The state budget for 2011 allocates a total GEL 800,000 for the State Procurement Agency of Georgia. Of this amount, GEL 179,000 will be spent for procurement of goods and services. The budget does not provide a breakdown of spending for each commodity or service. However, those interested in procurements will soon be able to track the entire cycle of procurement – from approval of the budget to development of the procurement plan and announcement of tender – on the State Procurement Agency’s website.
Piles of paper can still be seen in the reception office of the State Procurement Agency of Georgia. Employees estimate that some 3 million tender documents were accumulated in 2008 and 2009 – all submitted for the approximately 4,000 tenders conducted during those years. Examining all of these documents, analyzing them and drawing conclusions on implementation or the cost-efficiency of tenders has been time-consuming and tedious for the more than 8,000 people who expended considerable energy collecting these documents.
No more wads of paper – beginning December 2010, all tenders will be conducted electronically. Central to this new system is the goal of maximum transparency.
The smooth functioning of the public procurement market relies on a number of important assumptions: public institutions are accountable to society; all procedures established by law are observed; the state is able to control corruption.
In reality, at least one of those assumptions is breached in every country of the world: an authority defends interests of the elite; procedures established by law freely coexist with more flexible informal rules; private and public leaders are part of the power network and the exchange of money and favor among them is common practice.
Such distortions are especially damaging for less developed economies because inefficient operation of the market notably deteriorates the economy by impeding its growth, i.e. decreasing the amount of money that must be spent for public procurements.
These distortions can be eliminated by ensuring transparency. The market works much better if both buyers and suppliers are better informed about procurements. Competition is stimulated if every supplier has exhaustive information about possible sales. Price reduction is more likely if amounts spent on all types of procurement are available for sellers. A better price is negotiated by a buyer if he/she knows what other buyers have paid, which in turn leads to reduction of price and with it the closing of an avenue for corruption.
The availability of information makes a public official more accountable. If any taxpayer is allowed to check, at any time, how much of his/her out-of-the pocket money is being spent by the state for procuring this or that commodity or service, the taxpayer is able to control these expenditures him/herself. This is a far more efficient way than any regulatory mechanism which, as a rule, instead of reducing corruption often becomes a link in the corruption chain.
Several types of information are needed for better efficiency of the state procurement market. First, competition-wise, companies need to have information about how profitable the market may be for them. Second, they need to be well aware of the details of tender requirements with sufficient time to prepare proposals. The new system for holding tenders envisages all of these points.
Tender may be of two types: electronic and simplified electronic. An electronic tender is conducted for a procurement with an estimated cost exceeding GEL 200,000. In this case, a contender has 20 days to submit a proposal. A simplified electronic tender is held when the estimated cost of procurement ranges from GEL 5,000 to GEL 200,000. This time, the term for submitting proposals is at least three days.
Before introduction of this new system, tenders were conducted only on two occasions – when the cost of goods or service exceeded GEL 100,000 or when the cost of construction works exceeded GEL 200,000. Now, the sole requirement for conducting a tender is a threshold of GEL 5,000. Moreover, goods or service worth GEL 5,000 need not necessarily be offered via tender all at once. For example, if the procurement of one and the same goods or service is made in several installments during the year and it exceeds GEL 5,000 in total, the procurement will be conducted through tender.
At the same time, all information regarding a tender – subject matter, participants and status of a tender – is open. Any interested person can register as a temporary visitor on the State Procurement Agency’s website. What distinguishes visitors from suppliers and buyers is that visitors with the status of a guest cannot buy or sell. However, visitors can obtain full information, including data on tender participants, any type of documentation and decisions. The system can be searched by any parameter – tender application number, object of procurement, procuring organization, supplier, tender status and type, goods or service, tender announcement date, size of amount.
This transparency is of utmost importance for both suppliers and purchasers. Suppliers cannot fully engage in competition if they are ignorant of a customer’s payment history. Lack of this information could discourage a potential supplier from participating in a tender or push the supplier to increase the price in order to hedge incalculable risk. On the other hand, if a buyer is ignorant of what prices were offered earlier, the buyer could be easily fooled, paying a much higher price for the service or goods, which at the end of the day would burden taxpayers.
Apart from transparency of information, the new system is guided by two other principles –reduction of costs and simplification of procedures. These principles are applied to all stages of a tender – from registering on the website through submitting a tender proposal.
In the past, participation in a tender cost an applicant GEL 200. Of that amount GEL 150 was imposed as a fee and GEL 50 was payment for participation in the tender. The fee has been abolished. The remaining GEL 50 is the amount which is needed for the State Procurement Agency to function independently.
