Not Only Corruption. What Else Needs to Be Improved in Procurement?

I am sure that most people associate public procurement exclusively with corruption. No surprise, as every week, journalistic materials about potential overpayments at tenders get published. However, corruption is not the only problem in the field. This is what I suggest we talk about today on the International Anti-Corruption Day.

Why does the state lose money on public procurement? The first answer that comes to mind is because of corruption. 

We at DOZORRO, TI Ukraine project, have been tracking public procurement for eight years. Last year alone, we prevented potential overpayments at the expense of the budget worth more than UAH 1.5 billion. However, I will not undertake to say what share of violations that we found falls on corruption.

Corruption is a fairly clear term. This is an abuse of authority or office for the purpose of obtaining an unlawful advantage: property, money, benefits, services, or non-monetary advantage. Everyone’s heard of kickbacks, right? This is corruption.

It is difficult to confirm corruption purely with tender documents on Prozorro. This requires in-depth analytics and investigation. However, there are other, not always corruption-related, violations in procurement, due to which the state loses millions, or even billions. The question is, why do they happen?

Deficiencies in processes and rules

The lion’s share of tenders that we are currently monitoring is the procurement of construction. This includes the recovery of what the Russians destroyed, the construction of shelters, the reconstruction of buildings to accommodate IDPs, and the planned repairs of hospitals so that they can host more patients. We find many violations in such procurement transactions. Mostly it’s overpayments. Is it always corruption? I’m not sure.

Construction begins with a design assignment, the procurement of the project development, the actual development of the project. Then the project undergoes examination, gets approved, and only then a procurement transaction for construction is announced. It is usually at this stage that everyone detects problems because everyone sees everything on Prozorro.

However, a significant part of overpayments in construction originates much earlier—at the stage of project documentation development. It happens just because the prices for construction materials are not checked properly. Formally, procuring entities are obliged to control this, but in practice, they rarely do. To resolve this issue, it is necessary to at least inform procuring entities that keeping an eye on prices is their task and responsibility.
Another step is to amend the legislation that regulates these processes. For example, you can assign the analysis of prices for construction goods to an expert organization that checks such projects.

Our team conducts in-depth research to identify structural issues in the field. For example, at the beginning of the year, we found that competition in construction tenders suffered from a short deadline for submitting bids—the number of days a participant has to prepare and submit documents for the tender. Competition is a chance for the state to save money. At that time, at the legislative level, the minimum period was seven days. This was not enough for complex construction tenders worth millions. Upon our recommendation, the deadline was extended. 

We found that competition is also impacted by the format in which procuring entities uploaded documents required for estimates to Prozorro. This can be done in the format of estimate programs, then it is much easier for a business to prepare its bid, and it will be more willing to participate in the tender. Or you can upload a PDF-scan of such a document with hundreds of pages. In this case, the options are either to hope for the skills of artificial intelligence, or for the participant to re-type it. Not a very attractive option of cooperating with the state, is it? Currently, we are advocating that the machine-readable format of these documents become mandatory. 

Human factor

In Ukraine, there are more than 30,000 procuring entities that conduct procurement on Prozorro. Large state-owned enterprises or institutions with significant budgets can afford to have a powerful team of procuring entities—authorized persons who successfully establish procurement processes. However, most procuring entities in Ukraine are small-scale organizations that do not conduct many procurement transactions. The remuneration of authorized persons is not very high; moreover, they combine such work with other duties. According to our data, authorized persons are usually accountants.

When we talk about procurement, we often forget that it is carried out by people like us. Their work is difficult and stressful. To do it, it is necessary to understand the legal intricacies of the legislation, adapt to its constant changes, and at the same time bear considerable responsibility: procure on time, efficiently, and at market prices. In addition, such people bear administrative and sometimes criminal liability for mistakes. They often make them unknowingly: due to fatigue, too much work, or distraction. 

In addition, authorized persons can do something wrong because they are not sufficiently trained. For example, a few years ago, we found that procuring entities barely knew how to apply non-price criteria. This is a mechanism in procurement that allows evaluating bids according to other criteria apart from price, for example, by the warranty period or the deadline for the performance of works. Non-price criteria are needed to buy not only the cheapest items on Prozorro, but also those of the highest quality. As part of the study, we found that 1) non-price criteria are used in less than 1% of lots where this could be done and 2) they are not always applied correctly. By the way, these are far from the only issues with non-price criteria.

We recently came across a procurement transaction where the authorized person made a mistake with the CPV code. This is a classifier that helps participants search for procurement transactions in which they would like to take part. Fortunately for the procuring entity, a participant took part in the procurement transaction, who still offered a very pleasant market price, so the state did not lose millions because of this mistake. But this is not always the case.

Conclusions

Of course, there may be corruption in procurement. There are people who, even during a full-scale war, take advantage of a possibility to earn more unlawfully. We witnessed scandals with eggs that cost UAH 17, expensive, poor-quality jackets for the military, and the scheme of former Deputy Minister Lozynskyi to purchase equipment at an extortionate price for a bribe.

It is important to continue to expose such cases. However, it is just as important to establish processes that leave very few loopholes for abuse. There should be more training and better conditions for the authorized persons conducting these procurement transactions. The more resources we invest in this, the fewer loopholes for abuse will remain in public procurement. 

This publication was prepared as part of the Digital Transformation Activity, funded by USAID and UK Dev.