Suspension of the Conclusion of a Public Procurement Contract
Cameral control in the field of public procurement is carried out:
· with regard to the timeliness and completeness of publication of the annual public procurement plan. It is conducted upon expiry of fifteen business days from the date of approval (amendment) of the relevant budget (development plan) or individual financing plan.
· for public procurement carried out using the method of requesting price quotations. It is conducted from the date of publication on the web portal of information on the public procurement being conducted using the method of requesting price quotations until the conclusion of the public procurement contract.
· for public procurement carried out through single-source procurement by direct conclusion of a public procurement contract and/or through commodity exchanges. It is conducted no later than five business days from the date on which the draft public procurement contract is sent to the potential supplier for signing.
· for public procurement carried out using the methods of tender (auction), cameral control is conducted in the following areas:
1) first area: from the date of announcement of the tender (auction) until the expiry of the deadline for submitting comments during the preliminary discussion of the draft tender documentation (auction documentation);
where preliminary discussion of the draft tender documentation is not conducted, within ten calendar days from the date of publication of the announcement of public procurement using the tender method;
2) second area – within ten calendar days from the date of publication on the web portal of the minutes of the preliminary discussion of the draft tender documentation;
3) third area – within seven business days from the date of publication on the web portal of the minutes of preliminary admission;
4) fourth area, where cameral control is conducted on the basis of the risk management system – in respect of complaints provided for by paragraph 5 of Article 47 of the Law on Public Procurement – within ten business days from the expiry of the period established by paragraph 2 of Article 47 of the Law on Public Procurement.
When cameral control is conducted under the fourth area, a participant in the administrative procedure is given an opportunity to express their position regarding the preliminary decision as part of the hearing (i.e. within the meaning of subparagraph 4) of paragraph 17 of Rules No. 598).
In this case, no later than three business days before the expiry of the cameral control period, the DAGS places on the public procurement web portal a draft response to complaints submitted pursuant to paragraph 5 of Article 47 of the Law on Public Procurement and/or a draft notification for preliminary discussion with the participation of potential suppliers/public procurement organizers.
The hearing procedure is conducted through information systems within three business days from the date of publication of the draft response to the complaint or the draft notification in accordance with Article 73 of the APPC.
Following the hearing procedure, on the last business day of the period established by paragraph 23 of Rules No. 598, the Department publishes on the web portal the minutes of the hearing containing information on the positions of public procurement participants, including the information provided for by paragraph 22 of these Rules.
When conducting cameral control, the arguments of the person who filed the complaint during the cameral control conducted under the relevant area are taken into account in accordance with paragraph 17 of Rules No. 598; that is, the complaint is considered within the scope of the claims (arguments) stated therein (paragraph 5 of Article 47 of the Law).
The authorized body, no later than one business day from the date of receipt of the complaint, sends the customer a notification of the suspension of the conclusion of the public procurement contract. This is consistent with the provisions of Article 96 of the APPC, under which the filing of a complaint suspends the execution of an administrative act or administrative action.
Complaints by potential suppliers concerning the requirements of the tender documentation (auction documentation), including the qualification requirements specified therein, shall not be considered if no comments were submitted regarding the draft tender documentation (auction documentation) in accordance with the procedure established by Article 22 of the Law on Public Procurement.
It should be noted that the results of a tender conducted using the rating-and-scoring system are not subject to appeal under the procedure established by Article 47 of the Law.
Pursuant to subparagraph 1) of part 4 of Article 30 of the Law on State Audit and Financial Control, one of the response measures of cameral control is the issuance of a notification on the elimination of violations identified as a result of cameral control, which is mandatory for all state bodies, organizations and officials to comply with.
Where violations are identified as a result of cameral control, the territorial division prepares and sends to the state audit entities a notification on the elimination of violations identified as a result of cameral control.
A notification is an administrative act adopted in public-law relations and implementing the rights and obligations established by the laws of the Republic of Kazakhstan of a specific person or an individually determined group of persons.
