PROCUREMENT

For avoidance of unreasonable public expenditure, for provision of vendors with equal access to public purchasing opportunities and for maintenance of fair competition among potential vendors, Kazakhstan applies legislative control to procurement procedures in certain sectors of the national economy.

The most properly regulated sectors in terms of procurement include the following:

1)Public procurement implying the procurement, on a paid basis, of goods, works and services by government authorities, agencies and enterprises and by the legal entities in which at least fifty percent of voting shares/interests are held by the government, and corporate affiliates thereof, except for:

• national management holdings, national holdings, national management companies, national companies and corporate affiliates thereof;
• the Kazakhstan National Bank and its departments and structural subdivisions, the legal entities in which at least fifty percent of voting shares/interests are held or managed by the Kazakhstan National Bank, and corporate affiliates thereof;
• government enterprises as property complexes in which at least fifty percent of shares/interests are held by the government, as well as affiliates thereof transferred under trust management of an individual or a non-government entity with a buy-out option;
• goods, works and services wholly or partially financed by the government from the national budget and/or by the purchaser from its own proceeds, other than the proceeds from services provided to non-residents of the Republic of Kazakhstan;

2) Procurement of goods, works and services by subsoil users and their contractors in the course of subsoil use operations; and

3) Procurements by Sovereign Wealth Fund Samruk-Kazyna JSC (the “Fund”) and the legal entities in which at least fifty percent of voting shares/interests are directly or indirectly held by the Fund under the right of ownership or trust management.

Public Procurement

With regard to the aforementioned sectors public procurement is most properly described and regulated by Kazakhstan Law On Public Procurement No. 434-V of 4 December 2015 (the “Law”) and Public Procurement Regulations adopted by the Kazakhstan Ministry of Finance (Order No. 648 of 11 December 2015).

The Law regulates any and all matters arising from the procurement of goods, works and services required for proper operation of a customer, as well as for performance of public functions or statutory activities of a customer, except for:

1) services procured from individuals under employment contracts;

2) services procured from individuals who are not engaged in entrepreneurial activities under fee-based service contracts;

3) services that require travel expenses;

4) government assignments, as well as the goods/works/services procured for the performance of such assignments in compliance with the Kazakhstan budget legislation;

5) any contributions, including the contributions to authorized capital of legal entities;

6) goods/works/services procured by national management holdings, national holdings, national management companies, national companies and corporate affiliates thereof, the Kazakhstan National Bank and its departments and structural subdivisions, the legal entities in which at least fifty percent of voting shares/interests are held or managed by the Kazakhstan National Bank, and corporate affiliates thereof;

7) products and goods designed for military or dual use/application, as well as works and services intended for military purposes, as a part of defence order; and

8) goods/works/services procured by an organisation specialising in the improvement of credit portfolios of second-tier banks for the performance of the activities described by Article 5-1(2) of the Kazakhstan Law On Banks and Banking Activities in the Republic of Kazakhstan;

9) goods/works/services procured for implementation of investment projects financed by the international organisations which the Republic of Kazakhstan is a party to, and goods/works/services procured for implementation of investment projects financed, either entirely or partially, by foreign banks, in which case the procurement is regulated by the specified organisations/banks, provided that:

• the Standard & Poor’s or another similar rating agency’s long-term credit rating of such foreign bank in foreign currency is minimum “A-”;
• minimum fifty percent of the financing is provided by foreign banks;
• the investment project is implemented by the government enterprises or legal entities fifty percent of shares/interests in which are held by the government or affiliates thereof; andthe investment project implementation does not require a government guarantee and does not create any encumbrance on the borrower’s assets.

In Kazakhstan public procurement can be performed through a tender (either an open tender or a prequalification tender or a two-stage tender), request for quotation, single-source procurement, auction or commodity exchange.

A customer is free to choose any public procurement method provided for by the Law, save for the goods/works/services which must be procured by the method determined by competent authorities.

Public procurement is run through the appropriate public procurement website, unless otherwise provided for by the Law.

Public Procurement through a Tender

The public procurement through a tender involves potential suppliers selected as the result of competitive bidding procedure whose bids meet the relevant requirements to qualification and tender documentation.

