2. Increasing efficiency and fairness along the public procurement cycle in Kazakhstan

This chapter provides an overview of the main procurement methods applied in Kazakhstan and assesses the different stages of the procurement cycle to identify challenges and opportunities for improvement. This includes measures to improve procurement planning, the preparation of technical specifications, to increase competition by reducing exceptions to competitive tendering and facilitating access for non-resident suppliers. This chapter also examines how the Government of Kazakhstan can broaden its approach to the application of award criteria by applying a points and percentages system for public tenders. Finally, it discusses how the country can benefit from the implementation of a broad framework for contract management.

    

2.1. Introduction

Reforms to Kazakhstan’s public procurement system have led to the introduction of a government e-procurement system in 2016 and the adoption of a Public Procurement Law (PPL) in 2015 to name the two most important achievements in recent years. These reforms have put Kazakhstan on a path towards more centralisation, ensuring a higher level of standardisation in the execution of contracts and greater transparency of the procurement process. Kazakhstan’s public procurement system is highly decentralised. Only 20% of public procurement processes in Kazakhstan are carried out at the central level, with the remaining 80% being conducted at the regional level. Striking aspects of the public procurement framework, when compared to international good practices, include the absence of framework agreements and award decisions based mainly on price. The funding of all public services in Kazakhstan, whether at a central or a local level, is conducted through the Ministry of Finance, with the same public procurement regulations applying to both tiers.

Using the 2015 OECD Recommendation as a benchmark, this chapter looks at how the Government of Kazakhstan can improve its public procurement processes and how it can encourage ministries, administrative units, decentralised bodies, and public administration entities to drive efficiency throughout the public procurement cycle . The principle of efficiency is described in Box ‎2.1.

Box ‎2.1. The OECD Recommendation on Public Procurement – Efficiency Principle

VII. RECOMMENDS that Adherents develop processes to drive Efficiency throughout the public procurement cycle in satisfying the needs of the government and its citizens.

To this end, Adherents should:

1. a. Streamline the public procurement system and its institutional frameworks. Adherents should evaluate existing processes and institutions to identify functional overlap, inefficient silos and other causes of waste. Where possible, a more service-oriented public procurement system should then be built around efficient and effective procurement processes and workflows to reduce administrative red tape and costs, for example through shared services.

2. b. Implement sound technical processes to satisfy customer needs efficiently. Adherents should take steps to ensure that procurement outcomes meet the needs of customers, for instance by developing appropriate technical specifications, identifying appropriate award criteria, ensuring adequate technical expertise among proposal evaluators, and ensuring adequate resources and expertise are available for contract management following the award of a contract.

3. c. Develop and use tools to improve procurement procedures, reduce duplication and achieve greater value for money, including centralised purchasing, framework agreements, e-catalogues, dynamic purchasing, e-auctions, joint procurements and contracts with options. Application of such tools across sub-national levels of government, where appropriate and feasible, could further drive efficiency.

Source: (OECD, 2015[1]).

This chapter will focus on the different opportunities for Kazakhstan to enhance the efficiency of public procurement within the public procurement cycle, including the different stages such as needs assessments, the choice of the procurement method, the role of tender commissions, and the evaluation of bids and post-award contract management.

Treating bidders in a fair, transparent and equitable manner is closely related to the efficiency of public procurement systems, as it is essential to encourage suppliers and the private sector to participate in public procurement. The 2015 OECD Recommendation urges adherents to facilitate access to procurement opportunities for potential competitors of all sizes, to use competitive tendering as the standard method and to limit the use of exceptions such as direct contracting (Box ‎2.2). Indeed, the use of competitive tendering is a mean of boosting efficiency by achieving better value for money. Therefore, this chapter also tackles the issues of exceptions to public tendering and obstacles to the access of non-resident suppliers to public procurement opportunities in Kazakhstan.

Box ‎2.2. The OECD Recommendation on Public Procurement – Access principle

IV. RECOMMENDS that Adherents facilitate access to procurement opportunities for potential competitors of all sizes.

To this end, Adherents should:

i) Have in place coherent and stable institutional, legal and regulatory frameworks, which are essential to increase participation in doing business with the public sector and are key starting points to assure sustainable and efficient public procurement systems. These frameworks should:

1. 1. be as clear and simple as possible;

2. 2. avoid including requirements which duplicate or conflict with other legislation or regulation; and

3. 3. treat bidders, including foreign suppliers, in a fair, transparent and equitable manner, taking into account Adherents’ international commitments (e.g., the Agreement on Government Procurement within the framework of the World Trade Organization, the European Union Procurement Directives, and bilateral or multilateral trade agreements).

ii) Deliver clear and integrated tender documentation, standardised where possible and proportionate to the need, to ensure that:

1. 1. specific tender opportunities are designed to encourage broad participation from potential competitors, including new entrants and small and medium enterprises. This requires providing clear guidance to inform buyers’ expectations (including specifications and contract as well as payment terms) and binding information about evaluation and award criteria and their weights (whether they are focused specifically on price, include elements of price/quality ratio or support secondary policy objectives); and

2. 2. the extent and complexity of information required in tender documentation and the time allotted for suppliers to respond is proportionate to the size and complexity of the procurement, taking into account any exigent circumstances such as emergency procurement.

iii) Use competitive tendering and limit the use of exceptions and single-source procurement. Competitive procedures should be the standard method for conducting procurement as a means of driving efficiencies, fighting corruption, obtaining fair and reasonable pricing and ensuring competitive outcomes. If exceptional circumstances justify limitations to competitive tendering and the use of single-source procurement, such exceptions should be limited, pre-defined and should require appropriate justification when employed, subject to adequate oversight taking into account the increased risk of corruption, including by foreign suppliers.

Source: (OECD, 2015[1]).

Kazakhstan faces two main challenges related to access to public procurement opportunities, which will be analysed throughout this chapter and notably section ‎2.3.4. First, non-resident suppliers face substantial hurdles in submitting bids electronically, due to several requirements.

Second, direct award procurements (direct purchasing) account for a very large share of overall procurement value, even though its share decreased from 73.6% in 2017 to 59% in 2017. The regulatory framework does not define public tender as the standard method for conducting procurement. Section ‎2.3.4 provides more details on direct award procurement.

2.2. The Procurement cycle in Kazakhstan

Any public procurement process in Kazakhstan shall include the following consecutive steps (see article 5.1 of the PPL):

1. 1. Budget formation and procurement planning: contracting authorities draft and approve annual public procurement plans, detailing individual procurements to be conducted, and the maximal value earmarked for each of them, along with the procurement method;

2. 2. Contracting authorities draft and approve tender documentation, including technical specifications with the assistance of single organisers;

3. 3. Publication and submission of bids on the government e-procurement system;

4. 4. Bid evaluation and automatic contract award; and

5. 5. Performance of the public procurement contract.

In the case of direct award, only some aspects of the process are conducted on the e-procurement system, i.e. procurements plans and contract award notices are published online in the same way as for competitive processes. Section ‎2.2.4 details the different procurement methods while section ‎2.3.2 covers the issue of direct award procurement.

2.2.1. Budgeting and planning

Public procurement does not take place in a vacuum, but should be integrated with budgeting and programming systems for optimal results. Indeed, the 2015 Recommendation of the OECD Council on Public Procurement addresses the importance of this integration (Box ‎2.3).

Box ‎2.3. The 2015 Recommendation on Public Procurement –Integration principle

The Recommendation suggests that adherents support integration of public procurement into overall public finance management, budgeting and services delivery processes. To this end, adherents should:

• Rationalise public procurement spending by combining procurement processes with public finance management to develop a better understanding of the spending dedicated to public procurement, including the administrative costs involved. This information can be used to improve procurement management, reduce duplication, and deliver goods and services more efficiently. Budget commitments should be issued in a manner that discourages fragmentation and is conducive to the use of efficient procurement techniques.

• Encourage multi-year budgeting and financing to optimise the design and planning of the public procurement cycle. Flexibility, through multi-year financing options – when justified and with proper oversight – should be provided to prevent purchasing decisions that do not properly allocate risks or achieve efficiency due to strict budget regulation and inefficient allocation.

• Harmonise public procurement principles across the spectrum of public services delivery, as appropriate, including for public works, public-private partnerships and concessions. When delivering services under a wide array of arrangements with private-sector partners, adherents should ensure as much consistency as possible among the frameworks and institutions that govern public services delivery to foster efficiency for the government and predictability for private-sector partners.

Source: (OECD, 2015[1])), OECD Recommendation of the Council on Public Procurement, OECD, Paris, http://www.oecd.org/gov/public-procurement/recommendation/, consulted on 14 March 2016.

Kazakhstan’s contracting authorities develop their public procurement plans based on their allocation of funding from the annual budget. Budgetary legislation and public procurement legislation allows government organisations to resort to multi-year financing and, accordingly, to plan and carry out a procurement process on a multi-year basis. Contracting authorities (called “customers”) at the central and local levels, depending on funding, have the right to develop and approve multi-year public procurement plans. Such procurement plans are often used by large customers and regarding construction work. However, use of these multi-year plans are not widespread in Kazakhstan and OECD field research did not find evidence of long-term, multi-year budget and procurement planning in Kazakhstan. In addition, there does not seem to be a feedback mechanism that links past performance to future budgets. Budgets are mostly defined based on previous expenditure.

There is a three-year budget cycle on a revolving basis, approved every year in December. The financial year in Kazakhstan starts on the 1st of January each year. The Ministry of National Economy (MoNE) is responsible for setting up the budgeting policy while the Ministry of Finance defines spending limits for the forthcoming year based on forecasts made by the MoNE on the expenditures and revenues sides Public entities submit a budget request every year before May 15^th, strictly within these spending limits. Any additional budget request needs to be considered by the Republican budget commission before 1 September. Budget requests contain details about items to be purchased and the sums earmarked for them. Once approved, they serve as the basis for the development of annual procurement plans. Figure ‎2.1 illustrates this process.

Figure ‎2.1. The process of the Republican budget development

Source: Information provided by the Ministry of National Economy.

Budget requests are divided into 1) basic operational expenditures (office supplies, travel expenditures, etc.) and 2) new expenditure that have not been financed in the previous period. Each entity has to share with the Ministry of Finance a breakdown of each additional expenditure being requested. The Ministry of Finance analyses the budget requests from different ministries, and has the ability to reject some based on a legitimate justification. No public entity can carry out a purchase that is absent from its annual procurement plan or its preliminary procurement plan (see below), with very few exceptions (emergency situations, operations of the office of the President, legal support for the authorities in dispute resolution, arbitration and courts and operations of security services).

The national budget commission, chaired by the Prime Minister, includes key ministers and members of parliament (MPs) from both chambers. It convenes several times a year to approve budget requests from government organisations. The final meeting for considering the overall draft government budget is in mid-August. Its main role is to agree on the draft budget prior to it going to cabinet for approval.

Under the PPL, every government organisation must publish an annual procurement plan. Government organisations publish procurement plans for the following year on the government e-procurement system in December, within 15 days after the approval of the government budget.

Procurement plans provide details about the goods, services or works to be purchased, the procurement method, the month when the entity plans to conduct its purchase and the expected delivery time (or completion time in case of construction works). It is worth noting that during the course of the year, government organisations can introduce changes to procurement plans; in this event they must publish an updated version of their procurement plan on the government e-procurement system.

The Ministry of Finance in Kazakhstan created the concept of “preliminary procurement plans” in 2016 to address problems related to purchases early in the year, which required the procurement process to start in November or December of the previous year, i.e. prior to the budget being approved by parliament. Contracting authorities can submit preliminary procurement plans to the national budget commission, and upon approval start the public procurement process 2 or 3 months before the final budget is approved in parliament in December. However, contracting authorities must wait for the final budget approval to sign any procurement contract with suppliers. At the end of 2017, many preliminary annual procurement plans for 2018 were already approved, accounting for more than EUR 3.11 billion (Beketaev, 2018[2]). Preliminary procurement plans may create uncertainty for suppliers, in case of mismatch between the preliminary procurement plan and the final budget approved by parliament in December. The Ministry of Finance could conduct further analysis regarding how often such mismatch happens and what is the impact on suppliers.

