Key Regulatory Developments

The Government of the Russian Federation has extended the application of the Procurement Requirement Rules (approved by Government Resolution No. 927 dated September 2, 2015) to prominent scientific, educational, cultural, and healthcare institutions, alongside the Rosatom State Atomic Energy Corporation, the Roscosmos State Space Corporation, and their respective subordinate entities.

The Ministry of Finance of the Russian Federation issued a clarification confirming that current legislation imposes no statutory restrictions on replenishing specialized bank accounts with funds obtained via credit facilities by procurement participants, nor does it restrict the opening of specialized accounts for natural persons. Furthermore, the Ministry delivered several critical guidance notes regarding the strategic management and operation of specialized procurement accounts.

New statutory requirements and national treatment restrictions governing the admission of foreign-origin goods came into force, pursuant to the Ministry of Finance Order concerning the admission terms for foreign goods in public and municipal procurement.

A new legislative proposal seeks to extend small business procurement preferences to defense industrial complex enterprises regarding their civilian product lines. Specifically, the initiative mandates that state procurement authorities allocate at least 15% of their aggregate annual procurement volume to these defense enterprises for civilian goods and services.

1.           Statutory and Regulatory Updates

1.1.        The Russian Government has expanded the scope of the Rules establishing procurement requirements for goods, works, and services procured by federal state authorities, extra-budgetary funds, and their subordinate budgetary institutions and state unitary enterprises.

Government Resolution No. 1419 dated November 26, 2018, "On Amending Government Resolution No. 927 dated September 2, 2015"

The Government of the Russian Federation amended the Procurement Requirement Rules approved by Resolution No. 927. The updated rules now govern preeminent scientific, educational, cultural, and healthcare institutions designated under the Budget Code of the Russian Federation, as well as the Rosatom State Atomic Energy Corporation, the Roscosmos State Space Corporation, and their affiliates.

In connection with these amendments, the Government introduced technical adjustments to the standard template used for listing specific categories of goods, works, and services.

1.2.        The Russian Government has abolished certain financial and structural criteria for commercial banks authorized to hold specialized procurement accounts for bidder security deposits.

Government Resolution No. 1320 dated November 3, 2018, "On Amending the Capital and Stability Requirements for Banks Holding Specialized Accounts for Bid Security Deposits in the Procurement of Goods, Works, and Services"

Under the amended regulation, authorized banks are no longer strictly required to maintain equity capital of at least RUB 100 billion, operate under the direct or indirect control of the Russian Federation or the Central Bank, or hold a national scale credit rating of "A-(RU)" or higher from the Analytical Credit Rating Agency (ACRA).

1.3.        The Ministry of Finance issued guidance addressing key operational issues in electronic public procurement.

Guidance Letter of the Ministry of Finance of the Russian Federation No. 24-06-08/79659 dated November 6, 2018

The Ministry clarified that financial institutions may not execute enforcement orders or debt collection seizures against funds held in specialized accounts for bid security purposes. This protection stems from Article 44 of Federal Law No. 44-FZ "On the Contract System in the Procurement of Goods, Works, and Services for State and Municipal Needs" (the Contract System Law). Pursuant to this article, the specialized account framework requires banks to block and unblock funds strictly based on electronic platform operator instructions, thereby restricting the bidder's right to freely dispose of the ring-fenced security amount.

The Ministry further noted that the regulatory framework contains no restrictions against replenishing specialized accounts using credit facilities or commercial loans, nor does it prohibit natural persons from opening specialized procurement accounts.

Additionally, the termination of a bank account agreement does not automatically release or unblock funds on a participant's specialized account; consequently, termination does not affect the bid security if the bank froze the required amount prior to such termination.

1.4.        The Ministry of Finance outlined the mechanism for modifying contract prices under Federal Law No. 223-FZ following the statutory increase in Value Added Tax (VAT) rates.

Information Letter of the Ministry of Finance of the Russian Federation No. 24-01-07/86352 dated November 29, 2018, "Regarding Contract Price Amendments Under Federal Law No. 223-FZ 'On the Procurement of Goods, Works, and Services by Certain Types of Legal Entities' Following the Value Added Tax Rate Increase"

The Ministry of Finance maintains that contracting parties operating under Federal Law No. 223-FZ may mutually agree to adjust contract prices to reflect the increased VAT rate, provided that the procurement entity's internal procurement regulations (the Procurement Policy) explicitly permit such structural modifications.

