Getting the Deal Through – Public Procurement 2013,Russia

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 27 July 2005 (Law No. 94-FZ);

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

• articles 525 to 534, 763 to 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:

• the government of the Russian Federation;

• the Federal Antitrust Service;

• the State Commercial Arbitration Courts;

• the Audit Chamber; and

• the 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 the 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 was expected that Russia would accede to the GPA in the middle of 2012.

In accordance with article 1143 of the report of the working party on the accession of the Russian Federation to the World Trade Organization, the Russian Federation confirmed its intention to join the WTO Agreement on Government Procurement (GPA) and to notify the Committee on Government Procurement to this effect at the time of accession of the Russian Federation to the WTO and to ensure that from the date of accession, its government agencies would award contracts in a transparent manner according to published laws, regulations and guidelines. The Russian Federation also confirmed that it would request observership in the GPA at the time of its accession to the WTO and would initiate negotiations for membership in the GPA within four years of accession. The Russian Federation confirmed that, if the results of the negotiations were satisfactory to the interests of the Russian Federation and the other members of the GPA, the Russian Federation would accede to the GPA.

3. Are there proposals to change the legislation?

On 8 April 2013 new Federal Law No. 44-FZ ‘On the contract system in the sphere of procurement of goods, works, services for state and municipal needs’ was adopted. It will come in force in parts starting from 1 January 2014 and will replace Law No. 94-FZ.

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;

• communication services for the needs of public authorities, the needs of national defence, national security and law enforcement;

• scientific research and experimental development for state needs;

• educational services for state needs;

• production and distribution of national (domestic) films;

• development of drugs and psychotropic substances;

• gas supplied for federal (municipal) needs; 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-budgetar 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; state and municipal unitary enterprises (starting from January 2014, unless stipulated otherwise by municipal authorities); autonomous institutions (if created 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.

It should be mentioned that prior to elaboration of their own regulations the above entities worked in accordance with Law No. 94-FZ. However, starting from 1 January 2014 all companies covered by Law No. 223-FZ shall apply its provisions on procurement.

In the absence of their own procurement regulations such companies must use Law No. 94-FZ. It should be noted that the procedures under Law No. 94-FZ are regulated more strictly than those which can be established in the company’s own procurement regulations.

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 (see question 5).

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

Contracts whose price 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 roubles) 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 centres, clubs, libraries and archives may conclude without the procurement procedures contracts the price of which does not exceed 400,000 roubles per financial quarter per one type of works, goods or services (subclause 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); and

• extension of contract (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 the 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 2001. In accordance with article 20 of Federal Law No.178-FZ, a ‘tender’ as a privatisation procedure in respect of state (municipal) property is applicable in respect of stocks (shares) in joint-stock companies (limited liability companies) exceeding 50 per cent of the share capital of such companies, subject to the buyer’s meeting certain conditions if in respect of such property. The sale of other state (municipal) property through the tender is not possible under Federal Law No. 178-FZ. 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-privatepartnership (PPP) require a procurement procedure?

Procurement procedures stipulated by Law No. 94-FZ are not applicable to PPPs.

There is no federal legislation on PPPs in Russia. However, special laws on PPPs 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 at a federal level.

Special procurement procedures for conclusion of concession agreements are established at 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 two 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 procurement procedure (clause 3, article 69.2 of the Budgetary Code of the Russian Federation). See also 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 procedure be used? Is it used in practice in your jurisdiction?

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

At the stage of submission of applications to participate in tenders it is prohibited to negotiate with the state customer as to the procurement item. It is possible to submit requests for clarification of documentation requirements only.

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?

Not applicable (see question 23.)

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

Not applicable. 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 specifically 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); and

• tender requirements that are advantageous for a specific bidder cannot be established (clause 2, article 17 of Federal Law No. 135-FZ).

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).

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?

Not applicable (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 in a special register of unfair suppliers. Information on unfair suppliers is maintained in the register for two years, after which it is automatically deleted (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 no later than the next date of expiry of time for consideration of application by commission.

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.

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Reproduced with permission from Law Business Research Ltd. This article was first published in Getting the Deal Through – Public Procurement 2013, (published in May, 2013; contributing editor: Hans-Joachim Prieß, Freshfields Bruckhaus Deringer LLP). For further information please visit www.GettingTheDealThrough.com.