Check out our previous recommendations here: 24 hours to eliminate any discrepancies: practical cases and advice to authorised persons
Compliance with construction procurement laws is vital in order to avoid violations and ensure a transparent and efficient process. Procurement originators and contractors should carefully study and apply the Civil and Commercial Codes of Ukraine, as well as the General Terms and Conditions for the Execution and Performance of Capital Construction Contracts approved by the Resolution of the Cabinet of Ministers of Ukraine No. 668 dated 1 August 2005 (hereinafter referred to as the General Terms and Conditions). Special care should be paid to warranty periods, financing plans and detailed work schedules. Following these recommendations will help you avoid common mistakes pointed out by the State Audit Service and ensure legal compliance with contracts, from signing to execution.
The relations between the procurement originator and the contractor throughout the procurement of construction works are clearly regulated by the laws of Ukraine. The framework for these legal relations:
- Section 61 of the Civil Code of Ukraine
- Section 33 of the Commercial Code of Ukraine[1]
- General Terms and Conditions
In other words neither procurement originators nor contractors can include any provisions into a construction contract that contradicts with the above legislative provisions.
Keep in mind that according to Part 1 of Article 837 of the Civil Code of Ukraine, under a contract, one party (contractor) undertakes to perform certain work at its own risk upon the assignment of the other party (procurement originator), and the procurement originator undertakes to accept and pay for the work performed.
Following the procurement monitoring conducted by the State Audit Service, a number of the most common violations were identified. Here is their overview and relevant advice.
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Violations regarding the warranty periods for the quality of work
Nature of the violation: Procurement originators often set forth inadequate (too short) warranty periods for the quality of completed work or the operation of a facility under construction in contracts.
Regulatory basis: Pursuant to Article 884 of the Civil Code of Ukraine, the contractor guarantees that the facility under construction will meet the specifications in the design and estimate documentation and will be suitable for operation in accordance with the contract throughout the warranty period. This period is ten years upon acceptance of the facility by the procurement originator, unless a longer period is established by the contract or law. A similar provision can be found in Clause 103 of the General Terms and Conditions.
Challenges: In some cases, especially for major repairs or reconstruction, procurement originators specify shorter terms, which is in direct violation of the legislation. This is evidenced by the following monitoring cases: UA-2024-09-11-013458-a, UA-2023-10-23-012226-a, UA-2023-11-23-007685-a.
Advice: The capital construction (new construction, reconstruction or major repairs) contract must clearly specify warranty periods, which must be at least 10 years.
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No financing plan or its non-compliance
Nature of the violation: Procurement originators do not provide for a financing plan in the contract or draw it up without complying with the General Terms and Conditions.
Regulatory basis: The General Terms and Conditions stipulate that the work (construction of a facility) must be financed according to a plan. This plan must be drawn up by the procurement originator, agreed with the investor (main administrator of budget funds) and the contractor and be an integral part of the contract. The construction financing plan is developed on the basis of the title to the building (facility), the construction management plan, the work schedules and settlement procedures.
Requirements for the plan: The construction financing plan must be drawn up for the entire construction period (by years), as well as by months for the current year, indicating sources and areas of financing. The monthly distribution of funds for transitional facilities is agreed upon by the parties annually. The procurement originator is also entitled to update the financing plan for the current year to factor in the available funds and the scope of work actually performed.
Challenges: No financing plan or its non-compliance is a common violation, as evidenced by the following monitoring cases: UA-2023-11-17-007685-a, UA-2023-09-19-014651-a.
Advice: The capital construction contract must include a financing plan as a separate annex. When drawing it up, refer to the Recommendations for Developing Annexes to Capital Construction Contracts approved by Order of the Ministry of Regional Development, Construction, Housing and Communal Services No. 2 dated 13 January 2009.
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Non-compliance of the work schedule
Nature of the violation: Construction procurement originators do not comply with Clause 17 of the General Terms and Conditions when drawing up work schedules.
Regulatory basis: According to the General Terms and Conditions, the deadlines for works (construction of the facility) are established by the contract and are determined by their commencement and completion date. An integral part of the contract is the calendar work schedule, which determines the commencement and completion dates of all types (stages, packages) of work provided for by the contract.
Challenges: Procurement originators often treat the schedule as a formality, indicating only general designations of works without the commencement and completion dates of all types of work. This is evidenced by the following monitoring cases: UA-2023-09-19-014651-a, UA-2025-01-13-013219-a. Note that the terms and conditions of the procurement contract should not differ from the provisions of the winning bid. Therefore, the work schedule specifications should be detailed in the tender documentation.
Advice: The tender documentation must clearly indicate the procurement originator’s requirements for the work schedule. In the capital construction contract, the General Terms and Conditions should be clearly observed when designing this plan, and, once again, the Recommendations approved by the Order of the Ministry of Regional Development, Construction, Housing and Communal Services No. 2 dated 13 January 2009 should be observed.
[1] As amended
