The State Duma is preparing extensive amendments to Law No. 44-FZ

Pepeliaev Group advises that, on 9 July 2024, a draft federal law was put before the State Dumahttps://sozd.duma.gov.ru/bill/667365-8
, which proposes to amend Federal Law No. 44-FZ “On the contractual system in the area of the procurement of goods, work or services to secure state and municipal needs” dated 5 April 2013 (the “Law on the Contractual System”) with a view to optimising the procedure for making purchases.

Please find below our analysis of the main new developments.

1. Introducing the rule for entering into a contract exclusively in writing.

The current version of the Law on the Contractual System contains no prohibition on entering into contracts in oral form. Moreover, article 34(15) of the Law provides that, in a number of situations, a contract with a sole supplier may be concluded in any form provided for in the Russian Civil Code (the “Civil Code”) for completing transactions.

Therefore, clients often consider whether they can enter into a transaction orally on the basis of article 161(2) of the Civil Code, which is at variance with the purposes of the Law on the Contractual System, as well as the principles of openness and transparency of purchase procedures.

The Draft Law proposes to amend article 34 of the Law on the Contractual System with the regulation that contracts may be concluded exclusively in the form of a simple written transaction and the failure to comply with this form results in the contract becoming invalid.

2. Giving the Ministry of Finance the power to provide clarifications on how to apply the legislation on procurement.

Issues relating to the proper application of Russian legislation and other regulatory legal acts in the field of procurement arise regularly for both those involved in such procurement and controlling authorities, as well as courts. At the same time, at present, there is no single authority that has the power to clarify the above legislation and instruments.

The draft law proposes to vest in the Finance Ministry, as the federal executive authority that is competent to carry out functions that involve developing state policy and regulation in the field of procurement, the power to issue the corresponding clarifications.

3. Establishing how it is possible to prove compliance with the requirements of “universal pre-qualification” with contracts that have been performed within the scope of completed joint procurement.

We remind you that, starting from 1 January 2022, to participate in bidding processes with a starting maximum contract priceThe initial (maximum) contract price.
 of more than RUB 20 million pursuant to article 31(2.1) of the Law on Contractual System, the participant must perform an additional procedure of selection. This is “universal pre-qualification”, specifically, in the 3 years preceding the date of the application to participate in the procurement process, it must have experience of performing a contract or agreement concluded in accordance with the Law on ProcurementFederal Law No. 223-FZ “On the procurement of goods, work or services by certain types of legal entities” dated 18 July 2011.
 Provided that requirements are enforced for penalties (fines, default interest) to be paid during the performance of such contract or agreement, with the value of the performed obligations under such contract or agreement being at least 20% of the initial (maximum) contract price.
.

That the requirements of “universal pre-qualification” are being complied with is confirmed by:

• the number of the entry from the register of contracts provided for in the Law on the Contractual System;

• an excerpt from the register of contracts that constitute a state secret;

• the contract performed under the Law on the Contractual System or contract provided for in the Law on Procurement, as well as a certificate of delivery and acceptance of goods supplied (work performed or services rendered) confirming the price of such goods (work or services).

The Law proposes to complete article 31 of the Law on the Contractual System with a provision stating that participants in the procurement process will be able to confirm the requirements of “universal pre-qualification”, including by contracts that were performed within the scope of joint procurement.

Another new development that the Draft Law provides for is worth mentioning. It is also connected with confirming compliance, but now with the unified requirements of the Law on the Contractual System (article 31(1)(1) of the Law on the Contractual System).

We note that at present a participant must provide supporting documents and information as part of the application (see article 43(1)(1)(o) of the Law on the Contractual System).

The Draft Law proposes to give the choice to participants in the procurement process not to attach the specified documents to the application if such documents are available in online public state registers. It is assumed that the application in this situation must contain a declaration that specifies links to the websites with the supporting documents.

4. Setting out in greater detail the provisions regarding a security for performance under the contract when antidumping measures are applied.

According to article 37(1) of the Law on the Contractual System, if the initial maximum contract price of the bid or at auction is more than RUB 15 million, and the participant in the procurement process with which a contract is concluded has proposed a contract price that is lower than the initial maximum contract price by 25% or more, then the contract is concluded only after such participant has provided a security for performance under the contract. Such security is 1.5 times greater than the amount of security for performance under the contract that is specified in the notification about carrying out procurement and in the procurement documentation, but is not less than 10% of the initial maximum contract price and not less than the advance payment.

