Dealing a Blow to Ukraine’s Soviet-Style Public Spending Corruption

Dealing a Blow to Ukraine’s Soviet-Style Public Spending Corruption

The Ukrainian revolution brought down a corrupt and corrosive system in which oligarchs and politicians colluded to loot the coffers of the public sector. But the goal of the uprising wasn’t simply to tear down the old regime, but to build functioning systems and institutions based on principles of genuinely open government.

This is why, in a nation considered by many to be the most corrupt in Europe, reforming the public procurement process has become a top priority. Procurement—government spending on goods and services from private companies—is the number one corruption risk for most governments due to the size of money flows involved. Government contracts in Ukraine amount to about $10 billion per year, but despite a thriving start-up scene, smaller businesses have virtually no opportunity to break into a system dominated by cronies and powerful interests. At the same time, the conflict in the country’s east makes getting good value for the government’s money a matter of national urgency.

The need for procurement reform can be seen everywhere. For instance, fraud in public procurement is rife in Ukraine’s medical sector. Anonymous foreign shell companies have been used to siphon off money meant for vaccines and medicines, and hospitals have been hit with overblown contracts for equipment costing thousands of dollars more than it should.

With support from a small group of experts, several hundred civil society activists and procurement experts formed a public–private partnership to ensure Ukraine’s scarce resources are well spent. Called the ProZorro initiative—a play on words combining the Ukrainian word for transparency and Zorro, the swashbuckling fighter of tyrannical officials—the effort resulted in a new open-source e-procurement system.

Launched as a pilot in February 2015, the system uses our organization’s Open Contracting Data Standard as a tool for structuring and analyzing contracts. Any information related to public procurement (annual plans, tender notices, bids, decisions of evaluation committees, contracts, etc.) is freely accessible online. In addition, new tools were developed, including anonymous auctions to help the government get better deals, and feedback systems to manage clarifications and complaints.

“Everyone Eyes Everything” is the platform’s motto. ProZorro developed a tool to monitor the performance and analytics for the whole system using the open data. The results have been impressive: within the first 12 months, ProZorro processed over 46,000 tenders for $300 million in goods and services. Not only did it do this openly and fairly, it also helped save an average of 13 percent on budgeted spending. Importantly, the number of participating bidding companies per tender competition increased from an average of 2.1 to over 2.8.

With the success of the pilot, a new Law on Public Procurement was signed by President Poroshenko on February 17. With it, the ProZorro platform transfers from civil society to the government, which will expand it to cover all government contracting. Central authorities and state-owned enterprises will adopt ProZorro in April, with municipalities to follow in August. Once the shift is complete, Ukraine’s obscure, Soviet-era public procurement behemoth, with its stacks of yellowing paper, will become a thing of the past.

The Open Contracting Partnership—a silo-busting collaboration of governments, companies, technologists, and civil society advocates working to foster openness, innovation, and public engagement—has provided technical support to the ProZorro team on publishing open contracting data and mapping it to the European system, Tender Electronic Daily. The ProZorro team also engaged directly in shaping the standard during its creation process, providing a clear use case and benefiting from global best practices. Our focus will now shift toward expanding the system, developing tools for raising red flags on corruption, and supporting the integration of data with budget and treasury figures.

Ukraine is still riddled with corruption, which puts these advances at risk. (Just recently, the minister of economic development and trade resigned over political interference.) But with firm standards, an open platform, and genuine collaboration between government, civil society, and business, this success story could finally begin to transform Ukraine’s culture of corruption.

As Ihor Zvyahintsev, owner of a small local paper company, said after his firm won its first contract through ProZorro, “We were wary of public procurement given the history of corruption in Ukraine, but we are the living proof that rules are changing.” 

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