On challenging the results of the state audit and financial control

             By virtue of part 5 of Article 100 of the APPC, if the body considering the complaint has not made a decision on the results of consideration of the complaint within the time limits established by the APPC, then from the date of expiration of the time limits, it is considered that the body considering the complaint has refused to satisfy the complaint.

Paragraph 1 of Article 47 of the Law regulates that a potential supplier has the right to appeal against the actions (inaction), decisions of the customer, the organizer of public procurement, the single organizer of public procurement, commissions, an expert, a single operator in the field of public procurement, if their actions (inaction), decisions violate the rights and legitimate interests of a potential supplier.

The bodies of state audit and financial control exercise control over compliance with the legislation of the Republic of Kazakhstan on public procurement within the scope of the powers established by the Law of the Republic of Kazakhstan "On State Audit and Financial Control" (hereinafter – the Law on GAiFK).

Actions (inaction), as well as decisions of the authorized body and bodies of state audit and financial control may be appealed in accordance with the procedure established by the legislation of the Republic of Kazakhstan (Article 18 of the Law on the State Budget).

The authorized body for internal state audit conducts desk control – another form of control carried out by a territorial subdivision of the department of the authorized body for internal state audit without visiting the object of state audit and financial control (hereinafter referred to as the object of state audit) based on the analysis and comparison of information systems data, as well as information on the activities of objects of state audit.

The procedure for conducting desk control is regulated by the Rules for Conducting desk Control, approved by Order No. 598 of the Minister of Finance of the Republic of Kazakhstan dated November 30, 2015 (hereinafter referred to as Rules No. 598).

Desk control of public procurement procedures is carried out before the conclusion of public procurement contracts. According to the results of the desk control, the territorial subdivision of the authorized body (DVGA) draws up and sends to the objects of state audit a notification on the elimination of violations revealed by the results of the desk control, in accordance with the form established by Rules No. 598 with a description of the detected violations, and is automatically registered on the web portal.

The notification is sent to the object of the state audit via the web portal no later than five working days from the date of detection of violations.

The decision of the DVGA is executed by the object of state audit within ten working days from the day following the day of its delivery (receipt) to the object of state audit.

In case of disagreement with the decision of the authorized body, the potential supplier has the right to appeal it to the appeal commission in accordance with the procedure provided for by the legislation of the Republic of Kazakhstan on state audit and financial control (paragraph 7 of Article 47 of the Law).

Paragraph 8 of Article 47 of the Law, within the framework of a pre-trial settlement, grants the right to a potential supplier to apply to a higher authority or to a court (Decisions of the authorized body adopted as a result of consideration of the complaint may be appealed in court in accordance with the legislation of the Republic of Kazakhstan).

A potential supplier, in case of challenging the results of the competition through a web portal, has already filed a complaint with the DVGA, thereby observing the pre-trial settlement of the dispute.

If the deadlines for filing a complaint with the DVGA are missed, the complaint is considered within the framework of the electronic state audit in accordance with the legislation of the Republic of Kazakhstan on state audit and financial control.

             The obligation to settle a dispute in a pre-trial manner for the object of desk control in case of disagreement with the decision of the authorized body is provided for in paragraph 9 of Article 47 of the Law. It follows from the content of article 58-1 of the GAiFK Law that objections to the audit report, appeals against decisions, actions (inaction) of the authorized body for internal state audit and (or) its officials are considered by the appeals commission under the authorized body for internal state audit.

According to paragraph 2 of article 58-6 of the Law, the appellate settlement of disputes in the cases provided for by this Law is mandatory.

A potential supplier has the right to file a complaint, and the organizer, the customer, file an objection, which are considered in accordance with the procedure and time limits defined by Chapter 11-1 of the Law on GaiFK and the regulation on the appeal commission under the authorized body for internal state audit, approved by the order of the First Deputy Prime Minister of the Republic of Kazakhstan – No. 302 of the Minister of Finance of the Republic of Kazakhstan dated March 20, 2020 "On Approval of the Composition and Regulations on the Appeal commission for Consideration of Objections to the Audit report or Audit Report on Financial Statements, Notification of elimination of Violations Identified by the results of desk control by the authorized body for internal State Audit, and Appeal of decisions, actions (Inaction) of the authorized body the internal state audit body and (or) its officials."