Therefore, in a situation when antidumping measures are applied, there is uncertainty as to whether the participant in procurement needs to provide a security for performance under the contract in the amount of 10% of the contract price if no requirement to provide security has been established.

The draft law proposes a rule that participants undercutting competitors’ prices will not provide a security equal to 10% of the contract price if no demand for a security is set out in the notification.

5. Introducing a set of measures to improve procurement from a sole supplier.

5.1. Customers will be permitted to make several small purchases of identical or similar goods (work, services) from a sole supplier.

We remind you that the provisions of article 93(1)(4) and 93(1)(5) of the Law on the Contractual System specify that customers have a right to make purchases of a small volume by entering into a contract with a sole supplier and also provide for capped amounts within which the customer has the right to purchase the necessary goods, work and services.

Please note that the Law on the Contractual System does not prohibit large purchases from being split into smaller ones, but in certain situations such actions of the customer may be regarded by the antitrust body as an offence with a view to circumventing the competition-based method of determining the supplier. At the same time, the fact that several contracts contain a repeat item being purchased is viewed as a frequently occurring sign of of the purchases being artificially 'split'.

The draft law proposes to establish that it is possible for several purchases of goods, work or services to be carried out under the same name within the limits of purchase amounts and annual purchase volumes established in articles 93(1)(4) and 93(1)(5) of the Law on the Contractual System;

5.2. The procedure is specified for entering into a contract with a sole supplier in the Unified Information System if there are no applications for participating in a competitive purchase.

According to article 93(5)(3) of the Law on the Contractual System, in situations when the choice of supplier is determined not to have validly taken place, a contract with a sole supplier is concluded under the procedure established for entering into a contract with the winner of the competition-based method for determining the supplier.

However, the specified procedure is not fully applicable to the purchases in question, including because to conclude a contract is not compulsory in a number of situations for a participant in procurement, and the general limitation relating to one protocol of disagreements may be insufficient[5].

The draft law proposes to establish provisions whereby, when goods are purchased from a sole supplier as a result of the competition procedure that has not taken place, it should be possible to draw up an unlimited number of protocols of disagreements. Also, each of the parties may refuse to enter into a contract.

6. Optimising the procedure of entering into and performing a contract with counter investment obligations.

We note that a contract with counter investment obligations is a contract to supply goods or provide services that has been concluded in accordance with article 111.4 of the Law on the Contractual System. It provides for counter investment obligations of the supplier with respect to creating, modernising and setting up the production of such goods and/or creating or reconstructing property that is intended for the supply of such a service.

Therefore, the possibility of entering into such a contract with respect to goods that are not industrial products is limited.

The draft law provides that any goods for which production has been launched, modernised and developed in Russia (including products of the agricultural complex and seeds) may become the subject of an offset. The draft law also proposes to introduce an additional procedure for consolidating the needs of several customers of one constituent entity of Russia for the purposes of entering into the contract we are considering.

We note that the centralised procurement mechanism is already working (in this case, the contractor is determined by one authorised body rather than the customers themselves). However, in a number of situations it is not applicable in view of the difficulties in transferring funds to the authorised body (for instance, funds for compulsory medical insurance that are, under the general rule, transferred directly to a specific healthcare organisation).

In this regard the Draft Law proposes to introduce a possibility to conduct joint procurement procedures so that the supplier can meet the needs of several customers in one constituent entity of Russia.

What to think about and what to do

The antitrust authority performs regular control over business entities in terms of whether they are observing public procurement legislation. Therefore, companies need to follow up on the measures being taken by the government and the changing regulations to remain good-faith participants in the procurement process.

We recommend familiarising yourself with the Draft Law and following up on its developments. Then, once it has been adopted, you should take its new provisions into account in your professional activity.

Help from your adviser

Pepeliaev Group’s lawyers have significant experience of providing legal support to clients in the field of antitrust regulation. This involves arranging and conducting state and municipal procurement for Russian and foreign companies.

We will be happy to provide any legal support to clients in their dealings with the antimonopoly service.

Moreover, our lawyers continually monitor changes in antitrust legislation and are ready to offer prompt advice on any legal aspects that arise in connection with the new provisions being adopted.