How Not to Save on Reconstruction Procurement: A Recipe from Mykolaiv Region

Mykolaiv region remains on the front line and continues to suffer from mortar and artillery shelling. It is one of the most damaged areas due to Russian military aggression. As of May 2025, over 17,000 civilian infrastructure facilities had been destroyed in the region, based on data from the Mykolaiv Regional Military Administration.

In response, the region is investing substantial funds in large-scale reconstruction projects. BI Prozorro reports that over UAH 21 billion has been spent through the electronic public procurement system on rebuilding efforts since the start of the full-scale invasion. The second-largest procuring entity by contract value is the Department of Urban Planning, Architecture, Major Construction, and Development Project Support of the Mykolaiv Regional State Administration, with contracts totaling UAH 2.6 billion.

Interesting Procurement Terms with Potential Overpayments

The Department awarded contracts for the construction of fortifications and shelters, as well as for the reconstruction and repair of infrastructure and social facilities. Its procurement practices have repeatedly drawn the attention of Dozorro. In some tenders, we identified potential overpricing of construction materials:

–       UAH 6 million — for a shelter project in Pivdennoukrainsk,

–       UAH 12 million — for the reconstruction of a kindergarten in the village of Trykratne.

The procuring entity never responded to our inquiries.

Beyond inflated prices, we also noted unusual rules for calculating the bid price in the Department’s procurement terms. These rules stated that the type of contract price would depend on how much lower the bidder’s proposal was compared to the estimated value. If the price reduction was small (with the maximum allowed deviation ranging from 2% to 10%, depending on the tender), the contract price would be dynamic. This means it could be adjusted later if market prices for materials fall or rise. However, if a bidder’s proposal was significantly lower than the estimated value, the contract would use a fixed price. In that case, it would not be possible to adjust resource costs in the acceptance certificates. Also, such bidders would be required to submit documentation proving the cost and quality of all construction materials listed in the estimate. Yet at the proposal stage, bidders may not even know which manufacturers’ materials they will use. In effect, more favorable contract conditions go to bidders offering higher prices.

Fixed vs. dynamic price: What’s the difference?

• Fixed estimate (fixed contract price) is an estimate that can only be adjusted in exceptional cases, with the consent of the parties and in accordance with the procedure defined in the contract. In other words, the bidder would not be able to increase the cost of construction materials later.
•     Approximate estimate (dynamic contract price) is an estimate that may be adjusted if current prices for resources included in the contract change, or on other grounds specified in the contract terms. This is beneficial for businesses, as they do not have to worry about price fluctuations for construction materials when submitting a bid.

Initially, the Department justified these pricing rules as an “anti-dumping safeguard.” It claimed this approach would screen out companies that intentionally underprice their bids to win tenders and then seek to increase payments afterward.

The logic behind this approach is understandable. However, such a safeguard is only effective if the project design documentation is properly developed. The prices included in the project’s cost estimate are provided by the procuring entity. Based on this estimate, the procuring entity sets the estimated contract value that bidders use as a reference point. Therefore, if the prices in the project are inflated, the contract price resulting from the procurement is also likely to be inflated.

Eventually, the Department moved away from this approach — the pricing requirements remained, but the reference to the anti-dumping safeguard was removed from the documentation.

Anti-dumping or discrimination?

In general, a procuring entity may include in tender terms that the decision on whether to use a fixed or dynamic price will be made during negotiations with the selected bidder.

Thus, including such a clause in the tender documentation is not, in itself, a violation. However, the combination of two requirements — the percentage threshold that determines the contract price type, and the obligation to submit documentation on the cost and quality of materials — may create potential issues.

First, this contradicts the principles of public procurement and the prohibition of discrimination against participants. For example, out of 46 competitive procedures conducted by the Department for construction-related contracts, 87% of lots (40 lots) had only one bidder. Five lots had two bidders each, and only one lot attracted three competing contractors.

Second, such conditions discourage participants from lowering their prices. If they do, they face rigid pricing rules instead of flexible terms, along with the additional burden of submitting extensive documentation.

