At the gate of Mezhyhirya, the estate Viktor Yanukovych built with the money he stole from the people of Ukraine, a stall is selling rolls of toilet paper printed with the face of Vladimir Putin. Beside them are three large, flat, plastic loaves of bread, painted gold. Viktor Nestulia, director of innovation projects at Transparency International Ukraine, taps one with his finger. "When they came here after the revolution of dignity, they found a loaf made of solid gold, so this is a copy," he says. "That’s what it is here. You will see."
He’s not wrong. Inside Mezhyhirya, we pass a yacht pier, a shooting range, a boxing gym, an ostrich farm, a petting zoo, a man-made lake, a greenhouse complex, a helicopter pad, several fountains, at least five guest houses and a mansion where every surface drips with decorative gold (although minus the two-kilo ornamental bloomer, which was stolen in 2015). In the echoing concrete garage where Yanukovych kept his vintage cars and jeeps, I count 36.
Yet what makes the scene truly sickening is the fact that, until the former President – who rented the 140-hectare estate for 314 hryvnia, or roughly £10, an acre – fled to Russia on February 22, 2014, no-one knew any of this was here.
There were rumours, of course. Journalists interviewed staff and flew drones over the site. (To refute the claims, Yanukovych took friendly reporters into one of the guest houses and told them it was where he lived.) But nothing was ever confirmed, so when, after months of anti-corruption protests, Ukrainians finally saw Mezhyhirya for themselves, they were astonished. Crowds took the half-hour drive from Kiev to gawp at the luxuries their taxes had bought – although Yanukovych continued to deny this was what he had done. Interviewed by the BBC in 2015, he dismissed the idea as "political technology". The ostriches, he claimed, "just lived there."
Four years later, Ukraine is not cured of corruption. Bribery remains a way of life. The President, the eleventh-richest man in the country, talks regularly to Putin on the phone. But from the outburst of modernising zeal sprung a radical reform to one of the most vital functions of the state. A multi-award-winning digital system hailed as the best of its kind in the world. "It’s the gold standard," says Henri Verdier, chief technology officer of France.
Called ProZorro, after the Ukrainian word for transparency, the volunteer-built system radically restructures public procurement. Its motto? "Everyone sees everything."
Public procurement isn’t big business; it’s the biggest business of all. In Europe, it accounts for an average 16 per cent of GDP, according to the European Commission, dwarfing the contributions of finance (5.1 per cent), say, or agriculture (1.5 per cent). There are regional variations – the Netherlands is highest, at 20.2 per cent; Belgium lowest, at 14 per cent – but, across the board, two statements hold true. Governments spend a lot of money buying everything from pens to motorways to architectural blueprints. And, on the whole, they do it very badly.
To see this in action, you only have to look at the news, which, on any given day, will almost certainly feature the confusions and inefficiencies of public procurement. On the sunny May morning I visited Mezhyhirya, for instance, three stories were making headlines in the UK, where public procurement is 14 per cent of GDP and 32 per cent of government spending. One concerned the Home Office’s decision to award the £490m contract to make the new "Brexit blue" passports to a French-Dutch firm rather than British manufacturer De La Rue. Another related to the 600 million disposable cups bought by English hospitals in the last five years, a figure roundly condemned as unacceptable. Yet no single story exposed the chronic procurement crisis as nakedly as the implosion of uber-supplier Carillion – which four months on, was still far from a resolution.
The reason for the delay, perhaps even the crisis itself? Until Carillion issued a huge profit warning in July 2017, almost no-one knew its problems existed.
The ignorance was so pervasive it resembled a form of psychological repression. In March 2017, directors boasted of Carillion’s "substantial liquidity", and auditors and shareholders waved through its accounts. A parliamentary investigation found "the government was not aware of Carillion’s financial distress", despite "clear and compelling problems with the business."
Even then, government departments continued to award major contracts to Carillion, which persuaded its 30,000 subcontractors – for it was effectively outsourcing the government’s outsourcing, acting as a middleman for everyone from cleaners to engineers to catering staff – to continue to work with it. Suppliers, who will now get back less than 1p for £1 they are owed, could not make their own checks. The parliamentary public accounts committee described the contracts as shrouded in "great secrecy."
