Integrating Public Procurement and Beneficial Ownership Data (AM0053)

Brief Description of the Commitment
Develop and implement a new e-procurement system that must: 1. It will ensure automatic compliance of the requirements defined by the Law of the Republic of Armenia "On Procurement" and sublegislative legal acts in procurement processes (Automatic compliance enforcement). 2. Automate the functions of customers and participants as much as possible (Automation of all key business processes). 3. Ensure data processing in machine readability as much as possible. 4. Ensure effective access to data and information for the public and policy-making bodies. 5. Increase the effectiveness of the customer-participant interaction through the implementation of the digital environment within the framework of the platform logic, minimizing the role of "familiarity" with the procedures as a competitive advantage. In particular: ○ Digital "store" ○ Soft iterative standards ○ Other platform solutions 6. Ensure interoperability with existing treasury systems, reducing operational risks. 7. Increase the efficiency of the work of the relevant bodies through the automated system of risk identification. 8. Secure procurement contract management digital environment. 9. Interoperability of the guarantor with both state (for example, other modules of the "Government Finance Management Information System", State Register of the Ministry of Internal Affairs of the Republic of Armenia (Register of Declaration of Beneficial Beneficiaries), declaration system of the Corruption Prevention Commission, etc.) and private (for example, banking) systems. 10. Ensure the necessary traceability of all decisions made in the procurement process. 11. Allow for integration of private modules. 12. Through the notification platform, it will provide an opportunity for interested parties to record problems (for example, texts, pictures and videos) according to the contract and the persons who signed it (client, contractor) with the possibility of location. An opportunity to form public accountability regarding the recording of contract problems.

Problem definition
1. What problem does the commitment aim to address? Increasing the level of transparency and effectiveness of the procurement system, use of the system by all clients, existence of a new modern, full national system of electronic procurement integrated with other systems relating to the procurements system and including all business processes. The Republic of Armenia has undertaken the commitment to carry out the introduction of the institute of Beneficial Ownership Declarations; hence, in order to ensure comprehensiveness, it is necessary to ensure the interoperability for identifying data.

2. What are the causes of the problem? The current system does not ensure the opportunity to include all clients, it is impossible to fully ensure receipt of information based on both all business processes and open data. Despite this fact, the process of revealing real beneficiaries has been introduced in the Republic of Armenia, but the steps made are not sufficient for fully achieving reduction of corruption processes. A need arises to ensure interoperability with other systems and registers operating in the Republic of Armenia.

Commitment Description
1. What has been done so far to solve the problem? The work on the development of the technical task of the new electronic procurement system has been initiated.

2. What solution are you proposing? Develop a new e-procurement system that meets current requirements based on the principles outlined in the commitment statement.

3. What results do we want to achieve by implementing this commitment? Have an e-procurement system based on the principles outlined in the commitment statement.

Commitment Analysis
1. How will the commitment promote transparency? The electronic procurement system based on open data will provide the opportunity to make complete information on the organization of procurement procedures and management of contracts available on the Internet free-ofcharge and automatically.

2. How will the commitment help foster accountability? Public availability of information on organizations participating in procurement, submission of declaration on Beneficial Ownership Declaration and provision of information on the winning organization will improve accountability and transparency of decision-making.

3. How will the commitment improve citizen participation in defining, implementing, and monitoring solutions? Representatives of CSOs, the media and other organizations have the opportunity to regularly study and analyze the procurement process and implementation of obligations by the winning organizations as a result thereof. As a result, it will be possible to exercise public supervision over all bidders and decision-makers related to procurement.

Commitment Planning (Milestones | Expected Outputs | Expected Completion Date)

Action 1. Announcement of tender for selection of contractor for the new procurement system. | Drawing up terms of reference by the selected advisor and announcing a tender for selection of contractor for the purpose of developing a software based thereon | March 2024

Action 2. Launch of testing activities | Development of software by the selected contractor and launch of testing activities | June 2024

Action 3. Integration of the register of real beneficiaries | Integration of the new system of electronic procurement with the software of the Register of Real Beneficiaries of the State Register of Legal Entities of the Ministry of Justice — automatic receipt of information on real beneficiaries of resident bidders of the Republic of Armenia having submitted bids for participation in the procurement procedures prescribed by the legislation of the Republic of Armenia, publications thereof on the Internet, and data exchange via the interoperability platform of the Government, where necessary. | June 2024

