Challenging the results of desk control in public procurement
According to article 79 of the CPC, an administrative act must be lawful and justified. It should be clear to understand, ensure uniform application, and comprehensively define the range of persons to whom it applies.
In accordance with part 3 of Article 129 of the CPC, the defendant can only refer to those grounds that are mentioned in the administrative act.
In accordance with Appendix 2 of the Rules for Conducting Desk Control, approved by Order of the Minister of Finance of the Republic of Kazakhstan No. 598 dated November 30, 2015 (hereinafter referred to as Rules 598), the notification must indicate violations identified by the results of desk control.
The notification is sent with an attachment of the identified violations, where each violation is recorded in a separate paragraph and numbered end-to-end with an indication of the risk profile, a description of the nature of the violation, with reference to articles, paragraphs and sub-paragraphs of regulatory legal acts, the provisions of which are violated.
In the description of the violation, reference is made to the details and names of the documents confirming the violations.
The court, in the framework of the considered administrative case on the claims of "SA" LLP and the Office of Assets and Public Procurement of Astana city on challenging the notification, established the following:
The Organizer - Management conducted public procurement using the electronic competition method "Expansion of the Intelligent transport System of Astana. (The 3rd stage of construction is the creation of a city–wide adaptive traffic management system, equipped with ITS system).
The customer is the Department of Transport and Development of the Road Transport Infrastructure of Astana city.
On June 16, 2021, the results of the competition were summed up and SA LLP was determined the winner of the lot. On June 23, 2021, a potential supplier of TI LLP filed a complaint with the DVGA due to disagreement with the decision of the competition commission regarding the calculation of the work experience of a potential supplier of SA LLP.
As a result of the desk control, a notification was sent to the organizer about the elimination of the detected violations.
The organizer and the customer of the competition filed an objection to the notification dated July 13, 2021 to the Internal State Audit Committee of the Ministry of Finance of the Republic of Kazakhstan (hereinafter referred to as the CSA).
By the conclusion of the CCGA dated August 13, 2021, taking into account the recommendation of the appeals commission, it was decided to dismiss the objection. The plaintiffs argued that during the desk inspection, the information of potential suppliers was not sufficiently studied, according to the results of which the criteria for work experience were formed incorrectly.
The SMAS satisfied the claim with its decision, based on the fact that the DVGA violated the requirements for drawing up an administrative act – for notification. The SCUD solution remains unchanged.
Conclusion of the local courts: in fact, the notification contains only a list of a number of norms of the law and relevant rules and conclusions about violations, without their appropriate assessment and legal analysis, there are no criteria from which the Department proceeded when rejecting work experience, despite the fact that the burden of proof in the case in question lies directly with the defendant.
The Department tried to fill in the objections and arguments already during the court session, which is unacceptable, the court cannot take them into account, since they are not mentioned in the administrative act.
The defendant does not describe the violations identified for each listed work experience with reference to the norms of the law, as well as the unlawful application of the calculation of work experience by the competition commission, and there is no justification for the claim.
Thus, the administrative act is not justified and clear to understand, as required by article 79 of the CPC. In support of the accepted notification, the defendant only provided arguments in the SMAS review for not accepting the plaintiff's work experience.
Thus, the representative of the defendant explained that in the submitted documentation there are differences in the names of objects in the acceptance certificates of objects for operation and in the certificate of completed works, in information on qualifications, in the years of completion of work, and there are also partially no acceptance certificates. The data of the violation by the defendant was not recorded in the notification.
The disputed notification does not specify the details and names of the documents confirming the violations.
According to part 2 of Article 84 of the CPC, an illegal administrative act may be revoked in whole or in part due to its non-compliance with the requirements of the CPC, and the defendant's notification may not be lawful and justified, and accordingly, it is subject to cancellation.
In court proceedings, according to part 3 of Article 129 of the CPC, the defendant cannot refer to new arguments and justifications that were not previously given in the administrative act – notification.
When a court establishes that an administrative notification act does not comply with the requirements of the GAiFK Law in form and content, such an administrative act cannot be recognized as lawful and justified by virtue of article 79 of the APPC.
In this regard, the courts do not need to enter into a discussion about the correctness of the method of conducting public procurement in general, due to the incompleteness and inconsistency of the contested notices with the requirements of the law.