Yet although the scale of Carillion’s collapse made the evasion extreme, it was hardly unusual. "A lot of local authorities don’t know where all their contracts are," says Ian Makgill. "Same for central government. We asked DWP [Department of Work and Pensions] for lists of contracts with certain suppliers. They said, ‘It’s going to be too expensive to tell you, because we don’t know where it is.’"
Makgill, founder of public procurement platforms Open Opps and Spend Network, has been collecting public contracts for over a decade. Altogether, he has data on six million, as well as over 100 million transactions. But in the absence of a standard database, acquiring them is a complex and unreliable process involving Freedom of Information requests, website-scraping and in-depth knowledge of the 200-plus portals the government uses for procurement. The day after Carillion collapsed, Makgill searched for its contracts on Contracts Finder, the website created in 2015 to act as a single source of information on contracts. He only found 20 out of 450, and still hasn’t tracked down more than 30 per cent of the missing ones. Ministries and town halls frantically checking their exposure to Carillion encountered the same scary blankness.
In Mezhyhirya, I tell this story to Nestulia and Andriy Kucherenko, co-founder of ProZorro. We are walking past rows of steamy greenhouses to the petting zoo, 50 metres away. Up ahead, the peacocks squawk in the heat. How long would it take, I ask, to find all the information on the biggest public procurer in Ukraine?
Kucherenko, a slight, quietly-spoken 45-year-old who worked for six months without pay to build ProZorro, pauses. Whereas UK procurement exists in a confused mess of yellowing paper, PDFs and contradictory databases, the Ukrainian system has a single compulsory entry point, a standard data format, and open source code. "One hour," he says. "Fifty-five minutes to come to my computer, and five minutes to search."
"I can do it now," Nestulia pulls out his phone. "Within one minute."
"This information is all publicly available," Kucherenko continues. "At first, we thought it was too extreme. I was afraid that business will simply not accept it, they would say we are out of the game. But it didn’t–"
"Done it!" says Nestulia. He starts quickly reading off the results: "KPIs, number of contracts, average competition, month by month, average procedure..." I glance at my phone. It has been one minute and 30 seconds.
Why doesn’t the UK, or indeed any other developed country, have a procurement system like ProZorro? The answer, as ever, is complicated – but the simplest reason is that it requires rebuilding everything from the ground up. To find the political will you almost need a revolution. Ukraine’s began on Thursday, November 21, 2013 with a furious social media summons to rally in Maidan Nezalezhnosti, Kiev’s central square.
Oleksandr Starodubtsev was in court in the western city of Lviv when he saw the anti-corruption, pro-European call. A former stockbroker who’d founded and sold two financial technology startups, he was trying to stop his company’s new owners stealing his money. "It was absolutely obvious we should do something with the country," he says. That Sunday, he joined up to 200,000 protesters in Kiev – and then, when the rallies continued, so did he, first after work, then permanently. "I am on vacation," he told his business partners. "I need time to defend my country."
Starodubtsev is 188 centimetres tall, with broad shoulders and rangy limbs, but he was a businessman, not a soldier – and, in any case, defending Maidan meant occupying space rather than fighting. To pass the time productively, he found a stage and, with friends from his MBA, started a lecture series, hosting daily talks on everything from politics to personal finance. They called it "Maidan Open University" (today it is a free online course for civic education). Despite the government threats and frightening cold – down to minus 17°C – Starodubtsev remembers it as a time of anarchistic freedom: "very right, very correct, very natural." Then, on February 20, 2014, with a barrage of water cannons, the notorious Berkut riot police made their attack.
The night before it happened, Starodubtsev was in his apartment making Molotov cocktails. The situation was so dangerous he had sent his family out of the country. "I had been very critical of the government on Facebook," he says. "I was afraid for them. Not so much myself. I was going to stay."
