Ailing Army Procurements: What Went Wrong?

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2014/07/23 • Military analysis

The Ministry of Defence locked down milliards of hryvnas which could be used to buy 1 million of armour pieces for the army.

Were you one of those who donated to the army recently? You gave 5 hryvnas and inspired your friends to do it as well, in order to collect the money army needs for new armoured vests, costing 4.000 hryvnas each? Recently, the Ministry of Defense stated that they have 4 milliards of hryvnas in their bank accounts. This is enough to buy one million pieces of quality armour, not speaking of other things army is short of.

The catch? Well, the soldiers continue dying.

Why is that?

Let us look at the situation with donations and Ministry’s of Defence accounts today.

First, we are interested in the donations collected by citizens via calling 565 from their mobiles. As of June 3, 2014, circa 129 millions of hryvnas were collected with this method.

Let us see how much has been spent out of this sum. The Parliament made the Ministry of Defence produce a monthly report outlining the spending of the donations for the needs of the army. The Ministry of Defence reported that 7.1 million were spent as of June 12th, 2014. This is only 5.5 % of 129 million hryvnas, that were collected on the same date.

It has already been more than three months since Russian Federation declared war on us in everything but word. Russia’s Council of Federation allowed president Putin to use army in Ukraine on the 1st of March, 2014. And during these three months the Ministry of Defence spent only meagre 5.5% of money that the people of Ukraine collected to defend themselves! This looks even stranger if you consider the sheer number of requests for armour, boots, night vision devices and even socks, that Maidan activists are getting every day from the military. In fact, for a while the most needed resource out there was clean drinking water, according to the army procurements activist Phoenix who heads the “Wings of Phoenix” fund of support for the country.

Our military people lay their lives to stop the invasion of the “colorados”, which, if not quelled, will not stop at Luhansk and Donetsk areas, but will spread to the rest of Ukraine, including Kyiv. While risking their lives they do not even have enough water, not mentioning armour and weapons. And the money to buy all these resources, collected by common people , often by old grandmas, who took it out of their very modest pensions, is stuck in the bank accounts of the Defence Ministry. All these millions of hryvnas, which could save the lives of the soldiers.

However, this is not all to the story. In fact, the total value of the Defence Ministry’s accounts amounts not to millions, but rather to milliards of hryvnas. According to the recent report by the Defence Ministry, 4 milliards of hryvnas are to be found in its accounts as of June 3, 2014.

What is the reason for that? The government allocated 4.6 milliards of hryvnas for the needs of the army as early as March and April of 2014, transferring this money to the Ministry of Defence in 4 installments. They did it because of de facto war between Ukraine and Russian Federation. But the Ministry of Defence managed to spend only about 500 millions of hryvnas out of this sum.

This sounds utterly incredible. To sum up:

52.100.000 + 1.482.500.000+ 17.200.000 + 3.105.400.000 = 4.657.200.000 hryvnas!

What is this, sabotage? Treason, perhaps, as defined by the Criminal Code, article 111? Or is this an attempt to sit out the war and “re-purpose” the money later, after the public scrutiny dies out?

What do the bureaucrats have to say about it? They have to say, that the federal acquisitions regulations are very complex and, because of this, it is not possible to allocate the funds to buy equipment for the army fast enough.

Most interesting statement, especially if one consults article 39 of the appropriate law (“On the procedure of federal acquisitions”), which clearly states, that the acquisitions can be completed by the Defence Ministry in 8 days.

Here is what the law says:

1. article 39, paragraph 1: “the buyer has to publish the information about the negotiation procedure in three business days after the decision to hold this negotiation procedure has been taken. The announcement about the negotiations must be published on the buyer’s web portal. The buyer can do it also on the day of decision”. So, once the Defence Ministry wants to buy something and start negotiations about the amount of articles and price with their providers, they can announce it immediately, this step can take as little as 1 day.

