Anticompetitive Agreements in Russian State Procurement: Legal Risks and Liability

 

April 7, 2025

BRACE Law Firm ©

 

Preventing collusion in state procurement is a critical task for the state, as it significantly increases budget expenditures and is often accompanied by corruption-related crimes.

According to data from the Federal Antimonopoly Service, in 2024, anticompetitive agreements covered 4,369 procurements with a total Initial Maximum Contract Price (IMCP) of 122.4 billion rubles. Based on the results of investigations in the past year, the regulatory authority issued 245 decisions regarding violations of antimonopoly legislation. Law enforcement also initiated 42 criminal cases. The leaders in the number of competition-restricting agreements are the construction and road complex sectors, pharmaceuticals, passenger transportation, and social catering.

In this article, we examine:

• what is meant by an "anticompetitive agreement" in state procurement;
• which actions of customers are qualified as the conclusion of an anticompetitive agreement;
• the specifics of proving the conclusion of anticompetitive agreements in state procurement;
• the liability of customers for concluding anticompetitive agreements.

Also, before examining the topic, we clarify that for the purposes of this article, we define "state customers" as both authorities and local self-government bodies, as well as other customers conducting procurements under Federal Law No. 44-FZ dated April 5, 2013, On the Contract System in the Sphere of Procurement of Goods, Works, and Services for Ensuring State and Municipal Needs (the "Contract System Law").

What is an Anticompetitive Agreement?

In accordance with Clause 18 of Article 4 of Federal Law No. 135-FZ dated July 26, 2006, On Protection of Competition (the "Law on Protection of Competition", "Law No. 135-FZ"), an agreement is an arrangement in written form contained in a document or several documents, as well as an arrangement in oral form. An agreement is anticompetitive if it aims to prevent, restrict, or eliminate competition.

Note that the law does not strictly require the agreement to be in written form. According to the FAS Russia Clarification No. 3, On Proving Inadmissible Agreements (Including Cartels) and Coordinated Actions on Commodity Markets, Including at Auctions (the "Clarification No. 3"), anticompetitive agreements are not subject to assessment in terms of their compliance with requirements established by civil legislation regarding the form of contracts. Consequently, failure to observe the form of a civil law contract cannot be viewed as evidence of the absence of an inadmissible agreement under antimonopoly legislation and is subject to proof by other means.

Types of Prohibitions on Concluding Anticompetitive Agreements

Article 16 of the Law on Protection of Competition establishes a prohibition on agreements between state authorities and other organizations performing the functions of said authorities, as well as between them and economic entities, if such agreements lead or may lead to the prevention, restriction, or elimination of competition, including the restriction of access to a commodity market, exit from a commodity market, or the removal of economic entities from it.

The prohibitions established by Article 16 of Law No. 135-FZ apply to:

• federal executive authorities;
• state authorities of the constituent entities of the Russian Federation;
• local self-government authorities;
• organizations performing the functions of the aforementioned authorities;
• organizations participating in the provision of state or municipal services;
• state extra-budgetary funds;
• the Central Bank of the Russian Federation (the "state authorities").

State authorities frequently violate the specified prohibition when organizing or conducting state procurements. Case No. A73-3220/2018 serves as an example. In this case, the Ministry of Health decided to conduct a joint procurement of disinfectants for the needs of subordinate institutions. One of the hospitals acted as the auction organizer. Two bids were submitted for participation in the auction. Following the auction, each customer concluded a contract for the supply of 42 types of disinfectants for a total amount of 5,488,890 rubles. The antimonopoly authority received materials from a pre-investigation check indicating signs of a violation of antimonopoly legislation in the actions of the Ministry of Health and the Company that won the auction. During the review of the materials, the Regional FAS established that a representative of the Company attended joint meetings held at the Ministry of Health, participated in the preparation of technical specifications with "blocking positions", and provided a list of organizations to be contacted with a request to form the price. The antimonopoly authority concluded that the Ministry of Health and the auction winner concluded an oral agreement that restricted the access of other economic entities to the commodity market. The Ministry appealed to the court with a request to recognize the decision and order of the antimonopoly authority as illegal. The court ruled that the actions of the Ministry of Health and the Company were lawfully qualified under Article 16 of the Law on Protection of Competition as the conclusion of an anticompetitive agreement. The claim was denied.

By virtue of the direct wording of the law and the position of the Supreme Court of the Russian Federation formulated in the Resolution of the Plenum No. 2 dated March 4, 2021, On Certain Issues Arising in Connection with the Application of Antimonopoly Legislation by Courts, the conclusion of anticompetitive agreements during state procurement by other customers, for example, state (municipal) institutions, is qualified under Article 17 of the Law on Protection of Competition.

