On the night of budget approval, the parliament rejected the draft law to improve public procurement. Experts instantly came up with a new draft. What is it about?

On 23 November 2018, members of parliament rejected draft law No. 8265, which was supposed to upgrade the public procurement sector.

On the “budgeting night,” the document received just 166 votes, but a temporary failure can be part of the winning road anyway.

The very next day, experts of the EU project on public procurement reform, the Ministry of Economic Development and TAPAS presented a new version of the law “On Public Procurement.”

The new version includes the majority of the positive provisions of the rejected draft law. They include bidding from the threshold of UAH 50,000, recovery of the complaint fee to the participants whose motion was granted, the option to fix mistakes in documentation within 24 hours.

At the same time, the draft law contains a number of provisions meant somewhat to harmonize the Ukrainian public procurement legislation with the European one.

What is to be expected if the draft law is adopted?

  1. Option to Reject Proposals with an Irregularly Low Price

It will help fight against dumping. “Irregularly low price” means that the winning tender proposal has a price that differs by 40% or more from the average price of tender proposals at the initial stage of the auction, or by 30% – from the next-best offer.

In that case, the procuring entity demands the reasoning for such a low price to be submitted within one business day. If the participant fails to provide such a clarification, the proposal is rejected.

  1. Assessment Based on Procured Item “Life Cycle”

The tender price will stop being the only criterion informing the choice of the proposal. The “life cycle” concept will take into account other expenses borne by procuring entities while using the procurement item if they select the cheapest proposal.

For instance, when lighting systems are procured, expenses for maintenance and power can be taken into account, as well as the time when the product will probably have to be replaced. Procurement of computers will take into account the cost of software upgrade.

  1. Launch of Electronic Catalogs

The draft law stipulates formation of a systematized database of proposals for typical goods and services. It will be created and maintained by centralized procurement organizations. Currently, there are two such organizations in Ukraine: public institution Professional Procurement and state-owned enterprise Medical Procurement of Ukraine.

The draft law only introduces the notion of an electronic catalog, while the detailed procedure of its implementation will be set forth in regulatory acts. International experience illustrates that the use of electronic catalogs facilitates the procurement procedure for standard goods and services for procuring entities.

  1. Unions of Enterprises Will Be Able to Participate in Tenders

Following international experience, unions of several enterprises, such as syndicates, will be able to participate in tenders. Procuring entities will not have the right to demand such a participant to provide documentation on its legal form to submit a tender proposal.

  1. New Procedure – Restricted Participation Bidding

This procedure will be used for procurement with amounts over EUR 135,000 for goods and services and over EUR 5.225 million for works, where prior verification of the participants’ qualifications is necessary.

Announcing such a procedure, the procuring entity must publish all the qualification criteria, the assessment methodology and the threshold levels of compliance. For instance, the number of professionals of a certain level or certain experience.

Based on the preliminary selection, at least three participants will be invited to take part in the bidding. They will submit proposals with specific prices stated. The further procedure will be based on the “Ukrainian auction” algorithm.

  1. Yes to Pre-Threshold Procurement. Simplified Procurement

Like draft law 8265, the new draft law regulates pre-threshold procurement. “Simplified procurement” will be used to procure goods and services from UAH 50,000 to UAH 200,000 (to UAH 1.5 million for works).

It will be a reversed auction, but the procedure of publication of information and record-keeping will be simplified, more exceptions will be allowed, and the tender will be considered valid even if there was only one participant, who subsequently became the winner. By the way, procurement through electronic catalogs would be precisely an alternative to such auctions.

  1. Updated Negotiations Procedure

Procuring entities will have the new options to use the negotiations procedure with a last-resort supplier to purchase power or natural gas.

It will enable resolution of critical situations when a previous supplied was unable to or refused to comply with the agreement terms. Another reason for a negotiations procedure can be purchase of assets from insolvent enterprises.

  1. Expected Procurement Cost Calculation Methodology

The draft law provides for development of methodology to calculate the expected cost of the procurement item. Besides, there will be an option to receive preliminary advice from the participants on the situation on market to analyze it.

  1. Authorized Official Replaces Tender Committee

The project eliminates the notion of a “tender committee.” An authorized official will be responsible for organization of procurement. It is a revolutionary provision, taking into account the long history of shared responsibility of tender committee members.

They are usually forced to do this work. Thus, they consider it an unpaid workload added on top of their primary duties.

Replacement of tender committees with authorized officials should help to make the procurement sector more professional. The work of such experts will be remunerated fairly. It will also be immediately clear who is responsible for violations.

  1. Improvement of Contesting Procedure

Innovations include refund of the contesting fee to the complainants who won the contesting procedure with the AMCU, enhancement of liability of procuring entities for failure to comply with Committee decisions, prohibition to withdraw complaints after their submission.

Win-Win Rules

The new draft law has been offered for public discussion beforehand for the first time. Four round-table discussions for various groups have already been held in Kyiv: for the public, businesses, procuring entities and members of Parliament. Similar presentations will take place across the entire country.

The project will facilitate the choice of the best offer for procuring entities, because they will be able to fight against price dumping and take into account the life-cycle cost of the procurement item. The law will also facilitate typical procurement through electronic catalogs.

The key benefit for businesses is the option to fix errors in proposals within 24 hours, which will reduce the number of rejections. The more professional procurement sector benefits everyone, too.

It is hard to predict when the draft law will be adopted due to the ongoing electoral campaigns. However, taking into account the interest of all the process stakeholders, including the European Union, which is monitoring compliance with Association Agreement requirements, the public procurement reform may just as well be set in motion in 2019.