1.5.        New regulatory restrictions governing the admission of foreign-origin goods came into force.

Order of the Ministry of Finance of the Russian Federation No. 126n dated June 4, 2018, "On the Terms of Admission for Goods Originating from a Foreign State or a Group of Foreign States for the Purpose of Procuring Goods for State and Municipal Needs"

The regulation, effective November 5, 2018, stipulates that procurement entities cannot combine items included in the approved preference list and items excluded from it within a single contract or bidding lot.

The Order defines the precise application of price preferences: procurement authorities must reduce the final contract price by 15% if the winning bidder proposes foreign-made products (where at least one item originates from a foreign state). Conversely, if the winning bidder offers goods originating exclusively from Eurasian Economic Union (EAEU) member states, the contract shall be awarded at the full price proposed by the bidder.

1.6.        Regulatory authorities approved supplementary reporting templates for procurements supporting large-scale investment projects.

Order of the Ministry of Industry and Trade of the Russian Federation No. 4348 dated October 30, 2018

The regulatory body enacted the following disclosure instruments:

• A reporting form for engineering and machinery procurement included in long-term demand forecasts under Article 3.1(6)(2) of Federal Law No. 223-FZ, which are vital for investment projects listed in the state registry. This includes disclosures for machinery procurements that, pursuant to Government Commission on Import Substitution rulings and Article 3.1(8)(3) of the aforementioned law, are exempt from publication in the Unified Procurement Information System (EIS);

• A standard notification form confirming the inclusion of an investment project within the official investment project registry.

2.           Pending Legislative Initiatives and Draft Bills

2.1.        The Ministry of Industry and Trade proposed amendments to the Contract System Law to foster product diversification within defense industrial complex enterprises.

Draft Federal Law "On Amending the Federal Law 'On the Procurement of Goods, Works, and Services by Certain Types of Legal Entities' and the Federal Law 'On the Contract System in the Procurement of Goods, Works, and Services for State and Municipal Needs'"

The bill proposes extending procurement preferences under Article 30 of the Contract System Law to defense manufacturers supplying civilian goods. Specifically, the framework introduces a mandatory 15% minimum quota of the aggregate annual procurement volume for state buyers to purchase civilian products manufactured by defense enterprises. The Government of the Russian Federation retains the authority to approve the specific nomenclature and volume thresholds of the civilian goods subject to these mandatory quotas.

The explanatory note highlights that substantial capital injections earmarked for re-equipping defense facilities must simultaneously drive the output of high-tech, competitive civilian products. However, aggressive market conditions currently stifle defense enterprises due to a lack of structural economic incentives necessary to compete effectively in purely civilian sectors.

2.2.        The Federal Treasury drafted the structural procedure for generating State Contract Identifiers under the 2019 treasury monitoring framework.

Draft Order of the Federal Treasury "On Approving the Procedure for Generating Identifiers for State Contracts, Institutional Agreements, Capital Investment Accords, and Capital Repair Contracts under Russian Ruble Treasury Monitoring as Stipulated by the Federal Law 'On the Federal Budget for 2019 and the Planning Period of 2020 and 2021'"

The draft order preserves the core architecture for generating identifiers while expanding its scope. Section 9 now mandates the inclusion of identifiers in capital repair agreements subject to treasury monitoring, placing the compliance burden directly on the procurement entity. For subsidy agreements benefiting capital repair or industrial development funds, the regulation empowers regional branches of the Federal Treasury or constituent entity financial authorities to generate the identifier where the principal budget allocation officer maintains an active account.

2.3.        Legislative proposals seek to introduce comprehensive conflict of interest provisions into Federal Law No. 223-FZ.

Draft Federal Law "On Amending Article 3 of Federal Law No. 223-FZ 'On the Procurement of Goods, Works, and Services by Certain Types of Legal Entities' dated July 18, 2011"

The State Duma reviewed a draft bill sponsored by the Ministry of Finance in its first reading. The proposed rules require procurement executives, tender committee members, and corporate bidders to proactively vet operations and implement preventative measures against conflicts of interest.

To mitigate conflict-of-interest risks, the draft legislation introduces the following compliance mandates:

• Establish an explicit statutory exclusion list defining individuals barred from serving on procurement evaluation committees;

• Impose an absolute duty on committee members to immediately notify the procurement entity of any emerging circumstances or personal biases that impair their objective evaluation functions;

• Mandate the swift removal and replacement of any committee member found to be in violation of the exclusion criteria;

• Require corporate bidders to prevent systemic conflicts by formally disclosing any personal or financial interest connecting their executive leadership with the procurement entity's management that could compromise the integrity of the bidding process.

