Attempt to Reform Administrative Liability for Violations in Procurement

At the end of September, MPs initiated draft law No. 10090, proposing to improve Article 164-14 of the Code of Ukraine on Administrative Offenses (hereinafter referred to as the Code), as well as extend the deadlines for imposing administrative penalties under it. This article contains a list of administrative offenses in the field of public procurement and sanctions for their commission. In this article, we will analyze the initiative and assess its prospects.

More time to impose a penalty

First of all, draft law No. 10090 proposes to extend the deadlines significantly for imposing administrative penalties for procurement offenses. Currently, these terms are defined by the following limits:

–       for offenses provided for in parts 1-2 of Article 164-14 of the Code — no later than two months from the date of the offense, and for ongoing offenses — no later than two months from the date of its detection;

–       for offenses provided for in parts 3-6 of Article 164-14 of the Code, the penalty may be imposed within six months from the date of its detection but no later than two years from the date of its commission.

The authors of the draft law propose to determine longer terms for imposing administrative penalties under all parts of Article 164-14 of the Code, starting with the second. Namely, within two years from the date of detection of the violation but no later than three years from the date of its commission.

Since the structure of Article 164-14 of the Code is proposed to be revised and updated, the new terms will apply to all administrative offenses in the field of procurement, except for:

–       untimely provision or failure to provide clarifications on the content of the tender documentation by the procuring entity;

–       establishing the amount of security for the tender bid that exceeds the limits established by law;

–       tender documentation non-complying with the law;

–       violation of the terms of publication of information on procurement;

–       violation of the terms to consider the bid

For these violations, the deadlines remain general. But if they are committed by a person on whom administrative sanctions have been imposed for the same violations within six months, these violations are also subject to extended terms: 2 years from the date of detection, 3 years from the date of commission.

Please note that the technical shortcoming of the draft law No. 10090 is that the draft law and the comparative table partially do not coincide. The draft law does not contain a key rule on the extension of the terms for imposing administrative penalties — only a comparative table. This shortcoming was eliminated in the draft law 10090-1.

In the explanatory note, the initiators of the draft law substantiate the need to extend the terms and refer to the analysis of judicial practice. They state that a significant number of offenders might avoid administrative liability because it is impossible to comply with the terms set for the imposition of an administrative penalty by the judicial authorities. In particular, the difficulty arises if the procuring entity appeals the conclusion of the state financial control body on the results of the monitoring. The average term in certain administrative cases reaches 17 months.

In addition, procuring entities and guilty persons deliberately stall the procedural terms: they fail to provide the information to draw up protocols on administrative offenses or do it in an untimely manner. This helps avoid administrative liability.

In general, the proposal to extend the terms to impose administrative penalties can be supported. However, the effectiveness of state financial control will increase only if it focuses on those procurement violations that significantly affected the result of the procurement transaction, its efficiency, economy, competitiveness, and transparency.

Warning

To date, the only type of penalty provided for in Article 164-14 of the Code is a fine. Its size depends on the degree of social harmfulness of the offense.

The authors of the draft law No. 10090 propose to only apply warnings to persons who have committed certain procurement violations. The fine in the amount of UAH 1,700 will be replaced by a warning for violations provided for in Part 1 of Article 164-14 of the Code. Its content has also been reviewed, and it is proposed to leave the following violations in it:

–       untimely provision or failure to provide clarifications on the content of the tender documentation by the procuring entity;

–       establishing the amount of security for the tender bid that exceeds the limits established by law;

–       tender documentation non-complying with the law;

–       violation of the terms of publication of information on procurement;

–       violation of the terms to consider the bid

The term for determining repetition is defined at the level of six months instead of one year; that is, if the above violations were committed by a person who had previously committed the same offense and on whom the administrative penalty had already been imposed for the same violations within six months, then in case of a repeated violation, a fine of UAH 1,700 will be imposed on them.

Based on the explanatory note, the criterion for selecting offenses for which warnings should be imposed was when the violations, according to the authors of the draft law, could not be eliminated. In particular, they noted that “it requires legislative regulation of changes in approaches to administrative liability under Article 164-14 of the Code of Ukraine on Administrative Offenses, namely the introduction of a warning for procedural violations of procurement that cannot be eliminated.”

According to the logic of the draft law, it turns out that the offenses listed above cannot be eliminated; therefore, they were singled out as a part, and a warning was provided for their commission. On the one hand, there is indeed a problem as to which way of eliminating the violation shall be specified in the conclusion on the results of monitoring the procurement transaction if the detected violation cannot be eliminated. But on the other hand, the selected list of offenses raises questions.

Firstly, the procuring entity’s failure to provide clarifications on the content of the tender documentation can be corrected by providing them, and the shortcomings of the tender documentation can be corrected by amending it if these violations are detected at the appropriate stage. Consequently, these violations are not always such that cannot be corrected.

