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International standards for road reconstruction in Ukraine. New rules adopted by the Ministry of infrastructure of Ukraine

Ukraine cannot be broken. Reforms continue despite the war.

The Ministry of Infrastructure of Ukraine has developed and approved the Methodology for determining the cost of road works and services. The document will come into force on October 17. From this day on, new pricing rules in road construction will come into force.
The reform includes the use of: exclusively fixed prices, international measurement methods (primarily CESMM), prices of materials from transparent databases, bills of quantities (BOQ), prices from databases of analogous objects, etc.

In November 2021, a law was adopted that gave the Ministry of Infrastructure the authority to reform the pricing system in road construction. Prior to that, the Ministry of Regional Development had that power.
On October 7 the Ministry of Infrastructure approved the Methodology defining detailed mechanisms of the reform in accordance with the Rules approved in spring. The document comes into force on 17 October 2022.

Changes after the transition to international practice

In Ukraine, there were two parallel approaches to the estimation of project costs. International – measuring quantities of work. In practice, it was carried out according to the classifier (CESMM) – used only by IFIs (international financial institutions: World Bank, EBRD, etc.). The Ukrainian approach was based not on the measurement quantities of work, but on the use of resource element estimation norms. This approach was applied by budget clients. The Ukrainian system was characterized by detailed items that could include specific names of machines, technologies, etc. This led to the difficulty of comparing prices between objects, narrowing of competition through the use of specific mechanisms, and incomprehensibility of the system for foreign companies.
According to the new Methodology, Ukrainian clients will use international methods of work measurement, primarily CESMM. The tender will be submitted with the bill of quantities (BOQ) prepared according to CESMM or the Ukrainian analogue of CESMM.
This should lead to easy comparison of prices between facilities, increased competition, as well as reduction of corruption risks in the bidding process and acceptance of completed works.

No manipulations: fixed prices and fixed cost

The methodology provides for the exclusive use of fixed prices. When signing the contract, the price is fixed with a clearly defined cost of works (measured according to the international or Ukrainian method). Each work is evaluated by an aggregate cost indicator.
This reduces the risk of manipulation with prices after signing the contract, as well as pressure on contractors on formal grounds when accepting the work performed.

Everything is regulated. Creation of price databases and databases of analogous objects

Currently, the use of price databases is not regulated. The methodology specifies the development of transparent price databases and databases of analogous objects, and defines specific requirements for them.
Databases can be created by different entities, which will facilitate the comparison and verification of the databases for the adequacy of the prices quoted.
That is, the prices used to calculate the cost of works will be taken from publicly available and regulated databases.

The reform can become an example for other areas of public construction

The amount of estimated profit, general production and administrative expenses when planning the cost of project construction will be determined as a percentage of direct costs. That is, the state will no longer use profit and expense rates that do not meet market conditions. In practice, this led not to a decrease in profits, but to the distortion of expenditure items, i.e. a decrease in transparency.
Companies will be able to act in accordance with real market conditions, without the need to show artificial indicators, which, among other things, led to a decrease in transparency. Comparison of prices for types of work will be more objective.

The Ministry of Infrastructure of Ukraine has implemented a comprehensive reform whose time has come. The changes will benefit the effective recovery of road infrastructure in Ukraine. Pricing for road reconstruction will meet international standards, which is reasonable for donors and international players. Society will benefit from greater transparency and reduced corruption risks. This reform can become an example for other areas of construction for public funds“. Ihor Samokhodskyi, Executive Director of the Ukrainian Infrastructure Association UNITE.

For reference:
Ukrainian Infrastructure Association UNITE is a non-governmental organization established in 2021 that creates and implements the best solutions for the development of Ukraine’s infrastructure.

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