2.1. 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.
From April 1, 2016, it became mandatory for central authorities and monopolists, and from August 1, 2016, – for other public procuring entities (in the original Ukrainian language it is called “zamovnyk”). Prozorro is a platform that currently unites more than 35000 state and municipal authorities and enterprises (procuring entities who purchase goods, works, and services) and about 250000 commercial companies (i.e., suppliers, in original Ukrainian language it is called “postachalnyk”). In 2019, the TI Ukraine survey showed that 54% of public procurement participants are mostly satisfied with the Prozorro system.
Registration for public procurement is carried out through private authorized Prozorro websites, being part of the Prozorro system, through which procuring entities and suppliers handle procurement within the 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. Procuring entities apply to procurement websites free of charge, but suppliers are to pay a charge that varies depending on the total purchase price. The purchase announcement is fully visible to everyone, making hiding any information impossible. In addition, the interested can get acquainted with the entire history of any procuring entity and ask any questions therein.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, being compliant with requirements, can become a website for procurement. In case of poor work of one website for procurement, procuring entities can change it into another one.
In 2020, 3.74 million procurement procedures were conducted, with 37.9 thousand procuring entities, including 246, 29 thousand participants.
Of these, more than 3.48 million procurement procedures were below-threshold procurement (i.e., without the use of an electronic system), with a total value of more than EUR 6 billion. Above-threshold procurement (i.e., with the electronic system being applied) was used in about 259,000 cases, with their total value calculated over EUR 31 billion.
In 2021 (as of September 30, 2021), there were conducted 3.64 million procurement procedures, with 33170 thousand procuring entities, and 224600 thousand participants.
Of these, more than 3.40 million procurement procedures were below-threshold procurement (i.e., without the use of an electronic system), with a total value of more than EUR 4.4 billion. Above-threshold procurement (i.e., using an electronic system) was used in about 240,000 cases, with their total value being over EUR 26 billion.According to Prozorro data, in 2020, the application of the electronic system saved more than EUR 1,8 billion, and in 2021 (as of the 30th of September) – more than EUR 1 billion.
The data given above show 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 was 5 times higher (EUR 31 billion compared with EUR 6 billion) than the total value of below-threshold procurement. The use of electronic systems in conducting high-valued procurement is proved to be reasonable. In terms of below-threshold procurement, the introduction of simplified procurement in 2020 ensured transparency and accountability of procurement, created oversight opportunities. During the year when simplified procurement was applied, almost EUR 100 thousand 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 misunderstanding of the requirements for the simplified procurement duration terms, moreover participants argued the problems related to the impossibility of appealing simplified procurement to the AMCU, as well as collusions, and discrimination.
According to Prozorro, the use of the electronic system has saved more than EUR 1.8 billion in 2020, and more than EUR 1 billion in 2021 (as of September 30).
E-catalog Prozorro market, a new, special type of procurement, was launched just in 2020 but has already demonstrated its effectiveness. On the one hand, the Prozorro market eliminates many corruption risks and other bad practices that occur in below-threshold procurement, and on the other hand, significantly reduces time spent on procurement, and simplifies procurement procedures. E-catalog is constantly evolving, new products are being added all the time. After a warning, unscrupulous suppliers may be excluded from the system. According to experts, the Prozorro market is easy to use, and its introduction has a positive effect on simplified procurement.2.2. Procurement plans
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, she or he is interested in.
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 . Access to all information is free and open.
All procurement information may be additionally published by a procuring entity in other media, or on its website.
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. No attempts are testified to have been found to hide, or not disclose, information on the procurement plan.2.3. Tender winner selection criteria
Existing criteria for selecting procurement winners are applied in different ways. Price criterion is applied in all cases, but the life cycle criterion and non-price criteria are used not so often by procuring entities.
From the beginning of 2017 to December 2020, procuring entities applied non-price criteria in 0.7% of procurement cases (where it was applicable), in particular, 12,996 cases in total. The researchers found that the larger the value of announced procurement was, the more likely non-price criteria were applied. For example, in the range of up to EUR16000, there were was 6 cases among 1000 procurement cases where non-price criteria were applied. In contrast, this number increased to 115 among 1000 cases of procurement was the value of more than EUR 3 million.
