Procurement Compliance

Legal audit of the contract service

In accordance with the Federal Law of 05.04.2013 No. 44-FZ “On the contract system in the procurement of goods, works, services to meet state and municipal needs” (hereinafter referred to as the “Law on the Contract System”), control over procurement and the state defense order is entrusted to Federal Antimonopoly Service o Russia and its territorial departments. Audit of public procurement is carried out by the Accounts Chamber of the Russian Federation.

According to the Federal Law of 18.07.2011 No. 223-FZ “On the Procurement of Goods, Works, Services by Certain Types of Legal Entities” (hereinafter referred to as the “Procurement Law for Certain Types of Legal Entities”) the Federal Antimonopoly Service is also vested with powers to monitor compliance with it.

In addition, the FAS Russia, when carrying out purchases, monitors compliance with the requirements of Federal Law No. 135-FZ dated 26.07.2006 “On Protection of Competition”.

These regulations contain many rules related to government procurement and procurement of state-owned companies.

According to Art. 107 of the Law on the Contract System, persons guilty of violating the legislation of the Russian Federation and other normative legal acts on the contract system in the field of public procurement shall bear disciplinary, civil, administrative and criminal liability in accordance with the Russian legislation.

In particular, violations of the legislation on the contractual system in the field of state and municipal procurement can be detected at all stages of the procurement, starting with the choice of the procurement method, ending with the fulfillment by customers of their obligations under already concluded contracts. In this case, prosecution can be carried out both in relation to the customer – a legal entity, and in relation to the officials responsible for the procurement. For example, for the wrong choice of the procurement method, officials face a fine of 30,000 to 50,000 rubles, for violating the terms for placing auction documents, officials may be fined up to 15,000 rubles, and a fine of up to 100,000 rubles may be imposed on a legal entity. Also, significant administrative fines are provided for violations of the procedure for evaluating applications, violations of the terms for posting information on the results of the procurement, as well as the timing of the return of the submitted security applications.

Moreover, it should not be overlooked that a number of procurement offenses are criminalized. So, according to Art. 178 of the Criminal Code restricting competition by concluding a competition-limiting agreement (cartel) between economic entities-competitors, prohibited in accordance with the antimonopoly legislation of the Russian Federation, if this act caused major damage to citizens, organizations or the state or resulted in the extraction of income on a large scale, are punished with a fine of in the amount of 300,000 to 500,000 rubles or in the amount of wages or other income for a period of 1 to 2 years, or forced labor for up to 3 years with the deprivation of the right to hold certain positions or engage in certain activities for up to 1 year or without such, or imprisonment for up to 3 years with deprivation of the right to hold certain positions or engage in certain activities for up to 1 year or without it. Such a crime as receiving commercial bribery (Article 204 of the Criminal Code), which may also take place in the process of procurement, provides for a fine of up to 400,000 rubles, or in the amount of wages or other income for a period of up to 6 months, or in the amount of from 5 times to 20 times the amount of commercial bribery, or restraint of liberty for up to 2 years, or correctional labor for up to 2 years, or imprisonment for the same period with or without a fine of up to 5 times the amount of commercial bribery such.

Thus, it is extremely important to introduce preventive measures in order to prevent possible violations of the law in the field of procurement. Such preventive measures include the construction of a compliance system in the field of public procurement.

Recall that the notion “compliance” itself is interpreted very broadly as ensuring the compliance of the organization's activities with the requirements imposed on it by Russian and foreign legislation, other mandatory regulatory documents, as well as creating mechanisms in the organization for analyzing, identifying and assessing the risks of corruption-prone areas activities and providing comprehensive protection of the organization.

In general, compliance is a set of legal and organizational measures provided for by an internal act (s) of an economic entity or another person from among persons belonging to the same group of persons with such an economic entity, if such internal acts apply to such an economic entity, and aimed at compliance with the requirements of the law and prevention of its violation.

At the same time, it is advisable to single out a separate compliance system in the field of procurement, since procurement activity has many features and is distinguished by a separate specificity of regulation.

It is important to note that the process of building a compliance system for customers and for potential procurement participants is different and requires taking into account certain factors of the economic activities of these entities.

