Moments Away From the Revolution. What Is Going To Happen To Defense Procurements?

It is hard to say how much of the budget and taxpayers money were spent. But the current Parliament has a chance to make a history.

It is easy to structure negative information in media regarding the Ministry of Defense of Ukraine. Here is one of them, which encompasses relations between service members. The other one is insufficient financing of the defense agency. And cases regarding armored medical vehicles “Bohdan” or “Molot” type mortars are clear examples of a dangerous illness called “non-transparent defense procurements”.

The point is that nowadays Ukrainian State Defense Order (SDO) means that the order for the military products by the state is 95% classified. It is explained by the necessity to preserve state secrets and not to provide “excessive” information to the enemy (even when you further demonstrate military equipment during a public admission to the Armed Forces).

Thus, nowadays there is no transparency within procurements of weapons and military equipment. There is also no competition among producers. (If everything is classified, how to find out about the needs of the MOD in a military equipment and services? How to plan significant funds for defense research? How to create brand new and expensive defense products? There are a great number of corruption risks which are a reason for viral and not so viral scandals and profligacy.

No one will tell you, how much had the defense budget and Ukrainian people lost. We have just started to investigate these cases, but now we are talking about hundreds of millions of UAH.

But soon we will change the rules of the game in the field of defense procurements.

Just will show you in details, what will happen if the Parliament authorizes defense procurements reform. Such bill has already been submitted to the Parliament.
1. That is the first brick in a long process of the declassification of defense procurements. No one, except a small range of stakeholders, doesn’t know what exactly is procured by the Ministry of Defense of Ukraine and what are quality demands. Such a closed environment became a fertile soil for corruption. We will propose changes to the Law on State Secret and then we will participate in creation of a new Law on Protection of the Classified Information.  
2. For the first time in twenty years we can step back from the soviet- styled state control over the economy. We have to renounce “planned production” in the defense procurements sphere. The current system satisfies neither clients, nor producers who cannot effectively develop production under such circumstances.

3. Competition between state and private-owned producers of weapons and military assets, who are either residents or nonresidents of Ukraine. That is a clear consequence of transparency of defense procurements; from now on all interested parties will have the information about MOD procurement plans. I want to also stress that some of them will be classified. The bill also envisages competition within closed procedures.

4. Preventing corruption risks in defense procurements. Recently, the International Anti-Corruption Committee has released a study on 12 major corruption risks associated with the State Defense Order. The bill responds, if not for all, but to most of these risks.

5. Change of pricing mechanisms, which cannot but not to please producers. First, we move away from tight price regulation through ECM (estimated and calculation materials). All NATO defense agencies have special procedures for determining the value under such conditions, and we will use the world's best practices to shape our order. The law defines new conditions and principles, but the basic mechanisms will be defined by the Government's resolution.

6. Establishment of the state quality certification system. It is a revolutionary mechanism that assures the quality of products we buy through the “audit” of production quality management systems in accordance with NATO standards. And this is not an abstract standard of "all good vs. all bad." This is NATO's standard and the extensive work on its implementation which has already been undertaken by the Ministry of Defense.

7. Transparency and competition within defense procurements will help to save budgetary funds in arms procurement sphere. This is "universal medicine", because we understand that without competition, it is impossible to force suppliers to bargain and reduce prices through market methods. The current administrative regulation of pricing "hits" on quality and, endangers the lives of our soldiers.

8. This brings us much closer to Europe: the document aligns our "procurement" legislation with European legislation (Directive on Defense Procurement 81/2009 / EU). In essence, we tell our partners: "Ukraine is Europe." We also fulfill the obligations of the Association Agreement.
9. This will allow the purchase of NATO products and services, as well as Foreign Military Sales (US Government's international military sales system). In which cases? If there is no production of necessary products in Ukraine, or they are much more expensive. We can provide as the example, the purchase of US Javelin anti-tank missiles.
The current Parliament has a chance to make a history as a real reformer of the defense procurement system, for the first time in 20 years, or even more, from 1994, when the Law on State Secret was adopted and which ignited all these classification procedures within the defense procurements sphere.

Source: 'Novoe Vremia' column.