The Supreme Court will explain how participants in public procurement can guarantee the price of a socially important product

The Supreme Court of the Russian Federation (SC) will explain how a government procurement participant can confirm a significant reduction in the price of the supplied goods for the “life support of citizens.” In particular, can a letter of guarantee signed personally serve as such evidence if the participant is not a manufacturer of the product. Since the law does not contain an exhaustive list of documents, the courts considered such guarantees sufficient. But following a complaint from the supervisory authority, the Supreme Court became interested in the case. Lawyers draw attention to the increased attention of authorized bodies to the procurement of socially oriented products.

The Supreme Court will consider how the supplier can justify the low price of the goods. In 2021, the Crimean state institution “Bakhchisarai Psychoneurological Boarding School” (PNI) held an auction to supply it with butter and cottage cheese. Based on the results of the bidding, the institution entered into contracts with individual entrepreneur Gennady Konygin, who submitted proposals with a reduction in the initial maximum contract price (NMCP) by 47% and 54%, respectively.

According to Art. 37 of the law on the contract system, a procurement participant for the supply of goods for the life support of citizens, who offered a price 25% lower than the NMCC, must provide the customer with its justification. As this, the individual entrepreneur sent information about three contracts executed by him over the previous three years, as well as letters of guarantee, in which, signed by Gennady Konygin himself, it was stated that he is the official distributor of a number of product manufacturers and has the required amount of long-life goods in stock .

The Financial Supervision Service of the Republic of Crimea conducted an unscheduled inspection of the boarding school and came to the conclusion that the individual entrepreneur’s letters of guarantee did not meet the requirements of the law on the contract system.

In this regard, according to the department, the PNI should have recognized the entrepreneur as having evaded concluding a contract, and by failing to do so, he violated the terms of the procurement.

The boarding school challenged the decision of the supervisory service in court. In June 2022, the Arbitration Court of Crimea rejected PNI’s claim, considering that the letters of guarantee do not confirm the ability to supply products, since they deal with products with a long shelf life, and butter and cottage cheese “do not belong to those.” In addition, the court decision says, these guarantees do not justify the price offers, since they do not come from the manufacturer of the products, and also do not disclose the mechanism for the formation of the low prices proposed by the individual entrepreneurs.

But the appeal did not agree with this and overturned the service’s decision, deciding that the entrepreneur’s assurance was “sufficient confirmation of his ability to supply products in the required quantity in accordance with the terms of the contracts,” and also justified the prices he offered.

The Court of Appeal noted that the law does not contain a specific list of documents that the procurement participant is required to submit to justify the price reduction. The district cassation upheld this position.

The Financial Supervision Service appealed this to the Supreme Court. According to the service, the individual entrepreneur’s assurance, set out in letters of guarantee, is “unfounded, not documented either during the procurement procedure, or during inspection, or in court proceedings.” In addition, the department noted that the provisions of the law are aimed primarily at “additional protection of the customer” in the procurement of essential goods, the failure of the supply of which “could have negative consequences.” The case was transferred to the Economic Collegium of the Supreme Court, the hearing is scheduled for November 22.

Lawyers note that the clarifications of the Supreme Court will be important for the practice of disputes arising from public procurement.

According to Orchards partner Alexey Stankevich, Art. 37, which regulates the list of documents provided by procurement participants, is “insufficiently specified”; it does not contain an exhaustive list of information and materials. This could be a letter of guarantee from the manufacturer or other documents confirming its ability to fulfill the contract, says Stefania Reshetnikova, senior lawyer at Pepeliaev Group. The purpose of providing such evidence is to reduce the customer’s risk of receiving “less quantity or lower quality product,” she adds.

If the supply is offered at a significant discount, the courts usually believe that “the bidder cannot confirm the availability of the product to himself” and an assurance from a third party (manufacturer, wholesale supplier, etc.) is needed, which “will protect the customer from a broken contract,” the antimonopoly office points out. lawyer Natalya Pantyukhina. Meanwhile, according to her, in practice, participants provide their own letters of guarantee “more often than it seems,” while customers “quietly accept them,” and “if they don’t complain about the purchase, then no one will know about it.” In the case with PNI, “probably the customer did not see a critical reason for refusing to conclude an agreement,” “the low price could also have played a role,” argues Ms. Reshetnikova.

Alexey Stankevich warns that the customer, when accepting a proposal with reduced prices from a procurement participant, must be “extremely cautious,” since it is he who is obliged to check the validity of the price and “is responsible for the accuracy of the information received from procurement participants.” The decision of the Supreme Court, according to him, should “close the legislative gap in matters of confirming the integrity of procurement participants.” Regardless of the outcome of the dispute, Mr. Stankevich emphasizes, “this case illustrates the close attention of authorized bodies to the procurement of socially oriented products,” and also calls on participants in such auctions “not to ignore the established anti-dumping measures and to treat the documents they submit responsibly.”

Ekaterina Volkova, Anna Zanina