The Law of Ukraine On the Supply of Production for State Needs
This law defines the general legal and economic principles of
forming, placing and fulfilling, on a contractual basis, state
orders for the supply (or procurement) of goods, works or services
for the purpose of satisfying the needs of the state by economic
agents of Ukraine of all types of ownership.

Article I. Supply of Production for State Needs

1. State needs are the needs of Ukraine for production required to
resolve social and economic problems, maintain defence capability
and security, establish and maintain the appropriate level of state
material reserves, implement national and international special
purpose programs, ensure the functioning of the bodies of
government which are financed from the State Budget of Ukraine.

A state order is the method of government regulation of the economy
by determining, through contracts, the types and volumes of
products required for state needs, by distributing state contracts
for their supply (or procurement) amongst enterprises,
organizations and other economic agents of Ukraine of all types of
ownership.

State customers are ministries, other central bodies of state
executive power of Ukraine, the Government of the Autonomous
Crimean Republic, the oblast, Kiev and Sevastopol city authorities,
government organizations and institutions authorised by the Cabinet
of Ministers of Ukraine to conclude contracts with enterprises
filling state orders.

Agency fulfilling the state order. State orders may be filled by
economic agents of Ukraine of all types of ownership which produce
and supply products for state needs according to the terms and
conditions of the signed state contract.

State contract is a contract signed by the state customer on behalf
of the state and by the agency fulfilling the state contract, which
stipulates the economic and legal obligations of the parties and
regulates relations between the customer and fulfilling agency.

2. Production for state needs shall be supplied through financing
from the State budget of Ukraine and other sources of financing.

The volume of funds for the procurement of the specified production
shall be stipulated in the Law On the State Budget of Ukraine for
the given year and shall be determined by the Cabinet of Ministers
of Ukraine in the appropriate resolutions concerning the
utilization of non-budget financing.

3. The demand for the products required to ensure the fulfilment of
the regional special purpose programs (supply of products for
regional needs) shall be determined by the Government of the
Autonomous Crimean Republic, the oblast authorities, and Kiev and
Sevastopol city authorities according to the provisions of this
law.

The supply of products for carrying out regional programs shall be
fulfilled, financed by the Republican budgetary funds of the
Autonomous Crimean Republic and by local budgets, and also from
non-budgetary sources drawn for this purpose.

4. The special relations which arise in connection with the supply
(or procurement) for state needs of agricultural products,
food-stuffs, armaments and military equipment, and also of other
specially defined (specific) goods, shall be regulated by separate
legislative acts of Ukraine.


Article II. Formation of State Orders, Distribution of Production
for State Needs and Control Over their Fulfilment


1. The Cabinet of Ministers of Ukraine shall act as a guarantor of
the state customer.

2. With the purpose of organizing works connected with forming
state orders, distributing production for state needs and
implementing control over their fulfilment, the Cabinet of
Ministers of Ukraine shall determine and approve:

state customers;
ministries, departments, other central bodies of the state
executive power which coordinate the work of state customers in
distributing supplies of production for state needs, formulating
state orders and inform state customers about the volumes of the
supplied products, balanced with financial resources, to facilitate
signing state contracts with agents fulfilling state orders.

A similar function in suppling production for the purpose of
ensuring fulfilment of regional programs, shall be performed by the
Government of the Autonomous Crimean Republic, the oblast
authorities, Kiev and Sevastopol city authorities.

3. State customers:

shall choose, through competitive selection, proceeding from the
interests of the state, agencies to fulfill state orders with the
purpose of signing state contracts with them;
shall sign state contracts with agencies fulfilling state orders;
shall guarantee on behalf of the state, payment for the products
supplied for state needs according to the terms and conditions
stipulated by the state contract, to the agencies fulfilling the
state order.

State customers may delegate part of their functions, on a
contractual basis, to the appropriate enterprises, institutions and
organizations on terms determined by the Cabinet of Ministers of
Ukraine.
4. State customers shall be provided with financial resources in
the amounts required for the full payment of the state order by the
Cabinet of Ministers of Ukraine, and shall be responsible for
satisfying state needs for the appropriate production.