The notification shall be complied with by the state audit entity within ten business days from the day following the day on which it is served on (received by) the state audit entity.
RETURN OF ADMINISTRATIVE CLAIMS
The main reason for the return of claims for lack of jurisdiction was that the contested administrative act had been issued in electronic form and therefore had to be considered at the place of residence (location) of the claimant. This rule was introduced into the APPC and, at the initial stage of judicial practice, contributed to an increase in the number of returned claims. A larger number of claims were returned by the court of first instance of Astana due to the fact that central administrative bodies are located in the capital.
Pursuant to paragraphs one and two of Article 3 of the APPC, it regulates relations associated with the conduct of internal administrative procedures and administrative procedures, as well as the procedure for administrative proceedings. Participants in the relations regulated by the Code include state bodies, administrative bodies, officials, as well as individuals and legal entities. The subject matter of legal regulation under the APPC is the activities of administrative bodies related to the adoption, repeal, amendment and execution of a legally authoritative decision aimed at establishing, changing or terminating the rights and obligations of specific persons, as well as the performance of legally significant actions.
Based on the meaning of paragraph 1 of Regulatory Resolution No. 5 of the Supreme Court, courts should distinguish between disputes arising in the process of selecting a supplier and concluding a public procurement contract with such supplier, the procedure for consideration of which is regulated by the provisions of the APPC, and disputes arising from a public procurement contract, which are considered in civil proceedings.
Courts also received claims arising from public procurement contracts, in particular claims seeking to declare unlawful and annul:a) the customer's actions in sending a notice of termination of the contract;b) the defendant's failure to take measures to terminate the contract and an order requiring the defendant to terminate it;c) a notice of unilateral termination of the contract;d) actions consisting in sending such notice.
The courts justified the return of such claims on the grounds that the disputes were not based on administrative or other authority-based subordination or dependence of one party (the supplier) on the other (the customer) by virtue of the powers of administrative bodies established by regulatory legal acts. In the case under consideration, the claims asserted concerned a dispute over the terms of a contract concluded between the customer and the supplier, which excludes the existence of public-law relations between them.
In such cases, the claims were lawfully returned pursuant to subparagraph 2) of part seven of Article 3 of the APPC, which provides that cases whose procedure is established by the CPC are not subject to consideration under administrative proceedings.
The claimants challenged the audit report and audit opinion issued following an internal state audit, and the courts reasonably concluded that such claims should be returned.
It should be noted that, for a short period of time, questions arose concerning the jurisdiction of these disputes due to amendments repeatedly introduced to Article 19 of the Law on State Audit and Financial Control.
Thus, from 1 to 6 July 2021, this Article provided that the bodies of the SAFC recognized the results of a state audit conducted by other SAFC bodies, with the exception of documents of internal audit services, in accordance with paragraphs 2, 3, 4 and 5 of this Article, unless they had been declared unlawful by a court in accordance with the legislation of the Republic of Kazakhstan on administrative proceedings. From 6 July 2021, this provision was amended by transferring disputes to civil procedural jurisdiction, which, in the opinion of the authors of this Analysis, is justified from the standpoint of legal logic, since an audit opinion², in the first case, contains the auditors' findings and recommendations, while an audit report³, in the second case, contains the results of the audit. At the same time, these documents⁴ do not possess the mandatory criteria of an administrative act.
At the same time, courts should take into account that, pursuant to subparagraph 1) of paragraph 2 of Article 5 of the Law on SAFC, one of the measures of response under financial control is the issuance of a mandatory order requiring all state bodies, organizations and officials to eliminate the violations identified and to consider the liability of the persons who committed them.
In addition, paragraph 7 of Article 58-4 of the same Law provides for the right to appeal decisions of the Appeals Commission of the authorized body in the field of SAFC.
Challenges to such orders and decisions of the Appeals Commission are subject to administrative proceedings, as are challenges to actions (inaction) of SAFC bodies and/or their officials⁶, provided that such acts correspond to the criteria of an administrative act or action (inaction).
