That d**n pothole! Budget advocacy meets road maintenance
When allocated money isn’t spent the way it’s intended, it’s an issue of budget credibility
01
Bad roads
We have had four presidents in the last 15 years, and that’s the most common question each one gets: Where and when will roads be built or repaired?”
For example, Vovk says, the bridge over the Dnieper River recently buckled and a lorry carrying cars crashed into the water. According to the World Bank, Ukraine’s traffic fatality rate is more than double the EU average, and the second worst among Eastern Partnership countries [EU member states and Armenia, Azerbaijan, Belarus, Georgia, the Republic of Moldova and Ukraine]. Annual losses due to traffic accidents are estimated to be equivalent to 3.4% of the country’s GDP.
The government heard and responded. “Roads and other infrastructure are one of the most important priorities for our country,” President Volodymyr Zelensky said in remarks earlier this year. “We want to rehabilitate 4,000 kilometers of roads of national importance in 2020, spending amounts of funds that are unprecedented in the history of Ukraine. More than UAH 85 billion (3 billion USD) have been allocated for this.”
So, then, if the problem causes that much pain, everyone is aware of it and serious money has been allocated as a remedy, why is that money not being spent on the intended purpose?
02
Tender trolls: one reason why budgets aren’t spent
There is more than one dynamic at play, of course, but a significant contributor is a phenomenon called “tender trolls.” The word trolls, in this case, derives from the definition, “a line or bait used in trolling for fish.” This is how it works: When the Ukrainian government issues tenders for a road-construction project, companies respond by submitting their bids. There’s also a mechanism that allows businesses to challenge the tenders if—for example—they believe the terms favor a particular company or discriminate against small enterprises. While such appeals often are legitimate, they also can be used by unscrupulous players to stop the work from going forward. These “tender trolls” then go to the firms prevented from winning the business and demand what is essentially a bribe in return for dropping their complaint. Volodymyr Tarnay, head of the Budget Policy Department at Center Eidos, speculates that the goal is to extort bigger companies that win the tenders in return for a subcontract.
“The absolute record holder in the number of complaints is Poltavabudtsentr LLC, which filed a total of 168 appeals of road tenders,” notes Olga Zelenyak, a procurement expert and Tarnay’s colleague at Center Eidos, the International Budget Partnership’s collaborator in Ukraine. “He symbolizes the problem. Although nearly half of tender complaints filed are deemed worthy—which represents a separate problem—the remainder are later withdrawn or rejected. Those are what we consider tender trolls.”
Tender trolls prevent budgeted money from being spent and thus stand in the way of better roads for Ukrainians.
03
Budget credibility
Delays in spending road-construction money is one example of a larger issue on which the International Budget Partnership (IBP) has increasingly focused: budget credibility. With support from the Bill & Melinda Gates Foundation, we have worked with partners in countries around the world to expose under- and over-spending, understand what causes such deviations, and propose remedies.
“IBP learned early on that in much of the Global South, it’s not enough to focus on what gets budgeted,” explains Vivek Ramkumar, senior director of policy. “That’s because what gets allocated doesn’t automatically translate into spending.”
While most people think of corruption and mismanagement when budget deviations are suspected or exposed, Ramkumar says they are “just one part of the story. The political dynamics that trigger over- or underspending can be much more complex, as we’ve learned in Ukraine.”
The most significant challenge when trying to identify and explain budget deviations is finding and obtaining access to relevant data. Another challenge is the relative lack of attention that budget credibility has attracted—thus allowing government under-spending to slip under the radar.
In an earlier multi-country study conducted prior to the COVID-19 pandemic, IBP found that levels of annual underspending in government budgets averaged nearly 10% across 35 countries. For perspective, this degree of deviation is more than the health and education budgets in many countries. And in low-income countries, nearly one out of every seven budgeted dollars was left unspent.
In 2018, IBP made budget credibility a special focus through a partnership with 24 civil society organizations in 23 countries. Each partner organization identified a budget-credibility challenge and scrutinized a case in which their government consistently failed to raise or spend funds as it said it would at the start of the fiscal year. Partners looked for explanations for the deviations in published documents, then interviewed public officials.
The findings? Overall, the extent of budget deviations documented was severe. In most of the cases, budgets were under spent by more than 20% in priority areas such as health, education and nutrition. The compelling findings of this first phase of research led to a second phase, in which seven partner organizations not only deepened their research, but also took it a step further to advocate for solutions to the problems they identified. Center Eidos in Ukraine was among them.
We found that more transparent governments also demonstrate higher levels of budget credibility,” wrote Ramkumar in a blog post. “Other important factors are clear rules for how budgets can be amended, rigorous procurement systems and good accounting practices. Each of these enables more real-time control over how public resources are expended.”
