UKRAINE GOVERNANCE ASSESSMENT 2006

Sigma Ukraine governance assessment PUBLIC PROCUREMENT Peder Blomberg

Overall Conclusions  A significant deterioration of the public procurement system during the past 12 months  The new PPL will NOT promote efficient, transparent and cost-effective public procurement  Risk undermining the credibility and integrity of the procurement system  May not contribute to closer EU integration or WTO membership

New Structure-Key Players  The Antimonopoly Committee (partly replacing PPD)  The Special Control Commission under the Accounting Chamber (complaints review)  The Tender Chamber- non-public organisation  Centre for Tender Procedures- association of private procurement consultancy firms

Specific Findings New Structure  Key functions of the government as the executive transferred to bodies under the umbrella of the parliament  Policy-making and regulatory functions appear missing in the new structure  Risk that public procurement becomes politicised  Confusion of roles and mandates, including duplications, within the new institutional structure  The role of the Tender Chamber strongly questionable  The level of control enhanced without observing development aspects  Monopolised market for procurement services  Loss of scarce capacity and institutional memory with the abolition of PPD and, possibly, the PBE (The Bulletin)

Main Conclusions Procedural Framework  Extensive use of open or competitive procedures (good)  Increased rigidity with the new amendments (e.g. mandatory tender securities)  Domestic protection policy and preferential treatment questionable  Inappropriate (over-) coverage (commercial and industrial enterprises 50% publicly owned)  Certain inappropriate procurement procedures (e.g. open tender with auction)  Inappropriate selection and award criteria and methods

Capacity and Functionality  Contracting entities need strengthened methodological support and training  Private sector operators need information and guidance to improve understanding of the PPL  The market and competitiveness appear satisfactory, but certain areas remain a problem (construction sector)

Recommendations  Initiation of a comprehensive public procurement reform Objectives: Establish a credible and sound institutional structure with a natural division of functions Establish a central Public Procurement Office within the government structure for policy making, implementation support, monitoring and coordination Create an independent administrative review mechanism with final recourse to court (separate from the PPO). Further support of capacity development at the operational level Consequently: Re-consider the role of the Tender Chamber Abolish the monopolised market for procurement services Re-consider the role of the Special Control Commission under the Accounting Chamber Re-consider the role of the Anti-monopoly Committee Make use of the knowledge and resources of the PPD and PBE  Align the legislation procedurally more closely with EC Directives and internationally good practice