An explosive mixture of monopoly and “deep state” in the Ministry of Defense: body armor

A very instructive story is happening just the other day at the Ministry of Defense. For the first time since the start of the war in 2014, Ukrainian soldiers were allowed to buy the best foreign body armor with government money. This historic event occurred after the resignation of one Deputy Minister of Defense.

So, it all started in 2014. At that time, the Ukrainian military was not very involved in its own defense production, mainly selling off Soviet reserves. When Putin attacked for the first time, they began to move, but immediately “reinvented the wheel.” Under the strict leadership of Advisor to the Minister of Defense Yuri Biryukov, the sphere of clothing supplies for the military was divided into segments. And the largest segments were distributed into one person.

Billions of dollars in purchases of body armor were completely allocated to the Temp-3000 company. “Our Money” reported back in 2018 that she sold her “corsairs” to the army for $100 million. And she didn’t even shy away from switching to a scheme with direct withdrawal of funds abroad. In 2020, the Ministry of Defense bought “corsairs” from a Czech company, thus immediately converting the hryvnia into euros and taking it abroad, where Ukrainian law enforcement officers have less opportunity to look.

And among the owners of Temp-3000 there was even such a colorful co-founder as Stanislav Lesnikov, known to readers of Our Money. The media talked a lot about him during the time of Poroshenko in the context of the flows of Ukrzaliznytsia and counted him among the “watchers” of these flows. And in February of this year, he was detained by NABU detectives along with the former director of UZ Yevgeny Kravtsov.

At the same time, the Temp-3000 monopoly was, although not official, reliable due to a mixture of technical “sharpenings” and... low price.

The fact is that due to the deliberate draining of money into one hand, only these hands were able to receive enough funds to build their own production of armor plates in Ukraine. Everyone else continued to import more expensive slabs from abroad. And this is a very significant difference, which can reach 20% of the price of a bulletproof vest.

And cheaper imported armor could not compete with the “corsairs” due to technical requirements. For example, at a low expected price, no one could offer products that match the resistance of a flexible armor package to a temperature of 180°C for five minutes (read more in “The history of purchased “body armor that can be shot through” and unexpected materials from the “Marchenko case”).

Of course, monopoly corrupts. A monopolist always reduces the requirements for its quality, but demands an increase in the price for its goods. Therefore, even law enforcement officers had questions regarding their “killer” quality (read more “About Corsair body armor capable of withstanding a shot from an anti-tank weapon, or what does a monopoly have to do with it”). And the price of “corsairs” was constantly growing.

In addition, soldiers regularly complained about the inconvenience and fragility of fabric slab carriers into which armor plates are placed. And somehow, for years, the Ministry of Defense stumbled through the rake of relations with the monopolist, unable to even separate the purchase of slabs and slab carriers.

This year the first step was taken. The new Ministry of Defense procurement unit “State Logistics Operator” organized an open tender with the participation of three firms. And although Temp-3000 eventually won two contracts worth UAH 241 million. But for this, I was forced to lower my price by 30% (!) of the expected cost - to 12,450 and 11,600 UAH for a case for a modular body armor (Type 5, completeness: 1-5).

At the same time, the monopoly of the domestic manufacturer led to another very bad consequence. When our military needed quick and significant renewals of reserves, the monopolist simply could not increase its capacity. And this has happened at least twice in just the last two years: last year, when it was necessary to quickly put on the “offensive guard” and strengthen the armor, and now, when it was necessary to put on a new wave of mobilization. Here is an example from Prozorro, how Temp-3000 in March personally refused contracts for two lots worth 600 million hryvnia, and no one else could come to the auction, even in theory, because of the low price.

Therefore, DOT sounded the alarm and turned to the Ministry of Defense for permission to raise the expected cost of body armor so that manufacturers with more expensive imported plates could enter the auction.

Here it is worth making an explanation regarding how the Ministry of Defense procurement process is bureaucratically structured.

The ministry determines the need for a particular product: how much and what exactly is needed. This data on the quantity and technical parameters of the required goods is brought to the attention of the “State Logistics Operator” (that is, “DOT” cannot change the technical requirements for the product; technical “sharpenings” are programmed in the Ministry itself).

These requirements are communicated to buyers along with a “guide price”.

The estimated price is, roughly speaking, a ceiling, the upper threshold of budget funds planned for a specific product. The “State Logistics Operator”, as the technical executor of the procurement procedure itself, can set the expected bidding price to be the same as the indicative price, or lower than it.

However, in conditions when soldiers have to dress for bloody noses, it is impossible to wait. Therefore, DOT, which had already saved billions on the purchase of many other goods, suggested: “Let us transfer the saved budgets to the purchase of more expensive, but extremely necessary armored vehicles. Because there is simply nothing to dress those who have been mobilized.”

Let us note that interesting processes were taking place at the Ministry of Defense. Last fall, the new minister Rustem Umerov created his own team of deputies in key areas. However, Colonel Vitaly Polovenko somehow ended up in the direction of forming the need for UNARMED procurement.

In recent years, he has been in charge of logistics support for the National Defense University of Ukraine. That is, he understood very well how the system works, what role the “technical requirements” for goods play and the level of rigor when accepting goods. And literally after a few months in office, Polovenko achieved the creation of a new division within the structure of the Ministry of Defense - the Logistics Planning Department, which began to “plan” purchases. An old friend of Polovenko’s, Alexander Matsko, head of the Institute for Troop Support at the National Defense University, was appointed to this Department.

Now let’s return to the “DOT” request to increase the purchase price of body armor. In addition to satisfying an immediate need, this request may also have a long-term consequence - the destruction of the Temp-3000 monopoly. After all, someone else will now receive large contracts and may find an opportunity to develop their own production in the future.

And this is what the “Polovenkovsky” Department answered to “DOT”: “No, we do not allow raising the price of bulletproof vests, because you have not proven that your desire is dictated by the fact that Temp-3000 has accumulated contracts to the very tonsils and cannot take on more.” .

Therefore, DOT turned to Temp-3000, and the manufacturer honestly admitted that it was really overwhelmed with orders, so it could not take new ones. But this letter also had no effect on Matsko’s “Polovenko” department.

Everything changed last week when Polovenko was fired from his post as deputy minister. Immediately after this, another division of the Ministry of Defense - the Department of Procurement Policy under the leadership of Gleb Kanevsky - responded to “DOT”:

“Determination of the expected cost of procurement items falls within the exclusive competence of the authorized person of the State Enterprise DOT and may differ either upward or downward from the estimated price per unit of goods defined in the List and volumes.”

According to Our Money, contracts for the supply of bulletproof vests will be concluded with other manufacturers as early as next week, and Ukrainian soldiers will be provided with goods that previously relatives and volunteers had to buy with their own money, so that the military would not tear their backs in, to put it mildly, not the most “corsairs”, popular among soldiers.

This is one of the pages in the chronicle of the struggle of the new Ukrainian army against the old “deep state”, which since Soviet times has kept the flow of the Armed Forces of Ukraine in its bureaucratic papers.