In order to identify compliance risks in the activities of a potential procurement participant, it is necessary to clarify the directions of participation in procurement (types of procurement, the subject of procurement, previously submitted applications, presence of conflicts with customers). The more accurately the analysis of the behavior of an economic entity in the procurement process is made, the more detailed it is possible to work out the mechanisms for preventing possible offenses. In particular, special attention should be paid to the presence of interrelated persons involved in the procurement. Often, the submission of applications from one IP address, the location of organizations at the same address, the constant participation of the same companies in procurement with the construction of similar behavioral strategies with participation, may indicate the presence of anticompetitive agreements between these persons, which may subsequently lead to the involvement of liability with the imposition of significant sanctions. Another important aspect when analyzing the activities of an organization – a procurement participant is to consider the strategy of interaction with customers, since quite often incorrect actions can lead to the inclusion of a procurement participant in the register of unscrupulous suppliers with the subsequent inability to participate in procurement, which will lead to non-receipt of profit and can actually spoil reputation in the market. In addition to these risks, it is important to pay attention to the personnel structure of the company admitted to support procurement procedures in order to eliminate corruption risks, as well as to control the degree of legal awareness of these persons.

For these purposes, after the conduct of a detailed analysis of the company’s activities, it is necessary to monitor the existing local acts governing purchases within the organization. In their absence, in order to implement a compliance system, it is necessary to develop an internal policy governing procurement, with the obligatory elaboration of methods for minimizing compliance risks identified in the process of analyzing the company’s activities. After the development of such a policy, its competent implementation is necessary. Namely, the appointment of a person responsible for monitoring its implementation, communicating the provisions of this policy to authorized employees, training employees and, possibly, a detailed revision of their job descriptions to clarify the range of their job responsibilities.

When implementing a compliance system for customers, it is necessary to determine the legal basis that should be followed by the procurement organizer. Namely, whether the customer is acting on the basis of the Law on the Contract System or the Procurement Law for Certain Types of Legal Entities. In addition, it is important to determine the effectiveness of the procurement procedures, the customer's requirements for the supplied products and the specifics of the formation of requirements for the subject of the contract, as well as the criteria for selecting the supplier of the contractor. No less important is the issue of checking the correctness of the choice of the procurement method, determining the NMC, evaluating bids and choosing a winner.

Another important factor that indirectly affects the minimization of compliance risks is the presence of complaints from potential participants in public procurement in the FAS Russia and / or its regional departments, as well as the presence of litigation both in connection with procurement activities and in the direct execution of the contract, because In some cases, when changing the approach to the procurement procedures, it would be possible to avoid possible conflicts with the contractor in connection with poor quality delivery (provision of services / performance of work).

It is also important to remember that the control body has the right to suspend ongoing purchases and oblige the customer to make the necessary changes to it, cancel the results of determining the winner, etc. Revealing the corresponding violations by the control body entails a delay in the procurement period and, possibly, non-fulfillment of the customer's obligations to third parties. At the same time, often, before contacting the control body with a corresponding complaint about the actions (inaction) of the customer, interested persons contact the customer directly with a request for clarification regarding the provisions of the procurement documentation. Upon receipt of such a request, it is necessary to assess the risks of filing a complaint in the future and, if there are significant risks of detecting violations, the customer has the right to independently take measures to amend the procurement documentation, eliminate possible violations.

The above key points are essential to prevent potential procurement wrongdoing.

It is also necessary that the customer’s employees responsible for conducting procurement receive timely and reliable information on legislative changes and law enforcement practice in the field of procurement, as well as receive clear instructions on identifying and responding to the possible occurrence of corruption-generating factors, and preventing conflicts of interest.

To take into account all of the above factors, customers organizing purchases also need to build a compliance system in the direction of procurement activities by introducing local acts and compliance policies that regulate procurement activities, a clear distribution of responsibilities between persons responsible for procurement, and employee training.

Thus, the development and implementation of an antimonopoly compliance system includes many aspects, such as legal analysis of procurement regulations, procurement documents, documents for internal use, development of local legal acts governing the operation of the contract service, preparation of reports and opinions on possible risks, and dr.

To provide high-quality services in the field of compliance, it is necessary to attract specialists with knowledge and experience in the field of public procurement.

Legal services

  1. Legal advice on the implementation of a procurement compliance system
  2. Legal support on the issue of bringing procurement procedures into compliance with legal requirements
  3. Legal analysis of the activities of the contract service and its interaction both within the organization and with third parties
  4. Analysis of previously committed violations, as well as the risks of potential occurrence / detection of offenses in order to eliminate them on their own by taking preventive measures
  5. Legal support in the field of risk analysis during procurement and building a risk management system
  6. Development and legal examination of internal policies and local acts regulating procurement activities
  7. Implementation of procurement compliance controls
  8. Legal support for the implementation of compliance policies in the field of procurement and informing authorized employees both for the customer and for potential procurement participants (suppliers / contractors / executors)
  9. Other legal assistance in procurement compliance

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