The Control of Public procurement – Polish experience relevant to Ukraine

In the beginning of February of this year a group of representatives of various authorities of Ukraine (Ministry of Economic Development, State Audit Service, Accounting Chamber, Secretariat Committee of Parliament on Economic Politics) and procurement experts with the support of the EU funded Project “Harmonization of Public Procurement system of Ukraine with EU standards”, were in Poland on a working visit. The goal of the visit was to study the experience of Poland in regard to the implementation and functioning of the control system in the public procurement field.

Meetings were held with representatives of key bodies engaged in the coordination and control of the execution of procurement procedures.

In Poland, as well as in Ukraine, a number of different bodies have public procurement control functions. First of all, there is the Public Procurement Orders Agency[1] that has existed since 1995 and which has the status of a separate central body of executive power, coordinated by the Ministry of Economy.

The Supreme Control Chamber of Poland[2] also has significant authority (analogous to the Accounting Chamber of Ukraine), which, contrary to how it is in Ukraine, controls the process of funds usage both of State and local budgets and aspects of State property usage.

The following bodies are the key bodies that carry out oversight and control: the Appeals Сomplaints Chamber[3] (complaint review body), which carries out a pre-trial review of tender participants’ claims concerning the organization of procurement procedures by procuring bodies and the Competition and Consumer Rights Protection Department [4] which conducts  investigations concerning potential bid rigging. In Ukraine similar functions are executed by the Antimonopoly Committee.

A Unit of authorized representatives operates under the Ministry of Finance of Poland to control the usage of public finances, including procurement finances. Authorized representatives review applications concerning possible violations in funds usage and determine the responsibility of specific officials for violations. There are 70 such authorized representatives in Poland at present. In addition, there are 16 (according to the number of administrative regions) regional commissions that execute functions of appeals review. Separate additional control is carried out in procurement, where financing was fully or partly carried out at the expense of the European Union. Such control is executed by a special department, which is a part of the Public Procurement Orders Agency.

More information about EU procurement monitoring experience can be found in the relevant EU Project Report .

Polish experience, per se, is very interesting when it comes to the “new” EU Member States. In particular, the Public Procurement Orders Agency carries out monitoring of legal requirements and the formal compliance of procurement procedures as well as macro-monitoring of the functioning of the whole public procurement system in Poland.

It would be beneficial for the Ukrainian Government to pay special attention to carrying out macro-analytical monitoring of the whole public procurement sphere, especially in the context of significant changes in the system. In particular, this refers to the importance of certain indicators relate to efficiency inthe procurement sphere, which are not always measured by savings (and, actually, the tools of accounting for savings are still under development).

Now let us review Polish experience in more detail.

Specifics of procurement regulation in Poland

The history of Polish tender legislation dates back to 1994. It was back then that the first Law on the Regulation of Public Procurement was adopted in Poland, by which the selection of the process of public orders was launched on a competitive basis and one coordinating procurement body was created, which combined key functions:normative regulation, provision of clarifications, publication of announcements in a bulletin, carrying out control and acting as a complaints review body.

That original Law has been amended many times, aimed at operational improvements and compliance with EU requirements. Since 2004, public procurement operations have been been regulated by the Law of Poland “On public procurement”, which was adapted to the relevant EU Public Procurement Directives (№2014/24/EU, №2014/25/EU), and the latestamendments were made in 2016.

The Law defines all general norms for the public procurement sphere, the role and functions of the Public Procurement Orders Agency together with the controlling and other functions of State bodies in the procurement field.

The Law is applied to purchases which exceed €30,000. Thresholds for mandatory carrying out of international tenders have been established as well (with publication in a special electronic EU bulletin), at €418,000 (new EU limit since 2016) for goods and services and €5.225 million for works respectively.

The subjects covered by the Law are State bodies and institutions, and organizations financed from the budget of Poland, as well as enterprises operating in separate sectors specified by the Law (utility services, gas and electricity supply, etc.).

As in the Ukrainian legislation, the Polish Law describes in detail all the necessary procedural procurement steps; particularly, publication, requirements for the tender documentation, the process of public procurement, requirements for the conclusion of the procurement contract, etc.

The open tender procedure is the most frequently used for above-threshold procurement (about 80 percent).However, procedures for restricted tender are stipulated as well – the negotiation procedure with notification and without notification – the possibilities for the use of which are stipulated by the Law. Mandatory disclosure of the annual procurement planwas implemented by the latest amendments to the Law that were adopted in the last year.