2. article 39, paragraph 3: “the term during which the winner of the negotiating procedure is determined can not exceed five days from the announcement of the negotiations on the buyer’s web portal”. If in hurry, the winner can be selected fast – in one day.

3. article 39, paragraph 3: “the buyer officially accepts the winning proposal on the day when the winner has been determined after negotiating procedure. The buyer must officially announce the acceptance of the proposal within 3 days after the selection of the winner (article 10 of the same law)”. Therefore, the announcement can be published immediately after the winner has been selected.

4. article 39, paragraph 3, part 2: “the buyer reserves the right to sign the procurement agreement resulting from negotiation procedure in no earlier than 10 days or, in cases determined by part 3 of paragraph 2 of article 39, in 5 days”. The said cases include the articles required by the army in special circumstances.

In sum: 1+1+5 = 7 days to complete negotiating procedures, plus 1 day to sign the agreement = 8 days from the decision to buy needed articles and equipment.

During our efforts to clarify the above points we faced a crowd of bureaucrats and so-called experts who were either incompetent or simply corrupt and determined to distribute the federal funds between themselves. Those were the former Minister of Defence Kuzmuk, the head of Ukrainian Economist Committee Novak and deputy Director of the Defence Ministry’s Department of Finance Vynnyk. They joined their voices to tell us, that the federal acquisition procedures are so complicated that they can never be completed in the realistic time frame.

After lengthy and tiresome communication with them we concluded that either none of them ever saw the article 39 of the appropriate law “On federal acquisitions” (which is not plausible), or, they deliberately were trying to push through some kind of corrupt scheme.

Activists devoted a lot of attention to this question. On June 10th we held a protest under the Cabinet of Ministers’ building, demanding that the Ministry of Defence buy the required equipment immediately using the 4 milliards of hryvnas in its accounts. This protest was aired by the central TV channels and several publications about it appeared in the Internet.

Earlier another group of activists picketed the Ministry of Defence itself.

After these actions we were able to hold an interview with three high-ranking employees of Defence Ministry. At that time, the head of Central Agency for Army Procurements, Oleg Vasylyovych Dovgalyuk, was able to tell us that he was “no lawyer” and did not know that the acquisitions could be done in such a short term. He placed the blame on the Department of Acquisitions of the Defence Ministry. Amazingly, the powerful bureaucrat directly in charge of army procurements apparently has zero knowledge of the appropriate laws.

Mr. Dovgalyuk has a deputy, Guslyakov Yuriy Evgeniyovych. According to Mr. Guslyakov, the problem with procurement exists because the federal acquisitions procedure requires 21 days to complete, and, because of this, the Defence Ministry is unable to do it swiftly. Hence, Mr. Guslyakov has no knowledge of the law either.

In the law-abiding society the fact that high-level bureaucrats do not know anything about the laws directly pertaining to their work is grounds for their dismissal from their jobs.

Next, we talked to the head of the public relations and information department of the Ministry of Defence, major-general Kopanytsya Olexander Vasylyovych. He failed to tell us what was the reason behind the inadequate procurements.

Also several attempts were made to simplify the procurement and acquisitions procedure and some of those attempts were targeted at already established 8-day procedure. However, those who initiated these attempts had somewhat surprising arguments. Apparently, they believed that the acquisitions could be done either in 2-3 months of 21 day.

Activists consider the possible separation of the Defence Procurements from the rest of federal acquisitions a step to increasing corruption. Were such separation to take place, the buyers would have to report their acquisitions only to the Cabinet of Ministers, submitting the 3-day reports to the government. There would be no more formal publications in the official “Journal of federal acquisitions”, meaning that the only way to infer who made profits off the army and how large these profits were would be forfeited.

Is it possible, that the Ministry of Defence is simply short of personnel to arrange for express acquisitions? In this case, they could hire independent specialists with appropriate background, some of which could even volunteer their services for free. We, the activists, are ready to work for the Procurements Department around the clock to make sure that our army has everything it needs. We can buy the needed high-quality equipment at optimal prices and we can do it fast, same as any paid bureaucrat.