Registration is simple: a customer visits the webpage at www.procurement.gov.ge and selects the appropriate form for a supplying or procuring entity. If the visitor is a supplier, he/she must choose from among legal organizational forms established by the law (for example, legal or physical entity, partnership). Like registering in any internet forum, the procedure here is easy: a customer goes through the registration process and receives an activation code by email shortly thereafter. In the case of a buyer, the registration procedure consists of two stages: Activation does not happen upon registration; a buyer has to print out the registration note and then hand it to the State Procurement Agency together with an official letter. To save time, a customer can send a scanned version of the papers to the State Procurement Agency. This two-stage procedure is necessary to avoid the risk of an entity falsely registering in the name of any entity. Neither a buyer nor a supplier is required to submit any additional identification documentation: for buyers, an official application alone will do; for suppliers, a credit card is enough.
The tender announcement procedure is simple as well: Documentation in 8Mb PDF file is uploaded on the website. In a pop-up window, a buyer has to provide a brief description of the documentation and attach the file. Thereafter, an announcement is posted and additional files uploaded. The system also runs an editing function: a buyer can activate or erase any document. Every manipulation is saved and stored thus allowing all to see any time what has been edited or changed.
Participation in a tender is a simple procedure too: A supplier pays GEL 50 fee, and then submits a guarantee amount (1 percent). The guarantee amount can be submitted in one of two ways. The first is an electronic guarantee, whereby a bank, while issuing a guarantee, exchanges information with the State Procurement Agency. The bank obtains the information on tender, generates the number of the guarantee and provides it to a supplier together with a pin-code. The bank provides this pin-code to the State Procurement Agency. When the pin-code is activated in the system by a customer, the system instantly identifies the bank which received the tender participation fee from the supplier.
The second method of submitting the guarantee amount is payment by credit card, which eliminates the need to go to the bank. After paying the fee and submitting a guarantee amount, a supplier uploads his/her tender proposal on the website. Here, as well, the file must be up to 8Mb in PDF format. The file must contain a technical description of the goods or service. Upon uploading the file, the supplier submits the price offer on a window appearing on the screen. The system cannot be cheated: if a supplier indicates too low a price, the system will reject it.
Other barriers have been dismantled as well. In the past, after familiarizing him/herself with a tender announcement and submitting a technical proposal, a supplier had to collect six different documents from five institutions in order to qualify for participation in the tender. Collection of documentation required the expenditure of money and time (at least a day) for receiving a document. Moreover, most of these documents became outdated before the conduct of the tender and the collection of documents had to start anew. At present, only the winner in the tender has to submit three documents – an excerpt from the State Registry, a certificate of solvency from a court, and a certificate on liabilities from a tax body – and then only after completion of the tender.
The key principles of an electronic tender – transparency, reduction of costs and convenience – stimulate competition. They also broaden the geographical reach of interested suppliers. There is now greater motivation for suppliers from regions to engage in a tender. According to the State Procurement Agency, more than half of tenders are announced by the central authority. Before introduction of the electronic system, interested suppliers had to travel to Tbilisi to submit a tender offer. Now suppliers can stay in the regions, saving time, travel-related expenses - as well as the abolished GEL 150 fee.
The key criterion for selection in Georgia is price. The State Procurement Agency sets a price- decrease step in trade, from 0.5 to 2 percent. The exact amount of the decrease is chosen by the procuring entity itself. Preference is given to the lowest price. The system automatically selects a winner by price, after which documentation is evaluated. The old scoring system has been replaced with criteria such as, for example, the warranty period for goods or service, quality, delivery timeframe. Each criterion is evaluated with a simple plus or a minus sign. That means that the evaluation is, in fact, automatic. This eliminates bias that existed in the previous 10-score evaluation system when each member of the tender commission rated suppliers according to his/her personal belief. Further, it notably decreases the likelihood of corrupt deals. This, for its part, ensures a stable increase in competition and decrease in purchase price. Various estimates indicate electronic tenders will reduce public procurement-related costs by 10 - 15 percent.
Within the framework of the Deep and Comprehensive Free Trade Agreement, the European Union (EU) requires that Georgia better harmonize electronic procurement procedure. The electronic procurement system implemented in Georgia does differ, in principle, from that existing in EU countries. Georgia has eliminated a “paper” tender. All tenders are conducted electronically. There is only one other country in the world – Albania – which also operates a 100 percent electronic system. Georgia and Albania are followed by Bosnia-Herzegovina, where more than 90 percent of tenders are conducted electronically. Even in Korea, the country recognized as a pioneer in electronic tenders, 40-50 percent of tenders are still held with paperwork.
Electronic tender has a number of important advantages, not the least which are freedom of choice and competitive pricing with less bias and corruption.