Part 1 of Article 17 of the Law on Protection of Competition prohibits actions during competitive procedures that lead or may lead to the prevention, restriction, or elimination of competition, including:

• coordination by organizers of auctions, requests for quotations, requests for proposals, or customers of the activities of their participants, as well as the conclusion of agreements between auction organizers and (or) customers with participants of these auctions, if such agreements aim to or lead or may lead to the restriction of competition and (or) the creation of preferential conditions for any participants;
• creation for an auction participant or several auction participants of preferential conditions for participation in auctions, requests for quotations, or requests for proposals, including through access to information, unless otherwise established by federal law;
• violation of the procedure for determining the winner or winners of auctions, requests for quotations, or requests for proposals;
• participation of auction organizers, customers and (or) employees of organizers or employees of customers in auctions, requests for quotations, or requests for proposals.

The law also prohibits other restrictions on access to participation in auctions not provided for by legislation, including the inclusion in lots of goods, works, or services technologically and functionally unrelated to the purchased goods, works, or services (Parts 2–3 of Article 17 of the Law on Protection of Competition).

Below, we examine the primary violations committed by customers in more detail.

Which Actions of Customers Qualify as the Conclusion of an Anticompetitive Agreement?

Anticompetitive agreements in state procurement are implemented, as a rule, by providing advantages to specific procurement participants and artificially creating obstacles for other economic entities. Let us consider which actions of customers may be qualified in practice as the conclusion of an anticompetitive agreement.

1. Transfer of information to an economic entity that was absent among other market participants.

As an analysis of law enforcement practice shows, the customer often provides an economic entity with whom it intends to conclude a contract with information about its conditions before the procurement is announced, and coordinates contract performance terms (delivery times, payment procedure, etc.). Furthermore, the customer frequently shifts the obligation to draft the technical specifications to this person. Such actions of the customer provide the participant with significant advantages over other market participants: the participant can begin negotiations with counterparties regarding the sale of goods earlier than others, prepare bid security for the procurement, or exclude the possibility of others offering similar goods from another manufacturer due to "tailoring" the technical specifications.

At the same time, as researchers of this topic note, negotiations between the customer and market participants are not prohibited per se by law. Thus, according to Clause 4 of Article 38 of the Contract System Law, the contract service is granted the right to organize and participate in consultations with suppliers for the purpose of determining the state of the competitive environment in relevant markets and determining the IMCP. Thus, negotiations between the customer and market participants do not always indicate collusion between them.

Let us analyze an example from judicial practice. Thus, in Case No. A24-3874/2024, a Hospital posted a notice of an auction for the supply of medical gloves. The antimonopoly authority received information regarding the conclusion of an agreement between the Customer and an auction participant that restricted competition. During the review of the case, the Regional FAS established that an official of the Hospital and a representative of the participant conducted telephone negotiations aimed at providing information about the planned procurement and the preparation of the technical specifications, and information was provided regarding the progress of the procurement and the number of bids submitted. Additionally, price quotes from affiliated persons were transferred to the customer. The antimonopoly authority ruled that the Hospital and the Company concluded an anticompetitive agreement aimed at ensuring the Company's victory. The Hospital challenged the decision of the antimonopoly authority in court, citing the fact that the Contract System Law does not prohibit interaction with a supplier. The court indicated that consultations with auction participants are permissible at the procurement planning stage and only for the purpose of determining the state of the competitive environment. The development of auction documentation by potential procurement participants does not fall under such purposes. The Hospital's claims were denied.

2. Violations during lot formation.

In cases of artificial lot bundling, including technologically unrelated goods, works, and services in a single procurement, and where the customer intends to restrict access to the procurement for other subjects, their actions may be recognized as the conclusion of an anticompetitive agreement.

Thus, in Case No. A45-2960/2020, an individual entrepreneur was recognized as the winner of an auction for building maintenance services as the sole participant. As established by the antimonopoly authority, the technical specifications included cleaning premises and adjacent territory, snow removal and disposal, technical maintenance of elevators, and maintenance of utility networks. The Regional FAS concluded that bundling diverse services into a single lot, as well as the conduct of negotiations between a customer employee and the individual entrepreneur, indicate an anticompetitive agreement between the specified subjects. The attempt to challenge the antimonopoly authority's decision in court failed.

3. Execution of work before the conduct of the competitive procedure.

In practice, cases occur where the customer agrees in advance with an economic entity regarding the performance of work or provision of services, and the procurement announcement and contract conclusion take place after their actual performance.