At 8.30 the next morning, Starodubtsev entered the square, and saw protesters sprinting through burning tyre smoke. The Berkut had broken through their barricade. Amid the fug and panic, it was hard to understand what was happening. When he finally grasped the situation, Starodubtsev raced towards the barricade, piled metres high from tyres, bricks and debris. Wounded protestors were being carried back. In total, 21 were killed that day, some by snipers firing from the roofs of nearby buildings. Speaking from Stanford, where he is one of three "Ukrainian emerging leaders" studying under Francis Fukuyama, Starodubtsev recalls how he joined the human chain passing material to reinforce the barricade: first tyres, then, later, Molotov cocktails. "I saw bad things, things I’ve never seen before," says Starodubtsev. "Dead bodies. But that gave me a personal commitment to carry on after it was done."
After Yanukovych fled, two days later, a "kamikaze" interim government took office, and the new Minister for Economic Development and Trade, economist Pavlo Sheremeta, announced his priorities. Two of them – deregulation and healthcare reform – didn’t interest Starodubtsev, but the third, public procurement, intrigued him. Not only was it central to corruption, but it reminded him of his career in finance. "I knew you just had to create some kind of exchange," he says. He put out a call for help on Facebook. And that was how he met Andriy Kucherenko.
Unlike Starodubtsev, Kucherenko steered clear of the Maidan protests. In 2004, he had been actively involved in the Orange Revolution, which forced a rerun of the rigged presidential election. But even though Viktor Yushchenko recovered from disfiguring dioxin poisoning to win on a liberal platform, the protesters went home, and the reform movement dissipated. Disillusioned, Kucherenko didn’t believe a second revolution could succeed. Now, he felt, "not guilty, but responsible". He says: "I just wanted to contribute somehow to this effort."
A senior manager at accountancy firm EY, Kucherenko didn’t have any experience with government policy, but he had managed software systems for private procurement – and, this time, he was determined not to let that experience go to waste. When he met Starodubtsev, they agreed on one principle: "you can’t trust politicians to fix the country." If you wanted change, you had to make it yourself.
At first, the pair focused on reforming Ukraine’s procurement law, which had been hollowed out to facilitate corrupt deals. Rather than making firms go through a tender process, Yanukovych created 43 legal exemptions that allowed contracts to be awarded directly to a single supplier. All the contracts for Euro 2012, for instance, which Ukraine hosted jointly with Poland, were doled out in this way. Opposition politicians estimated that between 30 and 40 per cent of the funds for the tournament were stolen by officials, a sum of £3 billion.
Yet even when a new law was passed in April 2014 to eliminate most of the exemptions, it was clear to Kucherenko and Starodubtsev that procurement was far from fixed. "When you change the law, you are playing on civil servants’ field, with their game, their rules," says Starodubtsev. "Our idea was we should create something absolutely different." The question was: what?
They may have been two volunteers pushing one idea at a time when thousands sprouted, but already Starodubtsev and Kucherenko were facing the fundamental dilemma of procurement: what to buy, and what to make yourself? In political debate, this choice is almost always reduced to private or public. In reality, the range of options is far wider.
One option was to buy a procurement system from a large IT supplier. But from his time at EY, Kucherenko knew such systems came with limited functionality and even more limited control. So the pair looked at other countries for inspiration. "To our surprise, we didn’t find any best practice," says Starodubtsev. That was until a student volunteer introduced them to David Marghania and Tato Urjumelashvili, two Georgian activists who had just finished transforming their own country’s procurement system.
The four men met in Kucherenko’s office at EY. Whereas other companies showed PowerPoint presentations, Marganya demonstrated the Georgian system on his laptop. As soon as he began, Kucherenko and Starodubtsev knew they had their model. Not only was Georgian procurement now completely electronic, its data was also open; a weapon against corruption. It wasn’t perfect: it committed the government to either making the interface, or relying on a single monopoly supplier to provide it. But it was something they could work with. Then, just as they were preparing a draft law for parliament, their political support evaporated.
On August 21, 2014, Pavlo Sheremeta resigned, saying he could no longer fight "yesterday's people". With elections approaching, the entire project was in limbo.
On the verge of giving up, Starodubtsev sought advice from a revolutionary colleague. One day, during the protests, he noticed a man quietly sweeping up around the Open University. Recognising Dmytro Shymkiv, general manager of Microsoft Ukraine, he invited him to speak – now as recently-appointed deputy head of the Presidential Administration, Shymkiv gave Starodubtsev three suggestions. First, don’t wait for politicians; if you can’t do this without them, it won’t happen. Second, trial the system on low-value goods, which don’t come under Ukrainian procurement law. Third, work with commercial marketplaces, such as internet grocer EVO.
