Date of publication: 18 April 2018
Oleksandr Fefelov, Attorney at Law, Head of Antitrust and Competition Practice
Source: Yurydychna Gazeta
Existence and adequate protection of competition against the actions of the state represent a cornerstone of public procurement in a market economy system. The functions of protection of economic competition in our country are entrusted to the Antimonopoly Committee of Ukraine (AMCU). It is impossible to overestimate the role and influence of the Antimonopoly Committee on ensuring the reliable functioning of the public procurement system to preserve and save budgetary funds of different levels amidst a huge number of monopolies and a high level of corruption in the procurement sphere. In such way, the purpose of the AMCU, which is acting as an appellate body in the public procurement sphere, is to reduce the unwanted losses of colossal amounts of monetary assets (both at the state and local levels) necessary for the development of the state economy and certain regions and industries, which are being restored after the known upheavals of the recent period.
The Law of Ukraine On Public Procurement is the main regulatory act in the field of public procurement. Positive developments introduced by the Law were largely determined by the obligations assumed by our state in the EU-Ukraine Association Agreement.
Among other things, Article 153 of the Agreement expressly stipulates that Ukraine is obliged to implement a consistent approximation of its legislation in the field of the state (public) procurement with the EU’s main provisions on public procurement, and that this process should be accompanied by institutional reform and the creation of an effective public procurement system based on the principles governing the public procurement in EU countries.
Subject to Article 150 of the Association Agreement Ukraine undertook the obligations to appoint, within the framework of the institutional reform, an impartial and independent public authority whose task would be to review the decisions taken by customers in the process of concluding public procurement contracts. In this context, the notion of “independent” meant that the said body must be represented by a public authority separated from any customers and economic operators. At the same time, legislation should stipulate for the possibility reconsideration by the courts of the decisions issued by such a body.
The Law on Public Procurement was adopted by the Verkhovna Rada at the end of 2015. Further to the analytical analysis carried out by the national and international experts, it is not only innovative, but in fact revolutionary among the post-Soviet states in terms of creating a bidding system, transparency of all public procurement processes and full openness in the process of complaints consideration in this area. The law provides for mandatory notification about the planned future purchases via electronic procurement system entitled “Prozorro”, and all public procurement procedures are carried out exclusively via e-procurement system and are available online via the Internet. This procedure is fundamentally different from the procedures provided for by the Law On Fulfillment of Public Procurement, which provided the opportunity to conduct public procurement on quite an unofficial basis with lodging the documentation for the tender (and also within the appeal procedure) in paper form, which caused numerous violations, including those of the principal (corruption) nature in this area, and resulted in huge budget losses.
Article 42 of the Constitution of Ukraine provides that the state is obliged to ensure protection of competition in business, including in the field of public procurement. Ensuring the state protection of competition in business and in public procurement spheres is entrusted to the Antimonopoly Committee of Ukraine, which is a state body enjoying a special status. As an appellate body in the field of public procurement, the AMCU acts with the aim of impartial and effective protection of the rights and legitimate interests of persons involved in public procurement procedures, acts as a central element in the public procurement system, ensuring the most efficient use of budgets of various levels.
The functions of the AMCU, as the of the appellate body in this area, were defined by the Law On the Antimonopoly Committee of Ukraine and confirmed by the Law On the Performance of Public Procurement. That is, with the entry of the Law on Public Procurement into force, the functions of the appeals body in this area did not become something new for business, nor for the public, nor for the AMCU, although the timing and procedure for lodging appeals has changed significantly.
The functions of the AMCU, as of the appellate body in the mentioned area, were defined by the Law On the Antimonopoly Committee of Ukraine and confirmed by the Law On the Performance of Public Procurement which lost its validity. Therefore, with the entry into force of the Law On Public Procurement, the functions of the appellate body in this area has not become something new for the neither business, nor for the public, nor for the AMCU, although the terms and the procedure for appeals were changed significantly.
AMCU Administrative Chamber
In order to implement the envisaged objectives of the appeal, the AMCU, acting in accordance with the Law, established a permanent administrative chamber for the consideration of complaints regarding violation of the legislation in the field of public procurement (hereinafter referred to as the “Administrative Chamber”).
