The USA Journals Volume 03 Issue 06-2021
116
The American Journal of Political Science Law and Criminology
(ISSN
–
2693-0803)
Published:
June 30, 2021 |
Pages:
116-121
Doi:
https://doi.org/10.37547/tajpslc/Volume03Issue06-17
I
MPACT
F
ACTOR
2021:
5.
952
‘
ABSTRACT
This article is devoted to the analysis of the legal framework for the digitization of public
procurement, doctrinal approaches to the use of smart contracts in procurement. It studies the
process and technologies of formation and development of smart contracts, blockchain, contracting
in ethereum, the mechanisms of using smart contracts in public procurement. It also explores
aspects that need to be addressed in improving the procurement system through smart contracts
and develops recommendations.
KEYWORDS
Public procurement, digitalization, smart contracts, blockchain, online platform, Ethereum
technology.
INTRODUCTION
Nowadays “New Uzbekistan” is taking
comprehensive measures to develop the
digital economy, the widespread introduction
of modern information and communication
technologies in all sectors and industries,
especially in public administration, education,
health and agriculture. In particular, it is true
that these changes will not bypass the public
procurement process. In the Decree of the
President of the Republic of Uzbekistan dated
October 5, 2020, № 6079 On approval of the
Strategy “Digital Uzbekistan – 2030” and
measures for its implementation, it is marked
that
ensuring
online
placement
of
information on public procurement by
government agencies and organizations on
the Open Data Portal of the Republic of
Uzbekistan on the development of e-
Legal Framework Of Using Smart-Contracts In The Public
Procurement System
Malikaxon Pirnazarovna Kalandarova
Member Of The Supreme Council Of Judges Of The Republic Of Uzbekistan, Judge Of The
Supreme Council Of Judges Of The Republic Of Uzbekistan, Candidate Of Law Sciences,
Uzbekistan
Journal
Website:
http://theamericanjour
nals.com/index.php/taj
pslc
Copyright:
Original
content from this work
may be used under the
terms of the creative
commons
attributes
4.0 licence.
The USA Journals Volume 03 Issue 06-2021
117
The American Journal of Political Science Law and Criminology
(ISSN
–
2693-0803)
Published:
June 30, 2021 |
Pages:
116-121
Doi:
https://doi.org/10.37547/tajpslc/Volume03Issue06-17
I
MPACT
F
ACTOR
2021:
5.
952
government,
improving
the
special
information portal of public procurement [1].
To date, significant changes have been made
to
the
electronic
system
of
public
procurement, an electronic platform has been
created, a module "e-shop" has been
launched on a special information portal of
public procurement. The next stage in the
public
procurement
system
is
the
digitalization through the transition to
“smart” technologies (blockchain, smart
contracts, artificial intelligence).
According to the Resolution of the President
of the Republic of Uzbekistan dated July 5,
2018 № 3832 “On measures to develop the
digital
economy
in
the
Republic
of
Uzbekistan”, the task is given to introduce
blockchain technology in public procurement
from January 1, 2021 [2].
These days, e-shop, auction, competition,
tender and single customer purchases are
made
almost
electronically.
The
transformation of public procurement into
digital is done through placement on e-
government platforms. In the Resolution of
the Cabinet of Ministers of the Republic of
Uzbekistan dated January 26, 2021, № 37 “On
measures to further improve the process of
organizing procurement procedures in public
procurement
using
information
and
communication technologies” by September
1, 2021, it is planned to take measures to
create a software package of the Central
Information Portal of Public Procurement,
which will collect all information on public
procurement
and
provide
electronic
interaction with external information systems.
The use of advanced information technologies
(e-commerce systems, online stores and e-
commerce platforms, mobile applications, B2B
market, etc.) serves to implement technical
methods to combat abuse, inefficiency and
corruption in the field of procurement. The
new phase of procurement development will
expand the opportunities for the use of
advanced information technology in public
procurement to create a smart procurement
system based on the use of blockchain, smart
contracts and neural networks.
The use of smart contracts allows suppliers to
automatically ensure the execution of the
contract (pledge) and transfer funds for the
execution of the contract to their accounts.
