Analytics Russian Commercial Law Review

5
March

Regulation of state procurement in Russia

Participating in state procurement is a good opportunity for companies in some economic sectors (e.g. pharmaceuticals, construction, IT, medical equipment) to increase their sales. This article will outline the general rules and principles regulating state procurement in Russia, and will explain how to participate in the procurement process.

General regulations for state procurement

Two federal laws regulate the system of state procurement in Russia:

  1. Federal Law No. 44-FZ "On the Contract System for State and Municipal Procurement of Goods, Work, and Services" dated 5th April 2013 (the Law on the Contract System, or Law No. 44-FZ); and

  2. Federal Law No. 223-FZ "On Purchasing Goods, Work, and Services by Certain Types of Legal Entities" dated 18th July 2011 (the Law on Purchases by Certain Legal Entities, or Law No. 223-FZ).

The application of any particular federal law depends on the type of customer. The Law on the Contract System applies to purchases made by state and municipal authorities, the state corporations "Rosatom" and "Roskosmos," and public institutions (kazennoe uchrezhdenie). This law also regulates procurement activity performed by budgetary institutions (budgetnoe uchrezhdenie) and unitary enterprises, provided that the conditions outlined in the law are met.

The Law on Purchases by Certain Legal Entities applies to purchases made by the following companies:

  1. state-run corporations

  2. state-run companies

  3. public not-for-profit organizations (publichno-pravovaya kompaniya)

  4. natural monopoly entities (the list of natural monopoly activities is provided in Article 4 in Federal Law No. 147-FZ "On Natural Monopolies" dated 17th August 1995)

  5. organizations engaged in business that are subject to state regulation (e.g. electric power supply, gas supply, water supply, heat supply, etc.)

  6. autonomous institutions (avtonomnoe uchrezhdenie)

  7. companies where the Russian Federation, or a constituent entity of the Russian Federation, or a municipality owns more than 50% of the charter capital

  8. subsidiaries of the companies mentioned in paragraph (g), as well as their subsidiaries.

The Law on Purchases by Certain Legal Entities also applies procurement activity performed by budgetary institutions and unitary enterprises, subject to certain conditions that are specified.

Comparative analysis of Law No. 44-FZ and Law No. 223-FZ


Law on the Contract System

Law on Purchases by Certain Legal Entities

Official website1

www.zakupki.gov.ru

Scope of regulation

Regulates the whole procurement process in detail, from planning to execution of contracts.

Regulates only the general principles of the procurement process. Customers must adopt their own procurement regulations (procurement policy) based on these general principles and make this policy publicly available on an official website.

Suppliers

Private persons, legal entities, and entrepreneurs.

Method for determining a supplier

The Law on the Contract System provides a closed list of methods to determine a supplier. Other methods cannot be used.

The list includes:

  1. competitive methods:

    1. bids (open bids, bids with limited participation, two-stage bids, closed bids, closed bids with limited participation, closed two-stage bids)

    2. auctions (electronic auctions, closed auctions)

    3. requests for quotations

    4. requests for proposals

  2. purchasing from a sole supplier.

The most popular method for determining a supplier is via an electronic auction2.

Such methods as requests for quotations, requests for proposals, and purchasing from a sole supplier may be used only in circumstances directly specified in Law No. 44-FZ.

The Law on Purchases by Certain Legal Entities provides an open list of methods to determine a supplier. They are:

  1. bids

  2. auctions

  3. other methods regulated in the procurement policy in accordance with Law No. 223-FZ.

The variety of "other methods" is not limited by law. However, a customer must state in its procurement policy the particular situations when each of the methods is used, and a detailed procedure of how procurement is accomplished through each of the methods.

In the majority of cases, customers choose to organize the procurement process by using the other methods mentioned above3.

Trading platform

Six trading platforms (www.roseltorg.ru, www.sberbank-ast.ru, www.etp-ets.ru, www.etp.zakazrf.ru, www.rts-tender.ru, www.auction-house.ru).

Different commercial trading platforms chosen by the customer (there are more than 200 platforms in Russia).

Procurement plans

Two stages of planning:

  1. A three-year general plan;

  2. A one-year plan (includes a list of particular purchases).

Both plans must be published on www.zakupki.gov.ru.

In general, a one-year plan. For certain specific types of goods (innovative products, high-technology products) a plan is put together for a time period covering 5 to 7 years.

The plan must by published on www.zakupki.gov.ru.

Contract performance security

Mandatory for competitive methods of determining a supplier, with certain exceptions.

Not mandatory, depending on the procurement rules outlined in the procurement policy.

Procedure

Procurement procedures, in general, can be described by the following:

  1. the customer publishes a notice of procurement, and the procurement documentation, on the official federal website (www.zakupki.gov.ru)

  2. participants (potential suppliers) send their applications in accordance with the notice of procurement and procurement documentation

  3. the customer determines a supplier based on the rules provided for under the particular method governing the determination process in Law No. 44-FZ, and in the procurement documentation

  4. the customer enters into a contract with the winner of the procurement procedure

  5. the customer publishes information about the procurement process results and the contract onwww.zakupki.gov.ru.

