Attn: CEOs of companies participating in the state procurement system (including pharmaceutical companies and companies manufacturing medical products), as well as heads of legal, key account and public procurement departments

Pepeliaev Group advises that Federal Law No. 44-FZ “On the system of public procurement contracts for products, work or services for state and municipal needs” was adopted on 5 April 2013. The main provisions of the Law will come into force on 1 January 2014. Federal Law No. 94-FZ dated 21 July 2005 “On placing orders to supply goods, perform work or provide services for state and municipal needs” has been repealed.

Summary of main changes

Unlike Federal Law No. 94-FZ dated 21 July 2005 that only regulates how public orders are to be placed, the law on the system of public procurement contracts will regulate all stages of the public procurement process. Notable among these stages are planning, forming, placing and executing an order. The new public procurement system is based on the modern principles of conducting business: openness, competition, unification, responsibility for meeting state and municipal needs and effective spending. Besides, the Law provides for the rights and obligations of the state official who makes purchases, which creates legal background for his area of activity to be turned into a profession.

The Law suggests that open auctions must no longer be used as a form of placing public orders. As a result, the main ways for placing orders are: a tender (an open tender, a tender with a limited number of participants, a two-stage tender, a closed tender etc.), an auction (closed electronic auction), a request for quotations and a request for proposals.

The system of public procurement contracts provides for a number of antidumping measures. For instance, if a participant with whom a contract is signed proposes a price which is lower than the starting (maximum) price of the contract by 25% or more, then the contract is only signed after such participant provides collateral to secure its performance. The amount of such collateral must exceed by 1.5 times the collateral specified in the tender or auction documents. An alternative way is to provide information as at the application date confirming that such participant has been acting in good faith. This includes information from the register of contracts confirming the good-faith performance of previous contracts over at least one year before the date of the application. At the same time, the price of any of the previous contracts should be at least 20% of the price proposed by the participant.

The Law provides for a unified information system to be created to ensure information support for the system of public procurement contracts. This system must, among other things, contain information about the terms, prohibitions and limitations on access for products originating from a foreign state or a group of foreign states, as well as the work (services) performed (provided) by foreigners. The information systems shall also include a list of foreign states that have signed international treaties with the Russian Federation mutually to apply the national regime for purchases, as well as the terms under which the national regime is applied. Public control over compliance with legislation about the system contracts for purchasing products via public associations and associations of legal entities that have a number of powers in this area vested in them. The client in a public procurement contract may unilaterally withdraw from the contract. The client must take a decision to withdraw from such contract unilaterally if it is established in the course of the contract being performed that the products (work, services) being supplied do not comply with the requirements for a public procurement contract. The client may also withdraw from the contract that has been partially performed by the supplier (contractor, client). The information about such supplier (contractor, service provider) is entered into the register of bad faith suppliers.

The supplier (contractor, service provider) may withdraw from a state contract unilaterally if it is granted such a right under the state contract.

What to think about and what to do

In connection with these new developments we recommend:

  1.  Becoming familiar with the new public procurement provisions, specifically the changed procedures and terms for submitting applications, participating in tenders and auctions, as well as filing
  2. requests for quotations and proposals, with a view to adjusting companies’ practices to the rules of the public procurement system;
  3. Training employees to use the new rules of the public procurement system that will come into force on 1 January 2014;
  4. Auditing the public procurement contracts that have been signed in terms of whether they are being performed in due time and in full to prevent them from being unilaterally terminated by the client, taking such measures as are required.