BRACE Law Firm presents its latest Procurement Legal Regulatory Digest for January 2019, tracking key statutory amendments and enforcement trends.

A substantial number of amendments to public and corporate procurement legislation entered into force in January 2019. Concurrently, the beginning of the year typically exhibits relatively subdued regulatory activity by state authorities, with a primary focus on outlining the legislative agendas of lawmakers and the Government of the Russian Federation for the current and subsequent years. For instance, the Government aims to increase the share of corporate procurements conducted by state-owned enterprises (SOEs) restricted exclusively to small and medium-sized enterprises (SMEs) to 18% by 2020, while also developing mechanisms to nurture SME suppliers.

 A key initiative of the Ministry of Economic Development of the Russian Federation proposes empowering the Government of the Russian Federation to establish criteria for classifying goods, works, and services as innovative and/or high-tech products. This proposal also encompasses provisions governing the procedures and rules for implementing and adopting goods, works, and services that meet these innovation and high-tech criteria.

The Ministry of Finance of the Russian Federation proposes easing the requirement for banks to maintain cooperation agreements with every electronic trading platform operator, stipulating that this rule shall apply to a bank 60 days following its inclusion in the approved register. Furthermore, during the past month, the Ministry of Finance issued clarifications regarding its Order No. 126n dated June 4, 2018, "On the Conditions for Admission of Goods Originating from a Foreign State or a Group of Foreign States for the Purposes of Procuring Goods to Meet State and Municipal Needs."

Paragraph 12 of the Rules for Evaluating Bids and Final Proposals of Procurement Participants for Goods, Works, and Services to Meet State and Municipal Needs has been repealed. This provision previously authorized contracting authorities to bypass certain price and non-price evaluation criteria when conducting requests for proposals.

Legislative amendments also introduce a new category of compliance audits conducted by the Central Bank of the Russian Federation to oversee the procurement activities of credit institutions. Naturally, these specialized audits will apply exclusively to banking and other credit organizations.

The Federal Antimonopoly Service (FAS) of Russia clarified the statutory timeframes for reviewing complaints filed during procurements under Federal Law No. 223-FZ dated July 18, 2011, "On the Procurement of Goods, Works, and Services by Certain Types of Legal Entities," specifically addressing instances where such complaints are rerouted.

1. Statutes, Regulations, and Legal Updates

1.1. The Government of the Russian Federation approved the Business Climate Transformation Plan, introducing target procurement reforms.

Directive of the Government of the Russian Federation No. 20-r dated January 17, 2019, "On Approving the 'Business Climate Transformation' Plan and Repealing Certain Acts of the Government of the Russian Federation"

By 2020, the government plans to increase the share of procurements conducted by state-owned enterprises restricted exclusively to small and medium-sized enterprises to 18%.

The plan proposes developing mechanisms to nurture SME suppliers to facilitate their potential participation in procurements specified in Paragraph 2 of Government Decree No. 1352 dated December 11, 2014, "On the Specifics of Small and Medium Enterprise Participation in the Procurement of Goods, Works, and Services by Certain Types of Legal Entities."

1.2. The Ministry of Finance Clarified the Conditions for Admission of Foreign Goods in Public Procurement.

Information Letter of the Ministry of Finance of the Russian Federation No. 24-01-07/2281 dated January 18, 2019, "On the Application of Certain Provisions of Ministry of Finance Order No. 126n dated June 4, 2018 'On the Conditions for Admission of Goods Originating from a Foreign State or a Group of Foreign States for the Purposes of Procuring Goods to Meet State and Municipal Needs'"

The Ministry clarified that a contracting authority's inclusion of both listed and non-listed goods within a single procurement lot under the Annex to Ministry of Finance Order No. 126n dated June 4, 2018, "On the Conditions for Admission of Goods Originating from a Foreign State or a Group of Foreign States for the Purposes of Procuring Goods to Meet State and Municipal Needs" (hereinafter, the Order) violates the admission conditions established by contract system legislation.

Notably, Paragraph 3 of the aforementioned Order stipulates that goods included in the List and those excluded from it cannot be combined into a single contract or procurement lot.

 Furthermore, the Ministry directs attention in the Life Sciences sector to Paragraph 1 of Government Decree No. 1289 dated November 30, 2015, "On Restrictions and Conditions for the Admission of Foreign-Manufactured Pharmaceuticals Included in the List of Vital and Essential Drugs for State and Municipal Procurement Needs" (hereinafter, Decree No. 1289). This provision mandates that the contracting authority reject all bids offering foreign-originated pharmaceuticals (excluding Eurasian Economic Union member states), provided that at least two compliant bids satisfying the procurement notice and documentation requirements have been submitted by eligible participants.

