How The System Of Public & Private Procurement Is Organized In Russia?

State Procurements 

State procurements in Russia are regulated by Federal Law of the Russian Federation No. 44-FZ (State Procurements under 44-FZ). The key feature of procurements under 44-FZ is that they can be organized by state corporations, government bodies, management bodies of extrabudgetary funds, public-law companies, and state budgetary institutions. The customer publishes information about the procurement in the Unified Information System (UIS) and duplicates it on the Electronic Trading Platform (ETP). Interested suppliers submit applications to participate in the tender on the ETP.

To participate in the procurement procedure, a supplier needs to:

1. Obtain an electronic signature
2. Register in the Unified Information System (UIS)
3. Open a special account in the bank
4. Choose procedures to participate in

Advantages of procurements under 44-FZ:

• Detailed regulation of all stages of the procurement procedure.

44-FZ regulates all stages of procurement, up to the conclusion of the contract and payment for the work performed. Procurements are always conducted openly, with the same requirements for all participants. The supplier can be sure that in case of victory, a contract will be signed with them. Control by the Federal Antimonopoly Service of the Russian Federation and the Federal Treasury excludes fraud.

• Procurements are only posted on one of the nine ETPs.

Customers are required to post procurements only on federal electronic platforms — currently there are 9 of them, one of which is a closed platform for defense procurements. Suppliers do not need to monitor dozens of portals to find a suitable procurement, and thanks to the electronic format, they can participate in tenders when and where it is convenient.

• Unified Supplier Requirements List.

The list of supplier requirements remains unchanged from procurement to procurement. After participating in several procedures, preparing for the next ones will be faster and easier.

Disadvantages of procurements under 44-FZ:

• Many complex and mandatory document requirements.

Careful preparation of documentation is necessary: collecting declarations of conformity, extracts from license registers, product passports or licenses, and certificates allowing the participant to perform work and provide services. In some cases, a decision on consent to a major transaction is required. Documents are needed to confirm that the participant and their proposal meet the procurement conditions. Documentation must be prepared on time, comply with customer and legislative requirements, and contain references to current laws and state standards. A newcomer may make mistakes or fail to meet deadlines.

• It is difficult to confirm the compliance of goods, work, or services with customer requirements.

In government tenders, the supplier must confirm that the procurement item meets the customer’s requirements. If the customer’s requirements are formulated non-standardly, it will be difficult to confirm compliance. For example, the customer specified that when performing work, gravel with a certain percentage of clay lumps in the composition and other small rocks should be used. Such characteristics cannot be verified without special expertise. And if the material supplier does not have it in stock now, they will not be able to confirm its quality when submitting an application.

• The customer often chooses the cheapest offer rather than the most qualitative one.

Government procurements are aimed at budget savings, so customers often choose the offer with the lowest price, without considering the price-quality ratio.

• Stringent contract performance requirements.

It is impossible to negotiate and change conditions. If the price of a product has increased, it is impossible to change the price or reduce the volume in the contract. Also, the product cannot be replaced with a “similar” one. For example, a supplier cannot replace three-layer medical masks with two-layer ones. Sometimes the customer may agree to replace the product if its quality improves, but not vice versa.

There is some relaxation in terms of contract performance. If the customer does not mind, the deadlines for individual stages can be shifted, but the overall contract execution period should not change.

• The supplier must also comply with financial requirements:

– have financial support, for example, a bank guarantee – money that the customer will receive if the supplier does not fulfill their obligations;

– mandatory insurance may be required in some industries. For example, insurance of construction and installation risks if the supplier is a developer.

If the requirements of 44-FZ are violated during the tender process, the customer may be fined, and the supplier may be included in the registry of unreliable suppliers. This means that they will not be able to participate in procurements under 44-FZ for two years. It is very difficult to be removed from the registry.

Procurements by Certain Legal Entities

Procurements by separate legal entities are purchases organized by state-owned companies, natural monopolies, state, municipal, and other enterprises with the state’s share of ownership exceeding 50%. Such procurements are regulated by Federal Law of the Russian Federation No. 223-FZ and are abbreviated as procurements under 223-FZ.

Compared to 44-FZ, the procedure for conducting the procurement here is more flexible. This is both a plus and a minus. By law, the customer must prepare regulations and a procurement plan. Therefore, the complexity of participation depends on the requirements of the procurement organizer.

Advantages of procurements under 223-FZ:

• The customer does not always require financial security.

This requirement is at the discretion of the customer. Since some companies do not request security, the supplier may not withdraw funds from circulation. If the initial (maximum) contract price is less than 5 million rubles, the customer should not require bid security.

• The law does not limit the procurement method.

Procurement initiators can conduct any procedure: competition, auction, request for quotations or proposals. Procuring from a single supplier is allowed if fixed in the regulations. In procurements under 44-FZ, there is no such freedom: customers have access to competitions, auctions, and requests for quotations. The law strictly regulates the deadlines for procedures and the conditions for selecting the winner. 44-FZ also limits cases of procurement from a single supplier. The volume of such purchases per year in an organization cannot exceed 10% of all planned purchases.

Disadvantages of procurements under 223-FZ:

• Procurements can be posted on any electronic trading platform.

The nuance is that there are many platforms, and accreditation is required to participate specifically where the tender is posted.

• There is no single regulation for conducting procurement.

Each time, it is necessary to adjust to the customer’s regulations. For example, one company may require bid security, the presence of employees without convictions with a certain length of service and supporting documents, declare short deadlines for submitting documentation and responses to requests. Another may be interested only in the profitable amount of the contract, not require security, and declare minimal qualification requirements that are easy to confirm.

