Abstract.This article provides a thorough analysis of Georgia’s public procurement legal and institutional framework, focusing on its historical development and the need for reform. The primary goal is to analyze the legal and institutional framework of public procurement in Georgia and its evolution over time, and to identify its gaps and weaknesses. The author highlights the pivotal role of public procurement in shaping Georgia’s economy by allocating public funds, stimulating industrial growth, and fostering entrepreneurship. The article delves into the essential components of the public procurement system, including legal foundations, oversight mechanisms, procurement methods. It emphasizes the significance of a robust institutional environment for effective resource allocation and regulation in the public procurement sphere.

The research identifies a continuous reform process aimed at aligning Georgia’s public procurement regulations with global standards. The author underscores the vital role played by the State Audit Service (SAS) in promoting good governance and combatting corruption through objective assessments and recommendations. The article concludes by emphasizing the ongoing need for reforms, focusing on simplifying regulations, fostering competition, and enhancing transparency in public procurement. These reforms are vital for bolstering economic growth and stability in Georgia.

Key Words: Public Procurement, Institutional Framework, Electronic Procurement System, Tendering Process Top of Form 

The public procurement system influences the real economy by allocating public funds. This has an impact on the industrial sector’s development, which in turn fosters entrepreneurship and economic growth in the nation. The institutional environment consists of the social and legal norms that underpin the state’s roles in allocating and regulating resources. It also imposes legislative constraints on the economic agents who participate in the exchange process.

The public procurement system consists of several essential components that define the rules and framework for the procurement process. These components comprise the legal and normative foundation, oversight bodies and mechanisms, procurement modes and steps, anti-corruption strategies, and conflict of interest policies. The legal and normative foundation sets the legal basis and standards for procurement operations, while oversight bodies monitor adherence to regulations and deter malpractice. Procurement modes and steps specify the procedures involved in the procurement process. Anti-corruption strategies and conflict of interest policies aim to ensure honesty and objectivity in procurement choices. These components collectively enhance openness, responsibility, and equity in public procurement, protecting against corruption and conflicts of interest.

The development of the institutional framework of public procurement in Georgia has been a crucial aspect of the country's public financial management reforms. Over the past decade, Georgia has made significant strides in establishing and enhancing the rules, systems, and capacities governing public procurement. Notably, the adoption of comprehensive legislation, the implementation of an electronic procurement system, and the establishment of an independent State Procurement Agency have been key achievements. These efforts have garnered international recognition for Georgia's public procurement system. Based on actuality of the issue, the main goal of the research is to describe and analyze the legal and institutional framework of public procurement in Georgia and its evolution over time. To identify gaps and weaknesses in the legal framework, legal analysis was used, examining the laws, regulations, and policies that govern public procurement in a given context and assessing their coherence, consistency, and compliance with international standards and best practices. An institutional analysis was also conducted to study the institutions and participants involved in the public procurement process.

Legislative and Normative Foundations of Public Procurement in Georgia. The public procurement system in Georgia has experienced a rapid and continuous reform process, as demonstrated by the annual enhancement of the legal framework that is still ongoing. The current public procurement system is an advanced instrument that seeks to achieve transparency, efficiency and competitiveness in the procurement operations.

Public procurement regulated by the Constitution of Georgia, the Criminal Code of Georgia, the Administrative Offences Code of Georgia, the Law of Georgia on Public Procurement, the Law on Public Partnerships, the Law on State Secrets, Resolutions of the Government of Georgia on Public Procurement and various normative acts.

The Georgian Parliament enacted the Law on Public Procurement in 1998, but the legal framework has undergone several amendments over the years with the assistance of international organizations, such as the World Bank, the United Nations, and the European Union.