2.4.        Rosgvardia submitted a draft order establishing centralized procurement coordination protocols for its primary construction and development command.

Draft Order of the National Guard of the Russian Federation (Rosgvardia) "On the Exercise of Procurement Authority by the Federal National Guard Service, its Territorial Organs, and Subordinate Institutions, and on Approving the Coordination Procedure Between the Federal State Institutional Enterprise '1st Customer-Developer Center of the National Guard of the Russian Federation (Military Unit 6888, Moscow)' and Subordinate Procurement Entities During Centralized Procurements"

The draft rules state that if the tender documentation requires a bid security deposit, the procurement entity must submit formal proof of funds or a valid bank guarantee to the authorized central command prior to evaluating or scoring competing bids.

The authorized central entity must forward all executed evaluation and vendor selection protocols to the underlying procurement client no later than the business day following execution.

Centralized procurement operations shall proceed strictly on the basis of formalized client requisitions compiled according to the template appended to the draft order.

3.           Judicial Precedents and Enforcement Landscape

3.1.        In a high-profile dispute involving MTS PJSC, the Supreme Court of the Russian Federation affirmed a state buyer's statutory right to mandate mobile number portability (MNP) in telecommunications tenders.

Ruling of the Supreme Court of the Russian Federation dated November 22, 2018, in Case No. A27-21030/2017

Initially, the regional antitrust authority ruled that a technical specification requiring the successful vendor to service a specific hotline number (allocated within Rostelecom's numbering capacity) unlawfully restricted competition. The regulatory body determined that requiring number retention effectively blocked rival telecom operators from bidding, violating Article 33(1)(1) of the Contract System Law. Lower courts subsequently upheld this enforcement position.

The Supreme Court overturned the regulatory sanctions and lower court rulings, pointing to Section 120 of the Rules for the Provision of Telephony Services (approved by Government Resolution No. 1342 dated December 9, 2015). Under these rules, any corporate subscriber wishing to preserve their existing number when executing a contract with a recipient operator may submit a written application to initiate portability and terminate the legacy service. The Supreme Court concluded that mobile number portability does not entail a structural transfer of numbering capacity from one telecom carrier to another, nor does it deplete the original carrier's numbering resource; instead, the system records the data within a centralized portable number database. Consequently, the Court ruled that requiring a vendor to preserve existing corporate numbers is legally and technologically feasible and does not restrict access to competitive electronic auctions.

3.2.        The Kursk Regional Office of the Federal Antimonopoly Service (OFAS) sustained a prosecutorial challenge regarding an anticompetitive collusive agreement executed between a public procurement entity and its contractor.

Decision of the Kursk OFAS Russia dated November 2, 2018, in Case No. 02/08-84-2018

On April 23, 2018, a municipal procurement entity and a contractor executed a contract for works totaling RUB 9,456,177, reflecting the low bid submitted by the contractor during competitive bidding.

On April 24, 2018—the business day immediately following execution—the contractor formally requested that the municipal client terminate the agreement by mutual consent.

The parties formally dissolved the contract "by mutual consent" on April 26, 2018.

The antimonopoly authority validated the prosecutor's findings, highlighting several systemic indicators of an illicit, anticompetitive arrangement:

• An exceptionally compressed timeline (one day from execution to the termination request) reveals prior orchestration between the public entity and the contractor, designed to rescue the contractor from an unprofitable bid;

• The contractor originally secured the award by deploying an aggressive predatory pricing strategy, slashing the price by 50% relative to the Initial Maximum Contract Price (IMCP). The contractor later admitted the bid was commercially unviable. The collusive termination shielded the contractor from standard statutory penalties associated with predatory bidding, creating an uncompetitive, highly preferential environment;

• Case records demonstrate that the public authority staged a repeat auction in May 2018. The same contractor emerged as the sole participant, securing the identical scope of work at a drastically inflated price of RUB 18,817,792.23—capturing the contract at a minimal 0.5% discount from the IMCP.

Based on these findings, the Kursk OFAS concluded that the strategic termination followed by a re-auction granted the contractor an unlawful, anti-competitive market advantage. The scheme not only shielded the company from default penalties for abandoning its original bid conditions but actively enabled it to execute the work at a significantly higher profit margin than initially established during fair market competition.

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