Public procurement transparency generates 12% savings of public funds

Ukraine’s state procurement system was long considered one of the most inefficient and corrupt spheres of the country’s economy. The ProZorro platform, a new transparent electronic procurement system for state contracts in the Ukraine has generated 12% savings for the government since its launch in early 2015, and plans are underway to expand its use across all public procurement

Before the platform was introduced, the level of competition in the state procurement system was low and monitoring of most contracts weak, creating an enabling environment for corruption and inefficiencies across the estimated 1.5 million tender contracts concluded in the Ukraine annually. In 2014, the Ukrainian government spent more than UAH 250 billion (EUR 10 billion) on the procurement of public goods, services and projects.

Currently, Ukrainian law strictly regulates procurement procedures for tenders of more than UAH 100.000 (UAH 1 million for state-owned enterprises) but allows for any kind of procurement for tenders below this threshold, which account for about half of the total procurement budget. This fact allowed civil society to launch a pilot e-procurement project for below-threshold contracts without the need to obtain a governmental licence.

The ProZorro electronic system, based on the Open Contracting Data Standard, was developed with the support of donors, businesses and volunteers, without any government funds. It is a public-private partnership consisting of over 100 members from civil society, the private sector and government institutions. The initiative aims to make all public procurement documents publicly available through a dedicated user-friendly online e-auction platform. This allows for fair competition among bidders as well as for the continuous public monitoring of state tenders. The system was launched as a pilot platform in February 2015 and is owned by Transparency International Ukraine.

Since its launch, thanks to support from the National Reform Council of Ukraine and the Ministry of Economic Development and Trade of Ukraine, ProZorro has attracted the participation of relevant government agencies, 300 entities have registered and 4630 tenders with a total value of more than UAH 1 billion have been placed in the system. To date, tenders valued at UAH 105 million have been concluded.

The platform allows for reverse auctions among a large number of companies registered in the system. These auctions are online for the public to see. Increased competition generates savings for the procuring entities. In the traditional procurement system, the final prices of contracts are typically equal to their estimated contract value. In contrast, in ProZorro procurement the average final price is 12% lower than the estimated contract value. That’s a 12% saving of public funds. Applied to all public procurement in the Ukraine, ProZorro could save the government more than UAH 25 billion (EUR 1 billion) annually.

Certain entities initially tried to sabotage the platform by publishing overly low contract estimates, but as ProZorro gains broad business and governmental support, its efficiency should further increase. “The current savings rate is already 12% but we expect it to be higher in the future, as the system becomes more efficient” says Viktor Nestulia from Transparency International Ukraine.

It is expected that in 2016 the ProZorro platform will be transferred to the government free of charge. Transparency International Ukraine’s hope is that the government will apply the platform to all public procurement tenders, regardless of the contract value. This could translate into significant savings for the government as well as help create a less corrupt and more competitive business environment.

Key Lessons:

  • Transparency in procurement serves to enhance competition and efficiency, saving public funds.
  • Cooperation between civil society, government and business can quickly lead to very efficient solutions.

Website: http://ti-ukraine.org/en