Localization of production of goods in public procurement Prozorro

Localization of production has become an important criterion in public procurement in Ukraine. In 2022, norms regulating the requirements for the degree of localization of production for certain categories of goods purchased through the Prozorro system came into force. This is a significant step towards supporting domestic producers and the development of the Ukrainian economy.

What is localization of production in Prozorro?

Localization of production means the share of Ukrainian components in the production of a particular product. This may include the use of domestic raw materials, components, labor, and production facilities. In public procurement, the level of localization is determined by special regulations and reflected in the terms of tender documentation.

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Legal requirements for localization

Legislative requirements for the localization of production are established by the Law of Ukraine “On Public Procurement” and additional resolutions of the Cabinet of Ministers. The main provisions provide for:

• List of goods to which the localization requirement applies.
• Minimum percentage of localization for participation in tenders.
• Procedure for confirming compliance with localization criteria.

The Resolution of the Cabinet of Ministers of Ukraine dated August 2, 2022 No. 861 approved the Procedure for confirming the degree of localization of production of goods purchased with public funds. According to this Procedure, to confirm compliance with localization requirements, a participant in the procurement procedure must provide the customer with a certificate issued by an authorized body, which certifies the degree of localization of production of the goods. The certificate is issued on the basis of documents submitted by the participant, confirming the use of Ukrainian components in the production of the goods.

Product categories subject to localization requirements

In accordance with the Transitional Provisions of the Law of Ukraine “On Public Procurement”, today the localization requirement applies, provided the purchase price is more than 200,000 UAH, to such goods as: generator sets, transformers; electrical equipment. Railway equipment, pumps and other technological types of goods, the full list of which is given in clause 2) of clause 6-1 of the Transitional Provisions

The list of categories may change depending on the economic situation and government decisions.

How is the level of localization determined?

The level of localization is determined as the percentage of the cost of components of Ukrainian origin in the total cost of the product. The calculation methodology includes:

• Analysis of materials and components used;
• Estimation of labor costs for Ukrainian workers;
• Use of local production facilities.

Features of participation in Prozorro procurement taking into account localization

To participate in tenders, suppliers of goods for which there are requirements regarding the degree of localization must provide documents confirming the level of localization.

Customers, in turn, are obliged to verify the compliance of participants with these requirements and apply the appropriate criteria for evaluating proposals.

The verification of the degree of localization of goods is carried out by the Ministry of Economy on the basis of an application for determining the degree of localization, documents confirming the production of the goods or its components, as well as the submitted calculation.

Liability for non-compliance with localization requirements

Violation of localization requirements may result in:

• Rejection of the tender offer – the customer rejects the tender offer if no documents confirming the degree of localization are submitted or such documents indicate a lower degree than required by law;
• Administrative liability of the participant – if false information regarding the degree of localization is provided, the participant may be held liable, up to and including a ban on participation in procurement;
• Cancellation of the bidding results – if a person who violates the localization requirement is determined to be the winner, the results of such bidding may be canceled.

Control over compliance with these requirements is carried out by the State Audit Service and the Antimonopoly Committee of Ukraine.

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Conclusion

Localization of production in public procurement Prozorro is an important tool for supporting the national economy. It contributes to the development of domestic production, job creation, and reduction of dependence on imports. However, it is important for businesses to closely monitor changes in legislation in order to meet all requirements and successfully participate in public procurement.

The company Prikhodko and Partners helps procurement participants confirm the degree of localization of their goods and ensures participation in procurement!