The difficulty of applying non-price criteria lies in the different approaches to the interpretation of the PPL’s norm. On one hand, the AMCU concludes that the list of criteria is exhaustive, but on the contrary other hands, the Ministry of Economy argues that the non-price criteria are inexhaustible. This practice does not contribute to their wide application.
Recently, in April 2021, the life cycle criterion was introduced into the Prozorro system. That is why there is no widespread practice of applying this criterion yet. Given this, it is too early to assess its effectiveness. However, the opinions of experts are divided, some experts point out the possibility of abuse of this criterion to select the desired winner, but others do not agree with this concern.2.4. Peculiarities of conducting public procurement
Public procurement in Ukraine has peculiarities that improve the quality of their conduct and assist participants in performing all necessary procedures.
- Before admitting a bidder to the procurement, all procuring entities verify information about the ultimate beneficial owner in the state register. If the information in this register does not match the information submitted into the documents, a procuring entity rejects the bid. However, out-of-date and incomplete data in the state register is known to cause problems. In this context, in terms of the formed practice of rejecting bids on this ground, the AMCU does not always consider rejecting tender bids on the ground of lack of information about the ultimate beneficial owner to be justified. If there is no information about founders of bidding legal entities, rejection of the tender bid is considered to be lawful and the AMCU upholds procuring entities. However, if there is no information about the founders of bidding individuals, rejection of the bids is considered unlawful, and a bidder is allowed to bid in a tender.
- There is a so-called “black list” of entities prohibited to participate in procurement, with the list being integrated into the Prozorro system. Procuring entities can also verify this information using a document published on the AMCU website containing the entities black-listed on the ground of anti-competitive, concerted actions committed by them during the last 3 years. The AMCU constantly and consistently updates the data, and inaccuracies are possible only in cases of participant’s court appeal against decisions on inclusion into the document. The idea to hold the list as an official register seems reasonable, as it will ensure ease in its use, transparency, sustainability in its operation, and accountability for data accuracy and timely updating.
- The list of bidders is not published until the submission of bids and amendments. It prevents bidders from possible collusion and strengthens procurement competitiveness and transparency.As it was said above, in Ukraine, there is a separate law for procurement in defense. It was adopted to address all peculiarities of procurement which is crucial under current conditions.
In particular, the Defense Procurement Law contains, according to the experts’ view, many positive novels, inter alia:
- introduction of three-year defense procurement planning, thus allowing procuring entities and bidders to work out long-term plans and to allocate budgets qualitatively;
- restriction of secrecy to reasonable limits, thus protecting unique Ukrainian developments from foreign spying, and at the same time preventing from abusing the “secret” label when procuring competitive goods;
- formation of an open register of suppliers, thus weakening political influence and preventing fictitious companies from bidding, etc.
Despite the rather high quality of the law and positive assessment of the expert community, the law has not been implemented. As of January 2021, the relevant by-laws were not in place to launch the necessary mechanisms, in particular, about 30 by-laws have not been developed yet. The situation is getting worse by making information closed and secret, thus not allowing the public to exercise effective oversight over the use of funds.2.5. Procurement conduction by public bodies
Tender committees were engaged in procurement conducted by public bodies. They consisted of several (approximately 5-10) employees of the body, who often did not even have anything to do with procurement issues.
As a result, the tender committees were not efficient enough and had some shortcomings, in particular:
- were personnel- and time-consuming;
- consisted of persons without sufficient level of professionalism to decide on procurement;
- provided for “collective responsibility”, meaning no accountability of individual officials.
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%).
As of September 2021, the transition period was underway, meaning the simultaneous existence of tender committees together with authorized persons. However, from January 1, 2022, the Authorized Person will conduct all procurement. A transition period was introduced, inter alia, to enable them to certify their qualifications. Thus, each Authorized Person is obliged to pass a test on the web portal by January 1, 2022, to certify her or his level of knowledge in the field of public procurement.
