Getting the Deal Through, Public Procurement, An overview of regulation in 40 jurisdictions worldwide

Chapter - Russia:

Pavel Karpunin, Partner of Capital Legal services

Rimma Leshcheva, Senior Associate of Capital Legal Services

 

Legislative framework

1. What is the relevant legislation and who enforces it?

The relevant legislation includes:

• Federal Law No. 94-FZ ‘On placement of orders for delivery of goods, performance of works and rendering services for state and municipal needs’ dated July 27, 2005 (hereinafter ‘Law No. 94-FZ’);

• Federal Law No. 135-FZ ‘On protection of competition’ dated 26 July 2006;

• articles 525 – 534, 763 – 768, 778 of the Civil Code of the Russian Federation;

• article 72 of the Budget Code of the Russian Federation;

• Federal Law No. 213-FZ ‘On state defence orders’ dated 27 December 1995;

• Federal Law No. 53-FZ ‘On procurement and delivery of agricultural produce, primary products and provisions for state needs’ dated 2 December 1994;

• Federal Law No. 60-FZ ‘On delivery of goods for federal state needs’ dated 13 December 1994; and

• Federal Law No. 223-FZ ‘On purchase of goods, works and services by special types of legal entities’ dated 18 July 2011.

The legislation is enforced by the following state bodies:

• Federal Antitrust Service;

• State Commercial Arbitration Courts;

• Audit Chamber; and

• Public Prosecutor’s Office.

Please note that in Russia there exists separate legislation for:

• Concessions (Federal Law No. 115-FZ ‘On concession agreements’ dated 21 July 2005); and

• Public-private partnerships (regional laws on PPP also exist in Russian regions).

Unless otherwise expressly stipulated in the questions below, answers will be based on Federal Law No. 94-FZ.

2. In which respect does the relevant legislation supplement the EU procurement directives or the GPA?

The question is not relevant, as neither the EU procurement directives nor the GPA apply in Russia. It is expected that Russia will enter the GPA in the middle of 2012.

3. Are there proposals to change the legislation?

There are plans to amend the procurement legislation (especially, Law No.94-FZ) in order to increase the transparency of public procurement
procedures. The intention is to amend the existing public procurement procedure by introducing the following:

• the possibility of conducting multiple-stage tenders (with a prequalification stage);

• mandatory anti-corruption expert examination of the tender documentation prior to the tender;

• procedures allowing to obtain feedback from potential bidders regarding their probable interest in the tender; and

• state control over the calculation of maximum prices of goods, works, and services indicated in the tender documentation.

4. Is there any sector-specific procurement legislation supplementing the general regime?

There are specific rules with respect to the following goods:

• military equipment;

• goods to be used in emergency situations supplied into state reserve;

• goods supplied for federal needs in accordance with federal and interstate target programmes; and

• agricultural products supplied for state needs.

 

Applicability of procurement law

5. Which, or what kinds of, entities have been ruled not to constitute contracting authorities?

In accordance with article 4 of Law No. 94-FZ, the following entities are considered to be contracting authorities:

• state and municipal authorities;

• regulatory bodies of the state non-budgetary funds (pension fund, social insurance fund, federal and territorial compulsory medical insurance funds);

• state-owned institutions:

• ‘kazennie uchrezhdenia’, institutions that perform state functions or render state services, and other recipients of state funds, if they place orders at the expense of state funds or extra-budgetary resources; and

• ‘budzhetnie uchrezhdenia’, budgetary non-commercial institutions created in order to ensure performance of state functions in such spheres as science, education, health care, etc.

In addition to the above, according to article 8 of Federal Law No. 223-FZ ‘On purchase of goods, works and services by special types of legal entities’ dated 18 July 2011, the following entities must follow procedures established by Law No. 94-FZ until they approve their own regulations on procurement procedures:

(i) state corporations; state companies; natural monopolies and organisations that perform regulated activities related to the provision of public services (starting from January 2013); state and municipal unitary enterprises (starting from January 2014, unless stipulated otherwise by municipal authorities);
– starting from January 2014, unless stipulated otherwise by municipal authorities); companies in which more than 50 per cent of share capital is owned by the Russian Federation, a constituent entity of the Russian Federation, or a municipality (starting from January 2014, unless stipulated otherwise by municipal authorities);

(ii) companies in which more than 50 per cent of share capital is owned by entities indicated in item (i) (if more that 50 per cent of share capital of a company is owned by municipal unitary enterprises or companies in which more than 50 per cent of share capital is owned by a municipal entity – starting from January 2014, unless stipulated otherwise by municipal authorities);

(iii) companies in which more than 50 per cent of share capital is owned by entities indicated in item (ii) – starting from January 2014, unless otherwise stipulated by municipal authorities.

