The government approved a whole package of innovations on procurement rules during martial law.
Some of them are definitely positive:
- increasing the minimum term for submitting proposals in tenders for the procurement of works;
- restoring Eurobidding;
- returning some categories of procurement to a competitive and public plane.
However, some steps embodied in the resolution raise concerns:
- slight expansion of the range of grounds for concluding direct contracts;
- permission to change the essential conditions for some direct contracts;
- changing the rules on providing explanations in open bidding: now it is mandatory to provide a response, not an explanation.
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Eurobidding is back, more time to prepare tender proposals in the procurement of works, centralization of procurement of the Agency for Restoration and other changes: since April 9, we have been working according to the updated rules. The Cabinet of Ministers, by Resolution No.382, once again amended Resolution No.1178, which regulates public procurement during martial law, and Resolution No.166, which regulates the operation of the Prozorro system in general. In this article, we are going to cover 12 key changes and provide their assessment.
Changes in tenders
1. Eurobidding is back
Procuring entities can again hold open bidding with publication in English, without restrictions on the value of a procurement item. However, they should consider several features under Resolution No.1178:
- an updated list of grounds to reject participation;
- the ability to conceal information about the location of the parties and the place of delivery of goods (performance of works, provision of services);
- a slightly different list of cases of changes in the essential terms of a procurement contract;
- an updated “24-hour rule”
- reason for rejection of participants who have a connection with Russia / Republic of Belarus / Iran.
The restoration of Eurobidding can be assessed quite positively. The Ministry of Economy explained at its webinar that many donor organizations allocating funds to domestic procuring entities would prefer to see Eurobidding as a procurement procedure applied. The procuring entity independently decides whether to conduct Eurobidding or choose other options provided by law. No justifications need to be prepared.
In its explanation, the Ministry of Economy also emphasized that the procuring entity selects the procurement procedure independently. Consideration of tender proposals in Eurobidding will still precede the auction, and to conduct the bidding, at least two proposals are required.
2. 14 days+ to prepare tender proposal on works
Open bidding with features on the procurement of works shall from now on provide for at least 14 days for the submission of proposals. For goods and services, the minimum period remained unchanged and is 7 days.
We consider this step to be a positive innovation; moreover, we called for such an extension based on the results of our study. It showed that longer terms to prepare a tender proposal increase the level of competition. We assume that the extension of the term to prepare will reduce corruption risks. After all, having at least 14 days for the proposal, all interested companies will be able to participate in the tender, and not mainly those aware of the procuring entity’s plans in advance.
3. Localization of goods in services/works
The government clarified the rules for the application of localization in the procurement of works and services, during which the procuring entity purchases goods. If the goods as part of the services or works are subject to localization requirements and have a cost of UAH 200,000 or higher, the procuring entity must conduct a procurement transaction considering the localization requirements. Such a clarification of requirements is quite appropriate because applying localization in services or works in which the cost of goods is, say, UAH 5,000 or 15,000 is not justified.
In general, to fulfill this requirement, the procuring entity needs reliable information on the share of value the goods take as part of the service or work. As the representative of the State Enterprise Prozorro noted at the webinar, the government was considering the possibility of extending the localization requirements to other goods: to meet the needs of the defense industry, in particular, tailoring uniforms for the military, other light industry products, construction goods, other goods manufactured in Ukraine. The government and SE Prozorro hope that the localization requirements will contribute to the development of domestic industry and call on to support Ukrainian producers.
4. Lower limit cannot be curbed
Procuring entities were prohibited from curbing the “lower limit of the tender proposal” of a participant in the tender documentation. Probably, the developers of the changes meant that the procuring entities cannot set restrictions on the reduction percentage of the tender proposal price, which is accepted for consideration, or to determine the minimum allowable value of the tender proposal price.
According to SE Prozorro, such an initiative is due to the practice of procuring entities in electricity procurement. Having determined the lower limit, participants submit tenders with the same prices, which adversely affects competition. Now there will be no possibility of such manipulation.
5. You can edit your announcements and respond to inquiries
The government has somewhat updated the procedure for providing explanations and making changes to the tender documentation (TD). Now, a procuring entity can make changes not only to the TD, but also to the announcement of open bidding. Accordingly, the inquiry and user requirements may also concern the announcement, and if it is changed, it is also necessary to increase the deadline for submitting tender proposals so that there are at least 4 days left before the deadline for submission, publish the list of changes, and the announcement itself “in a new version in addition to the previous one.” According to the experts at SE Prozorro, when changes are made to the announcement, the system itself forms its new version, which can be viewed on the portal. At the same time, it preserves the history of changes.