Concurrently, Subparagraph 1.4 of Paragraph 1 of Order No. 126n dated June 4, 2018, establishes that if bids are rejected, the contracting authority shall award the contract to the remaining participant at their proposed price, subject to the satisfaction of the following cumulative criteria:

• The bid offers pharmaceuticals whose manufacturing stages—including active pharmaceutical ingredient (API) molecular synthesis—occur entirely within EAEU member states, provided that such APIs are registered in the State Register of Medicines;

• The participant's bid fully complies with the procurement documentation requirements;

• The participant offers the lowest contract price among those bidders whose proposals were not rejected under Paragraph 1 of Decree No. 1289 and who simultaneously meet the aforementioned cumulative criteria;

• The participant offers a contract price that does not exceed by more than 25% the lowest contract price proposed by any bidder whose proposal was not rejected under Paragraph 1 of Decree No. 1289, but whose pharmaceutical manufacturing process does not occur entirely within EAEU member states.

 The Ministry of Finance highlighted the enforcement landscape of Paragraph 1 of Decree No. 1289, under which the contracting authority must reject all proposals for foreign-originated pharmaceuticals if at least two compliant bids matching the country-of-origin rules are received. The Ministry clarified that these restrictions do not apply if no bidder meets both the procurement documentation requirements and the specific origin criteria. In such instances, the contracting authority awards the contract to the participant offering the lowest bid price.

1.3. The Central Bank of Russia Introduced New Procurement Audits for Credit Institutions Effective January 1, 2019.

Federal Law No. 263-FZ dated July 29, 2018, "On Amending Certain Legislative Acts of the Russian Federation"

Effective January 1, 2019, Article 73.1-1 of Federal Law No. 86-FZ dated July 10, 2002, "On the Central Bank of the Russian Federation (Bank of Russia)" grants the Bank of Russia the authority to conduct unannounced regulatory inspections during banking supervision. The Bank may deploy this tool when reasonable grounds suggest that a credit institution's operations risk harming its creditors or depositors, or when signs of non-compliance with Russian legislation or Bank of Russia regulations surface, including potential violations of client rights. During these compliance operations, regulators execute or simulate ordinary business transactions to verify adherence to stringent operational requirements. The Bank of Russia conducts these supervisory activities without prior notice to the credit institution.

The Governor or a Deputy Governor of the Bank of Russia must authorize any such regulatory inspection.

1.4. FAS Russia Clarified Review Timelines for Procurement Complaints Under Federal Law No. 223-FZ.

Letter of the Federal Antimonopoly Service of Russia No. IA/4073/19 dated January 23, 2019

The letter states that pursuant to Part 10 of Article 3 of Federal Law No. 223-FZ dated July 18, 2011, "On the Procurement of Goods, Works, and Services by Certain Types of Legal Entities," any procurement participant may appeal the actions or omissions of a contracting authority before the antimonopoly regulator if such actions infringe upon the participant's rights and legitimate interests.

As a general rule, the regulator reviews the merits of a complaint within seven business days of receipt.

The Federal Antimonopoly Service highlighted that if a complaint is transferred to the appropriate jurisdiction for a hearing on the merits—either to the central apparatus or a regional office of the FAS—the statutory period begins upon initial receipt by the transferring FAS body.

Given that the antimonopoly authority must decide whether to return the complaint to the applicant or schedule a hearing within three business days, the routing process for transferring complaints must not exceed three business days.

1.5. Government Amended the Evaluation Rules for Public Procurement Proposals.

Government Decree No. 41 dated January 25, 2019, "On Amending the Rules for Evaluating Bids and Final Proposals of Procurement Participants for Goods, Works, and Services to Meet State and Municipal Needs"

Paragraph 12 of the Rules for Evaluating Bids and Final Proposals has been repealed. This clause previously permitted contracting authorities to omit the following evaluation metrics when conducting a request for proposals:

• Price-based criteria: contract price; operation and repair costs for goods (facilities) or the utilization of work results; life-cycle costs of goods (facilities) created via performance of the work; and proposals regarding related expenses to be incurred by the contracting authority under an energy performance contract.

• Non-price criteria: qualitative, functional, and environmental characteristics of the procurement target; participant qualifications, including financial resources, equipment, and other material assets held under ownership or other lawful titles; corporate reputation and track record relevant to the contract scope; and the availability of specialized personnel meeting specific expertise levels.

1.6. Interagency Channels Now Authorized for Retrieving Register of Unreliable Suppliers (RNP) Data.

Directive of the Government of the Russian Federation No. 35-r dated January 19, 2019, "On Amending the List Approved by Directive of the Government of the Russian Federation No. 724-r dated April 19, 2016"

The government expanded the master list of records accessible via interagency electronic networks for state and municipal inspection teams, which was originally established under Government Directive No. 724-r dated April 19, 2016.

