From a fine to 12 years in prison: what the punishment for tender abuse could be

Responsibility for fraud in the field of public procurement can range from administrative and economic sanctions to criminal punishment in the form of imprisonment. Myroslava Drach, a lawyer at Prikhodko & Partners Law Firm, explained in a comment to UNN what the specific classification of a crime may depend on.

The specific classification depends on the method of committing the violation, the circle of persons involved, and the damages caused, the lawyer explained.

If we are talking about tender collusion between participants, such actions are classified as anti-competitive concerted actions related to the distortion of bidding results, the responsibility for which is provided for in paragraph 4 of part 2 of Article 6 of the Law of Ukraine "On the Protection of Economic Competition." Based on the results of the case review, the Antimonopoly Committee of Ukraine may impose a fine of up to 10% of the annual income (revenue) of the business entity in accordance with Article 52 of the said Law, as well as include the company in the list of entities for which the fact of collusion has been established, which effectively makes participation in public procurement impossible for a period determined by law 

According to the lawyer, signs of tender collusion include: the use of shared IP addresses, identical errors in documents, the connection of companies through founders or employees, the lack of real competition during the auction, as well as the exchange of information regarding the content of tender proposals before the completion of the procurement procedure.

If, as a result of such actions, illegal seizure of budget funds or their embezzlement occurred, Article 191 of the Criminal Code of Ukraine is most often applied — misappropriation, embezzlement of property, or seizure of it through abuse of official position. This specific article is one of the most common in criminal proceedings related to violations in the field of public procurement. In the event of establishing particularly large amounts of damage or the activities of an organized group, the sanction may provide for up to 12 years of imprisonment with confiscation of property 

As for the "leaking" of competitors' tender proposals, it is usually not considered in isolation, but as one of the pieces of evidence of collusion, abuse of official position, or the implementation of a scheme to seize budget funds.

Therefore, in most high-profile cases, the key legal classification is also built around Article 191 of the Criminal Code of Ukraine 

As a reminder

Despite the fact that the state constantly declares attempts to make public procurement procedures as transparent as possible and close all loopholes for potential abuse, we occasionally hear that someone has managed to line their pockets on tenders. Most often, this refers to overstating prices for goods or services ordered by state or municipal institutions. However, in reality, there are many more opportunities for abuse and manipulation in tenders.

UNN analyzed the most common ones, for example, writing requirements for lots for a specific supplier, or "twin tenders" used to conduct procurement from a specific supplier through a negotiation procedure. Also, during tenders, there are cases of information "leaks" to participants (prices, contract terms). Sometimes information about the tender proposals of participants is also leaked. For instance, journalists pointed to the possibility of such practices in tenders conducted by the Cherkasy Regional Oncology Center. Attention was drawn to the fact that the company "Onkomedyka" is a frequent winner in procurements there. For the most part, this company was the sole participant in the procurements, and in cases where competitors appeared at the tender, it still won with a proposal that could be higher in price than others. Such actions may indicate that representatives of "Onkomedyka" were given closed information about a competitor's tender proposal so that the firm could submit a higher bid to win the competition. Another very common scheme is collusion between participants. The Antimonopoly Committee monitors the prevention of such collusion. There are quite a few examples of detecting concerted actions, and sometimes companies have to pay millions in fines; for example, "Prodmet" and "Steels Ukraine" were fined 9.2 million UAH by the AMCU for concerted actions during the procurement of alloys and pipes.