The publication of procurement plans is a good practice to give clear visibility to suppliers on upcoming opportunities. Most OECD countries (86%) announce procurement opportunities on their e-procurement systems, and the publication of procurement plans about forecasted government needs is often a legal requirement, including in Kazakhstan (OECD, 2015[3]). For example, in New Zealand, government agencies must publish a list of planned contract opportunities over the next 12 months and update its annual procurement plans at least once every six months (New Zealand Government Procurement Branch, 2015[4]).

In Kazakhstan, government organisations often publish incomplete procurement plans or publish them later than the legal deadline (within 15 days after the approval of the government budget). They also introduce frequent changes to procurement plans that they had previously published, adding new purchases during the course of the year. This led to complaints from the supplier community. In order to address this issue, the December 2018 amendments require government organisations to publish procurement plans reflecting the full amounts earmarked for procurement in their annual budgets. Any violation of this requirement, as well as the non-publication (or late publication) of procurement plans, would lead to administrative liability of civil servants and a fine deducted from their salaries.

In practice, stakeholders suggest that government organisations revise procurement plans during the course of the year because they need flexibility, as under the PPL any procurement procedure must correspond to an existing procurement plan. For instance, government organisations sometimes modify their procurement plans to conduct purchases corresponding to unplanned activities or to purchase higher quantities following unintended procurement savings (i.e. when the final price is lower than the budgeted amounts because of tendering).

In order to provide adequate visibility to suppliers on upcoming opportunities while preserving some flexibility for the contracting authority, Kazakhstan could consider adopting measures that provide better visibility of procurement opportunities to suppliers. For instance, regulations could require contracting authorities to publish prior information notices (PIN) two to three months before tendering to raise the awareness of upcoming opportunities among the supplier community, in case of new items added to procurement plans during the course of the year. The publication of a PIN exists in several OECD countries. It is published in several countries with different timeframes: two to 11 months before the tender invitation in Belgium; six to eight months before in Finland, except for very few procedures; and three to four months before in Spain. In the EU and Australia, contracting authorities can reduce the minimum submission period for open tenders if PIN had previously been dispatched for publication.

Another avenue is to extend the minimum submission period (currently 15 days). This could be particularly relevant for goods, works and services that have been added to the procurement plans.

Procurement planning could be an opportunity to consolidate purchases and therefore achieve more value for money. Currently, procurement planning is carried out mainly for compliance and monitoring purposes. The planning activity itself is largely based on budget availability and does not entail sufficient market research and analysis. The following section elaborates on the issue of market research/studies.

2.2.2. Adopting a strategic approach to market studies

A market analysis is a general survey of the potential in the market to satisfy the defined need of a contracting authority. In order to be successful, this analysis has to be conducted in an open and objective manner, focusing on what general solutions are available in the market – and not offers by preferred or favoured contractors. Many OECD countries developed market analysis guides to support contracting authorities in the task of drafting relevant market studies. For instance, the State of Queensland in Australia developed such a comprehensive guide. It refers to Porter’s five competitive forces to build a structured approach of market analysis and understand competitive dynamics, and also summarises purchase marketing fundamentals to support contracting authorities when they develop they purchasing strategy etc. (State of Queensland (Dpt of Housing and Public Works), 2018[5]).

Market analyses may also involve direct engagement with suppliers and other organisations with relevant expertise, such as trade bodies or chambers of commerce. Direct engagement can complement desk-based research, providing first-hand knowledge from the suppliers. Direct engagement with sis also commonly referred to as “market sounding”, “solicitation of supplier information” or “preliminary market consultation” (OECD, 2018[6]).

The price of goods, works and services is the main focus of market research and analyses in Kazakhstan. Because procurement planners do not have access to any other business intelligence tool, market studies are paramount to the successful management of public procurement processes that achieve the best possible value for money for citizens. Contracting authorities could use these market studies in a strategic way, undertaking them even when there is no legal requirement to do so and particularly for high-value tenders. A thorough understanding of all prevailing market conditions, structures and potential suppliers is essential if contracting authorities want to buy effectively and also detect and avoid bid rigging, bribery and other forms of fraud or wrongdoings.

The national e-procurement system has a module that allows for the gathering and reporting of data on the average, maximum and minimum prices for goods, works and services that have been procured after 2016. The module provides data for the country as whole and for each of the 17 regions of Kazakhstan. Contracting authorities use the module for market research and budget planning purposes. Contracting authorities complement data from the price module with online research and consultations with potential suppliers (or their representatives in Kazakhstan in the case of foreign suppliers). They focus on Kazakhstan’s domestic market, EAEU member countries (i.e., aside from Kazakhstan also Armenia, Belarus, Kyrgyzstan and the Russian Federation) and, if necessary, explore the supplier market from other countries.

The Government of Kazakhstan could implement a comprehensive methodology or guide on how to conduct market research. This guide could include methods:

• to increase awareness of the characteristics of the market and of recent market developments or trends that may affect competition for the tender, or may make collusion more likely (e.g. small number of suppliers, standardised or simple products, little or no entry, among others).

• to collect information on suppliers and their products, prices and cost structures. If possible, a comparison to prices offered in business-to-business procurement is recommended.

• to collect information about recent price changes. This will help procurement practitioners be informed about prices in neighbouring geographic areas, and about prices of possible alternative products.

• to collect information about past tenders for the same or similar products.

• to co-ordinate with other public procuring authorities that have recently purchased similar goods, services or works in order to improve understanding of the market and suppliers (OECD, 2018[6]).

2.2.3. The development of technical specifications

Development and approval of technical specifications is carried out directly by contracting authorities. In the case of public procurement by a single organiser (a unit corresponding to a central purchasing body), contracting authorities submit technical specifications and the draft contract to their single organisers for approval. Technical specifications must meet all requirements in the field of technical regulation.

According to Article 21 of the PPL, the tender documentation shall be developed by the organiser in both Kazakh and Russian languages. As detailed in Chapter 1, the organiser is responsible for organising and performing public procurement processes. A contracting authority itself can undertake the role of the organiser (i.e. purchaser and organiser would be the same entity). Tender documentation shall contain technical specifications with an indication of required functional, technical, qualitative and operational characteristics of the purchased goods, works and services. It also contains qualification criteria as established by Article 9 of the PPL. In Kazakhstan, the qualification stage shall be conducted on a pass/fail basis based on the compliance of each bid with requirements in the tender documentation. Moreover, the tender documentation details all elements that affect the selection of the winner bidder, including “conditional discounts” (Rus. Условные скидки). The section on bid evaluation (‎2.2.6) elaborates on qualification and selection criteria.

Contracting authorities conduct limited market analysis that enables them to draft technical specifications. This market research typically identifies whether a specific product exists, and what the conditions (price, delay and others) are for its future acquisition. In contrast, single organisers and the Government Procurement Committee seem to have limited influence on the technical specifications, mostly because these more general institutions lack capacity and skills that would be needed to handle the technical aspects of complex procurements.

The only standard technical specifications that exist in Kazakhstan relate to furniture. This means that the burden of developing appropriate technical specifications lies almost exclusively with contracting authorities. On the positive side, the Ministry of Finance plans to introduce a "catalogue of standard specifications" that will streamline and rationalise the design and drafting of technical specifications by contracting authorities for common or widespread goods, works and services. This is a positive development that will support the ongoing centralisation of public procurement and the functioning of central procurement bodies.

According to stakeholders, many technical specifications are incomplete or flawed. Therefore, potential suppliers consider that they cannot comply with technical specifications and abstain from submitting bids. In turn, due to a lack of bids competitive tendering processes are considered to have “failed” and are then conducted through direct award. As Kazakhstan continues to gradually centralise its procurement processes, it is important for central procurement bodies (single organisers) to develop their internal expertise regarding complex purchases and product categories, as they will be better able to correct mistakes in technical specifications and to assess bids from suppliers.

The lack of specialised skills among contracting authorities’ staff seems to be an acute challenge, leading to mistakes in technical specifications and in the assessment of bids. Moreover, this lack of specialised skills leads contracting authorities to rely heavily on external expertise. Indeed, for some aspects of the preparation of the tender, both contracting authorities and single organisers can hire an independent expert (an individual with special and/or technical knowledge, experience, and qualification) or gather an expert commission. Experts and expert commissions participate in the development of the technical specifications or prepare an expert opinion as part of the evaluation of proposals. Besides, these experts are drawn on to determine whether proposals conform to the technical specifications.

The PPL introduced a “preliminary discussion of technical documentation” on the government e-procurement system to improve the quality of technical specifications. This allows suppliers to either ask for clarifications regarding technical specifications or to submit remarks, for instance regarding mistakes and irregularities. Procurement regulations require that tender commissions answer all remarks and clarification requests from suppliers and, if necessary, revise technical documentations and specifications before the beginning of the bid submission period. Chapter 3 provides more details on these preliminary discussions, which take place electronically through the government e-procurement system.

2.2.4. Procurement methods

1. 1. Public tender (open tender (Rus. конкурс)), which is a standard competitive tendering process with a qualification stage (to ensure supplier’s compliance with tender documentation and technical specifications) and a selection stage (contract award).

2. 2. The PPL also comprises a separate category, public tender with prequalification, although it is not used in practice. The December 2018 amendments establish that prequalification bodies will be in charge preselecting suppliers for public tenders with pre-qualification. It also enshrines the Ministry of Finance with the right to define the list of goods, works and services to be procured through public tenders with prequalification. The Ministry of Finance introduced pre-qualification for some types of construction works, furniture and light industry goods, and programming services (software development). Section ‎2.3.4 elaborates on the substantial hurdles that the prequalification mechanism creates for the access of foreign bidders to public procurement for certain categories of purchases, while Chapter 3 elaborates on the transparency issues related to the introduction of public tenders with prequalification.

3. 3. Auction (Rus. аукцион), a procurement method applicable only to goods which is actually a reverse auction (or a procurement auction), i.e. the price can only decrease during the bidding process. Bids go through a qualification stage to ensure compliance with tender documentation and technical specifications.

4. 4. Requests for quotations (Rus. запрос ценовых предложений) is the method for procurement for homogeneous (standardised) goods, works and services up to a procurement value of 4 000 monthly calculated indexes. (KZT 10 100 000, or around EUR 24 836). Beyond this threshold, contracting authorities cannot use requests for quotations.

5. 5. Direct award (Single source procurement in the PPL): no competitive tendering takes place and only parts of the procedure are conducted on the e-procurement system. There are two types of direct award procedures:

   1. a. Direct award based on exceptions (Rus. Единый искточник путям прямого заключение договора, which can be translated as “single source through direct award”) is conducted based on a list of 50 exceptions to competitive tendering established in article 39 Point 3 of the PPL.1 As in most OECD Countries, one of these exceptions corresponds to low-value processes below the value threshold for direct award (subparagraph 42 of Article 39 Point 3 of the aforementioned of the PPL).

   2. b. Direct award after failed bidding (Rus. Государственные закупки из одного источника по несостоявшимся государственным закупкам)2: If, in a competitive tender, contracting authorities receive only one or no responsive bid, they must conduct a new open tender (or a new auction). Only if this second open tender (or second auction) also receives only one or no responsive bid can contracting authorities conclude the procedure with direct award after failed bidding. This requirement for a second tender (or second auction) results from the December 2018 amendments (entry into force on 1 January 2019.