The first two pieces of advice pushed Starodubtsev forward. The third changed the nature of his project. With the involvement of the marketplaces, he realised, he could create a centrally-controlled database, but leave the interface to be managed by competing private companies – just like the brokers on the stock market. ("We had a joke in our team," he says. "That whatever I'm trying to build, at the end we receive a stock exchange.") He persuaded EVO to come on board, along with five other marketplaces, (there are now 23), and secured $35,000 (£26,281) from them in seed funding. The name wouldn’t come until after a crowdsourced competition in February 2015. But ProZorro was now in its final form.
A country which had experienced the very worst of Soviet suppression and oligarchic exploitation was moving towards a private-public hybrid, in which commercial companies were incentivised with a fee (between £5,000 and 57 pence, depending on the size of the contract) per tender to take responsibility for marketing and consumer innovation, while the state set the rules and, by keeping control of the data, retained ultimate ownership.
The need was growing desperate, because a new, deadlier threat had been added to the turmoil of the revolution. As the fall of Yanukovych was playing out in Kiev, Russia took the first steps to annex the south-eastern region of Crimea. By September, its forces had crossed the border and were pushing the Ukrainian army back from the frontline. A million people fled the fighting, according to the United Nations. But for those in government, the crisis wasn’t just political, but also logistical. With its antiquated procurement system, the Ukrainians simply couldn’t buy the equipment they needed.
The head of procurement at the Ministry of Defence was Nelly Stelmakh. A cheerful 55-year-old with a dark bob and a taste for colourful dresses, Stelmakh was responsible for getting the army everything from uniforms to food to petrol to medical supplies. During the whole of 2014, she only took six days off work. "We had a war, therefore we needed to work," she shrugs.
On December 30, Kucherenko, who had been working on an EY project at the Ministry of Defence, showed Stelmakh his half-finished ProZorro prototype. As soon as she saw it, she says, she went, "Oooh, I want to use it, I want, I want." Two months later, when the minimum viable product launched to a small set of central government departments, she had it – and very quickly, began to put it to the test. By June, it was the ministry’s main procurement system. Instantly, it reduced costs by 25 per cent.
Nelly Stelmakh, former head of procurement at the Ministry of Defence
Through an interpreter, Stelmakh explains how she persuaded the military to go along with the idea. Then, in halting English, she speaks to me directly: "We understood some resistance, but we still worked. And I can say that ProZorro helped to save our country."
Today, more than three years since its launch, ProZorro holds more than 1,500 online auctions a day. In 2017, it completed 870,060 with an estimated value of £11.4 billion. Given the state of Ukrainian procurement before 2015, assessments of its impact aren’t exact, but comparisons between old and new contracts suggest that is has saved the government £1.2 billion, or 1.4 per cent of GDP. According to a 2017 survey, 29 per cent of businesses believe the system is corrupt. In 2016, 59 per cent did.
At a time when promises of technological "democratisation" feel very hollow, it’s easy to overlook the sheer novelty of this achievement. Without digital data, it would simply be impossible. "Usually efficiency and transparency are opposite directions in public procurement," says Starodubtsev. "The steps which are directed to efficiency, they are against transparency, and vice versa. An electronic system was the only way to do both at the same time."
Not just any data will do. ProZorro was built using the internationally-recognised open data standard designed by US non-profit Open Contracting Partnership: this gives each new contracting process a unique identifier, making it simple to organise, even across proliferating government databases. One result is that it’s easier to build tools using ProZorro’s data, in the same way that, for instance, Citymapper was built using Transport for London’s. (ProZorro’s apps include corruption monitoring and risk management tools; one large supplier has a programme that lists every tender according to likelihood of winning.) Another, more radical outcome, is that it makes it possible for the government to automate procurement.
Each contract in ProZorro is decided by an anonymous online auction conducted in four rounds. First, suppliers submit their initial price, based on their assessment of the contract. Then the prices and the number of bidders is revealed, and the suppliers can bid again, with the highest bidder starting first (a game theory tweak to discourage conservative pricing). This happens three times, until the lowest price wins. It’s eBay, only in reverse – and, just like sellers on eBay, buyers on ProZorro find the whole negotiation happens automatically.