Law No. 223-FZ does not provide for detailed regulations for the procedure. The customers themselves define what they are in their procurement regulations.

However, the general rule is that the customers must publish the notice of procurement and procurement documentation on the official website (www.zakupki.gov.ru) before the procurement process begins.

The customer also must publish general information about the number and total cost of all contracts entered into over the preceding month.

The customer may extend the scope of information published, if relevant provisions are included in its procurement policy.


Stakeholders in charge

The main stakeholder in charge of supervisingprocurement procedures is the Russian Federal Antimonopoly Service (the FAS)

Lodging a complaint

Any participant has the right to lodge a complaint with a regulatory authority (usually the FAS) concerning actions (inaction) infringing on its rights and legitimate interests at any time during the procurement procedure, as well as during the period of accreditation on an electronic trading platform, but within 10 (ten) days after posting a report on the procurement results.

In case a participant (or potential participant) complains about provisions governing procurement documentation, a complaint needs to be submitted before the deadline for the submission of applications.

The regulatory authority must consider any complaint within 5 (five) working days from the day it is received.

Following the results of considering any complaint on its merits, the regulatory authority shall make a decision on deeming the complaint justified or non-justified. The regulatory authority also may decide that a complaint is non-justified but that other breaches of the procurement process exist.

If a complaint is found to be justified, or if the regulatory authority finds other infringements, it issues instructions. These instructions are mandatory for the customer.

A copy of the decision shall be sent to a person who lodged the complaint, as well as to those persons in relation to whom such decision/instructions were issued, within 3 (three) working days from the day the decision is made.

Any participant (or potential participant) also has a right to lodge a complaint directly with the court. However, court proceedings are less effective, since they take a much longer period of time..

Any participant has a right to lodge a complaint to a controlling authority (the FAS) in cases when:

  1. a customer violates the Law on Purchases by Certain Legal Entities or its own procurement policy;

  2. a customer does not publish all the required information in accordance with Law No. 223-FZ or infringes on the terms of publishing

  3. there are requirements imposed by the customerthat are not prescribed by the procurement documents;

  4. a customer does not publish its procurement regulations on the official website (www.zakupki.gov.ru) and does not comply with Law No. 44-FZ, if necessary

  5. a customer does not publish its annual report (or publishes a report with unreliable information) on purchases made from small- and medium-sized business entities on the official website (www.zakupki.gov.ru).

No other actions (inactions) are grounds for a complaint.

The regulatory authority must consider any complaint within 7 (seven) working days from the day it is received.

Following the results of considering any complaint on its merits, the FAS shall make a decision on deeming the complaint justified or non-justified.

If a complaint is found to be justified, the FAS issues instructions that are mandatory for the customers.

A copy of this decision shall be sent to the person who lodged the complaint, as well as to those persons in relation to whom such instructions were issued within 3 (three) working days from the day the decision is made.

A complaint may can be submitted directly to a court, but this remedy is less effective.

Liability

The Russian Federation Code of Administrative Offences provides for fines up to 300,000 RUB for legal entities, and up to 50,000 RUB for executive officials, in case there exist infringements of Law No. 44-FZ. In some cases, a responsible official may also be disqualified for up to 2 years.

The Russian Federation Code of Administrative Offencesprovides for fines up to 300,000 RUB for legal entities, and up to 50,000 RUB for executive officials. A responsible official may also be disqualified for up to 1 year.

Register of mala fide (unfair) suppliers

The FAS keeps two separate resisters of mala fide (unfair) suppliers (the Registers) in relation to Law No. 44-FZ and Law No. 223-FZ.

The Registers contain information about suppliers who evaded entering a contract, or breached their contractual obligations. Information about these suppliers is provided by customers to the FAS. Unfair suppliers are included in the Registers for 2 (two) years.

State customers, both under Law No. 44-FZ and Law No. 223-FZ, have the right to exclude suppliers listed in the Registers from participating in their procurement procedures.

Conclusion

To conclude, the Russian system of state procurement is quite complicated. There are different regulations that apply, depending on the type of a customer, and some are subject to certain conditions. The Law on the Contract System and the Law on Purchases by Certain Legal Entities have some common features, but the procurement process under each of these legislative acts differs significantly.

Moreover, Russian procurement laws impose certain limitations in regard to the conditions forcontracts entered into with state customers and the procedures to alter or terminate them.. Infringements of these rules may cause liability not only for a company, but also for its executive officials.

Therefore, to participate in state procurement in Russia successfully, it is necessary to take into account all of the specific regulations, and to manage this process carefully to avoid any negative consequences for businesses.



1 A web resource where state customers must publish information about their procurement processs (including particular purchases, contracts, procurement policies, etc.).



2 According to official statistics, 59.56% of state purchases regulated by Law No. 44-FZ were made by electronic auctions in 2017. See: http://zakupki.gov.ru/epz/main/public/home.html.



3 Other methods for determining a supplier were used in 64.37% cases in 2017. See: http://zakupki.gov.ru/epz/main/public/home.html.


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