Home / Business / New Opportunities in State Procurement Mechanisms

New Opportunities in State Procurement Mechanisms

Assistance of companies, which lack due technical and human resources for participation in state procurement process, is one of the services that Tbilisi Business Hub offers to potential partners.

State procurement process is carried out in electronic format. Its transparency and high competitive environment grows motivation of business sector representatives to more actively participate in electronic tenders. However,  many companies cannot make use of this excellent chance to grow their revenues and develop business.

According to State Procurement Agency, only 18% of companies are registered in state procurement system. Moreover, 37% of the registered companies have never taken part in state procurement process. Tenders in such fields as construction, engineering, transport and logistics, furniture production and supply of food and beverages  are especially problematic, because companies show less interest and their involvement is unimportant.  Reports prepared by international organizations show that these insignificant statistical indicators, besides other factors, were caused by lack of human resources  and ignorance of state procurement issues.

-For all that, how state procurement process is carried out in Georgia and what tendencies are recorded from the side of Government in this respect?

– Reforms implemented in state procurement system of Georgia over the past years deserved positive appraisals from many international organizations. Naturally, as a result of these reforms, state procurement system of Georgia has turned into one of the most transparent processes worldwide. In general, unreasonable spending of state funds, as a result of corruption and gaps in procurement system, remains a global challenge till today, especially, in such countries as Georgia. For the purpose of resolving this problem and growing efficiency of procurement system, at the end of 2010 this system was modernized in radical form. The so-called Paper Tenders were abolished and the country moved to electronic procurement system entirely. The mentioned reforms made the procurement system of Georgia more transparent. Final objective of these reforms was not to minimize corruption risks, but to develop healthy and just competition.

This process implies creating  equally favorable environment for any type of entrepreneurs.

Statistical indicators suggest that state procurement represents a considerable part of the whole internal economic activity of the country and its ratio in Georgia’s GDP is about 10%. Every year budget organizations buy services and goods of several millions of GEL, for example, construction works (civil, special facilities, roads, pipelines, irrigation systems), technologies, software, fuel, office equipment, transport, furniture, food, clothes and other specific goods and services.

Thus, conducting purchase transactions in transparent, competitive and just environment is one of the important preconditions for business development in the country and economic growth. Just, transparent and non-discriminating environment for the procurement process participants provides equal opportunities in the private sector  to receive state contracts and develop business activities. If we also make focus on rational spending of state funds through transparent system, it will be evident that the system perfection is one of the important challenges before the government of Georgia.

According to article 43 of Georgia-EU agreement on partnership and cooperation that came into force in 1999 Georgia assumed obligation to adjust its legislation to EU legislation step by step. The same article names fields to be covered by harmonization process, including state procurement field.

In our country state procurement process is mainly regulated by the Georgian Law on State Procurement. The law regulates, by use of electronic or other means, a purchase of any goods, services and construction works by a purchaser organization, by use of budget funds of the Georgian state, autonomous Republics of Abkhazia and Ajara, local self-governments and organizations financed by them.

According to the mentioned legislation, there were five different mechanisms for conducting state procurement process: simplified purchase, simplified electronic tender, electronic tender, consolidated tender and competition. Over the past period these types of procurement system were replenished by a simplified electronic tender without auction, electronic auction without auction and two-level tender. There is also electronic procedure for procurement, grant competition and electronic procedure for purchase by donors’ funds.

As a rule, selection of specific method mainly depends on value of a deal and its peculiarities. Each type of procurement comprises various peculiarities. When making simplified purchase, purchaser organization is authorized to make direct purchase, without tender. However, this practice does not imply full independence of purchaser organization in the procurement process, even more so, according to legislative amendments adopted two years ago, purchaser organization needs a license from Procurement Agency for making simplified purchase. And main difference between simplified electronic tender and electronic tender consists in their duration. Announcement of these types of tenders depends on the presumable total value of homogenous purchase items.

Consolidated tender is carried out by State Procurement Agency based on analytical-research activities agreed with the Government of Georgia.

The indicated methods of tender are mainly oriented on low prices. This signifies winner will be the supplier, which will offer the lowest prices to the purchaser organization for goods and services determined by technical conditions.

In this respect competitions are regulated in different way because of peculiarity of its purchase item. In this case preference is given to quality and maximum harmonization of the offer to the purchaser’s requirements. However, by use of it, the purchaser organization is authorized to buy only designing or/and bookkeeping services (for example: architecture and engineering plans and projects);

We have noted that two-level tender was introduced recently in August 2016. This type differs from other tenders by the fact that the pretenders’ ranking is not determined by price of tender proposal, but the best tender offer is determined due to quality and price. This model authorizes the purchaser organization, based on specific needs and purchase purpose, to determine various countable criteria that would enable it to buy top quality purchase item at a low price.

The model of two-level tenders are fully automatized. The criteria determined by a purchase organization and the pretender’s offer is indicated in due field and this enables the system to carry out ranking of pretenders and determine the best tender offer, based on criteria determined by tender conditions.

The most attractive and convenient factor in case of two-level tender is the fact that offers are not assessed only due to prices and, secondly, trades are carried out in a hidden form and this prevents business bodies from the so-called temptation to win at any cost. The practice shows that pretenders seeking tender victory frequently reduce presumable value determined by tender documentation. As a result, later they fail to offer the same price or quality of supplied goods, or services are very low and they are included in the Black List. And this result signifies that companies cannot participate in state tenders for a certain period because of bad reputation. As a result, the companies, which try to offer real prices and better quality on the market, bear losses.

In general, implementation of state procurement process through state tender  mechanism ensures growing competition and this factor  serves the interests of potential suppliers. They may establish business relations with the state and receive stable and expensive orders.

As noted above, some companies, despite their success on the private market, lack for appropriate human resources for participation in the state procurement process. Presumably, the same reasons precondition shortage of information about state procurement.

For the purpose of successful and useful participation in tenders, it is necessary to involve staff with appropriate qualification in the process, who would have good understanding of peculiarities of procurement system of Georgia and know corresponding legislation very well.

Objective of Tbilisi Business Hub is to satisfy and improve service of private sector representatives and back the companies that try to get established on state procurement market, as well as to assist them in overcoming difficulties arisen in the state procurement process. And this goal is achieved through scrupulous understanding of needs and purposes of tender participant companies and thorough knowledge of tender procedures and their legal regulations.

Shorena Chumburidze

Lawyer for Tbilisi Business Hub