5. Control over the fulfilment of the supply of production for
state needs shall be carried out by state customers and central
bodies of state executive power specified in Part 2 of  Article II
of this Law.

6. The procedure of forming state orders, distributing the supply
of production for state and regional needs, and implementing
control over their fulfilment shall be determined by the Cabinet of
Ministers of Ukraine, the Government of the Autonomous Crimean
Republic, the oblast authorities, Kiev and Sevastopol city
authorities, as appropriate, while conforming to the requirements
of this Law and of other legislative acts of Ukraine.

7. By decision of the Cabinet of Ministers of Ukraine, the state
customer may make necessary changes in the state contract or
terminate it according to the current legislation of Ukraine.

8. State orders for the supply of products shall be binding for the
agencies fulfilling state orders, which have been founded
completely or partially on the basis of state property
(government-owned enterprises, institutions and organizations;
joint stock partnerships in which the controlling block of shares
in the authorised fund belongs to the state; leasehold enterprises
established on the basis of state ownership) and also for economic
agents of Ukraine of all types of ownership which hold a position
of monopoly on the market, if the fulfilment of the state order
does not inflict losses on the given agencies fulfilling the state
order.


Article III. Incentive for the Fulfilment of the Production Supply
for State Needs


1. With the purpose of providing economic incentives for the
fulfilment of state orders, agencies fulfilling state orders may be
granted privileges such as tax incentives, subsidies for special
purposes, soft credits, access to hard currency, duty concessions
and other privileges. 

Privileges shall be granted according to the current legislation of
Ukraine.

2. Special quotas (state reservations) may be fixed, if necessary,
on the enterprises and organizations which supply the most
important types of material and technical resources for the
compulsory sale of these resources to the agencies fulfiling state
orders which are strategically important or connected with
maintaining the appropriate level of defence capability of the
country and its security.

The procedure of determining the list and the amounts of the
material and technical resources which are subject to state
reservations shall be determined by the Cabinet of Ministers of
Ukraine.




Article IV. Liability for the Non-fulfillment of State Contracts
 for the Supply of Production for State Needs

1. If the state contract for the supply of production for state
needs was not fulfilled or not fulfilled correctly, the penalty (or
fine, or charge) stipulated by the contract shall be collected from
the defaulting party and the losses which were caused, shall be
reimbursed.

2. If the agency fulfilling the state order unreasonably refuses to
conclude a state contract for the supply of production for state
needs in cases where this Law determines it to be compulsory, and
if its fulfilment is technically possible, the agency fulfilling
the contract shall pay the state customer a fine in the amount of
the state contract's value.

3. If obligations on the state contract are defaulted, the agency
fulfilling the state order, apart from payment of penalties, shall
reimburse the losses which were caused by the improper execution of
obligations  in the full amount. 

The payment of the penalty (or fine, or charge) and the
reimbursement of damages if the state contract's obligations were
improperly fulfilled, shall not exempt the agency  from fulfilling
the state contract.

4. The state customer may refuse to pay for products if they do not
meet the quality specified by the current legislation of Ukraine
and by the state contract.

5. If the state customer has defaulted on his obligations in state
contract and also in cases indicated in Part 7 of Article II of
this Law, the state customer shall reimburse the agency fulfilling
the state order the losses csaused, including potential revenues.

If the state customer refuses to procure the products manufactured
according to the state contract (except in cases indicated in Part
4 of this Article) the agency fulfilling the state contract may
sell the products at his discretion. The  customer shall also
reimburse the agency fulfilling the contract additional expenses
connected with selling, and if sale of the products is impossible,
the losses caused, including potential revenues.

6. Disputes which arise between the state customer and the agency
fulfilling the state contract, when signing or making changes to a
state contract for the supply of products for state needs, when
they are being fulfilled and also upon the reimbursement of
damages, shall be considered according to the current legislation
of Ukraine by the arbitration courts. State customers and agencies
fulfilling state orders shall be exempted from paying government
duties when filing a claim in the arbitration court. When
considering a case, the arbitration court shall determine the
amount of government duty as provided by the current legislation.


5