As far as explanations are concerned, formally, instead of the obligation to provide explanations upon request, the procuring entity now has to provide a “response” to it. Explanation requests and requests to eliminate the violation during the tender are combined by the term “requests.”
In our opinion, this is not entirely consistent with the terminology used in Article 164-14, part 1 of the Code of Ukraine on Administrative Offenses. It provides for an administrative offense such as “untimely provision or failure by the procuring entity to provide explanations on the content of the tender documentation,” and not “failure to provide a response.” In practice, cases might happen when the procuring entity provided a response, formally fulfilling the obligation, but did not provide any explanation in it. Such actions by the procuring entity violate the legitimate interests of potential participants. Given the new version of the Features, the question arises as to how successful the appeal against the failure to provide explanations will be if the procuring entity did provide the “response” required by the provisions of the Features.
6. A slightly different rejection of dishonest contractors
The provisions on the rejection of participants who did not fulfill their previous obligations to the same procuring entity have changed. This ground was excluded from the list of grounds for rejection of the winner specified in clause 44, subclause 3 of the Features, and from the list of grounds for rejecting a participant under clause 47 of the Features. Thus, the government eliminated the conflict between the right and the obligation of the procuring entity to reject the tender proposal of a dishonest contractor who is in the circumstances described in the resolution.
However, the procuring entity may still reject the tender proposal of such a participant based on clause 45, subclause 2 of the Features. The wording of the grounds remained almost the same as it was in the grounds for rejecting a participant. Therefore, procuring entities need to carefully note the reason for rejection and update the lists of grounds they provide in their tender documentation.
Previously, for rejection under clause 45 of the Features, the procuring entity had to provide documentary evidence that sanctions were applied to the participant—a court decision or the fact of voluntary payment of a fine, or compensation for damages. However, now there is no such requirement.
Direct contracts, exceptions to procedures: what has changed
7. The range of exceptions to procurement procedures has been narrowed
Until April 9, there was a provision in force under which public procurement to meet the urgent needs of the state’s functioning under martial law in accordance with the Cabinet of Ministers Resolution No. 185 was carried out without the use of procurement/simplified procurement procedures defined by the Law and the Features.
But now this exemption does not apply to all procurement transactions under CMU Resolution No.185, but only to certain of its provisions:
– tripartite agreements, the procuring entities of which are military administrations and/or central executive bodies;
– procurement under multilateral foreign economic agreements (contracts) on procurement, which provide for the import of necessary foods into the customs territory of Ukraine under the import regime.
According to the logic of the changes, it turns out that the exemption from procurement procedures now does not apply to the rest of the procurement transactions provided for in this resolution, and they will be carried out according to the usual rules. First of all, these are procurement transactions of Ukrzaliznytsia JSC aimed at the uninterrupted functioning of railway transport and reducing the shortage of petroleum products in the domestic market of Ukraine.
Returning a wider range of procurement transactions to a competitive and public plane is a great step that we always welcome if there are no objective reasons for exceptions.
8. Creation/attraction of guarantees, loans, grants without tender
However, it was not without a small expansion of the list of cases in which the procuring entity can conclude a direct contract for an above-threshold amount. Earlier, such an exception was in force, in particular, for the procurement of services related to the creation or attraction of financial instruments. These have now been supplemented by the procurement of services related to the establishment or attraction of guarantees, loans, or grants. In our opinion, the Ministry of Economy should clarify what guarantees, loans, and grants are referred to. This will help prevent arbitrary interpretation of this provision by procuring entities.
9. Changing the essential conditions in some contracts is now allowed
It also seems relatively risky to lift the ban on changing the essential conditions for some direct procurement contracts.
Previously, the essential conditions of the contract could be changed without restrictions specified by the Features if a direct contract was concluded to purchase goods, works, and services for construction, repair, and other engineering and technical measures to protect critical infrastructure facilities of the fuel and energy sector.
But now this restriction has been lifted for another category of direct contracts—for the purchase of goods, works, and services to ensure the protection of facilities of enterprises, institutions, and organizations of the electric power, nuclear, coal-industrial and oil and gas complexes. In particular, for the organization of protection of their employees in terms of construction, creation, and arrangement of objects of civil protection structures, as well as for the restoration of such objects destroyed or damaged as a result of the armed aggression of Russia.
