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14.11.2023 News

Expectations and Reality of the Public Procurement Law

On November 13, 2023, a presentation of the draft Public Procurement Law was held in the Mazhilis of the Republic of Kazakhstan by Deputy Minister of Finance, Dauren Maratuly Kenbeil.

Several questions arose immediately, namely:

  • WHERE CAN ONE ACCESS THE LATEST VERSION of the draft Law, which was presented in the Mazhilis and is not available to the general public and independent procurement experts?
  • WHO IS PART OF THE WORKING GROUP FROM PUBLIC ORGANIZATIONS involved in the development of the law?

Our questions regarding the presentation of the public procurement law:

💰 On September 1, 2022, the Head of State K.J.Tokayev instructed the Government to merge two procurement platforms into one (purchases of state bodies and organizations with purchases of the quasi-public sector, namely Samruk-Kazyna). More than a year has passed, and a roadmap with deadlines for transitioning to a unified procurement platform has not yet been provided to the public.

  • What work has been done and what solutions are proposed? Who will provide a clear answer?
  • Why doesn’t the Ministry of Finance of the Republic of Kazakhstan raise the issue of unified regulation of all purchases by the state and quasi-state sectors?

💰 The Ministry of Finance of the Republic of Kazakhstan wants to fully automate the public procurement system with the introduction of a rating-point system. One of the deputies asked whether this system could lead to the monopolization of the market?

It should be noted that this system has ALREADY BEEN IMPLEMENTED for selecting winners of construction contracts, and the decisions of this automated system CANNOT BE APPEALED, making the process not transparent FOR EXTERNAL ANALYSIS!

  • Where can one find information about the ranking formula for public procurement participants and what indicators (weights) are considered when calculating the total score?
  • Who calculates these weights and how? Are the ranking formulas determined by an employee of JSC “Center for Electronic Finance”? Won’t this contribute to corruption schemes? If the calculation is done by a person, then this concept cannot fully eliminate corruption risks.
  • What mechanisms are there to counteract this potential risk?
  • What country’s experience does the Ministry of Finance of the Republic of Kazakhstan use in promoting such an understanding of the automation of winner selection?
  • Will the ratings consider the results of monitoring previous procurements, identified violations, and inconsistencies in work? For example, if a Supplier is found to have built roads that deteriorate and do not withstand the warranty period, then the rating of such a supplier should decrease considering such violations.

💰 The proposal by the Deputy Minister of Finance of the Republic of Kazakhstan raises significant concerns, suggesting that if, as a result of compliance checks with technical requirements of the tender, only one company remains, it could be awarded the victory. We believe this is a covert form of single-source procurement, as the draft Law does not provide a system of checks and balances to manage corruption when an unscrupulous procurer can create excessive technical requirements tailored for a specific supplier. Using this approach, the procurer can easily disqualify all competitors of their “chosen” Supplier as not meeting the technical requirements of the tender.

💰 It was surprising to see HOW the Ministry of Finance of the Republic of Kazakhstan interpreted the President’s instruction to create an independent appeal mechanism in public procurement.

The Ministry’s proposed mechanism is in the form of a commission within the procurement organizing body. This results in a conflict of interest, where the Client, in case of a complaint against themselves or the procurement organizer, must impose administrative sanctions on themselves!

A more appropriate solution would be to establish a pre-trial appeal commission under the Agency for the Protection and Development of Competition of the Republic of Kazakhstan, which is NOT SUBORDINATE to the Ministry of Finance and is obliged to protect the competitive environment in the government procurement market.

💰 Deputies raised a very important issue regarding the responsibility of State Clients for violations in public procurement. In this context, we draw your attention to the fact that increasing the responsibility of State Clients requires the Ministry of Finance of the Republic of Kazakhstan to be accountable for the professionalism of civil servants.

The Ministry of Finance did not consider in the new draft law the requirements for professionalizing procurers, which is an effective tool in the fight against corruption.

💰 The comment made by a representative of a business association was apt, highlighting the inadmissibility of a framework format for the law, where the main principles of conducting and operating public procurement will be detailed in subordinate acts of the Ministry of Finance of the Republic of Kazakhstan.

This could lead to a serious decline in work quality, as seen in the following example of public monitoring of public procurement for road repairs.

Order of the Chairman of the Committee of Automobile Roads of the Ministry of Industry and Infrastructure Development of the Republic of Kazakhstan dated December 21, 2018, No. 131 “Recommendations for determining the inter-repair periods of structural elements of automobile roads, including path conditions after construction, reconstruction, major, medium, and current repairs.”

This order provides a recommended nature for warranty periods for road repair and construction. However, there are glaring instances where, during current road repairs, a zero warranty period is set for multimillion contracts!

Also, when one ministry introduces certain concepts (current, medium repair) and at the same time there are no quality state standards defining these works, it all leads to poor quality of work.

Response from the State Architectural and Construction Supervision Authority of the West Kazakhstan Region on the expertise of medium road repairs: “Due to the absence of the concept of ‘medium repair’ in the industry legislation, there is no mandatory requirement for the development of design (design and estimate) documentation subject to assessment by external expertise, notification of the beginning of construction and installation works to the state architectural and construction control authorities, supervision by author and technical inspections, and declarative acceptance into operation. The state architectural and construction control authorities carry out their activities in accordance with the norms of the Law of the Republic of Kazakhstan ‘On Architectural, Urban Planning and Construction Activity in the Republic of Kazakhstan’ (hereinafter referred to as the Law), the Entrepreneurial Code of the Republic of Kazakhstan, the Code of the Republic of Kazakhstan ‘On Administrative Offenses.’ The list of criteria subject to state control is given in paragraph 3 of Article 31-1 of the Law. Due to the lack of regulation in the industry law and corresponding requirements for the implementation of ‘medium repair,’ this type of work is not subject to state control and supervision as outlined in the Law.

