Unclear Prozorro: why auctions were removed and what will happen next
They want to make holding auctions optional, using external requirements as an excuse to hide behind
On December 30 last year, the Ukrainian government made a notable decision: the Cabinet of Ministers approved Decree No. 1495 and stopped mandatory auctions in the Prozorro public procurement system. Remember that Prozorro was once the driving force behind anti-corruption reforms in the country, allowing society to monitor taxpayer spending. Will this driving force derail, setting the country back to the era of widespread corruption? Apostrophe investigated.
What happened to Prozorro
How auctions operated on Prozorro previously. Bidders submitted their proposals for the tender, and then an online auction occurred in real time, during which each participant had three opportunities to reduce the price of their goods or services for the state. The participant with the lowest price would win. It's simple.
What will happen now? Now, there will be no auctions. Bidders will immediately submit their price proposals, and the one with the most favorable price will win. This means the opportunity to engage in real-time offers and compete with other bidders is lost.
Why did this happen
The government claims it's due to frequent blackouts. And being online is necessary to participate in the auction.
“Businesses, especially small and medium ones, faced with a blackout and not being able to provide uninterrupted Internet and power supply, were deprived of the opportunity to participate in auctions”, – said the Deputy Minister of Economy of Ukraine Nadezhda Bigun.
According to the Ministry of Economy, the blackout led to the fact that by the end of December the proportion of single-participant trades was 88%. In reality, there were virtually no auctions. What kind of competition can exist in this situation?
“An auction is a very short-term stage: from 10 to 20 minutes of time. And if you don’t have the Internet at this time, then you just skip your step, ”ex-director of Prozorro State Enterprise Vasily Zadvorny explains to Apostrophe.
Therefore, in order to ensure all participants have equal bidding conditions, the government made this decision. It's temporary, however – for six months.
“Relevant changes in the procurement procedure may be reviewed when the situation with electricity stabilizes,” the Cabinet of Ministers explains.
Non-transparent Prozorro. How this will impact corruption
The government insists that it won't. Furthermore, they claim that public procurement will become even more efficient and economical. This is because bidders will immediately set the lowest price for their goods and services, without inflating the price, now that the three stages of the auction are gone.
“Will it get better or worse? It's difficult to say for now. There are two opposing trends, and the outcome will only be clear once everything is in action, Zadvorny adds. The first trend – due to the disappearance of the auction, participants are more motivated to immediately set the lowest acceptable price. Previously, a participant could offer a higher price to allow room for negotiations. Now, realizing that bargaining will no longer be possible, the participant will be inclined to immediately propose the lowest price to win the tender. The second trend is that in most cases, there are simply no auctions due to decreased economic activity. Consequently, this could lead participants to instead offer a higher price, hoping to be the only bidder in the tender.”
However, according to experts interviewed by Apostrophe, potential corruption risks still exist.
First, auctions were not created for no reason, as they can still significantly lower the price. However, this affects the money of Ukrainians.
“There are purchases where the difference from the starting to the final price can be millions of hryvnias – and this is a significant savings,” explains Elena Shcherban, an expert in public procurement at the Anti-Corruption Center, to Apostrophe.
Next, “The issue is who will be allowed to see the offers of other bidders in order to submit their offer a bit cheaper,” comments Georgy Mogilny, an urban planning expert, to Apostrophe.
And achieving a “slightly cheaper” price is a win in the tender. However, in public procurement for construction, there are no guarantees that cheaper will not become much more expensive later.
“There is already a scheme for increasing prices for purchases. Take, for example, the road junction at Shulyavka. What happened there? They make a purchase, find a company, start building, and after that Klitschko re-approves the project with a new examination of the estimate and the price rises by about 30%. The scheme was used but was not explicitly provided for by law. And now there is a draft law in the Rada, where they want to directly prescribe that if the examination confirms the price increase, then it is possible to make changes to the contract. And this is where corruption really begins. “His “participant dumps the price at the tender, knowing that in the future the expertise will increase it,” explains Mogilny. during the auction period, but now it's easier.
Third, “Prozorro sales, where they sell property from auctions, do not transfer to any other system. For some reason, a power outage does not affect this,” says Mogilny.
Fourth, “There are risks in the general degradation of the Prozorro system,” adds Yury Nikolov, editor of Nashi Groshi, to Apostrophe.
“With such small steps at the end of the war, we may find ourselves in a situation where tenders, auctions and auctions will disappear altogether in our country. And this cannot be allowed,” says Elena Shcherban.
Finally, as the government's main argument for cancelling auctions, the power outage seems rather strange, according to experts.
“If you participate in a tender where there are millions, and you need this money, then you will definitely find a generator and access to the Internet,” assures Shcherban.
“The government never provided information on how many complaints there actually were. If some five businessmen complained who, due to the lack of electricity, could not take part in the auctions, then why break the rules of the game for hundreds of thousands for their sake? If a person wants to get a tender for a million, then he will find a place with a guaranteed connection,” Nikolov adds. “This argument is used rather as a reason to do the main thing: to go in the direction that the World Bank points us to, looking at the Opaque Prozorro” .
Opaque Prozorro. And what does the World Bank have to do with it?
And here's what. “EU directives stipulate that auctions should be optional. At the request of World Bank Ukraine, we are implementing a separate procedure in which auctions will be optional, that is, at the discretion of the customer. Therefore, in 1-2 months we will look at the numbers. If it is confirmed that the tender strategy without an auction can be more effective in different categories of purchases, we will return auctions as an optional bidding tool for all purchases,” explained Minister of Economy Yulia Sviridenko.
That is, the temporary six months may become permanent.
“The World Bank Procurement Rules are the complete antagonist of Prozorro. They actually incline us to adjust our truly phenomenal Prozorro system to less transparent tenders. This is a certain rollback from existing positions,” says Nikolov.
But why does the World Bank “require”, as the minister says, to change the procurement rules?
“This is not a World Bank requirement for Ukrainian procurement. This is the requirement of the World Bank to adapt the Prozorro system for World Bank procurement, explains Zadvorny. — The World Bank is now providing money to Ukraine. And when he provides money, for example, to some ministry, then this money is spent not according to Ukrainian legislation, but according to the rules of the World Bank. And now Ukraine is fighting to ensure that the maximum number of purchases for donor funds also go through the Prozorro system, so that we can guarantee that we will not be accused of corruption and thus receive more money. Therefore, if Ukraine wants the World Bank procedures to take place in the Prozorro system, then auctions in Prozorro should be optional for the World Bank procedures. Indeed, there is such a requirement. But the World Bank in no way insists that auctions be optional in Ukrainian procurement.”
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