Thus, in Case No. A38-8914/2019, the Chamber of Accounts established during an audit of an Institution that the volumes of asphalt concrete specified in waybills issued prior to the conclusion of state contracts matched the volumes reflected in the work acceptance certificates signed by the customer and contractor upon the performance of contracts concluded based on auction results. According to the Contractor's explanations, the work on the objects for which the contracts were concluded had been performed before their conclusion based on the customer’s oral instructions. The court concluded that an oral arrangement existed between the Institution and the Contractor, which allowed the latter to perform work under more favorable market and weather conditions before the state contract was concluded, while other potential electronic auction participants were effectively deprived of such an opportunity. The court recognized such an agreement as anticompetitive.

The provided list of customer actions carrying risks of being recognized as an anticompetitive agreement is not exhaustive. Actions such as the artificial splitting of an order to avoid competitive procedures, concluding a contract in the presence of a conflict of interest, and others may be recognized as an anticompetitive agreement. However, not every interaction between the customer and a potential supplier indicates collusion. Below, we examine the specifics of proving the fact of an anticompetitive agreement.

Proving the Fact of an Anticompetitive Agreement

To establish the fact of an anticompetitive agreement, the antimonopoly authority must prove a combination of circumstances:

• the fact that an agreement was reached;
• the occurrence or potential occurrence of negative consequences in the form of prevention, restriction, or elimination of competition;
• the existence of a causal link between the conclusion of the anticompetitive agreement and the negative consequences.

A specific feature of anticompetitive agreements in state procurement is that they are extremely rarely recorded on paper. As FAS Russia points out in the Clarification No. 3, both direct evidence and a collection of indirect evidence may be used when proving anticompetitive agreements.

The following are recognized as evidence by antimonopoly and judicial authorities:

• recordings of telephone negotiations between a procurement participant and a state customer obtained by law enforcement agencies during operational-investigative activities;
• joint meetings of customer officials and representatives of auction participants and the minutes compiled based on their results;
• email correspondence between the customer and auction participants;
• logs for registering incoming and outgoing documents;
• texts of procurement documentation (both the content, indicating "tailoring" the description of the procurement object to the products of a specific supplier, and the technical part, indicating creation by a participant’s employee);
• the use by auction participants of the same IP address (account) when submitting bids and participating in electronic auctions, and the preparation of documents for participation in auctions for different economic entities by the same person.

Let us illustrate with an example from judicial practice. Thus, in Case No. A21-12948/2022, the antimonopoly authority conducted an audit of an Institution, which established that an anticompetitive agreement had been concluded with a Company during an electronic auction for construction work on the "Regional Oncology Center" object. According to FAS Russia, the conclusion of such an agreement was confirmed by the following circumstances:

• short deadlines for work performance (the timeframe in the procurement notice was 12 months, whereas according to the design documentation, the average duration for such work is 23 months);
• messenger correspondence between customer officials and the Company's deputy general director, discussing the possibility of a second bid being submitted by an affiliated company;
• matching properties of bid files and identical PDF attachments of two auction participants.

The antimonopoly authority recognized the actions of the Institution and the Company as a violation of Article 17 of the Law on Protection of Competition, issued an order to eliminate the violations, and held the participants administratively liable. The decision and order were upheld in court.

Fundamental evidence of restricted competition is an analysis of the state of competition in the market, which is conducted by antimonopoly authorities in accordance with the procedure established by FAS Russia Order No. 220 dated April 28, 2010. The results of the conducted analysis also serve as evidence in the case. More details on this type of evidence can be found in our special article on this topic.

Methods for obtaining evidence may also vary. One method for obtaining evidence is the conduct of audits by the antimonopoly authority for the purpose of monitoring compliance with antimonopoly legislation. Materials from law enforcement audits, materials obtained during operational-investigative activities, and documents obtained from individuals and legal entities are also accepted as evidence.

Liability for Concluding an Anticompetitive Agreement

The most common type of liability for concluding an anticompetitive agreement is administrative liability.

Liability for the conclusion of an anticompetitive agreement by a state authority is provided for by Part 7 of Article 14.32 of the CAO RF and entails an administrative fine on officials ranging from 20,000 to 50,000 rubles or disqualification for a term of up to 3 years.

Thus, in Case No. A41-47135/2018, a Committee chairman was held administratively liable under Part 7 of Article 14.32 of the CAO RF for concluding an anticompetitive agreement that restricted competition in the advertising structure placement market, and a penalty of a 1-year disqualification was imposed. The official appealed the decision, requesting that the disqualification be replaced by a fine. The courts concluded that the penalty was proportionate to the committed act.

