This article is an excerpt from The Art of Tendering: A Global Due Diligence Guide, which is available for purchase.
In its 2019 report entitled Assessment of the Public Procurement systems of the Republic of Kazakhstan and the Sovereign Wealth Fund Samruk-Kazyna, the World Bank found that Kazakhstan’s procurement reforms remained a work-in-progress and identified a number of future improvements required to bring that country’s system up to global standards. More specifically, the report recommended that the government enhance its conflict rules, reduce the barriers to competition that led to a disproportionate amount of sole-source awards, increase the transparency of procurements conducted under the governments sovereign wealth fund, and improve procurement training for government staff.
As the report explains, Kazakhstan began updating its procurement system as part of its efforts to integrate into the World Trade Organization’s (WTO) procurement regime, noting that “Kazakhstan became a member of the WTO in 2015 and was admitted to the WTO’s Government Procurement Agreement (GPA) as an observer in October 2016, following the continuous efforts to modernize the country’s public procurement system.” However, as the World Bank noted, Kazakhstan’s procurement regime divides procurement between a general procurement system and a separate system for institutions that operate under its sovereign wealth fund:
Kazakhstan has a dual public procurement system, in which there are separate systems for a) the government procurement conducted by the general public administration and b) procurement conducted by Sovereign Wealth Fund Samruk-Kazyna, which accounts for the majority of public procurement spending.
The World Bank raised concerns that sovereign wealth fund procurements were not subject to the same regulatory framework as the rest of the government’s procurement, creating concerns over unnecessary complexity and a lack of transparency over the majority of government procurement expenditures:
Overall, procurement activities using public funds in the country are estimated at US$21 billion, or 13 percent of GDP, in 2017. Of this amount, procurement carried out using the PPL amounted to US$6 billion (or 4 percent of GDP), as published in the Public Procurement Web Portal. This compares to US$15 billion (9 percent of GDP) which are estimated to have been spent collectively by SK, and national managing holdings, national holdings, national managing companies, and national companies (i.e. mainly state-owned companies), according to public procurement plans that are publicly available. The most recent figure for its procurement volume provided by Samruk-Kazyna relates to 2016 and accounts for USD 12 billion (8% of GDP). All of these SOEs are governed by separate procurement rules and regulations. Generally, procurement by SOEs, mostly Samruk-Kazyna, can be estimated to account for almost twice the size of government procurement.
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The fact that a major part of the public procurement activity in Kazakhstan is not covered by the general public procurement legal and regulatory framework creates hurdles for effective and efficient public procurement practices. A large part of the public procurement volume in Kazakhstan is being managed by SOEs, i.e. the quasi-state sector as well as sovereign wealth fund Samruk-Kazyna. The procurement systems for these entities largely followed the above-mentioned reforms of the general PPS, rules, procedures and practices. However, regulatory frameworks remain separate, creating a scattered landscape, with diverse and difficult to follow legal frameworks, generating increased burden for suppliers and interested stakeholders of the different procurement systems. Yet, it is fair to recognise that the most recent reform brought the quasi state sector closer to the general PPS by requiring application of a unified set of rules. Nevertheless, Samruk-Kazyna, the entity with the highest public procurement spending in Kazakhstan by far, remains outside of the general PPS.
The World Bank also raised significant concerns over the rate of failed tendering processes that resulted in sole-source awards, and noted that unnecessary barriers to competition could be causing the high level of non-compliant bids and the overall lack of competition:
The assessment of current procurement practices shows that a high level of efficiency has been achieved through the mandatory use of e-procurement system, with 56 days being the average time for conducting open tender procedures as opposed to 58 days, the maximum lead time stipulated in the legal framework. Despite this and the propensity of procuring entities to carry out procurement by open tender, the results are less than optimal. In 2017, of all the procedures using this method, only 32% led to a contract award; 68% of procedures failed and re-procurement took place using Single Source method, which in 2017 accounted for 81.79% of all procurement methods.
The reasons for such high rate of failure are not immediately evident but could be possibly emboldened by the fact that the PPL allows for the automatic use of single source method if an open tender failed, without obliging the procuring entities to seek to understand the reasons for such failure. The PPL amendments of December 2018 abolished this possibility, and it remains to be seen if there will be improvements in practice. Furthermore, the use of non-price attributions in evaluation are not frequent, and the legal framework does not provide for the life-cycle costing principles.
