Analysis and Assessment of the Draft Law on Public Procurement

News | FIGHTING CORRUPTION | Open Government | Analysis 7 September 2022

In June 2022, the draft Law of Georgia on Public Procurement was registered in the Parliament of Georgia. The draft law was prepared by the State Procurement Agency and presented by the government of Georgia. With the adoption of draft law, the existing law of Georgia on state procurement will be declared invalid and a completely new law will be enacted in its place. In addition to the name, the draft law contains many important and radical changes that will transform the existing system of public procurement. According to the explanatory note of the draft law, the project has been developed within the framework of the approximation required by the Association Agreement with the EU, therefore the adoption of the draft law should fulfill the obligations undertaken by Georgia in this regard. Within the framework of IDFI's analysis, we discuss the important changes contained in the draft law and their compliance with the obligations undertaken by Georgia within the framework of various international platforms and the recommendations issued by the local civil sector over the years.

 

Main Findings:

 

- The fact that the purpose of the law includes the promotion of sustainable development, which is reflected and reinforced in the chapter on the rights and duties of the buyer, should receive a positive assessment.

 

- The introduction of the concept of subcontractors, as well as the measures to regulate them, the obligation to introduce them in advance and spreading the conditions of conflict of interest to them, which will help to reduce corruption risks, are all positive developments.

 

- The introduction of the concept of subcontractors, as well as the measures to regulate them, the obligation to introduce them in advance and spreading the conditions of conflict of interest to them, which will help to reduce corruption risks, are all positive developments.

 

- Although the grounds for registration in the blacklist have been expanded, the new law is not able to resolve the challenges of the current legislation in terms of the low referral of buyers for registration in the blacklist and the participation of suppliers registered in the blacklist in the case of a negotiation procedure without prior publication (counterweight to the simplified procurement procedure under the current legislation).

 

- The law defines the modified procurement procedures and tools in general terms, and they will be supposedly specified later in bylaws, which may make the specifics of their practical implementation clearer.

 

- The basis for the creation of a separate body, which according to this bill should be responsible only for centralized purchases, is not explained in detail in the explanatory note. The establishment of a new LEPL requires the mobilization of additional budget and human resources, and the explanatory not does not provide a justification for the need for such additional spending and bureaucracy.

 

- The creation of a new structural unit related to public procurement by the draft law, or the allocation of a special position in the staff list, and the certification of specialists, to some extent become the basis for replacing the collegial review with regard to some purchases by an individual review by this structural unit or the relevant specialist, which may increase the risk of dishonest decision-making and become an obstacle to the timely and fair execution of the procurement.

 

- The new draft law lists the cases that are considered conflicts of interest in a specific purchase in detail and clearly, and the conditions of conflict of interests will also apply to subcontractors. The detailed rules and conditions for the existence of a conflict of interest, as well as the identification and elimination of a conflict of interest by the procuring organization, are to be determined by the decree of the chairman of the agency. Said bylaw has not been adopted yet.

 

Subcontractors

 

The draft law introduced a definition of a subcontractor as an economic operator to whom the main economic operator (supplier) hands over a part of the public procurement contract for execution in accordance with the procedure established by this law. At the same time, the term "other economic operator, whose ability the economic operator relies on" appeared in the law. Of particular importance is the fact that the conditions of the conflict of interests defined by the law, along with the economic operator, also apply to the subcontractor and the other economic operator whose capabilities are utilized by the main economic operator. In addition, if the economic operator intends to use the services of a subcontractor, it is obligated to provide this information to the procuring organization at the stage of submitting a proposal. In such a case, the grounds for disqualification are checked against both the main economic operator and the presented subcontractor.

 

In addition, the procuring organization may require that only the economic operator perform critical obligations, which must be justified in the procurement conditions. The economic operator is obliged to provide the procuring organization with specified information about the change and/or addition of a subcontractor on a mandatory basis. In addition, the detailed rules for the use of a subcontractor are determined by a decree of the chairman of the agency. These changes can be evaluated positively, as they will positively affect the transparency of the procurement system. In the current legislation, such regulations for subcontractors were not considered, which for many years represented one of the risk factors in terms of corruption. As such, establishing this kind of standard of transparency in relation to subcontractors will increase the effectiveness of the control mechanism both from the agency's side and from the civil society's side as well.

