On February 25, 2020, Roman Sklyar, Deputy Prime Minister of Kazakhstan, chaired a meeting on the issues of the procurement system at the Samruk-Kazyna Fund in the framework of the Project Office for the Economy of Simple Things development.

Taking into account that one of the activities of the Project Office is to increase local content and ensure access of domestic business to regulated procurement. It should be noted that these issues are considered permanent.

Reference: The Project Office for the development of the Economy of Simple Things, import substitution and export was established by order of the Prime Minister of Kazakhstan Askar Mamin in March 2019. The Project Office is headed by Roman Sklyar.

During the meeting, the experts discussed the issues of systemic changes required to increase the participation of domestic producers in the procurement of Samruk-Kazyna and transparency of the entire procurement process.

Atameken presented an analysis of business applications, based on the current procurement practices of the Fund, and novelties that came into force in January 2020.

As part of the analysis, the Chamber presented the top-5 systemic issues in the Fund's procurement that need improvement.

1. Increasing competition in procurement

The primary task, in accordance with the instructions of the President of the Republic of Kazakhstan at the expanded meeting of the Government of the Republic of Kazakhstan on January 24, 2020, is to reduce the practice of non-competitive procurement methods, reducing to an absolute minimum the so-called exceptional circumstances.

Remind that the National Chamber for the first time raised the issue of the need to reduce intra-holding operations of the Fund back in 2017. At that time, the Fund approved the list of goods allowed for purchase as part of intra-holding operations. According to the Fund, this allowed for a 25-fold reduction in intra-holding procurement and the transfer of more than KZT 630 billion to a competitive environment.

To further implement the instruction of the President, the Fund was proposed to consider the possibility to approve the list of goods, works, and services that will not be subject to purchase by the single-source method. Thus, it will allow to expand access of the Kazakhstan suppliers to purchases of the Fund and to increase a share of the local products.

Such a list should be developed jointly with the business community, based on the principle of having two or more producers on the domestic market.

"First of all, we consider it necessary to focus on the products of the 'Economy of Simple Things'. At the same time, the supremacy of this list should be established over all procurement formats, on the principle "without exceptions and exemptions," Dana Zhunusova, Deputy Chairman of the Atameken Board, said.

2. Fighting the adaptation of technical specifications to a particular company

Another important systemic issue remains the issue of eliminating the adaptation of technical specifications to a particular company. The first step has already been taken by the Foundation: since February this year, access to technical specifications has been opened. This allows all interested parties to analyze the requirements and specifications for artificially restricting competition.

At the same time, according to the National Chamber, this issue should be addressed on a systematic basis. At present, the Fund's procurement rules allow customers to use "other technical standards" when announcing the purchase. Thus, the other technical standards can be considered the standards of individual organizations, standards of other states and other broad nomenclature of technical documentation, which is not valid in the territory of the Republic of Kazakhstan. In practice, such vague formulation allows for the identification of specific trademarks or manufacturers, which is also a restriction on competition and potentially lost profits for Kazakh entrepreneurs.

In this regard, the Chamber suggested, by analogy with public procurement rules, that in the absence of national and interstate standards, technical specifications should specify the required characteristics of the goods, works, and services to be procured.

To eradicate this problem, in addition to providing a regulatory framework, Atameken proposed the Fund to address the technical part of the issue: in particular, to accelerate the integration of the Unified nomenclature directory of goods, works and services with the Fund of National Technical Documents (KazInST), and work out the possibility of establishing format and logistic control on the procurement portal of the Fund. For the same purpose, Atameken was also invited to develop and approve model technical specifications for homogeneous goods.

3. Register of construction materials manufacturers

"As of today, when purchasing construction and installation works, for which there is a design and estimate documentation for an amount exceeding KZT250 million, there is a requirement for mandatory purchase of goods from manufacturers who are members of the Register of commodity producers of the holding. At the same time, unfortunately, this Register covers only a small part of domestic commodity producers. Thus, as of February 21, the Register of the commercial production holding includes 573 domestic manufacturers in all industries, while only in the construction industry there are more than 2,000 domestic producers," Dana Zhunusova said.

In this regard, the National Chamber also proposed, by analogy with public procurement, to provide for requirements for the purchase of building materials of domestic production in the procurement rules of the Fund's IAD.

Also, Atameken initiated the creation of the Register of domestic producers of construction materials on the basis of the Chamber's Information System "Industry". The advantages of such a register are in the possibility to form and verify the data in "online" mode from numerous sources, including manufacturers of construction materials, state databases, and NPP databases, such as the Electronic Certification System.

4. Disparity in liability

Further, according to the National Chamber, apart from improving the Fund's procurement processes, it is also crucial to ensure unambiguous requirements and conditions in the processes of acceptance and payment for goods, works and services. An analysis of the contracts of some national companies and their subsidiaries in the Fund's procurement processes has shown that there is often a significant disparity in responsibility between customers and suppliers.

For example, in these contracts, the "party liability" section of the supplier indicates 13 points of liability while the customer has only 1 point. It is not uncommon for contracts to indicate "vague" requirements to provide "other documentation requested by the customer".

This, in turn, can lead to delays in acceptance deadlines and additional business costs. Therefore, Atameken NPP suggested that the Fund should develop model contracts providing for comprehensive mandatory requirements for acceptance and further payment for goods, works, and services. This will make it possible to exclude unnecessary and unspecified requirements for entrepreneurs, which entail corruption risks. It should be noted that the practice of applying model contracts already exists in the public procurement system.

5. Codification of the Unified nomenclature directory of goods, works, and services

In addition, it is important to solve the issue of codification of the Unified nomenclature directory of goods, works, and services, which is used both in government procurement, and in procurement of Samruk-Kazyna. It should be noted that due to the joint work done in 2018 on the revision and reduction of codes and improvement of regulations for the formation of codes, entrepreneurs are accustomed to the practice of using the UNTS TRU handbook in procurement.

At the same time, unfortunately, today customers have the opportunity to plan purchases by one code, and in the process of creating completely new codes and conduct procurement by them, which the entrepreneur may not know at all.

Therefore, taking into account the importance of the codification of the Unified nomenclature directory of goods, works and services for business planning, Atameken proposed to assign a state status to this guide, as well as to provide a clear procedure for making changes to the guide and the use of new codes in the procurement with the establishment of a minimum time interval in one quarter.

Summing up the meeting, the Deputy Prime Minister of RK Roman Sklyar instructed the Samruk-Kazyna Fund to work through the proposals of the Atameken National Chamber of Entrepreneurs in the shortest possible time.