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Joint Press Brief on Public Procurement Issues by the European Union Delegation and the World Bank

March 25, 2011

Both mass media and NGO have lately started an active discussion of the draft amendments to the Law on Public Procurement (Draft Law 7532).  The World Bank and the EU Delegation would like to clarify some important points regarding the draft amendments that are being discussed.

At the outset, let us underline that the process of adoption of this legislation is an internal question of Ukraine and our institutions have merely played the role of advisors to the Government. Best international practice and transparency are the guiding principles of our cooperation with all our partners.

As regards publication requirements, we support full transparency as a key principle to be followed in Public Procurement. The original version of the draft law 7532 only attempts to reduce burdensome and/or duplicative publication requirements that would slow down the process of public procurement while adding little information of value to the general public. The draft law requires publication of the core information needed for a transparent and accountable procurement process, including the call for and the results of all tenders. Moreover, detailed information on any procurement can always be obtained from the procuring body on request of any citizen or a legal entity in accordance with the Law on Information, which is not affected by the Public Procurement Law.

As regards the removal of the single source procedure approval by the Ministry of Economy, we would like to comment that this measure is aimed at increasing the responsibility of the procuring entities in the application of the Law. The single source procedure is non-competitive by nature and should be only used in very particular circumstances. Thus, the procuring entity should bear increased responsibility and be accountable for the application of non-competitive procedures.  This is a normal practice in EU countries. However, Ukraine also will need to strengthen its external audit function to ensure that the procuring entities do not abuse their responsibilities. A requirement for ex ante control instead slows down the process, diffuses accountability and has not in fact reduced the share of single source procurements to date in Ukraine.

The exclusion of state-owned enterprises (SOE) from the law is not universal. Good international practice suggests a clear division between SOEs that are of commercial nature and SOEs that serve public needs. Commercial SOEs that are facing competition from the private sector should be allowed private sector practices as stated, for example, in EU Directives.  For other SOEs such as those in the utility sectors, natural monopolies and others operating in non-competitive markets, the Ukrainian authorities need to pass parallel legislation to govern procurement practices. This is in line with international practice, and draft Law 7532, as originally submitted to the Parliament, establishes clear deadlines for this task.

The amendments envisaged in Draft Law 7532 in our view would enhance the implementation and functionality of the Public Procurement process. However, more work is still needed to ensure a transparent, efficient and competitive public procurement process in Ukraine. Some of the key elements needed moving forward are the following:  (1) approving bylaws and regulations to make the system effective, including for utility companies and natural monopolies; (2) putting in place a monitoring framework to evaluate the performance of the system, including publicly available measurable outcomes (such as the ratio of single source procurement to total government procurement) to allow civil society to monitor the processes; (3) further approximation of the public procurement framework with EU Directives and investment in capacity building in beneficiary agencies to implement the new legislation.

We would like to stress that improving public procurement is a process and much remains to be done.  Moreover, the involvement of journalists and NGOs, as part of the broader civil society, in the oversight of Public Procurement is essential and encouraged, particularly when the information they obtain and provide is accurate.