 

The problem of non-transparency of subcontractors was also highlighted in IDFI's research, with the organization advocating for the transparency and regulation of such companies in the procurement system. The recommendation is fully taken into account in the draft law–a welcome step.

 

Blacklist

 

The initiated draft law changes and expands the legal bases for and duration of registration of a supplier in the blacklist. In particular, according to the current version of the law, the grounds for registration in the blacklist included only unscrupulous behavior related to state procurement, while with the new draft law, registration in the blacklist of an economic operator becomes possible not only in the case of public procurement, but also in case of other law violations. In addition, the list of possible violations of the bidder in public procurements, which will become the basis for registration in the blackflist, has been expanded.

 

In case of detection of a relevant violation, the economic operator is registered in the blacklist:

 

- for a period of 3 years - in case of conviction for a criminal offense - unless a longer period of prohibition of participation in public procurement is imposed by the court's decision;

 

- for a period of 2 years - due to labor law violations;

 

- for a period of 1 year - due to violation of the obligations of the public procurement contract.

 

The draft law establishes the Agency's authority to request information containing tax secrets or personal data, including special category data, or any other information necessary to determine the existence of grounds for registration in the blacklist.

 

Although the grounds for blacklisting are clearly broadened, the new law does not solve the existing challenges with regard to the blacklist:

 

Registration in the black list is still required based on the application of the purchasing organization and/or the authorized body defined by the legislation of Georgia. Practice shows that in some cases, with violations related directly to the purchase, the purchasing organizations do not address the Agency with requests to register a company in the blacklist. Taking into account that the initiated draft, in addition to procurement-related violations, includes violations that require the gathering and study of additional documentation by the purchasing organization, which requires additional human resources and a high level of control, such a stipulation may remain only a formality. In addition, the draft law specifies that the Agency, not the procuring organization, can request tax secrets or personal data, including information containing special category data or any other information necessary to determine the existence of grounds for registration in the blacklist, which may also complicate the ability of the procuring party to check the economic operator.

 

The inadmissibility of entering into a contract with blacklisted suppliers and the corresponding sanctions in case of using the negotiation procedure without prior publication (counterweight to the simplified procurement procedure under the current legislation) have not been established.

 

The draft law, however, indicates that the detailed procedure for maintaining the blacklist is to be determined by a decree of the chairman of the agency, which is not available at this stage, and therefore, it would be appropriate to regulate similar issues with the aforementioned bylaw.

 

Procurement Procedures

 

The new draft law introduces completely new terms for procurement procedures and defines eight principal procedures. For some of them, only the naming has changed, but the content of the procedure remains the same or changes only slightly. One of the important changes in the draft law is the new regulation regarding the simplified procurement procedure:

 

- Negotiated procedure without prior publication is the substitute for the current simplified procurement procedure. However, some prerequisites are too broad and specific. For example, the procurement carried out by the Center for Reforms and Training of the Georgian Election Administration in election/referendum conditions, in order to conduct the elections smoothly; the purchase of goods and services necessary for the staging and creative activities of state theaters, music centers, artistic institutions, and ensembles;

 

It is still necessary to obtain approval from the Agency for the use of the mentioned procedure in the presence of most of the prerequisites. In addition, the limit of the total value of uniform objects to be purchased from one financing source was increased, and the cases of goods/services and labor, in which the use of the procedure without prior publication is allowed was set at: less than 10,000 GEL in the case of goods or services and less than 20,000 GEL in the case of labor (the limit specified in the current law is 5,000 GEL in both cases);

 

According to IDFI's 2021 assessment of public procurement legislation within the framework of its Transparency Public Procurement Rating (TPPR) project, the number of possible exemptions allowed for simplified procurement under current law remained a problem, making the procurement system less efficient. This problem was also highlighted in the pilot report of the assessment of Georgia's anti-corruption environment by the OECD. The fact that the negotiation procedure without prior publication in the new draft law will be allowed in most of the same cases that were defined by the current legislation, with the addition of some new specific circumstances that increase the grounds for using the simplified procurement procedure, shows that the problem will remain unresolved. In addition, the increase in the total value threshold also increases the risks that the simplified procurement procedure will be used more often.

