Successful public procurement reforms needed to help Ukraine tackle corruption

Ukraine ranks 142nd out of 175 countries on Transparency International's latest annual Corruption Perceptions Index as the official graft is quite widespread. But public procurement corruption tops the Kyiv government's list of challenges, reads the article in the Atlantic Council by Josh Cohen, an ex-USAID project officer who managed economic reform projects throughout the former Soviet Union.

In early 2014, Ukrainian Prime Minister Arseniy Yatsenyuk noted that 40% of the $25 billion spent annually on public procurement "stays in the corrupt pockets of the people who carry out these purchases." Under the old regime, 50% kickbacks in state tenders was considered normal, and a survey from Business Environment and Enterprise Performance discovered that an astounding 99% of firms expect to pay bribes to win government contracts.

State-owned enterprises (SOEs) and government officials employ many corrupt schemes to line their pockets. In a typical ploy called "associated party procurement," several companies controlled by one owner "compete" with each other to win a contract—resulting in a fictional tender won by a predetermined firm, even if that firm offers the most expensive proposal.

Read alsoFinance Ministry to carry out public procurements electronicallyLuckily for Ukraine's long-suffering taxpayers, the law was recently adopted requiring open public tenders for all purchases above certain threshold amounts (UAH 100,000 for services and one million hryvnia for public works). Besides obliging state purchasers to announce tenders on their websites, the law also limits sole-source procurements and forbids participation by Ukrainian firms registered offshore. Journalists, as well as members of civil society groups, may now attend bid openings and videotape the proceedings.

Besides the new procurement law, the government has launched an e-procurement system called Prozorro in conjunction with Transparency International Ukraine. Prozorro uses an e-auction format; anyone can access procurement documents and data online. TI Ukraine official Viktor Nestulia said Prozorro has already boosted transparency and saved money.

While the fight against public procurement corruption is off to a good start, Ukraine's government still has much work to do. First, it should pass a law requiring all bidders to list their owners. 

Second, given Prozorro's initial success, all government and SOE procurement should be moved to the Prozorro platform. A good model for Ukraine is Chile. In 2003, the South American country created ChileCompra, an e-commerce platform that puts procurement data on a single online portal. The adoption of ChileCompra has dramatically boosted transparency in government procurement, says a study by the United Nations Development Program.

Third, Ukraine should eventually harmonize all procurement legislation with the European Union, a requirement for the Deep and Comprehensive Free Trade Agreement (DCFTA) Ukraine signed with the EU. One particular advantage of EU procurement law is that all government procurements exceeding EUR 133,000 must be listed on the EU's Tender Electronics Daily (TED) platform. Between TED and Prozorro, it should become increasingly difficult for corrupt buyers and sellers to cheat Ukrainian taxpayers.

Finally, the article suggests that "Ukraine's government should immediately force the Ministry of Health to implement a new March law outsourcing the purchase of medicine to six global NGOs. Drug procurement has been a cesspool of corruption, and outsourcing this responsibility to reputable NGOs like the World Health Organization is an ideal solution to fight graft."

Despite the law's existence, the ministry is fighting to keep the UAH 4.3 billion budgeted for 2015 drug procurement for itself. Whether such resistance represents a last stand by Ukraine's corrupt vested interests or a continuation of business as usual will go a long way to determining how serious Kyiv really is about procurement reform.