Introductory remarks by Dmitry Medvedev
Meeting with Government Expert Council members on improving public oversight of government spending, procurement and investments
Transcript:
Dmitry Medvedev: As you are aware, a law to this effect was passed and will take effect on January 1, 2014, that is four months from now. Of course , we are all readying ourselves for this date.
It is important to not only t make budget spending more efficient, but also deal with other tasks that are directly or indirectly related to the procurement system, such as creating proper conditions for small- and medium-sized businesses, supporting modernisation efforts and innovative products. Of course – and this may even qualify as a separate task – we should curtail corruption, because it’s rife in the sphere of government procurement and services. It permeates these spheres. Everyone’s aware of it, and everyone’s talking about it.
Today, we’ll have the chance to hear what the public opinion has to say about this. Nonetheless, it is clear that the problem is huge, and we hope that this hard-fought law will help us resolve this problem .
Indeed, the preparation phase was difficult. There was a lot of controversy, and some provisions are still being debated. Of course, all provisions deserve our attention, and we need to see how the law will work. It is open to further improvements. Its provisions can be amended or even repealed if we decide that they are no longer relevant or, as sometimes happens, they defeat the purpose of the law. I'm not saying that this will actually happen, but this subject is so complex that we will clearly have to improve these provisions in the future.
Dmitry Medvedev: It is important to not only t make budget spending more efficient, but also deal with other tasks that are related to the procurement system, such as creating proper conditions for small- and medium-sized businesses, supporting modernisation efforts and innovative products. Of course – and this may even qualify as a separate task – we should curtail corruption.
In order for this law to be fully operational, we have adopted a plan that I approved in late May. We will have to draft 53 Government acts before the end of 2015, of which 37 must be adopted this year. By the way, literally 10 minutes ago I signed a resolution on criteria for minimum and maximum prices under government contracts that require the provision of information about beneficiaries, administrative bodies, corporate managers, co-contractors and subcontractors . These criteria have already been discussed, and I’m sure you are aware of them. It’s one billion roubles for federal needs and 100 million roubles for Russian regions and municipalities. These numbers should be used as a baseline.
We still have a lot of documents to be adopted. I would like to hear which ones you think are the most difficult and which ones can be made part of the law which is about to come into force .
I turn the floor over to Mr Abyzov (Mikhail Abyzov, Minister) who will make a few introductory remarks, and then we will continue our open discussion.
Mykola Abyzov: Thank you. Mr Medvedev, in line with your December 2012 instruction the Government Expert Council established a working group to analyse the main shortcomings of the current law on state procurement – the so-called 94th Federal Law – with a view to drafting recommendations on a draft law on a federal contract system.
This law was adopted last spring and it takes into account a number of proposals by the working group. Nonetheless we have concentrated on the drafting of legal norms to develop this law. To this end, the working group has embarked on implementing pilot projects in seven regions and in “pilot” executive bodies.
Meeting with Government Expert Council members on improving public oversight of government spending, procurement and investments
Based on these pilot projects, the working group has expressed its opinion on how the new federal law should consider proposals to improve the procurement system and on what the main emphasis should be on. It paid attention primarily to enforcing public oversight and making relevant information accessible and objective. Today we’ll show you the results of this work. We will also listen to the reports of the Rosatom (State Nuclear Energy Corporation) pilot agency and representatives of the Krasnoyarsk Territory who were monitoring these efforts in cooperation with the working group…
Dmitry Medvedev: So there is a pilot agency and a pilot region.
Mykola Abyzov: We’d like to start with a sociological study prepared by our colleagues. It shows the attitude of society and the professional community to the organisation of procurement and budget expenditures.
Dmitry Medvedev: Yes, go ahead please. In fact this information has already appeared.
Konstantin Abramov (First Deputy General Director of VTsIOM, the Russian Centre for the Study of Public Opinion): Mr Medvedev, colleagues. Today I’d like to present the results of a study that VTsIOM and our colleagues from Superjob carried out very recently – about a week ago. We studied two groups – Russians older than 18 years (this was our job) and so-called procurement specialists (this was done by Superjob).
Show us the second slide please. When asked whether state procurement was transparent and fair 80% of those polled – the absolute majority – said that putting it mildly, this is not quite the case. Only 20% of our people believe that this procedure is somewhat transparent, or fairly transparent.
