Deterioration in business conditions in manufacturing has continued in March

In March manufacturing industries of Russia has continued the reduction, that is confirmed by results of the investigation of Purchasing Managers' Index (PMI), prepared by the company «Markit» for HSBC. According to the investigation, general deterioration in business conditions takes place against the context of maximum drop in production and new orders for almost five years. Rise in inflation has led to the fact that the growth rates of purchase prices have reached a three-year maximum.

The main indicator of the investigation is the seasonally adjusted PMI index of manufacturing industries. The index monitors the overall state of the market and consists of five components: new orders, production output, employment status, delivery period and stock of materials. Any PMI index being above 50 points indicates an increase, index being below 50 points - a business decline.

Following the results of March PMI index has not passed the critical threshold of 50 points, indicated a worsening business conditions in manufacturing industries. Note that a similar situation is observed for five months. The main indicator of March has reached 48,3 points, slightly dropped from February’s 48,5 points. The average score of the Index for the first quarter 2014 has made 48,3 and it has been minimal since second quarter of 2009.

Deterioration has resulted in all key indicators of business activity. Note that the growth rates of export demand have showed the maximum reduction since 2009, that indicates a probable continuation of the reduction in production in the coming months.

The growth in new orders and production volumes has been observed only in the group of producers of consumer goods. At the same time, this group has sharply increased its reserves, that is a negative signal for the future business activity.

Particular attention should be paid to PMI price indexes. So, the index of purchase prices has risen almost by 10 points to its maximum level over the last three years. The index of output prices has come closely to its three-year maximum, but its growth had been less rapid. At the same time, the inflation in selling prices has been the highest in the group of producers of consumer goods. It may testify to the effect of transfer of devaluation of ruble and deterioration of inflation expectations amid fears of further weakening of the Russian currency in the future. Retail prices have not reached the peak of producer prices yet, therefore the effect of transfer is not exhausted yet.

Experts note that the increase in prices and reduction in business activity are a dangerous combination for financial markets and requires deliberate monetary policy.

What to do, if the supplier doesn’t meet its obligations under a contract?

Sometimes there is a situation, when for some reason the supplier, which concluded the contract, violates its terms, motivating it by increase of the prices on materials, which are necessary for his work. The current legislation will help to understand such collisions.

Thus, the 19 part of 34 article of the Federal Law № 44 – FZ "On the contract system in state and municipal procurement of goods, works and services" as of 05.04.2013 includes the right of the supplier to accept the decision of the customer about the unilateral refusal to perform the contract, if such right of the customer was provided in the contract.

In most cases the ability of unilateral contract refuse by the supplier or contractor is caused by the existence of agreement violation by the customer.

On the other hand, it should be taken into account, that according to the 2 part of 34 article of the Law № 44 – FZ, as a general rule, the price of the contract is fixed and is determined for a whole period of its execution. Thereby your contractor does not have the right to make a decision about unilateral refusal to perform the contract because of increased prices on materials, which are necessary for work. In such case the supplier can only ask the customer to cancel a contract by agreement between the parties.

Besides, if meeting the criteria, which are provided by the 2 paragraph of 451 article of The Civil Code of the Russian Federation, the contract can be canceled by court decision in connection with a substantial change of circumstances, in case of numerous violation of delivery terms and also if the contractor doesn’t start the performance of the contract in due time or does the job so slowly that to finish it by the deadline becomes clearly impossible. In such instance the customer has the right to cancel a contact.

In case of contract rescission by court decision or unilateral refusal to perform the contract due to essential violation of contract terms by the contractor, the necessary information should be directed by the customer to The Federal Antimonopoly Service of the Russian Federation to include it in the register of unfair suppliers.