SMEs in Public Procurement

42. Ukraine

42.1. SMEs in the national economy

In Ukraine, the legal definition of SMEs is the same as in the European Union. Medium-sized enterprises are defined as those whose average number of employees during the reporting period does not exceed 250, and annual income from any activity does not exceed the equivalent of EUR 50 million. Small enterprises (individual entrepreneurs or legal entities/enterprises) refer to enterprises with an average number of employees that does not exceed 50 people and annual income from any activity that does not exceed the equivalent of EUR 10 million; and micro enterprises (individual entrepreneurs or legal entities/enterprises) refer to those with an average number of employees not exceeding 10 people and annual income from any activity that does not exceed the equivalent of EUR 2 million.

The main competitive advantage of SMEs in Ukraine, particularly in public procurement markets, is the relatively low prices they can offer because of low taxation. SMEs typically pay a flat income tax (at a fixed rate of 5% on income, or 10% on income depending on the kind of activity and the volume of business) and lower social security tax.

42.2. National policy framework to support SMEs in public procurement

Ukraine does not have a separate strategy for SMEs participation in public procurement, but they are mentioned in the adopted Strategy for Public Procurement Reform (approved by Cabinet of Ministers Resolution No. 175 on 24 February 2016). In accordance with Article 46 of EU Directive 2014/24/EU, the Strategy encourages division into lots in order to create better conditions for the participation of small and medium-sized businesses in public procurement.

The aims of public procurement legislation in Ukraine are to ensure efficient and transparent procurement, create a competitive environment in the field of public procurement, prevent corrupt practices in this field, and develop fair competition. The new Law on Public Procurement No. 922 of 25 December 2015 establishes the following improved opportunities for SME participation in public procurement in Ukraine, and introduces the following innovations that could facilitate SMEs participation and success in public tenders:

1. The law is focused on replacing the current paper-based procurement procedures with a unified electronic solution comprising a centralised database and several privately managed access points to the system (platforms). It establishes an exclusive system of e-communications, e-publications/e-notifications, e-access, e-submissions, e-auctions as single evaluation method, e-awards and (theoretically)e-contracting with further e-invoicing.

2. A new mechanism for the submission of supporting documents by tenderers. The \documents are now required only from the successful tenderer and contracting authorities may not require their presentation if the relevant confirmations are available from public databases. The list of such open databases is to be published by the Ministry of Economic Development and Trade annually by 20 January.

3. An unsuccessful tenderer may now require the contracting authority to provide a well-grounded explanation for rejecting its proposal and the reasons for awarding the contract to another tenderer considered to be the most economically advantageous.

4. A reduction of the time limit for the review of complaints by half (previously it was 30 working days; now the Law requires a decision on the submitted (including electronically) complaint to be adopted within 15 working days).

5. Requirements for below-threshold procurements. In particular, all such procurements must follow the principles established by the Law; their results must be published; and they may be performed through the electronic procurement system used for public contracts, subject to the Public Procurement Law procedures.

6. Facilitating access to tenders through the use of self-declaration lends extra weight to SMEs.

7. The Public Procurement Law of Ukraine, especially article 28, provides the possibility of setting awarding criteria to support SME participation, examples of which could include “share in value of SMEs involved as subcontractors”, “involvement of local SMEs (labour) in the performance of the contract”, etc.

8. Article 22 of the public procurement law stipulates that in case of procurement of works and services, procuring entities require that bidders submit a list of subcontractors to be involved in order to enhance SME participation; and, in case of purchasing services and contractual services, SMEs can jointly submit bids with other suppliers. In fact, primary contractors in practice almost always involve SMEs in the implementation of construction contracts.

The Public Procurement Official web-portal (www.prozorro.gov.ua) publishes data on SME participation in public procurement.

42.3. Implementation mechanisms

The MEDT (Ministry of Economic Development and Trade) launched a Centre of Excellence in Procurement at the Kiev School of Economics in February 2017, supported by the School and the TAPAS project. The first pilot training exercise of the Centre was an intensive Training of Trainers programme and a similar 4-month advanced programme for procurement professionals. The trainers held seminars in the regions, trained about 700 people a year, and organised free webinars for business and civil society.

The MEDT – as an authorised body in public procurement and leader of public procurement reform – organises different regional public procurement workshops and trainings for SMEs in co-operation with operators of commercial e-platforms, business schools and international organisations. In all regions of Ukraine there are representatives of the public procurement reform team responsible for organising and carrying out seminars, training sessions and consultations in the field of public procurement for suppliers and contracting authorities. Furthermore, the Ministry has launched a project called “GPAinUA Implementation Office” – a proactive project that supports Ukrainian suppliers, especially SMEs, and advises them to participate in the public procurement of the Government Procurement Agreement (GPA), and also helps create ecosystems to promote participation of Ukrainian exporters in the public procurement of GPA as well as importers from countries participating in the GPA public procurement in Ukraine. The main areas of business support include providing access to information on international requirements; assisting in the preparation of the tender; advising on the implementation of the tender requirements; analysing public procurement markets; and supporting the application of international tenders.

Additionally, the Prozorro and each of the electronic marketplaces provide regular seminars for businesses. Information and educational resources are available on line, as well as a library of sample specifications.

42.4. Monitoring performance

In January 2018, new provisions of Law on Public Procurement were adopted, which were devoted to monitoring public procurement. According to the Law on the State Audit Service of Ukraine, procurement procedures will be monitored through the e-procurement system ProZorro, especially by implementing risk manage indicators in the system.

Moreover the civil society monitoring system DOZORRO has been developed. MEDT together with Transparency International-Ukraine created a strong regional civil society network. Today the DOZORRO community unites 24 professional civil society organisations. Every month, these organisations identify and submit complaints concerning violations in over 1 500 procurement processes.

A risk-monitoring approach was developed and implemented in the DOZORRO web portal (dozorro.org). From July 2018 the civic monitoring system of risk indicators has used artificial intelligence. This tool will help not only the government to monitor the public procurement system but also the private sector, as companies will be able to choose the least problematic procedures and select procurement entities that are reliable. DOZORRO’s approaches are being replicated in others countries. For instance, starting from autumn 2018, a similar system will be implemented in Moldova.