The State and the Civil Society fight Against Corruption in the Procurement Sector

The war changed many things; the war showed that corruption has the color of blood. Mr. Karen Zadoyan, the Coordinator of CSO Anti-Corruption Coalition Secretariat believes that fight against corruption, especially on the background of the war, must be uncompromising. The struggle does not tolerate barricades, in this case the state and the civil society should be brought together, and setting aside all differences, there is no alternative.

Corruption causes big losses to the state budget, especially if it is the procurement sector. It is not sporadic that last year the Armenian Lawyers’ Association, in cooperation with the CSO Anti-Corruption Coalition, partners donor, the EU and the OSCE Office in Yerevan reveal corruption risks and practices in this area.

The regular meeting took place Kapan, the topic of the anti-corruption event referred to “Corruption Risks in the Field of Public Procurement and State Property Privatization.”

Mr. Karen Zadoyan in his opening speech noted that the corruption occurred in the shape of blood during the April War. He said it was a serious warning to the state and civil society. Before turning to the main topic he talked about the results of cooperation between the CSO Anti-Corruption Coalition and the Government.

He said that currently the civil society works in a number of directions with the Government. First, important anti-corruption legislative packages are developed, such as the draft on criminalization of illicit enrichment. In addition there is an attempt to create an independent anti-corruption body. Currently there are two options (models). The universal independent body of these two is more effective (this body should have a preventive, educational and enforcement functions). The issue of curbing the administrative corruption is being discussed with the executive branch as well, namely the system of the anti-corruption centers to be operated in cooperation with the CSOs and Government.

Ms Naira Gyulnazaryan, Coordinator of Anti-Corruption Projects at the OSCE Office in Yerevan stressed that the time has come and the platform has been formed for us to achieve tangible results in the fight against corruption. “This is a project with very large economic potential. I am confident that the business community shall be an important potential in the fight against corruption. This is the sector with the strongest potential,” she said.

According to Mr. Vardan Davtyan, the Deputy Governor of Syunik marz the current format of civil society participation has assured certain progress in the fight against corruption. However, to say that we have achieved tangible results is still early. “The public procurement sector is a sphere that in my opinion does not have an Armenian origin. It is characteristic of all countries. If there are products in the market, and interests, there are also corruption risks.” Mr. Davtyan said this and added that through identifying issues the prescriptions may also be offered. “Authorities of Syunik marz attach great importance to all efforts that are aimed to tackle the anti-corruption fight. Corruption is the greatest evil; it is the prerequisite of the main obstacle to the progress of our economy,” the deputy Governor said.

Mr. Ashot Hayrapetyan, Mayor of Kapan town said that the community is trying to make the procurement sector more open, and show reasonable approach to the costs of its own budget. “The tools that we have today allow to implement more transparent processes. However, we are taking to ensure complete transparency of all steps.” Mr. Hayrapetyan said.

Further, at the sectoral discussion the representatives of the state, civil society and business sectors made reports and speeches.

Mr. Vahe Mahtesyan, Head of the Procurement Process Regulation and Coordination Division of the Internal Public Financial Oversight and Public Procurement Methodology Department of the RA Ministry of Finance Staff separated the issues and presented the activities which the department had implemented to neutralize them. He said that the corruption risks constantly arise in the area of procurement and the ministry is trying to raise and solve the problems. “In the past, purchases from a single-source were conducted in an unknown mechanism, which led to corruption and abuse. If we add the quite a high percentage of single-source procurement, we shall see that the sector was very vulnerable. Currently the procurement from single-source is implemented on the competitive principle and the risks have decreased,” he said and presented the statistics. According to him, in 2015, the total purchases from single-source procurement of urgency comprised 18.5 %, which is a rather big indicator. But currently, in 2016, purchases from a single source account to 8.5 % of the total, that is, a significant decrease was recorded.

The next problem was related to the extension of the contract period. “Previously, clients were given the opportunity and they were setting short deadlines. Further, in case of having the opportunity, if the party that they wanted wins in the competition, they extended the terms, otherwise not. Currently the client can extend the contract only once, but no more than for 30 days. Also interesting solution was given in relation to construction.”

According to the Ministry representative, the idea of the second competition has been introduced. “It is carried out every 6 months. If an agreement was signed at the beginning of the year and it is planned to supply for the whole year, a competition is announced again in 6 months. If this results in a lower price, then preference is given to it.”

Miss Mariam Zadoyan, Local Expert of the “Multi-Faceted Anti-Corruption Promotion” Project implemented by the ALA said that it is necessary to develop flexible mechanisms that prevent damaging budget when applying the new methods. She referred to the issues related to offshore companies and introduced the international experience. She said that Bulgaria has developed effective mechanisms: offshore companies and their branches cannot participate in public procurement organized in this country, and in addition they cannot acquire, directly or indirectly, shares from credit, insurance, pension insurance institutions, telecommunication, radio and television operators, etc.
The speaker said that through the RA Law on “Alienation of Property for Public and State Needs” there was an attempt to define goals and objectives of the prevailing public interest, and the provided broad interpretation allows including each case under the interpretation. She therefore proposes to amend the term “prevailing public interest” and to include a list of definite structures, the names of spheres, which performance improvements really reflect the public’s prevailing interests.

Ms. Syuzanna Soghomonyan, Lawyer/Specialist of Reforms Issues of the “Multi-Faceted Anti- Corruption Promotion” Project talking about the necessity of introduction of the institute of real owners in public procurement sphere, attached importance to revealing the risks arising from offshore, highlighted the introduction of mechanisms for identifying the real owners of companies. “This will increase the transparency and reporting of procurements; situations of conflict of interests will be prevented, the level of corruption will reduce and dramatic increase of inflation shall not happen,” she said.

According to the lawyer, many companies whose owners are unknown, registered in offshore zones, win public procurement tenders in Armenia; many officials do not declare their bank accounts in offshore zones. To solve the problems with offshore companies, the expert suggests providing legislative levers to Registry of real owners such as such as possession banking and tax secrets, to enable them to check the accuracy of the information provided by the companies (owners).

According to her, it is necessary to define the following cases of terminating the contract: when the company provides false or inaccurate information on their real owners; and when during the execution of the contract the company does not update all the information on its real owners.

Mr. Marat Atovmyan, Local Expert of the “Multi-Faceted Anti-Corruption Promotion” Project said that the public procurement and privatization processes could not be implemented effectively without the public control.

According to him, the purpose of public oversight is to identify existing problems; make the government to ensure implementation of the law, act in a responsible and professional manner; and increase the role and importance of public participation/involvement.

The speeches were followed by questions and discussions. The participants of the event, the members of the civil society, representatives of local government and business organizations asked questions related to the issues and receive comprehensive answers. Group works were organized as well.

Gevorg Tosunyan,