Procurement of the Future: What Will It Look Like? Insights from the Government Strategy

In February, the Government approved the Public Procurement Reform Strategy for 2024-2026 through Order No. 76-r, along with its operational plan for implementation in 2024-2025 (hereinafter referred to as the Strategy). The Strategy addresses numerous challenges in public procurement, including issues with legislative regulation within the sphere, and establishes strategic goals. It also has operational plan with concrete measures and deadlines. What issues and goals does the Strategy focus on and what priority steps does it provide for?

The Government mainly focuses on two key challenges:

1. Implementation of projects for recovery of property destroyed as the result of the full-scale Russian aggression.
2. Harmonization with EU directives regarding public procurement. In particular, this applies to the list of exceptions to the Law, the introduction of new procurement methods and procedures, the wider application of non-price criteria, and the regulation of concessions. Harmonization is also necessary to fully meet the requirements of the EU Association Agreement.

In addition to harmonization with the EU and the implementation of restoration projects, the strategy outlines the following goals for public procurement: development of institutional structures, professionalization of public procurement, development of the Prozorro system, engagement of civil society in the sphere’s development, and fostering international cooperation. Let’s take a closer look at them.

Goal # 1: Harmonization of legislation with EU directives

We are talking about specific articles of directives 2014/24/EC and 2014/25/EC regulating public procurement. The goal is to develop draft laws and support their adoption in the Verkhovna Rada of Ukraine, as well as adopt other regulatory legal acts necessary to meet the requirements of new laws, and implement them in the Prozorro system.

• In the first quarter of 2024, the Ministry of Economy, in collaboration with other ministries and the AMCU, plans to develop and present to the Verkhovna Rada a draft law regarding reserved contracts, dynamic procurement systems, innovative partnership procedures, project competitions, as well as joint and mixed procurement.
• In the fourth quarter of 2025, the Ministry of Economy, in collaboration with other lawmakers, plans to submit a draft law regulating procurement for security and defense customers, which are not directly related to military needs. They should also implement a competitive procedure with negotiations, reconsider the grounds for the negotiation procedure, harmonize with the EU the criteria for evaluating proposals and exceptions to the law, introduce qualification systems and update concessions.

Therefore, there are many new procedures and rules ahead for Ukraine.

Reserved contracts refer to procurement processes where certain categories of businesses are excluded at the discretion of the procuring entity. These categories may include veteran enterprises and those with a preference for hiring persons with disabilities among their employees.

Dynamic procurement system means a competitive procurement method in which tenders or requests for proposals are made among at least three selected candidates. The qualification selection will be entrusted to CPOs, and procurement will be made by CPOs or procuring entities.

Innovation partnership procedure means procurement under an innovative partnership contract concluded between a procuring entity and one or more winners engaged in scientific, research, and technical activities. Since procuring entity’s need cannot be met by the proposals already available on the market, contractor(s) must create innovative products.

Project competition includes procedure for selecting the best design architectural, planning, engineering, or artistic proposal. It can take the form of an open competition or a restricted competition for specific projects. This allows for the awarding of procurement contracts through negotiation procedures or without the intention to reward or incentivize an author.

Joint procurement refers to procurement processes conducted through a competitive procedure, whereby two or more customers combine their needs by agreement.

Mixed procurement refers to the procurement of diverse items by a procuring entity, which may encompass a combination of goods and services, services and works, or goods and works.

Goal # 2: Institutional development

The objectives of this goal are measurable procurement performance indicators, unification of practice and approaches to the application of legislation, and effective counteraction to corruption manifestations. The goal outcomes and indicators will be:

• Quarterly meetings of the Ministry of Economy, the State Audit Service, the AMCU, the Accounting Chamber (if agreed), NABU, and NACP to introduce key performance indicators, review the application of legislation, and introduce new tools and practices.
• Recommended approximate key performance indicators for procuring entities, including for those who implement restoration projects. These meetings are scheduled to take place in the third quarter of 2024, with the Ministry of Economy, the Ministry of Infrastructure, the Ministry of Finance, the AMCU, and the State Audit Service responsible for their organization.
• At least five webinars (training sessions, symposia) in 2024 and 2025, with the involvement of at least 500 listeners to raise procuring entities’ awareness of the interpretation and application of legislation. Simultaneously, in operational terms, the event focuses on communicating “value indicators” for professional buyers, rather than providing a general interpretation of legislation. The deadline for this initiative is set for the fourth quarter of 2025.
• Recommendations (guidelines) for identifying and mitigating corruption risks in public procurement. They will be developed jointly by the NACP, the Ministry of Economy, the AMCU, and the State Audit Service, and will be published in the fourth quarter of 2025. Presumably, the recommendations will be aimed at customers procuring entities and bidders.