 

Central Procurement Authority

 

The draft law envisages the creation of a new legal entity under public law - the Central Procurement Authority. According to the transitional and final regulations, the Government of Georgia must create the body, approve its regulations, and appoint its head by January 1, 2027. According to the draft law, the functions of the central procurement authority extend to the procedures for the implementation of centralized procurement. At the same time, the Agency operating under the old version of the law will remain, with a changed name, becoming the Public Procurement Agency and replacing the State Procurement Agency with its functions and duties. The creation of a separate body, which according to this bill should be responsible only for centralized purchases, is not justified in detail in the explanatory note. It is clear that the establishment of a new LEPL requires the mobilization of additional budget and human resources, and the explanatory note does not contain a detailed justification of the need for this kind of additional expense and bureaucracy.

 

Certification of Public Procurement Specialists

 

 According to the new draft law, the procuring organization is obligated to define in the structure of the institution or in the staff list the authorized structural unit or official person carrying out activities related to public procurement. Persons employed in the mentioned structural unit, who will be directly involved in activities related to public procurement, must hold a public procurement specialist certificate. The certificate is issued by the agency based on a certification, and in order to promote it, it is authorized to conduct a relevant preparatory course (certification program). Passing the certification program will not be mandatory, and the program will be paid, with the amount and method of payment to be determined by the decree of the chairman of the agency.

 

Procurement Committee

 

The procurement committee is the equivalent of the tender commission that exists under the current legislation. Similar to the existing commission, the committee is formed by the decision of the head of the purchasing organization. The procurement committee may be created for the purpose of carrying out a specific purchase, or for an indefinite period, although priority is given to creating it for specified or specific types of purchases, taking into account the specialization of the committee members.

 

It is important that, unlike the current version, the new law establishes that procurement may be carried out without a procurement committee, unless the estimated value of the goods/services is 100,000 GEL or more or the object of procurement is such that conducting the public procurement without a committee is not allowed. If the procurement decision was made without a committee, public procurement procedures will be conducted by the unit or official related to public procurement of the procuring organization, and the decision will be taken either by the head of the procuring organization or by the deputy head of the procuring organization designated by them. As such, the creation of a new structural unit related to public procurement, or the allocation of a special position in the staff list, and the certification of a specialist, may to some extent become the basis for not conducting a collegial review in connection with some procurements, which may increase the risk of dishonest decision-making and become an obstacle to the timely and fair completion of a procurement. In addition, the frequent use of such a procedure may lead to a burden on human resources and to delays in the timely completion of procedures.

 

Dispute Resolution Board

 

The appeal procedure of the dispute resolution board still provides for the right to appeal to the board the decision/action related to the negotiation procedure (simplified procurement procedure) without prior publication. Such a claim can only be made if the value of the purchase is equal to or exceeds the monetary thresholds established by the legal acts of the European Union. The decision/action of the procuring entity is not subject to appeal if a procurement contract has already been concluded, although this stiputlation does not apply to the procedure for negotiations without prior publication. In addition, the right to appeal is governed by procurement procedures.

 

The new draft law clearly defines the rules for the appointment and early dismissal of the members of the board. In 2020, IDFI produced a review of the then-existing board. Recommendations were prepared as a result of the analysis, which have been taken into consideration in the draft law. Among other recommendations were: Writing the detailed rules of appointment and dismissal not in a bylaw, but in the law itself; Increasing the term of office of members and raising their qualification requirements; As well as other proposals, the main goal of which was to increase the degree of independence of the board.

 

Conflict of Interest

 

According to the draft law, a conflict of interest includes any case where a person employed in a procuring organization and/or economic operator, who participates in public procurement, acts on behalf of the procuring organization, and can influence the outcome of procurement procedures, has a direct or indirect financial or other personal interest, which may endanger its impartiality and independence of the process during the implementation of a public procurement.

 

In the current version of the law, one article deals with conflict of interest, which defines the conditions for avoiding the conflict of interest, refers to Article 19 of the Tax Code (interdependent persons), and supplements the rules for avoiding conflict of interest during electronic tendering and simplified procurement with bylaws.

