Limitations on foreign companies participating in public procurements eased in Russia
The Russian Government approved a draft federal law on "Procurement for Public Works, Goods and Services" (the "Law") on 16 October 2003 that is addressed to Russian and foreign companies supplying goods, works and/or services to the Russian market.
Public procurement is a process whereby a company supplies goods, services and/or works for state needs. Public procurement ("PP") contracts are awarded mainly through a tender process.
One of the most significant provisions of the Law is the provision designed to ease limitations on foreign companies participating in public procurements. If the Law is passed, foreign companies will be allowed to bid for PP awards. The Law, however, says that limitations on foreign companies participating in public procurements may be imposed in certain circumstances, such as if the foreign products create a danger to, "the basics of the constitutional integrity and state's national interests". The Law does not specify in detail instances when such may occur. Currently, foreign companies are not entitled to participate in PP deals, except in two situations; a) when it is impossible to produce or supply specific goods, works or services in Russia; or b) when production of goods or performance of services or works in Russia is not practical (counter-productive). The current law on PP does not, again, specify a definition for "not practical".
The law clearly states that foreign products cannot be put under discriminatory conditions in comparison with domestic products in PP. Aside from the present law on PP the Law entitles the bidding companies to appeal any failure of the contracting authority, in charge of the tender, to comply with the Law.
Another achievement of the Law is that, if it is passed, the PP process will, hopefully, become more transparent following the requirement of the Law to publicize information on forthcoming tenders for PP awards. In practice currently, due to the closed procedure for PP deals, only a limited number of state enterprises end up getting PP awards.
The Law specifies how bidders may get a PP award. The PP process may operate through a tender procedure or in certain circumstances (such as PP awards for weapons or other goods or works which are protected by state secret) without a tender. A tender, in turn, may be open, two-way or selective.
Open tender is specified as the usual procedure for PP. A selective tender will be limited to those participants, who were previously included into a list of contenders. A two-way tender procedure will be applied for PP awards relating to complicated technological goods, works or services.
The draft law is yet to be approved by the Russian Government. It must then be passed in three hearings in the State Duma, adopted by the Federation Council and signed into law by the President.
In general, the draft law, if passed, creates a positive basis for attracting foreign companies to participate in public procurements in Russia. This goes in line with the decision of Russia's entry into WTO. However, somewhat unclear wording of the Law may create additional obstacles in its implementation.
For further information please contact David Griston at:
david.griston@cms-cmck.com