JURISDICTION OF ADMINISTRATIVE CASES
Pursuant to part two of Article 102 of the APPC, disputes arising from public-law relations provided for by this Code fall within the jurisdiction of courts under administrative proceedings.
Paragraph 2 of Regulatory Resolution No. 4 of the Supreme Court clarifies that challenges to the results of public procurement, decisions of the authorized body to include a potential supplier in the Register of Unreliable Suppliers (RUS), as well as decisions, opinions, orders and notifications of the authorized body following an inspection of the conduct of public procurement, are considered in accordance with the procedure provided for by part three of Article 106 of the APPC, at the place of residence (location) of the claimant.
If, together with a claim seeking to declare the tender results unlawful, the claimant also seeks, on that basis, to declare the concluded public procurement contract invalid, such claims shall be considered jointly by the Specialized Interdistrict Administrative Court (SIAC), taking into account the requirements of part three of Article 84, part three of Article 155 and part two of Article 156 of the APPC.
The authors of the Analysis draw attention to the fact that the above provision of the Regulatory Resolution of the Supreme Court has repeatedly been emphasized at operational meetings and seminars held for judges of administrative jurisdiction. However, there have been instances where claims concerning the invalidity of public procurement contracts were returned, even though such claims were filed jointly with claims challenging the results of public procurement.
Regulatory Resolution No. 4 of the Supreme Court also provides that, in such a case, with respect to the claim for declaring the contract invalid, the claimant is not required to comply with the pre-trial dispute resolution procedure stipulated by the contract.
Claims by a potential supplier challenging actions (inaction) or decisions of the customer, organizer, unified public procurement organizer, commissions, expert, unified operator in the field of public procurement, as well as actions (inaction) or decisions of the authorized body and SAFC bodies, are subject to consideration by the SIAC.
Claims by public procurement organizers and customers related to the application of subparagraphs 1) and 3) of part one of paragraph 4 of Article 12 of the Law on Public Procurement, as well as claims arising from the performance of public procurement contracts, are subject to consideration by the Specialized Interdistrict Economic Court (SIEC).
Claims challenging a decision of the authorized body declaring a potential supplier an unreliable participant in public procurement, where such status was established pursuant to subparagraph 2) of part one of paragraph 4 of Article 12 of the Law on Public Procurement, are subject to consideration by the SIAC.
PRE-TRIAL PROCEDURE
The objectives of administrative procedures are: the full realization of the public rights, freedoms and interests of individuals and legal entities; achieving a balance between private and public interests in public-law relations; and strengthening the rule of law in the public-law sphere.
If the law establishes a pre-trial procedure for dispute resolution, an application to the court may be filed after compliance with such procedure (part 3 of Article 9 of the APPC).
Pursuant to paragraphs 1 and 5 of Article 91 of the APPC, a participant in an administrative procedure has the right to challenge an administrative act or an administrative action (inaction) not related to the adoption of an administrative act through administrative (pre-trial) procedure.
Unless otherwise provided by law, an application to the court is permitted after the matter has been challenged through the pre-trial procedure.
According to paragraph 6 of Article 12 of the Law on Public Procurement, if a potential supplier disagrees with the decision of the authorized body declaring it an unreliable participant in public procurement, as provided for by part two of paragraph 5 of this Article, such potential supplier has the right, no later than ten business days from the date on which it became aware of its inclusion in the RUS, to apply to the Conciliation Commission in accordance with the procedure established by the authorized body.
The Conciliation Commission considers an application submitted by a potential supplier who has evaded the conclusion of a public procurement contract and makes a decision either to exclude or to refuse to exclude such potential supplier from the RUS.
If a decision is made to exclude the potential supplier from the RUS, the customer applies to the authorized body.
The authorized body makes a decision to exclude the potential supplier from the RUS, taking into account the decision of the Conciliation Commission.
At present, the powers of the Conciliation Commission include consideration of applications from potential suppliers and clarification of the circumstances and validity of the reasons that served as the basis for issuing the order, which may subsequently eliminate the need to bring claims before a court.
