Article 9.1.
Public Procurement

Legal Requirements for Public Procurement
In 2015, the basic Law On Public Procurement (PPL) was adopted. The PPL determines the legal and economic basis for the procurement of goods, works, and services to meet the needs of the state and local communities. Information on announced procurements enters the central Prozorro database and is simultaneously published on electronic platforms. Procuring entity tender documentation is placed on these platforms. According to the PPL, the tender documentation sets out the conditions for the tender. Suppliers submit their bids based on the tender documents. Their evaluation takes place through the use of an electronic auction. Before the start of the auction, all information on the prices of tender offers is published. The winner of the procurement is the bidder who best meets the requirements of the tender documentation and the established criteria: 1) price; or 2) cost of the life cycle (the cost of servicing the subject of procurement); or 3) price along with non-price criteria: terms of payment, term of performance, warranty service, technology transfer, and others.

The PPL determines several ways to obtain public procurement information:

• Annual procurement plans published by public authorities on their websites and containing all necessary information on future orders.
• An electronic procurement system, in which a procuring entity publishes information about the procurement through the above-mentioned authorized electronic platforms.

All procurement is divided into several types depending on their cost and complexity. This is necessary to ensure the effectiveness of the procurement system. The PPL, in particular, defines the following types of procurement: 1) Procurement without the use of the electronic procurement system; 2) simplified procurement; and 3) procurement through an electronic catalog, the so-called Prozorro market.These three types belong to the below-threshold procurement. Additionally, general procurement procedures (or above-threshold procurement) entail the use of an electronic system. When using this type of procurement, a procuring entity independently chooses one of the four procurement procedures: open tender; competitive dialogue; negotiated procurement procedure (only by exception); or limited participation tender. When the cost for goods is higher than EUR 133000, and for services higher than EUR 5.1 million, the procurement notice must be published in English (along with the Ukrainian version). There is a tendency to exclude certain goods, services, and works from the PPL scope (the assessment of which we provide below). To give an example, in March 2020, the Law On Amendments to Certain Legislative Acts of Ukraine Aimed at Preventing the Occurrence and Spread of Coronavirus Disease was adopted (with amendments dated July 2021), stipulating that for the period of quarantine, the PPL does not apply to “COVID-procurement”, i.e., procurement of certain medical supplies in connection with the COVID-19 pandemic. The list of such goods is approved by the Cabinet of Ministers of Ukraine.

Upon the outbreak of Russia's full-scale invasion of Ukraine, the Cabinet of Ministers adopted Resolution No. 169 ‘Some Issues of Defense and Public Procurement of Goods, Works and Services under Martial Law’, which regulated the procurement procedure under martial law until October 2022. As of the end of December 2022, the CMU Resolution No. 1178 ‘On Establishing the Peculiarities of Public Procurement of Goods, Works and Services for Procuring Entities Envisaged by the Law of Ukraine on Public Procurement for the Period of Martial Law in Ukraine and within 90 days from the date of its end or cancellation’ is in force. The latter Resolution does not apply to defense procurement. In September 2023, this resolution was amended to repeal the provision stipulating that procuring entities may purchase goods and services (except for routine maintenance services) with a value equal to or exceeding UAH 100 thousands, routine maintenance services with a value equal to or exceeding UAH 200 thousands, works with a value equal to or exceeding UAH 1.5 million by concluding a procurement agreement without the use of open tenders and/or an electronic catalogue for the procurement of goods in certain cases, which are determined by the peculiarities of martial law.

Oversight in Procurement
The PPL establishes a fairly large list of possible procurement oversight mechanisms (for example, monitoring, revisions, inspections, audits, etc.). Such control is carried out by some subjects: The State Treasury Service of Ukraine (STSU), the Accounting Chamber (AC), the Antimonopoly Committee of Ukraine (AMCU), the State Audit Service of Ukraine (SASU), civil society organizations, the National Police, and Prosecutors’ Offices. The PPL also stipulates rules of procedure for appealing procurement procedures. The responsible body, i.e., the Antimonopoly Committee of Ukraine (the AMCU), is an independent regulator with a special status and additional guarantees for its independence.