The offer of such services in the commercial
market of foreign countries has also begun. In
particular, in Russia, Sberbank has introduced
an updated version of the "guaranteed
account service", an online tool to protect
mutual settlements between suppliers of
goods and services and buyers. This system
allows the seller to guarantee payment for the
delivery of goods or services, and the buyer -
to receive the product or service[3]. In the
Russian Federation, smart contracts are also
being used in government procurement[4].
Smart contracts can also be used in contracts
with a single supplier: based on elementary
algorithms, the system can select the most
suitable product, work, service according to
the description and automatically conclude a
contract according to the established criteria.
In general, the use of smart contract
technology is a sign of the change in the
traditional institutions of regulation applied in
jurisprudence and the beginning of the
The USA Journals Volume 03 Issue 06-2021
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The American Journal of Political Science Law and Criminology
(ISSN
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2693-0803)
Published:
June 30, 2021 |
Pages:
116-121
Doi:
https://doi.org/10.37547/tajpslc/Volume03Issue06-17
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process of termination of classical contract
law[5].
Smart contracts allow to create an intellectual
contracting system. The first version of the
intelligent contracting system, produced in
the 1980s, was the American Information
Exchange (AMIX), which made it possible to
use split (semi-smart, semi-human interfering)
contracts. In
this electronic platform,
contracts can be converted into computer
code, stored in the system and repeated,
controlled by a network of computers based
on a chain of blocks. It has also led to the
emergence of a reverse billing mechanism
such as transferring money after receiving a
product or service.
One of the most promising startups providing
decentralized online services (with a market
capitalization of more than $ 100 billion) is the
Ethereum
blockchain
platform,
which
provides
a
smart
contracting
system
developed by Vitalik Buterin in late 2013.
Ethereum technology is based on a
decentralized database of contracts, such as
blockchain, which allows you to register
transactions with any assets without resorting
to traditional legal procedures[6].
Smart
contracts
ensure
performance,
minimize the risk of unfair performance of the
transaction, and reduce transaction costs
associated with concluding and executing
contracts. They have more development
potential than traditional contract law. Smart
contracts can be considered as an innovative
element of the contract system, including a
system used in the procurement of goods,
works and services for the needs of state and
budgetary organizations.
Theoretically, in the process of introducing
smart contract platforms in the field of public
procurement, it is expedient to first
implement an intelligent information system.
In this regard, in order to avoid errors in public
procurement, it is recommended to develop a
platform that allows you to form the subject
of procurement and the initial price in an
automated mode before the announcement.
[7]. The strategic implementation of such an
institutional information environment is the
beginning of the formation of a complete
intellectual information system.
Indeed, the formation of such systems is the
first stage and component of the creation of a
smart contracting system in the field of
procurement. Experts also believe that today
the contract system is based on an archaic
technology platform, and the digitization of
operations, the creation of a distributed
information-analytical and functional network
will help to eliminate these risks. [8].
The best solution to regulate the public
procurement
process
is
a
deeper
modernization
of
the
single
public
procurement information system. In case of
non-fulfillment of obligations under the
concluded contracts or in case of emergency,
the use of blockchain technology can prevent
the negative consequences of the contract.
Blockchain is a cryptographically protected
open database of transactions. Blockchain
technology is based on storing data on
distributed servers. The lack of a single data
center protects the system from local failures,
allowing it to perform activities even when at
least one blockchain participant remains. The
advantage of a decentralized system is that
the information stored in it cannot be altered
The USA Journals Volume 03 Issue 06-2021
119
The American Journal of Political Science Law and Criminology
(ISSN
–
2693-0803)
Published:
June 30, 2021 |
Pages:
116-121
Doi:
https://doi.org/10.37547/tajpslc/Volume03Issue06-17
I
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F
ACTOR
2021:
5.
952
or falsified. A blockchain participant connects
to other computers on the network with
which they exchange data in the form of data
blocks. At the same time, each member of the
system automatically checks the accuracy of
the data obtained using the cryptographic
method, independently transmitting the
correct data across the network. Thus, the
blocking system guarantees the impartiality of
public procurement processes, keeping the
“human factor” away from purchasing
decisions.
