Overwhelming Complaints

Oleksandr Fefelov, Attorney at Law, Partner, Head of Antitrust and Competition Practice

Source: Dzerkalo Tyzhnia

Public procurements are the profit-making business transactions between the suppliers and budget organizations, whereby each potential supplier makes everything possible to win. Sometimes the paths to victory are not purely legal and the things that would ideally be profitable both for the state and a particular community, in reality turn out to do good only to a few individuals.

The model of a typical public procurement is seemingly simple: the announcements are published; the bids are submitted and the winner is announced. How can such a simple algorithm possibly feature any “particulars”? The answer is obvious: it is all about filing a variety of complaints with and ruling the decisions by the Permanently Acting Administrative Board of the Antimonopoly Committee of Ukraine for reviewing complaints of legislation breaches in the sphere of public procurements (hereinafter referred to as the Administrative Board).

The number of complaints, filed with the Administrative Board, is growing considerably each year: in 2018, some 7,786 complaints were filed (37% more than in 2017), whereas there were as many as 11,147 complaints in 2019. Similar growth trend persisted in the first half of this year as well. Given such a load, the AMCU was forced to arrange the work in two memberships of the Administrative Board at a time, because the complaints reviewing system was under the threat of coming to a complete standstill.

System has failed

In fact, the procedure for filing complaints, permitted by the law, allowed the unfaithful bidders to block and protract the procurements in various ways — and those were, in principle, the lawful ones.

The procurement sponsors have caused a number of inconveniences to the bidders, most often for the “unwanted” ones. There were cases in the practice of Ilyashev & Partners Law Firm when the sponsors would pose the requirements that could be met by only one potential bidder or would include into the bidding documents the unimportant requirements from the point of view of the procurement effectiveness, which at the same time could materially affect the potential bidders’ ability to deliver the appropriate goods at the attractive price and within the reasonable time. For instance, a sponsor would require that a bidder submits copies of passports of its employees and if any passport was not photocopied in the entirety of its pages, then the sponsor would have the right to reject such a bid. Another example: a sponsor would demand that a bidder submits a guarantee, signed with electronic digital signature (EDS), provided by a bank and subsequently banned such a bidder from participating in the tender, without even having checked the availability of such signature. It got even worse, when the Administrative Board had neither the opportunity nor the intention to check EDS availability, whereby it confirmed rejection of the bidder. It remains unclear, why the form of guarantee is of such importance and why it is so difficult to duly check its contents and form in our digital era?

The number of violations on the part of the bidders has scarcely reduced as well. In many cases, closely related and often even the formally affiliated entities take part in the tenders. It is noticeable that despite the whole lot of the publicly notorious cases, initiated following the suggestion of possible conspiracy at the bidding, they would not happen less frequently. There are also a number of cases, when the bidders themselves did not even attempt hiding their affiliation and submitted the documents using identical ІР addresses, made similar mistakes in their respective bids, specified identical private individuals as their executives or founders of the manufacturer of similar goods. It is hard to understand such impudence, because the punishment for conspiracy at the bidding is not only particularly grave (large penalties apply), but the parties to such conspiracies get banned from participation in public procurements over the course of the next three years following the incident.

Even after the complete implementation of ProZorro system, when everyone interested (including the law enforcement bodies and the AMCU) have become able to inspect the documents and the procedure applicable to any particular procurement and come to the appropriate conclusions, the violations keep occurring in a number of cases and the number of complaints just keeps growing, which means that the system has failed. The growing number of cases in this area could not but raise concerns.

Focus on Europeanisation

The authorities attempt to resolve the issues within the system of public procurements and those emerging when filing complaints to the decisions in this area (including the institutional problems) by way of making amendments to the appropriate legislation, which has also been envisaged as part of Ukraine’s commitments in the Association Agreement with the EU.
Article 153 of the Agreement envisages that our country shall ensure that its existing and future legislation on public procurement will be gradually made compatible with the EU public procurement acquis. Within the framework of completing the “road map” pertinent to making the national legislation compatible with the EU regulations, new version of the Law of Ukraine On Public Procurements entered into force at the end of April this year. Let us dwell on selected innovations of this Law.