Jurisdiction of administrative cases in the field of public procurement
According to the second part of Article 102 of the CPC, the courts have jurisdiction in administrative proceedings over disputes arising from public law relations provided for by this Code.
Paragraph 2 of the NPS No. 4 clarifies that challenging the results of the GZ, decisions of the authorized body on the registration of a potential supplier in the RNU, as well as decisions, conclusions, instructions, notifications of the authorized body based on the results of the audit of the GZ, is carried out in accordance with the procedure provided for in part three of Article 106 of the APPC, at the place of residence (location) of the plaintiff.
If the plaintiff, along with the claim for recognition of the results of the tender as illegal, requires that the concluded GZ agreement be invalidated on this basis, then such claims will be subject to joint consideration by the SMAS, taking into account the requirements of part three of Article 84, part three of Article 155, part two of Article 156 of the CPC.
The authors of the analysis draw attention to the fact that the above provision of the NPS has been repeatedly pointed out at operational meetings and seminars held for judges of administrative jurisdiction. However, there are cases of refunds of claims regarding the recognition of GZ agreements, whereas they are filed jointly with claims for appealing the results of the GZ.
NPS No. 4 also provides that in this case, regarding the claim for invalidation of the agreement, the plaintiff is not required to comply with the pre-trial dispute settlement procedure provided for in the contract.
Claims of a potential supplier against actions (inaction), decisions of the customer, the organizer, the single organizer of the GZ, commissions, an expert, a single operator in the field of GZ, as well as actions (inaction), decisions of the authorized body and GAiFK bodies are subject to review by the SMAS.
Claims of the organizers of the GZ, customers related to the application of subitems 1) and 3) of the first part of paragraph 4 of Article 12 of the Law on GZ, as well as claims arising from the execution of contracts on GZ, are subject to consideration by the Council of Economic Cooperation.
Claims challenging the decision of the authorized body to recognize a potential supplier as an unscrupulous participant in the GZ, recognized as such in accordance with subparagraph 2) The first part of paragraph 4 of Article 12 of the GZ Law is subject to review by the SMAS.
Refunds of administrative claims in the field of public procurement
The main reason for the returns due to lack of jurisdiction was that the contested administrative act was issued in electronic form and therefore should be considered at the location (residence) of the plaintiff.
This rule was introduced in the APPC and at the initial stage of judicial practice influenced the increase in the number of refunds.
A large number of lawsuits were returned by the court of first instance of Astana city due to the fact that the central administrative authorities are located in the capital.
In accordance with the first and second parts of Article 3 of the CPC, it regulates relations related to the implementation of internal administrative procedures, as well as the procedure for administrative proceedings.
The participants in the relations regulated by the Code are state bodies, administrative bodies, officials, as well as individuals and legal entities.
The subject of the legal regulation of the APPC is the activity of administrative bodies related to the adoption, cancellation, modification, and execution of a legally authoritative decision aimed at establishing, changing, or canceling the rights and obligations of specific persons, and performing legally significant actions.
1. Based on the meaning of paragraph 1 of the NPA No. 5, the courts should distinguish between disputes arising in the process of selecting a supplier and concluding a contract with him on GZ, the procedure for consideration of which is regulated by the rules of the CPC, and disputes arising from the contract on GZ, which are considered in civil proceedings.
The courts have received claims arising from the GZ agreement, in particular, for recognition as illegitimate and cancellation:
a) actions of the customer to send a notice of termination of the contract;
b) the defendant's failure to take measures to terminate the contract and the obligation to terminate it;
c) notification of termination prior to the negotiation unilaterally;
d) actions to send such notification.
The return of such claims by the courts is justified by the fact that disputes are not based on administrative or other authority or dependence of one party (supplier) to the other (customer) by virtue of the powers of administrative bodies established by regulatory legal acts.
In this case, the stated claims contain a dispute over the terms of the contract concluded between the customer and the supplier, which excludes public relations between them.
In such cases, the claims were lawfully returned under subparagraph 2) of part seven of Article 3 of the CPC, which states that cases whose procedure is provided for by the CPC are not subject to administrative proceedings.
The plaintiffs challenged the audit report and the audit opinion based on the results of the internal state audit, and the courts reasonably concluded that such claims had been returned.
