At the pre-tender stage and contracting stages
Study the market and identify the requirements. Before issuing a call for proposals, study the market and establish clear qualification criteria — they will reveal whether the supplier really has the experience and resources to deliver on the contract.
Clearly detail the ToR. The contract should set out as much detailed information as possible about the goods, works or services, in particular expectations of their quality, quantity, deadlines, place of delivery or performance, acceptance terms and conditions. This will reduce the risk of non-compliance on the part of the supplier. The Terms of Reference should be included in the contract as a separate annex.
Agree on the ordering procedure and delivery deadlines. To avoid misunderstandings, the contract should provide for the procedure for submitting a request, confirmation of its receipt, delivery deadlines, the possibility of early delivery and the procedure for informing about the arrival of the transport.
Example of wording for the contract
Article X. Ordering Procedure
Procedure for Ordering the Goods:
The Procurement Originator shall place an order for the Goods by submitting a written Request to the Supplier.
Request Form:
The Request shall be drawn up in the form given in Annex [Annex Number] hereto.
Communication:
The Request shall be sent using one of the following methods:
- by e-mail to the Supplier’s official address: [specify e-mail];
- by another method agreed upon by the Parties.
Receipt of the Request:
Any Request sent by e-mail shall be considered received upon receipt. The Supplier shall confirm receipt thereof using the same method within one business day.
Content of the Request:
The Request shall contain the following:
- designation of the Goods (according to the specification / Annex [Number]);
- quantity;
- preferred delivery date;
- address of delivery;
- contact details of the Procurement Originator’s responsible person.
Article Y. Delivery Terms
- General delivery terms. The Goods shall be delivered within [specify the number] calendar/business days from the date of receipt of a properly completed Request.
- Specification of the deadline. For each Request, the Procurement Originator shall indicate a specific preferred delivery date. This date shall be at least [specify the number] days from the date of submitting the Request.
- Early delivery. The Goods may be delivered early only subject to the prior written consent of the Procurement Originator.
- Delivery notification. The Supplier shall notify the Procurement Originator of the readiness for delivery and the estimated time of arrival of the transport — by phone or e-mail.
Mechanisms of Liability of the Parties for Non-Performance or Improper Performance
Penalties (fine, interest). The contract must clearly specify the amounts of penalties for late delivery, non-Performance or supply of poor-quality goods. These amounts must be significant enough to encourage the supplier to fulfil its obligations in good faith.
Performance security. It is recommended to provide for the performance security in the form of a bank guarantee. According to Article 1.1.9 of the Law of Ukraine “On Public Procurement”, performance security means the provision of a guarantee that the party fulfils its obligations to the procurement originator. Pursuant to Article 546 of the Civil Code of Ukraine, the fulfilment of obligations may be secured by a penalty, surety, guarantee, pledge, retention, deposit or trust ownership.
Bid security. If the procurement originator requires a bid security, the bidding documentation must indicate its type, amount, validity period and conditions whereunder it will not be returned to the supplier. Amount limits: no more than 0.5% of the expected purchase price for works and no more than 3% for goods or services. The specific amount is determined by the procurement originator at its own discretion.
Bank guarantee. If a bank guarantee is used, ensure the compliance with Order of the Ministry of Economy of Ukraine No. 2628 “On Approval of the Form and Requirements for Securing a Bid/Quote” dated 14 December 2020 and Resolution of the National Bank of Ukraine No. 639 “On Approval of the Regulation on the Procedure for Banks and Financial Companies to Perform Transactions Under Guarantees in National and Foreign Currencies” dated 15 December 2004. These documents clearly regulate the recording, validity conditions, deadlines and mechanism for the implementation of guarantees.
The same Resolution of the National Bank of Ukraine No. 639 is the key regulation that determines the procedure for issuing and executing bank guarantees in Ukraine. It should be used during calls for proposals where a bank guarantee is required.
Examples of successful use of bank guarantees in procurement:
UA-2025-01-01-001610-a, UA-2025-02-05-005204-a, UA-2025-07-08-011596-a.
Important case law
Note the Resolution of the Supreme Court of the Joint Chamber of the Economic Court of Cassation of 17 May 2024 in case No. 910/17772/20. This decision was a turning point, as the Supreme Court changed its legal position regarding the procedure for collecting funds under a bank guarantee.
Previously, the Joint Chamber believed that in disputes about collecting funds from banks under a guarantee, it had to be established whether the main obligation had been violated. Nowadays, it is sufficient for the claim to the bank and the accompanying documents, if provided for by the terms of the guarantee, to comply with the requirements of the guarantee itself in terms of their external characteristics.
Thus, the Supreme Court sided with the procurement originator in disputes with banks and unscrupulous counterparties. This Resolution streamlines the procedure for collecting funds and increases the effectiveness of the bank guarantee as a tool for ensuring the fulfilment of obligations.
At the performance stage
Systematic performance oversight (monitoring of deadlines). Regularly check the supplier’s compliance with the specified delivery deadlines, performance of work or provision of services.
Price increase. Clearly set out the grounds for changing the price in the contract, the documents entitling the price increase and the amendment procedure (specify the conditions for changing the price in the contract in as much detail as possible to protect yourself). Please note that a price can be both increased and decreased.
Quality control. Ensure effective control over the quality of goods, works or services. This may include a visual inspection, verification of documentation and compliance with standards.
Recordkeeping. Keep detailed records of all stages of contract performance. Record all violations, delays, inconsistencies (draw up statements, submit claims, archive correspondence). These will be solid evidence should any disputes arise.
Prompt response to violations. Do not delay responding to any violations by the supplier. Submit written claims demanding to eliminate deficiencies or pay penalties. Clearly record your demands and deadlines for their implementation.Termination. In case of a significant violation of the contract (e.g., repeated delays, delivery of poor-quality goods, non-performance), the procurement originator is entitled to terminate the contract. The contract typically stipulates provisions on the termination procedure and conditions. Keep in mind that for unilateral termination, there must be clear grounds provided for in the contract.
Make sure the wording is clear. Avoid any ambiguities. Determine what exactly is considered to be a “significant violation”.
Conclusions
When determining the format of securing obligations, consider the scope of the contract. For smaller contracts, a bank guarantee may be financially impractical, as its cost may exceed the risks themselves. In such cases, a penalty or fine may be more acceptable, since they are simpler and cheaper to use. You can avoid problems and save your municipality money by being well-prepared, clear in your wording, working with reliable suppliers and keeping a close eye on things.