The first law on public procurement, enacted in 1998, defined the coordination, rights, duties, and methods of procurement activities under the Ministry of Economy. The law was amended in 2001 to align with international legislation, creating the State Procurement Agency (SPA) as the coordinator and regulator of procurement. The law was further revised in 1998-2005 to include the requirement of an annual procurement plan and the concept of conflict of interest and its avoidance rules. However, some researchers noted that the law could not be properly implemented due to the high level of corruption in the public sector that undermined public trust (Gaprindashvili, 2015). A new law on public procurement was adopted in 2005, replacing the 1998 version. The new law abolished the 15% preferential benefits for Georgian applicants (Article 13) and equalized Georgian and foreign citizens, creating a more competitive environment. It also established a separate procedure for handling procurement disputes, although the creation of the dispute resolution council as an independent body occurred only in 2009.

Until 2009, the SPA was the main body responsible for monitoring public procurement under the Ministry of Economic Development of Georgia. Monitoring was organized through a reporting system that included procurement reports. The 2009 amendment of the procurement law enabled the Control Chamber of Georgia to audit procurements through the organization audit (Article 22¹), and this right was transferred to the State Audit Service in 2012.

The 2010 reforms of state procurement, supported by the World Bank, established the foundation for the modern stage of state procurement in Georgia. The Georgian Procurement Agency created and implemented a mandatory 100% electronic procurement system within one year, which facilitated the adoption of international procurement principles in Georgia. The process involved relevant legislative changes, such as the approval of the temporary rule “On the implementation of public procurement by electronic means” and the amendment of the law “On public procurement” to register electronic tender procedures in the unified electronic system. As a result, after one year, the government had 10,000 registered users and saved 160 million Lari (Gaprindashvili, 2015).

In 2021, Georgia amended the "Law on Public Procurement" on the basis of the 2014 Association Agreement with the European Union and the European Atomic Energy Community, thereby confirming its readiness to implement EU standards and practices in public procurement. These changes aimed to introduce some elements of the European Parliament's directives on the procedures for handling disputes related to public contracts into the legislation of Georgia. As a result of the reforms, the goals and functions of the State Procurement Dispute Resolution Council were enshrined in the legislation on public procurement.

The new law on public procurement in Georgia, which was adopted in 2023, introduces several novelties and changes to the previous legal framework. The new law aims to harmonize Georgia’s public procurement legislation with the EU directives and standards. Among the changes made, it is worth highlighting the enhancement of the role of the State Procurement Agency, the clear definition of the functions and independence of the body, which was not done in the previous laws. The law strengthened the mechanism for preventing and resolving conflicts, prescribed a code of ethics for procurement officials. The criteria for selecting the most economically advantageous contract have been changed, which, unlike the previous law, in addition to price and quality, also consider other factors, such as social, environmental, life cycle, innovation.

The inclusion of the subcontractor concept within the framework of the Law constitutes a notable development that warrants separate attention. This provision serves as an essential measure to mitigate the potential risks associated with conflicts of interest and corruption. Under the new legislation, the service provider is obligated to furnish comprehensive details regarding the qualifications and experience of the subcontractor involved. Additionally, the buyer reserves the right to demand specific assurances pertaining to the subcontractor's ability to fulfill contractual obligations reliably and effectively. This requirement serves as a safeguard that contributes to ensuring the integrity and transparency of the procurement process.

Institutional Framework of Public Procurement of Georgia. The State Procurement Agency (SPA) performs a vital function of ensuring effective, transparent, and rational use of state resources. It develops and issues normative acts and documents, processes reports, produces information and lists of participants, and enhances procurement performance through various actions based on modern technologies. The SPA was subordinated to the Ministry of Economy until 2007, and to the Prime Minister since then. It operates within four structural units, each headed by a deputy chairperson and comprising different functional departments in fields such as information technology, procurement services, monitoring, legal affairs, financial management, training center, international relations, etc.

Currently, there are 16 types of procurement procedures documented on the electronic procurement website. In Georgia, the most common ones are e-tenders with reverse auctions (SPA), e-tenders without auctions (NAT), consolidated tenders, two-stage e-tenders, simplified tenders with reverse auctions, and simplified two-stage tenders. Despite the successful implementation of these tender procedures, certain issues have been identified through the analysis of conducted tenders.

