Overseen by officials looking for kickbacks, Ukraine’s old, flesh, bones and paper system of procurement whittled away on average about $2.3 billion a year due to shady schemes. That’s 20% of taxpayers’ money that the government allocates to buying goods, labor and services for public needs.
To put a plug in that corrupt drain, the Economy Ministry, in cooperation with civic activists, have created ProZorro – a full-service electronic public procurement system that started operating in pilot mode on Feb. 12. As of Oct. 2, the system had processed 12,260 electronic tenders worth 3.72 billion hryvnias (approximately $160 million at the current exchange rate) and saved the state an estimated 306.4 million hryvnias on procurement (approximately $13 million).
The new software was designed to tackle some of the key problems of the old state procurement system – little transparency, rigid barriers that prevented competition among bidders, and crooked officials.
ProZorro is operated by Transparency International Ukraine, a corruption watchdog. But by the end of the year, its databases will be transferred to a state enterprise managed by the Economy Ministry, while bidding platforms will remain privately owned.
The electronic system has so far received funds from partners, who donated $10,000 for product development, along with $50,000 from the Western NIS Enterprise Fund and $17,000 from the European Bank for Reconstruction and Development.
More than 100 people work on ProZorro, including specialists in technology, support services and those who attract new suppliers for participation. Transparency International pays some employees, while others are paid by providers that work with ProZorro. Economy Ministry employees are also involved in ProZorro, but they don’t get paid for the extra work.
Andriy Kucherenko, who is in charge of IT system coordination at ProZorro, says the reaction of public officials to ProZorro vary.
“There are those who have a positive attitude towards the platform and become leaders in using it. For example, the Defense Ministry, Infrastructure Ministry, Kyiv State City Administration, Energoatom and others,” according to Kucherenko. Other agencies are not as accepting, and legislation will be needed to get them to use ProZorro.
Altogether more than 800 state agencies use the system.
While the Kyiv City State Administration and two ministries – infrastructure and energy – use it the most, the Defense Ministry has held the most expensive tenders by far. Its share is 2.73 billion hrynias (approximately $117 million), accounting for 74% of the total amount.
A similar system in Georgia spurred the development of ProZorro in Ukraine.
In comparison to closed-door paper tenders, where administrators see all bidders and can adjust terms to manipulate who wins, administrators of the tender cannot see applicants in ProZorro.
The system reviews the cheapest offer and, if it meets requirements, is automatically accepted.
In addition, the platform opens up data on the tender to anyone, not only to potential bidders. The terms of the tender and the bids are also visible to anyone, while competing bidders cannot see each other in the system.
Deputy Economy Minister Max Nefyodov is the official who was tasked with bringing the new system into being. In February, he gave up his managerial post at Icon Private Equity fund to take on the challenge of fixing the state’s broken public procurement machine with the reformist team of Economy Minister Aivaras Abromavicius.
“Losses through the public procurement sector are one of the main channels through which black cash gets into the economy,” Nefyodov said in an interview with the Kyiv Post.
“The more we put procurement into an electronic format, the easier it is for everyone to work with it –including procurement offi cers, suppliers, regulators … police, prosecutors, ministers, anti-corruption activists, journalists and others,” Nefyodov said.
Despite funding difficulties, resistance from vested interests, bureaucratic battles, and eff ort to get parliament to pass the innovative legislation to adopt the system, the tremendous eff ort has been well worth it, Nefyodov said.
“I understand that unless we build the country ourselves, unless we reform the economy, there just won’t be any place for complex business, for investment funds, for investment banks, and for professionals in general,” he said.
Kyiv Post authors Olena Gordiienko and Mariana Antonovych contributed to this report, which first appeared in The Kyiv Post.