Medical procurement calls for special scrutiny. Regional Transparency International Ukraine coordinators who monitor procurement highlighted 5 issues prevalent in the medical procurement area such as insufficient specificity, unreasonable demands to provide letters of guarantee, tight delivery schedule, grouping narcotics and pharmaceutical products into one category, and disregarding petitions from coordinators.
On November 3, 2018, a group of DOZORRO civic activists audited 2400 pharmaceutical product tenders in seven Ukrainian oblasts and sent approximately 1000 letters concerning detected violations and irregularities.
They noted that irregularities were found in one in three cases of medical procurement. Discriminatory requirements were detected in half the tenders with irregularities.
Procurement monitoring highlighted five issues in the medical field.
First issue. Insufficient specificity
Dealing with under UAH 200,000 tenders, governmental and budgetary institutions do not follow the simplified below-threshold procedures, but instead, draw up a direct contract with suppliers. However, these contracts, as a rule, are not uploaded into the ProZorro e-procurement system; that makes it impossible to find out what the procuring entity acquired.
For instance, upon the coordinator’s request to provide the information regarding the range of procured goods, the Dolynskyi municipal orphanage Teplyi Dim in Ivano-Frankivsk Oblast stated that it could not provide such information. According to the procuring entity, they cannot foresee the exact items of procurement. The aforementioned contract was terminated.
Second issue. Letters of guarantee
The discriminatory demands to provide letters of guarantee constitute the most frequently encountered violation in all the oblasts.
Procuring entities continue to demand the letters of guarantee from the manufacturers. Central hospital in Pustomytivsk district insists on the existence of such a requirement “for the time being in 99%” of ProZorro medical procurement cases.
According to the majority of procuring entities, without providing such letters by the auction bidders, the risks of auction-winners defaulting on their commitments are skyrocketing; the requirement to provide guarantees from producers and distributors is a common practice and is used to avoid counterfeit pharmaceutical products; moreover, it ensures timely product shipments.
The demand to provide letters of guarantee, however, is discriminatory in nature, because it constitutes a roadblock for non-producer participants and their representatives or for no contractual relationship bidders.
Does the letter of guarantee provide immunity from low-quality products and delayed shipments?
No, it does not. The letter is not legally binding and it provides no assistance in case the procuring entity experiences problems with the supplier, for there is neither contract maintained between the procuring and the supplier, nor obligations arising from it.
To ensure quality product delivery, the procuring entity should hold the bidders accountable under the terms of the performance bond agreement, the agreement should also outline the conditions for compensation of losses and punitive sanctions in case of the failure of the other party to meet the obligations of the contract.
Third issue. Tight delivery schedule
Some procuring entities stipulate in their contracts that the pharmaceutical products should be shipped almost instantly after the supplier receives the request from the procuring entity.
Evidently, only the suppliers in close proximity to the procuring entity are able to comply with such a stipulation. Is anyone going to enforce this norm at all? It only deters potential suppliers. As a result, the full and open competition is lessened and a broad spectrum of bidders cannot participate in the tender. For instance, it is done to pave the way to “inner circle suppliers” and limit the number of outsiders.
However, procuring entities often follow the recommendations to drop the stipulation on instantaneous shipments and even coordinate the delivery schedule; such actions do not limit the competition in any way. The psychoneurological orphanage in Kherson, for example, followed the guidelines.
Fourth issue. Grouping narcotics and pharmaceutical products into one category
This requirement is also discriminatory in nature as it prevents the suppliers without the license to trade in narcotics but with a range of other medical products to offer from participating in the auctions .
Procuring entities state that delivery of narcotics together with pharmaceutical ones is highly important and the shipment of both should be simultaneous, this is why their grouping into a single procurement with other similar requisitions is objectively grounded and cannot be seen as a breach of legislation.
If the procuring entities separate the narcotic preparations into a different bid, suppliers with a different range of medical products will be able to participate, resulting in a higher competition and allowing to acquire medical products for a lower price.
Fifth issue. Suppliers disregard petitions from coordinators
In 2018 the Ministry of Economic Development and Trade of Ukraine and the Ministry of Health of Ukraine based on the work of the Appeal Commission of the Anti-Monopoly Committee of Ukraine issued a set of guidelines on medical procurement and practices to be avoided. However, the majority of the procuring entities are in no hurry to adopt the proposed guidelines.
On several occasions, the coordinator in Lviv oblast submitted requests to the procuring entities to remove the letters of guarantee from the list of required documents. All the procuring entities unanimously answered that the requirement to provide the producers’ guarantees is a common practice and is designed to avoid the counterfeit medical products. It turned out that almost all the procuring entities used services of the same law firm that was in charge of each and every tender in the procuring entity’s stead.
Consequently, upon requests different procuring entities give identical answers, both in form and in substance.
Another peculiarity observed in Lviv oblast is the presence of the consultant fee stipulated by the procuring entities in the tender documentation. The remuneration is classified not as a bond but as an option, which puts pressure on suppliers and could become the reason to refrain from participation in the tender. Obviously, the remuneration cannot be outlined in the tender requirements, since it is a different procurement item.
Sometimes funny incidents occur during the procurement process. For instance, upon the coordinator’s request regarding the demand to provide the letter of guarantee, the governmental institution Regional Medical Unit of The Ministry of Internal Affairs of Ukraine in Luhansk oblast stated that they classify “discriminative requests as more radical towards the participants such as their place of registration, specific material and technical facilities, the number of employees, their names and their eye color”.
Overall in Ukraine, the procuring entities in Dnipropetrovsk, Zakarpattia and Ivano-Frankivsk oblasts hardly ever follow the monitoring coordinator’s guidelines on public procurement. Not a single procuring entity abandoned the letters of guarantee requirement.
In Khmelnytskyi oblast only two procuring entities changed the tender documentation list. The local procuring entities there generally ignore the letters from the monitoring coordinator.
In Kherson and Sumy oblasts the procuring entities are easier to deal with and change the tender documentation or promise to take the guidelines into consideration for the future tenders.
Obviously, we did not elaborate on all the issues brought to light during medical procurement monitoring. There are many more of them. All irregularities, however, have a common trait, they lessen the competition and procurement quality, leading to ineffective and irrational funds and tax expenditures.