Unlike in Ukraine, so far Polish legislation does not stipulate a wide usage of electronic tools in organizing procurement procedures. Therefore, procurements are conducted by participants submitting documents mainly in a paper format. At the same time, the EU requires Poland to gradually transition (by end- 2018) towards thepreparation and submission of all documents relating to tenders in electronic format.

One more interesting characteristic is the mandatory use of non-price assessment criteria during the open bidding procedure. The weight of assessment of this criterion must not exceed 60 percent. In the opinion of Polish colleagues, this practice makes it possible to focus more attention on the quality characteristics of the procurement item.

In this regard, Poland’s experience is dramatically different from that in Ukraine because our Law stipulates the possibility of using non-price criteria only where the procurement is of a complex specific nature. At the same time, the weighting of price criteria must not be lower than 70 percent.

Execution of control and monitoring

As noted above, several bodies are engaged in procurement control in Poland. The main controller of procurement procedures compliance is thePublic Procurement Orders Agency. Control of procurements by the Polish Agency is carried out in several ways:

  • Carrying out scheduled and unscheduled documentary inspections of procurement;
  • At the request of State bodies, public organizations and citizens;
  • Analysis of information in the procurement bulletin.

Procurements that are financed or co-financed by EU funds, equal to or exceeding €10 million (in respect of the procurement of goods and services) and €20 million (in the case of works) are subject to mandatory control.

Unlike other controlling bodies in Poland that are engaged in post factum control, operational control or monitoring of procurement is carried out by the Public Procurement Orders Agency. The control term lasts from 14 to 30 business days. If necessary, it may be extended. Depending on the results of monitoring or inspection,the Public Procurement Orders Agency prepares:

  • Recommendations for the elimination of violations (if violations are not critical and found at a stage which allows the possibility for elimination);
  • Recommendations on abolishing a procedure in cases of severe violations which cannot be corrected;
  • An appeal to the Appeals Complaint Chamber concerning the cancellation of the procurement procedure results;
  • A decision about fining a contracting authority

Following receipt of a final report according on inspection results, the contracting authority has 7 days to prepare its objections (if any) addressed to the Chairman of the Public Procurement Orders Agency. The Appeals Complaint Chamber makes a final decision on the inspections results where the contracting authority disagrees with the final report of the Agency.

The Supreme Control Chamber of Poland and its regional sub-divisions (hereinafter “the Control Chamber”) controls public procurements and mainly after contract conclusion. However, this does not restrict the powers of the Control Chamber concerning procurement monitoring at the time of actual procurement. In fact, in Poland, this body is a “super-control” body that can check “anything and everything” relating to the use of public funds. This might be caused by the history of this body, which was founded back in 1918 and by a Polish society holding it in very high regard.

Control executed by the Chamber is more of a complex and mostly planned nature, and can last up to 200 days. In fact, economic and financial activity of the respective contracting authority is analysed (including procuring activity) for a given accounting period which in general coincides with the work practice of the Accounting Chamber of Ukraine. At the same time, as noted above, unlike the Accounting Chamber of Ukraine, the Control Chamber of Poland also monitors the use of funds by the administrators of local budgets.

Public procurement audit can be carried out at any stage of the procurement: the activity of the contracting authority can be evaluated at any stage;the expediency of the selected procurement need is studied; the legal compliance of procurement procedures and concluded contracts are analysed and checked; public procurement law is studied and legislative initiatives are submitted to the Parliament.

The Control Chamber of Poland is not competent to impose sanctions independently. At the same time, the Chamber has the right of legislative initiative in the Parliament. Thus, for example, 87 such initiatives were submitted to the Parliament during 2015.

Competition and Consumer Rights Protection Department (our counterpart is the Antimonopoly Committee) investigates tender (procurement) bid rigging. The legal basis for this is set out in the Law of Poland “On Competition”.

According to Polish criminal legislation, tender bid rigging is a crime that may result in up to 3 years of imprisonment. If the Department determines that a participant was involved in bid rigging, it is excluded from tendering (although this is a very controversial issue in practice, given the long process of investigation – more on that below).

The Competition and Consumer Rights Protection Department mostly investigates bid rigging between participants. Bid rigging between the contracting authority and the participant falls under the jurisdiction of law enforcement bodies.

According to Polish competition law, the Department independently monitors markets; in particular it establishes the competition level in these markets, analyses information from the media and also has its own method of calculating fines, depending on the severity of violations and losses incurred as a result of anti-competitive actions.