Other customers are held administratively liable for concluding an anticompetitive agreement at auctions under Part 2 of Article 14.32 of the CAO RF. The fine for officials ranges from 20,000 to 50,000 rubles or disqualification for a term of up to 3 years; for legal entities, it ranges from 1/10 to 1/2 of the initial value of the auction item, but not less than 1/25 of the total revenue and not less than 100,000 rubles.

When imposing a penalty under the specified norms, several specifics are considered:

1. A person who voluntarily reports the conclusion of an inadmissible agreement to the antimonopoly authority is released from administrative liability if the following conditions are met collectively:

• at the time of the person's application, the antimonopoly authority did not possess relevant information and documents regarding the committed administrative offense;
• the person refused to participate or further participate in the agreement;
• the submitted information and documents are sufficient to establish the event of the administrative offense.

The first person to fulfill all conditions is eligible for release from administrative liability. Legal entities that are the second and third to fulfill these conditions are assigned a minimum fine.

2. When imposing a penalty, additional mitigating and aggravating circumstances, beyond those established by the general part of the CAO RF, are considered.

Aggravating circumstances include:

• organization of the anticompetitive agreement by the person who committed the administrative offense;
• coercing other persons to commit the administrative offense or to continue participating in the agreement;
• use of software for the purpose of executing the agreement that allows for decision-making in an automated mode (without human participation).

Article 14.32 of the CAO RF classifies the following as mitigating circumstances:

• the person who committed the administrative offense is not an organizer of the agreement or received mandatory instructions to participate in it;
• the person who committed the administrative offense did not proceed to execute the competition-restricting agreement they concluded.

3. When determining the amount of a fine calculated from the initial value of an auction item where the performance period exceeds 1 year, the amount is determined proportionally to the value of the auction item for one year.

Thus, in Case No. A56-61247/2023, the antimonopoly authority established that city medical institutions interacted with an Individual Entrepreneur providing cleaning services prior to the publication of relevant procurement notices in the EIS; the potential supplier participated in preparing the auction documentation and checked participant bids. The identical nature of the auction documentation for the medical institutions was also revealed. The Regional FAS recognized the actions of the medical institutions and the Individual Entrepreneur as a violation of Article 17 of the Law on Protection of Competition, consisting of the conclusion of an anticompetitive agreement. The participants were held administratively liable under Part 2 of Article 14.32 of the CAO RF. One of the medical institutions disagreed with the fine of 4,517,917 rubles and appealed to the arbitration court. As an argument, it stated that subsidies received by the Institution from the federal budget should not be considered when calculating the fine. The court found the calculation of the fine from the Institution's total income to be correct and found no grounds for its reduction.

For collusion at auctions, a customer official may be held criminally liable. The Criminal Code of the Russian Federation does not contain a separate norm for the conclusion of an anticompetitive agreement by customer officials. Criminal cases are initiated, as a rule, based on signs of corruption-related crimes:

• Article 285 of the Criminal Code of the Russian Federation, Abuse of Official Powers;
• Article 290 of the Criminal Code of the Russian Federation, Taking a Bribe;
• Article 292 of the Criminal Code of the Russian Federation, Service Forgery.

This is illustrated by Case No. 88-76/2021. In this case, a city mayor entered into a criminal conspiracy with another person to ensure an auction victory for an Enterprise subordinate to him. As established during the investigation, the Mayor instructed subordinate administration employees to bundle lots when placing orders in the sphere of road construction, exclude advance payments from contract terms, and require auction participants to provide guarantees for contract performance in the amount of 30% of the IMCP. As a result of these actions, contracts worth more than 3.2 billion rubles were concluded between the City Administration and the Enterprise; to perform these contracts, the necessary construction materials were purchased exclusively from companies controlled by the person who conspired with the Mayor. For committing these actions, the Mayor received funds and other property totaling over 75 million rubles. By court verdict, the Mayor was convicted under Part 6 of Article 290 of the Criminal Code of the Russian Federation, Taking a Bribe on an Especially Large Scale, and sentenced to 10 years of imprisonment, a fine in the amount of ten times the bribe, and deprivation of the right to hold positions in state authorities for 9 years.

In another case, No. 1-5/2020, a city administration official was convicted under Part 2 of Article 292 of the Criminal Code of the Russian Federation, Service Forgery, for entering knowingly false information into an auction protocol regarding the auction winner, with whom he had an arrangement to provide advantages. A sentence of 2 years of imprisonment was imposed, along with an additional penalty of deprivation of the right to hold positions in state authorities for a term of 3 years. Subsequently, the Supreme Court of the Russian Federation excluded the application of the additional penalty to the convicted person.

