At the end of September, MPs submitted draft law No.10089, proposing to suspend payments under a contract if the State Audit Service found significant violations in a procurement transaction on Prozorro. Transparency International Ukraine believes that the proposed mechanism will be ineffective, will weaken the field of public procurement and generate risks of corruption and pressure on procuring entities and businesses.
MPs propose to oblige the Treasury and banks to block payments if the auditors found a significant violation in the procurement transaction, and the procuring entity did not eliminate it and did not overturn the auditors’ conclusion through the court. According to the authors, this draft law is intended to strengthen financial control.
However, given the current practice of the State Audit Service, we believe that such innovations will do more harm than good. More than 70% of auditors start monitoring after the conclusion of the contract. Therefore, if the law is adopted, the implementation of contracts will become unpredictable for procurement participants and, to some extent, the procuring entities.
Blocking payments may cause losses to the business, its subcontractors, and suppliers. In turn, this will provoke an increase in the number of court cases under already concluded contracts and budget expenditures on compensation for losses. Procurement participants will have to include additional risks in the cost of the bid. Because of this, prices in Prozorro will potentially rise. Moreover, the risk of not getting money may prevent entrepreneurs from participating in procurement at all.
For procuring entities, suspending payments means disrupting the supply of goods, works, and services. It can sometimes be difficult and even impossible to terminate the contract, conduct a new procurement transaction, and replace the contractor, for example, during construction works.
In order not to delay the blocking of contracts, MPs propose to introduce separate, accelerated deadlines for appealing the monitoring conclusion. But there is no guarantee that the courts will really comply with them in practice. At the same time, most of the conclusions appealed by procuring entities are overturned by courts.
The initiative of MPs can increase the influence of auditors, which creates a risk of corruption, pressure on procuring entities and the business. For example, procurement can be monitored selectively to block payments for certain procuring entities, businesses, etc.
Neither does the draft law clearly specify the mechanism for the practical implementation of the idea. Because of this, there may be confusion between the responsibilities of auditors, the State Treasury, and banks.
We share the need to improve procurement control, but not with such risky methods. Instead, the focus of monitoring should be shifted to the stage before the conclusion of contracts, when the violation can be eliminated so that it becomes a truly preventive, not a post-control measure. It is also worth considering the possibility of suspending a procurement transaction for the duration of the monitoring.
We have described in more detail the risks of the draft law and alternative proposals in the legal analysis.
Draft law No.10089 will not help improve financial control, but on the contrary, will increase corruption risks in the procurement sector and lead to an uncertainty in it.