Indeed, in none of the Department’s procurements that included these pricing conditions did the final bid of the winning contractor exceed the threshold (as specified in the documentation) that determines the type of contract price. As a rule, participants submitted bids that were as close as possible to the reduction limit — the percentage below which the contract price would be fixed rather than dynamic.

The quality of tender documentation is an important factor influencing whether businesses choose to participate in a tender. The absence of discriminatory requirements increases the level of competition, which in turn drives down participants’ price offers.

We reviewed procurement transactions by other procuring entities in the region and found that the absence of the above-mentioned “combo requirements” may encourage greater competition in tenders. Here are a few examples:

•     In a procurement by Mykolaivvodokanal, four participants competed for the contract, and the contract amount ended up being 16% lower than the estimated value.
•     A procurement by Vodoprovidni Merezhi, the utility company of the Novyi Buh City Council, also attracted four bidders — the final contract was 26% below the estimated value.
•     A tender by the Department of Housing and Utility Services of the Mykolaiv City Council had three participants, and the contract amount was 8% lower than the estimated value.

In the first and third cases, the contract price was dynamic; in the second, it was fixed, and that is where participants made the deepest reductions. As we can see, it is competition, not the price type, that influences the final contract value.

When all potential participants refrain from offering the maximum discount, the decisive factor becomes not the discount size, but the submission time. In such cases, if prices are identical, the system selects as the winner the bidder who submitted their offer earlier.

Phenomenal speed in proposal preparation

According to research by Ekonomichna Pravda, participants in Ukraine typically spend 7–12 days preparing and uploading their proposals to Prozorro. Anomalies were observed only in Mykolaiv region — particularly in tenders announced by the Department. In these tenders, participants submitted their initial documents within just 4 to 53 minutes of the announcement, according to the research. The record for fastest submission was set in a tender for the reconstruction of a hospital building at the Bashtanka Multidisciplinary Hospital, with an estimated value of UAH 144 million. The sole participant and automatic winner was Pivdenbud Mykolaiv Ltd, which uploaded some of its proposal documents just 4 minutes after the announcement was published.

Another striking irregularity in the Department’s tenders was uncovered by Nashi Hroshi. The outlet reported that in a tender for the reconstruction of the Mykolaiv Regional Children’s Hospital, worth UAH 614 million, the winning company submitted its documents just 6 minutes after the procurement announcement appeared. Moreover, metadata from the bid security letter shows it was created on 25 March at 16:50 — a full day before the announcement was officially published.

These facts suggest that some participants may have prior knowledge not only of upcoming tenders (before their official publication on Prozorro) but also of the tender conditions themselves. This gives them time to prepare in advance. Such practices, first, violate the principles of public procurement by putting participants on unequal footing; and second, create corruption risks and undermine competition, especially when the project cost is inflated.

Are businesses standing up for their rights?

Although procurement participants rarely challenged these requirements before the AMCU, there are positive examples of businesses defending their right to compete. For example, Tanolbud LLC contested the requirement to include documents confirming the cost and quality of materials in the tender proposal — a condition tied to the type of contract price — in a procurement for the major repair of a radiation shelter at the Stepkivka school. The AMCU sided with the company and ordered the procuring entity to remove this requirement from the documentation.

That’s why it is critically important to prevent this practice from becoming widespread. What can be done about it? First, it’s important to understand that the State Audit Service cannot help here since potential discrimination falls outside its mandate. The core issue lies in the lack of clear regulation on this matter. It is therefore essential that the Ministry for Development of Communities and Territories of Ukraine, as the central authority responsible for shaping construction policy, take note of this matter. In the meantime, the most effective way to push back against these “combo requirements” is to challenge them through the AMCU. Businesses have the right to do this, and we urge companies to use this mechanism more frequently.

For our part, we are preparing a submission to the law enforcement authorities regarding the Department’s procurements, where we observed signs of potential collusion between contractors and the procuring entity.

This material is funded by the European Union. Its content is the sole responsibility of Transparency International Ukraine and does not necessarily reflect the views of the European Union.