From trans­parency to con­trol:

The ben­e­fits and flaws of Pro­zorro pub­lic pro­cure­ment sys­tem in ac­tion

The Ukrainian Week - - CONTENTS - 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.


"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.


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, do­ 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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