The Appeal Commission, based on the results of consideration of an objection, complaint, makes one of the following decisions:

1) on the full or partial satisfaction of the objection, complaint;

2) refusal to satisfy an objection or complaint with the justification for making such a decision. The decision of the appeal commission is made in writing and is mandatory for execution by the object of the state audit.

             The results of consideration of objections and complaints are drawn up by the authorized body for internal state audit within two working days from the date of the decision of the appeal commission.

The results of the consideration of the objection are formalized by an opinion (paragraph 30 of Rules No. 598).

On public procurement issues, the decisions of the appeals commission are posted on the public procurement web portal within one working day from the date of sending the results of consideration of the objection or complaint to the applicant.

The decision taken by the appeals commission is appealed to the court in accordance with the requirements of the APPC.

             Separately, about the appeals commission

             The appeal commission is established under the authorized body. The Chairman of the appeals Commission directs its activities and chairs its meetings. During the absence of the Chairman from the meeting of the appeals commission, his functions are performed by the Deputy Chairman of the appeals Commission.

The Appeal Commission, which includes employees of the Ministry of Finance of the Republic of Kazakhstan and its departments, representatives of the National Chamber of Entrepreneurs of the Republic of Kazakhstan "Atameken" (as agreed) and industry associations (as agreed), in the number of at least 7 (seven) people include:

Chairman of the Appeal Commission; Deputy Chairman of the Appeal Commission; members of the Appeal Commission in the number of at least 5 (five) people.

The organization of the work of the Appeal Commission is provided by the working body of the commission – a structural unit of the authorized body.

The Working body, no later than 5 (five) working days following the day of receipt of the objection, complaint, based on the study and analysis of the objection, complaint, as well as other documents and information related to the issues being appealed, forms and sends to the members of the Appeal Commission a certificate based on the results of the study and analysis of objections, complaints (hereinafter – Certificate) with the attachment of relevant materials (the results of the analysis in the context of the contested issues, copies of objections, complaints, answers to requests), including those related to legally protected secrets in accordance with the Law of the Republic of Kazakhstan "On State Secrets".

The materials are sent to the members of the Appeal Commission. Earlier, before the statement of the Situation – as amended by the order of the Minister of Finance of the Republic of Kazakhstan dated January 21, 2022 No. 70, the Working Body drew up a preliminary conclusion based on the results of consideration of the objection, complaint and sent its members a preliminary conclusion based on the results of consideration of the objection, complaint and copies of materials related to the issues being appealed. The course of the meeting of the appeal commission is recorded using audio recording equipment.

The meeting is considered competent if there is a quorum. For the meeting, the quorum is at least half of the number of members of the Appeals Commission, including the Chairman and his Deputy.

The decision of the appeal commission is made by a simple majority of the votes of the members present at the meeting by open voting, including through the electronic document management system.

In case of equality of votes, the decision voted for by the Chairman of the appeals commission or his deputy is considered adopted.

The decisions made by the appeal commission, as well as the vote of the members of the commission based on the results of consideration of objections and complaints, are reflected in the minutes of the meeting of the appeal commission (hereinafter referred to as the Protocol), formed, including through the electronic document management system. The minutes of the Working Body are formed within one working day following the day of the meeting.

The protocol is signed by the members of the appeal commission who attended the meeting within one working day following the day of receipt of the draft protocol, including through the electronic document management system.

In case of consideration at the meeting of issues on two or more objections, complaints, a separate Protocol is drawn up for each objection, complaint.

The protocol is attached to the materials of the relevant objection or complaint.

Jurisdiction of administrative cases in the field of public procurement      

             According to the second part of Article 102 of the APPC, the courts, in the order of administrative proceedings, have jurisdiction over disputes arising from public law relations provided for by this Code.

Paragraph 2 of NPS No. 4 clarifies that challenging the results of the GZ, decisions of the authorized body on the entry of a potential supplier into the RNU, as well as decisions, conclusions, prescriptions, 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 requirement to recognize the results of the competition as illegal, requires that the concluded contract on GZ be invalid on this basis, then such claims are subject to joint consideration in 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 APPC.

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 facts of refunds of claims regarding the recognition of contracts on GZ, whereas they are presented together with claims for appealing the results of GZ.