"As an introvert, it’s rather interesting that a person like me could efficiently work as a chief procurement officer, because I almost have no negotiations with some deals," says Oleksandr Nakhod, head of procurement at national postal service Ukrpost. "My job is to create transparent conditions for all economic agents, and then just watch the auctions."
The principle has been been extended into sales of government assets. ProZorro Sale was initially used to sell off the assets of the 90 banks – more than 40 per cent of the banking sector – which went bankrupt after the revolution, but before long it expanded to other areas, from scrap metal to hotels. In June 2017, the team showed the system to economist Roger Myerson, who won the Nobel prize in 2007 for his work on auction design. "I was very impressed," Myerson tells me over email. "It was good to see a major public institution in Ukraine taking the right steps to make sure that its auctions should be designed so as to serve the interests of the public, rather than just a few well-connected individuals."
ProZorro is far from perfect. It struggles with complex, subjective decisions: insurance contracts, for instance, or legal services. "It's like a ready-made suit. There may be guys for whom it fits, but there will definitely be guys for whom it is wrong," says Maxim Nefyodov, the charismatic first deputy minister for Economic Development and Trade, who is ProZorro’s chief political defender. Although tenders can be listed with criteria other than price, according to Kyiv School of Economics, less than one per cent do so.
The reason for this omission? Ukraine simply doesn’t have professional procurement officers capable of formulating complex contracts. Of 1,900 contracting authorities surveyed by Kyiv School of Economics, over 80 per cent said procurement was a "non-paid off-hour job". "What is difference between ProZorro and UK?" Nefyodov says. "UK has a manual system. You employ relatively skilled, relatively professional and relatively motivated people, and they do their job. Ukraine is the absolute opposite. Public procurement is not even a job. You have to employ idiots or crooks."
Still, in its range, power and simplicity, ProZorro hints at a future in which citizens can access the most basic information about their country, and decisions are based on evidence rather than habit and supposition. In Moldova and Belarus, reformers are exploring the idea of adopting ProZorro. Could the UK do the same? Nefyodov sighs. Given the problems he faces, the difficulties of rich nations seem trivial. "No," he says. "For the same reason you can’t just borrow laws from other countries. You have to make it yourself, to fit your situation." Then he brightens:
"I read an article on the Guardian about NHS procurement, which showed that prices of same items fluctuate up to 35 times, and overspending is over £1 billion. This specific problem can be solved by technology. What you need for this is a finite register of all medical supplies and all data of procurement in the same format… It's not that easy, but it can be done."
Will it be? In 2016, the UK adopted the Open Contracting data standard for Contracts Finder, its central registry of contracts. "Alas," says Gavin Hayman, executive director of the Open Contracting Partnership, "it’s not compulsory for the many different UK authorities to file data with it, so many government agencies don’t. Our hope is that the Carillion disaster is a wake-up call for more systematic reforms and finally helps it make the jump from documents to digital. But, at the moment, the UK is only timidly, cautiously, taking little mouse-steps."
Maxim Nefyodov, first deputy minister of economic development and trade at the ProZorro offices in Kiev, Ukraine
ProZorro may be futuristic, but its immediate future is far from secure. As public frustration at the slow pace of post-Maidan reforms grows, its political opponents see a chance to take down its greatest achievement. In February 2017, populist politicians hid ProZorro-killing amendments in a services bill; in May, they did the same thing to a bill on cybersecurity. "There is a footnote in small script on page 48, on a bill unrelated to ProZorro," says Nefyodov. "We routinely have to search hundreds of draft laws to scrap it out."
Behind this subterfuge lies a vision of society in total opposition to the pro-market Maidan revolution: a vision that could be summed up, simply, as "Ukraine First". In December 2017, Viktor Halasiuk, another populist, called for ProZorro to "buy Ukrainian, pay Ukrainians," presenting a bill that allowed domestic manufacturers to win bids if their price was less than 43 per cent higher than foreign competitors. The government fought it off, but the idea is gaining momentum – not just in Ukraine, but across Europe, and beyond.