Prozorro System
Public procurement operates through the electronic Prozorro system. It was created within the cooperation of Transparency International Ukraine, private electronic platforms, Quintagroup IT-company, and the Ministry of Economy of Ukraine. In 2016, Quintagroup Co. handed the Prozorro system over to the Prozorro state-owned enterprise. Registration for public procurement is carried out through private authorized Prozorro websites, being part of the Prozorro system. All actions of procurement participants are carried out through their personal accounts on the electronic platform. There are 13 inter-competing private authorized procurement websites, with their usage rules being available in open free online access. Such a system proves to eliminate the monopoly role of the state and corruption-related risks. According to civil society experts, the existence of such a system (state-owned enterprise together with private websites) allows, on the one hand, to develop and strengthen competition, and on the other, to prevent websites from manipulating and behaving in a non-competitive manner. Anyone who meets the requirements can become a procurement platform and organize public tenders.

In 2021, the number of procurement procedures was 5.46 million, with 34.52 thousand procuring entities and 262.1 thousand tenderers. In 2022 the number of procedures equated to 2.98 million, 30.28 thousand procuring entities, and 184.56 thousand participants. According to Prozorro data, in 2021, the application of the electronic system saved more than EUR 1.57 billion, in 2022 – it was EUR 0.56 billion. The data given above shows that 93% of procurement cases were below-threshold, and only 7% happened to be above-threshold ones. At the same time, the total value of above-threshold procurement is seven times higher (EUR 46 billion versus EUR 6 billion) than the total value of below-threshold procurement. Only in the first year of war, the total value was two times higher due to changes in procurement procedures.

In terms of below-threshold procurement, the introduction of simplified procurement in 2020 ensured transparency and accountability of procurement and created oversight opportunities. During the year when simplified procurement was applied, almost EUR 100 thousands was saved. At the same time, there are risks in conducting simplified procurement. Procuring entities most often complained about the PPL inaccuracies, the duration of simplified procurement, and misunderstandings of the requirements for the simplified procurement duration terms. Moreover, participants highlighted the problems related to the impossibility of appealing simplified procurement to the AMCU, as well as collusions, and discrimination.

Annual procurement plans are to be published on the websites of state bodies of various levels, from central to local, as well as on the “data.gov.ua” site (i.e., the portal, which contains a large array of open data of state bodies), where anyone can find information about the funds of any operator they are interested in. Due to the war, for security reasons, procuring entities may not indicate their location in the annual procurement plan. Information on annual procurement plans is also included in the central Prozorro database. Information is simultaneously being published on the portal and displayed on Prozorro sites. According to interviewed experts, Ukraine is thought to be one of the exemplary countries in terms of disclosure of procurement plans and the scope of information obligatory to be provided by public procurement participants. Public procuring entities do not attempt to hide or omit information about procurement plans.

Procurement by public bodies
Tender committees were engaged in procurement conducted by public bodies. They consisted of approximately 5-10 employees of the body, who often did not have anything to do with procurement issues. As a result, the tender committees were not efficient enough and had some shortcomings. For such shortcomings to be addressed, the institute of authorized persons has been established. An authorized person is enshrined to be a definite public official responsible for the organization and conduction of procurement. Studies have shown that the introduction of such an institution has reduced the time of organization of below-threshold procurement (by 2 hours), above-threshold (by 5 hours), and reduced the share of unsuccessful procedures (from 30% to 20%).

Starting from January 1, 2022, an authorized person had to conduct all procurements. By January 1 2022, the authorized person had to pass a test on the web portal to confirm the required level of knowledge in the field of public procurement. Due to the Russian full-scale invasion of Ukraine, these changes were postponed, but as of the end of September 2023, the authorized person is responsible for procurement. According to interviewed experts, personal responsibility for procurement is seen as the main advantage of the institution of an authorized person. The body will have an individual responsible for the entire procurement process, who is not engaged in other paid work. Regarding the risks of this new institution, experts have concerns about wages, and the large workload of the authorized person, since many procurements are conducted annually.

Exceptions from the Law
Most procurements are made in the electronic system under the rules of procedure prescribed by the PPL. However, there are cases of exclusion of certain categories of goods, works, or services from the scope of the PPL. A great number of draft laws aiming at making certain categories of exceptions from the PPL are registered every year. More often than not, the draft amendments proposing exceptions are not well-grounded, consequently, most of them were not adopted by the Parliament. However, there were cases when certain amendments were supported.

In the first months of the Russian invasion of Ukraine, it became objectively impossible to conduct procurement under the existing procedures. As of September 2022, procuring entities in the defense sector and some law enforcement agencies (e.g., the Ministry of Defense, the Ministry of Internal Affairs, etc.) carried out public/defense procurement without using regular procurement procedures/simplified procedures. Other procuring entities, in cases where the value of procurement is less than UAH 50,000 (~1235 euros), without using the electronic procurement system, had to comply with the principles of public procurement, not to include information about such procurement in the annual plan and not to publish a report in the electronic procurement system on the procurement contract concluded without using the electronic procurement system. However, as of November 2022, open tenders and other procedures have been reintroduced for procurement in other areas (except defense), but in a simplified form in comparison to what is set forth in the Law. It is too early to assess the effectiveness of such changes, but the trend towards the return of transparent procedures is positive.