NSAID No. 4 also provides that in this case, in terms of the claim for invalidation of the contract, the plaintiff does not need to comply with the procedure for pre-trial settlement of the dispute 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 consideration by the SMAS.

Claims of the organizers of the GZ, customers related to the application of subparagraphs 1) and 3) of part one 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 SMEC.

Lawsuits 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 Law on GZ is subject to consideration by the SMAS.

Refunds of administrative claims in the field of public procurement    

The main reason for the refunds due to lack of jurisdiction was that the disputed 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 greater number of claims were returned by the court of first instance of Astana city due to the fact that the central administrative bodies are located in the capital.

In accordance with parts one and two 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.

Participants in the relations regulated by the Code are state bodies, administrative bodies, officials, as well as individuals and legal entities.

The subject of legal regulation of the APPC is the activity of administrative bodies related to the adoption, cancellation, modification, 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 NPS No. 5, the courts should distinguish between disputes arising in the process of choosing a supplier and concluding a contract with him on GZ, the procedure for consideration of which is regulated by the rules of the APPC, and disputes arising from the contract on GZ, which are considered in civil proceedings.

The courts have received claims arising from the agreement on the GZ, in particular, for recognition as illegitimate and cancellation:

a) the actions of the customer to send a notice of termination of the contract;

b) the defendant's inaction on failure to take measures to terminate the contract and the obligation to terminate it;

c) notification of termination prior to the agreement unilaterally;

d) actions to send such a notification.

The courts have justified the return of such claims by the fact that disputes are not based on administrative or other authority subordination or dependence of one party (supplier) to the other (customer) by virtue of the powers of administrative bodies established by regulatory legal acts.

In the case under consideration, 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 review in 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 should be returned.

It should be noted that for a short time there were questions about the jurisdiction of these disputes due to the repeatedly amended article 19 of the GAiFK Law.

Thus, from July 1 to July 6, 2021, this article provided that the GAiFK bodies know the results of the state audit conducted by other GAiFK bodies, with the exception of documents of internal audit services, in accordance with paragraphs 2, 3, 4 and 5 of this article, unless they are recognized by the court as illegal in accordance with the legislation of the Republic of Kazakhstan on administrative proceedings.

Since July 6, 2021, this rule has been changed with the transfer of disputes to civil procedural jurisdiction, which, according to the authors of this analysis, is justified from the point of view of legal logic, since the audit opinion and the audit report8, in the first case, contains the conclusions and recommendations of the auditors, in the second, the results of the audit.

At the same time, these documents do not have the mandatory criteria of an administrative act.9 At the same time, the courts should pay attention that according to subparagraph 1) of paragraph 2 of Article 5 of the Law on the GAiFK, one of the measures of financial control response is to issue a mandatory order for all state bodies, organizations and officials to eliminate the violations identified and to consider the responsibility of those who committed them.

In addition, paragraph 7 of Article 58-4 of the same Law provides for 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;

GZ - public procurement;

RNU – register of unscrupulous participants in public procurement;

SMAS – specialized inter-district Administrative Court;

SCUD – 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;

SMES is a specialized inter–district 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;

CH RK – building regulations of the Republic of Kazakhstan.

Regulatory 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 Code of the Republic of Kazakhstan (APPC);

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" (GAiFK Law);

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 subjects of the quasi-public sector";

Rules for Public Procurement approved by Order No. 648 of the Minister of Finance of the Republic of Kazakhstan dated December 11, 2015 (Rules No. 648);

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 December 28, 2015 (Rules No. 694);

The rules for conducting 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 Order No. 392 of the Minister of Finance of the Republic of Kazakhstan dated March 19, 2018 (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 standard for managing the Fund's procurement activities, 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.

Attention!  

       The Law and Law Law Firm draws your attention to the fact that this document is basic and does not always meet the requirements of a specific situation. Our lawyers are ready to assist you in legal advice, drafting any legal document that is suitable for your situation.  

      For more information, contact a Advokat/Lawyer by phone; +7 (708) 971-78-58; +7 (700) 978 5755, +7 (700) 978 5085.  

Lawyer Almaty Lawyer Legal service Legal advice Civil Criminal Administrative cases disputes Defense Arbitration Law Company Kazakhstan Law Firm Court cases