Tender documentation is developed by the public procurement authority, in Kazakh and Russian, in the digital form determined by the public procurement regulations, subject to the provisions of the Kazakhstan legislation concerning state secrets.  Tender documentation must contain, apart from qualification requirements, the following:

1) full name and address of the public procurement authority;

2) technical specifications, including the national standards or, in the absence thereof, international standards applicable to the procured goods/works/services, or, in the absence of such national or international standards, the required functional, technical, quality and operational properties of the procured goods/works/services, with due regard to the public procurement regulations.  The technical specifications must set out the requirements to the suppliers’ documentation proving the conformance of their goods to the requirements of technical regulations, standards or other documents determined by Kazakhstan law.  When procured works require project estimate documentation, technical specifications are replaced with the relevant project estimate documentation;

3) quantity/scope of procured goods/works/services;

4) place of delivery/performance/provision of goods/works/services;

5) determined terms of delivery/performance/provision of goods/works/services and warranty of quality of the offered goods/works/services;

6) payment conditions and draft public procurement contract;

7) criteria, except for price, used to choose the winner of a tender, including the specific value of each criterion and the calculation of bid price;

8) requirements to the bid contents, including the estimates of transportation and insurance costs, customs duties, taxes (except for VAT) and fees, and other expenses required by the delivery/performance/provision of goods/works/ services, save for the prices of procured goods/works/services;

9) currency or currencies in which a bid must be expressed and the exchange rate at which the bid price must be reduced to a common currency for the purpose of comparison and evaluation;

10) requirements to the language of a bid and public procurement contract in compliance with the Kazakhstan legislation concerning languages;

11) requirements to the tender bid filing, as well as contents and security thereof;

12) clause regarding the potential vendor’s right to modify or withdraw their bid before the bidding closure;

13) procedure, method and deadline for presentation of a bid and the validity period thereof;

14) procedure for the preliminary discussion of draft tender documentation;

15) date and time of bid opening;

16) detailed description of the procedure for opening, consideration, evaluation and comparison of bids;

17) information on representatives of the customer and public procurement authority authorized to represent the parties in the coming tender;

18) terms, conditions, types, scopes and methods of securing the performance of a public procurement contract; and

19) funds allocated for the procurement of goods/works/services through the tender.

Tender documentation may contain any other supplementary information ensuring better understanding by potential vendors of the tender terms and conditions.

To minimize corruption risks the Law introduced the notion of preliminary discussion of draft tender documentation by potential vendors.

Comments to draft tender documentation and requests for clarification of certain provisions thereof may be sent to the customer, public procurement authority and sponsor of the tender within five business days after the announcement of the relevant public procurement.  In the absence of comments or clarification requests, the tender documentation may be approved.

In case of any comments or clarification requests, the customer and public procurement authority must, within five business days after expiration of the period allowed for preliminary discussion of tender documentation, adopt any of the following decisions:

1) to introduce the necessary amendments to the draft tender documentation;

2) to reject comments to the draft tender documentation providing the reasons for such rejection; or

3) to clarify provisions of the tender documentation.

Upon the adoption of the aforementioned decision, the tender documentation shall be deemed to be approved.

A bid is a form of potential vendor’s agreement with the terms and conditions set out in tender documentation and their consent to the receipt of information about such potential vendor proving their conformance to qualification requirements and restrictions established by the Law.

A bid is submitted by a potential vendor to the public procurement authority in a digital form through the public procurement web-portal before the bidding deadline specified in the tender documentation.

Provisions of the Law also raise the responsibility of participants of public procurement through anti-dumping measures.  For example, when public procurement is performed through a tender, bidders are allowed to specify dumping prices if they deposit, apart from the security for the performance of a public procurement contract, an amount equivalent to the reduced amount of the lowest admissible bid not recognized as dumping.

Bids are considered by the tender committee which is called to identify the potential vendors who meet the qualification requirements and requirements to tender documentation.

Based on the results of bids analysis with regard to their conformance to the qualification requirements and requirements to tender documentation, the tender committee executes a prequalification protocol to be signed by the chairman, secretary and all members of the tender committee on the date of decision-making on bids pre-qualification.

A bid is opened by the web-portal automatically upon the completion of analysis for conformance of the bid to the qualification requirements and requirements to tender documentation.  The public procurement web-portal automatically compares bid prices and chooses the winner based strictly on lowest bid.

A protocol on tender results is automatically generated and posted on the public procurement web-portal with simultaneous notification of all members of the tender committee and bidders via email.

A protocol on tender results may be appealed by any bidder in the manner prescribed by the Law.

A public procurement tender may be declared void on one of the following grounds:

1) no bid has been submitted;

2) less than two bids have been submitted;

3) none of bidders has been accepted; or

4) only one bidder has been accepted.

When a public procurement tender is declared void, the customer must choose any of the following options:

1) re-tendering exercise; or

2) amendment of tender documentation and re-tendering.

When a public procurement tender fails, the customer may procure goods/works/ services from a single source subject to the following conditions:

1) no bid has been submitted, provided that the potential vendor invited to participate in public procurement from a single source is selected by the customer; and

2) less than two bids have been submitted, provided that the invitation to participate in public procurement from a single source is sent to the potential vendor who has submitted a bid.  The value of the public procurement contract must not exceed the bid price of the potential vendor specified in the bid.

