THE KRUK REPORT: Public procurement is one of the few successful Ukraine reform stories

THE KRUK REPORT: Public procurement is one of the few successful Ukraine reform stories
Ukraine has introduced an e-procurement system.
By Kateryna Kruk in Kyiv April 18, 2016

Though it is true that progress made after the 2014 Maidan revolution is not as visible as we would like it to be, it is unfair to say that nothing has been done at all. One can immediately recall the well-known police reform, but there are many other changes worth mentioning. Undoubtedly, reform of the state procurement system is one of them.

This reform is one of the major steps in systemising state procurement and minimising corruption in this area. In 2015 a pilot system was introduced that showed amazing results: from the moment it was launched to today it has already helped save over UAH1.5bn (€52mn).

On December 25, President Petro Poroshenko signed a law on the electronic procurement system, under which all state procurement should be realized through the open-source online system ProZorro. This reform has already gained some international recognition: a few weeks ago, ProZorro was nominated in the World Procurement Awards 2016’s “Public Sector Award” category.

In order to get some first-hand details about this reform I met with Maxym Nefyodov, deputy minister of economic development and trade (our interview took place not long before the change of the government). Nefyodov, 32, was one of the brightest stars in the so-called “team of reformers” who left impressive careers in the private sector to work in the new government. Before joining the team of former economy minister Aivaras Abromavicius, Nefyodov worked as vice-president and then director of investment of banking at Dragon Capital and as co-managing partner at Icon Private Equity.

KK: Mr. Nefyodov, what is so special about the recently introduced reform of state procurement and how will it change this sphere?

MN: Our key task in the reform of state procurement is to increase competition. The more participants we have, the better prices and better service they will offer. To do so, we have dramatically changed the rules of the game and introduced an electronic system. Before that, in order to participate in state procurement, a company had to prepare documents with hundreds of thousands of pages. It was time-consuming, not motivating and unreliable. It also created additional obstacles for small companies and individual entrepreneurs who, unlike big companies, couldn’t afford special bookkeepers and lawyers that would supervise the process.

Secondly, the paper system didn’t allow us to check or analyze data – it was simply physically impossible to control everything that was happening. Now we have all data with one click and can easily analyze it. Moreover, before we could find out about misuses in procurement only post-factum and only if someone notified us about it. With the introduction of the electronic system we can oversee the procurement while it is taking place in order to see whether there’s been any misuse. It increases trust in the system and significantly decreases room for potential corruption schemes.

KK: Was this reform initiated in the ministry or was it a civil society initiative?

MN: The request to change came from Maidan. People asked for reforms, for a decrease in corruption. Reform of the state procurement system was inevitable, because every year we were losing about €2bn alone in this sector. The economy ministry has closely cooperated with the civil sector. We wanted to build a system that would enable normal cooperation between the state, civil sector and business. We studied the experience of different countries around the globe: Russia, Georgia, Spain, Portugal, Cyprus, South Korea, Brazil.

KK: Based on the experience of other countries and the Ukrainian reality, which design of a system did you choose?

MN: In the world there are two main types of state procurement systems: centralized with one database and one website like in Georgia or Estonia, and decentralised with the state body having its own procurement website like in Canada, Portugal or Spain. We decided to create a hybrid system with one central database and many online platforms for purchases. A variety of platforms allows better client support, and at the same time one database increases trust in the system because all applications go to the central base, which makes it impossible to fudge them. Moreover, our system is an open-source one. It means that everyone can download it to his computer and make sure that no one has a special interface or access to the system that would allow him to influence procurement process.

KK: Ukraine is going through a troubling political crisis that many even see as a slow counter-revolution. How could this political turbulence influence the reform or even reverse it?

MN: Obviously, the support of stakeholders is very important. This factor also allowed us to successfully make it all the way from the pilot system ProZorro to the law on e-procurement. Our project was approved by the National Council of Reforms, and was also supported by the prime minister and president. It’s true that every reform, including this one, could be withdrawn. But new government attempts to do so would be very costly, both politically and technically. We created a system that would change the rules of the game in this sector. We also cancelled the controlling function of the ministry and instead enabled civil society to monitor and control the procurement process. All our actions serve one aim: we want to restore trust between business and state. And we try to do so not only in the area of procurement. Recently, Ukraine has ratified the World Trade Oragnization’s Agreement on Government Procurement. This will open a $1.7tn worth international procurement market for Ukrainian business. Since this agreement is very recent, we have prepared special teaching programmes and seminars for business explaining the potential of this new market. The first few companies that would like to make use of it will receive full support of the ministry specialists. We want to show that the state can be a trusted and reliable partner for business, not a source of problems.


Activist, journalist and co-founder of Global Ukrainians, an international network of Ukrainians worldwide, Kruk was awarded the Atlantic Council Freedom Award for her work communicating the Maidan revolution to the world. She predicted a frozen conflict in July 2014, which has largely come to pass, and now comments on the progress of crucial reforms in Ukraine. Follow her on @Kateryna_Kruk.



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