Other entities, including companies in which the Russian Federation, a constituent entity of the Russian Federation, or a municipal entity is a stakeholder, are considered to be private entities.

6. For which, or what kinds of, entities is the status as a contracting authority in dispute?

The status as a contracting authority in not in dispute for any entities, since the law clearly delineates the criteria (please see question 5).

7. Are there specific domestic rules relating to the calculation of the threshold value of contracts?

Contracts (when the price of which does not exceed the maximum amount of cash operations between legal entities, as established by the Central Bank of the Russian Federation (currently 100,000 rubles) per financial quarter per one type of works, goods or services) may be concluded without following the procurement procedures established by Law No. 94-FZ (sub‑clause 14, clause 2, article 55 of Law No. 94-FZ).

As an exception from the general rule, theatres, organisations that conduct concert activities, state educational institutions, broadcasting organisations, circuses, museums, recreation centers, clubs, libraries, and archives may conclude without the procurement procedures contracts the price of which does not exceed 400 000 rubles (approximately 10 000 Euro) per financial quarter per one type of works, goods or services (sub-clause 14.1, clause 2, article 55 of Law No. 94-FZ).

8. Does the extension of an existing contract require a new procurement procedure?

The extension of an existing contract does not require a new procurement procedure, provided that the contract terms which are prohibited from being amended by clause 5, article 9 of Law No. 94-FZ are not also amended.

9. Does the amendment of an existing contract require a new procurement procedure?

In general, the amendment of existing contracts is prohibited, except for the following:

• changes related to improving the quality of goods delivered under the contract (clause 6.7, article 9 of Law No. 94-FZ);

• change to the contracting authority (clause 6.6, article 9 of Law No. 94-FZ);

• change of supplier in case of legal succession (clause 6.1, article 9 of Law No. 94-FZ);

• changes to the contract price in cases listed in sub-clause 4.1, clause 9 of Law No. 94-FZ (eg, for contracts on supply of electric power, heat, natural gas, water and water disposal);

• extension of contract (please see question 8).

The above listed changes do not require a new procurement procedure.

10. May an existing contract be transferred to another supplier or provider without a new procurement procedure?

Without a new procurement procedure, an existing contract may be transferred to another supplier or provider only in case of legal succession (clause 6.1, article 9 of Law No. 94-FZ). If a contract is terminated, a new contract may be concluded with the second-best bidder without a new procurement procedure.

11. In which circumstances do privatisations require a procurement procedure?

Procurement procedures stipulated by Law No. 94-FZ are not applicable to privatisations. Special procurement procedures for different types of privatisation are established by federal law No. 178-FZ ‘On privatisation of state and municipal property’ dated 21 December 21 2001.

Privatisation of land plots is regulated by Chapter V of the Land Code of the Russian Federation. In certain cases, land plots may be privatised only based on the results of a tender or auction held in accordance with the requirements of the Land Code of the Russian Federation.

12. In which circumstances does the setting up of a public-private partnership (PPP) require a procurement procedure?

Procurement procedures stipulated by Law No. 94-FZ are not applicable to PPP. There is no federal legislation on PPP in Russia. However, special laws on PPP exist in many constituent entities of the Russian Federation. Such laws stipulate special procurement procedures for setting up PPPs. It should be noted that currently there is an initiative to develop a general PPP law on a federal level.

Special procurement procedures for conclusion of concession agreements are established on the federal level by Federal Law No. 115-FZ ‘On concession agreements’ dated 21 July 2005.

13. What are the rules and requirements for the award of works or services concessions?

Works and services concessions are to be awarded in accordance with a special tender procedure stipulated by Federal Law No. 115-FZ ‘On concession agreements’ dated 21 July 2005. The law establishes that a service concession can be awarded only based on the results of a tender. The tender must include 2 stages: pre-qualification and evaluation of bids.

14 .To which forms of cooperation between public bodies and undertakings does public procurement law not apply and what are the respective requirements?

It is possible to place orders for services or works with state-owned institutions and state unitary enterprises without a procurement procedure, if such works cannot be performed by other organisations (sub-clause 4, clause 2, article 55 of Law No. 94-FZ).

In addition to this, state-owned institutions may be requested by their founders to perform state works or services without a of the Russian Federation).

Please also see question 5.

 

The procurement procedures

15. Does the relevant legislation specifically state or restate the fundamental principles for tender procedures: equal treatment, transparency, competition?

Clause 1, article 1 of Law No. 94-FZ stipulates that the purpose of the law is to develop fair competition and equal treatment, provide for transparency of tender procedures and prevent corruption in tender procedures.

