New Procurement Law of Kazakshtan20 april 2016, 16:24
GRATA Finance & Securities Group has released a legal alert covering important legal developments in the Kazakhstani legislation that occurred in 2015.
Most of the changes were introduced in the legislation pursuant to adoption in May 2015 of a new policy document – the Plan of the Nation: 100 Steps for Implementation of 5 Institutional Reforms – governing the development of Kazakhstan in the short-term perspective.
The legal review covers the following areas:
1. Law on Corruption Countermeasures
2. New Civil Procedure Code
3. Law on Astana International Financial Center
4. Law on Judicial System
5. Law on Supreme Judicial Council
6. Resolution on Application of Bankruptcy and Rehabilitation Legislation by the Courts
7. New Commercial Code
8. PPP Law
9. Law on WTO Accession
10. Law on Special Defensive, Antidumping and Compensational Measures
11. Law on Ownership Right Further Protection
12. Law on Amendments to Electric Power Industry
13. Law on Amendments Related to Non-performing Loans, Financial Services and Financial Organisations
14. Law on Agricultural Cooperatives
15. Privatisation Decree
16. Rules of Electronic Trades
17. New Procurement Law
Each of them is addressed in a separate release on our website, whereas the today’s release - the final one - deals with the new Procurement Law of Kazakhstan.
NEW PROCUREMENT LAW
The new Procurement Law (Law of the Republic of Kazakhstan “On Public Procurement” dated 4 December 2015 no. 434-V) has been enacted from 1 January 2016 and replaced the previous law of the Republic of Kazakhstan “On Public Procurement” no. 303-III dated 21 July 2007.
The new Procurement Law is aimed to resolve issues arising for the entrepreneurs in the course of state procurement procedure and address corruptions risks, such as extra regulation of state procurement process, abuse by purchasers – subjects of state procurement (generally, state bodies and state companies) and absence of effective mechanism of challenging purchasers’ decisions, absence of effective mechanism to exclude bad faith suppliers from participation in state procurement process.
In addition, the new Procurement Law has been developed to make Kazakh legislation compliant with international treaty on Eurasian Economical Union executed between the Republic of Kazakhstan, Russian Federation and the Republic of Belarus.
Simplification of Tender Procedure
Previously in case of procurement by the way of tender, only the suppliers who suggested the so called “best technical specification” were admitted to submit price proposals to the purchasers – subjects of state procurement. The “best technical specification” meant the specification of goods, services, works to be purchased the characteristics of which were better than standard specification required from all suppliers in the tender documentation. This provision restricted competition since inly limited number of suppliers could suggest “the best technical specification”. In addition, it gave grounds for corruption since the procedure of recognising the suggested specification as the “best” was not transparent and purchasers-subjects of state procurement could easily have recognised any supplier as suggesting “the best technical specification” basically at their discretion thus unfairly awarding them the tender.In the new Procurement Law, the concept of “the best technical specification” is excluded. Now tender applications of all suppliers who suggest equal technical specification required by purchasers shall be considered.
Further, tender procedure has been simplified by inclusion of price proposal to tender application (previously, price proposal could be submitted only after tender applications have been considered and suppliers suggesting the “best technical specification” have been identified). This amendment will allow to expedite the tender procedure.
New Competitive Tender with Preliminary Selection
The new Procurement Law introduces the new way of conducting of public procurement – so called “competitive tender with preliminary selection” (konkurs s predvaritel’nym otborom). Competitive tender with preliminary selection consists of two steps: (i) establishment of register of qualified suppliers by types of goods, works and services that will be regularly updated. Commission for establishment of such register will mandatorily include representatives of the National Chamber of Entrepreneurs and other non-governmental organisations for protection of potential suppliers’ interests; and (ii) competitive tender among qualified suppliers included to the register.
Currently, it is necessary to select qualified suppliers before conducting every tender and, accordingly, the suppliers have to provide the same documents from tender to tender. The described approach will expedite the procurement process by avoiding such necessity (since the register of qualified suppliers will already be in place based on the document provided by the suppliers once). The new competitive tender with preliminary selection will be introduced from 1 April 2016.
Simplification of Auction Procedure
Previously, auction consisted of three main stages: (i) verification of auction applications for compliance with technical specification and existence of application security (cash deposit or bank guarantee); (ii) auction by best price offered; (iii) verification of compliance of auction participants with qualification requirements. The new Procurement Law simplifies the auction procedure, so that now it consists of two stages: (i) verification of auction applications for compliance with technical specification and of action participants on compliance with qualification requirements and (ii) auction.
The described simplifications aims to decrease the time of conduction the auction and, more importantly, to exclude the possibility of refusal of application that won the auction by the best price at a later stage on the ground on non-compliance with qualification requirements.
