The Procurement Committee was established as part of SOCAR based on Decree No. 126 of the President of the Republic of Azerbaijan on the 20th of July 2009. The Committee is a collegial body, focused on supervising the procurement operations carried out in SOCAR in accordance with the applicable legislation and regulations of the company; the idea is to control the efficient organisation and coordination of operations, while implementing SOCAR’s procurement policy. Taking into account SOCAR’s specific areas of activity, the Procurement Committee was formed from executives representing various fields, especially those closely related to production processes, in order to provide continuous and quality support of production processes, as well as to evaluate the procurement operations and other issues from various aspects and make collegial decisions.
Since SOCAR supports the achieving of effective value based on healthy competition, the offer of modern technologies/methodologies, and the identification of new potential market players, it is preferred to conduct in-house procurement procedures through competition. In order to be able to conduct non-competitive (single-source) procurement operations, it is required to strictly comply with the requirements set forth in the regulatory documents and to rationalize such a decision. When time and the nature of the procurement subject allow, non-competitive procurement is carried out on an urgent basis. However, at this time, the most effective offer is attracted by organising auctions among market participants.
How is value determined in procurement operations?
In SOCAR’s procurement operations, special importance is attached to the procedure for determining the probable value. In this regard, there is a separate standard, and based on that valid standard, the probable value is determined by 4 methods - by sending inquiries to vendors, analysing a previously concluded contract, examining official information available on open Internet resources (published price), and engaging a consultant. In this procedure, the persons responsible for the activity are determined and the confidentiality of all information is ensured.
During the probable value procedure, in accordance with the internal regulatory documents, An invitation to tender (ITT, otherwise known as a call for bids or a request for tenders) is sent to the market player, whose offer plays a significant role in the determination of this value. Probable valuation is carried out by customer structural units and specialised supply units. Using the standard documents approved by SOCAR, the demand is fully and correctly formulated, and only after that is the market research conducted. The identification and management of possible risks during the probable value procedure is governed by the Risk Identification Guidelines.
What documents are required for procurement competitions?
At SOCAR, standard documents are presented in order to ensure the uniformity of documentation in procurement competitions. Invitation documents (sets of basic conditions) are approved separately for goods, works and services. During the competitions, these standard documents, including templates for bank guarantees and standard procurement contract examples, separately for each area, are used. Thus, market participants, who want to act as bidders, become acquainted with the general and special conditions of the contract in advance.
It is not allowed to consider requirements, features, brands that would violate open competition and transparency in the invitation documents. Procurement teams (tender commissions) include area specialists, along with employees of specialised supply units and representatives of other supporting areas. All this is done for the purpose of clear, independent, professional formulation of requirements and specifications, and in this way, forming a clear image among market participants, and then selecting an effective proposal for SOCAR.
In order to organise the effectiveness and independence of decisions in procurement competitions, the tender offer is divided into technical and financial parts and submitted in separate envelopes, and the evaluation is carried out in accordance with this. At SOCAR, guarantees for contract performance and advance payment are required during procurement operations with a high probable value. When consignors (contractors) who are loan debtors of SOCAR participate as bidders, it is suggested to them to present their loan debt as collateral. This helps to reduce the costs of the market participants and supports the promptness and easy participation.
How are the results of procurement competition announced?
After the results of the procurement competition are confirmed, the bidders are provided with general information about the bidder who has signed a procurement contract and the bidder’s proposal, and this information is posted on the Contract Awards page. Standard measures are taken against consignors (contractors) who unreasonably refuse to conclude or do not execute the procurement contract (enforcement of bank guarantee, deposit money), and such consignors (contractors) are considered undesirable (risky) and their participation in procurement operations organised by SOCAR is prohibited. In addition, in order to measure the complete and professional provision of SOCAR’s needs, market research is conducted periodically and, according to its results, necessary preventive measures are implemented.
Are there any privileges/restrictions on procurement?
In order to stimulate the satisfaction of the demands formed in SOCAR by local goods, works and services, the Ministry of Economy of the Republic of Azerbaijan was requested to confirm the list of oil and mining production enterprises, and the demands in this area are met by organising competitions among local enterprises. In addition, in all international tender procedures, preferential amendments are made in accordance with the legislation in relation to local goods, works and services. Before the establishment of contractual relations, the verification of the selected counter-parties (bidders) is carried out in accordance with the standard of SOCAR (if it should be verified according to the standard). According to civil legislation and SOCAR’s Anti-Corruption Standards, if risky points are discovered, it is not allowed to conclude a contract with such counterparty.
According to SOCAR’s Procurement Policy, if it is necessary to increase the total volume of the procurement contract, in this case, it is not allowed to change the flat rate, as well as economic and technical factors that may create additional commitments for SOCAR. The supply of goods is carried out centrally in accordance with the relevant instructions. Acceptance of goods that do not meet any requirements of the contract is not allowed.
The first step in SOCAR’s procurement procedure is demand planning. The planning of goods (works and services) is completed by the 10th of January of the following year. Approved plans for each enterprise are placed on this page in order to obtain the necessary information of market participants, increase their interest in the procurements to be organised in SOCAR, and thus increase competition in procurement procedures in the future, and finally attract the most efficient offers.
In addition, SOCAR implements the Contract Plans, which include the schedules of procurement procedures organised for each product (work and service) or product (work and service) groups, the procurement method to be applied, the budget provided for in the income and expenditure estimate, the responsible persons appointed in accordance with the procurement procedures to be carried out throughout the year and other useful information.
SOCAR’s regulatory documents on the organisation and management of procurement (Concept, Policy, Standards, Manuals, etc.) were elaborated on the basis of learning the internal standards applied by global oil and gas companies in the field of procurement, the experience of the World Bank in the field of procurement regulation and the involvement of consulting companies. These documents cover all stages of procurement operations and reflect responsible roles and responsibilities for each process and documentation procedures. PricewaterhouseCoopers, one of the 4 most influential audit companies in the world, and the representative office of KPMG in the Republic of Azerbaijan analysed the procurement procedures of SOCAR and said that the regulatory documents comply with all important aspects of the Law on Public Procurement. Procurement procedures funded by the company’s commercial activity are regulated by SOCAR’s internal regulatory documents, and in the case of projects financed by the government or government-guaranteed loans, procurement procedures are regulated by the Law on Public Procurement.
SOCAR’s vendors and apply for vendor
In order to increase the competition in SOCAR’s vendor areas, a pre-qualification procedure is conducted from time to time in order to identify new market participants. This procedure allows:
- potential risk management and cost reduction
- prompt implementation of procurement procedures, not spending extra time on the examination of competitive offers given by consignors (contractors) who do not meet objective and necessary requirements
- achieving high competition between consignors (contractors) of close or equal potential and being able to attract more consignors (contractors) of necessary potential
- preventing interruptions and additional costs by ensuring the timely execution of contracts, especially those directly related to production
- ensuring the professional and high-quality execution of obligations to third parties, as well as contracts.
Consignors (contractors) who have successfully passed the pre-qualification procedures are registered in SOCAR’s approved vendor list by relevant field, category and sub-category. In order to initiate the procedures, procuring organisations prepare their procurement strategies, which featured all the important points of the procurement operation - purpose, scope, probable value, risks, individual vendors to be invited, source of funding, benefits, implementation plan, roles, etc., and considered in accordance with the limits of authority, either by the institutions or the Procurement Committee of SOCAR.