Competitive procurement is when a procuring entity (the one who buys) chooses the best of the offers of several suppliers/contractors:
– open bidding;
– simplified procurement;
– open bidding with publication in English;
– framework agreement.
The choice of a certain procedure usually depends on the expected cost of what they plan to buy. However, all of them are united by the fact that they involve competition: several participants compete to get a contract.
What are the advantages of competition?
Competition means savings. At the auction, the business sees anonymous price offers of its competitors. To get a contract, you need to offer the lowest price. Therefore, participants gradually reduce their bids within three rounds.
That is, first, the business indicates its starting price offer when applying for procurement. On the auction day, participants log in and see their competitors’ bids — but anonymously. The system signs them as participant 1, participant 2… Within three rounds, they can take turns reducing their bids. The winner is the one who offers the best price.
Why does business reduce the price of such auctions for the state? It is mainly about ordering large quantities of goods or a large amount of work, so these contracts are desirable for entrepreneurs. Accordingly, they are ready to reduce the price in order to receive an order. This allows the procuring entity to save significantly if compared with direct procurement.
The best illustration of how this works is coronavirus procurement, in particular procurement of masks. In the spring of 2020, it was allowed to buy everything necessary to counter COVID-19 without auctions. It was only necessary to report on the procurement transaction and publish the contract. In late April–early May 2020, some procuring entities who bought directly were forced to pay almost UAH 20 per mask. However, some procuring entities continued to conduct auctions and bought masks for UAH 6-8 in the same period. That is, they saved more than twice.
Is competition always needed?
The Law “On Public Procurement” obliges to conduct auctions only for procurement transactions for more than UAH 50,000. They are simplified ones. If only one participant comes to such an auction, the procuring entity can sign an agreement with them. For procurement of goods and services for more than UAH 200,000 and works for more than UAH 1.5 mln, at least two participants must be present at the auction to make it happen.
If the procuring entity knows that what they buy will cost less than UAH 50,000, a direct contract can be concluded. Since data on all procurement transactions are entered in Prozorro, you can also find these reports there. They are sometimes confused with tenders (auctions): this was the case with the BMW bag in Berdychiv and a pack of sausages in Kherson oblast. How to distinguish a tender from a non-tender, we explained in the material.
However, the law does not actually prohibit holding auctions for amounts up to UAH 50,000. Therefore, procuring entities sometimes really announce competitive bidding for several thousand hryvnias.
However, the choice whether to conduct procurement competitively is always about finding a balance between the desire to save and the rational use of resources and time for the auction. When it comes to millions of hryvnias for road construction, without competition you can pay so much that for this money you could repair another small road. However, when it comes to a small amount, sometimes it is simply inappropriate to hold an auction.
What about procurement during the war?
At the end of February, the Cabinet of Ministers allowed to conduct all procurement transactions during the war directly. It was necessary for the state to continue to function and meet basic needs. In the first months of the war, many companies stopped working, supply chains were destroyed, and it was almost impossible to buy as before.
However, it’s been four months. The country has gradually adapted to martial law. Businesses have resumed work; someone has relocated production to safer regions. At the same time, some procuring entities, even though they were allowed to buy directly, held auctions — and did it quite successfully. For example, 24 participants applied to the competitive procurement of furniture for Ukrposhta branches in May. And according to the results of the auction, almost half of the expected cost was saved.
So, it is possible and even necessary to hold competitive procurement even during the war. Especially considering that the budget funds are low because everything is allocated for the war. This is much better when, for a certain amount, you can equip not one post office, but two!
Fortunately, the Cabinet of Ministers adopted amendments obliging procuring entities to conduct simplified procurement for transactions from UAH 50,000 if there are no objective reasons to do otherwise. For example, if it is procurement for defense needs or active hostilities are ongoing in this region.