Public procurement through prequalification tender applies only to those goods/works/services which are approved by the competent authority and is conducted in the following sequence:

1) in the first stage, the competent authority, in consultation with the Kazakhstan National Chamber of Entrepreneurs and other non-profit organisations, forms a register of qualified potential vendors; and

2) in the second stage, the customer announces a public procurement tender among potential vendors included into the register of qualified potential vendors.

Public Procurement through a Request for Quotation

Public procurement through a request for quotation applies to homogeneous goods/works/services, provided that the annual output of such homogeneous goods/works/services in value terms does not exceed four thousand-fold monthly calculation index determined for the respective financial year by the republican budget law, where the decisive factor is price.

Public Procurement from a Single Source

Public procurement from a single source applies to failed public purchases and direct agreements on public procurement.

When a public purchase fails, the customer may opt for public procurement from a single source subject to the following conditions:

1) a public procurement tender/auction is declared void on the grounds provided by the Law.  This provision does not apply to those public procurement tenders/auctions the results of which are invalidated in compliance with Kazakhstan law; and

2) public procurement through a request for quotation is declared void on the grounds provided by the Law, or the measures undertaken by the public procurement authority do not entail the execution of a public procurement contract.

Public procurement from a single source by means of a direct agreement on public procurement applies to the procurements specified in Article 39.3 of the Law.

With effect from 16 January 2021, the list of grounds for the execution of a direct agreement on public procurement from a single source was complemented by the procurement of goods from a legal entity that has entered into an investment agreement in compliance with the Kazakhstan Entrepreneurial Code.

Public Procurement through an Auction or Commodity Exchange

Public procurement through an auction is arranged on-line via the public procurement web-portal and is managed by a single operator of electronic public procurement transactions.

Goods are auctioned in a single lot.

An auction may be attended by potential vendors whose bids have been pre-qualified for the auction with respect to their conformance to qualification requirements and requirements to auction documentation.

Public procurement through a commodity exchange must be arranged in compliance with the Kazakhstan legislation concerning commodity exchanges within the range of approved exchange commodities and via two-way auction-based scheduling.

When the annual volume of public procurement of goods included into the list of exchange commodities does not exceed the minimum permissible lot specified in the list of exchange commodities, the customer may opt for another method of public procurement.

Agreements on public procurement must be drafted on the basis of model agreements approved by the competent authority.  The competent authority may adopt model agreements for the procurement of certain goods/works/services.

The customer must deliver a draft public procurement contract certified with the respective electronic digital signature to the winner via the public procurement portal:

1) within five business days after expiration of the period allowed for appeal of tender/auction results; or

2) within five business days after determination of the winner through the procedure of the request for quotation.

If the award procedures, including the procedure for appeal of prequalification tender results, are completed prior to the adoption of the respective budget (development plan), a draft public procurement contract must be sent to the winner within five business days after the adoption of such budget (development plan).

A draft public procurement contract must be certified by the electronic digital signature of the winner of the respective tender/auction/request for quotation within three business days after the post of the relevant notice (with the draft public procurement contract attached) on the public procurement web-portal.

Procurement of Goods, Works and Services by Subsoil Users and Their Contractors in the Course of Subsoil Use Operations

Legal regulation of the procurement of goods/works/services by subsoil users and their contractors in the course of subsoil use operations is similar to the public procurement regulation procedure, although simpler.  The procurement in this sector is regulated by Article  131 (Hydrocarbons Exploration and Production), Article 179 (Uranium Production) and Article 213 (Solid Minerals Production) of the Kazakhstan Code On Subsoil and Subsoil Use of 27 December 2017 (the “Code”) and sector-relevant legislative acts, e.g. the Regulations on Procurement of Goods/Works/Services by Subsoil Users and Their Contractors in the Course of Exploration and Production of Hydrocarbons and Uranium adopted by Order of the Kazakhstan Ministry of Energy No. 196 of 18 May 2018 and the Regulations on Procurement of Goods/Works/Services by Subsoil Users and Their Contractors in the Course of Production of Solid Minerals adopted by Order of the Kazakhstan Minister of Investments and Development No. 355 of 21 May 2018.

The new Code continues to regulate the procedures for procurement of goods/works/services by subsoil users, as well as their reporting and local content obligations.

Subsoil users may procure required goods/works/services through the register of goods/works/services used in the course of subsoil use operations and manufacturers/performers/providers thereof or through other electronic procurement systems found in the Kazakhstan segment of the Internet and synchronized with such register.