   3. c. Upon concluding the procedure with direct award after failed bidding, if there is only one qualified bidder, contracting authorities automatically award this bidder the contract. Contracting authorities are free to choose any supplier in case there is no qualified bidder at all. In the case of requests for quotations, direct award can be used according to the same principle (less than two quotations correspond to the technical specifications; automatic award to the responsive quotation or to any company if no quotation responded to the requirements).

2.2.5. Submission periods and the submission process

Submission periods vary depending on the procurement method used. The window for submission of public tenders is a minimum of 15 days after the publication of the technical documentation, according to Article 22 of the PPL. In regards to a request for quotations, the deadline for submission of quotations is five working days. Based on cursory review of procedures on the government e-procurement system, the average window for submission in was 16 days for open tenders, and 15.5 days concerning requests for quotations. This is very close to the minimum of 15 days and suggests that few contracting authorities actually use a longer submission period. A large portion of public tenders in Kazakhstan therefore have only the minimum time limit for submission of tenders. 15 days can be too short for many complex tenders, when comparing with international best practice (see below).

It is important to allow suppliers an adequate time period for the preparation of tenders and to take account of the complexity of the contract when fixing the timescale for submitting responses. This is especially necessary as planning is frequently off target. It is likely to increase the number of bidders, leading to more competition, a lower share of failed competitive biddings and eventually better prices. Therefore, the Ministry of Finance could consider extending this minimal window for submission for open tenders with high monetary value (which are more likely to be complex purchases), particularly for public tenders of goods and services, or works without design estimate.

Indeed, regarding construction and installation works, the December 2018 amendments obliged contracting authorities to publish design estimates (construction documents) to complement their annual procurement plan. Contracting authorities must publish their procurement plans maximum fifteen days after the final approval of the state budget, i.e. usually the second half of December. This measure will allow potential suppliers to familiarise themselves in advance with the details of upcoming procurements for construction and installation works, and should increase the number of responsive bids for public tenders for construction and installation works.

Similarly, the minimum period for the receipt of price proposals for request for quotations is only five working days. This period might be too short, especially if the products purchased are multifaceted and not readily available, requiring the suppliers to carry out some internal research prior to providing the quotation.

Figure ‎2.2 illustrates the bid submission process for open tenders, which can be summarised as follows: after the bid, the procurement commission has ten days to convene and discuss the bids. After convening, the results are published on the government e-procurement system. The commission does not directly contact the bidders; however, the results are posted on the government e-procurement system, summarising what is missing, what is not compliant with the requirements, whether there is a need for certification etc. Following this, potential suppliers have three days to revise their bids. During this period, suppliers cannot change the price; however, they can correct and change their bidding documents. After the resubmission of bids, the commission has five days to consider the submitted documents again and to validate or reject applications. The government e-procurement system automatically defines the winning bidder among valid submissions based on the lowest price, taking into account “conditional discounts” provided for by Public Procurement Rules. The next section (‎2.2.6) details how conditional discounts work. Suppliers have then five days to appeal once the commission has decided on who to award the contract to.

Figure ‎2.2. Submission process for open tenders in Kazakhstan

Note: This timeline applies to open tenders (Rus. Конкурсы) and auctions (Rus. Аукционы) in Kazakhstan.

Source: Article 25 and 27 of the PPL, Points 86 to 141 of the Public Procurement Rules.

The December 2018 amendments introduce administrative liability (a fine deducted from their salaries) of procurement officers in case they do not abide by the deadlines established by the law to examine bids in open tenders and auctions, or to publish the protocol of preliminary qualification.

In the European Union, the time offered to suppliers before submitting their bids is longer than in Kazakhstan (35 days), though has the ability to be shortened (see Box ‎2.4). The Government of Kazakhstan could consider extending the deadlines set in its regulatory framework to enhance the participation of suppliers in procurement opportunities.

Box ‎2.4. Time limit for submitting bids in the European Union (EU)

Open procedure

In an open procedure, any business may submit a tender. The minimum time limit for submission of tenders is 35 days from the publication date of the contract notice. If a prior information notice was published, this time limit can be reduced to 15 days.

Restricted procedure

In a restricted procedure, any business may participate, but only those who are pre-selected will be invited to bid. The time limit to request participation is 37 days from the publication of the contract notice. The public authority then selects at least 5 candidates possessing the capabilities required, who then have 40 days to submit a tender from the date when the invitation was sent. This time limit can be reduced to 36 days, if a prior information notice has been published.

Source: (European Commission, 2019[7]).

2.2.6. Bid evaluation

A tender commission created for each specific tender conducts the evaluation of proposals. The PPL established that this tender commission must comprise of no less than three persons. The head of the commission is always the head of the contracting authority, while the remaining members of the commission are employees of contracting authorities. However, when procurement is conducted through single organisers, the tender commission consists of representatives of contracting authorities (including its head as the head of the commission) and professional procurers from single organisers, one of which is the commission secretary. The commission is formed for the entire period of the procurement process, and is disestablished after full and proper performance of contractual obligations. Decisions made by the commission can be cancelled and are subject to revision by the Committee for Internal Audit Committee or by Kazakhstan’s Prosecutor's Office.

Adequate selection and award criteria are paramount for equitable results from the bidding process. The Ministry of Finance identified tender evaluation as particularly vulnerable in Kazakhstan. Overall, the evaluation is characterised by a binary evaluation based on technical specifications (specifications met or not) and an award decision mostly based on the lowest price. The general working logic of selection and award criteria in Kazakhstan foresees two stages that will be specified in this section:

1. 1. Qualification stage: The suppliers have to conform to very basic qualification criteria (absence of tax arrears and bankruptcy procedure, being a legal entity…) and their offer must comply with technical specifications

2. 2. Selection or award stage: The e-procurement system determines the winning bid based on the lowest price; this process includes a calculation of price discounts for bidders complying with additional, specific criteria (relevant experience, environmental certificates, and superior quality of an offer...)

The first step in the bid evaluation is the evaluation of qualification criteria. Tender commissions review bids and assess them against qualification requirements established in tender documentations and technical specifications. The PPL provides for general qualification requirements that submit bids to any public tender or auction (Article 9 of the PPL):

• possession of legal capacity;

• possession of the necessary material and labour resources;

• to be solvent;

• have some work experience;

• Not subject to liquidation or bankruptcy procedures.

In addition, contracting authorities can add additional requirements. However, usually, according to stakeholders, these qualification criteria remain basic and do not go beyond the most elementary aspects of the company’s status. For example, a qualification requirement would relate to incorporation and tax debts.

The following provisions for qualification criteria apply:

1. 1. The criteria do not limit and unreasonably complicate the participation of potential suppliers in public procurement;

2. 2. They do not directly result from the need to fulfil obligations assumed under a contract for public procurement of goods, works and services;

3. 3. A non-resident of Kazakhstan shall submit the same documents as the residents of the country;

4. 4. Include permits that the supplier is allowed to conduct the activity (for example, construction licenses).

The evaluation of bid’s compliance with technical specifications follows a similar pass/fail logic as the evaluation of the qualification criteria; all bidders whose proposals do not comply with the technical specifications are disregarded. The tender commission evaluates the proposals of bidders based on the technical specifications that the contracting authority previously developed.

After suppliers go through the qualification stage and their bids are deemed valid, the government e-procurement system automatically selects the valid bid with the lowest price, which is then awarded the contract. However, the PPL provide for special criteria (“conditional discounts”) affecting the price offer of a valid bidder, but only for the purpose of contract award. Conditional discounts therefore favour some bidders over others during the process of contract award. They translate non-price factors into a price discount. The Public Procurement Rules define all criteria and associated discounts. Tender commissions cannot take into account conditional discounts that are not defined in Public Procurement Rules. Conditional discounts are a percentage of the initial price of a bid and can be awarded to bidders regarding:

• Relevant work experience on the market of purchased goods and services (one year of relevant experience provides a reward of a 0.5% percent conditional discount, up to a ceiling of 5%).

• Relevant work experience in the conduct of construction works (one year of relevant experience as general (main) contractor provides a reward of a 1% percent conditional discount. As a subcontractor, one year of relevant experience grants a 0.5% conditional discount. There is no ceiling).

• Documented confirmation of adherence to relevant national technical standards (up to 2%).

• Documented confirmation of adherence to a quality management standard recognised in the legislation of Kazakhstan (up to 2%).

• Documented confirmation of adherence to an environment management standard recognised in the legislation of Kazakhstan (up to 1%).

• Documented confirmation that the production of procured goods comply with environmental-friendly (clean) production standard recognised in the legislation of Kazakhstan (up to 1%).

Some conditional discounts rely upon the assessment by the expert or expert commission involved in the public procurement process:

• If technical characteristics of offered goods and services proposed by bidder are better than what is required in technical specifications, the tender commission can award him an additional conditional discount of 0.5% for each characteristic that is better compared to minimal requirements, up to 3% overall;

• If a bidder offers goods or services that have additional useful functionalities or features not prescribed in technical specifications, or better qualitative characteristics, the tender commission can award him a conditional discount of 5%;

• If goods offered by a bidder offer superior characteristics or conditions related to delivery, storage, exploitation and maintenance, the tender commission can award him a conditional discount of up to 3%.

These conditional discounts cannot exceed 10% of the initial price. Kazakhstan’s bid evaluation process poses challenges to those developing and evaluating technical specifications. There is a need for high-level capacity among employees when assessing the bids for complex purchases. Bids are qualified if they meet the technical specifications as closely as possible. Given the lack of flexibility, tender commissions are incentivised to follow a tick box approach and stay close to the precise formulation of the technical specifications. Later, at the selection stage, conditional discounts are not the driving factor of award decisions and therefore, prices are decisive in the selection of the winning bid in a vast majority of open tenders. The PPL does not allow for the use of points and percentages for public procurement. In fact, the discounts provided are quite small and cannot reflect the potential range in quality or additional features that suppliers might offer. That means that suppliers do not have an incentive to surpass the technical specifications in a bid, or even deviate from them. A deviation could mean that a bid is not qualified.

For suppliers, the bid evaluation process disincentives innovative solutions or a focus on quality. By offering a very low price, bidders can increase their chances of winning the bid. Moreover, the bid evaluation process hinders the usage of award criteria based on concepts such as the most economically advantageous tender (MEAT) or life-cycle costing (LCC). For instance, the definition of conditional discounts in Public Procurement Rules restrict the influence of potential savings over the life cycle to only 10% of the overall price, even if more savings can be achieved.

By using a binary qualification system, the Government of Kazakhstan is excluding certain other criteria, such as quality and longevity. This binary system also deters more innovative companies to participate. The bid evaluation system is particularly inappropriate to evaluate the quality and technical capacity of consultancy and advisory services, while Kazakhstan’s public procurement framework does not foresee any a specific procurement method for that purpose. The Government of Kazakhstan could consider using the points and percentages criteria in public tenders rather than the current approach, where price is the predominant award criteria. Points and percentages criteria could take into account such strategic objectives and ensure better value for money by incentivising suppliers to offer quality and prove their capacity to deliver. This is particularly decisive as Kazakhstan is facing challenges related to suppliers that promise delivering the sought product or service for a low price but ultimately cannot deliver. This results in delays in public service delivery, increased transaction costs and opportunity costs for the government.

Countries have found it beneficial to incorporate a range of criteria in their tender evaluations, such as the following among many others:

1. 1. environmental aspects;

2. 2. quality of the offer, improvements in addition to the minimum technical requirements;

3. 3. additional functionalities in addition to the minimum technical requirements;

4. 4. delivery terms;

5. 5. costs during the whole exploitation cycle of the product (maintenance, repair, disposal, etc.)

In order to maintain a transparent process for evaluating these complex criteria, a proven method has been to assign relative values to each of the criteria as part of the tender documentation, and announce the weighting as part of the tender notice. Practically, each criterion is assigned a value in percentage terms. During the evaluation and based on the bidders’ proposals, the tender commission assigns points for each of the criteria. These points are used to calculate the overall score of the proposal. The proposal with the highest score wins and is awarded the bid. Box ‎2.5 provides an example of how Colombia has implemented this system.

