Public procurement of construction works in Ukraine
Introduction
1. Terminology peculiarities
2. Peculiarities of construction works procurement
3. Pilot project for reconstruction
Ukraine has to overcome the consequences of russian aggression every day. As a result, there is an urgent need to restore affected areas, buildings and facilities of various purposes, a variety of infrastructure facilities, etc. In such circumstances, participation in public procurement of construction works (restoration, reconstruction, overhaul) offers promising opportunities.
1. Terminology peculiarities
Procurement legislation distinguishes between the procurement of services and works. In order to successfully prepare for participation in public procurement in the construction sector, these terms need to be differentiated.
Thus, works are defined as:
- development of project documentation for construction projects;
- development of scientific and design documentation for the restoration of architectural and urban landmarks;
- construction of new facilities, expansion, reconstruction, overhaul and restoration of existing facilities and structures for production and non-production purposes;
- construction of facilities involving the development of project documentation;
- work on construction standards;
- geological exploration works;
- technical re-equipment of existing enterprises;
- services accompanying the works, including geodetic works, drilling, seismic surveys, aerial and satellite photography, and other services included in the estimated cost of works, if the cost of such services does not exceed the cost of the works.
Thus, from the point of view of procurement legislation, major overhaul is considered to be works. At the same time, current repairs, including current repairs with the development of project documentation, are services.
Related article: Baugenehmigungen für ausländische Unternehmen in der Ukraine möglich
This distinction is important both for the purposes of determining the subject matter of the procurement and for selecting and conducting the appropriate procurement method.
For instance, procurement of maintenance services through open tenders is required if the value of such services equals or exceeds UAH 200,000 (approx. USD 4,900). At the same time, procurement of works, including overhaul, is required if their cost equals or exceeds UAH 1,500,000 (approx. USD 36,600). Accordingly, when the cost of maintenance or overhaul services is less than the specified thresholds, a direct contract may be concluded between the procuring entity and the contractor without the use of an open tender procedure.
In addition, there are different minimum deadlines for submitting proposals in open tenders, namely:
- 7 days for the procurement of services (including maintenance services);
- 14 days for the procurement of works.
In most cases, when it comes to restoration, in particular as a result of russia’s armed aggression, it is works on construction, reconstruction, restoration or overhaul of the relevant facility which are procured.
Design works (development of design documentation for construction objects) may be procured either as a separate procurement item or as a complex consisting of both design and construction works.
2. Peculiarities of construction works procurement
The procedure for procurement of construction works (overhaul and reconstruction) is carried out taking into account the specific requirements of Ukrainian legislation in the field of construction, including the specifics of construction in certain industries (e.g., road repairs).
Regulatory and legal acts to be considered during the procurement procedure, as well as for the development of tender documentation and technical specifications to it, include:
- laws, including those specifically regulating construction, licensing, permits, etc;
- by-laws, including those specifically regulating the peculiarities of concluding and performing capital construction agreements;
- special construction norms and standards, etc.
These acts define the following:
- the necessary technical requirements for the relevant procurement item (technical specification);
- conditions and procedure for submitting a tender proposal, in particular, its commercial part (price proposal);
- terms and procedure for concluding and implementing a construction procurement agreement, etc.
Based on the type of procurement objects in the construction sector, the technical specification will be determined:
- for the procurement of design works – based on the design specification;
- for construction procurement (restoration, overhaul) – based on the project documentation.
In practice, there are cases when the technical specification does not contain sufficient information on the type and scope of works, their location, etc. to allow the bidder to properly formulate the tender proposal taking into account all factors and requirements.
Sometimes, technical specifications include project documentation that is extremely voluminous, while the deadline for preparing and submitting tender proposals is minimal. In such a situation, the bidder is objectively unable to review all the project documentation before the deadline for submitting bids.
Therefore, technical specifications for the procurement of construction works require a separate and thorough review.
If necessary, it is advisable to contact the procuring entity to provide clarifications or even challenge the technical documentation as containing discriminatory or incomplete (inaccurate), or vice versa, excessive (unnecessary, unreasonable) requirements.