Secondly, a violation of the terms of consideration of the tender bid can become significant if it is prolonged and committed intentionally. For example, the participant appealed the decision of the procuring entity, the procuring entity complied with the decision of the AMCU but is dissatisfied with the course of the procurement transaction and evades its further conduct. One of the main external manifestations of such behavior may be the violation of the deadline for consideration of the tender bid. The decision of the AMCU has been formally enforced; illegal decisions have been canceled, but the procuring entity does not adopt new ones, so the participant’s bid is under consideration by the procuring entity indefinitely. Leaving the procurement transaction and announcing a new one instead is one way to actually evade its legal completion, which negates the results of the appeal. Therefore, violation of the terms of consideration of the tender bid for more than one month should be recognized as a significant violation, along with groundless rejection and others.

The fate of the remaining offenses under Article 164-14

Since the draft law No. 10090 proposes to shorten Part 1 of Article 164-14 of the Code, the question arises where the authors of the draft law propose to transfer the elements of the remaining offenses from it, as well as which bodies will consider cases regarding them and impose penalties.

Among the violations currently provided for in Article 164-14, Part 1 of the Code, the following violations are planned to be transferred to a separate new part:

–       violation of the procedure for determining the procurement item

–       failure to publish procurement information;

–       failure to provide information and/or documents in cases provided for by law

–       violation of the terms to consider the bid

Moreover, from the current Part 3 of Article 164-14 of the Code, it is planned to transfer “the violation of the terms of publication of tender documentation.” A fine of UAH 1,700 is provided for it.

Thus, violation of the terms to consider the tender bid in the proposed version was provided simultaneously in two parts of the article — in the 1^st and 3^rd — with different sanctions and different terms for their imposition.

As a result of the change in the numbering of parts of Article 164-14 of the Code, the changes will affect the range of cases on administrative offenses in the field of procurement, which are under the jurisdiction of the courts.

Under Part 1 of Article 221 of the Code, judges of district, district in the city, city or city district courts hear cases on administrative offenses provided for in Parts 3-6 of Article 164-14 of the Code.

If the draft law No. 10090 is adopted in the proposed version and with the changed numbering of parts, then the jurisdiction of the courts will include the consideration of cases and the authority to impose penalties for: violation of the procedure for determining the procurement item; failure to publish information on procurement transactions; failure to provide information and documents in cases provided for by law; violation of the terms to consider the tender bid.

In addition, since in the new form Article 164-14 of the Code will have eight parts and not six, the seventh and eighth parts will be parts on non-compliance with the decision of the Antimonopoly Committee of Ukraine as an appeal body and on the conclusion of contracts that provide for payment of goods, works, and services by the procuring entity before/without conducting procurement/simplified procurement procedures specified by law. The draft law does not propose amendments to Article 221 of the Code on the extension of the jurisdiction of the courts to relevant cases, and therefore for the seventh and eighth parts, there will be no body at all to hear cases and impose penalties.  

The situation is similar with drawing up protocols. Under Article 255 of the Code, authorized persons of the State Audit Service may draw up protocols under parts 3-6 of Article 164-14. If you change the numbering of the parts in this article, add two new ones, and do not amend the competence of the State Audit Service, there will be no one to draw up protocols under the seventh and eighth parts.

Conclusions and suggestions

In conclusion, we support the proposal to extend the terms for imposing administrative penalties for procurement violations. We hope that this will allow holding people who have committed offenses liable despite their lengthy attempts to avoid fines. Neither are there significant objections to the idea of revising the list of administrative offenses and replacing fines with warnings as a sanction for committing some violations that are committed for the first time and do not have a significant impact on the results of procurement transactions.

However, draft law No. 10090 does not propose changes to other regulatory acts, except for the Code, so it does not solve systemic problems in state financial control. It does not contain profound changes in approaches to the categorization of violations and needs to be improved. It is necessary to

1)    determine the jurisdiction to consider the offenses provided for by those parts that fell out of the jurisdiction of the courts as a result of the change in the numbering of parts. Determine that the state financial control bodies will draw up protocols for their commission.

2)    determine in which part the “violation of the terms to consider the tender bid” will be provided, since the draft law currently contains this element in two parts of the article. When considering this issue, it is important to take into account that this violation, if it lasts for a long time, may be a manifestation of the procuring entity’s conscious evasion of completing the procurement transaction in a legitimate way. It seems that violations of this term for more than one month should be classified as significant violations.

3)    continue the already started division of elements, such as “violation of the terms of provision or non-provision” into separate offenses that differ in the possibility of elimination. After all, the performance of an action in violation of the terms cannot be eliminated, but the failure to perform the action in principle requires an obligation to perform it.

4)    It is quite possible to eliminate some offenses for which the warning was provided if they were identified at the appropriate stage of the procurement transaction — the procuring entity’s failure to provide clarifications on the content of the tender documentation and the preparation of tender documentation not in accordance with the requirements of the law. The obligation to eliminate the violation in such cases may be appropriate in the early stages of procurement.

The legal analysis was prepared within the USAID UK aid project Transparency and Accountability in Public Administration and Services / TAPAS.