Here is another fact raising questions about the competence of the Defence Ministry’s bureaucrats. After consulting them Yuri Biryukov said that the Ministry of Defence can not make deposit payments. Such deposits are usually required by the most providers of the military equipment, as they need to buy materials to manufacture the equipment like armoured vests. Hence, the options for procuring the equipment are very limited, according to this opinion. However, to the contrary of bureaucratic opinion, the decree of Cabinet of Ministers #464  (“On the order of military equipment by the government”) actually allows to make deposits, as stated in part 27 of the decree. It appears that the complains about the deposits are just another way to explain why the relations with the providers have such a bad outcome.

More interesting things surface up if one takes a look at the spending report published by the Ministry of Defence on its website. First, it is not an easy undertaking to find the said spending report on the Ministry’s website. It is absent from the sections “Most searched documents”, “Reports” and “Budget of The Ministry of Defence of Ukraine and reporting on the strategic programs”, where it would logically be found. Perhaps it means that the leadership of the Ministry does not want this spending report to become public knowledge to prevent the scrutiny of the citizens?

However, if you have exceptional will and determination and manage to dig through the Ministry’s website and locate the information about the funds collected through the 565 calls, you still will be mislead. Another tell tale sign is the language and definitions used by the Ministry’s officials in the report.

Figure 1. Screen shot of Defence Ministry’s website section “Information on donations for medical and technical support”

Take a look and the top panel above the graph in Figure 1. There you see the formulation “The funds were spent on …” (inside the red circle). From this formulation you get a false idea, that the goods were already bought and even delivered to the army. When we asked the bureaucrats for the details about these spent funds, it soon became clear, that “spent on” means that the money was simply allocated to different structural divisions of the Ministry and no goods had actually been bought with it. To buy something remains a plan for the future, and the money is still deposited in the Ministry’s accounts.

The citizenry would not leave the military alone though. Today a number of activists and volunteer groups are working to meet at least basic needs of the army and buy equipment they ask for. But these needs exceed the means of these groups by many-fold. The most successful groups collected and used up to 4 millions of hryvnas. And, while collecting this money, we know too well, that the Ministry of Defence has a thousandfold more funds that the most successful of can scrape up. 4 milliards of hryvnas, to be exact.

Therefore, we DEMAND that President Petro Poroshenko and Defense Ministry leadership explain themselves to the public. How did it happen, that, while our soldiers are risking their lives in the war zone without having even basic equipment, milliards of funds are lying still in the accounts of the Ministry of Defence?

Finally, as an activist, I feel that this problem has not received the public attention it certainly deserves. Activists should not let go, and lean onto the ministerial bureaucrats ten, hundred times harder. We need to create a public chamber to monitor the activities of the Defence Ministry and conduct a public investigation into the process of army procurements and acquisitions. For this we need more and more active citizens.

Let us unite around this topic. You do not just find 4 milliards of hryvnas to equip and train your army.

(written for Ukrainska Pravda by Iryna Varshyk, army provisions activist lawyer; translated and edited by Anna Palagina)

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Update (July 4, 2014, via Iryna Varshyk).

On July 3, 2014 the President of Ukraine appointed Valery Viktorovych Geletey to the office of the Minister of Defence, after the Parliament dismissed previous Minister Koval. Despite this, however, the same all too familiar faces remain in charge of Procurements and Acquisitions. Official information on the Defence Ministry’s site shows that the money in Ministry accounts gets spent. But the rate at which this happens is very, very slow. This is not really surprising, because over the last weeks the workload of the Ministry increased greatly, but the people taking care of this workload are the same inefficient cadre that were unable to provide for the army before. For instance, take Marko Yuri Ivanovych, head of the Finance Department. His reputation with the procurements and federal acquisitions is far from spotless, but he stays in his job. Unfortunately, so does a number of his co-workers, who yet have to be fired for slowing down the provisions for the army to the crawl. They yet have to answer for misleading the country and telling its citizens, that the law had prevented them from buying the equipment for the army swiftly, while in fact the law allowed to complete the procedure of procurement in 8 days.

