The state does not work "long term" with defense companies. Why does this prevent more weapons from being produced?
If you ask the director of any large arms company what problems prevent him from producing even more and more efficiently, the first answer will most likely be "no long contracts."
This problem has been going on for a long time, and its essence is very simple. The state traditionally contracts with arms manufacturers for only 6-12 months. With such a short planning horizon, it is difficult for large companies to work effectively. Because of this, they lose the opportunity to place large and cheap orders for components abroad, invest in long-term projects, look for partners among the "big league" of the global defense industry, etc.
At the beginning of the major invasion, this behavior of the state customer seemed quite logical. At that time, it was not clear how long the major war would last, how many enterprises would survive missile attacks, and in general, money was spent on contracts that provided for the rapid supply of weapons, rather than those stretched out over years.
But now the situation has changed. The end of the war is not in sight, the defense industry survived the missile attacks and now wants to "play big." At the same time, the quick opportunities to buy weapons from European warehouses are gradually running out, and we need to think about our own production for years to come. Therefore, the issue of at least partial implementation of long-term agreements is now one of the key ones for the development of the industry.
What is the problem with short contracts?
To produce weapons, you first need to sign a contract with the company. In the global defense business, 3+ year contracts are the norm, which allow companies to feel as comfortable as possible: plan equipment purchases for years in advance, place long-term orders for components or invest in their independent production, build up inventories, optimize employee work, take out loans, work more effectively with risks, etc.
In the end, everyone benefits from long-term contracts. The army - because the final cost of products is reduced due to the optimization of production chains, the company - because it can confidently build new factories without fearing that the order will disappear next year and all investments will be in vain.
"Long-term contracts are a key tool for the development of the national defense-industrial complex. They create stability and predictability for Ukrainian defense industry manufacturers, allow them to plan mass production, invest in certain technologies, expand production capacities in accordance with contracting, and form long-term supply chains," noted at the Ministry of Strategic Industry.
Having a long-term order is especially important for large-scale production or when it comes to complex weapons. For example, artillery ammunition. Their production requires gunpowder, which is currently in short supply, so their supply cycle is quite long. Foreign component manufacturers often require either an advance payment for years in advance, or pay them much more for "fast" deliveries. Accordingly, in order for a Ukrainian manufacturer to take its place in the queue and profitably contract a contractor for years in advance, it itself needs a long contract from the state.
"In the production of armored vehicles, it is necessary to contract the chassis and armored steel, which are in the queue. In the production of ammunition, it is necessary to contract brass, gunpowder, explosives, which are also in the queue.
"A few years ago, no one needed components for weapons, and now there is a queue behind everyone. Ukraine has no priority and privileges in this queue. And if we want to get something cheap, we have to compensate for it with other factors - large volumes, advance payments, delivery times. And if we buy from today to today, it will cost one and a half to two times more expensive," Serhiy Honcharov, director of the NAUDI association, told Defense.
He also emphasized that to conclude three-year agreements, it is not necessary to give a 100% advance for all three years. "There is a delivery schedule and a financing schedule, which are interconnected. For production, an advance of 10% of the contract volume and gradual payment for the delivered batches of weapons over three years is sufficient," Goncharov noted.
Long contracts are a paradise for the manufacturer, but also a challenge for the state. The Ministry of Defense must strategically determine which weapons will be relevant in the next few years, whether the state will have the money to finance these contracts, and prescribe a financing and delivery schedule in such a way as not to devastate the budget.
In Ukraine, such long-term planning is traditionally avoided. Contracts with defense companies are most often concluded "by the end of the year." That is, starting in January, budget allocation and bureaucratic procedures take several months, after which the company receives an order. Having received an advance, the company orders components and waits for their arrival. And only after that does it begin to fulfill the contract and work for several months.
As a result, the manufacturer does not have time to accelerate as the agreement expires - and at the beginning of the new year the entire bureaucratic process begins again.
Long gaps between contracts, their short-term nature, and unpredictability lead to downtime at defense plants during the "off-season", tie up hands for work on the global component market, and hinder investment planning.
Moreover, it hinders the development of partnerships with world leaders in the industry. The thing is that Western corporations are primarily looking for opportunities to make money in Ukraine. Therefore, in order to quickly launch joint ventures and transfer Western defense technologies to us, foreign corporations want to see clear guarantees that they will receive profits here and over the years will recoup all their risky investments. And government contracts for 6-12 months, to put it mildly, do not contribute to this.
Domestic defense companies are accumulating more and more money, but they do not feel free to invest, because at any moment they can be denied a new order and all capital investments will be multiplied by zero.
The length of the contract also directly affects the term of a possible loan for production development. The bank will not lend to a company for several years in advance for the construction of new workshops if these projects are not supported by a real government order.
