for foreign companies, yet it also requires a solid understanding of the specific regulatory framework governing government contracts in Ukraine.
This article outlines key “good-to-know” insights and practical considerations to help foreign businesses better understand the regulation and practical aspects of government contracting in Ukraine.
Regulatory regime and applicable law
Government contracts are, in most cases, procured under the Law of Ukraine ‘On Public Procurementʼ (the Law) and are subject to specific regulatory regime. In addition to governing the procurement procedure itself, the Law sets requirements for the content and performance of procurement contracts. In particular, it provides that such contracts must be concluded in accordance with the Civil Code of Ukraine, taking into account the specific requirements established by this Law.
Accordingly, even when a non-resident is a contractual party, the governemnt contracts are by default governed by Ukrainian law, which also applies as a substantive law in the event of a dispute.
Amendments to a draft contract
The contracting authority publishes a draft of the future contract together with the tender documentation at the very start of the procurement procedure. Before submitting its bid, a bidder may request amendments to the draft if it considers any provions to be discriminatory or unreasonable. However, once the winner is announced, the contracting authority and the successful bidder shall sign a contract on terms identical to those of the winner’s bid proposal. The current law allows only a few exceptions to this rule, such as:
- specifying the price of obligations in foreign currency;
- reducing the contract price without changing the procurement volume;
- adjusting the quantity of goods to align with packaging multiples.
Importantly, the non-compliance with this rule renders the contract void under Ukrainian law.
Amendments to a signed contract
The Law of Ukraine “On Public Procurement” generally prohibits amendments to the essential terms of a concluded contract until the parties have fully performed their obligations, except in a limited number of cases expressly provided by law. The most frequently invoked exceptions include:
- reducing the procurement volume, including in cases where the contracting authority’s actual budget expenditures decrease (e.g., due to reduced budget financing);
- increasing in the unit price of goods by up to 10%, in proportion to market price fluctuations, provided that the total contract price does not increase. Such an adjustment may occur no more than once every 90 days from the date of signing or last amendment of the contract (although this time restriction does not apply to contracts for fuel (petrol, diesel), natural gas, or electricity;
- improving the quality of goods, works, or services, as long as this improvement does not increase the total contract price;
- extending the contract duration or performance period due to objective reasons such as force majeure or delayed budget financing provided that such extension does not increase the total contract price;
- reducing the contract price without changing the contract volume;
- adjusting the contract price to reflect changes in tax rates, fees, or tax benefits, proportionally to such changes (which may, in certain cases, increase the total contract price, e.g., when the contractor becomes a VAT payer);
Additional supplies, works and services
Under the current procurement rules, a contracting authority may directly procure additional goods, works or services from the same contractor without a new tender. This is allowed when changing the supplier would result in technical incompatibility or operational issues related to the use or maintenance of goods, or when there is a need for additional similar works or services directly related to the original contract.
Such additional procurement may take place within three years from the signing of the initial contract, provided that the total price of the additional supply, works, or services does not exceed 50% of the price of the main procurement contract.
Subcontractors
In principle, the engagement of subcontractors under government contracts for the provision of services or works (but not for the supply of goods) is generally permitted. However, tender documentation may limit the engagement or replacement of new subcontractors without the prior consent of the contracting authority. The bidder must indicate in its bid proposal information about any subcontractor that will provide services or perform works amounting to 20% or more of the total contract price.
Importantly, under Art. 838 of the Civil Code of Ukraine, the contractor remains liable to the contracting authority for the result of the engaged subcontractor’s performance.
Force majeure
Tender contracts usually include a force majeure clause, which releases the parties from liability for improper performance of their obligations caused by force majeure events. At the same time, this clause typically requires the debtor to:
- notify the creditor within a specified period about the impossibility of proper performance; and
- obtain a valid force majeure certificate from the relevant Ukrainian or foreign Chamber of Commerce.
Failure to comply with these requirements may result in the loss of the right to invoke force majeure and an obligation to pay penalties and compensate damages in full.
Dispute resolution
Typically, when a non-resident is a party to a government contract, the dispute resolution clause provides that any disputes arising in connection with the contract shall be settled by the International Commercial Arbitration Court at the Ukrainian Chamber of Commerce and Industry (ICAC) in accordance with its Rules.
Although the ICAC Rules generally reflect the core procedural principles applied in leading international arbitration centres, the ICAC also has several distinctive features. One of them is a capped list of arbitrators available for the parties to choose from. At the same time, the ICAC is known for its relatively moderate arbitration fees and efficient dispute resolution process since most cases are resolved within six months from the date of claim’s filing.
Conclusion
Ukraine’s public procurement legal framework establishes several restrictions on the freedom of contract to ensure the integrity and fairness of the procurement process. Successful bidders should be aware of the statutory controls governing contract amendments and procurement of additional goods, services or works, as well as the default provisions typically included by contracting authorities in draft contracts.
At Koziakov and Partners, we specialize in helping businesses navigate these legal complexities. We offer practical legal solutions to manage contractual risks during the performance of government contracts and to ensure effective protection of our clients’ interests in the event of a dispute.
The content of this material does not constitute legal advice. You should always consult a suitably qualified lawyer about any particular legal question or problem you may have.