 

The new draft law lists clearly and in detail the cases that are considered a conflict of interest during a specific procurement. Specifically, when is a conflict of interest arises during the implementation of a specific public procurement with a member of the procurement committee/jury and/or its staff, an expert, a consultant, a person responsible for the control of the execution of the procurement contract, and another authorized person of the procurement organization who is involved in activities related to public procurement.

 

The terms of relative and control are again defined according to Article 19 of the Tax Code. The procuring organization is obligated, according to the decree of the chairman of the agency, to publish in the electronic system information about the authorized person of the procuring organization involved in the activities related to public procurement during the implementation of a specific procurement. These persons again confirm in writing the absence of conflict of interest, and in case of one, they must immediately apply for self-recusal. It is obligatory to upload these protocols to the electronic system and make them public. In addition, the economic operator itself has the right to raise the issue of the exclusion of the above-mentioned persons, if it faces a conflict of interest. The fact that, according to the new law, the conditions of conflict of interest have been extended to subcontractors as well, which ensures the reduction of corruption risks in cases of their use, is of particular importance. The detailed rules and conditions for the existence of a conflict of interest, as well as the identification and elimination of a conflict of interest by the procuring organization, are determined by a decree of the chairman of the agency. Said bylaw has not yet been adopted.

 

Conclusion

 

The procurement draft law includes many important changes that will transform and improve the existing system, while ensuring the fulfillment of obligations under the Association Agreement. Changes such as the introduction and regulation of the concept of subcontractors; Introducing new rules for the independence of the dispute resolution board and creating an apparatus for the board and providing financial resources; Listing in detail and clearly the cases of conflicts of interest in the context of procurement, should all be positively highlighted. Mentioning the achievement of sustainable development goals in the principles of public procurement is also a welcome step.

 

Nevertheless, there are issues in the draft law that need improvement. Despite the expansion of the grounds for registration in the blacklist, the low rate of buyers referring companies for registration in the blacklist remains a problem, and the new draft law does not provide for the possible mechanisms to resolve it in the form of an obligations for referral and subsequent control. The creation of a separate body responsible for centralized procurement, which would require additional financial and administrative resources, is not sufficiently justified.

 

In recent years, the most problematic aspect of public procurement was the high rate of procurement carried out in a simplified manner, which was especially noticeable during the pandemic. The new draft law does not solve this problem, because the negotiation procedure without prior publication will be allowed in the same cases as those defined by the current legislation.

 

According to a previously published assessment by IDFI, there was no consultation mechanism between the public sector and civil society, through which it would be possible to conduct a dialogue about the problems found in the public procurement system. The draft law does not provide for such a mechanism.

 

Within the scope of various studies by IDFI, it was observed that the electronic procurement system needed to be improved in order to better take into account the problems and recommendations of the monitoring organizations with the information posted on the portal.

 

One of the issues frequently highlighted in IDFI’s research in relation to transparency in the electronic system was the publication of public information in an open, machine-readable format. This should be clearly defined in the legislation, because at this stage the obligation to publish public procurement data in the electronic system is only included in a generalized form. It should be noted that the mentioned obligation was also taken within the framework of the 2018-2019 action plan of Georgia for the Open Government Partnership. 2019 was set as the completion date, but the project could not be completed. As such, publishing information in an open, machine-readable format will help fulfill international obligations as well. It is necessary to write this obligation at the level of the law within the framework of the new bill. At this stage, this requirement is not fulfilled. It is also important to fully implement the principle of open contracting in the public procurement system in accordance with the Open Contracting Data Standard (OCDS).

 

Various studies by IDFI have repeatedly noted the practice of not publishing simplified procurement contracts by several agencies in the public e-procurement system. At this stage, the portal still does not contain simplified procurement contracts of the Administrationof the Government and Ministry of Internal Affairs after 2019. The mentioned problem has remained unsolved for years, which is why it is appropriate for the new law to strengthen the provision for the publicity of contracts, both from the side of the procuring organization and the Agency, and to this purpose, to ensure the introduction of certain types of mechanisms to influence the process at the legislative level.

 

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This material has been financed by the Swedish International Development Cooperation Agency, Sida. Responsibility for the content rests entirely with the creator. Sida does not necessarily share the expressed views and interpretations.

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