In order to improve the procurement system in accordance with the EU standards, the following new elements of the system were introduced: abnormally low bid price, electronic catalogue, technical specification to the procurement item, simplified procurement, simplified procurement bid, simplified procurement winner, which may expressly be called positive changes.

But with respect to the “abnormally low bid price”, so far it is not clear, how exactly the price dumping counteraction mechanism by way of ensuring the sponsor’s right to reject such bid is going to work. We may easily assume that the evaluation by sponsors’ bidding committees of the price “abnormality” justification shall be partial in many instances, which, again, shall result in filing the complaints.

Apart from the price, a sponsor shall have an opportunity to impose such a criterion, as “life cycle cost” in order to determine the most economically profitable bid, that is the aggregate value of a procured item or parts thereof, as well as other expenses, which the sponsor shall incur directly when using, doing maintenance and disposal of a procured item and all its components must not feature any requirements that restrict competition and result in discrimination of the bidders.

The term “simplified procurement” became an absolute innovation of the Law on Public Procurements. This is the procedure of acquiring by the sponsor of the procured items, which value equals or exceeds UAH 50 thousand and is less than the threshold value, depending on the sponsor category:
— of the item/piece of goods (pieces of goods) or service (services) — UAH 200 thousand and UAH 1 million;
— of works — UAH 1.5 million and UAH 5 million.

Article 14(2) of the Law determines that a simplified procurement shall consist of positively understandable and consecutive stages, which do not require any complicated actions in order to bid for. The scope of procurements, expected value whereof falls between the mentioned thresholds, currently accounts for up to 85% of their total number. As a result of these developments, processing such procurements in ProZorro system is a matter of absolute importance and it allows ensuring the control over spending enormous budget assets.

Furthermore, the variety of competitive procedures, under which the procurements are conducted, were supplemented with such type of a procedure, as limited participation bidding, which is used when it is necessary to make an interim check of the bidders’ qualification by way of performing the qualification selection and in case of conducting the so-called “euro-bidding” (which suggests pre-qualification of the bidders). The sponsors are supposed to use this procedure, if it is critical for them to completely assure a bidder’s ability to duly perform under a contract and to ensure the appropriate quality of a procured item. At the first stage of the bidding, qualification selection of the bidders shall take place, appropriately, here we may expect the number of complaints to grow for reasons of possible partial approach while conducting hereof.

Among positive innovations we must note the currently available opportunity for a bidder under the procurement procedure to correct the inconsistencies that pertain to various information and/or documents that they would submit as part of their bids or which may be detected by the sponsor following the opening of bids. Such correction must be done by way of uploading within an electronic procurement system of the corrected or newly drawn up documents during 24 hours following the moment of publishing by the sponsor of a notice demanding the correction of inconsistencies.

For the purpose of cutting down on the opportunities for bidding trolling, the new version of the Law of Public Procurement provides for a differentiated duty payable for filing a complaint, set out in the Decree of the Cabinet of Ministers of Ukraine No. 292 date 22 April 2020. Is there hope that the increased duty would pull back at least some of the unfaithful complainants? To some extent it could only discourage the small companies or the private entrepreneurs, but the increased duty for filing complaints is unlikely to materially affect the major abusers in this sphere.

Change for the better

For the time being, the complaints that are filed with the register and to which the registration cards have been assigned, shall no longer be subject to revocation by the unfaithful complainants. There shall be less room for dirty games. Similarly, neither shall the sponsors have the opportunity of cancelling the biddings under public tenders following the submission by a bidder of a complaint to the AMCU, i.e., it shall not be practicable to push aside the “unwanted” bidder by way of cancelling the procurement.

The mentioned changes to the complaints filing procedure are anticipated to finally cut down on the corrupt element in the sphere of public procurements, as well as to materially release the load put on the Administrative Board and the AMCU department, which actually handles the complaints and prepares the suggestions for the Administrative Board. This may become truly helpful in investigating grave violations in the most appropriate manner. In its turn, we may also expect that the number of abuses by the unfaithful complainants of their rights to complain in order to deliberately protract the procedures.