Unfortunately, the activists demonstrate surprising indifference to these facts. Of course, if we choose to pressure the Ministry of Defence into hurrying up with the procurements, we can not be 100% sure that the Ministry will comply with our demands. Because of this most activists decide to focus on small but sure tasks. They choose to spend their time collecting charity and buying small amounts of equipment with this charity. They choose to have full control over the whole process and to actually see the equipment reach soldiers. In other words, they choose to see a small, but real result of their activities, rather then spend energy and time on seemingly hopeless task of throwing themselves against the bureaucratic machine of the Ministry of Defence, trying to force this machine to effectively spend 4 milliards of hryvnas (more than 300 millions of US dollars, as of July 2014). The most effective volunteers managed to collect and spend as much an millions of hryvnas. Still, the sums that the Ministry controls are thousand-fold larger and they should not be wasted.

It is worth putting some effort into what can become an area of the very effective activities for both citizens and state employees. We have to force the Ministry of Defence to place better educated and experienced personnel in its key posts.

(written for Ukrainska Pravda by Iryna Varshyk, army provisions activist lawyer; translated and edited by Anna Palagina)

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  • Murf

    Everybody that was there from the Yanuko regime should be removed just on shear principle. With a war against well funded and motivate rebels and an other one looming with a major military power these ossified dinosaurs should be sent packing.
    The people of Ukraine MUST NOT LET THIS PERSIST!
    The Yanuko kleptocracy needs to be purge from the whole government if Ukraine is to survive. Making an example out of the MoD procurement will send a clear message “Clean up your act! or else!”

  • Milton Devonair

    This is why the various groups that make up “The Right Sector” were so vital and continue to be vital to Ukraine if they hope to stay free from the neo-soviet putin and his russia. They can operate along side of, but outside of Ukrainian government channels, so the funding they get is directly to them, which is why they had new gear, vests, arms, etc. looooong before the Ukrainian army could ever hope to get.

    Another excellent example of why countries need a free and armed citizenry….if they want to stay free and independent.

    • Murf

      “why countries need a free and armed citizenry”

      After watching the events in Ukraine I believe that now more than ever.

      • Milton Devonair

        “WARSAW, Poland — A Polish magazine said Sunday it has obtained
        recordings of a private conversation in which the foreign minister says
        Poland’s strong alliance with the U.S. was worthless and “even harmful
        because it creates a false sense of security.”

        http://www.military.com/daily-news/2014/06/23/report-poland-minister-calls-us-ties-worthless.html

        • Murf

          Well in many ways I can’t blame them.
          First Obama cancels the Bush ballistic missile defense system.
          Then when the Poles are facing their worst threat from Russia since the Cold War and ask for two heavy brigades he sends them a company of Paratroopers.
          But then Obama has never been overly concerned about loyal allies like Poland, Israel or even Canada.
          So what do you expect?

          • Milton Devonair

            I can’t blame them at all either. On the bright side, weaponry these days is fantastic, unlike 1939, so countries like Poland should stock up, have munition dumps all around their country and make sure that most people are in some sort of ‘national guard’. That’s about the only options for any countries around the cesspool called russia these days.

          • Murf

            The Poles take their national defense SEROUS!
            They even working a develop an anti ballistic missile system for them selves. Called the”Shield of Poland” it will be multi layered. They are currently shopping for a medium altitude AA system and are looking at an upgraded Patriot.
            They also take their training serous. the Polish Air force pilots get more stick time than the RAF or the French.
            If Russia comes across the boarder then better be fuking serous too.

          • Milton Devonair

            Good read, “Bloodlands”.
            https://en.wikipedia.org/wiki/Bloodlands

            If Ukraine stays free from the russian vermin, it would be interesting for balarus with a free poland on one side, and a free ukraine on the other, all free countries but on the russian side of it.