It should be noted that for a short time there were questions about the jurisdiction of these disputes due to the repeated amendments to Article 19 of the GAiFK Law.
Thus, from July 1 to July 6, 2021, this article provided that the GAiFK bodies would know the results of the state audit conducted by other GAiFK bodies, with the exception of documents from the internal audit services, in accordance with paragraphs 2, 3, 4 and 5 of this Article, unless they were declared illegal by a court in accordance with the legislation of the Republic of Kazakhstan. about administrative proceedings.
Since July 6, 2021, this rule has been amended with the transfer of disputes to civil procedural jurisdiction, which, in the opinion of the authors of this analysis, is reasonable from the point of view of legal logic, since the auditor's report and audit report8, in the first case, contains the conclusions and recommendations of the auditors, in the second, the audit results.
However, these documents do not have the mandatory criteria of an administrative act.9 At the same time, the courts should pay attention to the fact that, according to subparagraph 1) of paragraph 2 of Article 5 of the GAiFK Law, one of the financial control response measures is to issue mandatory orders for all government agencies, organizations and officials to eliminate identified violations and to consider the responsibility of those who committed them.
In addition, paragraph 7 of Article 58-4 of the same Law presupposes the right to appeal against the decisions of the appeal commission of the authorized body in the field of GAiFK.
Challenging such orders and decisions of the appeals commission is carried out in administrative proceedings, as well as challenging the actions (inaction) of the GAiFK bodies and (or) their officials10 if they meet the criteria of an administrative act, action (inaction).
Abbreviations
Administrative act – administrative act;
GZ - public procurement;
RNU – register of unscrupulous participants in public procurement;
SMAS – specialized interdistrict Administrative Court;
SKAD – judicial board for administrative cases of the regional court;
SCAD of the Supreme Court of the Republic of Kazakhstan – Judicial Board for Administrative Cases of the Supreme Court of the Republic of Kazakhstan;
SMEC – specialized interdistrict Economic Court;
Ministry of Finance - Ministry of Finance of the Republic of Kazakhstan;
Treasury – Treasury Committee of the Ministry of Finance of the Republic of Kazakhstan;
KVGA – Internal State Audit Committee of the Ministry of Finance of the Republic of Kazakhstan;
DVGA – Department of Internal State Audit of the Internal State Audit Committee of the Ministry of Finance of the Republic of Kazakhstan;
GAiFK – State audit and Financial control;
CD – tender documentation;
PSD – design and estimate documentation;
SN RK – building regulations of the Republic of Kazakhstan.
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)
Administrative Procedural Procedure Code of the Republic of Kazakhstan (APPK);
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" (the Law on Public Procurement);
The Law of the Republic of Kazakhstan "On State Audit and Financial Control" (the Law on GAiFK);
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 of certain entities of the quasi-public sector";
Rules of public procurement approved by the Order of the Minister of Finance of the Republic of Kazakhstan dated December 11, 2015 No. 648 (Rules No. 648);
Rules for the formation and maintenance of registers in the field of public procurement, approved by the Order of the Minister of Finance of the Republic of Kazakhstan dated December 28, 2015 No. 694 (Rules No. 694);
The rules of desk control approved by the Order of the Minister of Finance of the Republic of Kazakhstan dated November 30, 2015 No. 598 (Rules No. 598);
Rules for conducting Internal State audit and Financial Control, approved by the Order of the Minister of Finance of the Republic of Kazakhstan dated March 19, 2018 No. 392 (Rules No. 392);
Special procedure for public procurement, approved by Resolution of the Government of the Republic of Kazakhstan dated March 20, 2020 No. 127 (valid until December 31, 2020) Rules for public procurement using a special procedure, approved by Resolution of the Government of Kazakhstan dated December 31, 2015 No. 1200 (Rules No. 1200);
Regulatory Resolution of the Supreme Court of the Republic of Kazakhstan dated April 21, 2022 No. 4 "On the application of Legislation on public Procurement by Courts" (NPVS No. 4);
The Fund's Procurement Management Standard, approved by the decision of the Board of Directors of the Fund No. 31/19 dated September 3, 2019;
other regulatory legal acts of the Republic of Kazakhstan.
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