Equal treatment of suppliers is presumed. However, Russian suppliers may be granted certain advantages over foreign suppliers in some cases in accordance with article 13 of Law No. 94-FZ. For example, certain conditions for admittance of foreign goods, works and services may be established by the government of the Russian Federation. The government may also prohibit or limit admittance of foreign goods, works and services when orders are placed for state defence and security needs.

16. Does the relevant legislation or the case law require the contracting authority to be independent and impartial?

Such requirements are established only with respect to members of tender commissions (please see question 17).

17. How are conflicts of interest dealt with?

Clause 4, article 7 of Law No. 94-FZ prohibits participation in tender commissions for persons that have a personal interest in the results of the tender or may be influenced by a bidder, including:

• bidders or employees of bidders;

• members of regulatory bodies, stockholders and creditors of bidders;

• persons who perform control or monitoring functions in the sphere of public procurement.

18. How is the involvement of a bidder in the preparation of a tender procedure dealt with?

In accordance with article 22 of Law No. 94-FZ, preparation of the tender documentation may be carried out only by contracting authorities, authorised public authorities, or specialised organisations. If tender documentation is developed by a specialised organisation, the organisation is prohibited from participating in the tender for which it prepares the tender documentation. Therefore, bidders may not participate in the preparation of tender procedures.

19. What is the prevailing type of procurement procedure used by contracting authorities?

The prevailing type of procurement procedure is an electronic auction held in accordance with Law No. 94-FZ.

20. Can related bidders submit separate bids in one procurement procedure? If yes, what requirements must be fulfilled?

Related bidders can submit separate bids in one procurement procedure. Law No. 94-FZ does not establish any restrictions with respect to submission of separate bids by related bidders in one procurement procedure, except for the general requirements for bidders stipulated by article 11 of Law No. 94-FZ.

21. Are there special rules or requirements determining the conduct of a negotiated procedure?

Law No. 94-FZ does not provide for a negotiated procedure.

22.  When and how may the competitive dialogue be used? Is it used in practice in your jurisdiction?

Law No. 94-FZ does not provide for a competitive dialogue procedure.

23. What are the requirements for the conclusion of a framework agreement?

Law No. 94-FZ does not provide for an opportunity to conclude framework agreements.

24. May a framework agreement with several suppliers be concluded? If yes, does the award of a contract under the framework agreement require an additional competitive procedure?

The question is irrelevant (please see question 23.)

25. Under which conditions may the members of a bidding consortium be changed in the course of a procurement procedure?

The question is irrelevant. Under clause 1, article 8 of Law No.94-FZ bids may be submitted only by legal entities or individuals. Therefore, a consortium may not submit a bid. However, a bid may be submitted by a special company established by the members of a consortium for the purpose of participating in the tender.

26. Are unduly burdensome or risky requirements in tender specifications prohibited?

Unduly burdensome or risky requirements are not specificallyprohibited.

However, the following restrictions are established:

• a single tender cannot be held for supply of goods or provision of services that are not technically or functionally connected (clause 3, article 17 of Federal Law No. 135-FZ ‘On protection of competition’ dated 26 July 2006);

• tender requirements that are advantageous for a specific bidder cannot be established (clause 2, article 17 of Federal Law No. 135-FZ ‘On protection of competition’ dated 26 July 2006).

27. What are the legal limitations on the discretion of contracting authorities in assessing the qualifications of tenderers?

The assessment of qualifications is performed by special committees in accordance with the detailed procedures for the assessment of bids established by Law No. 94-FZ and Resolutions of the government of the Russian Federation. The procedures may also be specified in the tender documentation. The assessment procedures differ for each type of procurement procedures. Irrespective of the procurement procedure, special rules for assessment of every qualification are established and tender committees may assess only the qualifications listed in the tender documentation and only in accordance with the established procedures.

28. Are there specific mechanisms to further the participation of small and medium enterprises in the procurement procedure?

The contracting authorities are to place 10 to 20 per cent of all orders for goods, works and services with small enterprises (except for orders related to national security needs), the list of which is approved by Resolution No. 642 of the government of the Russian  Federation dated 4 November 2006 (clause 1, article 15 Law No. 94‑FZ).

 

Update and trends

In November 2011, Federal Law No. 223-FZ ‘On procurement of goods, works, services by certain types of legal entities’ was adopted, which regulates procurement of goods, works and services by certain entities (please see question 5). Also in 2011, a draft law ‘On the federal contractual system’ was developed, which if adopted will replace Law No. 94-FZ (please see question 3).

29. What are the requirements for the admissibility of alternative bids?

Law No. 94-FZ does not provide for an opportunity to submit alternative bids.

30. Must a contracting authority take alternative bids into account?

The question is not relevant (please see question 29.)