Box ‎2.5. Points-based evaluation in Colombia

Open tenders in Colombia are evaluated using three criteria: 1) economic; 2) technical; and 3) the nationality of goods and services offered. Economic points are awarded according to the price of the bid. As for technical points, the procuring entity must allocate points based on the quality, delivery time or sustainable sub-criteria. Up to 20% of points must be given to bids of goods and services whose origin is Colombia or one of its trading partners, following the rules set in trade agreements.

For example, in the open tender carried out by Colombia Compra Eficiente, the Colombian CPB, to select suppliers for the janitorial services framework agreement, formulas were set to allocate points based on the prices offered by bidders. Bidders provided prices for the provision of persons in charge of cleaning and performing related activities, as well as the price of the necessary products needed to complete these tasks. Technical points were given to suppliers that offered environmentally friendly cleaning products, and to those that committed to hiring victims of war or former guerrilla members.

Source: (OECD, 2016[8]).

New financial qualifications requirements

The December 2018 amendments established a new qualification criterion: the financial situation of a potential supplier. According to the Ministry of Finance, the financial situation would be defined based on tax payments, the size of suppliers’ payroll, fixed assets, and working capital. This data would be retrieved through automated data exchange with tax databases (Committee on Government Revenues). This would stimulate suppliers to improve their tax compliance. The details of the financial criteria used as qualification requirement is still to be integrated to the Public Procurement Rules. Discussions with Ministry officials suggests that financial qualification criteria for suppliers could be introduced for construction works only, possibly when conducting a public tender with prequalification.

It is not clear whether qualification criteria regarding the financial position of a potential supplier would be introduced for other procurement methods or categories of purchase. In introducing financial position as a qualification criterion, the Ministry of Finance should keep in mind the need to “encourage broad participation from potential competitors, including new entrants and small and medium enterprises” (Principle on Access of the OECD 2015 Recommendation on Public Procurement, see Box ‎2.2). For instance, in the European Union, requirements concerning economic and financial capacity of suppliers should be related and proportionate to the subject-matter of the public contract. In particular, contracting authorities should not be allowed to require suppliers to have a minimum turnover that would be disproportionate to the subject-matter of the contract; the requirement should normally not exceed at the most twice the estimated contract value (European Union, 2014[9]).

2.2.7. Improving contract management and payment of suppliers

Contract management can be understood as a process that requires three broad areas: delivery management, relationship management and contract administration (see Box ‎2.6).

Box ‎2.6. The process of contract management

Contract management activities can be broadly grouped into three areas: delivery management, relationship management and contract administration.

• Delivery management ensures that whatever is ordered is actually delivered with the required level of quality and performance, as stated in the contract. Delivery management may include checking the nature, quantity and quality of:

  • goods supplied on delivery, and, also when appropriate, at the time of manufacture;

  • works carried out, including conformity with designs and drawings, quality of workmanship and materials;

  • services performed, including checking that required service levels and timescales are met.

• Relationship management seeks to keep the relationship between the supplier and the contracting authority open and constructive. The aim of this is to resolve or ease tensions, and identify potential problems at an early stage while also identifying opportunities for improvement. Relationships should be professional, and should include a professional approach to managing issues and dispute resolution.

• Contract administration covers the formal governance of the contract and any permitted changes to documentation during the life of the contract. This area of contract management ensures that the everyday aspects of executing the contract effectively and efficiently are taken care of.

Source: (OECD, 2011[10]).

Timely monitoring of suppliers and adequate management of relationships with them improve the quality of supplier services and facilitate the fulfilment of user expectations. By monitoring the performance of suppliers, public officials can request corrective actions when the contractual conditions are not being met. Figure ‎2.3 shows some of the possible performance contributions that can be obtained from contract management, as opposed to the costs of inefficient management.

Figure ‎2.3. Contract management’s contribution to performance

Source: (OECD, 2017[11]).

In Kazakhstan, the implementation of contractual obligations is controlled directly by contracting authorities with limited assistance from the Ministry of Finance. According to Article 43 of the PPL, a draft public procurement contract shall be drawn up in accordance with standard contracts for goods, works and services approved by the Ministry of Finance. The contracting authority sends a draft contract to the selected supplier. The draft contract is certified by an electronic digital signature through the government e-procurement system within five working days from the date of expiration of the period for lodging an appeal against the results of public procurement tenders. The selected supplier shall certify the contract with an electronic digital signature within three working days from the date of notification. If the chosen supplier has not signed the draft public procurement contract, the contracting authorities shall conclude the public procurement contract with the selected supplier within two additional working days.

The supplier needs to submit a bid security for the public procurement contract within ten working days from the date the contract has been concluded as a guarantee that it will properly fulfil its contractual obligations. Bid security amounts to three percent of the contract value.

Article 45 of the PPL allows for changes to the contract if the conditions that led to the selection of the supplier remain unchanged. The conditions for change are very rigid, both regarding changes to the draft public procurement contract and after its signature. Prior to signing a contract, it is possible to modify it before it is registered with the Treasury. The Treasury is a department of the Ministry of Finance performing implementation and control functions in the execution of the national budget and servicing the execution of local budgets. It manages the public finance information system (State Treasury of Kazakhstan, 2015[12]).

Changes to the draft contract need to be initiated by any of the parties no later than five working days after they release the tender results report. Once a contract is signed on the government e-procurement system, a supplementary agreement is needed to make further changes. According to the Ministry of Finance, modifications occur quite frequently. The Public Procurement Rules define the list of grounds to make amendments to a signed contract. For changes to be made to a contract after its signature, a mutual agreement is needed from both parties concerning the reduction of prices for goods, works and services.

There are few formal mechanisms in place to track supplier performance across the public procurement system. At present, the Government of Kazakhstan does not have systems or monitoring tools in place that allow the government to obtain information beyond the administrative steps established in its contracts. Put simply, the only information that the government is able to obtain is on the delivery and reception of goods and services.

By developing a comprehensive contract management framework that covers all the areas mentioned above, the Government of Kazakhstan could not only facilitate compliance with its contracts, it could also systematically record information regarding its suppliers and the quality of goods and services that they provide. Having this information could lead to a better evaluation of past purchasing procedures, as well as strategic planning of future processes. To carry out adequate contract management that covers delivery management, relationship management and contract administration and favours performance monitoring. Chapter 3 suggests that Kazakhstan develops a detailed supplier database that tracks standardised information on supplier’s performance regarding past public procurement contracts.

During the execution of contracts, there is always the possibility of unforeseen conditions and other obstacles that threaten the achievement of planned objectives. Strategic contract management should allow authorities to anticipate unforeseen situations, and respond to them (OECD, 2018[6]). Currently, it is difficult for officials from contracting authorities to have accurate information on the risks that can occur during the execution of a contract. The Government of Kazakhstan could consider designing tools that can help identify potential risks and report these risks or poor practices when they materialise. Some of these risks are described in Box ‎2.7.

Box ‎2.7. Risk and risk management

Many of the risks involved in contract management relate to the supplier being unable to deliver, or suppliers delivering goods and services with a dissatisfactory level of quality. The risk of these issues arising increase when the following failures occur:

• Lack of capacity.

• The supplier’s key staff is re-deployed elsewhere, which erodes the quality of the works delivered or the service provided.

• The economic operator’s business focus moves to other areas after the award of the contract, reducing the added value for the contracting authority in the arrangement, or impacting the timeliness for delivery of goods or works.

• The supplier’s financial standing deteriorates after the award of the contract, eventually endangering its ability to maintain agreed-upon quality requirements for goods purchased or levels of service.

• Demand for goods or services is much greater than expected, and the supplier is unable to cope

• Demand for a service is too low, meaning economies of scale are lost and operational costs are disproportionately high.

• Staff at the contracting authority with knowledge of the contract are transferred or move on, weakening the relationship between the contracting authority and supplier.

• Factors beyond the supplier’s control disrupt delivery of goods or services. For example, premises cannot be accessed because of a natural disaster

• The contracting authority is unable to meet its obligations under the contract.

Source: (OECD, 2011[10]).

A comprehensive system of contract management should also facilitate timely and efficient payment of suppliers. Having a well-coordinated payment-processing scheme can help increase the competitiveness of public procurement processes, making them more attractive to businesses, particularly small and medium enterprises (SMEs), which cannot take the risk of long and uncertain payment periods. Kazakhstan’s legal framework allows advance payments. However, if the supplier receives an advance payment the supplier shall, in addition to bid security for the public procurement contract, provide an “advance payment bond” equal to the advance payment amount. While performing the obligations assumed under the public procurement contract, contracting authorities shall, upon a written notification from the supplier, reduce the amount of the advance payment bond in proportion to the obligations fulfilled under the public procurement contract. This mechanism therefore allows a gradual payment of suppliers depending on their fulfilment of their contractual obligations.

The legislation on public procurement requires that the full payment to the supplier must be made within 30 calendar days from the execution of the suppliers’ obligations under the contract. A payment to suppliers can take place when an act of acceptance has been signed. The contracting authority may have up to 10 days in order to study the report by the supplier. However, contracting authorities need to notify the supplier within three days in case they need more time to verify that the product or service delivered or rendered fulfils the terms of the contract. Payment delays are a common problem in both OECD and EU member countries.

In Kazakhstan, contracts have to be registered by the Treasury (Ministry of Finance) to come in to effect. However, the National Chamber of Entrepreneurs often receives grievances from suppliers that contracts are signed but not registered in the Treasury, leading to contracts not being paid on time. Sometimes the only way to resolve a payment issue is through the court system. According to the National Chamber of Entrepreneurs, the most frequent court cases regarding public procurement do involve payment issues, with over 2 000 cases in 2017.

One of the most important causes of late payments is lack of co-ordination between organisers, contracting authorities and the Department of Treasury. Any hurdle in communications between the organiser and the purchaser can lead to excessive delays, particularly in agreeing upon the act of acceptance. Upon signature of a procurement contract, the government e-procurement system automatically sends them to the Treasury to be registered. Therefore, it would be important that the Ministry of Finance identify why the Treasury might not register incoming public procurement contracts within a reasonable amount of time.

To ensure that the purchase of goods and services is carried out in a proper manner and according to the national legislation, an encompassing system for contract management that integrates the entire procurement cycle is needed. Contracting authorities could focus on implementing systems that allow feedback from the contract implementation stage to inform future procurements and associated planning. By doing this, they can ensure both compliance with contractual conditions and the best use of resources. This is especially important for public organisations, as they often have long-lasting contracts with very specific characteristics. To ensure that the management of contracts is carried out in a timely and efficient manner in all circumstances, it is necessary that regulations and personnel prioritise not only the fulfilment of the contracts, but also monitoring and learning from performance.

2.3. Challenges and areas of opportunity towards achieving value for money along the procurement cycle

2.3.1. Data on procurement methods show excessive use of direct awards

According to data provided by the Centre of Electronic Commerce, the most common procurement method in 2018 in Kazakhstan was direct award based on exceptions. It accounted for 77.5% of all public procurement contracts signed in 2018. Of this, 65.5% were low-value purchases below the threshold (Figure ‎2.4). The share of the other procurement methods have been stable since 2016 in Kazakhstan, with the exception of an increase of the share of open tenders (from 1.4% of processes in 2016 to 2.5% in 2018) and a decrease in the share of direct award after failed bidding (from 7.9% of processes in 2016 to 5.1% in 2018).

In Kazakhstan, direct awards account for a large share of overall public procurement value. Direct awards based on exceptions accounted for 45% of overall procurement spending in 2017, while direct award after failed bidding represented 28% of overall procurement spending during the same year (Figure ‎2.4). Public tender was the third procurement method, accounting for 20% of overall public procurement spending in 2017. This raises concerns, as direct award based on exceptions is a non-competitive procurement method and therefore the scope of its usage should be limited in order to ensure proper competition and value for money (see Principle on Access of the OECD Recommendation of the Council on Public Procurement in Box ‎2.2 above).

