Government will support business in fight against dishonest state customers

New legislative initiatives are focused on reduction of corruption level, improving transparency and competitiveness of state procurements procedure and state companies’ procurement.

Systematic payment violations, lack of competitiveness, unreliable information disclosed by the customers – all this makes the state procurement and state companies’ procurement market, which total volume at the moment amounts to 29 trillion RUB, unattractive for small and medium business requiring badly at the moment additional support.

The latest for the moment amendments to laws, regulating state procurement issues (44-FL) and state companies’ procurement at their own expense (223-FL), were adopted by the State Duma in the first reading in February and September 2015, however they haven’t been enacted through the second reading up to the present day. Why is this legislative initiative much-needed and who prevents its realization?

Which problems are to be solved? One of the key problems, reducing the interest of the small business to the market is lack of competitive struggle. The monitoring of the state companies’ procurements at their own expense for the first half of 2016 shows that 96% of such procurements were made on non-competitive basis (51% - single supplier procurements, 45% - other ways, which can be assimilated to single supplier procurements). The same situation is with the 44-FL: share of single supplier state procurements in 2015 amounted to 40%. In the meantime the authorities get an unreliable data concerning participation of the small business in procurements of the state and major companies. In many cases the fly-by-night and associated companies act as small enterprises. Another important problem is payment discipline of the state customers and state companies. Among major problems is non-transparency of tendering procedures, unreliability of information disclosed by the customers and exceeding the budget constraints when concluding contracts.

State procurements in figures:

• State procurements volume in the first half of 2016 (44-FL): 6 trillion RUB
• Volume of state companies’ procurements in the first half of 2016 (223-FL): 23 trillion RUB
• Debts of state customers on payment under the state contracts by the end of the first half of 2016: 32,4 billion RUB
• Average state contract price in 2015: 1,6 million RUB
• Average overpayment for goods and services, purchased through state procurements: 16%.

What is proposed by the Government? One of main innovations is related to reduction of maturity dates on state orders with contractors to 30 days. At the moment the 30-day-long term of payment is set only for small business entities. It gives an opportunity for customers to delay the settlements with suppliers sometimes for a term up to 300 days. Amendments to legislation provide 30-day-long term for all the types of procurements. At the same time, it is proposed to reduce the time limit for payment under the contract with the small business to 10 days and upgrade the punishment for untimely payment. Now the authorities will face a fine or disqualification for violation of the set terms. Concerning the state companies’ procurement law, one of the most serious innovations is limitation of customers in choosing the procurement method. It is planned to leave to the state companies only those methods which the state has: tender, auction, request for quotation, request for proposals and single supplier procurement for procurements up to 200 million RUB. Currently about 50% of their orders account for by methods, that won’t be available for the state companies after adoption of amendments. According to the Ministry of Economic Development and Trade and Federal Antimonopoly Service, these methods can be assimilated with non-competitive ones and considered as a mask for single supplier procurement. Another important innovation is electronic format of all the types of state orders since July 1st, 2017, which should mitigate corruption risks. Furthermore, the adoption of the bill will bar the way for the citizens that have unquashed or outstanding economic crime conviction, illegal business activities, active and passive bribery, intermediation in bribery, as well as for those who faced administrative liability under article “Illegal gratification on behalf of legal entity”. Finally, it is planned to reduce unreasonable overpayment under state orders, as a result of which the budget loses more than 1,5 trillion RUB per year.

Who is against? Interdepartmental disagreements and lobbying efforts of state customers, being not satisfied with limitation of their independence in choosing suppliers, became the main obstacles on the path of amendments adoption. State companies in their turn protest against their limitation in choosing the procurement method and insist on saving more freedom of choice after legislative amendments, than the state has.

The main goal of the legislative initiatives under discussion is protection of rights and interests of the business, in the first place of small and medium ones. Strengthening of the customers’ financial discipline, reduction of contract provider risks, improving of competitiveness and transparency of procedures, minimization of cost to the supplier – all this has to attract the business. However the necessary things for the entrepreneurs are not the Government initiatives, but the working laws able to provide the effective market performance. Therefore the adoption of the amendments to procurement and state companies’ procurement laws is an important condition of country’s economic growth.