According to 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, using not engaged in other paid work. Talking of the risks of this new institution, experts have concerns about wages, and the massive workload on the authorized person, since plenty of procurements are conducted annually.
New simplifying procurement instruments are constantly being found. In 2021, the public introduced procurement policies, i.e., an algorithm of actions within public procurement, which aims at minimizing the risks of unsuccessful procurement. The first such document was adopted in the Vinnytsia region. Such an instrument is assessed quite positively, but due to further rent lack of practice of its widespread application, it needs time to prove its success.2.6. Execution of public procurement contracts
Execution of public procurement contracts, specifically, factual supply of goods, providing services, or performing work, is recognized to be one of the problems in the field of public procurement. Procuring entities by themselves control complete the execution of procurement contracts. There is no special body to control execution. Partial information on the execution of the contract can be checked by SACU within its audit. It is quite difficult to obtain information on the execution of procurement contracts. The experts convince that procuring entities do not provide such information referring to its secrecy, therefore, it is necessary to make requests.
Given that, there is a need to improve the procedures to monitor the execution of public procurement contracts. Experts suggest making the following steps:
- Provide the public upon request with documents confirming the execution of public procurement contract (e.g., the act of acceptance);
- Improve the system so that procuring entity uploads the necessary documents on the execution of public procurement contract into the system;
- Keep separate records of information on the execution of public procurement contracts;
- Publish an act confirming the experience of supplying analog goods/works/services.
In this context, an example of “Ukrposhta” JSC is interesting. Having problems with the proper execution of contracts, it was decided to invite competitors of the supplier, who also competed in the tender, but did not win, to accept the goods. In this way, “Ukrposhta” JSC succeeded in radically changing the quality of goods supplied. And for this procuring company, it was a completely free procedure.2.7. 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 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.
Thus, on June 3, 2021, the PPL was amended, and “works on construction (including construction work-related services) of the Big Ring Road around the city of Kyiv (Kyiv region)” were excluded from the Law scope. The amendments were adopted despite the negative assessment of public agencies (NACP, AMCU, SASU) and the public. The value of such works reaches EUR 2.6 billion, and procurement is made without the use of Prozorro. It significantly affects the transparency of the use of state budget funds.
Due to the COVID-19 pandemic, the amendments also revoked so-called COVID procurement from the scope of the Law. It was a necessary step to shorten the time spent on procuring especially important goods. However, these goods are being returned under the scope of the PPL very slowly and gradually. As of October 20, 2021, more than 190,000 COVID procurement contracts worth more than EUR 1.2 billion were concluded.
At the same time, some experts reckon that it is necessary to speed up these processes and make regular procurement carried out according to standard rules without any exceptions, because they, among other things, contribute to corruption.
Another exception made it possible to procure the staff needed for celebrating Independence Day and Constitution Day by applying negotiated procurement procedures, without any competitive bidding. According to the Ministry of Finance of Ukraine estimations, the celebration cost over EUR 150 million, with not related to the celebration large-scale infrastructure projects added to the cost. Such law application abuses the use of budget funds.2.8. Public procurement control
As mentioned above, control in the field of public procurement is exercised by 6 subjects. But despite this, experts assure that the control system does not work well enough or does not work at all.
Foremost, it is based on the ratio between the number of procurement and the number of inspections carried out. In particular, each year about 3 million procurement cases are conducted, and the control system scrutinizes only a couple of thousand procurement cases. Undoubtedly, it negatively affects ensuring the inevitability of punishing violators.
Secondly, the control system has a conceptual shortcoming, as it is purely a financial audit, but does not provide checking if procurement is effective and well-grounded. The experts express their concern that there are cases when million-cost procurement is carried out for obscure purposes.
Each subject of control has its powers and functions; accordingly, each controls certain aspects of public procurement. In particular, as follows.