Though the legal framework does not appear on its face to establish any barriers for participation of foreign bidders, the requirement of obtaining digital signature for foreign bidders to be able to use web-portal, coupled with the recent amendment introducing a fee for the use of web portal by all bidders, as well as requirement for e-bid security to be obtained through a commercial bank in Kazakhstan, create serious barriers to participation of foreign bidders. The existence of these restrictive policies explains, in major part, why in 2017 the contracts awarded to local private sector firms and individuals accounted for 99.7% of all contracts.
The World Bank also identified a need to enhance staff training to promote a higher degree of professionalization of the procurement function:
Professionalization
The procurement landscape governed by the PPL is with about 23,200 procuring entities very dispersed, out of which 95 percent have organized and conducted decentralized procurement activities and processes through either their in-house designated procurement unit or through a support from a procurement unit of other procuring entity, not counting the procuring entities in the SOEs and their subsidiaries. However, professional procurement expertise in Kazakhstan lags behind that of most countries in Europe, and there is an urgent need for professional development and capacity building of the procurement workforce. The establishment of an institutionalized and sustainable procurement capacity-building program would represent a major benefit to Kazakhstan’s procurement workforce and civil service in general and would have a positive impact on the overall efficiency of public sector operations.
In fact, the World Bank found that the level of professionalization of Kazakhstan’s procurement function lagged behind European standards in public procurement:
Professional procurement expertise in Kazakhstan lags behind most countries in Europe. The E-Finance Center (EFC) within the Ministry of Finance has been providing procurement training, but it has not been able to meet the needs of procuring entities given the frequent changes in implementation guidelines and the rapid evolution of the web portal. Public and private educational institutions have yet to offer training in procurement. For these reasons, the establishment of an institutionalized procurement capacity-building program that keeps pace with changes in the system would represent a major benefit to Kazakhstan’s procurement workforce and civil service and would have improve the efficiency of public sector operations. The Astana Road Map for the professionalization of the public procurement function, which was developed and agreed upon by European and Central Asian countries at the 12th Procurement, Integrity, Management and Openness (PRIMO) Forum in Astana in May 2016, included concrete measures that could guide GoK’s efforts to strengthen capacity building and achieve effective and sustainable professionalization of public procurement.
The World Bank recommended that the government implement a skills assessment strategy to address these competencies gaps:
Professionalization: Preparing a public procurement skills gap inventory and a training needs analysis. This would inform capacity building and professionalization of the procurement function, possibility in partnership with local higher education institutions. The establishment of an institutionalized and sustainable procurement capacity-building program would represent a major benefit to Kazakhstan’s procurement workforce and civil service in general and would have a positive impact on the overall efficiency of public sector operations.
The World Bank also found that Kazakhstan needed to improve its oversight and anti-corruption measures:
Anti-corruption and Accountability Mechanisms
Notably, Kazakhstan has taken steps to strengthen its anti-corruption efforts and has ratified several international agreements and conventions against corruption over the years. Among others, the Anti-corruption Law mandates the reporting on corruption offenses and the country has put in place mechanisms for reporting annual statistics on corruption-related crimes; internal and external corruption risk assessments are carried out by the relevant government bodies and the Agency for Civil services and Anticorruption respectively; adoption of an anti-corruption charter by Kazakhstan entrepreneurs and a model corporate governance code for joint-stock companies with state participation; basic training on anticorruption is offered as part of curricula for training of civil servants offered by the Academy of Public Administration and local universities; MoF has established a list of bad faith companies and individuals who provide fraudulent information in the course of the procurement procedure, etc.
There are however, a number of significant gaps that remain to be addressed such as: further alignment of the anti-corruption and conflict of interest legislation with good international practices, lack of comprehensive provisions in the procurement legislation on preventing and addressing fraud and corruption and other misconduct more generally, grounds for debarment of private sector are limited to engaging in fraud, leaving out corruption, collusion or other forms of misconduct, etc.
The report recommended that the government enhance its anti-corruption mechanisms:
IX. Integrity and accountability: Consider targeted measures to address corruption risks in public procurement. Some legal changes, such as revisions to the anti-corruption law as well as revisions to the procurement legal and regulatory framework, could ensure that corruption risks in the public procurement process are adequately captures by the legal and regulatory framework. In addition, practical guidance for procurers on preventing and reporting misconduct could be expanded. This World Bank benchmarking report serves as a useful example of the type of assessment that public institutions across all jurisdiction should be conducted at the institutional level to benchmark their specific practices against prevailing global due diligence standards.
This report serves as a useful case study into the types of reforms required to enhance the transparency, integrity, and capacity of a government procurement system and offers an example of the types of global benchmarks that can be used in assessing the compliance of the procurement practices across other jurisdictions and within all government institutions.