For instance, in the field of oil, coal, and petroleum products (code: 09200000), in 24% of all SPA tenders conducted on the e-portal throughout its history, each tender had only one participant. Furthermore, only 13% of the total number of reversed auctions resulted in a price reduction of 15% or more, while 49% of announced auctions did not take place due to a lack of participants. Likewise, in the agricultural sector (code: 03100000), a comparable trend was identified in 40% of SPA type. In the oil sector, in the NAT type tenders, 38% tenders conducted with one participant, and only 16% of the total number of conducted tenders resulted in a price reduction of 15% or more. In agricultural procurement, 332 of 722 NAT tenders proceeded with one participant, and 19% of the trades did not take place due to a lack of bidders.[1] This trend can be observed in other industry categories as well, highlighting the need for comprehensive reforms aimed at streamlining regulations, fostering competition, and enhancing transparency. By addressing these multifaceted challenges, governments can create a more inviting environment for potential participants, resulting in a broader pool of bidders and ultimately yielding more favorable outcomes for public tenders across various sectors.

The goal of the State Procurement Dispute Resolution Council is to quickly and effectively review disputes in accordance with the principle of justice. The Board consists of five members appointed by the Prime Minister for five years. The main principles of the Board are: legalization; objectivity and impartiality; professionalism; protection of secrecy and confidentiality. The current analysis shows that the number of complaints received in the sphere of agricultural procurement amounted to 1% of the total number of conducted tenders, while in the sphere of oil and petroleum products, it reached 2,3% (with only 1 complaint being satisfied). The majority of these complaints primarily relate to decisions made by the tender commission.

The State Audit Service of Georgia (SAS) serves as a government agency tasked with the critical role of overseeing and inspecting public entities throughout Georgia. Its primary mandate revolves around ensuring transparency, accountability, and efficiency in the management of public finances and resources. Operating independently, the SAS reports directly to the Parliament of Georgia. SAS plays an important role in promoting good governance practices and combating corruption by providing objective assessments and actionable recommendations to enhance financial management practices. The Organic Law of Georgia “On the State Audit Service” regulates the receipt of identifiable information about the procuring organization, which must provide this information upon request. It should be noted, according to the report of the State Audit Service (SAS), that out of all the recommendations issued by the SAS, 20% pertain to recommendations in the field of public procurement, ranking first among the audit areas. However, the problems have a systemic nature and are recurring in various budget organizations. Budget organizations are most prompt in implementing financial recommendations, while recommendations regarding efficiency are implemented at a slower pace. During the period of 2018-2023, less than half (45%) of all recommendations in the field of public procurement were taken into account.

In conclusion, Georgia has made notable progress in its public procurement reforms, with significant achievements such as comprehensive legislation, an electronic procurement system, and the establishment of an independent State Procurement Agency. These efforts have gained international recognition and demonstrate Georgia's commitment to improving its public procurement system. However, challenges remain, including corruption, conflicts of interest, and limited competition in certain sectors.

The State Procurement Dispute Resolution Council and the State Audit Service play critical roles in ensuring justice, objectivity, and accountability in public procurement. These institutions provide oversight, address disputes, and make recommendations to improve financial management practices. However, implementation of recommendations in the field of public procurement needs improvement, indicating the systemic nature of the challenges faced.

To create a more inviting environment for participants and achieve favorable outcomes in public tenders, comprehensive reforms are necessary. These reforms should focus on streamlining regulations, fostering competition, enhancing transparency, and addressing recurring issues in the procurement process. By addressing these challenges, Georgia can continue to strengthen its public procurement system and contribute to sustainable economic growth and development. 

Literature

1. Gaprindashvili G. Public Procurement Development Stages in Georgia https://publications.waset.org/ 10000958/public-procurement-development-stages-in-georgia
2. 2023 აუდიტის ფარგლებში გაცემული რეკომენდაციების შესრულების წლიური ანგარიში. https://www.sao.ge/ka/reports_/Recommendation-Implementation-System
3. Low on Public Procurement https://www.matsne.gov.ge/ka/document/view/14758?publication=2
4. www.procurement.gov.ge
5. https://tenders.procurement.gov.ge/dispute/