As we can see, some of the anticipated results include activities that are more likely to achieve goals, such as quarterly meetings of governing bodies. KPIs and anti-corruption guidelines, judging by the Strategy, will be advisory in nature.

Goal # 3: Implementation of reconstruction projects in Ukraine

The primary aim of this goal is to ensure transparent spending of funds on recovery-related projects. To achieve this, the plans involve creating a transparent comprehensive electronic tool, which will enable monitoring of recovery projects at all stages with the Dream and Prozorro systems. In addition, the task is to introduce international practices and tools for procurement of works and related services. To do this, sample procurement contracts must be drawn up.

The goal will be considered achieved when it accomplishes the following:

• The integration of the Prozorro and Dream systems which is planned to be implemented in the second quarter of 2024. As of now, the corresponding integration has already been announced according to the DREAM team.
• Implement a Prozorro module for procurement using donor funds, incorporating functionality that enables users to create public procurement processes. This includes specifying stages, terms, and other relevant features. A flexible procurement functionality funded by international organizations has already been developed, yet this measure is still included in the strategy. Additionally, in the first quarter of 2024, the Ministry of Economy plans to collaborate with the AMCU to submit a draft law to Parliament. This law will define the rules for using the procurement system with donor funds.
• Drafting sample forms of contracts for procurement of works and related services. For this purpose, in the third quarter of 2024, the Ministry of Economy plans to collaborate with the Ministry of Infrastructure and the AMCU to develop an order approving these sample forms and propose adapted international practices for concluding contracts.

The strategy does not provide detailed descriptions of the type of system integration required or the level of flexibility needed in the system constructor. Sample forms of contracts are likely to help with construction procurement, but they will obviously not have the status of standard (mandatory) ones.

Goal # 4: Professionalization of public procurement

The authors devoted a lot of activities to the strategy of professionalization of the procurement sector. To achieve this, they propose to more effectively regulate the professional activities of entities in the area, and standardize competency levels, structures, and recommendations for them.

• As early as the first quarter of this year, the Ministry of Economy plans to update and approve the professional standard for specialists in public procurement, aligning it with the European framework of competence. However, this task has already been completed in the fall of 2023.
• Also, in the first quarter, the Ministry of Economy, together with the AMCU, is expected to develop draft amendments to legislation regarding the ethical rules of behavior for public procurement entities. The relevant regulatory act must be approved in the third quarter this year.
• And in a year, during the third quarter of 2025, the Ministry of Economy and the AMCU plan to evaluate the mechanisms that have been introduced for the rules of ethical behavior. They will be evaluated based on one year of operation of the rules, considering the number of reports received regarding unethical behavior in the sphere compared to the total number of procurement procedures conducted. Additionally, evaluation will consider the number of individuals subject to measures due to ethics violations. Note that the Strategy has not yet specified the exact measures to be implemented or who will be responsible for their enforcement.
• In the fourth quarter of this year, the Ministry of Economy plans to develop and recommend draft regulations on the organization of procurement activities. It will define the conditions for organizing this activity, describe the goals, roles, and liability of persons involved.
• Also, by the end of this year, the Ministry of Economy and the AMCU plan to review approaches to the procedure for determining the authorized official.

Consequently, the improved regulation will mainly affect procuring entities. In the descriptive part of the Strategy, the authors note their intention to create conditions for the career development of buyers and to enhance the importance of the role and function of public procurement. They emphasize the need to direct human and material resources to strengthen it for each procuring entity. However, these ideas are not clearly reflected in the operational plan and measured indicators, such as the proposed salary for an authorized person.

To enhance the professional expertise of all parties involved in procurement, a list of publicly available and free training programs for various user categories will be provided.