Figure ‎2.4. Procurement methods as a share of procurement spending (2016-18)

Note: Direct award based on exceptions is consolidated in this graph (below threshold and other exceptions). Below threshold purchases account for only a small share of procurement spending (4.7% in 2016, 4.3% in 2017 and 3.4% in 2018).

Source: Ministry of Finance of the Republic of Kazakhstan.

The share of direct awards in procurement value is very high in Kazakhstan by comparison with most OECD countries: for instance, in the European Union, in 2016 only a third of all public contracts were awarded without meaningful competition, either through negotiation or because only one bid was received (European Commission, 2017[13]). Moreover, in Kazakhstan, direct award after failed bidding was the second most significant procurement method in terms of value, which raises questions about whether competitive procurement methods (open tenders, requests for quotations and auctions) attract a sufficient number of responsive bids to ensure proper competition.

However, public procurement data for 2018 show an improvement with a higher share of public tenders, which accounted for almost 37% of procurement spending and became the most important procurement method (in terms of procurement spending). Simultaneously, the share of direct award based on exceptions and direct award after failed tender decreased as compared to 2017 (Figure ‎2.4). However, this positive trend is observed only in 2018, and it remains to be seen whether the weight of public tenders in procurement spending keeps increasing in the following years. One possible explanation for the 2018 spike in the weight of public tender could be an unusually high amount of overall procurement spending, as compared to previous years. Section ‎2.3.2 provides more details on direct award procedures of both types (direct award based on exceptions and direct award after failed bidding) and regarding competition between suppliers in public procurement processes.

2.3.2. The different types of direct award: an analysis

The high prevalence of direct award (i.e. non-competitive procurement method) is one of the main challenges of Kazakhstan’s public procurement system. The Ministry of Finance aims at reducing the share of such direct award procurement during upcoming years. Procurement opportunities conducted through direct award are still published in annual procurement plans, so that potential supplier are aware of them and are in position to submit commercial proposals to contracting authorities. As described in section ‎2.2.4, there are two types of direct award procurements in Kazakhstan: 1) Direct award based on exceptions (Rus. Единый искточник путям прямого заключение договора); 2) Direct award after failed bidding (Rus. государственные закупки из одного источника по несостоявшимся государственным закупкам).

The OECD Recommendation on public procurement (Principle on Access, see Box ‎2.2) calls for limiting exceptions to competitive tendering. Indeed, open bidding generally attracts more bidders than restricted procedures, maximizing competition and obtaining better “value for money” (World Bank, 2015[14]). Contracting authorities benefit from choosing between different providers, and so does the economy as a whole.

Direct award based on exceptions

As detailed in section ‎2.2.4, in 2018 direct award based on exceptions accounted for 36.8% of overall public procurement spending. It is worth noting, that the weight of direct award based on exceptions was higher in previous years: for instance, it accounted for 45.4% of overall public procurement spending in 2017. It is not clear whether the decrease in the relative share of direct award of both types in 2018 was due to temporary factors (such as a spike in public procurement spending) or testifies to a long-term trend.

As detailed in section ‎2.2.4, one of the 50 exceptions providing for direct award procurement is the purchase of homogeneous goods, works and services under the value threshold for direct award. Most OECD Public procurement systems have such exceptions for low value-processes. In Kazakhstan, such low-value processes below the threshold for direct award accounted for 65.5% of all public procurement processes in 2018, but only 3.4% of overall procurement value. The 49 other exceptions of Article 39 Point 3 of the PPL accounted for 12% of all public procurement processes in 2018, but 33.4% of overall public procurement value.

The 50 exceptions allowing contracting authorities to use the direct award procurement method (Article 39 Point 3 of the PPL provides the list of exceptions) comply with the provisions of the Treaty on the Eurasian Economic Union. Some of these exceptions correspond to situations where there is no competitive environment (procurement from monopolists, such as purchase from public utilities, procurement of intellectual property from legal entities or persons having copyrights, etc.). However, other exceptions (acquisition of goods, services and works from entities defined by laws and regulations…) are very broad and do not correspond to a specific category (Table ‎2.1).

Table ‎2.1. Most important exceptions to competitive tendering (2018)
Short descriptions	Share of overall public procurement value	Legal base (art. 39, Point 3)
Government grants for educational institutions (acquisition of education services)	7.3%	Subparagraph 19
Acquisition from national holdings and companies (as defined by laws and regulations) or from public enterprises subordinated to the contracting authority	6.3%	Subparagraph 27
Acquisition of goods, services and works from entities defined by laws and regulations	4.0%	Subparagraph 36
Acquisition from monopolists (purchase of energy, electricity, etc.)	3.6%	Subparagraph 1
Homogeneous goods, services and works below the value threshold for direct award	3.4%	Subparagraph 42
Acquisitions of goods and services from holders of exclusive intellectual property rights	2.7%	Subparagraph 3
Acquisition from government-run enterprises of the penitentiary system (list of goods, services and works defined by government decree)	1.8%	Subparagraph 29
Acquisition of goods, services and works whose price is established in laws and regulations	1.5%	Subparagraph 2
Acquisition of real estate (except housing) as defined by laws and regulations, and property maintenance and upkeep (under certain conditions)	0.8%	Subparagraph 53
Others	5.4%	41 other exceptions
Source: Ministry of Finance of the Republic of Kazakhstan, PPL.

For some of the 50 exceptions, the Public Procurement Rules requires contracting authorities to request quotations from at least three potential suppliers before deciding to whom to award the contract (Article 378-1 of the Public Procurement Rules). Nevertheless, this requirement does not apply to the most significant exceptions in terms of procurement value that are listed in Table ‎2.1.

Reducing the use of direct award based on exceptions throughout the public procurement system is an explicit policy goal of the Ministry of Finance. As detailed in Chapter 1 of the report, the December 2018 amendments decreased the number of exceptions as per Article 39 Point 3 from 54 to 50. However, this abolition of five exceptions will not affect the scope of exceptions to competitive tendering in Kazakhstan. Indeed, the five abolished exceptions accounted for only 0.2% of overall procurement value in 2018, and an even smaller share of overall procurement processes. Meanwhile, the amendments created a new exception under Article 39 Point 3 regarding goods, services and works for special law enforcement units, and extends the scope of an existing exception related to security services (see chapter 1 for details).

The high value share of procurement through direct award is hampering substantial efforts undertaken by the Ministry of Finance to make public procurement more open and increase its efficiency. In addition to decreasing effectiveness and efficiency of procurement, such a high share of direct contracting can represent a fertile soil for corruption. Decreasing the excessive use of non-competitive procurement methods, particularly direct award procurement based on the list of 50 exceptions provided for by the PPL, would bring Kazakhstan’s public procurement system closer to the principles for good public procurement expressed in the OECD Recommendation.

The Ministry of Finance should reconsider the list of exceptions detailed in Article 39 Point 3 of the PPL, with the goal of reducing it as much as possible to allow for the highest degree of competition. In doing so, an independent assessment could be undertaken to determine which of the exceptions are justified based on the principles of objectivity, transparency and fairness. Some existing exceptions under Article 39 Point 3 of the PPL do not match exceptions that typically exist in OECD countries. These are, for instance, exceptions of subparagraph 38 (acquisition of services related to the processing of statistical data) and subparagraph 45 (purchase of materials of exhibitions, seminars, conferences, meetings, forums, symposia, trainings, as well as payment for participation in these events) under Article 39 Point 3 of the PPL. Based on the results of this independent and systematic assessment, the government could revise the PPL to abolish unnecessary exceptions to competitive tendering. The case of abolishing some exceptions is even stronger because of the recent increase of the value threshold for direct award (see next subsection of the report).

The importance of regulating and standardising the use of exceptions was recognised in the Agreement on Government Procurement (GPA) within the framework of the World Trade Organisation (WTO). In an effort to promote transparency and open public procurement practices, the GPA standardised the reasons under which a procurement can be exempt from open tender (Box ‎2.8). Kazakhstan pledged to initiate accession to the GPA as part of its WTO Accession Protocol (World Trade Organisation, 2019[15]). This accession process could provide a valuable opportunity to review exceptions systematically and work towards reducing them.

Box ‎2.8. Exceptions allowed under international trade agreements

Countries adhering to the GPA (thereafter, parties) must ensure that the rules they put in place to allow exceptions to open competition in procurements covered by the Agreement do not adversely affect suppliers from other parties. Contracting authorities within countries that are parties to the agreement may conduct what is termed ‘limited tendering’. This is defined as a procurement method whereby the procuring entity contacts a supplier or suppliers of its choice. This method can be undertaken where:

• A limited number of (compliant) tenderers have responded in the first stage of an open tender process

• The product/service can only be supplied by one supplier, given it is a work of art, there are exclusive rights or patents, or there is no competition for technical reasons

• Additional deliveries/services are required from the original supplier, where a change of supplier is not possible

• There are reasons of extreme urgency brought about by events unforeseeable by the procuring entity

• Goods are purchased on a commodity market

• A prototype is being procured

• Short term, extremely advantageous conditions exist

• The product is the result of a design contest

Source: (World Trade Organisation, 2012[16]).

As a recent party to the GPA (2015), New Zealand had to enshrine the provisions of the agreement in domestic procurement legislation. In New Zealand, the Government Procurement Rules are the cabinet-mandated rules to govern public procurement. The Rules clearly outline the situations under which open competition is not required. The Cabinet endorsed the fourth edition of the Rules on 13 May 2019. Table ‎2.2 provides a non-exhaustive overview of the Rules related to exceptions in New Zealand.

Table ‎2.2. Exemption from open advertising in New Zealand
Categories of exceptions		Examples
	Emergency	A genuine emergency (meeting the definition); note that urgent situations that are created by an agency, such as lack of advance planning, do not constitute an emergency.
Exceptions that do not require open advertising (all rules apply, except the procurement does not need to be openly advertised; a closed competitive process or a direct award process must be used (subject to the policy of the contracting authority)	Limited supply market	The tender has been openly advertised in the last 12 months and no responses were received that complied with pre-conditions. The goods, services or works can be supplied by only one supplier and there is no reasonable alternative or substitute for technical reasons or intellectual property rights are being purchased. An agency receives an unsolicited proposal which is unique, represents value for money and the goods, services or works are not otherwise readily available in the marketplace.
	Specific goods or services being purchased	-Purchasing a prototype for research, experiment, study or original development (once the contract for the prototype has been fulfilled, an agency must openly advertise any subsequent procurement). Where a contract is awarded to the winner of a design contest, where the contest has been organised in a manner consistent with the rules. - Goods purchased on a commodity market.
	Secondary procurement (e.g. selection from a multi-supplier framework agreement)	Where an agency has established a panel of suppliers (though specific rules should still apply to the panel selection process) Purchasing from a government Framework Agreement (though the Framework Agreement secondary procurement process should be followed)
Note: Refer to Rule 14 for exemption to open advertising
Source: (New Zealand Government Procurement Branch, 2015[4]).

Recognising the benefits of increasing the level of competition in public procurement, the government of Costa Rica requested the OECD Secretariat to provide expert advice on international best practices regarding exceptions to competitive tendering and the related thresholds, so as to inform ongoing reforms in this area (Box ‎2.9).

Box ‎2.9. Streamlining the use of exceptions and simplifying the threshold system in Costa Rica

Ensuring an adequate level of competition has clear impacts on the value for money achieved through public procurement. The public procurement regulatory framework of Costa Rica foresees the possibility to use three main procedures: open tenders, limited tenders and direct awards. The system includes 26 categories of exceptions to ordinary procedures that could be undertaken through direct award or limited tender.

