Recovery services or the old Avtodor network. Who was entrusted with the reconstruction

Reconstruction services (former Motorway services structures under Ukravtodor (State Agency of Automobile Roads) are one of the key players in the reconstruction of the country. They have billions of hryvnias at their disposal, and their practices have not improved.

In 2022, Motorway services, like regional military administrations, were actively criticized for spending billions on road repairs during the war. And in 2023, when the Motorway Services became the Recovery Services, the criticism decreased, although the repair and maintenance of roads remained a priority, and the approaches to the development of funds did not change.

Currently, they are customers of reconstruction works in 24 regions. The Motorway services became managers of more than UAH 34 billion only from the Fund for the Liquidation of the Consequences of Armed Aggression.

During the war, the Reconstruction Service, like most managers of budget funds, uses the opportunity to conclude direct contracts worth billions of hryvnias, as well as options to increase the value of contracts through the purchase of additional works. If in 2023 competitive procurements on Prozorro were placed by the Services for 21.5 billion UAH of expected value, then direct procurements were 2.5 times more, for almost 54 billion UAH.

Millions without auctions

It is no secret that even in 2023, a colossal amount will be spent on road repair and maintenance, which already reaches more than UAH 30 billion just for the network of the former Avtodor.

Large sums for the repair of the same objects often go without an auction (tenders are held with special features, namely with only one participant).

See the example – the repair of the bridge over the Sluch River in the Rivne region. The recovery service concluded a contract for UAH 527 million with Avtostrada LLC. It is interesting that last year the same company repaired the same bridge, but much cheaper, for UAH 390 million. According to Spending, the Restoration Service has already paid the contractor UAH 346.2 million from the first purchase. Despite such costs, active repair work started only in August 2023.

In general, the bridge, if its repair is limited to two purchases, will cost UAH 916 million.

Procurement is changing, but contractors are not

With the expansion of the functionality of the Restoration Services, the range of repairs and purchases has also increased. Along with the customers, the contractors were also “retrained” – from road tenders to the reconstruction of power plants, the construction of water mains, the protection of critical infrastructure objects, and fortifications.

The top favorite companies remain unchanged, only on simplified terms. In 2023, 5 billion contracts under direct contracts and without competitive procurement were awarded to:

• Automahistral-Pivden LLC — UAH 5.4 billion from the Reconstruction Service in Zaporizhzhia region for engineering and construction works on object No. 14 and UAH 5.32 billion from the Reconstruction Service in Dnipropetrovsk region for the construction of a main water pipeline in the Ingulets river — South Reservoir;
• ONUR CONSTRUCTION INTERNATIONAL LLC — UAH 5.36 billion from the Reconstruction Service in the Lviv region for engineering and construction works;
• AVTOSTRADA Group of Companies LLC — UAH 5.3 billion from the Reconstruction Service in the Dnipropetrovsk region for the construction of the Khortytsia main water pipeline (DVS2)—Tomakivka—Marganets.

Thus, companies from the short list of road construction were moved to the list of main reconstruction contractors in the regions.

Multibillion-dollar contracts and the independent determination of executors without tenders are the consequences of paragraph 13 of the Cabinet of Ministers resolution No. 1178, which gives managers of budget funds broad opportunities for procurement. Implementation of procurement monitoring by the State Audit Service, as practice shows, has no particular impact on such procurements.

Therefore, the #1 step for services should be their restarting.

Currently the Ministry of Development of Communities, Territories and Infrastructure and the State Agency for Reconstruction and Development of Infrastructure are actively implementing anti-corruption measures at the highest level. However, they should primarily be implemented in the regions where purchases are made, and reconstruction projects are carried out.

Motorway services under Ukravtodor vs recovery services: what needs to be changed

Recovery services can be an example of how a change in name changes substance. However, the risk of repeating the old schemes remains high.

The services are still working with formal anti-corruption programs, with inactive public councils, and they have completely forgotten about competitions for positions there.

Currently, the average statistical Service is 58-60 employees. The average salary of an employee in 2022 was about UAH 30,000 per month.

Managers have higher salaries — on average 73,000 hryvnias, or 2,000 dollars, per month. According to our data, the most in 2022 were received by the heads of the Services in Khmelnytskyi (1.81 million UAH, or almost 50 thousand dollars), Chernihiv (1.75 million UAH, or almost 48 thousand dollars), Chernivtsi (1.57 million UAH, or almost 43 thousand dollars), Ivano-Frankivsk (1.53 million UAH, or almost 42 thousand dollars) and Ternopil (1.39 million UAH, or 38 thousand dollars) regions.

However, despite the relatively high salaries, there are serious risks of appointing persons with low integrity to the leadership positions of Recovery Services. In 2019, the National Anti-Corruption Bureau detained the head of the Motorway services in the Mykolaiv region while he was receiving a kickback tranche of $90,000. In 2023, the Supreme Anti-corruption Court found the former head of the Motorway services in Khmelnytskyi region guilty of misuse of budget funds during bridge repair.

The transparent appointment of managers should be one of the first steps in the reform of Recovery Services. Currently, at least six Services do not have permanent leaders. Given that the Recovery Services have already started the reconstruction of the first facilities, it is necessary to appoint leaders now on the basis of transparency and with a mandatory background check.

Real anti-corruption programs. Until now, they were formal documents, but they should become strategic tools of risk management.

Currently, the Recovery Services in the regions are actively approving anti-corruption programs.

Here are three key risks and mitigation measures that the Services have added to programs following our recommendations:

• non-publicization of the substantiation of the expected value of the subject of procurement, as, for example, in the procurement for UAH 5.4 billion, which was carried out by the Reconstruction Service in the Zaporizhzhia region. This leads to the impossibility of verifying the reasonableness and expediency of determining such an amount. There is a risk of overestimating the cost of such a purchase, therefore it is important to provide documentary confirmation of the calculation of the expected value of the purchase item;
• non-disclosure of all annexes to the contract, including estimate documentation, when purchasing repair/construction works (services), specifications to the contract. A similar tender for UAH 296 million of the Reconstruction Service in Chernivtsi region makes it impossible to check the compliance of prices with the market level, and accordingly, limits control over the cost and quality of contract execution. This may lead to a potential unjustified overpricing of the purchase item. The measure to minimize this risk is the mandatory publication of estimate documentation, specifications and all other annexes to the contract;
• intentional cancellation of purchases. This is a common practice when the wrong bidder wins in competitive procurement. Thus, the Recovery Service in the Vinnytsia region canceled the tender for UAH 1.1 billion an hour after the announcement of the winner.

Also, the practice of canceling tenders is used as an opportunity to re-announce procurement from one participant. This may indicate the private interest of officials. The way out of the situation is documentary confirmation of the justification for canceling the purchase, as well as ensuring internal control.

It is important that the programs become real safeguards against corruption risks, and not declarative documents. This is possible only if the Recovery Services carry out impact measures in practice to prevent risks. We will monitor this.

Recovery services need to "get out of the bubble" now and take steps to reboot and improve integrity. After all, nowadays they make purchases in such a way, as if the war has already been won and the country has been rebuilt – billions without bidding, millions for cars, multimedia complexes and the improvement of the territory of the Services.

Read this article in Ukrainian and russian.