An update on public procurement
The field of public procurement has undergone large-scale changes on numerous occasions in the last few years. First, sets of amendments were adopted to optimise the field. These were followed by anti-COVID adjustments, while next came new amendments against the backdrop of sanctions. All the above served as a catalyst for reforming the industry. Currently, new amendments are being devised to the legislation on the contract system. Pepeliaev Group’s partner Elena Sokolovskaya would like to highlight four key provisions that should make the procurement process as transparent and easy to understand as possible.
Federal Law No. 44-FZ “On the contract system in the area of the procurement of goods, work and services to provide for state and municipal needs” dated 5 April 2013 (the “Law on the contract system”) has been amended drastically since the date on which it came into effect. Over the past eleven years, quite a number of subordinate legal instruments, letters and clarifications have been issued.
Currently, we stand ready for a new version. The State Duma (the lower chamber of Russia’s Parliament) is considering draft law No. 667365-8 (the “draft law”), which is proposing a formidable set of amendments to the Law on the contract system. The aim is to optimise public procurement.
What can we expect this time? Let us get to grips with four key provisions.
1. The draft law provides that a government contract can be concluded only in writing
The current text of the Law on the contract system does not prohibit an oral arrangement. Moreover, pursuant to part 15 of article 34, a contract with a single supplier can, in a number of cases, be concluded in any format for which the Russian Civil Code provides for transactions to be made. Therefore, clients often consider whether they can enter into a transaction orally based on article 161(2) of the Civil Code, which is at variance with the purposes of the Law on the contract system, as well as with the principles of the openness and transparency of procurement procedures.
It is being proposed that article 34 of the Law on the contract system be supplemented with a provision that contracts may be concluded only in the form of a simple written transaction and the failure to comply with this form will result in the contract being void.
This new provision is entirely justified. It is aimed at ruling out controversial practice and at ensuring that public procurement is transparent.
2. No less important is the initiative to confer powers on the Russian Finance Ministry to provide clarifications on the legislation regarding procurement.
We note that the issues of whether provisions of Russian legislation and other regulatory instruments in the above sphere are applied properly arise not only for parties to a procurement process but also for regulatory bodies and courts. However, there is still no single body that is empowered to issue such clarifications.
The draft law confers powers on the Finance Ministry, as the federal executive authority that exercises the functions of formulating state policy and statutory regulation in the sphere of procurement, to issue relevant clarifications.
This will help to harmonise the approaches to understanding and applying the rules of the Law on the contract system and other regulatory instruments.
3. The sponsors of the draft law are proposing that the opportunity be established to confirm that contracts performed within the scope of a joint procurement exercise comply with the universal screening requirements.
Please note
Starting fr om 1 January 2022, to take part in an auction wh ere the starting maximum contract price does not exceed RUB 20 million, a party should have undergone a separate selection procedure, i.e. universal screening, under article 31(2.1) of the Law on the contract system. The party should have experience of performing a contract or an agreement which has been concluded further to Federal Law No. 223-FZ “On the procurement of goods, work or services by certain types of legal entities” dated 18 July 2011 for three years before it has placed a bid to take part in the procurement exercise. That being said, the value of the obligations it has fulfilled should be no less than 20% of the starting maximum contract price, provided that the party meets the criteria relating to the payment of penalties (fines and default interest) lodged when the above contract or agreement is being performed.
It is planned that article 31 of the Law on the contract system be supplemented with a provision stating that participants in the procurement process should be able to confirm that the requirements of universal screening are met, including by contracts that performed within the scope of joint procurement.
These proposals are entirely logical because joint procurement is regarded in the Law on the contract system as a single purchase, while successful experience of participating in such procurement is, in our opinion, in no way inferior to any similar experience of participating in other auctions and may fully confirm that the participant is qualified.
4. It has also been stipulated that a set of measures be introduced to improve procurement from a single supplier, including:
Overall, we note that the trends in the field of government regulation of procurement over the last few years are quite clear. The aim is to make the process as transparent, unambiguous and easy to understand as possible.