Action 5. Transfer of data (including the declaration of real beneficiary) of organizations having participated in the procurement process. | Integration of complete information (including the declaration of real beneficiary) of organizations that are bidders of the procurement process. With the new system of declarations developed by the Commission for the Prevention of Corruption for the purpose of prevention of conflict of interests, relation, and corruption risks. | June 2024

Relation of the Commitment to strategic documents and other international processes Section "Public expenditures" of the 2021-2026 Program of the Government of the Republic of Armenia Of the Public Finance Management System Reform Strategy for 2019-2023 (Target 14). Reports of the Organization for Economic Co-operation and Development, Anti-Corruption Report 2022: https://cutt.ly/HKmhP Rs U.S. 2021 Investment Climate Statements: https://cutt. ly/rKmcY3C Anti-Corruption Strategy of the Republic of Armenia and the 2019-2022 Action Plan for implementation thereof Public Administration Reform Strategy: completion of the horizontal and vertical scope of public service, ensuring the unity of services Commitments undertaken by the Republic of Armenia within the scope of the Summit for Democracy Sustainable Development Goal 10 Reduced inequality Reduce inequality within and among countries Sustainable Development Goal 16 Peace, justice and strong institutions Promote building fair, peaceful and inclusive societies. Sustainable Development Goal 17 Partnerships for the goals Revitalize the global partnership for sustainable development.

Action Plan Review

Commitment 8. Comprehensive system of electronic procurement

● Verifiable: Yes

● Does it have an open government lens? Yes

● Potential for results: Modest

Lead agency: Ministry of Finance

For a complete description of the commitment, see Commitment 8 in Armenia 2022–2024 action plan here.

Context and objectives:

Armenia has several platforms for public procurement. One is armeps.am, launched in 2011, for online organization of the procurement tenders, price quotation, and single sourcing procedures. [55] A module on armeps.am, Procurement Plan and Contracts Management (PPCM), publishes procurement plans, contracts, and related documentation, with searching based on type and subject of contract, contractor, vendor, time, and downloading of data in CSV and Excel format. [56] The platform http://www.procurement.am serves as a bulletin on procurement invitations and notices on contracts. It provides beneficial ownership declarations by participants of tenders. [57] There is also a system for vendors to participate in electronic auctions. [58]

This commitment intends to merge the above-mentioned systems into a single platform where procurement information will be published free of charge and automatically. In addition, the portal will be made interoperable with the registry of beneficial owners, so that information on beneficial owners will be automatically retrieved from the registry. The commitment was proposed by the Ministry of Finance and the NGO Center, while the linkage to the beneficial owners registry was added on the Ministry of Justice’s proposal to enforce the beneficial ownership declaration system, as Armenia has introduced mandatory declaration of beneficial owners for all legal entities. [59]

The need to automate the publication of procurement documents has been on the agendas of the government and civil society for several years. [60] Armenia implemented activities on procurement transparency and budget spendings in previous action plans to address recommendations by international organizations and comply with international standards. [61] However, the OECD’s 2022 anti-corruption monitoring report for Armenia mentions continued corruption risks in public procurement, such as awarding contracts to companies connected to the government and a high share of single-source procurement. [62]

Potential for results: Modest

CSOs and journalists often report cases of missing contract documentation, which makes it difficult to uncover corruption risks, conflicts of interest, or misspending on procured items. [63] For example, the contract amount might change after the signing without any publication of the amendments, or the annexes might be unavailable or contain insufficient information. [64] CSOs also highlight problems related to the scope of information and technical issues of existing platforms. The automated publication of data on the new platform will minimize human error and cases of unintentional nondisclosure of information. All relevant data on contracts, including pre- and post-contract documentation, will be machine readable, in contrast to the PDF format often used in the past. Moreover, part of public procurement is still implemented in paper format, but the new platform will allow processing procurement transactions electronically. These changes will present more accurate procurement data on PPCM, which currently reflects only part of procurement transactions. If the new platform provides complete information on the procurement contracts in open data format and with enhanced search possibilities, it will allow researchers and journalists to spend less time on data collection when analyzing public spending efficiency and flagging potential corruption risks.

For vendors, the platform will provide information on the tenders they have participated in, compare their applications to those of the winners, and analyze similar tenders to plan for future applications. For the government, the platform will allow easier monitoring and oversight of public spendings and identification of contracts that need further monitoring. It will also help the government plan more effectively.