The NACP, as the authorized body for corruption risk assessment, also carries out relevant activities in the field of public procurement. In 2021, the NACP published a study "Typical Corruption Risks in Public Procurement", and "Corruption risks during public procurement under martial law" in June 2023. It describes the risks that arise in the application of procurement procedures and the specific examples in which they manifest themselves. This helps to respond to identified risks in a prompt way.

Public procurement control
As mentioned above, six entities are responsible for controlling public procurement. Despite this, the experts interviewed for this report criticize that the control system does not work well enough or does not work at all. First and foremost, it is based on the ratio between the number of procurements and the number of inspections carried out. In particular, each year, about three million procurement cases are conducted, and the control system scrutinizes only a couple of thousand procurement cases. This negatively affects the possibility of bringing violators of procurement procedures to justice.

The State Audit Service conducts monitoring, inspections, and audits of procurement. In most cases (5400 procurement cases), violations committed by procuring entities affected the results of procurement, and such violations were mostly rooted in wrongful decisions made in consideration of tender bids, the conclusion of procurement contracts and making amendments to them, and the use of negotiated procurement procedures.

Public control of procurement is carried out through the DOZORRO platform, which unites dozens of civil society organizations. Moreover, the DOZORRO expert team created the BI public analytics module, which is a free analytical tool that contains data on all procurement made through the Prozorro system since 2015. Based on the results of the procurement analysis, the DOZORRO community submitted some allegations of crimes and other violations in the field of public procurement. During 2021, 11 criminal proceedings were opened; 79 contracts were terminated; members of tender committees or authorized persons were brought to justice in 24 cases. With the help of open data on public procurement, investigative journalists can prepare materials about abuses and corruption in this area. In Ukraine, the Nashi Groshi, Bihus.INFO, and other projects are actively engaged in this, despite possible threats to life from the subjects of investigations. The interviewed experts are certain that the information available to the public is complete. If desired, it is possible to obtain all necessary information about a tender bid. In addition, some experts observe that the amount of this type of information is growing, the available fields are expanding, thus improving the quality of procurement in general, and enhancing civil society control.

Complaints about public procurement
According to various estimates, the percentage of appeals against procurement to the AMCU is about 8% of those who have the right to do so. In the year 2021, the Antimonopoly Committee of Ukraine received 14,828 complaints, of which 14,003 complaints (94%) were taken into consideration. Based on the results of the review of complaints, 13,646 decisions were made. On the one hand, this shows trust in the current appeal mechanism and its sufficiently active use by procuring entities. On the other hand, the percentage of appeals is quite high and consequently, the AMCU considers thousands of complaints annually. Due to amendments made in terms of procurement appeals in April 2020, the share of satisfied complaints increased from 43% to 65%. The novel additional safeguards reduced the number of unscrupulous complainants, thus deterring complaints from being submitted solely to delay the procurement process. In 2022, the number of complaints decreased due to the non-application of open procurement procedures for almost the entire year; in 2022, the Antimonopoly Committee of Ukraine received 3,865 complaints.

At the same time, the negative aspect of appeals to the AMCU, namely inconsistent decision-making practices, was confirmed by all interviewed civil society experts and published research results. This practice discouraged the desire to appeal due to the increase in the fee for filing complaints, as well as the risk of receiving unfavourable decisions in similar cases. That is, you can file a complaint in one case and win, and lose in another case with a similar complaint. To remedy this situation, the experts recommended generalising the AMC's practice, which, on the one hand, would allow them to act at earlier stages of decision-making, and, on the other hand, would allow complainants to predict the outcome of their complaints in the future. In view of this, the Committee's order of May 18 2023 established the Commissions of the Antimonopoly Committee of Ukraine for consideration of complaints about violations of procurement legislation and approved the rules of procedure for their work. Of particular interest is the last section of the Regulations – reporting on the Commission's activities. This section stipulates that the Commission may provide the structural unit of the Committee responsible for organisational support of the Commission's work with proposals, information and necessary materials for the preparation and submission for consideration and approval by the Committee of the generalised practice of reviewing complaints about violations of the legislation in the field of public procurement. The AMCU has already started to move in this direction, gradually creating consistent conclusions, but it is expected that such changes will speed up the process.

Implementation in practice after State evaluation.