IV. Specifics of Government Procurement

　　A. Price of a Contract

　　It is estimated that about ? of the 2009 national budget was spent on contracts concluded on behalf of the Russian Federation government.[11]

　　Under Russian law, all prices for government contracts are fixed and defined in the contract at its conclusion.  The correction of the contract price is allowed if:
　　Natural monopolies need to be compensated for inflation;
　　The government agency insists on changing the contract in order to increase the volume of works and services provided; and,
　　The execution of a long-term contract for the amount exceeding RUB 10 billion (US$300 million) is impossible without price change due to substantial increase in contract costs.

　　Advance payments cannot exceed 30% of the contract price, and the contractor must prove that he has secured funds to fulfill his contract obligations in the amount equal to 1/3 of the contract price.  There is no requirement for a contractor to purchase breach of contract insurance.

　　According to the ruling of the Highest Commercial Court of the Russian Federation No. 24 of June 22, 2006,[12] the government procurement procedures are applicable in all cases where the contract price exceeds RUB 60,000 (approximately US$2,000).  However, if the institution offering the contract is not an institution specifically authorized to award government contract and the services provided by a contract are aimed at securing normal functioning of this institution, and the amount of a contract is under RUB 200,000 (approximately US$7,000), it is not required to follow all the prescribed procurement procedures, and a regular contract based on provisions of the Civil Code and Budget Code can be concluded.

　　Amendments to the Law, which would allow increasing the amount of the contract price when offering contracts without conducting auctions or following the prescribed formalities, are presently under consideration of Russian legislators.[13]

　　B. Length and Execution of a Contract

　　The Budget Code of the Russian Federation provides for a three-year budget cycle.  This allows agencies to enter into government contracts lasting for a three-year period.  Contracts for implementing long-term federal government target programs can be concluded for the duration of these programs and are not limited to three years.

　　A contractor that has submitted a request for participation in an auction cannot refuse to accept the contract if the contract is subsequently awarded to him.  If a contractor cannot perform the contracted work in full, part of the contract can be awarded to the contractor who was evaluated as being next in line.

　　C. Privileged Contractors

　　Organizations representing or employing handicapped persons and correctional institutions receive special priority in placing orders.  These organizations may request an increase of up to 15% in the contract price.

　　The Law provides that no less than 15% of all government contracts must be awarded to small business enterprises.[14]  This does not apply to contracts in the military and national security fields.  As a rule, the requirement for small business participation is met through the organization of special auctions or calls for bids established exclusively for small businesses.  According to the opinion of Russian experts, this measure excludes small businesses from competition for large projects outside of those which were preliminary selected by the government for distribution to small business.[15]  It is not clear how this provision will be implemented through the participation of anonymous contractors in online auctions.