They Have (Not) Stolen Everything: What Public Procurement in Ukraine is Really Like

If you learn about Prozorro procurement exclusively from the news, it may seem extremely corrupt and inefficient. Is it really so?

If you google news about “procurement,” you will see several pages of headlines such as “AMCU Fined Businessmen for Collusion,” “Investigators Check Procurement,” “The damage is UAH 400,000…”. Overpayments, collusion, inflated prices, violations – from the headlines in the media, it may seem that public procurement in Ukraine is pure corruption. Is it really that bad on Prozorro?

News is meant to cover uncommon and extraordinary events. The media often reports on disasters and road accidents, but this does not mean that life is solely about these incidents. We understand this because we experience everyday life ourselves. However, public procurement is different. Most people do not encounter public procurement in their daily lives, so the media becomes the primary source of information that shapes public perception in this area.

So, when the media mainly report on corruption in Ukrainian procurement, it creates the impression that public procurement is inherently corrupt. And perhaps they should be conducted in a different way than through Prozorro?

The numbers speak for themselves

Last year, more than 3.6 million procurements worth UAH 922.7 billion were conducted in Ukraine. Approximately 68% of this amount (UAH 628 billion) is accounted for by competitive methods – in which several companies can compete for the contract. Due to this, it is possible to achieve better prices because businesses are motivated to offer competitive bids to secure contracts from the state.

What about violations? The main procurement control body is the State Audit Service. According to its report, last year it conducted 12,191 monitoring of tenders worth UAH 188 billion. Violations were found in 8,000 cases amounting to UAH 92 billion. That is, 0.2% of procurements by quantity and 10% by value. Does this mean that this 10% was stolen? Not necessarily. First, this is not the amount of overpayment, but the cost of procurements with violations. At the same time, some of the violations detected by auditors do not have a real impact on competition and savings but are purely formal. And the auditors themselves say that they saved UAH 19.8 billion for the budget by terminating contracts and canceling procurements in 2023 (i.e., 2.1%).

Conclusion: Despite having many suggestions on how to improve the efficiency of the State Audit Service, its data remains the main source of information on procurement violations. And that information attests that, after all, not everything is as bad with procurement as it may seem from the media.

There are many things to be proud of

In procurement, the easiest way to calculate savings is as the difference between the expected cost (how much you are willing to procure something for) and the amount of the concluded contracts (how much was spent at a tender). In 2023, such savings were made on competitive procurement amounting to UAH 64.4 billion (over 10%). That is, public procurement on Prozorro saves money.

In addition, we somehow talk very little about the fact that the Ukrainian electronic procurement system is praised and celebrated abroad. In 2021, it was set as an example in the U.S. Strategy on Countering Corruption, and the EBRD recommended it as a reference for procurement reform. Prozorro was recognized as the most transparent public procurement system in 2020. It has eight international awards.

And these are not just some medals. The advantages of the Ukrainian procurement system are easily confirmed by practice. Let’s remember the COVID-19 times. In Ukraine, in just a few weeks, a special procurement method was created to fight against COVID-19—it allowed for direct procurement but mandated reporting to Prozorro. So, we saw all the costs and could watch in real time how the prices normalized and the deficit disappeared. At the same time, we saw who was abusing and trying to get rich from the pandemic. Over the course of a year, procurement began to return to a competitive course. Ukraine became an example of openness and efficiency in procurement to combat the coronavirus.

And how our public procurement quickly adapted to the realities of war? Four days after the start of the invasion, procurement of everything was permitted directly. Despite this, some procuring entities still announced tenders (13 thousand as of the end of May 2022). At the end of June, procurement began to return to competition at the legislative level. This is unprecedented flexibility and stability. Being allowed to procure directly at the start of the invasion helped ensure all urgent needs were met on time. At the same time, the war showed that Ukraine had learned the lesson of the coronavirus. If then it took a year to return to competition, in 2022 the first steps towards competition were made twice as fast.

