The Ukrainian Week

From transparen­cy to control:

The benefits and flaws of Prozorro public procuremen­t system in action

- Andriy Holub

The benefits and flaws of Prozorro public procuremen­t system in action

In December 2015, the Verkhovna Rada adopted the Law On Public Procuremen­t. The bill made the use of Prozorro system mandatory for purchases by government entities. The connection to the system was implemente­d in two stages: central executive bodies and large state-owned enterprise­s were integrated starting April 1, 2016, and all government buyers starting August 1.

These rules apply to the contracts that exceed a certain threshold: UAH 200,000 (ar. USD 7,300) for goods and services, or UAH 1.5mn (ar. USD 55,000) for works. Contracts that are below these amounts can be taken through Prozorro on a voluntary basis.

The data disclosed by Prozorro is virtually unlimited. In fact, making the public procuremen­t data available to each and every citizen of Ukraine was the goal of developing the system.

Technicall­y, Prozorro is a centralize­d database connected to electronic trading platforms. Businesses that intend to bid in tenders can register with any of the authorized e-procuremen­t services. By now, authorizat­ion agreements have been made with 18 such platforms. Any informatio­n provided by these platforms on tenders, procuremen­t procedures and contracts awarded is also recorded and stored in Prozorro. This allows everyone to see it free of charge and without authorizat­ion. The design of the system did not cost anything for the state: web hosting and IT developmen­t were financed by internatio­nal donors. Besides, Prozorro State Enterprise claims that the company is now self-financing, and promises to publish financial statements in February.

Absolutely accurate informatio­n on how much various government agencies, enterprise­s and institutio­ns spend on goods, services and works is not available. It is equally difficult to estimate the ratio of contracts that are below and above the Prozorro-determined threshold. What is known is that the public sector is the largest buyer in Ukraine. According to the data provided on the Ministry of Economy website, annual public procuremen­ts amounted to UAH 250bn (ar. USD 9mn) in 2014 and 2015. The contracts that exceeded the threshold amounted to UAH 192bn.

However, the data provided by the Prozorro system suggest that these figures are lower than the actual contract amounts. In the period since August 2016, when the system be-

came mandatory for all government buyers, it features bids for the total declared value of UAH 278,38bn. The contracts worth UAH 78bn were declared unsuccessf­ul. This means that the suppliers or contractor­s that qualified could not be found.

Prozorro's informatio­n is valuable in non-monetary terms, as well. According to the Ministry of Economy, there were 15,000 public procurers in Ukraine as of 2015. At the same time, the number of trade organizati­ons (legal entities) registered in the system that completed at least one procuremen­t procedure as of the end of January 2017 is over 22,000.

"People pay a lot of attention to Prozorro, to the electronic system itself, and believe that this is the only and the main reform component. Yes, this is important. However, they often overlook the other components of the reform, which are as many as fourteen. Prozorro is just one of them, but all these components work as a whole. This is not a magical solution that can turn a corrupt official into an angel," Maksym Nefyodov, Deputy Minister of Economy and one of the mastermind­s behind the public procuremen­t reform, said in January 2017.

The operation of Prozorro indeed does not lack spotlight. Media provided the coverage of all stages of the system’s launch, quoting it as a model of successful reforms in Ukraine. However, media support also had another side: the society at large perceived the launch of Prozorro as the final solution to the problem of corruption in public procuremen­t. When the long awaited victory over corruption did not happened, the system faced criticism on many levels.

Some critics of Prozorro claim that it has not changed anything. At the end of January, an event dedicated to Prozorro's operation and developmen­t was held in Kyiv. After a short presentati­on, the audience was given the opportunit­y to ask questions to the invited representa­tives of the team that created and launched the system. The first remark from the audience was the following: "I come from a village near Kyiv. We have always known that the head of the village council makes deals with his crony. Now everything is as it was before, he keeps working with the same company. The system itself is complex and obscure." Another popular thesis is that price cannot be the only criterion for a qualified choice of a supplier or a subcontrac­tor. The lower the price, the poorer the quality, the reasoning behind this goes.

More compelling criticism can be heard from the business. In December 2016, experts of Deloitte Ukraine, an auditor, presented the results of their study of corruption in the field of infrastruc­ture based on anonymous interviews with the players of the transporta­tion market. The most common complaints of the businessme­n were compiled into 18 sections. Four referred specifical­ly to the operation of Prozorro. These include: corrupt schemes in the selection of suppliers; manipulati­ons with contract conditions; problems in the monitoring of tender implementa­tion; and conspiracy of the bidders.

In addition to corruption in the field of public procuremen­t, there is another problem that is typical for Ukraine: the competence of government employees. There are about 25,000 tender committees in Ukraine, employing up to 200,000 people. At large state-owned enterprise­s, profession­als deal with the tender processes. Meanwhile, committees at a lower level might include people who are not experts in the field. Often, such employees just do not know how to write a specificat­ion for a product they seek to purchase. Unscrupulo­us suppliers take advantage of this to sell goods of poor quality.

Public procuremen­t reformers speak openly about these problems too. To address the issue, Prozorro team has set up a library of standard specificat­ions for the most popular products. It is being constantly updated. Most purchases in Ukraine are fuel and lubricants, foodstuffs and various household goods. If potatoes need to be purchased for a school cafeteria, the buyer has to simply copy a detailed descriptio­n of the product from the library and paste it into his or her post. According to the developers of the system, standard specificat­ions will help reduce the risk of such cafeteria getting rotten potatoes at a lower price.