In 2017, the use of exceptions to ordinary procedures accounted for 47.6% of the total procurement volume and 80.3% of the total number of procedures in Costa Rica. Among the exceptions most used by contracting authorities, “procurement volume below threshold” accounts for 58.3% in terms of values and 75.3% in terms of number of procedures, followed by the exception used in case of “single supplier”(11.2% in terms of values and 6.4% in terms of number of procedures).

Many countries have a threshold system based only on the procurement category and the categories of entities. In Costa Rica, however, thresholds applied by contracting authorities depend on: i) the procurement category; ii) the budget allocated to each entity (ten different categories are foreseen in the legal framework); and iii) the scope of the law. Mexico and Colombia also have similar threshold systems based upon the budget allocation, but their thresholds are lower than the ones of Costa Rica. In addition, special public entities are not subject to the threshold set out in the LCA. The multiplicity of those parameters and criteria undermines the clarity of the country’s procurement regulatory framework.

Recognising the benefits of enhancing the level of competition in public procurement, the government of Costa Rica requested the OECD to review its public procurement system with a particular emphasis on: i) the exceptions to competitive tendering; and ii) the threshold system in place in the country. The OECD provided the following key recommendations based upon the evidence-based analysis through comparing the system of Costa Rica with international best practices.

• Streamlining and reviewing each of 26 exceptions to ordinary procedures

• Exceptions should be clearly defined, justified, and streamlined. Many exceptions could be grouped together, and others could be undertaken through a competitive process. Some exceptions foreseen in the legal framework should be classified as exclusion.

• Enhancing the monitoring of exceptions

• Streamline the procurement procedures and processes

• Reviewing the threshold system in place, by providing options for simplification and alignment with international practices

These recommendations are now being used by Costa Rica as a key input to ongoing legal and regulatory reforms, the most comprehensive in 20 years, which will allow Costa Rica to enhance the level of competition and improve value for money by increasing the effectiveness of the country’s public procurement system.

Source: (OECD, 2019[17]).

According to the OECD Recommendation on Public Procurement “if exceptional circumstances justify limitations to competitive tendering, such exceptions should be limited, pre-defined and should require appropriate justification when employed…” (Box ‎2.2, Principle on Access). Where the regulatory framework allows exceptions, laws, regulations and rules that define them should be clearly laid out, in plain language, in a way that procurement officials can easily understand. This level of clarity should limit the amount of discretion that can be applied by officials (Ware, G. et al., 2007[18])Excessive amounts of discretion in the selection of procedures can adversely affect perceptions of fairness and predictability, discouraging firms from entering a market (Evenett and Hoekman, 2005[19]).

Several exceptions to competitive tendering in Kazakhstan are difficult to grasp and require specialised legal knowledge and some analysis to fully understand their scope. This is true regarding two of the largest exceptions in terms of procurement spending: Acquisition from SOEs as defined by laws and regulations (Article 39 Point 3 Subparagraph 27) and acquisition of goods, services and works from entities defined by laws and regulations (Article 39 Point 3 Subparagraph 36, see Table ‎2.1). To understand the scope of each of these exceptions, it is necessary to go through a large number of laws and regulations, and evidence from legal forums suggests that the exact perimeter is not fully understood by suppliers or contracting authorities (URKO, n.d.[20]). In order to bring transparency and clarity to these exceptions, the Ministry of Finance could adopt by decree an exhaustive list of cases when these two exceptions are applicable. The aim is to provide guidance to contracting authorities about whether they can apply these exceptions or not.

Direct award below the value threshold

As previously mentioned, one of the 50 exceptions foresees direct awards below a value threshold, i.e. the purchase of homogeneous goods, works and services by contracting authorities below a certain value (Article 39 Point subparagraph 42 of the PPL). In Kazakhstan this value threshold is currently 500 monthly calculated indexes or KZT 1 262 500 (roughly equivalent to EUR 3 100 or 7.2 average wages in Kazakhstan) for services and works, and 100 monthly calculated indexes for goods or KZT 252 500 (roughly equivalent to EUR 620 or 1.4 average wages in Kazakhstan).

As detailed in chapter one, the December 2018 amendments increased fivefold the threshold for services and works: it was previously equivalent to the one for goods (100 monthly calculated indexes). According to the Ministry of Finance, this will simplify procurement processes, particularly for CAs with limited budgets, such as kindergarten, hospitals and clinics, cultural centres, senior centres and boarding schools. As a result of this increase, the frequency of direct award below the value threshold will increase in 2019, as well as its weight as a share of overall procurement value.

When setting the thresholds, countries need to balance the transaction costs of public tenders against with the benefits of competition:

• For government buyers, the value gained from a competitive process (in Kazakhstan, public tenders, auctions and request for quotations) should justify the cost of undertaking a procurement exercise; That is why, when the value of the contract is limited, contracting authorities stand to gain from a simple and efficient process such as direct award.

• For suppliers, the threshold for a competitive process must be sufficiently high to justify the cost of participating in a public tender.

Factors to be taken into account include the average cost of a procurement exercise for a contracting authority, assessing the economic environment, including the level of competition for government tenders, and the level of procurement capability of contracting authorities (Box ‎2.10). It is important that the government pay due attention to these factors, including the capacity of procurement authorities in terms of human resources. Indeed, stakeholders reported that excessive workloads and insufficient trainings are common problems among procurement officers in contracting authorities (Chapter 6 of the present report).

Box ‎2.10. Direct and indirect tender preparation costs for public entities

Direct costs:

• Salary of officials / cost of consultants in charge of the tender procedure X months ( drafting administrative documents and tender specifications)

• Publication cost ( official journal or and the use of e-procurement system)

Indirect costs:

• Validation cost of the tender procedure (hierarchical, legal approvals or budgetary validations)

• Office space cost and the use of facilities and IT equipment (phone, computer, etc.).

Source: adapted from (OECD, Germany) (OECD, 2017[21]).

For suppliers, preparing bids can also be costly. Bidding requires having capable staff to prepare the bids, which includes gathering the necessary documents, responding strategically to the tenders. Rare resources such as experts may be required to work on bids, which means they will not be available for other work or backfill resources will need to be hired to do their normal work for them. A 2015 study found that bid costs for professional services firms involved in public sector built environment projects range between 0.6% and 2.9% of total project value (Deloitte, 2015[22]).

The value threshold for direct award in Kazakhstan (procurements below the threshold are one of the 50 exceptions allowing direct award based on exceptions) is quite low compared to equivalent national thresholds allowing direct awards of procurement contracts (without advertisement) in many OECD Countries. For example, in Korea, contracts below EUR 15 665 (KRW 20 million) can be awarded directly without competition. In Canada most Federal Departments can enter into non-competitive goods and service contracts with a value up to EUR 16 623 (CAD 25 000) (OECD, 2019[17])

In the EU, direct award, i.e. purchasing from a supplier without a requirement for an advertisement or competitive process, is often permitted for very low-value contracts. The definition of a very low-value contract varies between member states (OECD, 2011[23]). For instance, in the Netherlands direct award is authorised for contracts below EUR 33 000 and in France for contracts below EUR 25 000, provided that certain conditions are respected. In Lithuania, the public procurement law gives contracting authorities considerable flexibility for contracts under EUR 10 000, including direct award purchases (OECD, 2019[17]).

Therefore, the recent increase of the value threshold for direct award regarding services and works is a positive step forward, and may contribute to reducing the administrative burden on contracting authorities. However, the December 2018 amendments left the value threshold for goods unchanged, at KZT 252 500 (roughly equivalent to EUR 620 or 1.4 average wages). International best practices and evidence from OECD fact-finding missions suggest that this threshold might be excessively low. Hence, the Ministry of Finance could engage in a comprehensive assessment of whether this is the case, including field research with diverse contracting authorities. The Ministry could also make sure that suppliers are able to file complaints regarding award decisions below the threshold(s) for direct award as a way to mitigate possible integrity risks.

Direct award after failed bidding

As mentioned in section ‎2.2.4, direct award after failed bidding is the procurement method used if contracting authorities receive only one or no responsive bid to a public tender (or auction) or to a request for quotations, i.e. after a failed public tender (a failed auction, a failed request for quotations). As of January 1^st, 2019, a new open tender (or a new auction) must be launched after a failed public tender (or a failed auction), and direct award after failed bidding can be used only if contracting authorities receive once again only one or no responsive bid.

Overall, in 2018, 41% of public tenders resulted in direct award after failed bidding, i.e. they “failed” because contracting authorities received only one or no responsive bid. Failed public tenders accounted for 52% of overall procurement value for public tenders in 2018. Figure ‎2.5 depicts the recent evolution of failed public tenders leading to direct award (as a share of overall procurement value for public tenders) and provides a breakdown for goods, services and works.

Figure ‎2.5. Value share of failed open tenders leading to direct award

Note: Depicts the value of failed open tenders leading to direct award divided by overall procurement value

Source: Ministry of Finance of the Republic of Kazakhstan.

Figure ‎2.5 shows that while the relative share of failed tenders decreased for works in 2018, it actually rose for goods and particularly regarding services, to the extent that tenders resulting in direct award after failed bidding accounted for 80% the overall value of open tenders for services. This could point to low competition in public tenders for services. This is corroborated by the average number of bids per public tender of services, which is lower than for goods and works and decreased in 2016 and 2017 (see also Figure ‎2.6).

One area with a high share of failed public tenders is large construction works (value exceeding KZT 1 billion, roughly equivalent to EUR 2.5 million), almost 100% of which resulted in direct award after failed bidding in 2017. Often, only one supplier is actually deemed to comply with the technical specifications, while bids from other bidders are rejected based on formal mistakes in bidding documents. This, indicates that the challenges are related to the technical specifications and their representation of market capabilities, rather than a lack of suppliers that would be fit to deliver. Contracting authorities eventually sign a contract with the only supplier that complied with the technical specifications, whose bid offered the maximal authorised price (Beketaev, 2018[2]).

Regarding requests for quotations (RFQs), only 16.7% of them resulted in direct award after failed bidding in 2018, accounting for 11.3% of the overall procurement value for RFQs. Figure ‎2.6 depicts the recent evolution of failed RFQs (as a share of overall procurement value for RFQs). The value of failed RFQ (as a share of overall procurement value for RFQs) has been declining since 2016, and like with open tenders, RFQs for services display the highest share of failed processes leading to direct award.

Figure ‎2.6. Value share of failed RFQs leading to direct award

Note: RFQ: Request for quotations.

Source: Ministry of Finance of the Republic of Kazakhstan.

The high share of failed public tenders raises (as a percentage of overall procurement value) questions about whether they attract a sufficient number of responsive bids to ensure proper competition. Data suggests that, contrary to RFQs, failed public tenders have usually a higher value than average, i.e. those public tenders that receive only one or no responsive bid are mostly high-value tenders. This is particularly true regarding failed open tenders for services, which accounted for 80% the overall procurement value of open tenders for services but only 55% of their overall number in 2018.

In addition to higher prices, the large proportion of direct award procurements after failed bidding is also problematic because it reflects a lack of genuine competition and gives additional discretionary power to tender commissions. Indeed, in cases where no valid bid is submitted to a public tender, the PPL enables the tender commission to choose a supplier though direct award, or to launch a new competitive tendering process through the government e-procurement system. Therefore, the high share of failed competitive bidding could create corruption risks.

Reducing the frequency of direct award procurements after failed bidding is among the strategic objectives of the Ministry of Finance. It has taken two key measures to tackle this problem:

• Reducing the amount of formal documents, certificates and licenses submitted by potential suppliers in open tenders for construction works, in order to reduce the potential for formal mistakes in bidding documents (OECD, 2017[21])

• Following the December 2018 amendments, a new open tender (or a new auction) is compulsory after a failed public tender (or a failed auction). Direct award after failed bidding is allowed only after the second public tender (or the second auction) receive once again only one or no responsive bid. This measure does not apply to request for quotations (RFQs).

