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The Russian Supreme Court Digest of Caselaw on Conflict of Interest Among Procurement Participants

The Presidium of the Russian Supreme Court has approved the Digest of caselaw on disputes arising from application of paragraph 9 part 1 article 31 of the Federal Law dated 04.05.2013 No. 44-FZ "On contract system in the sphere of procurement of goods, works and services for state and municipal needs" (hereinafter - the Law No. 44-FZ) dated 28.09.2016 (hereinafter – the Digest).

Let us remind the basic definitions that are significant for both the Law №44-FZ and the Digest:

  • The participant of procurement is an entity, regardless of its legal form, ownership, location or its capital origin (except offshore companies) or any individual, including sole proprietors;
  • The customer is state or municipal customer or public institutions involved in procurement;
  • Beneficiaries are individuals who directly or indirectly own more than 10% of the voting shares or own more than 10% of the ownership interest in a commercial entity;
  • The conflict of interest is described as situations when a head of the customer or a member of the commission for procurement or a head of contract service customers or a contract manager either (1) are married to individuals who are beneficiaries, a sole executive body of the collegial executive body of the members, the head of the institution or unitary companies or other management body of the entity - participants of procurement as well as with individuals and sole proprietors - participants of procurement or (2) are close relatives or adoptive parents or adopted children.

The Russian Supreme Court has summarized the caselaw regarding application of the rule prescribing lack of conflict of interest among procurement participants.

The Digest approves findings of courts in respect to Law No. 44-FZ application. The main courts’ conclusions are following:

  • participants of procurement are obliged to provide information on the conflict of interest, or the lack thereof in writing (by filling out a part of the application or the provision of a mark in the online documentation);
  • conflict of interest exists in case of joint participation of the officials in a procurement (as well as their deputies) who are directly involved in a procurement, have authority similar to authorities of the head of the customer and can influence the result of the procurement;
  • conflict of interest exists if the head of the customer at the same time is a representative of a nonprofit organization founder (participant of procurement);
  • the requirements set by the Law No. 44-FZ must be satisfied by the procurement participant during all period starting from the date of filing the application on participation to the announcement of the winner. Satisfaction of the requirements at the time of the announcement of the winner has no legal if the requirements were not met at the time of filing the application;
  • from the time when conflict of interest between the participant and customer was revealed the commission on procurement is obliged to exclude the participant from the selection of the supplier (contractor, executor) and it is forbidden for the customer to conclude the contract with the participant of the procurement. The abovementioned actions are to be performed if a conflict of interest was revealed after the review of the second part of applications for participation in the electronic auction and signing the protocol without re-examination of the second part of applications as well;
  • if the conflict of interest is present  the state (municipal) contract concluded between the customer and the winning participant is void (part 2 article 168 of the Russian Civil Code), consequently it is impossible to force the customer to conclude  such a contract.

The Russian Supreme Court Digest highlights the issues that caused many debates regarding application of law and led to misunderstanding among the participants of procurement and the customers in regard to correct application of the provisions concerning conflict of interest.

Undoubtedly, the Digest will help avoid a number of suits, as it clarifies the course of the Federal Antimonopoly Service’s work in respect to application of paragraph 9 part 1 article 31 of the Law No. 44-FZ.

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