Public procurement in Russia: recent changes and major trends - May, 2020
In 2019, Russian procurement system, regulated by Federal Law № 44-FZ dated April 5, 2013 “On the contract system of the federal and municipal procurement of goods, works and services”, underwent yet another transformation and improvement.
The major trends of the public procurement regulation remained the same, that is electronization of procurement and prevention of corruption.
Significant amendments were made to the legislation aimed at simplifying procurement for buyers and suppliers and improving control over procurement activities.
In general, among the main methods of procurement remain open tendering, request for quotations, single-source procurement, while electronic reverse auction is the most common method. For instance, large budget spending segments such as construction work and medicines are acquired at auctions. The other methods are restricted tendering, open and restricted two-stage tendering, restricted reverse auction, open and restricted request for proposals.
In 2019, an important change aimed at preventing corruption in the procurement of construction work was introduced in Federal Law № 44-FZ that the contractor's formal application for participation in the procurement procedure, in addition to information about the contractor itself, consists only of the contractor’s electronic consent to the terms of buyer’s documentation and contract. This means that now all applications received by a buyer are subject to admission to the auction, which is held just 4 hours after the deadline for the submission of applications.
What previous problems were solved by that amendment? First, buyers are unable to manipulate procurement results by setting for contractors the requirement to provide an unnecessarily extended application that then could be easily rejected by the buyer even due to contractor’s technical typographical error. Second, in 4-hour span between the deadline and the auction, contractors themselves do not have enough time to obtain information about each other and enter into a cartel agreement to maintain a high price at the auction. Such deeds have constituted illegal actions or even criminal offences anyway, but now to commit them is hardly technically feasible.
Among other legislation improvements of 2019 was adding to buyer’s rights legal possibility to sign a contract with the supplier that attained the second-best ranking in case the winner of the contest fails to fulfill his obligations under the contract, that is if the contract with the winner is terminated, the buyer can now sign the contract with the supplier that attained the second-best ranking and thus avoid conducting a new bidding.
In addition, designated online shops have been introduced for the single-source purchases of small amounts: online platforms for suppliers to place their offers to governmental entities.
Another change in the legislation is related to taking into account the specifics of procurement by governmental cultural institutions such as museums, theaters, and art schools.
2020 started with other innovations in Russian public procurement regulation.
The electronic record module of contract execution has been added to the unified information system of public procurement. This new function provides a buyer and a supplier technical means needed to remotely sign an acceptance of goods report. By now, the use of the module is optional, but later on that will become compulsory by law. That will usher in a higher level of transparency and accountability in the contract execution stage of the public procurement process.
In March of 2020, remote participation in procurement challenge hearings was introduced. That was a significant step forward in protecting the fair competition considering Russia's vast geographical location. Since that time, after supplier’s written complain is submitted to the authorized governmental body, which is the Federal Antimonopoly Service, the representatives of the buyer and the supplier are able to take part in the hearings via a video-conference.
The preparation work for that improvement was made in advance as the change was planned long ahead of the spring of 2020, but those tele-hearings became even more handy when Coronavirus disease 2019 (COVID-19) upend the regular order. Currently, all Federal Antimonopoly Service’s hearings are conducted through video-conference calls.
Rapid governmental response aimed to prevent the spread of COVID-19 in Russia included amendments to Federal Law № 44-FZ.
In the end of March and in the beginning of April of 2020, public procurement practices were adapted to social distancing and self-isolation rules. For instance, buyers’ procurement commissions received the right to hold meetings through video-conference calls as most employees have been sent home to do tele-work. Accordingly, electronic minutes of commissions’ meetings have been made legally accepted instead of hand-signed hard copies of them.
Suppliers who are unable to complete their delivery or works under procurement contracts within their stated terms due to COVID-19 lockdown in Russia and abroad have received the right to invoke the excuse of a force majeure event. Also, such contracts duration can be extended without applying penalties to the contract parties.
Furthermore, till the end of the 2020, suppliers enjoy some other relief and support measures in regard to procurement contracts. For instance, buyers do not require contract execution securities from suppliers - small enterprises any longer. Another case is that many buyers have been authorized to make advance payments under the contracts, which had been previously restricted in that regard where the federal finance was involved.
Among other measures, the procedure of urgent acquisition of goods, works and services under a state of emergency has been simplified. That is intended to fast-track governmental procurement of disinfectants, personal protective equipment (PPE), medical equipment, etc., which otherwise would require conducting lengthy bidding procedures.
The last, the entry into force of some previously planned novelties in the public procurement (new electronic procedures that were to come into effect on July 1st, 2020) have been postponed till 2021 as needed preparation work cannot be done now.