Blockchain may include terms specific to
standard contracts, as well as perform the
functions of exchanging information and
issuing orders to perform actions on them.
This function is embodied in the concept of
smart contracts. The Ethereum platform is the
most
advanced
technology
of
smart
contracts.
Smart contract-based technology allows not
only to automate the transfer of payments
between the parties for the fulfillment of the
terms of public procurement contracts, but
also to determine the additional terms and
logic of interaction with the end user.
The proposed smart contracts exclude the
human factor from the process of fulfilling
obligations, increase the efficiency of
transfers, with the exception of intermediaries
(including treasury). The main task of such
smart contracts is to form universal solutions
for public procurement participants, to limit
their direct interaction with each other, to
transfer control over the implementation of
the contract to intellectual technologies.
During the execution of the contract, the
algorithm of smart contracts distributes funds
between the parties or sets penalties and
penalties for non-compliance with certain
conditions. A smart contract can also
automatically block funds transferred under
the contract if required.
The Smart Contract Algorithm is activated
when a request is sent from the buyer's
computer or a message is received from
another regular participant (seller) over the
network.
The Smart Contracts’ algorithm is written in
blockchain technology and is limited to this
environment. To make decisions on the
implementation of the contract stages, the
smart contract must be in contact with data
sources outside the blockchain. This resource
activity can be performed by barcode
participants or other bodies in the blockchain
field called “oracle” that are linked to the
relevant database.
There are several types of smart contracts.
The most acceptable for public procurement
are as follows[9]:
All stages of which are fully written in the
algorithm;
The main part of the contract is written on
paper and only the stage of mutual
settlements is programmed.
Currently, the use of blockchain technology
for smart contracts is widespread on the
Ethereum platform. In particular, a contract
for the supply of food products within a
specified
period.
At
present,
the
implementation of such an agreement is multi-
stage. After each delivery, the buyer develops
an internal document on the receipt of goods
(act of acceptance of food products), uploads
The USA Journals Volume 03 Issue 06-2021
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The American Journal of Political Science Law and Criminology
(ISSN
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2693-0803)
Published:
June 30, 2021 |
Pages:
116-121
Doi:
https://doi.org/10.37547/tajpslc/Volume03Issue06-17
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2021:
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it to the online shopping portal (along with
the documents attached to the delivery of
goods), for the consignment delivered to the
treasury sends a request to make payments.
The Treasury will review the application within
a certain period of time and transfer the funds
to a special account of the supplier. After the
unnecessary procedures performed, the
supplier receives money from the account for
the performance of the contract.
Government contracts for the supply of food
usually require frequent deliveries of goods to
ensure the expiration date. There are time,
labor costs, need for specialists and many
other
issues
when
performing
these
operations.
The use of smart contract technology
eliminates all the above bureaucratic barriers
and allows to deliver the specified contract for
a long time (usually within a year) without the
participation of supplier and customer
representatives,
especially
financial
regulators.
The program code of the single information
system on the Internet portal where public
procurement is carried out must ensure the
compatibility of interaction with blockchain
technology. It is necessary to set up
operations to automatically track the facts of
delivery and receipt of goods, sending the
appropriate payment to the supplier for the
specified functionality. At the same time,
blockchain technology provides decentralized
storage in the recording of all transactions
between the customer and the supplier.
In the blockchain system, the crypto keys of
the seller and the buyer are divided into open
and closed. The public key gives access to the
publicly integrated data of the system. The
private key, on the other hand, gives you
access to personal information intended only
for you.
CONCLUSION
The process of improving the contractual
mechanisms of public procurement is largely
determined by the innovative capacity of the
system. In this regard, the main factor in the
development of the contract system is the
improvement of its main institution - e-
commerce platforms. The introduction of
blockchain-based smart contracts in e-
commerce platforms will significantly reduce
the labor costs of the parties involved in
public
procurement
(customer,
bidder,
regulator), minimize "human factor" errors, as
well as ensure the transparency of the system.
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The American Journal of Political Science Law and Criminology
(ISSN
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2693-0803)
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June 30, 2021 |
Pages:
116-121
Doi:
https://doi.org/10.37547/tajpslc/Volume03Issue06-17
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