Specifically, supervisory authorities can now query FAS Russia directly through interagency channels to obtain entries from the Register of Unreliable Suppliers (RNP) maintained under both the procurement framework for SOEs and Federal Law No. 44-FZ.

1.7. Compliance Reminder: February 1, 2019, Deadline for Submitting Annual Procurement Reports for Innovative and High-Tech Products.

Federal Law No. 223-FZ dated July 18, 2011, "On the Procurement of Goods, Works, and Services by Certain Types of Legal Entities" (as amended by Federal Law No. 396-FZ dated December 28, 2013, "On Amending Certain Legislative Acts of the Russian Federation").

Government Decree No. 1442 dated December 25, 2015, "On the Procurement of Innovative and High-Tech Products by Certain Types of Legal Entities and on Amending Certain Acts of the Government of the Russian Federation"           

Contracting authorities must publish data regarding their mandatory annual procurement volumes from small and medium-sized enterprises within the Unified Information System (EIS) by February 1 of the succeeding calendar year (i.e., before February 1, 2019).

 Bidders must also upload their annual reports detailing high-tech and innovative procurements, including transactions executed with SMEs during the preceding fiscal year, to the EIS within the same statutory timeframe.

2. Draft Legislation and Regulatory Proposals

2.1. Ministry of Economic Development Proposes Delineating Rules for Adopting High-Tech and Innovative Products in SOE Procurements.

Draft Federal Law "On Amending Article 4 of the Federal Law 'On the Procurement of Goods, Works, and Services by Certain Types of Legal Entities' (Regarding the Establishment of Requirements for the Procedure and Rules of Application and Implementation of Innovative and High-Tech Products)"

A draft Federal Law currently undergoing public consultation and independent anti-corruption expert review proposes that contracting authorities publish their procurement schedules for innovative goods, high-tech products, and pharmaceuticals within the EIS for a baseline duration of at least one year. Specifically, pharmaceutical procurement horizons must span five to seven years. Crucially, the current statutory framework contains no such one-year baseline restriction.

The draft legislation empowers the Government of the Russian Federation to delineate the precise evaluation benchmarks for defining innovative or high-tech commodities, alongside setting the foundational rules for implementing these advanced assets.

The overarching regulatory intent behind these amendments is to standardize implementation protocols across the industry. This harmonization aims to boost the absolute volume of high-efficiency, innovative, and high-tech procurements sourced from domestic enterprises, including small and medium-sized ventures. 

2.2. Regulatory Proposal to Expand Eligibility Criteria for Banks Handling Special Procurement Accounts.

Draft Decree of the Government of the Russian Federation "On Amending Government Decree No. 748 dated June 29, 2018 'On Requirements for Banks (Including Financial Stability Criteria) Mandated for Holding Special Accounts of Procurement Participants for Depositing Bid Bonds and Repealing Certain Acts of the Government of the Russian Federation'"

The draft decree, crafted by the Ministry of Finance, establishes a 60-day grace period for authorized financial institutions to finalize integration agreements with electronic trading platform operators following their listing under Part 10 of Article 44 of the Contract System Law.

2.3. Authorities Propose Expanding Import Substitution Bans on Foreign Machinery and Engineering Products.

Draft Decree of the Government of the Russian Federation "On Amending Government Decree No. 656 dated July 14, 2014 'On Establishing an Admission Ban on Certain Types of Foreign Machinery and Engineering Products for State and Municipal Procurement Needs'".

The proposal clarifies the compliance landscape for verifying domestic origin under items 1-13, 17-32, and 34-81 of the restricted machinery schedule. To establish that products qualify as Russian-made, manufacturers must secure either an official certification under the decree or an expert assessment report issued by the Chamber of Commerce and Industry of the Russian Federation in coordination with the Ministry of Industry and Trade.

Furthermore, the amendment expands the existing ban by inserting 26 new product categories, including commercial refrigeration units, industrial gas stoves, and industrial dishwashers.

3. Judicial and Enforcement Case Law

3.1. Supreme Court of the Russian Federation Remanded Case Involving Foreign Medical Device Procurement Restrictions for Retrial.

Ruling of the Supreme Court of the Russian Federation No. 309-KG18-16754 dated January 16, 2019, in Case No. A60-54508/2017

An interested party challenged a regulatory ruling by the antimonopoly authority, which had dismissed a complaint against a public contracting entity. The challenger argued that the bidding parameters, technical descriptions, and draft contract terms governing medical device restrictions directly conflicted with Federal Law No. 44-FZ.

Lower commercial courts initially denied the requested relief. However, upon reviewing the merits on cassation appeal, the Supreme Court determined that the import restrictions established by Government Decree No. 102 dated February 5, 2015, "On Restrictions and Conditions for the Admission of Certain Foreign Medical Devices for State and Municipal Procurement Needs" extend beyond physical equipment supply to encompass related service agreements.

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