ADDITIONAL INFO
Budget credibility describes the ability of governments to accurately and consistently meet their expenditure and revenue targets. At its core, budget credibility is about upholding government commitments and seeks to understand why governments deviate from these commitments. When budgets are not implemented as planned, spending priorities can shift, deficits may exceed projections, and critical services may be compromised. Moreover, governments consistently deviating from their budgets risk an erosion of public trust.
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Tender trolling meets its match
Analyzing government procurement to look for inefficiencies, bottlenecks and even outright corruption is a specialty of Center Eidos. In January of 2020, it closed out a two-year project in which it brought 430 complaints against government spending units and control agencies, documenting theft of public money using such tactics as price gouging.
“Government procurement is riddled with violations of the law,” notes Tarnay.
He’s backed up by a report from the Peterson International Institute for Economics, which recently found that “public procurement is the world’s biggest source of corruption, fraud and abuse, including bid rigging, cost overruns, favoritism toward politically connected bidders, lack of transparency, collusion between politicians and firms, and simply bad choices.” The PIIE Working Paper estimates that between a tenth and a quarter of the money governments spend on public procurement ends up in bribes.
In 2018, Tarnay’s expertise in procurement earned him a place on the board of directors for CoST (Construction Sector Transparency Initiative). Road construction specifically is one of the top priorities.
That was around the same time that Center Eidos signed on to participate in IBP’s budget credibility research project. “We discovered the problem (of tender trolling) when we began doing stakeholder interviews for the IBP project,” says Tarnay.
We quickly learned that the most valuable contracts are connected with construction, particularly roads.
One of Tarnay’s stakeholder meetings was with the director of the Ukraine branch of CoST, and she suggested looking at tender trolling and its impact on the ability of the government to spend the funds it had allocated for road building and repair. Tarnay turned to Zelenyak, the Center Eidos procurement expert, and asked her to “sleuth” for signs of the practice. Fortunately for Ukrainians, their government had prioritized transparency in response to public pressure.
Ukraine’s new president, Volodymyr Zelensky, swept into office embodying the people’s demands for a “new” approach, including transparency. And although much remains wanting, including the influence of oligarchs, the push for reform that carried Zelensky into office have produced some notable improvements. After dropping in the previous three rounds of the OBS, Ukraine improved its budget-transparency score by 9 points—finally crossing the threshold required to be considered “sufficient to allow informed public debate.”
The government also had embraced ProZorro, an open-source web portal offering free access to public purchasing data. And another plus: Over the years, Center Eidos had cultivated a deep relationship with various ministries in the government, and Zelenyak is included in many of the meetings in the Ministry of Economy’s Department of Public Procurements. She brought her trolling statistics to a working group meeting and the members were quick to grasp the significance.
“The Anti-Monopoly Committee (which receives and considers tender complaints) was already aware of tender trolling in the government’s procurement process, because their workload had risen significantly,” she recounts. “Ukrainian law stipulates that the committee must respond to appeals within a certain time limit, so tender trolling had overloaded them.” But what was new to the members was Zelenyak’s specific analysis of road construction tenders.
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What success looks like
Zelenyak brought those statistics to one of the meetings, along with a suggested solution: A series of amendments in the law governing procurements was already due to be brought to the parliament, and she suggested text for another addition to prohibit such trolling. Ministry officials jumped on board. Typically, it takes between one and two years to move amendments through all of the stages required for approval; there are more than 10 “check marks” needed for an amendment to become law. But this amendment sped through, winning parliamentary approval in September 2019 and going into effect the following April.
“Cooperation with civil society has been extremely important to our ability to establish effective control over public procurement,” says Lakhtionova Liliia Volodymyrivna, head of the Department of Public Procurement. “We are grateful to our NGO partners—Transparency International Ukraine, Center Eidos and Civic Control. They made a significant contribution to the improvement of our procurement legislation. The changes will increase the efficiency of public procurement and reduce the scope for abuse by unscrupulous bidders.”
It will take a while before the benefits of the amendment are evident. Tarnay estimates the full impact will begin to be seen in 2021.
The Center for Transport Studies’ Vovk calls the amendment “a win for every businessperson, worker and resident in Ukraine who has struggled to get things done.”
Tarnay considers the success one more example of the power of citizen access to government budget data and training in how to use it as a tool for advocacy.
“It was IBP’s initiative that inspired us to pursue this area of research and the result has been personally very satisfying,” he observes. “My mission, and the mission of Center Eidos, is to build a system of mutual trust between the state and citizens. And this is how it’s done.”