Special Procurement Procedures for Certain Legal Entities.

01.08.2011

Legal Update No. 256.

Goltsblat BLP advises that Federal Law No. 223-FZ “On Procurement of Goods, Works and Services by Certain Legal Entities” was adopted on 18 July 2011 (the Law) and will come into effect on 1 January 2012.

The Law lays down the basic principles and requirements for procurement of goods, works and services for the following types of legal entity:

  • state-owned corporations, public (state-owned) companies;
  • natural monopolies, entities involved in regulated operations (electricity, gas, heat and water supply, etc.);
  • state and municipal unitary enterprises;
  • autonomous institutions;
  • business entities in which the Russian Federation, a constituent entity of the Russian Federation or a municipality hold an aggregate of over 50%;
  • subsidiaries in which the above types of legal entity hold a cumulative share of over 50%;
  • subsidiaries in which the above types of subsidiary hold a cumulative share of over 50%.

The Law does not regulate purchase and sale of securities or currency assets, acquisition of exchange goods on a commodity exchange, placement of orders by customers in accordance with Federal Law No. 94-FZ of 21 July 2005 “On Placing Orders for Delivery of Goods, Works and Services for State and Municipal Needs”, purchases of military equipment or ones under international treaties of the Russian Federation, selection of financial institutions to render financial services and of audit firms for the purposes of statutory audit under federal laws.

The most essential provisions of the Law include the following:

  • Each of the above legal entities (the customer) must, by resolution of its body prescribed by the Law, adopt a procurement policy, post it on the official www.zakupki.gov.ru website and, from 1 July 2012 (or later for certain entities), be governed strictly by this policy when performing purchases.
  • The procurement policy must stipulate the requirements on purchases, including the procedure for preparing and carrying out the purchase (in particular, purchasing methods - by tender, auction or otherwise), for conclusion and performance of contracts, etc. Procurements should rely on the principles of equality, absence of ungrounded restrictions or unmeasurable requirements on transaction participants. Information about the purchase should be accessible free of charge.
  • The Russian Government may, for procurement of specific goods, works and services, list the products eligible for electronic procurement, establish priority for products originating from Russia, the specifics of procurements by small and medium sized businesses or determine that information on the purchase need not be posted on the official website.
  • Customers post plans for purchasing goods, works and services on the official website for a term of at least one year. Procurement plans for innovative and high-tech goods and medicines effective from 1 January 2015 are to be posted for a term of 5 to 7 years.
  • Customers may refrain from posting information about purchases worth less than RUB 100 thousand (and customers with annual revenues of over RUB 5 bn - worth less than RUB 500 thousand) on the official website.
  • On a monthly basis, customers are required to make information available on the official website about the number and total worth of any procurement contracts they have concluded (including for purchases from a sole supplier and even if the information on the procurements constitutes a trade secret or was not posted on the official website by virtue of a resolution of the Russian Government).
  • Information on participants in tenders or bidders that evaded entering into contracts or suppliers whose contracts were cancelled pursuant to court judgements owing to a material breach is to be entered in the register of bad faith suppliers, thus potentially precluding their participation in procurement in the future.
  • Procurement participants may file appeals with an anti-monopoly body against certain breaches of the Law committed during preparation and performance of procurements. Purchase transaction participants may also appeal in a court of law against actions (omissions) on the part of the customer.

The Law is called on to ensure efficient use of funds by customers, promote fair competition, publicity and transparency of procurement. Since this objective is close to that of Federal Law No. 94-FZ of 21 July 2005, the Law establishes that, if a customer fails to adopt or post a procurement policy within the prescribed timelines, it must, for the purposes of procurement, be governed by that Federal Law until the policy is posted.

For additional information, please contact:

Nikolay Voznesenskiy,
Head of Competition Practice, Goltsblat BLP,
T: +7 (495) 287 44 44,
E: info@gblplaw.com

Alexander Smirnov,
Head of Commercial Practice, Goltsblat BLP
T: +7 (495) 287 44 44,
E: info@gblplaw.com

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