Procurement Reform in Russia: Implications for the Fight Against Corruption
Public Procurement Debate in Russia
In March 2011, Russia’s Federal Anti-Monopoly Service (FAS) promised an investigation of a Russian military unit that had awarded a contract for $200 million for the maintenance of 41 Volkswagen automobiles. It was enough money to have purchased 1,000 new cars of the same kind as the 41 being maintained. The details of the transaction came to light not through a government whistleblower or muckraking journalist, but thanks to an online government database created to encourage transparency. Procurement websites maintained by the Russian government are being increasingly mined for information by Russia’s bloggers. The result is a growing public fascination with public procurement, one of the most visible realms of government spending.
Also in March 2011, a blogger with nearly 40,000 followers challenged the head of the country’s leading economics and public policy university to a debate on procurement reform, which was watched online by an audience of thousands. The blogger, Alexei Navalny, has launched a reader-supported website devoted to exposing corruption in government procurement. Navalny, who is also a proponent of minority shareholder rights and corporate transparency, was seeking to challenge new proposed amendments to the law on procurement, commissioned by the Kremlin, which he believes enshrines corrupt practices. On the other hand, Yaroslav Kuzminov, Rector of Moscow’s Higher School of Economics (HSE), whose experts helped draft the new legislation, defended the amendments on the grounds that they will both combat corruption and ensure that government agencies receive the highest quality goods and services for funds expended, while improving the current procurement system. The debate took place against the background of Russian President Dmitry Medvedev’s public demand in 2010 for comprehensive reform of the procurement system, which reportedly loses an estimated $35 billion annually to corruption.
Government procurement, once an opaque realm rarely discussed with much vigor in policy circles in Russia, is now the subject of sustained scrutiny. With that in mind, it is useful to examine the degree to which public procurement in Russia has undergone reform during the past three years, as part of the effort to combat corruption, strengthen oversight, increase purchasing transparency, and reduce subjectivity in the process. These changes have been adopted as part of an overall attempt to improve the business climate, encourage investment, and strengthen governance, integrity, and transparency in the country.
Public procurement in Russia not only includes government agencies at the federal and local levels, but also involves state-owned corporations and related firms. Since the 2008 financial crisis, procurement reform has been driven by a desire to increase the efficiency of public purchasing and to rein in public expenditures. Another significant incentive is Russia’s need to improve procurement procedures to join the World Trade Organization (WTO). Procurement reforms, combined with recently implemented rules that require the disclosure of government officials’ and their immediate family members’ income and assets, now give the Russian public a look inside the “sausage factory” of public spending.
This article delves into both the overall approach that Russia has taken toward procurement reform, as well as some of the technical nuances of the proposed reforms that are at the heart of the ongoing debate. In order for the new procurement regulations to be effective, they must increase transparency and accountability in government agencies’ acquisition of goods and services, and change the process for qualifying and selecting suppliers. This article outlines the legal framework and its recent changes, describe the debate that reform has generated, and analyze how this debate has been resolved during the most recent round of reforms. We also lay out a roadmap for future steps, trying to glimpse the post-election procurement landscape in Russia.
Dina V. Krylova is the president of the Business Perspective Foundation. She is also a member of the coordinating council of Russia’s Federal Anti-Monopoly Service.
Alexander Settles is professor of corporate governance at the Faculty of Management, National Research University - Higher School of Economics, and has been a consultant to the World Bank, Organization for Economic Cooperation and Development, and the Center for International Private Enterprise. His research and teaching focus on corporate governance, corporate social responsibility, international management, and public policy. Prior to joining the faculty at HSE he was a Fulbright Scholar in Russia and worked at the University of Delaware.
The views expressed by the authors are their own and do not necessarily represent the views of the Center for International Private Enterprise (CIPE). CIPE grants permission to reprint, translate, and/or publish original articles from its Economic Reform Feature Service provided that (1) proper attribution is given to the original author and to CIPE and (2) CIPE is notified where the article is placed and a copy is provided to CIPE’s Washington office.
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