Ukraine’s online procurement system Prozorro has saved the country Hr 190 billion ($7 billion) since its introduction in 2016, according to their own estimates.
It may not save much more.
The system that has been praised as one of the biggest steps in fighting corruption is being gradually dismantled by the country’s leadership.
“The situation looks worrisome,” says Vasyl Zadvornyy, the director general of Prozorro. “We’re risking burying or at least substantially undermining one of Ukraine’s most successful reforms.”
The reform directed nearly all government procurement to go through Prozorro’s online bidding platform, making it harder to strike corrupt deals and handpick contractors in exchange for kickbacks.
This system, where bidders take months to compete for government contracts, has become inconvenient for President Volodymyr Zelensky and his ruling Servant of the People party, who came to power promising swift improvements.
So they started letting certain projects circumvent Prozorro.
In March 2020, the government passed a decree excluding medical procurement from Prozorro and allowing the Health Ministry to buy medical equipment directly from suppliers.
The decision was meant to speed up Ukraine’s reaction to the COVID‑19 pandemic.
“It set a precedent,” says Zadvornyy.
It snowballed from there.
In 2021, parliament exempted several big projects from Prozorro, including a beltway around Kyiv, locomotives for state railway and the upcoming Independence Day celebration, leaving them all without public oversight.
“Prozorro allows Ukraine to save Hr 60,000–100,000 on each million spent because of competition that drives prices down,” says Zadvornyy. “Leaving out Prozorro creates a potential risk that you won’t save that money.”
Ukraine is at risk of overpaying $300 million on the above three projects alone.
Yet, the government isn’t stopping there. The parliament has registered several bills that, if passed, would further reduce Prozorro’s reach, pushing Ukraine’s procurement back into the shadows.
Despite the explicit attack on Prozorro and one of Ukraine’s most successful reforms, Zadvornyy avoids direct accusations and confrontation, opting for passive defense.
Asked by the Kyiv Post whether the agency has direct contact with Zelensky and his office, Zadvornyy says he “saw the president once, maybe twice.” Asked if powerbrokers know about how Prozorro actually works,
Zadvornyy says “someone definitely knows, but do most people in government know, it’s an open question.”
There hasn’t been a public movement to defend Prozorro and transparent procurement.
The reform
Independent Ukraine has always had problems with corruption and inefficient governance. The introduction of Prozorro was among the first reforms meant to address that.
After the EuroMaidan Revolution, which ousted President Viktor Yanukovych, demand for transparent spending was high.
In 2014, a group of activists began creating a new online procurement platform. The initial project was financed by the United States Agency for International Development and supervised by Transparency International Ukraine.
Soon, the Soviet-styled ZovnishTorgVydav agency, responsible for printing out government procurement deals, was renamed Prozorro, a Ukrainian word meaning “transparently.”
In 2015, the parliament passed a pivotal bill, “On public procurement,” finalizing the legislative framework for the Prozorro system. The platform became obligatory for all government agencies, including local ones, on Aug. 1, 2016. In the following years, the system has won global awards as the best procurement solution.
When Zelensky came to power in 2019, Prozorro experienced a short boost. In April 2020, the threshold for the obligatory use of the government procurement system was lowered from Hr 200,000 ($7,500) to Hr 50,000 ($1,800).
Prozorro became a synonym for government transparency.
The agency is self-sufficient. In 2020, the platform’s budget was Hr 115 million ($4.2 million) which was fully covered by tender fees. The budget is sufficient to cover the salaries of 60 employees and maintain the servers.
In 2018, a separate platform named Prozorro Sale was launched, allowing the government to sell property and permits online. As of July 1, the platform helped Ukraine make Hr 40 billion ($1.5 billion) through the so-called small privatization.
Corruption goes online
Despite its advantages, Prozorro can’t thwart corruption by itself. The platform lacks tools to punish tainted sellers and corrupt officials.
Without proper law enforcement agencies and working courts, the system is criticized for its inefficiency. Zadvornyy says that’s not fair.
“Prozorro’s mission is to open the market and to create a fair and transparent playing field, Prozorro can’t become a court, the police or prosecution,” says Zadvornyy.
