Changes are being prepared for establishing starting (maximum) contract prices under law 223-fz

3 min read

Pepeliaev Group advises of the actions suggested by the state that are aimed at improving the mechanism of determining the starting (maximum) price of a contract (SMPC) in procurement by state-owned companies.

The Russian Government has put before the State Duma a draft of amendments to Federal Law No. 233-FZ “On the procurement of goods, work and services by specific types of legal entities” (the Draft Law)[1] that directly stipulates the customer’s obligation to justify the SMPC. This draft law was developed in pursuance of provisions of the National Plan for Counteracting Corruption in 2018-2020[2], in particular, to make procurement by state-owned companies more effective and to mitigate the risks of corruptive actions.

At the moment Law No. 223-FZ does not establish a procedure for determining the SMPC; therefore the customer determines such SMPC on its own. The need for improving the pricing mechanisms and forming the SMPC is a result of the spreading practice that involves contract prices being overstated for no good cause with the formal observance of legal requirements. Another reason is that during state financial control checks conducted by the relevant department of the Federal Treasury, multiple cases have been identified where the expenditure was increased without justification during a procurement process. 
According to the draft law, in their procurement regulations companies must set out:
  • the procedure for determining the SMPC;
  • the price formulas that establish the rules for calculating the amounts payable by the customer to the supplier when the contract is performed, and the price of the goods (work, services);
  • the highest value of the contract price;
  • the procedure for justifying the SMPC, or the unit price of the goods (work or services);
Also, there is an amendment stipulating that documents regarding a competitive purchase instead of the procedure for forming the contract price (lot price) should contain a justification of the SMPC or the unit price of the goods (work, services), including information about expenses.

comment.jpgIt appears that the specified amendments will not only in effect prevent the practice of an unjustified increase of prices, but will also facilitate the adoption of a more transparent procedure for determining the SMPC. 

As follows from the Explanatory Note to the Draft Law, the purpose of the draft law is not to restrict the customer’s freedom in terms of establishing the procedure for determining the SMPC. Rather an obligation is established to set out this procedure in the procurement regulations. It is, therefore, noted that the suggested amendments are aimed at raising awareness among the participants in procurement processes with regard to the costs included in the SMPC, which will allow for their price offers to be formed taking account of the above. 

In addition, following on from the proposed amendments it is assumed that price information statistics will be kept with respect to each unit in the directory of goods, work and services of the Unified Information System for procurement in order to ensure that the prices of contracts are justified by the value of the goods (work, services) that has been formed, among other things, in the course of the procurement activities. 

What to think about and what to do

When the Draft Law is adopted, procurement regulations will need to be brought into conformity with the new requirements at least within 90 days from when the relevant law comes into force. 
We note that the antitrust regulator continues to react swiftly to breaches of current procurement legislation. Thus, companies need to follow up on the measures being taken by the government and the changing regulations to remain good-faith participants of the market. 

Help from your adviser

Pepeliaev Group’s lawyers have significant experience of providing legal support to clients in the sphere of antitrust regulation including organising and holding state and municipal procurement processes for Russian and foreign companies.
We will be happy to provide any legal support to clients in their dealings with the antimonopoly service.

[1] Draft Federal Law No. 1046332-7.
[2] Approved by Decree No. 378 of the Russian President dated 29 June 2018.
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