New law introducing the contract system for the procurement of goods, work and services to meet public needs at the national and local level

On 1 January 2014, Federal Law No. 44-ФЗ dated 05/04/2013 will come into effect, which introduces the contract system for the procurement of goods, work and services to meet public needs at the national and local level (hereinafter, the Law).

In accordance with Article 1, Part 1 thereof, the Law regulates relations aimed at meeting public needs at the national and local levels, in order to improve efficiency and the effectiveness of the procurement of goods, work and services, to ensure openness and transparency of such procurement activities, and to prevent corruption and other types of abuse of power as part of such procurement activities. This Law will therefore be the principal legal act regulating relations in the procurement field, which will replace Federal Law No. 94-ФЗ dated 21/07/2005 regulating the placing of orders to deliver goods, perform works and render services to meet public needs at the national and local level (hereinafter, Law No. 94-ФЗ).

A single information system will be introduced in order to provide informational support for the contract system. The information system is intended to address a number of tasks as provided for in the Law. Also, the structure of the information system will be quite extensive and will cover a wide range of aspects, from the procurement plan to the information about pricing in commodity markets. Legal regulation with regard to practical aspects of the system's functioning will be carried out by the Russian Government.

It is worth noting that in contrast to the previous Law No. 94-ФЗ, the new Law introduces a wide list of concepts for the contract system in the procurement field, each of which is discussed in a separate article. These include concepts such as openness, transparency of information about the contract system in the procurement field, support of competition, professional competence of customers, encouragement of innovation, unified character of the contract system, responsibility for ensuring the effectiveness with regard to meeting public needs at the national and local level, and the effectiveness of the procurement.

The Law also details the requirements to public sector customers at both national and local level, such as procurement planning, justification and discussion in public. Thus, the legislators seek to implement a more extended regulation of the procurement of goods, work and services, purchased in order to meet public needs at the national and local level, by introducing additional requirements for customers.

The changes will also affect the procedure for the conclusion of contracts and the content thereof. In particular, a number of new requirements are introduced for parties to procurement contracts (Article 31 of the Law), including the requirement to provide information about the beneficiaries, if the initial contract price exceeds the amount established by the Russian Government (Article 34 of the Law).

The procedure for justifying the initial (maximum) contract price is also worth noting. Article 22 of the Law sets out a number of methods for justifying the contract price, such as the method of comparable market prices (market analysis), the normative method, the tariff method, the design estimate method, and the cost method. The method of comparable market prices is strongly recommended, while other methods can only be used in the cases expressly provided for by law.

The Law also details the procedure for enforcement of bids more clearly and determines that setting requirements for this procedure is the responsibility of the Customer. It will be possible to deposit monetary funds or provide a bank guarantee as a security for bids. Moreover, the Customer is also required to set requirements for enforcement of order execution.

The rule for the evaluation of bids represents a significant change. Under the new Law, the Customer will have to use at least two criteria when evaluating bids. In this respect, the list of criteria has been changed, however the price is still the mandatory one.

It should be noted that the Law introduces new procurement methods. Compared to the methods set out in Law No. 94-ФЗ, additional methods are introduced, such as a closed tender, a two-stage tender and a request for proposals.

According to Article 56, Part 2 of the Law, a closed tender is to be held in cases where only a limited number of qualifying suppliers can supply goods (perform work, render services), and also in cases where cultural heritage sites are involved or the restoration of listed museum pieces or museum collections (i.e. included in the Museum Stock of the Russian Federation) is needed. A closed tender differs from an open tender in that the Government can set additional requirements for bidders in the closed tender. To determine whether bidders qualify, the pre-qualification is held.

A two-stage tender is also to be held in cases specifically provided for by law (see Article 57 of the Law). This method has been introduced due to the fact that sometimes the Customer may want to define site specifications more precisely or specify additional evaluation criteria for bids at a later stage. The procedure for the tender is reflected in its name and includes two stages. In the first stage, bidders submit their bids, which may contain no price information, while in the second stage, after the Customer has provided more detailed requirements for the job or specified additional evaluation criteria, the same bidders submit their bids adjusted accordingly.

As for the request for proposals, this procurement method is in general very similar to the existing 'request for quotes' method, however, the procedure for determining successful bidders is different. The successful bidder in the tender held in the format of a request for quotes is determined based on the price, while in the tender held in the format of a request for proposals the successful bidder is the one which has submitted the final proposal that best meets the Customer's needs (Article 83 of the Law).

In addition, the legislators now prohibit to hold an open tender in any format other than the electronic format. From now on, the closed tender and the tender in the electronic format are the only allowed tender types.

It should also be noted that if the successful bidder eventually fails to sign the contract, then the Customer will no longer be able to apply to the court in order to force the bidder to sign the contract. The Customer's only option will be to sue the bidder for damages.

As for the period for filing a complaint with regard to irregularities revealed in the procurement process, it has been extended to 10 days.