Procurements by Sovereign Wealth Fund Samruk-Kazyna JSC (the “Fund”) and the legal entities in which at least fifty percent of voting shares/interests are directly or indirectly held by the Fund under the right of ownership or trust management

The procurements in this sector are regulated by Article 19 of Kazakhstan Law On the Sovereign Wealth Fund No. 550-IV of 1 February 2012.  The Procurement Rules adopted by the Fund’s Board of Directors on 28 January 2016 (Resolution No. 126) ceased to have effect from 1 January 2020 in pursuance of the resolution adopted by the in-praesentia meeting of the Fund’s Board of Directors on 3 July 2019 (Extract from Minutes No. 161).

With effect from 1 January 2020, all procurements must be managed in accordance with the Procurement Regulations of the Fund and the Legal Entities in Which at Least Fifty Percent of Voting Shares/Interests are Directly or Indirectly Held by the Fund under the Right of Ownership or Trust Management adopted by the Fund’s Board of Directors on 3 July 2019 (Resolution No. 161), Procurement Management Standard of the Fund and the Legal Entities in Which at Least Fifty Percent of Voting Shares/Interests are Directly or Indirectly Held by the Fund under the Right of Ownership or Trust Management adopted by the Fund’s Management Board on 9 September 2019 (Resolution No. 31/19) (hereinafter referred to as the “Standard”), as well as the procurement rules of portfolio companies and procurement rules of the Fund (when the Fund procures directly).

One of the most important novelties introduced by the Procurement Management Standard of the Fund which entered into force on 1 January 2020 is the establishment of new principles of pre-qualification selection (the “PQS”).  For example, the Standard abolished the scoring of potential suppliers and criticality levels, shortened the list of required documents thus simplifying the PQS process, and excluded the criteria which do not directly relate to supplier’s operations.

Another novelty in the PQS process is the involvement of the customer’s or Atameken’s representative (attorney) in a potential supplier audit.  Besides, from now on, the register of qualified suppliers must be posted on an open source website.  Upon completion of the audit, the potential supplier will be officially registered as the Fund’s qualified potential supplier and the relevant PQS results will be valid for 3 years.

The potential suppliers who had passed the PQS prior to the adoption of the Standard will enjoy the following preferences:

1) the new Standard PQS fee waiver;

2) exemption from tender security deposit in relation to the procured goods/works/services the level of conformance of which by all qualification criteria is above the minimum level of conformance (if participating in the tender on a non-preferential basis); and

3) award of contract to the supplier who had passed the PQS before 1 January 2020, if it participates in the tender on a non-preferential basis and observes the conditional equality of bid prices.

Upon execution of a procurement contract with the potential supplier who has passed the PQS and who is the manufacturer of the procured goods, the supplier is entitled to an advance payment at a minimum rate of 30% of the contract value payable within 30 calendar days from the effective date of the contract.

The Standard sets out the following compulsory criteria for evaluation and comparison of tender bids from potential vendors ensuring a provisional price reduction:

1) a potential vendor shall be the manufacturer of procured goods (5% provisional price reduction);

2) a potential vendor shall have at least 5-year experience on a homogeneous market of procured goods/works/services (1.5% provisional price reduction for a 3-year experience and 0.5% for each subsequent year of experience, but in any case not more than 2.5%) confirmed by appropriate documents (either originals or notarised copies), including consignment bills and transfer and acceptance certificates issued in relation to procured goods/works/services);

3) a potential vendor shall have certified management system(s) conforming to Kazakhstan national standards and meeting the objectives of performed procurement supported by a notarised copy of the management system certificate or by a copy authenticated by the issuer of the certificate (1% provisional price reduction);

4) a potential vendor shall attach to their bid a statement of guarantee that they will retain in Kazakhstan all the positions held by Kazakhstan employees (5% provisional price reduction).  The provisional price reduction stipulated by this subparagraph shall apply only to those tenders/lots the value of which does not exceed 500 mln tenge, excluding VAT, provided that the potential vendor furnishes a statement of guarantee in accordance with Section 17 of Annex 6 to the Standard; and

5) a potential vendor shall attach to their bid a statement of guarantee that they will retain all the positions held by Kazakhstan employees and create new jobs for Kazakhstan nationals in Kazakhstan (3% provisional price reduction per 5 jobs, 0.4% provisional price reduction per 1 additional job for up to 10 jobs, and 0.5% provisional price reduction per each extra job, but not more than 10%).  The provisional price reduction stipulated by this subparagraph shall apply only to those tenders/lots the value of which exceeds 500 mln tenge, excluding VAT, provided that the potential vendor furnishes a statement of guarantee in accordance with Section 17 of Annex 6 to the Standard.

When a bidder is a consortium, the compulsory criteria for evaluation and comparison of tender bids affecting the provisional price reduction are applied only to the consortium leader explicitly determined as such by the relevant consortium agreement.