Construction activities and most related works require relevant licences and/or permits. In this regard, bidders are often required to provide such licences (permits) as part of their tender proposal, or to provide information on the availability of such licences (permits). In such cases, it is necessary to indicate the source where the information can be verified (public registers).
Related article: Bau- und Montagearbeiten in der Ukraine durch ausländische Unternehmen
It is important to note that if a bidder does not have the relevant licences or permits, it has the right to engage subcontractors who have such permits to perform the relevant works. At the same time, the procedure for obtaining certain permits is significantly simplified for the period of martial law in Ukraine.
The bid price of a participant in the construction procurement procedure (i.e., the agreement price to be included in the procurement agreement) is calculated on the basis of:
- the normative demand for labour and material and technical resources required to implement design solutions for the construction project;
- current prices for these resources, or
- aggregate indicators of the cost of works, the scope and types of which are provided for in the approved project documentation.
To calculate a bidder’s proposal price (agreement price), the procuring entity shall provide the following:
- a statement of the scope of work;
- a statement of resources to the statement of scope of work without prices, or approved design documentation.
At the decision of the procuring entity, the statement of work may be prepared in accordance with the international measurement system determined by the procuring entity.
To calculate the bid price (agreement price) for certain types of overhauls, the procuring entity may submit a defect report in the prescribed form.
The bid price is formed on the basis of the cost of construction works, which includes the following:
- direct, general production and other costs for the construction of the facility;
- profit;
- funds to cover administrative expenses of construction organisations;
- funds to cover risks in cases established by law;
- funds to cover additional costs associated with inflationary processes;
- funds for payment of taxes, duties, mandatory payments.
The bid price shall also include a separate section to cover the costs associated with the purchase and delivery of equipment, furniture and inventory to the construction site, which shall be provided by the participant of the procurement procedure (contractor).
The agreement price is an estimate of the cost of contracting works agreed by the procuring entity and used for mutual settlements.
When entering into a procurement agreement, both procurement legislation and special legislation in the field of construction must be taken into account. These include, in particular, the regulations governing the conclusion and execution of contractors’ agreements in capital construction.
Thus, in a contractor agreement, the parties are obliged to specify:
- the name of the construction object;
- the location of the construction object;
- the main parameters (capacity, area, volume, etc.), composition and scope of works envisaged by the project documentation and to be performed by the contractor;
- other indicators characterising the subject matter of the contract.
The schedule of works is an integral part of the contractor’s contract, which sets forth the start and end dates of all types (stages, complexes) of works stipulated by the contractor’s agreement.
As noted above, the agreement price in a contractor’s agreement is determined on the basis of an estimate as either approximate or firm.
An approximate estimate (dynamic contract price) is an estimate that is subject to adjustment in the event of changes in the market prices of the resources included in the agreement price, as well as on other grounds specified in the agreement terms.
A firm estimate (firm agreement price) is an estimate that may be adjusted only in certain cases by mutual consent of the parties under the procedure specified in the agreement.
At the same time, regardless of the type of agreement price (dynamic or fixed), since the price is an essential condition of the construction procurement agreement, any change shall be subject to the special provisions of the relevant procurement legislation.
3. Pilot project for reconstruction
The Government of Ukraine has implemented a pilot project to restore settlements affected as a result of russia’s armed aggression.
The pilot project is aimed at restoring certain affected settlements located in Kyiv, Kherson, Sumy, Kharkiv, and Chernihiv regions.
The bodies responsible for the restoration and development of infrastructure in the regions act as procuring entities and recipients of budgetary funds under the pilot project.
The restoration of settlements includes the development of project documentation (design estimates), new construction, reconstruction, restoration, overhaul, maintenance, and purchase of goods.
The restored real estate objects (individual residential buildings) in settlements must be suitable for permanent residence. Also, all the works required by the project documentation to ensure permanent residence in such facilities must be completed.
The procurement of goods, works, and services within the pilot project is carried out in compliance with the requirements of the procurement legislation, in particular under martial law.