The State Audit Service conducts monitoring, inspections, and audits of procurement. During 2020, the State Audit Office and its interregional territorial bodies monitored 9700 procurement procedures (that is 0.25% of the total number of procurement cases conducted in 2020) with a total value of about EUR 5.5 billion (that is 15% of the total value of procurement conducted in 2020), resulted in detection of violations of the law, committed by procuring entities in 8700 procurement cases (that is almost 90% of procurement cases audited), with a total value of about EUR 4.6 billion.
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 contr, acts and making amendments to them, the use of negotiated procurement procedures.
The monitoring results can be appealed by procuring entities. Considering the appeals, first instance courts uphold procuring entities’ claims (71%) two times more often than auditors’ ones (29%). Appeal courts also most frequently rule against auditors, in particular, in 74% of cases compared with 26% of court decisions against procuring entities. In terms of the Supreme Court, 78% of cases are against and 22% are in favor of procuring entities. One of the most typical reasons why courts stand for procuring entities is that auditors do not satisfy the courts by their explanation of ns how a procuring entity is seen to eliminate the violation.
One of the most common reasons why courts uphold the procuring entity’s side is an auditor’s inspection concluding act lacking specification of a definite way a procuring entity has to follow to respond to violations. The absence of these instructions in the conclusion of the State Audit Service may indicate the uncertainty of such a conclusion. Giving instructions will prevent similar violations in the future.
According to the results of control measures, in 2019, the State Audit Service brought to administrative responsibility only 120 officials of procuring entities. In 2020, this number reached 426, in January-July 2021, there were 302 people punished. The experts reckon that the mechanism for dispensing justice needs improving, as it is proved by the above-given figures to operate not efficiently (given the ratio between the number of violations and the number of officials factually brought to justice). Such non-efficiency is thought to have a connection with certain procedural drawbacks (incorrect filing of procedural documents, the possibility to evade responsibility by not providing information about the violator’s identity, the expired statute of limitations, etc.), and the workload of the State Audit Service.
Experts convince that simplifying the mechanism for imposing fines, and strengthening the risk-oriented approach to detect wrongful procurement at the monitoring stage, are the ways to address this situation.
The State Treasury Service of Ukraine (STSU) makes payments under contracts concluded as a result of procurement, and monitors compliance with budget legislation in the field of procurement. According to the STSU, in January-December 2020, its bodies issued 227 warnings about an improper implementation of budget legislation totaling EUR 7.5 million. The vast majority of warnings concerned the lack of procurement documents.
STSU systems are integrated with the e-procurement system. The information on payment transactions made under the procurement contract is transferred in an automated mode.
The Accounting Chamber may conduct post-audit of public procurement (objects of control). Having an annual work plan, the Accounting Chamber, within its public financial control measures, may audit the procurement made by an object of control during the auditing period.
Moreover, the Accounting Chamber analyzed the report of the Ministry of Economy on the functioning of the public procurement system. According to the analysis results, the stated sum of savings in the sum of EUR 1.5 billion is contradictory. The auditors believe that this figure and conclusions provided by the report of the Ministry of Economy are insufficient for a comprehensive assessment of the functioning of the public procurement system in 2020. This information is also insufficient to assess the effectiveness and transparency of such procurement, the state of the competitive environment, the prevention of corruption, and the development of fair competition.
Experts’ views on these figures are contracting. Some experts are confident in these figures and conclusions, given that the mechanism for calculation of budget savings is complex and therefore some figures may be overestimated. But other experts presume that public procurement is a market mechanism, and the value of end-to-end procurement often reflects the real state of affairs in the market.
Public control of public procurement is carried out through the DOZORRO platform, which unites dozens of public organizations. This platform provides an opportunity to discuss each tender with potential and existing bidders, to find out their expert opinion on the correctness of the wording in the tender documentation, to obtain professional expertise, etc. It is a convenient tool for monitoring management because it is easy and accessible to keep track records of procedures controlled and violations detected.
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. The information is delivered in the form of user-friendly spreadsheets, analytical graphs, and diagrams. The tool is fully integrated with the Prozorro system; therefore, the data is automatically updated daily. The open data format allows conducting necessary analysis.