A minimum of two bidders is required for a tender to be recognized. Shady contractors use affiliated companies as spoiler candidates to secure government contracts. Tender trolls cause bid amounts to fall to stall a competition or to force buyers to renegotiate contracts on unfavorable terms.
Officials phrase their demands for contractors in a way that would exclude some companies and favor others.
“There are records (of violations) which can be moved to courts and be used to punish offenders, the question is whether the authorities have the competence to do it,” says Zadvornyy.
“It’s the job of law enforcement agencies to react to those violations and it’s the biggest problem of Ukraine that it doesn’t work.”
According to him, there are multiple areas in which procurement has been hijacked by deceitful contractors.
“The largest area where money is spent is construction; a lot of contracts are signed in the energy sector,” says Zadvornyy. “These are the juiciest areas for corrupt officials.”
For example, a tight-knit group of companies —the Turkish Onur Group, and Ukrainian Rostdorstroy, Avtomagistral-Ug and Avtostrada— have banded together, allegedly colluding on state-issued road construction tenders, keeping prices high.
In 2019, only two companies — Onur and Avtomagistral-Ug — competed for a road construction offer in Zaporizhzhia Oblast worth Hr 643 million ($23.8 million). The companies placed a similar price on Prozorro, with Onur beating its competitor by Hr 120 ($4).
“There are dozens of rigged tenders, with inflated prices, each costing millions of hryvnias,” says Yuriy Nikolov, an investigative journalist and editor for investigative journalism outlet Nashi Groshi.
According to Ukraine’s existing procurement laws, Prozorro officials, buyers and sellers are limited to filing a complaint to the State Audit Service. There are around 15,000 appeals annually.
“They act maybe on every fifth complaint,” says Zadvornyy.
Dismantling Prozorro
Instead of solving these problems, officials saw a chance to get rid of the system altogether.
In March 2020, in the early stage of the pandemic, countries were competing for medical supplies.
According to Zadvornyy, Prozorro, together with the health and economy ministries decided to exempt purchases of medical equipment from having to go through the system.
Soon, the health ministry began bypassing Prozorro to buy other items as well.
“Buyers on the spot began saying we need to prepare a hospital for COVID‑19, so we need to buy furniture and so on,” says Zadvornyy. “It started with buying critical drugs and ended with couches, office supplies and practically anything.”
A total of $1.2 billion was spent without public oversight because of this clause.
Now other state players are also skipping Prozorro and transparency.
In May, Ukraine signed a nearly $1 billion contract with French company Alstom to buy 130 Prima T8 locomotives for $8 million each. The government used a legal loophole to sign a direct deal — the contract was embedded in a loan agreement.
In June, parliament pushed through an amendment that exempted contractors from having to transparently bid for the upcoming $3.5 billion Kyiv beltway project.
Ukravtodor, the government road construction agency, justified this decision by saying that Prozorro doesn’t allow the so-called EPC+F contracts, meaning paying a fixed price for the project from engineering to construction.
“It’s a lie,” says Zadovrnyy. “You can sign any contract you wish.”
Zadvornyy said Ukravtodor never contacted Prozorro to clarify whether the contracts they needed could be done through Prozorro.
Weeks later, a $200 million procurement deal for projects related to the Independence Day celebration was exempted from Prozorro with the excuse that there was no time for a proper tender.
Recently, state-owned gas company Naftogaz said it wants to be exempt from the Prozorro system.
A bill exempting local governments from the need to go through the system has been registered in parliament.
“Each year, Ukraine signs contracts worth Hr 600–700 billion ($22–25 billion), pocketing even 1% of that sum, many would want that,” says Zadvornyy.
Yet, Zadvornyy is very cautious to point fingers, saying that top officials might simply lack time and knowledge to understand the benefits of Prozorro.
“Using the procurement system correctly is like maintaining a proper diet, it’s harder than just going to McDonald’s,” says Zadvornyy pointing to the fact that many top officials prefer to arbitrarily handpick a company — not always looking for a kickback but often because it’s easier.
“Online transparent procurement is longer and requires knowledge, many don’t want that.”