Subject to the requirements of Article 8 of the Law On Public Procurement, the Administrative Chamber is called to consider complaints lodged by business entities against the actions of public procurement ordering parties who violate the rules for conducting such procurement. The Chamber makes decisions on behalf of the AMCU. The procedure of the Chamber’s work is determined by the Law of Ukraine On the Antimonopoly Committee of Ukraine.
It should be emphasized that from mid-2016, the Administrative Chamber fully shifted from the consideration of paper-form complaints to consideration of the electronic complaints that can be uploaded via electronic procurement system “Prozorro”. The procedure for appealing the actions of ordering partys and the complaints consideration procedure are described in detail in Article 18 of the Law on Public Procurement. After the complaint and documents are uploaded, including confirmation of payment for the consideration, to the electronic procurement system, it is automatically entered into the register of complaints and on the day of placement is also automatically published on the Prozorro web-portal together with the registration card.
The term of consideration by the Administrative Chamber of any complaints submitted shall not exceed 15 business days (in the case of procurement for defense purposes, within 10 business days) after their acceptance. Further to receiving the results of consideration of the complaint, the Administrative Chamber may arrive to a decision on the presence or absence of a violation of the procurement procedure by the ordering party, as well as on the actions that the ordering party must take to eliminate the violation. For example, to oblige the ordering party to cancel all or part of their decisions, provide the necessary documents, clarifications, eliminate all discriminatory conditions (including those included in the tender documentation), bring the tender documentation in accordance with the requirements of the law, and, should it be impossible to correct the violations, – to cancel the procurement procedure, impose an obligation onto the ordering party to cancel the decision on the determination of the winning party, cancel the decision on the admission of the participant to the auction.
At the same time, it should be taken into consideration that the Administrative Chamber is not authorized to determine the winning party of the auction, to oblige the ordering party to enter into a purchase agreement with certain participants, as well as to determine the price of the purchase agreement. The Administrative Chamber does not independently control the bidding procedure, but checks the purchase only within the limits of the complaint. It is not authorized to establish such violations as forging documents, determining the winner of the bidding, oblige the customer to enter into a purchase agreement with one or another participant, set requirements in the tender documentation or the expected cost of the purchase. It also cannot verify the entire procurement process, but only within the limits of the alleged violations.
The Administration Board does not independently control the bidding process, but verifies the purchase only within the limits of the complaint filed. It is not authorized to establish such violations as falsification of documents, determination of the winner of tenders, to oblige the customer to conclude a contract of purchase with a certain particular bidder, to establish requirements in the tender documentation or the expected value of the purchase. It is also not authorized to examine the entire procurement process, but only within the limits of the alleged violations.
The problems are still in existence
Unfortunately, even further to the moment when Law On Public Procurement entered into force and the maximum transparency of the trade which appeared as a result of this, the number of violations in this area has not decreased at all. This is confirmed by statistical data concerning the burden borne by the Administration Board, which is growing with each passing year. It was 86% increase in the number of complaints filed against public procurement procedures in 2017, compared to the number of complaints filed in 2016, which leads to totally abnormal work conditions of the Administrative Chamber, including in connection with the new requirements of the Law regarding the period of consideration of complaints.
According to the statistics, if in 2016 the Administrative Chamber held 168 meetings on the review of complaints against the violations of the law in the sphere of public procurement and adopted 2 397 decisions on 1846 complaints, in 2017 it already had to deal with 5 706 complaints for the total amount of UAH 90 580 000 000.00. As soon as about half of the complaints about public procurement procedures are satisfied, the amount of violations the Board has ordered to eliminate is UAH 37 380 000 000.00.
A little more recent statistics about the work of the AMCU’s Administrative Chamber. In January 2018 alone it considered 349 complaints out of 543 that were lodged, taking into account complaints lodged in December 2017, which is twice as much as lodged in January 2017 (considered were 170 out of 223 those filed, taking into account complaints lodged in December 2016). At the same time, 205 complaints were satisfied, and the customer canceled the procurement procedure for 22 purchase procedures. For the first month of 2018 in the actions of customers there were violations revealed for the total amount of 1 billion 197 million hryvnias that cannot be corrected (an obligation was imposed onto the customers to abolish procurement procedures), violations were detected and the customers were obliged to eliminate them for the total amount of 1 billion 173 million hryvnias (decisions on dismissal of the decisions and on defining the winning bidders were canceled), the violations of the discriminatory terms of the tender documentation for the total amount of 1 billion 154 million UAH were revealed (the customers were obliged to introduce amendments to the tender documentation).