This is the trouble with data: staying loyal to it is hard. In the UK, both parties favour a form of preferential procurement: the Conservatives want contracts to go to SMEs; Labour to local businesses. "Politically people always go for protectionism," says Nefyodov. "But then you create disturbances in the system. ‘Why did you overpay? But I favoured the SME!’ And then how can you compare?" His theory, he explains, is that a more open system benefits smaller businesses, or underrepresented groups – and on ProZorro, 80 per cent of suppliers are SMEs (compared to 24 per cent in the UK in 2015-16).
Then there is the question of political will. "I treat myself not as a revolutionary, I treat myself as a manager," says Nefyodov. "But we had this window of opportunity. Plus our system was so shitty, we had the luxury to build from scratch." Yet although the Carillion crisis might seem to provide that in the UK, in many ways it is simply the latest, most drastic manifestation of a crisis that has been going on for decades, running through the railways, the Olympics, on to nuclear clean-up and disabled benefits claimants. A recent book by a group of University of Manchester academics painted a picture of state and outsourcers locked together in a relationship of blame-avoiding co-dependence: "[this] explains why it is so difficult to stop the advance of outsourcing on the grounds that things are going wrong, because things going wrong for somebody else is part of the design."
Yet, for ProZorro, perhaps the greatest threat is not political, but cultural: the endemic corruption that lurks behind every corner, so that even the simplest transaction can become an opportunity for a bribe. The day before I go to Mezhyhirya, I visit the team responsible for the day-to-day operation of ProZorro works out of the old Public Procurement Office, a 1960s Soviet block in downtown Kiev. In his bright, whitewashed, first floor office, CEO Vasyl Zadvorny – an energetic 35-year-old with a thick black beard – runs briskly through its current priorities. For 50 years, this building’s heavy manual presses printed the official journal used to announce news of government contracts. Now, Zadvorny explains, its 53-person staff maintains an API to deliver "backend as a service."
Whereas ProZorro’s founders emphasise its reformist potential, Zadvornii, a former project manager at offshore development firm Luxoft, speaks the language of business and operations. "My position looks much more like the CEO of a product development company," he says, adding that "the golden idea is to make public procurement as easy as private." His 2018 targets include predictive analytics for suppliers and an Amazon-style catalogue for procuring basic goods and services. Only a looming mural of a figure in an Anonymous mask and the slogan, "People shouldn’t be afraid of their government. Governments should be afraid of their people," gives any indication of the high political stakes.
Before showing me out, Zadvorny takes me on a tour. A few doors down the corridor, past a Post-It sprinkled whiteboard, is the office of the old Public Procurement Office’s CEO. Unlike the other rooms, it has been kept in its original state: heavy pink and brown curtains; upholstered wooden chairs, diamond patterned beige carpet. Next to a laminated map of Ukraine and its neighbours, the wall is lined with dark teak cabinets.
Zadvorny opens the middle one. "But it's not the only interesting thing. Here you also have a secret room."
Behind the cabinet door, there is a small, dim chamber, decorated in the same fashion. "It looks a lot better than it did before," says Zadvornii, wryly. "I’m not sure what they really used to do here, but they used to call this, ‘rest room’. And here" – he opens another door to a cupboard-like, beige-tiled bathroom – there is a real restroom."
The space is clean and empty of personality or possessions, yet it is so seedy I find myself shuddering. "It was like this in Yanukovych times. The man can just hide himself here," Zadvorny says. The only furniture, he explains, was a big, white leather sofa. "Specific secret room, I would say."
In the staff kitchen next door, two young women are eating their packed lunch. The contrast between this everyday activity and the cave-like secret room is gross and jarring. "We call that room a corruption museum," Zadvorny says, as he leads me through. The next day, I hear Mezhyhirya described the same way. As if the corruption they represent is now only a memory, safely confined to the glass cabinet of national history.
Ukraine is a long way from that future. As we walk around Yanukovych’s manicured grounds, I ask Nestulia how far he thinks ProZorro has come. "It is just a start," he says. "We have shone a light in a dirty room. My boss at Transparency International always says, ‘We have the most transparent corruption in the world.’"
By Rowland Manthorpe, WIRED