• In the third quarter of 2024, the Ministry of Economy and the National Agency for Civil Service will create a standard general professional (certification) program for the professional development of civil servants responsible for public procurement. Starting from 2025, the professional development of such individuals should become permanent. However, those responsible for procurement do not always have the status of civil servants.
• At the end of 2024, the Ministry of Economy, together with SE “Prozorro,” will review and update the testing questions in the system for the admission of authorized officials to the Prozorro system, considering the new professional standard.
• In the first quarter of 2025, the Ministry of Economy plans to collaborate with the AMCU to develop the advanced course covering procurement planning, strategy formation, procurement of works, administration of procurement contracts, and risk management. Additionally, courses for businesses and citizens will be created.
• And in the fourth quarter of 2025, two additional online courses are expected. The first course targets representatives of businesses, especially small and medium-sized enterprises, socially responsible businesses that employ veterans and/or persons with disabilities, as well as citizens and activists. The second course is open to everyone and focuses on the utilization of free analytics modules. The first course will be viewed by at least 3,000 people, and the second will be viewed by 1,000.

Professionalization will also reach buyers at the central and regional levels. The Ministry of Economy, in collaboration with the AMCU, plans to develop a draft law on new tools for the CPOs in the first quarter of this year. It aims to regulate dynamic procurement systems, aggregated procurement under framework agreements and open bidding. Later, at the end of 2025, we expect sample methods on how procuring entities can analyze the effectiveness of procurement to improve them.

Activities aimed at fostering the centralization of procurement will be ongoing, with the primary focus being the transfer of the majority of procurements to CPOs. The new legal regulations will address how CPOs will utilize dynamic systems. The categories available for procurement via Prozorro Market will be expanded to include services as well. “Certain procuring entities” will be mandated to delegate the “procurement of specific categories of items” to CPOs – though the exact specifications have not yet been determined.

It is important that at the end of 2025 they plan to change approaches to responsibility in public procurement. To do this, the Ministry of Economy, the Ministry of Finance, the State Audit Service, and the AMCU will develop a draft law on amendments to the Administrative Code of Ukraine. This should lead to changes in approaches and methods aimed at preventing violations, with responsibility becoming proportionate. It is even expected to reduce liability for formal errors that do not lead to negative consequences and do not affect the procurement outcome.

Goal # 5: Development of the Prozorro system

This goal includes many technical innovations, including those that the procuring community has been waiting for for a long time. First and foremost, the goal is to standardize documents and further digitalize procurement processes to decrease operating costs for both procuring entities and bidders while also reducing the error rate. To do that:

• By the second quarter of 2024, we anticipate the digitalization of certificates that customers require from participants, as well as their decisions (protocols) in competitive procedures. For that purpose, the Ministry of Economy, in cooperation with the State Enterprise “Prozorro”, plans to develop appropriate electronic fields and functionality for forming decisions (protocols).
• By the end of 2024, the Ministry of Economy, in collaboration with the Ministry of Infrastructure, SE “Prozorro,” the AMCU, and the Ministry of Health, plans to approve standardized sections (conditions) of tender documentation, specifically for the most common goods or services. Additionally, sample forms of tender documentation for the procurement of works and related services will be established.
• Additionally, the Ministry of Economy, in collaboration with SE “Prozorro,” the AMCU, and the State Audit Service, plans to digitalize tender documentation and tender proposals. Electronic complaint mechanisms will be introduced to the AMCU. Furthermore, a mechanism for data exchange between the State Audit Service and the Prozorro system will be established to review signals from the public regarding potential violations. Already in the second quarter of 2024, a list of standardized documents will be created, which participants and customers can view or fill in. By the end of 2025, the corresponding fields will be incorporated into the system. The first step to creating electronic complaints is already done.

In 2024, the Government plans to complete two more tasks for the development of Prozorro. Firstly, in the third quarter of this year, it will be integrated with public registries and databases, including those of the NACP, the Unified State Register, and Trembita, a system facilitating communication between state registers. This integration aims to ensure transparency in information about procurement participants. Secondly, at the end of the year, we may expect improvements in the electronic analytical tools used by the State Audit Service during monitoring. In fact, this improvement includes only updating and generating automatic risk indicators for monitoring of public procurement in accordance with legal requirements.

