The Ukrainian Week
From transparency to control:
The benefits and flaws of Prozorro public procurement system in action
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.