Starting October 1, 2017,  infrastructure companies are obliged to submit audited financial reports. Under new regulations, companies will be requested to submit a yearlong audited financial report for participating in infrastructural tenders.

New qualification requirements will refer to all tenders of more than 1mln GEL value announced by Ministry of Regional Development and Infrastructure or its structures. At the same time, financial reports must be audited by: one of the auditor companies authorized for conducting financial report audits of the body of public interest registered at State Registry of Auditors/Auditor Companies, or one of the auditor companies registered at State Registry of Auditors/Auditor Companies. Moreover, starting October 1, 2017 suppliers of construction works registered in foreign countries participating in all tenders of more than 1mln GEL announced by Ministry of Regional Development and Infrastructure and its structures will be also obliged to submit an audited financial report for the past 2 years.

At the same time, financial reports must be audited by: a company, member of international auditing association, which has a member, representation or branch in Georgia and the latter must be registered at Registry of Auditor Companies authorized for conducting financial report audits of the body of public interest or that meets requirements of quality control monitoring».

The Caucasus Business Week (CBW) has inquired how the private sector is meeting new regulations and what are their expectations.

Paata Trapaidze, head of Caucasus Road Project company, which implements major infrastructural projects, says that this is a positive decision and right move to outline financial condition of this or that company and heal the market. To survive, today companies frequently accept orders that they fail to fulfill. Therefore, a lot of projects are protracted and suspended. Trapaidze noted that projects are mainly fulfilled by companies with strong financial positions.

As to outcomes of these changes, Trapaidze explained that this decision will generate certain shifts and changes on the market. Small companies always serve bigger companies in the form of contractors, while big companies always accept big orders. The new regulations will dictate many companies to merge and this process will bring positive outcomes, he said.

“There is nothing bad in amalgamation. Planned regulations will lead many companies to merger and this process will bring positive results. Major problems come from management in the country. We do not need so many managers. Therefore, it is better that one top manager lead many companies than small companies do stupidities”, Trapaidze said.

The current government has acknowledged the existing problems in the field and outlined improvement ways. International experience suggests that almost all developed countries follow the same approaches all over the world, he added.

Gia Tsikarishvili, head of LLC LagodekhAutoGas, explains that today in most cases companies with unstable financial conditions participate in state tenders and similar companies arrange the so-called financial pyramids and similar tendencies frustarte business process.

Gia Tsikarishvili noted that starting October 1 the new regulations will bring no negative outcomes. The situation on the market will be brought in order and honest and financially stable companies will have more affairs, he added.

“Government took the decision seemingly because of dishonest companies. When a company fails a project, it suffers, dumps prices,  but fails to cope with the task, thwarts other businesses too”, Tsikarishvili noted.

“Obligations on companies for participation in major tenders will heal the market”, Ana Sabakhtarashvili, executive director of Association of Infrastructure Builders, appraised the new regulations in this way. She explained that over the past period many infrastructural projects could not be finished because of financially unstable companies.

Planned regulations are important for both customers and healthy competitive environment, she added.

The Association fully shares the concept of new regulations and expects them to bring positive effect onto the market, Sabakhtarashvili noted.

As to probability that small companies may disappear from the market or merge, Sabakhtarashvili explained that the mentioned auditing obligations may bring positive results to both small and major companies.

“Small companies can pass the audit in absolutely positive way and receive good results. Therefore, scales of companies do not matter. Major companies may also face problems”, Sabakhtarashvili noted.

As reported, in March 2017 Prime Minister Giorgi Kvirikashvili warned state tender participant companies that there are cases, when companies are implementing tenders and delay salary payments to the staff. Therefore, the Prime Minister urged law enforcers to show sever reaction to similar violations.

“Over the past period we registered several negative cases, especially in municipal tenders, when companies carry out tenders by budget funds and delay salary payments to employees. This is an absolutely unacceptable practice and Mr. Zurab, I ask you (Zurab Alavidze, Minister of Regional Development and Infrastructure) to set strict control on this issue in all regions”, Georgian Prime Minister noted.

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