• In addition to standard requirements, the customer may declare specific ones.

For example, the customer is hedging and asks to confirm the legal presence of equipment with hydraulic traction for contract performance. However, the participant is not obliged to have the equipment at the application stage; they can purchase or lease it after the results are announced. Another customer considers only those participants who have experience in construction works on railway objects. The contractor may have successful experience in construction at airports. They also belong to especially hazardous and technically complex objects. This means that such experience can confirm the contractor’s qualification. But due to overly narrow requirements, they cannot apply to participate.

Such an approach by the customer reduces competition in the procedure and simplifies the organizer’s task – it is easier for them to choose from a small number of participants. Nevertheless, the customer in the position must also justify the reason for the declared requirements; otherwise, they may be appealed by the Federal Antimonopoly Service.

• The customer may refuse to conclude a contract.

By law, the organizing company has the right to refuse to sign a contract at any time, up to the moment of concluding the contract. For example, the need for procurement disappeared during the process. In this case, the procurement winner wasted their time participating in the tender and preparing documentation in vain. The customer must specify in the regulations in which cases they may not conclude a contract. However, these conditions should not contradict the existing legislation.

Commercial Procurements by Private Companies

Commercial procurements are conducted by private companies to solve business tasks. Customers can organize commercial tenders on any platforms and according to their own rules, as long as they do not contradict the Civil Code of the Russian Federation and Federal Law of the Russian Federation No. 135-FZ “On Protection of Competition”. Customers can post tenders on the company’s own website or on electronic trading platforms. Some companies inform about tenders through email newsletters.

Advantages of commercial procurements:

• Easy start

Starting to participate in electronic commercial procurements is easy: you need to obtain an electronic signature and register on the required platform. If the commercial procurement is conducted in paper form, you can do without an electronic signature. However, it may be useful for signing an electronic contract in case of winning and will definitely be needed for registration on the electronic trading platform or for withdrawing funds from the personal account of the trading platform.

• Low competition

If a company does not publicize the tender, the competition in procurement will be low, making it easier to win.

• More chances to receive prepayment

Businesses are interested in quickly finding a suitable performer, receiving goods or services, and settling payment. Therefore, commercial procurements often involve contracts with short payment terms and prepayment. And the requirement for financial security is rare.

• There can be multiple winners in procurement

The customer can choose several winners and work with them simultaneously. For example, the customer selects an agency for developing a marketing concept. One supplier may take on internet promotion, while another may work on developing strategies for outdoor and TV advertising.

• The offer can be adjusted until the end of the application acceptance stage

The supplier can communicate directly with the customer and include important nuances in the commercial proposal. In government procurements, this would be a violation of the regulations.

• Opportunity to find a stable partner and establish relationships for the future

Most business customers are looking for a reliable supplier of goods and services. If expectations are met, the supplier can count on contract extension and long-term cooperation. Such a situation is impossible in government procurement.

• In commercial tenders, not only the price matters

Customers also pay attention to a comfortable payment scheme, qualifications of specialists, industry results, and exclusivity of conditions. In private procurements, the “price-quality” ratio works. This is a good chance for a supplier to secure a profitable contract not only due to a low price but also because of other advantages. For example, Supplier A offers the lowest price for equipment but does not work on post-payment terms, has delivery times of two weeks, and has only worked with small contracts before. Supplier B quoted a higher price but is ready to deliver the same goods within a week, additionally provides services for setup and technical maintenance, works on post-payment terms, and has a good reputation and major contracts in their field. The customer may sacrifice price in favor of other supplier advantages.

Disadvantages of Commercial Procurements:

• Lack of Regulation and Standardized Rules:

Each new procurement requires an individual approach. While one customer might find an interesting commercial proposal sufficient, another may request complete accounting reports. There are no common rules.

• No Unified System for Publishing All Commercial Procurements:

If a company does not post its procurements on electronic platforms, finding them can be challenging. You’ll have to monitor customer websites, subscribe to newsletters, and sometimes even call companies to understand if your proposal is relevant to them. If a company posts a tender on an electronic trading platform (ETP), it significantly simplifies the search.

• Finding private company procurements can be done using aggregators:

These are websites that collect procurements from most ETPs in Russia. Suppliers can search for interesting procedures using keywords, publication dates, or the organizing company. The main drawback is that you need to pay for using the aggregator.

Conclusion

Government procurements are regulated by Federal Law No. 44-FZ and are strictly regulated. They can be easily found on one of the nine federal ETPs. Among the disadvantages are the ease of making mistakes in documentation preparation, mandatory financial security, and strict contract performance requirements. Government customers are focused on maximum savings, so the main criterion when choosing a supplier is often the price.

Procurements by separate legal entities are regulated by Federal Law No. 223-FZ and have several advantages: freedom in choosing the procurement method, the possibility of purchasing from a single supplier, and larger contract sums compared to 44-FZ. However, there are also disadvantages: procurements are published on multiple platforms, and it is inconvenient to track them constantly. Requirements differ for each procurement, and the organizer has the right to refuse to enter into a contract with the winner.

The most attractive are procurements by private companies, which are conducted in accordance with the Civil Code of the Russian Federation and Federal Law No. 135-FZ “On Protection of Competition”. It is easier to win in such procurements. However, the absence of established rules for conducting such procurements requires careful attention to documents. It is important to study the customer’s requirements and establish a reasonable cost to ensure that your proposal meets their expectations.

If you want to get acquainted with the features of participation of foreign companies, read our article. If you have any questions about the possibilities of participating in procurement, call us, we will ensure your participation.