PMC Research Center

Presentator: Besik Namchavadze

March 13, 2014 Policy, Advocacy, and Civil Society Development in Georgia (G-PAC) program of the Unites States Agency for International Development (USAID) and the East-West Management Institute. The work necessarily does not reflect vision of USAID, Government of USA or East-West Management Institute.

Project objectives Brief history of public procurement system of Georgia Analysis of public procurement system Conclusion and recommendations

Improvement of public procurement system and policy of Georgia Analysis of public procurement system Analysis of best foreign practices Preparing recommendations in order Georgian procurement system to be in correspondence to international standards and best practice

Table 1. General government expenditure on goods and services

2007 Goods and services (million GEL) As percent of budget Expenditures As percent of GDP 1591 36.3 9.4 2008 1606 29.7 8.4 2009 1105 20.5 6.1 2010 1139 20.8 5.5 2011 2012 2013 985 15.4 3.6 2014 1079 15.0 3.7

1211 1298 21.7 5.0 21.4 5.0

Source: Ministry of Finance of Georgia

In 2007-2013 total expenditure of the budget on public procurement was almost 9 billion GEL. Including non budgetary public organizations, in 2012 the indicator of total procurement is 2.8 billion GEL

 Expanses on public procurement tax payers money/public property Main principles of spending: Transparency Economy Efficiency Quality of the procured goods and services - one of the key factor of public institutions efficiency

Procurement system reform began in January 2010 Before the reform: - Unsuccessful system - Lack of transparency - Limited competition - Bureaucratic procedures - High risk of corruption

 The reform had five main goals: Transparency Non discrimination Fair selection Easy procedures All procedures must be electronic Electronic system of state procurement start functioning Since October 2010 Paper based tenders were completely substituted by the electronic tender within two months

 By the end of 2012, electronic system had 14 801 registered users, among them 3 927 were procuring entities and 10 847 suppliers In 2011, number of suppliers were 7 400 In 2011-2012 , 300 million GEL was saved White and black lists of suppliers Dispute resolution board, which consists of 3 representatives of state procurement agency and 3 representatives of civil society

 Electronic tender consists of three rounds auctions Winner becomes a company, which supplies goods and services at the

lowest price

Procuring entity can determine the qualification requirements of

suppliers for each concrete procurement services

Procuring entity prepares a technical requirements for goods and

The quality of procured goods and services is based significantly on the

quality of prepared technical requirements

Number of contracts in 2012

Services 4614

Goods 9984

Constructions 3890

Source: Competition and State Procurement Agency

Goods Constructions Services

Cost (mln GEL) 437 702 253

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The method of state procurement: Electronic tender for 200 000 GEL or more value goods and services in a year Simplified electronic tender for under 200 000 GEL value goods and services in a year Simplified procurement for under 5 000 GEL value goods and services or for specific cases Design contest alternative procurement method for design (project) services

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State procurement may be conducted through simplified procurement procedures, when: Supply of goods, fulfillment of work, or providing services is an exclusive right of only one entity and there is no reasonable alternative The following cases shall not be treated as an exclusive right: a) if estimated value of the goods or services subject of procurement is more than GEL 2,000,000 and expected value of work is over GEL 4,000,000 and the alternative supplier exists outside the country b) if estimated value of goods or services subject of procurement is not higher than GEL 2,000,000 and end estimated value of work is below GEL 4,000,000 and alternative supplier exists within the country
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 State procurement may be conducted through simplified procurement, in case of : c) urgent necessity d) decision of a procuring entity in order to prevent the deterioration of the quality of an object procured from the supplier and/or to ensure further operation it is necessary to conduct procurement from the same supplier e) in order to implement an event of state and public importance without hindrance within the restricted timeframes

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Public procurement by means of procurement, 2012

45% 55%

Simplified procurements Electronic tenders

Source: Competition and State Procurement Agency

45 % percent of public money is spent in less competitive environment

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Statistics of simplified procurements, sum of 2011-2013 indicators

Contract value Under 5 000 GEL 5 000 - 50 000 GEL 50 000 - 500 000 GEL 1 - 10 mln GEL 10 - 50 mln GEL Above 50 mln GEL Total Number of contracts 443670 24947 4712 315 20 7 473671 Cost (GEL) 1.1 billion 0.4 billion 0.7 billion 0.9 billion 0.3 billion 1.5 billion 5 billion

Source: Competition and State Procurement Agency

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In order to be in accordance with EU regulations, Georgian state procurement system needs the following changes: 1. To reduce the list of those procurements, which are not covered by the state procurement low 2. Improve a structure of consolidated tenders 3. Increase of minimum terms of tenders 4. Independent dispute resolution board 5. The issues of the other technical procedures

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Advantages of a system
Advantages of electronic system of state procurement: -Transparency - Competition - Easy procedures - Low risk of corruption - Savings - Technically well designed

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Problems of a system
Problems: - Quality of procured goods and services, especially in construction services - Quality of preparing technical requirements - Quality of preparing technical sentences - Planning of procurements - High share of simplified procurements - Consolidated tenders and small business

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Recommendations
To improve the quality of procured goods and services: Standardization of the most frequently procured goods and services Capacity building in preparing technical requirements Capacity building in preparing technical sentences To reduce the list of those procurements, which are not covered by the state procurement low

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Recommendations
To minimize the simplified procurements To improving planning of procurements by procuring agencies Desired: To prepare catalogues for available goods and services To improve the qualification of the members of tender commission of procuring entities

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Further goals of research

To

study the best international practices of state procurements study the environment and ways how to implement international best practices in Georgia prepare final recommendations for increasing the quality of procured goods and services significantly

To

To

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Thank you for your attention!

pmcresearchcenter@pmcg.ge

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