The practice of short-term contracts has developed in Ukraine for a reason. First, in the conditions of a major war, it is difficult to plan the budget for years ahead. Second, until recently, Ukraine had very few large and complex projects that would really require multi-year contracts. Third, for a long time, the fate of Ukrainian defense plants was unclear in conditions of constant shelling. Fourth, some types of equipment change and become irrelevant so quickly that contracting them for many years ahead makes no sense.
Now all this is changing little by little.
The issue of the availability of money is gradually being resolved by billions of dollars in infusions from partners into the domestic defense complex and additional budget support.
The security problem is somehow solved by the military and the manufacturers themselves. Defense enterprises have learned to maintain schedules in conditions of constant missile threat, and the military has learned to protect them. At least, this is indicated by the annual multiple growth in production volumes.
Companies are already emerging in the industry that are capable of launching truly mass production of weapons: shells, artillery, drones, armored vehicles - the only thing missing is the same large long-term contracts.
The importance of implementing the practice of long-term contracts with arms manufacturers was emphasized by Prime Minister Denys Shmyhal at the beginning of 2025 and even instructed to develop an appropriate mechanism. But what do we have in practice?
One-year "three-year" contracts
To conclude three-year contracts, the state must start thinking strategically. It must specify in the documents exactly what weapons and in what quantities will be needed over several years, and which enterprises will be able to supply them stably. It is necessary to calculate technological trends at the front, the capabilities of defense enterprises, the needs of the General Staff, political risks, etc.
The state must find money for years to come. So that later it doesn't turn out that there is no money in the budget, and the Ministry of Defense doesn't drown in lawsuits with the manufacturer.
Ultimately, the government and deputies should change the regulations, because they are not adapted to such state agreements.
What has already been done?
The resolution "Weapons of Victory" was adopted, which solves the problem of strategic planning. It created a list of weapons and ammunition that will definitely be needed in the troops in the coming years and that have a high level of localization in Ukraine. Getting on this list is the first step towards concluding multi-year contracts.
In recent years, Ukraine has been able to "nurture" several large state and private companies, which are now able to work for a long time on large-scale projects.
Much has been done to find funding. Mechanisms have been developed to attract partners' money to finance contracts with Ukrainian arms manufacturers. Diplomatic work has been carried out to find "donors."
Partners are already financing the Ministry of Defense's deals worth hundreds of millions of euros. For example, Germany is financing the production of "Lyutyy" drones, Canada - interceptor drones, Denmark - "Bogdana" self-propelled guns, the Netherlands - naval drones, etc. This significantly increases the scope for planning long-term deals.
The government recently adopted a resolution of the Ministry of Strategic Industry that allows the customer to make one-time changes to the technical specifications and price in contracts during their execution. This will provide additional flexibility in long-term contracts with drone and electronic warfare manufacturers, whose technology is currently changing dynamically.
The state even began to conclude three-year contracts and reported on this in official releases.
But, as Defense's interlocutor from the Ministry of Defense admits, "three-year contracts are only in name." The fact is that in practice they are more like one-year contracts with the possibility (!) of extension. The state customer is legally obligated to finance such "three-year" agreements for only one year. Everything else is "if there is money."
Such agreements are better than standard one-year ones, because at least the manufacturer knows that the state needs his products. But in fact, this does not give him any legally formulated guarantees of receiving orders in subsequent years.
For the second year of the agreement, the state may also allocate money, or it may not allocate it. Or it may allocate significantly less. In this case, the "three-year" contract has no legal predictability and is deprived of almost all of its advantages.
The customer cannot commit to financing the contract for three years at once, even if he wants to, because the Budget Code does not allow this.
At the Kyiv School of Economics explained to Defense that in fact the concept of multi-year financial obligations under defense contracts is present in the law. It also states that the state does not have the right to reduce the financial obligations assumed in these multi-year contracts.
But the problem is that the state simply does not take on these multi-year obligations, limiting itself to the current year only. The problem may be that, according to the rules, in order to take on multi-year obligations, the customer must rely on the availability of money in the budget. But in Ukraine, the budget is drawn up for only one year. And exactly how much money will be allocated for the purchase of weapons in 2026 and 2027 is not known for certain, which means that officials have nothing to rely on when concluding long-term contracts.
It turns out that the law prohibits reducing the state's financial obligations under long-term contracts, but this makes no sense, because there is no way to assume them.
So, Ukraine has taken the first steps towards concluding long-term agreements and has already covered most of the way, but no major developments have yet occurred.
The associations NAUDI and Technological Forces of Ukraine emphasized to Defense that for the real implementation of long-term contracts, people's deputies need to make changes to the Budget Code. The Ministry of Finance did not respond to the request of Defense to clarify the situation.