How does the government procure without procurement?

The Law on Procurement of the Republic of Armenia defines the procurement procedures which are 4: electronic auction, tender, request for quotation and single-person procurement. However, there is also a procedure called “non-procurement expenditure” in the Armeps system of state procurement.

Laws on Procurement, on the Budget System, on the Treasury System and other laws regulating the sphere of state financial management, as well as the Decision of the Government No. 526-N of May 4, 2017 does not define a “procedure” for non-procurement expenditures.

The Government introduced that concept into the legislation on June 15, 2018, with its Decision No. 706-N on establishing the procedure of execution of budgets and revoking a number of decisions of the Government of the Republic of Armenia.

It seemed that after 2018 all such problematic, non-transparent regulations and procedures in terms of decisions made would disappear from the state financial management system. However, instead of that, the revolutionary Government has perfected the previously introduced “procedure” and is making full use of it in some cases to bypass the Law on Procurement.

The Government has defined that the following are considered non-procurement expenditures (hereinafter referred to as NPE):

1. Debt repayment expenditures incurred during the execution of budgets of previous years;
2. 2) fulfillment of international obligations;
3. 3) costs incurred by purchases for inspection;
4. 4) labor contracts, expenses for services provided by specific persons provided for by the decisions of officials conducting criminal, administrative or judicial proceedings, expenses related to fiduciary management of securities;
5. 5) expenses approved by the decisions of the Government of the Republic of Armenia in terms of funds circulating in cash and bank payment cards; and
6. 6) expenses for procurements made outside the territory of the Republic of Armenia.

Moreover, while the  Law on Procurement stipulates that in the case of applying the “single-person” procedure, the contracting authorities shall justify its necessity, in the case of the NPE, there is no such requirement. In other words, the contracting authorities do not need to justify the expenses related to procurements that, in their opinion, are not procurements. In the Armeps system, the Government has been using that “procedure” since at least 2013.

While in 2013-2016 procurements under the NPE “procedure” did not exceed 150 million AMD, since 2019, their amounts make up billions of drams and have been continuously and consistently increasing in recent years making up 11.7 billion AMD in 2023 (Figure 1).

Figure 1: Procurements made under the NPE procedure in 2017-2023 (million AMD)

In parallel, the number of state agencies that make procurements under the NPE “procedure” is also increasing, which, in turn, leads to increased funds allocation to this procedure from the budget.

The Ministry of Territorial Administration and Infrastructures alone concluded 40 contracts under NPE last year with a total value of more than 7.5 billion AMD. This form of procurement is most often used by the Investigative Committee. In the previous year, the Investigative Committee concluded 2,822 contracts under NPE. And in general, this “procedure” was used more than 3400 times last year.

The Government does not present the information about this “procedure” separately to the National Assembly in the report on the execution of the state budget, nor does it reflect it in the annual reports on state procurements (how can it be reflected if, according to the contracting authorities, these are not procurements?)

Transparency and accountability of the decisions regarding the procurement under the NPE “procedure” is a serious issue.

The Ministry of Territorial Administration and Infrastructure concluded a road repair contract worth 4.1 billion AMD with “A.A.B. Project” 0LLC.

In 2023, MTAI concluded a number of other road repair contracts with various organizations. Information on the 4 major contracts is given in Figure 2 below.

Figure 2: The participants selected for 4  major road repair contracts awarded by MTAI, date of conclusion, procurement procedure used and the value of the contract

	Selected Participant	Date of conclusion of the contract	Procurement procedure	Contract value (AMD)
1	“Chanaparh” LLC	2023-08-30	Single-person	4,276,641,552
2	“A.A.B. Project” LLC	2023-03-29	Urgent single-person	4,105,240,218
3	“A.A.B. Project” LLC	2023-12-07	NPE	4,129,500,000
4	“EUROASPHALT” CJSC	2023-04-18	Urgent open tender	3,859,500,000

Source: Armeps

There is no explanation of what difference there is between the contracts signed with “A.A.B. Project” LLC on March 29, 2023 worth 4.105 million AMD and the one signed on December 7 worth 4.129 million AMD in terms of organizing urgent single-person procurement in the first case, while deciding that it is non-procurement expenditure in the second case.

According to Armeps system, in 2023,  in 58 cases of the NPE “procedures,” “non-procurement expenditure” stands in front of the subject of procurement. In other words, not only was a “procedure” not provided for by the Law on Procurement used, but also it is not known what the contracting authorities “didn’t procure,” and in that sense these transactions are not transparent.

A number of questions related to the NPE “procedure” remain unanswered. It is unclear how the contracting authorities decide that this or that expenditure is not a procurement. It is unclear who and how controls the use of the NPE “procedure” not provided for by the Law on Procurement.

The non-procurement expenditure “procedure” has become a black hole that attracts new groups of contracting authorities. The non-procurement expenditure “procedure” has become a disguised version of the single-person procurement procedure, which allows procurements to bypass the RA Law on Procurement.

Authored by Artak Kyurumyan