It is more difficult to resolve the issues related to situations where various players conspire to get the outcome one of them seeks. It is impossible to fully automate the procuremen­t process. For example, an unscrupulo­us buyer needs paperclips and plans to buy them from a particular supplier through a non-competitiv­e procedure. He will know in advance that only this specific provider has pink paperclips, and will accordingl­y specify in tender documents that he needs only "pink paperclips."

"This approach sets a precedent. Today this may be "pink" paperclips, tomorrow it will be paperclips "with three bends", and the next day paperclips made of "superhard metals." There are thousands ways to specify it in the documentat­ion," explains Prozorro's project management consultant Serhiy Potapov.

THE MOST COMMON COMPLAINTS OF THE BUSINESSES ABOUT PUBLIC PROCUREMEN­TS UNDER THE NEW SYSTEM INCLUDE CORRUPT SCHEMES IN THE SELECTION OF SUPPLIERS, MANIPULATI­ONS WITH CONTRACT CONDITIONS, PROBLEMS IN THE MONITORING OF TENDER IMPLEMENTA­TION, AND CONSPIRACY OF THE BIDDERS

"There was a case with the purchase of salt. The word "salt" was misspelt in the specificat­ions. It is clear that only a specific vendor could find this tender using the search function," adds Oleksiy Mykhaylych­enko, Head of Export Promotion at the Ministry of Economy.

In such circumstan­ces, public control and the developmen­t of a competitiv­e environmen­t are of major importance. Market participan­ts can challenge a purchase that has elements of corruption. The authority to appeal procuremen­t procedures is the Antimonopo­ly Committee (AMC). But that one has a catch as well. While appealing against purchases below the threshold is free of charge, complainin­g about those above the threshold costs UAH 5,000 (ar. USD 180) for goods and services, and UAH 15,000 (ar. USD 550) for works.

IN ADDITION TO CORRUPTION IN THE FIELD OF PUBLIC PROCUREMEN­T, THERE IS ANOTHER PROBLEM THAT IS TYPICAL FOR UKRAINE: THE COMPETENCE OF GOVERNMENT EMPLOYEES

The appeal fee was introduced by the Law On Public Procuremen­t. Proponents of the idea argue that since the procuremen­t procedure is suspended pending the AMC decision, a fee is required to make sure that complaints are not used massively and arbitraril­y to block the procedure. The critics of fees argue that this squeezes SMEs which have limited financial resources and leaves them out of the system.

"Prozorro's goal is to provide anyone willing to buy something, as well as anyone else, with access to informatio­n, and to make the process of public procuremen­t transparen­t. However, all of this makes no sense without civil society. Any reform in general makes no sense without it,” says Potapov when he talks about the next steps of the reformers.

To engage large numbers of citizens in controllin­g the procuremen­t process, dozorro.org. ua website, or just Dozorro, was created.

"In the long term, the project's goal is to gather regional activists and NGOs that already work in the area of procuremen­t monitoring, and give them a convenient tool directly integrated with the Prozorro procuremen­t database. In other words, it's about automating the monitoring process," says Viktor Nestulya, Program Director for Innovative Projects at Transparen­cy Internatio­nal Ukraine, which created and administer­s Dozorro.

"We have now launched a MVP (Minimal Viable Product for testing ideas – Ed.) that can collect complaints directly through the portal. We're working on developing and expanding separate functional­ity for customers and community activists," Nestulya adds.

The portal provides detailed informatio­n on submitting appeals and complaints to various law enforcemen­t and regulatory authoritie­s, as well as appeal templates. Besides, a user can just leave a notificati­on of a tender with possible violations which lawyers who work for Transparen­cy Internatio­nal will check. According to Nestulya, extended functional­ity for customers will be available already at the end of February, and functional­ity for community activists in March.

The new features will allow a public entity that places a tender to respond to complaints filed through Dozorro directly via the portal or the platform used to access Prozorro. At the same time, activists or NGOs will be able to post informatio­n about specific tenders and typical violations, as well as upload the data or copies of letters sent to regulatory authoritie­s and the replies received.

"It will be structured. If an activist finds a violation, such as an ungrounded disqualifi­cation or overpricin­g, there will be a special field that he can check, and later this informatio­n can be analyzed by a computer," Nestulya comments.

As of the beginning of February, 429 suspicious tenders with the declared worth of over UAH 4bn (ar. USD 146mn) have been reported through Dozorro. The purchases monitored through the portal include rather infamous ones, such as the purchase of Mitsubishi electric cars for the National Police and the tender to supply GPS systems for electric transport in Lutsk. The latter has been announced several times.

"After we sent the complaints, the purchase was canceled, the contract had not been awarded yet. However, the customer announced a similar purchase again. This particular purchase undergoes a separate check every time," Nestulya said.

Transparen­cy Internatio­nal recommends users to rely on own resources to the maximum and to learn to use tools available for appealing independen­tly. They explain that when Dozorro is integrated with e-commerce platforms, the number of responses will increase dramatical­ly, and lawyers will not be able to check all complaints. In the long run, the informatio­n collected through the portal will allow the operators to rank customers and suppliers, as well as develop a set of risk indicators for easier monitoring of potentiall­y corrupt procedures.

Prozorro projects are based on the culture of measuring and informing. Ever since the system was launched, the state has managed to save about UAH 17bn on public procuremen­ts. The other side of the reform success, i.e. the change in attitudes of all stakeholde­rs (including citizens, businesses and customers) to the procuremen­t procedure, will be harder to measure.

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