Effective state procurement discussed at Gaidar Forum

The expert discussion, Effective State Procurement: Price vs Quality, was held on January 18, the third day of 2018 Gaidar Forum at RANEPA.

The moderator, Director of the RANEPA Center of Competition Policy and Public Contracts Development Yelena Agapova, noted in her opening remarks that the highly relevant issue of public procurement has been coming up at the Gaidar Forum for the last three years.

The expert analysis and further discussion of state procurement and procurement at state-run companies have shown that all participants of that market will be faced with digitalization soon, and that small and medium sized businesses will be the locomotive of change.

The amendments to the laws on the contract system and on procurement by state-owned companies (FZ-44 and FZ-223), adopted at the end of 2017, should significantly change the technology of public procurement, namely, introduce digital procurement: from January 1, 2019, it will be mandatory for state customers. State-owned companies will have to use the system only for purchases from SMEs for now. “Those who work under the 44-FZ are already accustomed to using the electronic digital signature (EDS). State companies’ procurement from SMEs will be done on the same websites and include the same electronic procedures, and EDS will be valid at all websites,” said Tatyana Demidova, head of the Finance Ministry’s Department of Contract System Policy. “We will have a dynamic year,” she promised: the adaptation and development of 30 by-laws will take at least six months, and then the Ministry will deal with the practical aspects of applying them.

Head of the SME Development Corporation Alexander Braverman warned against hastily increasing the share of SMEs in public procurement, but suggested assessing the results first. Meanwhile, the Ministry of Finance will focus on the electronic catalog of goods, works and services development, the launch of online government contract stores and drafting of the by-laws, and in the second half of 2018, on their practical application. Also Mr. Braverman noted the growth of customer confidence in small companies: in 2017, purchases from SMEs totaled 2 trillion rubles, while in 2018, SME Corporation expects 3 trillion.

Interfax Information Services Group CEO Vladimir Gerasimov cited the following statistics: competition in procurement from SMEs has grown (an average of 1.83 applications compared to 1.7; saving of 11.1% compared to 5.3% across the market). Interfax also evaluated how many of state customers are co-owners of the small companies they buy from (pocket SMEs can be used for non-arms-length transactions) - it is found in 0.25% of procurement deals.

Natalya Bocharova, Director of the Accounts Chamber Department of Expert, Analytical and Control Activities in the Sphere of Federal Property Transactions, Resources of Reserve Funds of the Federal Budget and Complex Analysis of Effectiveness in the Federal Contractual System, pointed out that chains of intermediaries are often found in the state companies’ procurement projects. “There was even a case where a state company purchased the services of one of its own departments via intermediaries,” she added. The Accounts Chamber of the Russian Federation needs a way to automatically track violations: at present, a lot of time is spent on interdepartmental communication, and statutory limitations begin to apply to the offences exposed.

Head of the Office for Control over Government Procurements of the Federal Antimonopoly Service Artyom Lobov also spoke about digitalization. “The new amendments were the first step taken toward digitization of the public procurement system. We have a lot of work to do to develop the necessary regulatory framework. However, even today we are looking to the future – to the possibility of algorithmizing procurement, maximizing automation, which will simplify the procurement process for customers and bidders. From the control perspective, we believe that such automation will prevent many procedural violations, such as delays in the publication of the protocol, the placement of the executed contract and acts of acceptance.” Pursuant to the Presidential Executive Order on the main guidelines of the state competition development policy, FAS Russia will provide information support to ensure suppliers non-discriminatory access to the procurement system, he said in conclusion. 

According to the Ministry of Finance, the main issue under discussion – the price vs quality balance – should be achieved through accurate descriptions of the subject of procurement – in particular, in the catalog of goods, works and services typical customers will use. Since October, 19,000 items have been added to it, including medicines and medical products (cataloged by Rostech in the pilot mode) and petroleum products. “In 2018, we will expand the catalog through software,” Ms. Demidova promised. In spring, the Ministry of Finance plans to legalize direct state purchases through the catalog – they may account for up to 15% of the market. Direct purchases will replace requests for quotations and proposals; or an aggregator of online stores will be created in the system. “For purchases under 500,000 rubles – 500 billion rubles in a year – we will need to introduce separate sections at online trading floors. Summarizing the expert discussion, Yelena Agapova noted that the procurement system development is not stagnating, and new tasks, goals for improvement, management and control emerge with each year of the contract system's operation.

The organizers include the Presidential Academy of National Economy and Public Administration (RANEPA), the Gaidar Institute for Economic Policy (Gaidar Institute) and the Association of Innovative Regions of Russia (AIRR).

The program outline is available at the forum website.

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The general partners of the Gaidar Forum are Gazprom and Gazprombank; strategic partners include Novartis, Johnson&Johnson, RZD, MSD, AstraZeneca, the ACIG Group of Companies, Mastercard, Coca-Cola, Russian Agricultural Bank, Pharmstandard JSC, Microsoft; O1 Group, Unilever, EY, Russian Brewers’ Union, Russian Direct Investment Fund are partners and RVC.

The general information partners include the Rossiya 24 TV channel, RBC and TASS news agencies. The official information agency is Rossiya Segodnya. The general online media partner is Gazeta.RU. The general radio partner is Business FM. The strategic information partners are Kommersant Publishers, the RT TV channel and Interfax. The main information partners are Rossiyskaya Gazeta and Federalpress news agency. Other media partners include, PRIME news agency, EFE, Polit.ru, Expert RA, Radio Ekho Moskvy, Parlamentskaya Gazeta, BRICS, National Banking Journal, Banking Review, Financial One, Standards and Quality news agency, AK&M, Ekonomika i Zhizn weekly, Invest Foresight online magazine, Strategia magazine, Naans Media, the Public Administration scientific political journal, the PRO BUSINESS TV channel, the Indicator online science journal, the Bankovskoye Delo (Banking Business) magazine, RNS news agency, Business Excellence magazine, Cision, the Budget magazine, Information platform “Russian planet – Smart Russia”.