Reform of the State Order: old tales in a new way

It is already not a secret that since January 1, 2014 the Federal Law of April 05, 2013 No. 44 -FZ "On contract system in procurement of goods, works and services for state and municipal needs" (hereinafter the Law N 44 - FZ, new law) comes into force. The new law fully replaces the previously effective Federal Law of July 21, 2005 No. 94-FZ "On placement of orders for supply of goods, performance of works and provision of services for state and municipal needs." However, the Federal Law of July 18, 2011 No. 223 -FZ "On procurement of goods, works and services by certain types of legal entities" (hereinafter the Law N 223-FZ) remains in force and continues to regulate the relations concerning procurements made by certain legal entities.

As follows from the explanatory note to the draft of the new Law, the purposes of its adoption are significant increase in the quality of meeting state (municipal) needs through implemented systematic approach to the formation, placement and performance of state (municipal) contracts, ensured transparency of the whole procurement cycle from planning to acceptance and analysis of contractual results, prevention of corruption and other abuses in the field of meeting state and municipal needs.

The main changes of the procedure of meeting state and municipal needs, introduced by the new law, primarily include:

• introduction of requirements to justify the procurement and the possibility of its public discussion;
• specification of requirements to justify the price;
• admission of possible exclusion from the coverage of this law of the part of procurements of budgetary institutions;
• requirement to apply this law by the organizations, not governed by it under the common rule;
• introduction of centralized procurement;
• expansion of the number of methods of ordering, more precisely contractor identification;
• establishment of more specific requirements to purchased goods, works and services (rationing, specification of requirements for the description of subjects of contracts, determination of identical and similar goods);
• introduction of additional regulation of the contract implementation procedure, including:
• establishment of the procedure of acceptance of goods, works and services under contract;
• establishment of the customer’s right to the unilateral refusal to implement the contract (along similar amendments are made to the Law No. 94-FZ).

It is impossible to cover in this article all the new developments introduced, thus we will focus on the most important of them.

Contract Service

The customers’ obligation to establish in certain conditions a contract service is also one of the developments of the Law No. 44-FZ. Thus, under the new requirements, the Customer must establish a contract service, in case where the total annual procurement in accordance with the timetable is over 100 million rubles. If the total annual procurement of the customer in accordance with the timetable does not exceed the aforesaid amount, the establishment of the contract service is not an obligation, but a right of the customer. However, if the contract service is not established, the customer must appoint an official responsible for the performance of one or several procurements, including the implementation of each contract (contract manager). A mandatory requirement for the contract service employees, the contract manager, is to have higher or additional vocational education in procurement.

It should be noted that the contract service is not obliged to be a structural subdivision of the customer. However, it must act in accordance with the rules (regulation) developed and approved on the basis of the model rules (regulation) approved by the authorized body.

Under the new law the contract service (contract manager) shall have the following functions and powers:

1) development of the procurement plan, preparation of amendments to be made to the procurement plan, placement in the single information system of the procurement plan and amendments thereto;

2) development of the timetable, preparation of amendments to be made to the timetable, placement in the single information system of the timetable and amendments thereto;

3) preparation and placement in the single information system of procurement notices, procurement documentation and draft contracts, preparation of and sending invitations to participate in contractor identification by means of closed ways;

4) assurance of procurements, including of signing contracts;

5) participation in the consideration of appeals against the results of contractor identification and preparation of materials for the performance of claim work;

6) organization, if necessary, at the stage of procurement planning, consultations with contractors and participation in such consultations in order to determine the condition of the competitive environment in the relevant markets of goods, works and services, identification of the best technologies and other solutions to meet state and municipal needs;

7) other powers stipulated by the new law.

Justification and Rationing of Procurement

Justification of procurement consists in establishing the conformity of planned procurement to the purposes of procurement, including decisions, orders, instructions of the President of the Russian Federation, decisions, orders of the Government of the Russian Federation, the laws of subjects of the Russian Federation, decisions, orders of highest executive bodies of state power of subjects of the Russian Federation, municipal legal acts, as well as the legislation of the Russian Federation and other regulatory and legal acts on the contract procurement system.

Rationing of procurement means establishment of:

• requirements for goods, works and services to be purchased by the customer, including the ceiling price of goods, works and services; and (or)
• regular costs for the assurance of functions of government bodies, control bodies of government non-budgetary funds, municipal bodies.

Requirements for the goods, works and services to be purchased by the customer mean requirements for the quantity, quality, consumer properties and other characteristics of the goods, works and services, allowing to meet state and municipal needs, but not leading to the procurement of goods, works and services that have surplus consumer properties or are luxury items in accordance with the legislation of the Russian Federation.

Ways of Contractor Identification

Currently, the Law No. 94-FZ divides the methods of ordering into two groups: "by tender" (including competition, auction) and "without tender" (by a request for quotations and with a single contractor).

The new law establishes other criteria for the classification of ways of contractor identification. In particular, in the new law the only non-competitive way of contractor identification - procurement from a single contractor - is opposed to all the other (competitive) ways of contractor identification.



However the number of competitive ways is extended by introducing two-stage tenders – competitions and auctions, both public and closed ones, restricted competitions - and introduction of a completely new method of procurement – request for proposals. If the request for quotations can be called "simplified auction" – selection from comparable proposals of the best one in terms of price, the essence of the request for proposals can be characterized as "simplified auction" - selection from comparable proposals of the best one in terms of all predetermined criteria.