Regarding the first policy measure, even though it is not possible to establish causality, one should notice that the value share of direct award after failed bidding has decreased in public tenders for works since 2016 (see Figure ‎2.5 above). The frequency of failed public tenders for works also fell, from 43.2% of all public tenders for works in 2016 to 23.4% in 2018. It is too early to gauge the impact of the second policy measure, which Kazakhstan adopted with the explicit goal of diminishing the share of failed open tenders.

Besides these policy measures, the Ministry of Finance could study further the causes of the high prevalence of failed bidding in open tenders. Data available from the e-procurement system would be important for such in-depth assessment. One obvious priority would be to understand why high-value open tenders for services receive so often either only one or no responsive bid. Such assessment would cast light on possible improvements to Kazakhstan’s public procurement system as whole, as failed open tenders testify of insufficient genuine competition that is harmful for all contracting authorities.

Indeed, general improvements to the public procurement framework examined in this section (providing better access to procurement opportunities for non-resident suppliers, improving tender and supplier solicitation procedures, increasing the quality of tender documentations and technical specifications, etc.) are key to the reduction of failed competitive bidding and reviving competition between suppliers over the long term.

Dumping prices in open tenders

Given that price is the predominant award criteria and largely determines the selection of winning bids, winning bids have often artificially low prices. This has detrimental consequences on the quality of purchased goods or on contract execution. Kazakhstan’s Public Procurement Rules encompass a definition of “dumping prices” for some types of purchases, see Table ‎2.3.

Table ‎2.3. Definition of artificially low (“dumping”) prices in Kazakhstan
Procurement type	Price difference	Reference price
Construction works and road repair	Lower by 10% and more	Price established in design and budget documentation
Services related to architecture, engineering and construction, (including technical supervision)	Lower by 15% and more	prices set by relevant state technical standards
Repair works and works unrelated to construction or design estimates	Lower by 40% and more	initial value earmarked by contracting authorities
Services	Lower by 40% and more
Source: Compilation based on Kazakhstan’s Public Procurement Rules.

The public procurement legal and regulatory framework provides for one noteworthy loophole in relation to the prohibition of dumping prices: Suppliers can offer lower prices than the above-mentioned limits if they pay additional bid security. This loophole means effectively that bidders can “buy” the bid: the contract will be awarded among those bidders that conform to the technical specifications based on the lowest price – and the e-procurement system calculates the winning bidder automatically. Such additional bid security shall correspond to the difference between minimal non-dumping price and the price offer of the potential supplier, according to article 26 of the PPL. All potential suppliers participating in an open tender provide mandatory bid security amounting to 1% of the value earmarked by contracting authorities.

The December 2018 amendments partially addressed this loophole by prohibiting any price dumping for six categories of purchases related to construction, the elaboration of construction documents (plans and estimates), technical oversight and specialised architecture services. Indeed, referring to Table ‎2.3, price dumping is now only possible regarding services, and is prohibited in all other purchase categories. This measure, which aims to improve contract execution by excluding bidders with abnormally low prices, is a progress that brings Kazakhstan’s public tendering practices closer to OECD Standards.

In addition to prohibiting artificially low prices, the Government of Kazakhstan could consider measures that incentivise suppliers to submit realistic proposals and perform them with high quality. For example, as mentioned in section ‎2.2.6 on bid evaluation, tender commissions should use an evaluation method that takes into account more aspects than price and allows for a more detailed consideration of the bid, not just in a pass/fail approach in relation to set technical specifications. A points and percentages system could incorporate aspects like quality, sustainability, innovation and other strategic aspects of procurement.

2.3.3. Clarification meetings and debriefings

Since 2016 suppliers in Kazakhstan have had the opportunity to provide feedback about tender documentation and technical specifications on the e-procurement system, through preliminary discussions of technical documentation. Chapter 3 provides further details on this issue.

Similarly, in many OECD countries, contracting authorities conduct clarification meetings to answer questions on technical specifications and receive a feedback from suppliers. Clarification meetings are likely to ensure a greater number of bidders taking part in the tender, under the condition that they are conducted properly, all questions and inquiries are answered, potential bidders that have missed the meeting should not be at a disadvantage, etc… For that purpose, it is important to incorporate clear deadlines for the submission of questions, such as twenty-four hours before the scheduled clarification meeting date, is key to the success of clarification meetings. Each meeting is documented and published in the e-procurement platforms, except when there are any legal restrictions, such as confidential information.

Verbal debriefings are also used in some OECD countries to engage with the market and to expand the supply base. Implementation of adequate debriefing with suppliers provides a valuable opportunity for both parties to benefit from the process. Verbal debriefings can improve the relationship with suppliers and the quality of their offers, if properly documented and monitored (OECD, 2017[11]).

The debriefing should be conducted at the request of a bidder after the award is made and the contract has been signed. To get maximum benefit from a debriefing, it is better not to delay it beyond two weeks after contract award. It is recommended that certain generic content be considered in its development (OECD, 2017[24]). See also Box ‎2.11.

Box ‎2.11. The benefits of supplier debriefings

Debriefing is beneficial to bidders, in that it:

1. 1. helps them to rethink their approach in order to make future bids more successful

2. 2. offers targeted guidance to new or smaller companies to improve their chances of doing business with the public sector

3. 3. provides reassurance about the process and their contribution or role (if not the actual result)

4. 4. provides a better understanding of what differentiates public sector procurement from private procurement.

Constructive and transparent dialogue between procuring authorities and suppliers benefits contracting authorities by:

1. 1. identifying ways to improve subsequent solicitation processes, including the associated communications

2. 2. making sure best practice and guidance is updated to reflect any relevant issues that have been highlighted

3. 3. encouraging better bids from those suppliers in the future

4. 4. getting a better understanding of how that segment of the market thinks, enhancing the organisation market intelligence;

5. 5. helping establish a reputation as a fair, open and ethical buyer with whom suppliers will want to do business in the future

6. 6. potentially reducing the number of challenges.

Effective supplier debriefing can also benefit government and the wider public sector, by:

1. 1. demonstrating commitment to good practice and openness

2. 2. contributing to intelligence gathering about the market

3. 3. educating the market, letting it know that the public sector is value-driven and not cost-driven.

Source: (United Kingdom Office of Government Commerce, 2003[25]).

Kazakhstan could benefit from implementing supplier debriefings and clarification meetings for tenders of high-value or complex purchases, and might benefit from involving the expert or the expert commission involved in assessing product characteristics into such supplier debriefing. In order to increase the benefits of such meetings while mitigating any potential risks, the Ministry of Finance should support that activity with clear guidelines that provide a structured framework, and clarify elements such as when and where debriefings take place, what information can and cannot be provided, the standard discussion structure to be followed, etc.

2.3.4. Access to public procurement opportunities

When Kazakhstan introduced mandatory use of e-procurement, participation in competitive tendering increased. Between 2013 and 2017, as the coverage of the e-procurement system progressively extended to processes previously conducted on paper, the average number of bids per public tender increased for both goods (2.4 to 2.9) and construction works (from 2.6 to 2.9). However, the average number of bids per public tender of services decreased after reaching a peak in 2015 and stagnated over the period (from 2.6 to 2.5, see Figure ‎2.7). This suggests that e-procurement did not contribute to increase competition for public tenders regarding services.

Figure ‎2.7. Average number of bids per tender

Source: Ministry of Finance of the Republic of Kazakhstan.

The PPL affirms that the equal treatment of suppliers, including foreign ones, is one of the core principles of Kazakhstan’s public procurement framework. However, the prequalification mechanism currently in place impedes the access of foreign bidders to public procurement opportunities for certain categories of purchases. Otherwise, public procurement rules and regulations do not contain discriminatory provisions regarding foreign or non-resident suppliers. Moreover, Kazakhstan is a party to the Treaty on the Eurasian Economic Union dated 29 May 2014, which establishes the “national regime” in the sphere of public procurement for the member countries of the Eurasian Economic Union (EAEU). Accordingly, Kazakhstan shall provide EAEU suppliers with the same access to public procurement opportunities as its own resident suppliers.

As of July 2019, the Public Procurement Rules set up mandatory prequalification to bid for public procurement tenders of furniture, light industry goods and programming services (software development). The prequalification body is the National Chamber of Entrepreneurs (“Atameken”), which regroups all businesses in Kazakhstan. The Chamber issues industrial certificates that testifies that the supplier is a domestic producer included on the corresponding “register of domestic producers”. Suppliers of furniture, light industry goods and programming services must hold such industrial certificate in order to prequalify and submit bids for public procurement tenders (Ministry of Finance of Kazakhstan, 2019[26]).

The National Chamber of Entrepreneurs (Atameken) issued Rules governing the register of domestic producers and the issuance of industrial certificates (National Chamber of Entrepreneurs (Atameken), 2018[27]). Accordingly, the issuance of industrial certificate is possible only to a domestic producer registered in Kazakhstan. Moreover, Article 5 of the aforementioned Rules sets up specific requirements for the issuance of certificates and inclusion on the register. Manufacturers performing only simple assembly, disassembling or dismantling of goods in Kazakhstan, as well as superficial transformations such as painting or packaging cannot be considered “domestic producers” and issued an industrial certificate. Ironing and pressing of imported textiles is also excluded. There is no mechanism whatsoever for foreign bidders to obtain industrial certificates, and the process requires physical inspections by an industry expert in Kazakhstan and checking licenses, permits, tax reports, compliance with safety regulations, etc. Tax registration in Kazakhstan and an electronic signature under the national framework established in Kazakhstan are also indispensable (National Chamber of Entrepreneurs (Atameken), 2018[27]).

The prequalification mechanism for public procurement tenders of furniture, light industry goods and programming services de facto prevents foreign bidders from participating directly in public procurement tenders, and reduce their possibilities to participate through local intermediaries. The participation of foreign bidders provides for an increased competition in public tenders, and finally a more efficient public procurement spending (World Trade Organisation, 2015[28]). Consequently, the prequalification mechanism introduced in June 2019, is likely to affect the ability of contracting authorities to obtain the better price/quality ratio available on the supply market, to create artificial rents for selected domestic producers shielded from international competition and to increase the frequency of failed biddings and thus of direct awards after failed bidding.

Beyond this prequalification mechanism, in practice, non-resident suppliers face obstacles in participating in public procurement opportunities through the government e-procurement system because they usually do not have an electronic signature (Russian: электронно-цифровая подпись) under the national framework established in Kazakhstan. Indeed, the PPL stipulates that all bids on the government e-procurement system should be signed electronically using the electronic signature in force in Kazakhstan, which is provided by the National certification authority of the Republic of Kazakhstan (NCA RK).3 In order to obtain such electronic signature, non-resident companies and individuals face cascading administrative requirements, including mandatory tax registration in Kazakhstan and opening of a bank account in a resident bank in Kazakhstan. Performing these steps is costly and time-consuming, and requires a physical presence in Kazakhstan.

In practice, OECD fact-finding missions established that most foreign companies access public procurement in Kazakhstan through local intermediaries or through the establishment of an affiliate or a representative office in Kazakhstan, which once again generates additional costs and delays as compared to domestic suppliers. Contracting authorities face complications when dealing with foreign business partners and organisations, which are often not ready to bear additional costs to access Kazakhstan’s market for smaller orders. Overall, these additional costs may explain “a low level of competition on many tenders and relatively high prices in certain sectors” (OECD, 2017[21]).

As detailed in Chapter 3 of the present report, the December 2018 amendments established mandatory annual subscription fees paid by suppliers to submit bids and sign contracts on the government e-procurement systems. The payment process for these subscription fees creates additional obstacles for foreign (non-resident) suppliers to access public procurement opportunities in Kazakhstan. Indeed, suppliers need to pay the fees by bank transfer from an account in a resident Kazakhstani bank, and suppliers must mention their Kazakhstani tax or business register identifications on the transfer documents. From 2020 onwards, the introduction of e-wallet and associated requirements for payment of fees and bid bonds would increase further the above-mentioned obstacles to the participation of foreign (non-resident) suppliers to public procurement.

