On 1 January 2014, the Russian state procurement system was replaced by a new state system, called the Contract System. The Contract System was enacted through the new Federal law “On the contract system in the sphere of goods’ purchase, works, services for the state and municipal needs” dated 05 April 2013 No. 44-FZ (the Contract System Law[1]. Due to a transition period, the provisions of the Contract System Law will not fully come into force until 2017.

The core of the Contract System Law is a systematic approach to the procurement process. This means that the Contract System covers the entire process for procurements using state budget funds, from needs planning to the management and auditing of concluded contracts. This approach has been adopted from the American procurement system, which is regulated by a set of rules for government procurements (Federal Acquisition Regulation) that describes all the stages of carrying out procurements.

New requirements for contractors established 

There are obligatory and optional requirements for contractors. One of the most disputable obligatory requirements is that the CEO, members of the board of directors or the chief accountant must not have prior convictions for crimes in the economic sphere (Contract System Law point 7, item 1, Article 31).

If the purchaser detects any discrepancies (or doubtful data on compliance provided by the contractor), the contractor can be excluded from the competitive procedure. The purchaser can refuse to conclude the contract with the winner at any time before the contract is concluded (Contract System Law item 9, Article 31).

Public control established (Article 102 Contract System Law) 

As the goal is to make the Contract System more transparent, public control has been established. The goal of public control is to identify violations in the sphere of procurements and to assist the development and improvement of the Contract System.

In particular, public associations and legal entities are entitled to send requests to state purchasers for information on the status and performance of contracts of procurements; to initiate actions for state control on their own behalf; and to appeal to courts for the protection of violated rights and interests of a group of persons in compliance with the legislation of the Russian Federation. Also, from 1 January 2017 a monitoring and audit system for procurements will be established.

Planning and norm-setting obligatory from 1 January 2016

According to the Contract System Law, each government and municipal procurement has to be planned. State purchasers will be obliged to approve a plan of procurements for the following fiscal year and planning period - two years after the following fiscal year (Article 17 of the Contract System Law).

The plan of procurements must specify the purposes of the procurements, the objects of the procurements, the terms (frequency) of implementation of the procurements and the volumes of financial security for the procurements. The plan of procurement will be drawn up in the course of the drawing up and consideration of drafts of budgets in the Russian Federation’s budgetary system (Article 17 of the Contract System Law). Also state purchasers will have statutory duty to prove the necessity ofall procurements which will join in the plan of procurements (Article 18 of the Contract System Law).

The setting of norms will lead to:

  • limits on the price of goods (works, services) (Article 19 of the Contract System Law);
  • limits on the quantity, consumer properties (including to characteristics of quality) and other characteristics of goods (works, services).

Such requirements will make it possible to avoid procurements of goods (works, services) that have excessive consumer properties or are luxury goods (Article 19 of the Contract System Law). The general rules for setting norms will be established by the Government of the Russian Federation.

Restrictions on procurement of foreign goods 

The Russian Federal Government is entitled to elaborate a list of goods, works and services that are to be procured with priority given to goods, works and services of the Russian origin. The Government has restricted the delivery of goods, performance of works and provision of services for the purposes of state defence save for such cases when the manufacture of such goods, performance of such works and rendering of such services in the territory of Russia is either not possible or does not meet the requirements of governmental customers.

The Government has also restricted deliveries of mechanical engineering goods (such as busses and mobile cranes ), consumer goods (such as textile, footwear, suitcases) and medical products (including medical equipment) from foreign states. State purchasers will have to reject offers that assume delivery of foreign products.

It should be noted that there is a general trend towards supporting import substitution and the maintenance of agricultural production in Russia. To this end, the Government is considering a draft decree, which would limit the procurement of a number of foodstuffs of foreign origin. This Decree concerns such products as meat, fish, dairy products, sugar, salt, etc. Last year the Government has banned import of agricultural production and foodstuffs which country of origin are the United States of America, the countries of the European Union, Canada, Australia and the Kingdom of Norway. These restrictions will be in force till August 2016.