Pursuant to part 5 of Article 91 of the APPC, unless otherwise provided by law, an application to the court is permitted after the matter has been challenged through the pre-trial procedure.
By Order No. 176 of the Minister of Finance of the Republic of Kazakhstan dated 17 February 2022, the Standard Regulation on the Conciliation Commission was approved.
A statutory limitation period of 60 calendar days from the date of recognition of a potential supplier as an unreliable participant in public procurement has been established for applying to the Conciliation Commission.
At the same time, there are cases where potential suppliers miss the deadline for applying to the Conciliation Commission and apply directly to the court, referring to the loss of the possibility of pre-trial dispute resolution.
The failure to comply with the deadline for applying to the Conciliation Commission gives a potential supplier grounds to believe that it may apply to the court without mandatory pre-trial dispute resolution.
The establishment of such practice may result in potential suppliers abusing their right to judicial protection, as well as an increase in the number of claims filed with courts.
Part 2 of Article 92 of the APPC provides a participant in an administrative procedure with the right to submit to the body considering the complaint a motion to restore the missed deadline for filing a complaint.
Pursuant to subparagraph 2) of paragraph 4 of Article 12 of the Law, the Register of Unreliable Participants in Public Procurement constitutes a list of potential suppliers determined to be winners who have evaded the conclusion of public procurement contracts.
Paragraph 5 of the same Article provides that the Register of Unreliable Participants in Public Procurement referred to in subparagraph 2) of part one of paragraph 4 of this Article (potential suppliers determined to be winners (potential suppliers ranked second) who have evaded the conclusion of public procurement contracts) is formed on the basis of a decision of the authorized body declaring potential suppliers unreliable participants in public procurement.
According to part 3 of Article 43 of the Law, a public procurement contract must be certified by the winner of public procurement conducted by tender, auction or request for price quotations by means of an electronic digital signature within three business days from the date of receipt on the public procurement web portal of a notification accompanied by the draft public procurement contract.
Paragraph 1 of Article 44 of the Law provides that if a potential supplier recognized as the winner fails, within the time limits established by this Law, to submit to the customer a signed public procurement contract or, having concluded a public procurement contract, fails to provide security for the performance of the public procurement contract and/or the amount stipulated by Article 26 of this Law (where applicable), such potential supplier shall be recognized as having evaded the conclusion of the public procurement contract.
According to paragraph 22 of the Rules for the Formation and Maintenance of Registers in the Field of Public Procurement, approved by Order No. 694 of the Minister of Finance of the Republic of Kazakhstan dated 28 December 2015, if a potential supplier recognized as the winner or ranked second fails, within the time limits established by the Law, to sign the public procurement contract through the web portal, such potential supplier shall, by a decision of the authorized body adopted through the web portal in the form set out in Annex 5 to these Rules, be automatically included in the Register of Unreliable Participants in Public Procurement.
Thus, a potential supplier may be recognized as an unreliable participant in public procurement:
- if it fails to sign the public procurement contract within three business days from the date of receipt on the public procurement web portal of a notification accompanied by the draft contract;
- if, having concluded the public procurement contract, the potential supplier fails to provide security for the performance of the contract.
An order of the authorized body constitutes a burdensome administrative act.
The Regulatory Resolution of the Supreme Court clarifies that, when considering administrative claims challenging decisions of the authorized body to include a potential supplier (supplier) in the RUS due to evasion from concluding a public procurement contract, courts should proceed from the requirements of paragraph 3 of Article 43 of the Law, which establishes the obligation of the public procurement winner to sign the contract.
If the contract is not signed, the potential supplier must prove that it took all measures within its control to sign the contract but was unable to do so due to objective circumstances beyond its control.
It should be noted that, pursuant to Chapter 2 of the APPC, one of the principles of administrative procedures and administrative proceedings is the proportionality of an administrative act and an administrative action (inaction).