Available statistics confirm that direct foreign (non-resident) suppliers play a marginal role in Kazakhstan’s public procurement market. In 2017, they accounted for around 0.03% of suppliers awarded public procurement contracts and 0.44% of the overall monetary value of public procurement (Government e-procurement system, 2018[29]). By comparison, in the EU, in 2009 3‐4% of the value of contracts above the GPA thresholds were awarded to other GPA signatories (Brülhart and Trionfetti, 2001[30]). Most non-resident suppliers (59%) are from the Russian Federation (Government e-procurement system, 2018[29]).

These obstacles for foreign (non-resident) bidders, including the prequalification mechanism for public procurement of furniture, light industry goods and programming services, contradict the Principle on Access of the 2015 OECD Recommendation on Public Procurement. Indeed, under the 2015 OECD Recommendation on Public Procurement (Principle on Access), Adherent countries are invited to “treat bidders, including foreign suppliers, in a fair, transparent and equitable manner, taking into account Adherents’ international commitments (e.g., the Agreement on Government Procurement within the framework of the WTO)” (see also Box ‎2.2).

As far as the prequalification mechanism for public procurement of furniture, light industry goods and programming services is concerned, Kazakhstan would gain from enabling foreign bidders to prequalify, by setting up a specific mechanism dedicated to them. Removing Article 5 of the Rules governing the register of domestic producers and the issuance of industrial certificates would be a first step in the right direction. This would allow foreign suppliers to access the public procurement Kazakhstani market by partnering with local manufacturers and retailers.

In order to facilitate foreign suppliers’ access to public procurement opportunities, the Government of Kazakhstan would need to ease the access of non-resident suppliers to the country’s official electronic signature and to revise the payment process for subscription fees (see chapter 3 of this report). For instance, it could set up mechanisms to enable non-resident bidders to obtain digital signature certificates, submit the electronic bid security and pay for access fee to the e-procurement system from abroad.

The implementation of these measures regarding prequalification and the country’s official electronic signature would bring Kazakhstan closer to OECD standards. Besides, it would increase competition, particularly in regards to large, high-value procurements, and therefore contribute to reducing the share of failed bidding in competitive tendering.

Proposals for action

The assessment of the public procurement process in Kazakhstan suggests that the system places an excessive emphasis on compliance with public procurement rules rather than introducing tools aiming at increasing efficiency or competiveness. Key parts of the public procurement process in Kazakhstan need to be strengthened, especially the planning process, such as market analysis and the development of technical specification; and the access of non-resident suppliers to the government e-procurement system They are key to reduce the number of failed bids and ensure more competition in certain tenders.

The Ministry of Finance could take careful steps in introducing more value for money oriented procurement, incorporating quality criteria’s and going beyond the price factor. To further build on recent reforms, processes need to be much more strategically managed and pay more attention to the contract management phase of the procurement cycle. To achieve greater savings and better value for money for the whole public sector, the Ministry of Finance could consider the following proposals for action:

• Stimulate competition by taking actions that facilitate participation of suppliers, taking into account the complexity level of the different procedures. Two international good practices can offer potential bidders information and time necessary to prepare adequately: In order to provide adequate visibility to suppliers on upcoming opportunities, while also preserving some flexibility, contracting authorities could publish prior information notices (PIN). A regulation could require the publication of PIN in a reasonable time (one to three months) before tendering to raise the awareness of upcoming opportunities among the supplier community in case new items are added to procurement plans during the course of the year. Another avenue is to extend the minimum submission period (currently 15 days) for complex procedures.

• In order to facilitate the access of foreign suppliers to public procurement opportunities, the Government of Kazakhstan could reconsider its policy regarding the participation of foreign suppliers in public procurement, for example as part of the upcoming accession process of Kazakhstan’s to the Agreement on Government Procurement (GPA). A specific mechanism dedicated to foreign bidders could be created, so that they can to qualify for specific product categories that fall under this scheme, currently public procurement tenders of furniture, light industry goods and programming services.

• In order to facilitate the access of foreign suppliers to public procurement opportunities, the Government of Kazakhstan would need to ease the access of non-resident suppliers to the country’s official electronic signature. For that purpose, it could set up mechanisms to enable non-resident bidders to obtain digital signature certificates, submit the electronic bid security and pay for access fee to the e-procurement system from abroad. This would increase competition, particularly as regards large, high-value procurements, and therefore contribute to providing better value for money to contracting authorities. It could also contribute to reducing the share of failed bidding in competitive tendering.

• The Ministry of Finance should consider introducing points and percentages criteria in open tenders and requests for quotations. It should weigh different criteria such as sustainability aspects, quality, life cycle costs, delivery terms, additional functionalities and updates, among others.

• The Ministry of Finance should consider developing a comprehensive contract management framework that covers delivery management, relationship management and the contract administration.

• Within the boundaries prescribed by the existing anti-corruption framework, rules and regulations, the Ministry of Finance should consider introducing supplier debriefings in order to improve relationships with bidders and suppliers as well as the efficiency of public procurement processes. The Ministry of Finance should support that activity with clear guidelines that provide a structured framework. Insights from contract management should feed into the planning phase.

• There is a need for more specialist knowledge on specific categories in relation to both the development and evaluation of specifications. As Kazakhstan gradually centralises its procurement framework, it would be important for Central Procurement Bodies (single organisers) to develop their internal expertise regarding complex purchases and product categories, as they will be better able to correct mistakes in technical specifications and to assess bids from suppliers, but also to conduct market research and monitoring during the procurement planning phase.

• The Ministry of Finance should reconsider the list of exceptions detailed in Article 39 Point 3 of the PPL, with the goal of reducing it as much as possible to allow for the highest degree of competition. In addition, the Ministry of Finance could detail the exact scope of some exceptions that are very broad because they refer to all existing laws and regulations. The aim is to provide guidance to contracting authorities about whether they can apply these exceptions or not.

• The Ministry of Finance could launch an independent assessment of whether the value threshold for direct award of goods is too low, and increase the threshold depending on the conclusions. The Ministry could also make sure that suppliers are able to file complaints regarding award decisions below the value threshold for direct award as a way to mitigate possible integrity risks.

• The Ministry of Finance could study further the causes of the high prevalence of failed bidding in open tenders. One obvious priority would be to understand why high-value open tenders for services receive so often either only one or no responsive bid, which may be related to low competition in public tenders for services. Such assessment would cast light on possible improvements to Kazakhstan’s public procurement system as whole.

References

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[30] Brülhart, M. and F. Trionfetti (2001), Industrial Specialisation and Public Procurement: Theory and Empirical Evidence, https://www.jstor.org/stable/pdf/23000551.pdf?refreqid=excelsior%3A93cd682c56607620f92038e2506887ee (accessed on 22 May 2019).

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[27] National Chamber of Entrepreneurs (Atameken) (2018), Rules governing the register of domestic producers and the issuance of industrial certificates - Decision of the Bureau N°28 from 28 December 2018, https://atameken.kz/uploads/content/files/%D0%9F%D1%80%D0%B0%D0%B2%D0%B8%D0%BB%D0%B0%20%D0%98%D0%A1%20%D0%BF%D0%BE%20%D1%81%D0%BE%D1%81%D1%82_%D0%BD%D0%B0%2008_04_2019.pdf.

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[17] OECD (2019), Report on the Implementation of the Recommendation of the Council on Public Procurement, OECD, Paris, https://one.oecd.org/document/C(2019)94/en/pdf.

[6] OECD (2018), Public Procurement in Nuevo León, Mexico: Promoting Efficiency through Centralisation and Professionalisation, OECD Public Governance Reviews, OECD Publishing, Paris, https://dx.doi.org/10.1787/9789264288225-en.

[21] OECD (2017), Anti-corruption reforms in Kazakhstan: 4th round of monitoring of the Istanbul Anti-Corruption Action Plan, OECD Publishing, Paris, http://www.oecd.org/corruption/acn/OECD-ACN-Kazakhstan-Round-4-Monitoring-Report-ENG.pdf.

[24] OECD (2017), “Involving Peruvian suppliers more in the procurement process”, in Public Procurement in Peru: Reinforcing Capacity and Co-ordination, OECD Publishing, Paris, https://dx.doi.org/10.1787/9789264278905-6-en.

[11] OECD (2017), Public Procurement Review of Mexico’s PEMEX: Adapting to Change in the Oil Industry, OECD Public Governance Reviews, OECD Publishing, Paris, https://doi.org/10.1787/9789264268555-en.

[8] OECD (2016), Towards Efficient Public Procurement in Colombia: Making the Difference, OECD Publishing, Paris, https://doi.org/10.1787/9789264252103-en.

[3] OECD (2015), Government at a Glance 2015, OECD Publishing, Paris, https://doi.org/10.1787/gov_glance-2015-en.

[1] OECD (2015), OECD Recommendation of the Council on Public Procurement, OECD, Paris, http://www.oecd.org/gov/ethics/OECD-Recommendation-on-Public-Procurement.pdf.

[23] OECD (2011), “Below Threshold Contracts”, SIGMA Public Procurement Briefs, No. 15, OECD Publishing, Paris, https://dx.doi.org/10.1787/5js4vmp1xxd3-en.

[10] OECD (2011), Contract Management, Sigma, http://www.sigmaweb.org/publications/Public-Procurement-Policy-Brief-22-200117.pdf.

[5] State of Queensland (Dpt of Housing and Public Works) (2018), Supply market analysis, http://www.hpw.qld.gov.au/SiteCollectionDocuments/ProcurementGuideSupplyMarketAnalysis.pdf (accessed on 6 March 2019).

[12] State Treasury of Kazakhstan (2015), Treasury regulations (in Russian), http://adilet.zan.kz/rus/docs/V1500012021.

[25] United Kingdom Office of Government Commerce (2003), Supplier debriefing guidance, Office of Government Commerce, http://prp.gov.wales/docs/prp/generalgoodsservices/130617ogcsupplierdebrief.pdf.

[20] URKO (n.d.), Specialised legal forum on public procurement Law, http://www.urko.kz/node/300.

[18] Ware, G. et al. (2007), “Corruption in public procurement: A perennial challenge”, in The Many faces of corruption: tracking vulnerabilities at sector level, The World Bank, Washington DC, http://documents.worldbank.org/curated/en/571831468315566390/pdf/399850REPLACEM101OFFICIAL0USE0ONLY1.pdf (accessed on 13 March 2019).

[14] World Bank (2015), Benchmarking Public Procurement 2015, https://ppp.worldbank.org/public-private-partnership/library/benchmarking-public-procurement-2015 (accessed on 23 April 2019).

[15] World Trade Organisation (2019), GPA: Parties, observers and accessions, https://www.wto.org/english/tratop_e/gproc_e/memobs_e.htm (Accessed on 24 April, 2019).

[28] World Trade Organisation (2015), Opening markets and promoting good governance, https://www.wto.org/english/thewto_e/20y_e/gpa_brochure2015_e.pdf (accessed on 13 March 2019).

[16] World Trade Organisation (2012), Revised Agreement on Government Procurement, https://www.wto.org/english/docs_e/legal_e/rev-gpr-94_01_e.pdf (Accessed on 24 November 2017).

Notes

← 1. Direct award based on exceptions are called “single source through direct award” in the 2015 PPL, but this Review uses the formula “Direct award based on exceptions”.

← 2. The PPL refers to direct award after failed bidding as “public procurement through single source after failed procurement”.

← 3. For more details, please consult the non-resident webpage of the National Certification Authority in Kazakhstan: http://www.pki.gov.kz/index.php/en/