Changes for savings and efficiency

Another difference from the coronavirus times is that special open bidding (the main procurement method during martial law) is not just a return to competition. These are not just pre-war open biddings but their symbiosis with faster simplified tenders for amounts from UAH 50,000 up to national thresholds for auctions before the start of a full-scale invasion. Like simplified procurement, special open bidding is faster and can occur even with only one bidder. At the same time, they provide 24 hours for correcting errors, appeals to AMCU, and can be monitored by auditors. The best of the two old procedures were combined to make wartime procurement fast and efficient.

However, it should be noted that the flexibility of the public procurement system was not limited to the new procedure. The rules are being improved all the time, perhaps even too often. The resolution regulating procurement under martial law has already been amended more than 20 times.

One of the most recent changes is the extension of deadlines for submitting proposals for procurement of works. This decision was based on a mini-research by our DOZORRO team, which showed that longer terms in construction tenders ensure higher competition. The Ministry of Economy listened to the proposal on how to make procurement more efficient.

Another interesting innovation of 2024 is the construction procedure on Prozorro, which was developed for procurement with donor funds. Different international organizations have their own approaches to procurement, which often do not coincide with Ukrainian ones. However, when they allocate financing, it is important for them that procurement at their expense takes place according to their rules. For this, Prozorro has developed a flexible procedure that can be adjusted to the requirements of donors. The compliance of Prozorro with its rules has already been recognized by the World Bank. It recommended using the system for all projects it finances in Ukraine. Conducting all tenders directly through Prozorro is important both for their transparency and accessibility for businesses, which will find it easier to track tenders and compete for contracts.

We also observe good results from the centralization of procurement, particularly in defense procurement. The State Rear Operator, created at the end of 2023 to optimize non-weapon procurement for the military, is showing strong results in property procurement. In the first quarter of 2024, the SRO managed to achieve savings of 15% compared to procurement prices from previous years. This amounts to more than UAH 1 billion, which can be redistributed to other military needs. At the same time, a reform of food procurement for the Armed Forces was launched, although the results are still pending due to the opposition of the old system.

Also, over the last two years, e-catalog tenders have developed significantly. Recently, they became mandatory for some categories of goods: food and medicine. And we are already seeing results. For example, after our questions regarding overpayments in regular tenders, procuring entities had to terminate several food contracts. These procurements were re-announced through Prozorro Market and found suppliers with much better prices. Our regional journalist from Kremenchuk, who researched food procurements for educational institutions in the city, also admitted the savings through the e-catalog. At the same time, procuring entities periodically complain about some shortcomings of Prozorro Market’s functionality. So, despite significant progress, there is still room for improvement.

The Prozorro system is not perfect, but it is necessary

The Prozorro system, its very architecture, has proven in the last 5 years that it is open and maximally flexible, capable of adapting to today’s challenges. However, since the beginning of the reform, the key challenge remains the institutions that must exercise control in the field of public procurement. We have been discussing the need to reform both the institutions themselves and the approaches they use for more than a year.

In addition, we need to continue improving what we have now: electronic contracts, appeals, procurement through centralized procurement organizations, etc. Recently, we discovered that technical documentation in non-machine-readable format likely limits competition in construction tenders. And yes, the electronic system does not protect us from corruption — it makes it possible to significantly reduce it and make it more visible.

To realize the extent to which the field of public procurement jumped with the introduction of Prozorro, it’s worth remembering what happened before it. We often forget that ten years ago procurement was paper-based. We could not simply go to the page of any tender, analyze it and see violations. We didn’t have access to documents and data to understand that a certain deadline for submitting documents is not enough and it requires legislative regulation. It was impossible to calculate not only savings, but also overpayments.

We don’t know how long the war will last. The support of international partners will probably not be endless. Improving the Prozorro system and maximizing the number of procurements through it is an opportunity to optimize the state’s expenses and redirect the savings to where these funds are needed: for the defense and restoration of Ukraine. Public procurement should be something to be proud of. To do this, we need to stop focusing exclusively on the shortcomings and instead begin to actively eliminate them and develop advantages.