It is unlikely that somebody may start having doubts about the effectiveness of the Administrative Chamber and about the fact that it deserves the highest marks. However, I would like to draw attention to the fact that in 2017 the Administrative Chamber considered on average 23 complaints a day to comply with the deadlines established by the law; the meeting often ended at midnight. In terms of physical and intellectual load such a number of cases considered, both by the employees of the Department in the matters of appeals against the decisions in the field of public procurement, as well as by the members of the Administrative Chamber, is absolutely inadmissible. Based on the number of decisions upheld in 2017 (9 283), it is already possible to cast doubt on the physical capacity of the corresponding employees to further maintain such a high labor enthusiasm and intensive level of work, continuing to impartially and, which is most important – proficiently, fulfill the functions entrusted to them.
The fact that the work of the AMCU has resulted in tremendous costs savings cannot but rejoice. The very prospect of fair handling of complaints often kept customers from committing unlawful actions. We have repeatedly participated in cases where, after lodging applications to the AMCU, the customer either drastically changed the tender documentation excluding thereby discriminatory conditions or completely canceled the procurement procedure without considering the case in its merits.
AMCU under different angle
A few words must be said about the work of the AMCU not as about an appellate body in the sphere of public procurement, but as a body entrusted with the functions of control and prevention of price fixing and other existing anticompetitive concerted actions, including those performed in the process of public procurement.
It is clear that in the course of holding a variety of competitive biddings and tenders the key element is competition of bids. Therefore, it is absolutely unacceptable in the course of participation in one or another competitive procedure to have any formal or informal agreements between potential competitors, as well as any conspiracies both between bidders (including potential) and between participants and customers. The manifestations of conspiracy may be completely different, but they are always directed at solving the main task – elimination or distortion of competition in order to formalize the victory in a tender by a predetermined bidder and/or the purchase of goods, services or works under the uncompetitive price.
Such formal or informal agreements are considered to be a violation of the requirements of the Law On the Protection of Economic Competition, namely, its Article 6 – the commitment of “anticompetitive concerted actions” related to the distortion of the results of tenders, competitions, bidding processes (in particular, the establishment and functioning of cartels). The prohibition of cartels is unconditional, but despite the strict measures applied by the AMCU to its participants, unfortunately, we are not observing the tendency to their disappearance. We should not underestimate the danger of such a phenomenon as cartels in the procurement process. As a result of their actions supply prices are getting higher, budgets and end users are forced to bear significant losses.
The Administrative Chamber is not authorized to establish the facts of existence of cartels (both between participants, as well as between participants and customers). However, it is expressly authorized to investigate their activities. At the same time, unlike the procedure for appealing the bidding procedures which starts by lodging a corresponding complaint via “Prozorro”, the AMCU may independently initiate the necessary investigation (without the complaint lodged by participants or customers), which it successfully exercises judging from the examples of the cases revealed, about which it periodically informs the public (even without the right to carry out operative and search activities).
The AMCU ensures the maximum possible transparency in the process of consideration of complaints and the decisions adopted in their respect. Firstly, all complaints are filed electronically via “Prozorto” system. The Administrative Chamber simply does not consider appeals filed in paper form. Due to the openness of the consideration proceedings of the Administrative Chamber, any interested person may attend them. The most important thing is that all decisions of the Board must be published on the AMCU’s website. Thus, the appeal in the sphere of public procurement, from being a fairly marginal process – as it was before the moment when the Law On Public Procurement entered into legal force, turned into an open process, due to which the level of corruption should be kept to a minimum.
In addition, in this context the AMCU should be thanked for keeping the public informed on a monthly basis about its activities as of an appellate body in the field of public procurement. In the course of such procedures, the AMCU reports about the results of the Administrative Chamber’s work; provides information about typical cases considered during the reporting period; provides statistical data on the number of cases reviewed, decisions upheld, as well as savings made at different levels of budgets. In addition, at such meetings participants have the opportunity to become aware about typical mistakes both made by the customers in the process of forming tender documentation, as well as procurement by the bidding participants in the process of drafting their proposals, as well as the errors in the process of appealing the tender procedures. It is worth noting that these reports are usually presented by the Chairman of the Antimonopoly Committee together with one of his deputies or by the Head of the Department. In addition, the meeting is broadcasted online, thereby providing access to it to an unlimited audience.