In 2020, the DOZORRO sent more than 9000 letters to procuring entities, regulators, or law enforcement agencies.
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:
7 criminal proceedings were opened; 72 contracts were terminated;
members of tender committees or authorized persons were brought to justice in 46 cases;
250 procurements were canceled;
changes were made to the tender documentation in 390 procurements;
according to the results of appeals to the AMCU, cases of collusion were confirmed in 36 procurements .
The interviewed experts are assured 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 information is growing and growing, the available fields are expanding, thus improving the quality of procurement in general, and enhancing civil society control. For example, this applies to a field such as “price per unit”. Adding this field will allow monitoring of price offers, prevention of abuse in procurement, and much proper control in the field of public procurement.2.9. Complaints about public procurement
Complaints about public procurement can be submitted to the AMCU or court. These instruments are used in different ways.
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 period from 01.01.2020 to 31.12.2020, the Antimonopoly Committee of Ukraine received 12675 complaints, of which 11,463 complaints (90%) were taken for consideration. Based on the results of the review of complaints, 11353 decisions were made, in particular,
3808 refusals to satisfy the complaint (33,5%);
6834 complaints were satisfied in full or partially (60,2%);
711 decisions on termination of complaints (6,3%).
On the one hand, it 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 recent amendments made in terms of procurement appeal (approach to charge fee from a complaint depending on the cost and subject of the procurement, with payment made only online for filing a complaint, the possibility of appealing the procuring entity’s decision to cancel procurement, the impossibility of withdrawing the complaint, etc.), the share of satisfied complaints increased from 43% to 65%. After April 19, 2020, the share of non-satisfied complaints dropped from ≈37% to ≈28%, and the share of rejected complaints decreased almost six times, and the time during which complainants waited for the decision of the AMCU Board shortened from an average of 20 to 17 calendar days in September 2020. The novel additional safeguards reduced the number of unscrupulous complainants, thus deterring complaints from being submitted solely to delay the procurement process.
Experts also argue that the novels in the legislation, according to which the amount of the complaint is returned in case of winning, was also positively perceived by the subjects, and consequently increased the number of appeals. Nevertheless, the complainants paid more funds to the State Budget in 2020 than it was foreseen.
At the same time, to improve the quality of the appeal process, it is also recommended to further digitalize complaints. Another way to improve this process is to standardize the tender documents, therefore, it will be in short notice clear which points are being challenged and what the complainants are most appealing to.
At the same time, the negative aspect of appeals to the AMCU, namely the inconsistency of the practice of decisions, is obvious, is confirmed by all the interviewed civil society experts, as well as by published research findings. This practice hampers the desire to appeal, because the fee of a complaint increased, and it is possible to obtain a decision not in their favor in similar cases.
The way out of this situation, experts see a generalization of the practice of the AMCU, which, on the one hand, would allow them to act early within their decisions, and on the other hand, would allow appellants to predict the outcome of their complaints in the future.
Also, complainants need to adapt to changes in terms of providing evidence to substantiate the legality of appealing the requirements of the tender documents. So far, there is no practice of what and when evidence is admitted as appropriate and is accepted for consideration. In practice, it leads to the complaints return.
Appeals to court, according to the civil society expert community, are not highly effective. Bidders rarely go to court to defend their procurement rights. The reasons for this are the low speed of consideration of complaints (several months or longer), the inability to enforce certain court decisions in practice (especially those that offer to “reset” the procurement from a definite point, which is complicated (and sometimes impossible) to realize within current Prozorro system). In addition, similar to appeal to the AMCU, there is no consistent practice of court decisions.
One of the problems in judicial practice is to determine the jurisdiction of cases to appeal the decisions of the AMCU on complaints about violations of public procurement legislation by the District Administrative Court of Kyiv to consider this category of cases. This court is said to be connected with a large number of top-level corruption scandals. To the problem of corruption is added the extraordinary overload of the DACK, specifically almost a thousand cases per judge. These reasons negate the desire of businesses to appeal the decision of the AMCU.