In addition to administrative and criminal liability, civil liability may arise for violators, primarily in the form of compensation for damages caused. Frequently, such a claim is made within criminal proceedings, but a separate lawsuit may also be filed in a civil process.

Thus, in Case No. 33-29/2023, it was established that a Head of the Healthcare Department, aiming to avoid liability for the untimely use of federal budget funds allocated for the purchase of medical equipment, concluded an anticompetitive agreement with a Company manager to ensure the latter an advantage in auctions. The conclusion of such an agreement was confirmed by the following:

• preparation by the Company of technical specifications for medical equipment that restricted access to the auctions for other participants;
• significant inflation of the IMCP;
• fictitious appearance of competitive struggle.

By court verdict, the Department Head was found guilty of committing a crime under Article 285 of the Criminal Code of the Russian Federation, Abuse of Official Powers. The verdict also satisfied a civil claim by the Healthcare Department against the Company and the Department Head for the joint recovery of property damage in the amount of 24,023,109 rubles. The disputed funds were unlawfully transferred to the Company in performance of state contracts conducted with restricted competition and the purchase of equipment at an inflated price.

In summary, we draw the following conclusions:

• an anticompetitive agreement may be concluded in both written and oral form;
• an anticompetitive agreement may be expressed in various actions by customers; however, the fact of a violation of the requirements of the Contract System Law does not always signify collusion;
• proving the conclusion of an anticompetitive agreement is often performed based on indirect evidence;
• administrative, civil, and criminal liability may arise for concluding an anticompetitive agreement.

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References

[1] FAS Russia website: https://fas.gov.ru/news/33767.

[2] Clarification of FAS Russia No. 3 On Proving Inadmissible Agreements (Including Cartels) and Coordinated Actions on Commodity Markets, Including at Auctions, approved by the Protocol of the FAS Russia Presidium dated February 17, 2016 No. 3.

[3] Ruling of the Supreme Court of the Russian Federation dated June 6, 2019 No. 303-ES19-8363 in Case No. A73-3220/2018.

[4] Shadrin A.D. Interaction Between a Procurement Participant and a State Customer: Boundaries of Permissible Behavior During Negotiations // Journal of Entrepreneurial and Corporate Law, 2022, No. 4.

[5] Resolution of the Fifth Arbitration Court of Appeals dated March 6, 2025 No. 05AP-396/2025 in Case No. A24-3874/2024.

[6] Resolution of the Arbitration Court of the West Siberian District dated March 10, 2021 No. F04-770/2021 in Case No. A45-2960/2020.

[7] Resolution of the Arbitration Court of the Volga-Vyatka District dated October 8, 2020 No. F01-13176/2020 in Case No. A38-8914/2019.

[8] Ruling of the Supreme Court of the Russian Federation dated March 23, 2023 No. 309-ES23-3554 in Case No. A76-42954/2021.

[9] Resolution of the Eleventh Arbitration Court of Appeals dated August 8, 2018 No. 11AP-8124/2018 in Case No. A55-10042/2017.

[10] Resolution of the Arbitration Court of the Moscow District dated February 1, 2017 No. F05-21607/2016 in Case No. A40-39696/16-121-348, A40-39339/16-92-338, A40-39694/16-120-234, A40-49210/16-122-418.

[11] Ruling of the Supreme Court of the Russian Federation dated May 17, 2024 No. 307-ES24-3759 in Case No. A21-12948/2022, FAS Russia Decision dated April 17, 2020 in Case No. 22/01/11-100/2019.

[12] BRACE Law Firm website: https://brace-lf.com/informaciya/konkurentnoe/dokazatelstva-v-antimonopolnykh-delakh.

[13] Ruling of the Supreme Court of the Russian Federation dated February 18, 2020 No. 305-ES19-28028 in Case No. A41-47135/2018.

[14] Ruling of the Supreme Court of the Russian Federation dated December 5, 2024 No. 307-ES24-17354, transfer of Case No. A56-61247/2023 was denied.

[15] Ruling of the Ninth Court of Cassation of General Jurisdiction dated March 9, 2021 No. 88-76/2021.

[16] Cassation Ruling of the Judicial Chamber for Criminal Cases of the Supreme Court of the Russian Federation dated January 25, 2022 No. 4-UD21-54-K1.

[17] Ruling of the Ninth Court of Cassation of General Jurisdiction dated June 13, 2023 No. 88-4710/2023.