Abolishment of Exclusions to State Procurement Process
Previously, there was a list of goods, services, works that have been excluded from state procurement requirements and could be purchased by the purchasers – subjects of state procurement directly, by signing of relevant agreement with relevant supplier (e.g., if the total annual value of the purchased goods/services/works does not exceed 2,000 monthly calculation indexes or approximately USD 12,000 (USD/KZT exchange rate as of 31 January 2015), mass media goods/services/works, employees education etc.) Under the new Procurement Law, such exclusions have been abolished and most of earlier excluded goods/services/works shall be now purchased through so called “purchase from one source” procedure. In order to make such procedure more transparent, the new Procurement Law requires the purchasers – subjects of state procurement to place on the state procurement website the report on purchases of goods/services/works made “from one source”. Such report shall contain the detailed justification of choice of the particular supplier and contain information on the price and other major terms of the agreement concluded with the relevant supplier.
Public Discussion of Draft Tender Documentation by Potential Suppliers
Importantly, the new Procurement Law introduces mandatory condition of tender documentation approval: the preliminary public discussion of the draft tender documentation by potential suppliers. Any comments on the draft of tender documentation, as well as requests for clarification of the tender documentation, can be addressed by the potential suppliers to the purchaser – subject of state procurement, organiser of state procurement, the unified organiser of state procurement (Legal entity authorised to organize and conduct state procurement procedures) not later than five working days from the date of publication of the public procurement announcement. The mentioned entities shall consider comments and questions of the potential suppliers and either amend tender documentation accordingly or decline comments and provide the reasons for declining. Any such decision may be challenged by the potential suppliers. This amendment will allow potential suppliers to preview draft of tender documentation before it is approved and in case of identification of any issues may request amendments of tender documentation by the purchaser – subject of state procurement. This amendment is also aimed to address the frequent situation when the purchasers tailored tender documentation for particular suppliers.
Clarification of Complaint Procedure
The new Procurement Law clarifies the procedure for challenging of state procurement procedures by the suppliers. In particular, the new Procurement Law clarified that potential supplier may submit a complaint to the authorised body the actions (failures to act) and decisions of purchaser, organiser of state procurement, the unified organiser of state procurement, relevant commissions, experts, and the unified state procurement operator not later than within 5 business days from the date of publication of the minutes on results of state procurement by the way of tender/auction. The state procurement contract can be concluded inly upon expiry of 5 business days period within which a complaint can be filed. In case the complaint is indeed filed by the potential supplier, the conclusion of state procurement contract shall be further postponed until the complaint has been considered by the authorised body. The complaint shall be considered within 10 business days.
Amendments Related to State Procurement Contract
The new Procurement Law introduced mandatory provision to the state procurement contract pursuant to which the full payment to the supplier shall be made within 30 calendar days from execution of the suppliers’ obligations under the contract.
Further, now the state procurement contract shall be generally concluded in electronic form, i.e.sent through state procurement website and signed by the parties using electronic digital signatures. This amendment will improve the position of the purchasers against bad faith suppliers who in practice frequently did not conclude state procurement agreements and avoided liability since the purchasers could not prove due delivery/signing of the state procurement contract. Electronic format of conclusion of state procurement contracts is aimed to address this issue.
In order to improve the position of the suppliers, the new Procurement Law provided them the right to refuse from the advanced payment under state procurement contract (and accordingly, released them from obligation to provide the security in the amount of such advanced payment).
Introduction of State Procurement Monitoring
The new Procurement Law introduced monitoring over state procurement as one of the stages of state procurement process. Monitoring shall be performed by the authorised body based on analysis of state procurement website. Annual report with results of monitoring shall be submitted by the authorised body to Administration of the President and the Government of the Republic of Kazakhstan.
Establishment of Territorial Unified Organisers of State Procurement
Unified organiser of state procurement previously was a state institution authorised to organise and conduct state procurement under budget programs. It previously existed at republican level only (i.e. did not participate in local state procurements conducted in territorial subdivisions of Kazakhstan). The purpose of the unified organiser is to ensure transparency and fairness of procurement process since representatives of the unified organiser participate in state procurement together with representatives of the purchaser – subject of state procurement. Under the new Procurement Law, it was decided to apply successful experience of using the unified organiser of state procurement not only on republican level, but also to establish local unified organisers in territorial subdivisions of the Republic Kazakhstan and improve state procurement procedure at all levels.
Introduction of Antidumping Measures
The new Procurement Law introduces antidumping measures on public procurement by the way of tender. It is now allowed for the potential suppliers to suggest dumping prices provided that the potential supplier, in addition to security for execution of the state procurement contract, will provide additional security in the amount of difference between the suggested dumping price and the price that according to the law shall not be considered as dumping price. This measure will save budget funds and procure competition among the potential suppliers.
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