ANALYTICS: According to the analytics module of public procurement in the Republic of Kazakhstan, let’s consider the following works related to the repair and construction of roads (name of works):

  1. Construction works for the construction of highways (except overhead), roads, streets, other automobile and pedestrian roads, and airstrip lanes at aerodromes
  2. Works on major restoration repair (MRR)
  3. Works on the reconstruction of the automobile road
  4. Works on the repair of the automobile road
  5. Works on the repair of the pedestrian road
  6. Works on the construction of the automobile road
  7. Works on the construction of the pedestrian road
  8. Construction works on the reconstruction of the automobile road
  9. Construction works on the construction of the automobile road
  10. Works on the maintenance of the automobile road
Works on the repair and construction of roads, according to the list above (10 types of works) 202120222023
Total amount (billion tenge)4444771 099
Number of contracts (thousands)6,76,177,59
Number of lots (thousands)10,4912,5515,34
Number of Clients (thousands)1,011,921,98
Number of Suppliers (thousands)2,582,522,51
With a small increase in the number of contracts, it is noticeable that the sum of contracts in 2023 increased by 2.3 times compared to 2022, and by 2.5 times compared to 2021.
What is the reason for such growth?????

 According to common sense, when building or conducting major repairs of roads, a warranty period should be established during which any damage must be repaired at the supplier’s expense. Considering this, questions arise: WHERE do current and medium repair works come from, and why are they NOT COVERED by those who built/conducted major repairs? Therefore, it is necessary to EXCLUDE WORKS ON CURRENT AND MEDIUM REPAIR OF ROADS in public procurement, leaving only MAJOR road repairs, as only this type of work can be quality checked by the State Architectural and Construction Supervision Authority.

💰 Recently, published news that for solving the problem of poor roads in Kazakhstan, financing of over 2 trillion tenge will be obtained from the Eurasian Development Bank. However, to date, the state at the local level cannot ensure proper quality of road repairs for current and medium repairs, and there is no guarantee that the funds received from the EBRD will be spent efficiently and not embezzled.

We also draw attention to the fact that all contracts for road construction, funded by the EBRD, will not be regulated by the public procurement law according to paragraph 9 of Article 1 of the draft new law:

“Article 1. Scope of this Law

This Law applies to relations associated with the procurement of goods, works, services necessary for the functioning, as well as the performance of state functions or statutory activities of the client, except for:

9) goods, works, services acquired within the framework of implementing investment projects financed by international organizations, of which the Republic of Kazakhstan is a member. The procurement of goods, works, services within the framework of implementing investment projects, fully or partially financed by other foreign banks, is carried out according to the rules of these banks provided that the following conditions are cumulatively met:

  • the foreign bank has a long-term credit rating in foreign currency not lower than “A-” by Standard & Poor’s or a rating of a similar level from other rating agencies;
  • more than fifty percent of the financing is provided by foreign banks;
  • the implementation of the investment project is carried out by state enterprises, legal entities, fifty and more percent of the voting shares (participation shares in the charter capital) of which are owned by the state, and legal entities affiliated with them;
  • the implementation of the investment project does not require a state guarantee and does not entail encumbrance of the borrower’s property.

It turns out that we, as the people, will be repaying the loan taken from the Eurasian Development Bank, but at the same time, we will not be able to control the procurement, as all contracts for road construction will not be regulated by the public procurement law! This contradicts the position of the deputies of the Parliament of the Republic of Kazakhstan, who demand transparency and the possibility of civil control from the Ministry of Finance of the Republic of Kazakhstan.

💰 In the draft of the New Law, the requirement that, in tenders for construction works, especially for EPC contracts, the state client must publish the project and estimate documentation (PED) on the public procurement portal has been removed. This creates opacity for public monitoring of the prices at which equipment and materials for such large projects are purchased.

We have a big question about the fairness of the cost of constructing the Oncology Center in Astana, where procurement is made from a single source, and the winning supplier, Swiss company B&A CONTRACTORS SA, has received contracts amounting to 147 billion tenge from the Ministry of Health of the Republic of Kazakhstan since 2019. The Ministry of Health does not publish the PED on the portal for unknown reasons, violating the current Law on Public Procurement. Now, with the adoption of such a Draft Law, the transparency of such megaprojects, where the state order will be placed through a single-source method, will become the norm and obviously a “step back” in increasing transparency in public procurement. So, if there is no PED, what can the public monitor?

💰 The head of JSC “Center for Electronic Finance” spoke about the use of Artificial Intelligence in the automation of public procurement, but the obvious problem of converting PED from PDF format to machine-readable text remains unnoticed. This conversion of data would allow the use of data analysis modules from the public procurement portal for comparative price analysis and would greatly support controlling state bodies and public monitoring of procurement. Unfortunately, the Ministry of Finance of the Republic of Kazakhstan does not talk about this problem of creating such valuable data, which could be processed by various analytical systems.