Crisis management: New Year surprise from Russian lawmakers

For the state procurement system, the beginning of 2016 was marked by a number of new provisions of Federal Law No.44-FZ “On the contract system in the field of goods, works and services procurement for state and municipal needs” dated April 05, 2013 (the “Law No.44-FZ”) and its amendments, which have all taken effect. Among others, the amendments introduced by Federal Law No.390-FZ dated December 29, 2015 (the “Law”) draw special attention. 

These amendments in fact extend the “favorable” procedure for changing the terms and conditions of state contracts. Starting from 2015, Part 1.1 of Article 95 of Law No.44-FZ provides an opportunity for the parties to change upon mutual agreement the essential terms (such as the term of performance, price and scope of works) of state contracts expiring in 2015. The Russian Government has established the relevant procedure. Starting from January 01, 2016, such an ability has been provided also to state contracts expiring in 2016. All these changes to Law No.44‑FZ were introduced at the very end of 2015 – the relevant Law was adopted two days before the New Year holidays. 

The new procedure for changing terms of state contracts has not yet been approved; however, a relevant draft of the Russian Government Decree is practically identical to the previously effective rules, and is already posted on the federal web site with drafts of regulatory acts. 

It is assumed that, as before, changing a contract is allowed only given the simultaneous compliance with all of the following conditions: 

• The contract term exceeds 6 months;
• Currency of the contract is the Russian ruble;
• Due to reasons beyond the control of the parties, performing the concluded contract without a change of terms is impossible;
• Subject of the contract is the provision of goods, works, services from the lists approved by state authorities and by a number of state organizations to meet the needs of such entities, with the price of the contract exceeding a particular amount (1 mln  rubles for federal needs), or construction, reconstruction, technical re-equipment of capital construction facilities, except methodological regulations; 

The service provider (contractor, supplier) must initiate the procedure and send a written request to introduce changes to the state contract with explanations concerning the inability to perform the contract. The client/buyer must consider this request within 30 days. 

Changing contracts will be allowed only if a number of restrictions is observed. The contract term can be changed only within 2016, and changing the price is allowed only within the amount calculated based on a special formula specified in the rules. 

Therefore, lawmakers continue to implement a policy of supporting business that works with the state client during the crisis. Moreover, a mechanism of limiting possible abuse is provided, reducing the potential corruption and other risks. In this regard, introduced amendments should be assessed as positive, providing more flexibility in a challenging market environment. 

For more details on the changes mentioned above see the following links:

Federal Law No.390-FZ “On introducing amendments to Federal law ‘On the contract system in the field of goods, works and services procurement for state and municipal needs’” dated December 29, 2015. 

Draft Russian Government Decree “On approving Rules for amending upon mutual agreement of the parties of the contract terms and/or contract price and/or price for a unit of goods, works, services and/or quantity of goods, volume of works, services, under contracts expiring in 2016.”

Igor Gorokhov    Principal Associate   St. Petersburg     igorokhov@cls.ru    Tel.: +7 (812) 346 7990

Daniil Petrukh   Associate   St. Petersburg      dpetrukh@cls.ru    Tel.: +7 (812) 346 7990

Additional notes

Should any questions arise in connection with the above or if you need any additional materials, please contact Igor Gorokhov or Daniil Petrukh, St. Petersburg Office of Capital Legal Services.

This Information letter keeps the clients of Capital Legal Services and other interested parties abreast of information that may, to any extent, affect their activity or cater to their particular interests. The opinions and commentaries expressed in this information letter shall not be deemed as legal opinions and do not cancel the need to obtain legal advice or legal opinion on separate issues.