The long-term goal is to implement a mechanism by the end of 2025 for concluding procurement contracts in the form of electronic documents. To accomplish this, the Ministry of Economy, along with the AMCU and the Ministry of Health, will first develop and approve standard forms of contracts, including those concluded through the e-catalog. Then the corresponding functionality will appear on Prozorro.

As we can see, in the next 2 years, the system will have more and more electronic documents and fewer randomly created files.

Goal # 6: Involvement of civil society in the industry development

In the descriptive part of the Strategy, the Government states that society and the authorities need free access to information about what they buy with budget funds. The strategy proposes promoting broad involvement of civil society, particularly in planning compulsory health insurance expenditures and discussing local budget projects.

This direction is defined as a distinct strategic goal and encompasses one primary task: consistently involving civil society in the development of Prozorro and procurement oversight. The public is expected to participate in the discussion of law-making initiatives. And public oversight over the effectiveness of procurement and the expenditure of public funds will become more accessible.

To achieve this, the plan involves providing access to analytical information regarding the allocation of public funds, conducting training in the utilization of analytical systems, engaging in public discussions on law-making initiatives, and fostering broad communication with representatives from relevant public organizations and institutions. These measures will be implemented by the Ministry of Economy and the Antimonopoly Committee.

Let us remind you that the Strategy also encompasses 2024, implying that this interaction is supposed to be right now.

Goal # 7: International cooperation in public procurement

Another direction is the development of international cooperation in the public procurement. It’s not just about creating a positive image of Ukraine in the international arena. This also encompasses tools for quickly accessing procurement details of Ukrainian companies and non-residents, exchanging data on procurement among WTO member procuring entities, and facilitating the identification of foreign partners to fulfill procurement contracts, both within Ukraine and abroad.

The tasks and activities provided for in this goal do not have deadlines and must be completed continuously:

• The Ministry of Economy, in collaboration with the AMCU, will engage with state bodies and international organizations representing the interests of foreign states or members of international organizations in public procurement.
• Ukraine will join international treaties and structures, introduce international technical standards in the public procurement system, and exchange information on public procurement.
• The Ministry of Economy plans to facilitate Ukraine’s participation in the WTO Committee on Government Procurement.

What is the priority?

Although the strategy includes many goals, objectives, and activities, it defines priorities that should be targeted. These include, in addition to the already mentioned, the implementation of the State Anti-Corruption Program for 2023-2025 as well as rational and efficient use of budget funds through the development of a transparent, open, understandable, accessible, stable public procurement system and the development of Prozorro.

Conclusions

The presence of a strategy with clear guidelines and deadlines for reforming public procurement is a positive factor in fostering its development. It provides for solving a range of important issues, such as the harmonization of domestic legislation with EU directives, updating automatic risk indicators, and the participation of civil society in law-making processes.

Several activities that are defined in the operational plan have already been implemented:

• Prozorro features functionality for procurement funded by donors, enabling users to shape procurements in line with their specific requirements and rules.
• The Ministry of Economy has approved a new professional standard.

In the near future, by the end of March, new draft laws are expected to be introduced. These laws will align domestic procurement legislation more closely with EU directives, establish guidelines for using the Prozorro system for procurement funded by donors, and outline rules of ethics for public procurement entities. Additionally, it is crucial to clarify the indicators for achieving the goals outlined in the strategy. Currently, some of them prioritize the method of task completion over its outcome. For instance, the quarterly meetings of governing bodies.

In addition, the Strategy does not cover many significant problems in the area:

• insufficient transparency in the formation of the expected cost and the price of direct contracts,
• insufficient transparency of contract implementation,
• low level of business involvement in procurement,
• complexity of enforcement of court decisions,
• Shortcomings in procurement monitoring: although the document acknowledges the importance of state control in procurement, yet it only mentions updating risk indicators and amendments to the Administrative Code.

It is crucial not to overlook these challenges or delay their resolution for years to come, as they are just as pressing as those already outlined in the document. The Government can and should focus its efforts on correcting these shortcomings. When adjusting the Strategy, they can also be included in the priorities for the development of public procurement.

This material is funded by the European Union. Its content is the sole responsibility of Transparency International Ukraine and does not necessarily reflect the views of the European Union.