Cases opened by the Departmentrelated to possible violations last for 4-5 months.Such cases have a 5- year limitation period. A significantly large fine can be imposed (up to €50 million) for a failure to provide information to the Department at its request and for other violations established by the legislation.

In fact, as under our national law, exposing bid rigging, which is the function of the Department, is a rather long process and must not influence operational decisions made by the contracting authority concerning the determination of the winner of bids or the rejection of a particular participant suspected of bid rigging. On the other hand, as a rule, the amount of the fine which may be imposed by the Department for established bid rigging is usually quite large and significant for the participants.

The Appeals Complaints Chamberis based at thePublic Procurement Orders Agency and is the first instance to review participants’ claims. Thereafter, the civil courts hear complaints which may then be further appealed to the Supreme Court of Poland. While thePublic Procurement Orders Agency provides administrative support of the work of the Appeals Chamber (facilities, recordkeeping), complaints are reviewed and decisions are taken by independent members of the Chamber, appointed by the Government for a term (4 years – 1st tenure, there may be several tenures), exclusively on the basis of the Law as underlined by the chairman of the Appeals Complaints Chamber.

The minimum scope and requirements for a complaint are regulated by the Law “On public procurement”.

The Law stipulates the payment for filing a complaint as follows:

Complaint filing fees
Category Filing fee (€ equivalent)
A) For below- threshold procurement:

I.            Goods and services

€1,750
      II.            Works €2,330
(B) For above- threshold procurement:

I.            Goods and services

€3,500
      II.            Works €4,670

In comparison: the fee for filing a complaint in Ukraine is 5,000 UAH (about €170R) for an appeal against a goods and services procurement procedure and 15,000 UAH (about €500) for appeals against a works procurement procedure.

The funds received for complaint review are transferred to a special fund of the complaint review body. Moreover, the losing party in the complaints procedure pays the costs of the procedure (experts, additional examinations, etc.). Where a complaint is withdrawn before the decision is taken, the participant is returned 90% of the paid amount.

Annually, the complaints review body receives, on average, 2,500 complaints to review. When a complaint is filed, the procurement procedure is not automatically suspended but the contract may not be concluded before the complaints review body takes a decision. The complaints review process takes 15 calendar days. As in Ukraine, all interested persons besides the complainant and the relevant contracting authority may be invited to a complaint review hearing.

The scope of competence of the Appeals Complaint Chamber encompasses the dismissal of a complaint or that taking of a decision specifying exactly a contracting authority’s violation which must be corrected – otherwise if the contracting authority fails to correct established violations, the contracting authority must cancel the bidding.

From the 2,500 complaints reviewed by the Appeals Complaint Chamber in 2016:

  • 950 were rejected;
  • 606 were accepted for review;
  • 590 were withdrawn by the complainant;
  • In 469 cases, the contracting authority independently admitted a violation, in other words, it eventually amended tender documentation.

In comparison:  in 2016 the AMCU according to the complaint review results took 3,426 decisions out of which: 1,117 were accepted for review, 309 complaints were rejected; 69 were fully upheld; 539 were partially upheld and review was suspended in 327 cases.

169 (or 6.7%) of the decisions taken by the Appeals Complaint Chamber in 2016 were appealed to the Polish civil court (second instance), out of which 25 decisions were altered by the court, and in other law suits decisions were taken about dismissal or inadmissibility.

Responsibility

The financial responsibility aspect in Poland is governed by special Law “On violation of budgetary discipline”. The basic principles laid down in the Law are that no one may bear responsibility for a matter which is not defined by the legislation and the Law is not retroactive. The Law determines that the validity term of financial violation is three years from the date it was committed. The following types of financial penalties are stipulated:

- Warning;

- Admonition;

- Financial penalty;

- Ban for an official to exercise powers.

The difference between an admonition and a warning is that, where an admonition is imposed as a penalty, the person does not have the right to receive bonuses and other incentive payments within the validity term of the penalty. Where a warning alone is imposed, the bonus may be paid.

Information about identified violations in the financial sphere from the Supreme Chamber, regional chambers and the Public Procurement Orders Agency is sent to the abovementioned specially appointed representatives under the Ministry of Finance of Poland, who determine the scope of responsibility.

Also, there are two special commissions in Poland: under the President and under the Council of Ministers of Poland. They are commissions of first instance to review information about identified violations.

Poland keeps a registry of financial offenders. Removing information from the registry is possible not earlier than 2 years after the penalty imposition, but also not earlier than the date of a full payment for the penalty.

