100% Bank Guarantee Requirement to Change: Tunyan

A long-awaited change for businesses participating in state procurement is on the horizon: the requirement for a 100% bank guarantee is set to change. This was reported by Babken Tunyan, the head of the National Assembly's Economic Affairs Committee, on his Facebook page.

He specifically noted, "Recently, one of the most frequently raised issues by the business community was the requirement for a 100% bank guarantee for participation in state procurement. This issue will be addressed at tomorrow’s government meeting."

CURRENT REGULATIONS
According to the current regulations, in the case of state procurements exceeding 10 million AMD, it is necessary to present qualification security in the form of a bank guarantee or cash, equivalent to the price offer of the selected participant. In simpler terms, if the contract value is, for example, 200 million AMD, the winning company must not only carry out the work but must also "freeze" 200 million AMD in cash or as a bank guarantee.

ORIGIN OF THE 100% GUARANTEE REQUIREMENT
This strict regulation was introduced to ensure that the state, as the buyer, receives results corresponding to its needs, making it manageable regarding both contract failures and potential compensations for damages, as well as the investment risks of additional resources. It also aimed to exclude any discriminatory qualification criteria as well as possible anti-competitive agreements and abuses arising in the evaluation of bids and the execution of contracts.

SHORTCOMINGS
Time has shown that the requirement to present qualification security equivalent to 100% of the price offer, along with the absence of alternative options, creates challenges for businesses. Particularly, opportunities for SMEs (small and medium-sized enterprises) are being limited, leading to the risk of unhealthy mechanisms emerging. For instance, a large organization that has free cash reserves or the ability to obtain a bank guarantee may win the bidding and subcontract the contractual obligations to smaller businesses. In other words, an artificial chain is created in the state procurement process, which in turn increases the cost of goods and services purchased by the state. I want to emphasize that the primary complaint from most businesses that have approached me recently has been related to this regulation.

ISSUE TO BE RESOLVED
Today, during a Q&A session in the National Assembly with the government, MP Karen Hambardzumyan from the "My Step" faction raised this issue, to which Deputy Prime Minister Tigran Avinyan responded that a change will be made in the relevant government decision at tomorrow's meeting. The qualification requirement will generally be softened, and alternative options will be introduced beyond just bank guarantees and cash.