New Initiatives to Prevent Corruption and Fraud in Public Procurement in Russia

"Russia continues to reform its economic legislation and government procurement," stated Sergey Puzyrevskiy, Head, Department of Legal Affairs, Federal Antimonopoly Service (FAS), Russian Federation at a 14 April 2011 Kennan Institute event. Purzyrevskiy's agency, the FAS, grew out of legislation in the early 1990s designed to implement Russia's transition from a state to a private economy. Since its early days, the mission of the FAS has evolved along with the Russian economy, according to Puzyrevskiy. In 2009, the FAS was tasked to monitor the behavior of cartels, including horizontal agreements that limit competition between firms. The FAS also monitors firms with a "dominant position" in market share (50 percent or more of the market). Puzyrevskiy noted that the FAS currently has more "dominant position" than cartel cases pending, which he attributes to the legacy of centralized firms from the Soviet era. The FAS is also tasked with oversight of mergers and acquisitions of firms over $200 million in assets, and it has the right to deny deals if it finds competition will be reduced as a result. Puzyrevskiy stressed that the FAS mission is not to regulate the economy, but to ensure firms do not circumvent the rules of the marketplace through anticompetitive actions.

Mikhail Evraev, Head, Department for Control Over Public Procurement, Federal Antimonopoly Service, Russian Federation, noted that state procurement, at $200 million per year, represents a large segment of the Russian economy. In January, 2006, Russia shifted from an open tender system of procurement to an on-line auction for products and services overseen by the FAS. This open system not only emphasizes competition for government contracts on the basis of price, Evraev said, it also increases transparency in the procurement system. Media and interested individuals are able to monitor purchases, and are able to raise awareness of questionable government purchases, such as luxury cars. According to Evraev, last year 25,000 complaints were lodged and investigated by the FAS, and 50 percent of the complaints were judged justified. As a result, many government auctions were cancelled, either by the agency or by the FAS. For those auctions that went forward, the cost savings to the state were impressive: for tenders under 50 million rubles, savings were twice as great; for tenders over 50 million rubles were more than four times as great.

Anna Katamadze, Deputy Director, Department for the Development of Competition, Ministry of Economic Development, Russian Federation, added that by January 2011 all government procurement was shifted to the electronic auction portal. These auctions can include "request for proposals" (RFPs) on the portal that are over 1 gigabyte in size. An added benefit of placing the auctions online is the transparency of the RFP process, where vendors can track the status of bids from filing to final award. It is also an important analytical tool to ease the oversight of agencies and monitor state owned companies when they make bids.

By Joseph Dresen
Blair Ruble, Director, Kennan Institute