Pursuant to Article 10 of the APPC, when exercising administrative discretion, an administrative body or official shall ensure a fair balance between the interests of the participant in the administrative procedure and those of society. At the same time, an administrative act and an administrative action (inaction) must be proportionate, i.e. suitable, necessary and proportionate.
The provisions of paragraph 5 of Article 12 of the Law do not establish that a decision of the authorized body declaring a potential supplier to have evaded the conclusion of a public procurement contract is to be made automatically.
Arguments concerning the automatic generation of the contested orders are inconsistent with the principles of administrative justice, such as fairness and proportionality.
The authorized body is obliged, while maintaining objectivity and impartiality, to ensure that the potential supplier has equal opportunities and conditions for exercising its rights to a comprehensive and complete examination of the circumstances of the administrative case (part 1 of Article 8 of the APPC).
REGULATORY LEGAL FRAMEWORK
The Constitution of the Republic of Kazakhstan;
The Civil Code of the Republic of Kazakhstan (CC);
The Civil Procedure Code of the Republic of Kazakhstan (CPC);
The Administrative Procedural and Process-Related Code of the Republic of Kazakhstan (APPC);
The Budget Code of the Republic of Kazakhstan;
The Tax Code of the Republic of Kazakhstan;
The Law of the Republic of Kazakhstan “On Public Procurement” (Law on Public Procurement);
The Law of the Republic of Kazakhstan “On State Audit and Financial Control” (Law on State Audit and Financial Control);
The Law of the Republic of Kazakhstan “On Legal Acts”;
The Law of the Republic of Kazakhstan “On the National Welfare Fund”;
The Law of the Republic of Kazakhstan “On Procurement by Certain Entities of the Quasi-Public Sector”;
The Rules for Public Procurement, approved by Order No. 648 of the Minister of Finance of the Republic of Kazakhstan dated 11 December 2015 (Rules No. 648);
The Rules for the Formation and Maintenance of Registers in the Field of Public Procurement, approved by Order No. 694 of the Minister of Finance of the Republic of Kazakhstan dated 28 December 2015 (Rules No. 694);
The Rules for Conducting Cameral Control, approved by Order No. 598 of the Minister of Finance of the Republic of Kazakhstan dated 30 November 2015 (Rules No. 598);
The Rules for Conducting Internal State Audit and Financial Control, approved by Order No. 392 of the Minister of Finance of the Republic of Kazakhstan dated 19 March 2018 (Rules No. 392);
The Special Procedure for Public Procurement, approved by Resolution No. 127 of the Government of the Republic of Kazakhstan dated 20 March 2020 (effective until 31 December 2020);
The Rules for Public Procurement Using a Special Procedure, approved by Resolution No. 1200 of the Government of the Republic of Kazakhstan dated 31 December 2015 (Rules No. 1200);
Regulatory Resolution No. 4 of the Supreme Court of the Republic of Kazakhstan dated 21 April 2022 “On the Application by Courts of Legislation on Public Procurement” (Regulatory Resolution No. 4);
The Fund's Procurement Management Standard, approved by Resolution No. 31/19 of the Management Board of the Fund's Board of Directors dated 3 September 2019;
Other regulatory legal acts of the Republic of Kazakhstan.
ABBREVIATIONS
Administrative Act – administrative act;
PP – public procurement;
RUS – Register of Unreliable Participants in Public Procurement;
SIAC – Specialized Interdistrict Administrative Court;
AC – Administrative Cases Judicial Panel of a regional court;
AC SC RK – Administrative Cases Judicial Panel of the Supreme Court of the Republic of Kazakhstan;
SIEC – Specialized Interdistrict Economic Court;
MoF – Ministry of Finance of the Republic of Kazakhstan;
Treasury – Treasury Committee of the Ministry of Finance of the Republic of Kazakhstan;
CISA – Committee of Internal State Audit of the Ministry of Finance of the Republic of Kazakhstan;
DISA – Department of Internal State Audit of the Committee of Internal State Audit of the Ministry of Finance of the Republic of Kazakhstan;
SAFC – State Audit and Financial Control.
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