The declarations on beneficial owners required for bidders are published as scanned documents, which makes them difficult for the government and civil society to verify. In addition, there are no search filters to help users easily find a company or beneficial owner on the existing procurement.am platform. Linking the new e-procurement system with the beneficial ownership platform will allow easier search and analysis through machine-readable information. It could also offer more reliable beneficial ownership data due to existing sanctions for providing incomplete or false information to the registry. Access to machine-readable data of beneficial ownership declarations for all bidders, including those whose bids were unsuccessful, can help users detect possible collusion between bidding companies and people who control who wins a contract.

The platform will not address the large scope of noncompetitive procurement and other deficiencies of the procurement systems, such as the lack of sanctions for non-publication or incomplete information and the limited capacity of state bodies and local administrations to fully switch to e-procurement. In addition, only those state bodies and agencies specified in the relevant government decision are required to implement open procurement tenders and bidding procedures electronically. [65] It may be difficult to enforce e-procurement for other actors involved in public procurement but not specified in this government decision. The long-term goal is to eventually make electronic procurement mandatory for all procuring entities defined in the Law “On Procurement”. [66] However, the commitment, as described in the action plan, is limited to introducing an e-procurement system without clarifying the legal enforcement for entities to do their procurement electronically. Therefore, the IRM considers this commitment to have modest potential for results, as it is defined in the action plan.

Opportunities, challenges, and recommendations during implementation

As mentioned, the long-term goal plan is to include in the new e-procurement system all procuring entities specified in the Law “On Procurement”. However, the commitment leaves open the question of the legal requirement for all state bodies, including those not specified in the relevant government decision, to implement procurement electronically and publish information involved in public procurement. In addition, there are questions around the use of the platform by local communities, the open data format to be used, and the capacities of civil servants and data (re)users to use the platform.

For stronger results, the IRM recommends taking the following steps:

• Legally enforce the publication of all public procurement information and implementation of electronic procurement, including at the local level. For better transparency of public spending, Armenia should mandate the publication of procurement contracts and post-contract documentation in the framework of noncompetitive procedures and implementation of procurement by state-owned enterprises through the e-procurement platform. Legislative changes will be necessary to enforce the implementation of all public procurement through the e-procurement platform, and the subsequent publication of information, with sanctions defined for non-compliance. For example, in the Slovak Republic, if a procurement contract is not public, it is not considered legally in force. [67] In addition, civil society stresses the need for more transparency in public procurement at the local level, especially now that the budgets of communities are much larger following recent consolidation. According to a state representative, all municipalities shall use armeps.am to publish their procurement contracts. However, a preliminary review of that platform and feedback from stakeholders show that information on local level procurements is often not available. Going forward, Armenia could consider including implementation of procurement by all local communities (including community-owned enterprises) on the new platform.
• Fully adopt open data standards on the new platform, particularly the Open Contracting Data Standard (OCDS). It will be important to ensure file formats allow machine analysis. The Ministry of Finance could follow the OCDS guidance when defining a common data model for disclosure of data and documents at all stages of the contracting process. [68] According to the representative of the Ministry of Finance, the ministry plans to incorporate OCDS standards in the terms of reference for the new platform. [69] As an example, in its 2021–2023 action plan, Lithuania is fully adopting the OCDS in preparation for a new national procurement system. [70]
• Provide a feature on the platform for users to report inaccurate information or violations regarding specific contracts/tenders. In Armenia, there is the possibility to report inaccurate information and potential violations by email and hotline The Ministry of Finance could establish a similar mechanism on the e-procurement platform for the public to act on the procurement data, such as filing complaints, reporting irregularities, or suggesting improvements. It is important for the government to respond to and act on the feedback received. For example, Ukraine launched DOZORRO during its 2016–2018 action plan, which enables citizens to submit alerts of irregularities and violations, on the ProZorro e-procurement system. [71]
• Consult users (i.e., civil society and businesses) when developing the platform and implement awareness raising and trainings for users. It will be important to consult civil society and business stakeholders when developing the terms of reference for the platform. This will help the government incorporate relevant suggestions and address concerns related to the platform’s functionality and content. Moreover, to encourage data reuse, the government could conduct trainings for stakeholders on using data on the new platform. For example, in its 2016–2018 action plan, the Republic of Moldova conducted trainings for small and medium enterprises, civil society, and software developers on using its e-procurement system MTender. [72]