OBJECTIVE CHOICE

Nearly six months have elapsed since the enactment of the new legislative act that delineates the economic, legal, and organizational framework, as well as the regulations governing public procurement in Azerbaijan. Historically, this sector was perceived as one of the most opaque and enigmatic segments of our economy. In 2023, the aggregate volume of public procurement in Azerbaijan amounted to ₼7.5 billion, and projections for this year indicate an increase to ₼8 billion.

The "wind of change" felt by local businessmen and the additional challenges that regulatory authorities must address were topics of discussion in Baku at the 1st Summit of Supply Chain Leaders.

Competition As the Driver of Business

Mammad Abbasbeyli, the head of the State Service for Antimonopoly Control and Consumer Market Supervision, emphasised that establishing a highly competitive economy is paramount for Azerbaijan's economic stability and is essential for stimulating entrepreneurship.

"Our state has implemented significant measures in this regard. We have ratified the Competition Code, and substantial strides are being made to enhance the business climate and foster transparency. Competition serves as a crucial catalyst for small enterprises to evolve into larger entities," M. Abbasbeyli remarked.

"In the contemporary era, with economies becoming globalised, it is unfeasible to realise the strategic aims and economic goals of the state without deepening business relations and forging partnerships with the private sector. This enhances the shared accountability of all supply chain stakeholders and lays the groundwork for economic advancement," declared Orkhan Mammadov, Chairman of the Board of the Small and Medium Business Development Agency (KOBIA). He believes that the prevailing socio-economic stability and the trend towards sustainable development necessitate a modernised approach to supply chain management.

What exactly is the supply chain? In economic terms, it is defined as the orchestration of the movement of goods, data, and finances related to a product or service, spanning from the procurement of raw materials to the delivery of the final product. The components of a supply chain are not always geographically proximate. The determining factor is which company offers the most advantageous terms to the brand owner.

Azerbaijani firms, particularly small and medium-sized enterprises (SMEs), have yet to engage significantly in such global supply chains. Is it worthwhile, considering the requisite multitude of inspections and other factors? Local tenders, however, garner considerable interest, especially regarding government procurement, where typically, advantageous and enduring contracts are proposed. The victor secures not only a lucrative financial opportunity but also a substantial enhancement of its market reputation, which is paramount for a company's growth trajectory.

Digitised Tender

Until recently, the public procurement segment was a primary grievance among local businessmen. Both international and domestic experts have consistently highlighted the frailty of the regulatory framework, which impinged upon the execution of equitable and competitive tenders. The absence of open access to essential information about market participants and the potential for favouritism towards certain companies impeded the establishment of a competitive milieu.

A novel law was instituted in January of this year, aimed at rectifying deficiencies and minimizing the human element in the tender winner selection process through the digitalization of the selection phases. The pivotal mandate of the new legislation is the exclusive execution of purchases via digital platforms. It also stipulates the introduction of novel control and oversight mechanisms, along with the simplification of procedures and the diminution of bureaucracy. These measures are anticipated to intensify competition among suppliers, thereby cultivating more favourable business conditions.

"Conducting tenders through e-procurement significantly contributes to the enhancement of transparency and legitimate competitiveness in public procurement, engendering propitious business circumstances for micro, small, and medium-sized entrepreneurs," Mammadov articulated. He underscored the importance of an equitable approach to tenderers, objectivity, and impartiality in selecting a business partner, collaboration predicated on mutual advantage, a consensual allocation of authority, responsibilities, and risks, and the parity of the state and business in the eyes of the law. "Overall, our nation has established conducive conditions for business entities' participation in this process, particularly enabling SMEs to reap benefits from these projects as beneficiaries," the head of KOBIA affirmed. He indicated that within the supply chain, a government-business partnership is an efficacious instrument for the optimal apportionment of risks, responsibilities, and revenues among the involved parties.

Furthermore, Tahir Mirkishili, the chairman of the Milli Majlis Committee on Economic Policy, Industry, and Entrepreneurship, observed that the legislation broadens the powers of the oversight body to bolster control over public procurement. A salient feature is the registry inclusion of suppliers deemed invalid by a substantiated decision, the prerogative to annul procurement outcomes in compliance with the law prior to the purchase contract's activation, and the imposition of individual accountability for the wrongful deeds (or non-actions) of the procurement commission's chair or other members.

Abbasbeyli disclosed that nine Azerbaijani companies have been included in the register of unreliable suppliers. Consequently, they are precluded from participating in public procurement for a duration ranging from three months to three years. "I urge the blacklisted companies not to perceive it as a menace. Instead, they should view the exclusion period as an opportunity to identify and rectify deficiencies," Abbasbeyli advised.

Problems and Solutions

Regarding the obstacles encountered by businesses, it was revealed at the summit that the predominant issue is often a lack of clarity regarding the tender process itself. Current regulations mandate that suppliers submit pertinent documentation for assessment by the procurement organization. These documents attest to their capability to furnish goods, works, and services for a specific tender call. Abbasbeyli noted that occasionally, participants fail to provide basic financial statements of the company, among other required documents.

It is imperative for entrepreneurs to ascertain the precise nature of the procurement subject, acquaint themselves thoroughly with the tender documents, and comprehend fully what is expected of them and how the procurement procedure will unfold. Moreover, they must ensure that the value proposition they present aligns realistically with an objective and efficient selection process.

"We often witness entrepreneurs grappling with the document preparation quality, and at times, they tender a bid when their qualifications fall short of the stipulated tender conditions. Additionally, the expertise and proficiency of personnel tasked with managing supplier contracts in subsequent stages frequently do not meet the expected standards. Timely contract fulfilment and adherence to all quality stipulations are critical evaluation metrics. In this context, the business sector ought to consider its managerial and human resource capacities," Orkhan Mammadov highlighted.

The Law on Public Procurement meticulously outlines the procurement planning and stages, the constitution of the procurement commission and its responsibilities, suppliers' compliance benchmarks, bid evaluations, report drafting, and other contractual stipulations, including termination conditions. It is imperative to recognize that, barring exceptions specified by this law, the procurement commission is prohibited from restricting supplier participation in procurement or from establishing discriminatory requirements, criteria, and procedures. Consequently, suppliers with legal, financial, or organizational ties to the procurement entity are barred from participation. This exclusion also applies if the entity and supplier share an institutional affiliation, if one supplier holds beneficial ownership over another, or if two suppliers are under the control of a single beneficial owner. Additionally, the likelihood of tender victory is nullified for contenders with familial ties to the head of the procurement organization.

Simultaneously, SMEs persist in facing challenges in distributing their products through expansive retail chains. "KOBIA has acquired multiple shelves in such supermarkets and allocated them to SMEs, yet the issue persists. Moreover, there are instances where supermarkets are established in locations not conducive to profitability, challenging micro and small businesses," Mammadov expressed.

Nonetheless, advancements in procurement are evident, not solely in the burgeoning volume of public procurement but also in the escalating number of contenders per tender. The count has begun to surpass the minimum threshold of three bidders, signifying a bolstered confidence in the tendering process among companies. Notably, the range of entities participating in tenders within territories reclaimed from occupation varies between 12 to 17. "This surge in interest is a highly encouraging development. We are heartened by the entrepreneurial vigour in these liberated regions. We anticipate this dynamism will continue to flourish, inspiring further entrepreneurial initiatives in these areas," Abbasbeyli remarked.

In essence, the rejuvenation and resurgence of the state procurement sector and the proactive engagement of the supply chain in economic activities are progressively accelerating.