General conclusions and possibility of use in Ukraine

Poland has its own national experience of the procurement sphere development, which in some fundamental aspects differs from the practice of other EU countries. In particular, this relates to the combining of procurement normative regulation and operational control functions in one body.

In addition, Poland, contrary to other European countries, has nearly no practice of centralized procurement and is slow in its transition towards the use of electronic means in procurement procedures.

Implementation of the control and complaint functions, and their administration, differ somewhat from Ukrainian practice (see diagram below).

Coordination and control bodies in Poland

Pic

First, it relates to the combination of legal regulation and operational control functions (Public Procurement Orders Agency) in the coordination body. In addition, significant financial control powers are given to the Ministry of Finance. Also, the institute of authorized representatives that determines the scope of responsibility for violations is absent in Ukraine.

The same refers to responsibility for violation of procurement procedures and financial discipline.

Also, there are differences in the scope of powers that bodies have for imposing certain sanctions (in particular, financial) for violations in the procurement sphere. In particular, contrary to Ukrainian practice, the operational control body in Poland (the Public Procurement Orders Agency) does not prepare protocols on imposing financial penalties.

In particular, only separate bodies have the power to determine the boundaries of responsibility of bodies and specific individuals for violations in this sphere.

In Poland there is no concept of “monitoring” in the sense in which the Ukrainian procurement system understands operational monitoring of compliance with legislation. At the same time, in fact, the Public Procurement Orders Agency executes these functions (legally regulated). This allows the contracting authorities to correct possible violations at the initial stage of organizing procurement procedures and to save time required for organizing a new procedure.

The main thing that might be rapidly implemented in Ukraine, based on the experience of Poland, is a legal regulation of the “monitoring” concept, as one of the operational controls of contracting authority legal compliance in regard to procurement procedures. With this, such monitoring as well as the imposition of sanctions can be done through a defined and normatively regulated procedure and would not stipulate automatic suspension or cancellation of the procurement procedure. At the same time, the contracting authority can be given the right to dispute decisions of the control body within a certain period of time.

Given the fact that in Ukraine the procurement process is carried out electronically, the entire process of monitoring must be carried out completely transparently and conveniently through the existing e-procurement system.

In general, this approach has been set out as the foundation of the Draft Law “On amendments of the Law of Ukraine “On public procurement” and some laws of Ukraine concerning procurement monitoring (registration №4738), which is now under consideration in the Parliament of Ukraine.

In addition, risk indicators have already been successfully applied in Ukraine for monitoring sub-threshold procurement, the procedure for which was developed by experts of Transparency International in cooperation with the Ministry of Economic Development and other members of the “Prozorro” team.

In Ukraine in the near future, an effective system of public procurement operational control may also be established acting solely on the principles of transparency; considering that, according to the above-mentioned draft law, monitoring also must be conducted on the basis of the risk indicators’ system and on other bases similar to the Polish approach (for example, information analysis by a single portal).

It is also important to solve the issue of providing personnel for the execution of control functions, including both quantitative and qualitative monitoring.

130 people work in the Public Procurement Orders Agency of Poland. The Agency’s structure consists of 7 departments: the legal department, 2 controlling departments, information, education and analysis department, appeals department, administrative and financial office, internal audit. By funds usage the controlling departments are split in two directions: use of funds from the State budget (21 persons) and from the European Union (21 persons). Control of procurement legislation compliance by contracting authorities is within the remit of the controlling departments.

The staff of the State Audit Service of Ukraine (SASU) has more than 3,000 employees, including regional sub-divisions. Moreover, it is clear that not all of them are engaged exclusively in procurement control work.

However, taking into consideration the possibility of using an electronic system of information exchange, this number of staff should be sufficient for organizing an effective procurement monitoring system – provided that the specialists have a proper professional level and the SASU provides a balanced redistribution of staff to strengthen the work of relevant departments, whose functions are procurement control, monitoring and audit.

Authors: Sergiy Yaremenko, Public Procurement Expert at Transparency International Ukraine, and Olexandr Shatkoviskiy, Public Procurement Expert at the EU funded Project: “Harmonisation of Public Procurement System in Ukraine with EU Standards”.

The views expressed here are those of the authors and are not to be understood as in any way reflecting an official opinion of the European Union or any of its constituent or connected organisations.

[1] www.uzp.gov.pl

[2] www.nik.gov.pl

[3] www.uzp.gov.pl/kio

[4] www.uokik.gov.pl

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