31. What are the consequences if bidders change the tender specifications or submit their own standard terms of business?

Law No. 94-FZ does not provide bidders with an opportunity to change the tender specifications or to submit their own standard terms of business. Bids that are not in compliance with the tender specifications shall not be considered by the tender committee.

32. What are the award criteria provided for in the relevant legislation?

Law No.94-FZ establishes a list of assessment criteria for each tender procedure. Depending on the tender procedure, such requirements may include: price; the functional characteristics of goods; the qualifications of the bidder; operational costs with respect to the goods supplied; the terms of performance of works, rendering of services or delivery of goods; guarantee period; and guarantee scope with respect to the goods, works or services.

The contracting authority may not establish assessment criteria that are not envisaged by Law No.94-FZ.

33. What constitutes an ‘abnormally low’ bid?

‘Abnormally low’ bids are not defined by the law or prohibited.

34. What is the required process for dealing with abnormally low bids?

There is no required process stipulated by law for dealing with abnormally low bids.

35. How can a bidder that would have to be excluded from a tender procedure because of past irregularities regain the status of a suitable and reliable bidder? Is the concept of ‘self-cleaning’ an established and recognised way of regaining suitability and reliability?

In Russia, bidders with past irregularities are included into a special Register of Unfair Suppliers. Information on unfair suppliers is maintained in the Register for two years, after which it is automatically excluded (clause 10, article 19 of Law No. 94-FZ).

 

Review proceedings and judicial proceedings

36. Which authorities may rule on review applications? Is it possible to appeal against review decisions and, if so, how?

The Federal Antitrust Service and State Commercial Arbitration Courts may rule on review decisions.

37. How long does an administrative review proceeding or judicial proceeding for review take?

Administrative review takes up to five business days (clause 3, article 60 of the Law No.94-FZ). A copy of the decision taken as a result of administrative review is published and sent to the interested parties within three business days after the decision is taken (clause 8, article 60 of the Law No. 94-FZ).

Court review must be performed within a ‘reasonable time’ which is determined based on the essence of the case (clause 6.1 of the Arbitration Procedural Code of the Russian Federation). In practice, a first-level judicial review usually takes two to three months.

38. What are the admissibility requirements?

In accordance with Chapter 8 of Law No. 94-FZ, any participant of tender procedures that believes a violation of the public procurement procedure took place may file an application for review. Such application shall include information listed in clause 2, article 58 of Law No. 94-FZ and needs to be supplemented by documents confirming the violation.

39. What are the deadlines for a review application and an appeal?

Administrative appeals for the review of tender documentation can be filed before the end of term for submission of bids. Administrative appeals for review of actions and inaction of contracting authorities and tender committees can be filed, depending on the type of tender proceedings, no later than seven to 10 days after the minutes on the results of assessment of bids are published by the contacting authority on the official website (clause 2, article 57 of Law No. 94-FZ).

The deadline for court review of administrative decisions taken based on administrative appeals is three months from the date when the decision is taken (clause 9, article 60 of Law No. 94-FZ). Court appeals may be filed within three years after the applicant finds out or should have found out that his rights were violated (within one year for claims on applying consequences of contract invalidity).

40. Does an application for review have an automatic suspensive effect blocking the continuation of the procurement procedure or the conclusion of the contract?

In accordance with clause 4, article 60 of the Law No. 94-FZ executive authorities may suspend the procurement process until the application for review is processed.

41. Must unsuccessful bidders be notified before the contract with the successful bidder is concluded and, if so, when?

Unsuccessful bidders need not be specifically notified. However, the minutes on the evaluation of bids are published on the official website before the contract with the successful bidder is concluded.

42. Is access to the procurement file granted to an applicant?

Access to the entire procurement file is not granted to an applicant. Applicants are granted access to the tender documentation and minutes of decisions taken by the tender committee.

43. Is it customary for disadvantaged bidders to file review applications?

It is customary for disadvantaged bidders to file review applications with the Federal Antitrust Service.

44. May a concluded contract be cancelled or terminated following a review application of an unsuccessful bidder if the procurement procedure that led to its conclusion violated procurement law?

A concluded contract may be cancelled by a court decision if the court rules that the procurement procedure that led to its conclusion has violated procurement law.

45. Is legal protection available to parties interested in the contract in case of an award without any procurement procedure?

Interested parties may file an appeal against an award without any procurement procedure with the Federal Antitrust Service or a State Commercial Arbitration Court.

46. If a violation of procurement law is established in an administrative or judicial review proceeding, can disadvantaged bidders claim damages?

If yes, please specify the requirements for such claims.

Disadvantaged bidders cannot claim damages.