For convenience, we provide a comparative table:





Grounds of Procurement Procedures





Anti-dumping measures during auction and competition

The anti-dumping measures introduced by the new law are not the most expected change in the system of the State Order. As the Russian Ministry of Economic Development pointed out in its letter dated June 19, 2008 No. Д05-2451, "the situation when the tenderer wins, offering a dumping price (i.e. a price below the cost of products to be supplied) in fact is different." Nevertheless the new Law provides for the possibility of placing special requirements to the participant in procurement that offered a "quite low price" during the procurement procedure.

The key anti-dumping measure consists in the fact that if during auction or competition, the participant in procurement, with which the contract is signed, offered a contract price, which is 25% or more below the initial (maximum) contract price, the contract is executed only after such participant provides:

• if the initial (maximum) contract price is more than 15 million rubles – a contract performance security in the amount exceeding 1.5 times the amount of the contract performance security specified in the competition or auction documentation, but not less than the amount of the advance payment (if the contract provides an advance payment).
• if the initial (maximum) contract price is 15 million rubles and less – the contract performance security in the above amount or information confirming the good faith of such participant as of the date of application.

Therewith the information confirming the good faith of the participant in procurement includes information contained in the register of contracts and confirming the implementation by such participant during at least one year before the date of application for participation in the competition or auction of three contracts (in this case all such contracts must be implemented without penalties applied to such participant or four or more contracts (at least 75 % of which shall be implemented without penalties applied to such participant). However the price of one of these contracts shall be at least 20% of the price at which the participant in procurement proposed to sign the contract.

Information Disclosure

Another radical development of the new law is introduction of requirements of information disclosure by participants in procurement procedures with which the contract is concluded. These requirements were introduced in order to combat corruption and abuse in procurement.

Thus, if the initial (maximum) contract price in the procurement of goods, works and services exceeds the amount established by the Russian Government, the contract must contain the obligation for the participant in procurement to provide the following information:

• information on its beneficiaries,
• information on sole executive body of company (director, general director, manager, president and others),
• information on members of the collegial executive body of company,
• information on head (director, general director) of institution or unitary enterprise or other management bodies of legal entities participating in procurement by providing names, surnames, patronymic names (if any) of such persons subject to the laws on personal data.

In addition, if the initial (maximum) contract price in the procurement of goods, works and services exceeds the amount established by the Russian Government, the contract contain the obligation for the contractor to provide information on all co-executors, subcontractors, contract price or total price of contracts, with which it makes up more than 10% of the contract price.

Public Discussion and Public Control

In cases established by the Russian Government, as well as the legislation of subjects of the Russian Federation, municipal regulatory and legal acts, the compulsory discussion of procurement is held, following the results of which amendments to the procurement plans, timetables, procurement documentation may be made or procurements may be cancelled. In such cases, procurements can not be carried out without public discussion.

Public control is one of the kinds of control over the implementation of procurement (along with the general state, departmental control and control conducted by customers) and consists in providing citizens, public associations and associations of legal entities with the possibility to exercise public control over the observance of the procurement legislation. In particular, public associations and associations of legal entities conducting the state control may:

1) prepare proposals for improving the Russian legislation on the contract procurement system;

2) submit to customers requests for information on the implementation of procurements and on the course of contract implementation;

3) carry out independent monitoring of procurements and evaluation of effectiveness of procurements, including the assessment of procurement implementation and results of contract performance in terms of their compliance with the law;

4) apply on their behalf to state and municipal bodies for control measures provided by the law;

5) apply on their own behalf to the law enforcement agencies in cases where elements of offence are detected in the actions (omission) of customer, authorized body, authorized institution, specialized organization, procurement commissions and their members, officers of service contract, contract managers;

6) go to court to protect the violated or disputed rights and legitimate interests of a group of persons in accordance with the Russian legislation.

Appeal

Procedure for appealing the actions and / or omissions of entities implementing procurements or performing certain powers within such implementation, undergoes minor changes, which essentially do not change the mechanism of the appeal process.

First of all, expansion of the list of subjects should be noted, the actions (omission) of which can be appealed - these include customer, authorized body, authorized institution, specialized organization, procurement commission, its members, officer of contract service, contract manager, e-site operator.

In addition, the right to appeal will now be provided not only to participants in procurement, but also to public associations, associations of legal entities exercising public control. However, as before, if the challenged actions (omission) are committed after the opening of envelopes with applications began and (or) opening of access to electronically submitted application for participation in competition, request for quotations, request for proposals, after considering applications for participation in auction, appeal against such actions (omission) can be carried out only by the participant in procurement that applied for participation in competition, auction, request for quotations or request for proposals.

The terms of appeal were not changed by the new law and remained the same in principle – the complaint can be filed at any time during the implementation of procurement, but not later than 10 days of placement in the UIS of the minutes of results of the procedure, including the closed ones, for which now a special term of 7 days is established. Now, however, the new law specifies the starting time of the appeal procedure - after the procurement plan is placed in the UIS.

The requirements for the content of complaints, as well as the grounds for its return also underwent no changes.

In conclusion, it should be also added that, as under the old law, the appeal against actions (omission) of subjects in the implementation of procurement, under administrative procedure does not preclude the appeal by the participant in procurement, public associations, association of legal entities of such actions (omission) in court.