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Will the New Law Eliminate the Imperfection of System of Control over Public Procurements?

Date of publication: 29 January 2018

Oleksandr Fefelov, Head of Antitrust and Competition Practice

Source: Ukrainian News

On 27 January 2018 the Law on Amendments to the Law of Ukraine on Public Procurement and Other Certain Laws of Ukraine Concerning Monitoring of Procurements came into force. Its adoption was induced by the urgent need to increase the efficiency of the costs monitoring and control system and prevent budget losses during public procurement. The Law is actually developed to address three main issues:

first of all, to eliminate the inconsistency between the provisions of laws in determining the proper state body entrusted with the procurement monitoring function. The new Law confirms the authority of the State Audit Service (SASU) as an authorized monitoring body, which enables it to analyze the compliance by the customers – budget administrators with the legislative requirements at all stages of procurement, conclusion and execution of procurement contracts, as well as to control the intended and effective use of budget funds of different levels;

secondly, to reduce the number of violations at all stages of public procurement. Despite the obligatory conduct of over-threshold (or supra-threshold) public procurements exclusively in the ProZorro system, allowing any person to monitor the procurement process virtually online, this, unfortunately, has not decreased the number of abuses in the field. According to the AMCU statistics, the annual increase in the number of complaints against violations is 86%, which testifies to the negative results of fight against corruption in public procurement sector;

thirdly, to introduce and launch the automatic risk indicators as a method for procurement monitoring (“criteria with predetermined parameters, the use of which enables to automatically select the procurement procedures having the signs of violation in the field of public procurement”): the SASU will receive – in the automatic mode – the information on possible violations during public procurements, which should become an important element in preventing violations. Actually, one of the reasons for monitoring is the availability of the relevant data obtained from the automatic risk indicators.

The new Law provides for an exclusive list of grounds for monitoring, which includes, inter alia, media reports and the presence of signs of violations in the information contained in ProZorro system, which may be quite effective in preventing violations.

It should be noted that the decision to start monitoring will not suspend the procurement procedures, as in the case with the complaints consideration by the AMCU Administrative Board. In this case, the term of monitoring should not exceed 15 (and in some cases 25) working days from the date when the relevant decision was published in ProZorro system.

Where the detected violations, which have a negative impact on the budget, are not corrected within a certain period of time or where the findings of the monitoring are not appealed against to the court, the SASU body decides on procurement audit. The audit is also appointed in case of detection of violations concerning the non-compliance of the terms of procurement contract with the contents of the tender offer, the winning bidder or the price of the offer.

Furthermore, in case of filing a complaint to the Administrative Board of the AMCU or in case of a court appeal against the decision of the Administrative Board, the monitoring of issues being the subject of consideration by the Administrative Board will not to be conducted, regardless of the decision taken by the latter. If the Administrative Board accepts the complaint filed by the bidder for consideration after the commencement or publication of findings of the monitoring but before the publication of its decision in the system, the decision of the SASU will be suspended, and the customer will be able to eliminate the violations set forth in the findings of the SASU before the decision of the Administrative Board is published.

However, the fact that all information about the commencement, end, results of monitoring and exchange of information between the SASU and the object of audit will now be carried out electronically through ProZorro system, that is, will be publicly available, deserves special credit.

At the same time, we have also pinned great hopes in the introduction and use of electronic public procurement system ProZorro, revolutionary for Ukraine, believing it is a panacea for corruption. However, very soon the dishonest purchasers and smart bidders worked out a number of ways and mechanisms to circumvent fair competition in the field, as evidenced by the statistics of a truly hard daily work of the AMCU Administrative Board, which often reviews dozens of complaints per day. Also, within 4 months of 2017 (during the full-fledged work of ProZorro system) the SASU alone found violations in the field of public procurement for almost UAH 5.1 billion and prevented for about UAH 2.7 billion.

The work of the AMCU Administrative Board demonstrates that such a huge number of existing and potential violations will hardly be covered by the SASU bodies with their small personnel number and, most likely, a significant part of violations will remain beyond the proper attention of the state body. In addition, we do not exclude the human factor and the high probability of subjective assessment of certain circumstances.

Neither the risks of large fines nor the deprivation of unfair bidders to qualify for participation in public procurement for three years in a row can prevent them from temptation of immediate gains by way of corruption. Probably, it is the real prospect of criminal prosecution of persons directly participating in conspiracies and taking illegal decisions in the field of public procurement which may at least somehow bring the violations to an end.