Nonetheless, Roma non uno die aedificata estLatin for 'Rome was not built in a day'.. Time and more than one set of amendments will be needed to reach these goals.
Federal Law No. 44-FZ “On the contract system in the area of the procurement of goods, work and services to provide for state and municipal needs” dated 5 April 2013 (the “Law on the contract system”) has been amended drastically since the date on which it came into effect. Over the past eleven years, quite a number of subordinate legal instruments, letters and clarifications have been issued.
Currently, we stand ready for a new version. The State Duma (the lower chamber of Russia’s Parliament) is considering draft law No. 667365-8 (the “draft law”), which is proposing a formidable set of amendments to the Law on the contract system. The aim is to optimise public procurement.
What can we expect this time? Let us get to grips with four key provisions.
1. The draft law provides that a government contract can be concluded only in writing
The current text of the Law on the contract system does not prohibit an oral arrangement. Moreover, pursuant to part 15 of article 34, a contract with a single supplier can, in a number of cases, be concluded in any format for which the Russian Civil Code provides for transactions to be made. Therefore, clients often consider whether they can enter into a transaction orally based on article 161(2) of the Civil Code, which is at variance with the purposes of the Law on the contract system, as well as with the principles of the openness and transparency of procurement procedures.
It is being proposed that article 34 of the Law on the contract system be supplemented with a provision that contracts may be concluded only in the form of a simple written transaction and the failure to comply with this form will result in the contract being void.
This new provision is entirely justified. It is aimed at ruling out controversial practice and at ensuring that public procurement is transparent.
2. No less important is the initiative to confer powers on the Russian Finance Ministry to provide clarifications on the legislation regarding procurement.
We note that the issues of whether provisions of Russian legislation and other regulatory instruments in the above sphere are applied properly arise not only for parties to a procurement process but also for regulatory bodies and courts. However, there is still no single body that is empowered to issue such clarifications.
The draft law confers powers on the Finance Ministry, as the federal executive authority that exercises the functions of formulating state policy and statutory regulation in the sphere of procurement, to issue relevant clarifications.
This will help to harmonise the approaches to understanding and applying the rules of the Law on the contract system and other regulatory instruments.
3. The sponsors of the draft law are proposing that the opportunity be established to confirm that contracts performed within the scope of a joint procurement exercise comply with the universal screening requirements.
Please note
Starting fr om 1 January 2022, to take part in an auction wh ere the starting maximum contract price does not exceed RUB 20 million, a party should have undergone a separate selection procedure, i.e. universal screening, under article 31(2.1) of the Law on the contract system. The party should have experience of performing a contract or an agreement which has been concluded further to Federal Law No. 223-FZ “On the procurement of goods, work or services by certain types of legal entities” dated 18 July 2011 for three years before it has placed a bid to take part in the procurement exercise. That being said, the value of the obligations it has fulfilled should be no less than 20% of the starting maximum contract price, provided that the party meets the criteria relating to the payment of penalties (fines and default interest) lodged when the above contract or agreement is being performed.
It is planned that article 31 of the Law on the contract system be supplemented with a provision stating that participants in the procurement process should be able to confirm that the requirements of universal screening are met, including by contracts that performed within the scope of joint procurement.
These proposals are entirely logical because joint procurement is regarded in the Law on the contract system as a single purchase, while successful experience of participating in such procurement is, in our opinion, in no way inferior to any similar experience of participating in other auctions and may fully confirm that the participant is qualified.
4. It has also been stipulated that a set of measures be introduced to improve procurement from a single supplier, including:
- establishing a provision that customers will be allowed to conduct several small-scale exercises for the procurement from a single supplier of homogeneous or identical products (work, services);
- specifying the procedure for entering into a contract with a single supplier into the unified information system (UIS) which applies in the absence of bids to participate in competitive procurement.
Overall, we note that the trends in the field of government regulation of procurement over the last few years are quite clear. The aim is to make the process as transparent, unambiguous and easy to understand as possible.
Nonetheless, Roma non uno die aedificata estLatin for 'Rome was not built in a day'.. Time and more than one set of amendments will be needed to reach these goals.
The source:
Competition and Law journal