The combination of the right to conclude a direct contract with the absence of restrictions on changing its essential conditions may carry risks, and on the other hand, may be necessary in the conditions of today’s war. Given the security risks and the inability to disclose these procurement transactions fully in the public domain, they require increased attention on the part of supervisory authorities.
10. Centralization of procurement for procuring entities of the Agency for Restoration
Centralization of procurement is likely to affect the procuring entities of the Agency for Restoration. Thus, the Cabinet of Ministers will be able to adopt a decision according to which the centralized procurement organizations (CPOs) from the management of the Agency for Restoration will purchase services and/or works in the interests of procuring entities subordinate to the Agency. Procurement through CPOs will be conducted using open bidding with features and framework agreements. The government will be able to determine the list of services and/or works that will necessarily need to be purchased through CPOs and the list of procuring entities for whom it will be mandatory.
In particular, the Infrastructure Recovery and Development Services (Highway Services) in the oblasts are subordinate to the Agency for Restoration.
In order for the government to adopt a decision on determining CPOs, the Agency for Restoration must submit an appropriate appeal to the Ministry of Economy, and the Ministry of Economy must prepare a draft decision.
If a CPO is determined for mandatory centralized procurement transactions, the Agency for Restoration will fund its activities. Procuring entities for which a CPO will conduct procurement transactions would pay its remuneration if they transferred procurement transactions to it on their own initiative and this was not mandatory.
We hope that the centralization of procurement in this area will help reduce corruption risks and increase its effectiveness.
In autumn 2023, the DOZORRO team published a study on the activities of CPOs. We identified about 30 problems that require legislative and technical settlement, such as difficulties in aggregation of the need, delineation of responsibility between procuring entities and CPOs, dependence of CPOs on unfair actions of procuring entities, insufficient regulation of aggregated procurement, and lack of technical solutions for some aspects of operation. It is important to make sure that all these issues do not interfere with the effectiveness of a CPO for reconstruction if it is created.
Updates in the Prozorro system
11. Decision to conceal sensitive information
The operation of the commission to consider the issues of the electronic procurement system (hereinafter referred to as the Commission) will undergo certain changes. From now on, not all of its decisions are advisory in nature.
The Commission’s decision to grant SE Prozorro permission to terminate public access to restricted information or information, the disclosure of which may pose a threat to national security and/or public safety and order during martial law, shall be binding.
The government clarified that, on the basis of this decision of the Commission, SE Prozorro terminates public access to such information, in particular by closing information about the procurement transaction itself, in the course of which sensitive information was published.
It is regulated that the administrator terminates public access to information at the request of a procuring entity, not only if they have published sensitive information, but also if such information has been published by another user.
The consideration of requests from SE Prozorro on the functioning of the Prozorro system, in particular on the need to conceal harmful, offensive information, personal data of persons without their consent, was excluded from the main tasks of the Commission.
12. 5 business days for updating e-platforms
Previously, in case of changes in legislation, electronic platforms had a month to bring the functional characteristics of the platform in line with the changes. This period was calculated from the day when SE Prozorro publishes standard testing scenarios. If the Prozorro system was finalized, the terms of changes for the platforms were set by SE Prozorro.
However, the government clarified these terms. The term for electronic platforms to bring the functional characteristics in line with changes in legislation and improvements by Prozorro will continue to be set by SE Prozorro, but within 5 working days.
Conclusions
The April changes to the procurement rules have brought several long-awaited shifts. First of all, we support an increase in the minimum term for submitting proposals in tenders for the procurement of works, the restoration of Eurobidding, the return of some categories of procurement to a competitive and public plane.
In addition, the Ministry of Economy apparently accumulated groundwork on changes. It allowed to update the regulatory framework on several issues at once without making changes each time by a separate resolution.
However, it seems somewhat doubtful to change the rules on providing explanations in open bidding because a response is not equal to an explanation, and the liability for failure to provide explanations in the Code itself is unchanged. Some procuring entities may interpret the changes as if they were released from the obligation to provide explanations.
We hope that the long-awaited changes, as well as the centralization of procurement for the procuring entities of the Agency for Restoration, will bring a positive effect. We expect to hold online meetings with stakeholders on draft changes in the future.
This publication was prepared with the financial support of the European Union. Its content is the sole responsibility of Transparency International Ukraine and does not necessarily reflect the views of the European Union.
