DIGITISED TENDER

The Law on Public Procurement recently approved by President Ilham Aliyev will come into force on January 1, 2024. From that day  on, the sector will start a new life. Public procurement in Azerbaijan has long been considered one of the most problematic and non-transparent areas of public finances. International and local experts have repeatedly noted the weak level of the legal framework impeding the conduct of fair and competitive tenders. The lack of free access to necessary information about market participants and the availability of options to protect select companies hindered the creation of a competitive environment. The new law is designed to eliminate shortcomings and human factor in selecting winners as much as possible through digitalisation of the selection stages. 

Negative experience

Last year, one of the reports of the World Bank (WB) identified several problems in the public procurement sector of Azerbaijan. These include an excessive number of direct single-source contracts, a large number of unsuccessful bidders in open tenders, and the limitations and lack of flexibility of the current e-procurement system. WB also noted the lack of proper public control and access to information related to procurement and the need to improve the professionalism of experts in this area.

In fact, the deficiencies in this area have been noted earlier by local experts, deputies, and state officials, who regularly criticised the current state of affairs in this system.

The high proportion of errors related to accounting and reporting in this area was also pointed out in one of the reports of the Accounts Chamber on the results of an audit carried out in various institutions. There are cases when purchased goods and materials have not been used due to changes in the purpose of public funds, funds (especially investment expenditure) have not been used, and demand has been determined incorrectly.

Another interesting point pointed out by the experts of the Accounts Chamber is a risk that the procurement tender will be won by bidders who can hardly fulfil their obligations, despite the computerised access access to information on tenders. This can ultimately slow down the whole process, lead to low quality of goods and services, and in some cases may even end up with the winner's refusal to fulfil obligations under the contract.

As MP Ali Masimli noted earlier, there are a few stereotypes about public procurement in Azerbaijan: "Sometimes officials influence procurement in favour of a certain company. Or an official makes a direct telephone call to cancel the result of the tender in favour of the company or person close to him".

Another deputy, Gudrat Hasanguliyev, added his dissatisfaction that often the goods are purchased from middle agents rather than directly from the manufacturer. He also noted the facts about million-dollar orders made by a company established just two months before the tender was announced.

Mammad Abbasbeyli, head of the State Service for Antimonopoly Control and Consumer Market Control under the Ministry of Economy, said that last year alone about 14% of protocols related to violations of the public procurement law were cancelled.

These shortcomings have a negative impact on the statistical indicators of this sector. As stated by the Accounts Chamber on the draft Law on the Execution of the 2022 State Budget and the Annual Report on the Execution of the 2022 State Budget: "The reporting year saw an increase in the amount of procurement funds amid the growing GDP and state budget expenditures. Compared to 2022, the procurement to GDP ratio decreased by 1.5 percentage points (p.p.), while the ratio to expenditure decreased by 0.8 p.p. to 5% and 21.1%, respectively. These ratios are the lowest in recent years." While the first decline can be explained by the high volume of GDP due to high oil prices, the fall in the other indicator raises questions. Indeed, in most countries public procurement accounts for 30-42% of the state budget. It has been identified that such low figures are due to the lack of proper registration and accounting associated with the single-source procurement method.

The need for a new law and oversight mechanism has not been even discussed, so many the problems in this sector were.

Details of the new law

The new regulatory act defines the economic, legal and organisational framework and rules of public procurement in Azerbaijan and will come into effect on January 1, 2024. The main concern of the document is to ensure that purchases are made exclusively through digital platforms. According to M. Abbasbeyli, the improvement of the digital platform for public procurement is in the final stage. With the support of partner companies, the digital platform is supplemented with AI mechanisms. It is expected that all these measures will contribute to the automation and acceleration of processes, increase transparency and provide equal opportunities for all tender participants.

In addition, the law introduces new control and supervision mechanisms, simplifies the procedures and reduce bureaucracy to increase competition among suppliers, providing better conditions for conducting business. It is also planned to reduce the amount of state fees and other payments for the tender participation.

The document clearly specifies the planning and stages of procurement, the establishment of the procurement commission and its responsibilities, vendor eligibility indicators, bid evaluation, report preparation and other contract requirements, including conditions for termination of the procurement.

By the way, the procurement commission may not limit the participation of suppliers in procurement, nor may it define discriminating requirements, criteria and procedures. Thus, suppliers legally, financially or organisationally depending on the procurement organisation are not allowed to participate in the process. The same is true if both the organisation and supplier represent the same institution, if one supplier is the beneficial owner of the other, or if at least two suppliers are controlled by the same beneficial owner. Bidders being in relations with the head of the procurement organisation may not become the winners of tender either.

In addition, according to the chairman of the parliamentary committee on economic policy, industry and entrepreneurship, Tahir Mirkishili, to ensure more effective control over public procurement, the bill expands the powers of the controlling body. Thus, one of the important points is the inclusion of suppliers in the register of invalid suppliers by a motivated decision, the possibility of cancelling the results of procurement in line with the law before the purchase contract takes effect, ensuring individual responsibility for wrongful acts (inaction) of the chairman or other members of the procurement commission.

The Cabinet of Ministers has been instructed to prepare and submit to the president a draft law defining the types of liability for violations of the law on public procurement. In this context, the State Service for Antimonopoly Control calls on entrepreneurs to report violations during tenders. "Sometimes my friends call me, asking to solve their problem. I advise them to write a letter. If your rights have been violated, you should report the case officially. But they answer me that they don't want to write a complaint, otherwise they won't be able to work with that very institution or company," M. Abbasbeyli said. He believes that in order to solve problems related to public procurement in Azerbaijan, all state organisations should demonstrate good will. "If there is an unscrupulous participant of the tender commission in a state organisation, it is difficult to expose him. We cannot install cameras in every room. Solutions to problems will be incomplete until people in organisations demonstrate good will," the head of the State Service for Antimonopoly Control said.

In general, experts place high hopes on the new law in terms of involving businesses in the procurement process, providing quality services and preventing evasion of payments to the state budget. "The law is perfect, the main thing is to ensure its operation. It is safe to say that it will be possible to ensure transparency in public procurement if interested persons and parties do not allow imitation and abuse of the law," said Vugar Oruj, chairman of the Azerbaijan Society of Appraisers.

Thus, another step has been taken to solve important problems for the development of entrepreneurship in Azerbaijan, to esnure fiscal transparency and the resulting increase in budget revenues. The main thing, as the expert said, is for the law to work as necessary.