Dmitry Medvedev: 20% is not so bad – 20% (11% + 9%) is not so bad at all. I expected it to be even worse.
Konstantin Abramov: This opinion has taken shape in society. Some are optimistic.
Here is a third slide: “How frequent are corruption cases in state and municipal contracts in your sphere?” Some 45% of specialists believe that all procurement involves corruption; 38% think some cases are corrupt and some are honest, and 5% maintain that all procurement is honest.
The next slide, №4. “Does the current system of state procurement require a drastic overhaul?” Some 65% of procurement specialists answered this question in the affirmative; 15% said “no” and 20% answered that they did not know.
The fifth slide. We asked whether public oversight over state procurement is effective or not and whether it helps counter corruption. Our people, 63% of them, tend to think that this system is effective, whereas 28% said it was somewhat ineffective, or even worthless.
Next slide, please. A plurality, 38%, believe that public oversight is the most effective measure. I think this is a serious figure. Federal oversight is the runner-up with 24% and regional oversight comes third with 14%. Some 12% of our people said that no oversight is effective.
The seventh slide shows how many people know about the new law. I’d say that 21% of Russians know that this new federal law will come in force on January 1. I think this is a very high figure.
Dmitry Medvedev: A high figure. I think the question was simply incorrectly worded. Some law has been adopted – okay, probably it has.
Konstantin Abramov: What is truly surprising is that 48% of procurement specialists do not know about this.
Dmitry Medvedev: It is indeed.
Konstantin Abramov: An interesting fact.
Now the eighth slide. We asked procurement specialists whether the new law will help overcome the shortcomings of the current system and 31% said it will; 32% said it won’t; and 37% didn’t know. So the professional community has a fairly unequivocal attitude to the potential benefits of the new law. This slide shows what professionals think about the effectiveness of the law’s mechanisms – 40% dismissed them as ineffective, 25% considered them effective, and 35% said they didn’t know.
Konstantin Abramov: I believe Government attempts to make the procurement system more open and efficient will be welcomed by the audience.
The ninth slide please. This shows the willing of people, including procurement experts to take part in public oversight over state procurement. It appeared that 55% are somewhat or definitely willing to take part in such oversight. For experts the relevant figure was 60%. I’d say there is a serious community that is interested in this issue. They are ready to take part in public oversight procedures in this sphere.
The tenth slide contains conclusions that you can read. I’d like to emphasise that part of our society, notably active users of the Internet and social media, expect the state to become more open because they want to understand how efficiently it is using tax payers’ money. Is it efficient and open, or subject to corruption?
They are interested in this information and they are discussing it. According to our data (we have conducted studies for many years, and this applies in part to the Internet environment), this audience is growing with every year and is posing this question more and more often. I believe your and our attempts to make the procurement system more open and efficient will be welcomed by this audience, particularly young people who are more educated and active.
Dmitry Medvedev: Thank you very much. You have provided us with interesting information that gives us food for thought. Who wants to take the floor? Go ahead, please.
Alexander Shamrin (First Vice Rector of the National Research University Higher School of Economics): Mr Medvedev, colleagues, it is patently clear that Federal Law 94 has exhausted its potential, and we can see on the slide that since it came into effect, corruption and fraud have moved into government contracting areas with little or no legal regulation whatsoever, that is, into contractual planning and execution.
The slide shows only the most serious incidents of fraud and corruption. When we were preparing our presentation, quite frankly, we failed to fit in all fraud- and corruption-related problems that exist in the field of government contracts nowadays. The problems with Federal Law 94 include narrowness of the legal regulation framework, a restricted oversight system, the absence of a public control system and key indicators to gauge contractor performance, and, most importantly, inadequate motivation of government contractors, who are not oriented to the end result. In current circumstances, the only efficiency indicator for government contractors is the blind compliance with procedures that involves practically no responsibility for the right end result.
Now on to the next slide. As my colleague has just confirmed, the public and the business community do hope that the upcoming introduction of a contractual system will usher in positive changes in the field of government procurement. The system looks to be very effective. Experts say that at the initial stage, returns may come to 700 billion roubles annually, due to higher relevance of purchases and a lower percentage of cancelled tenders. At the moment, only half the contracts are concluded through competitive bidding and, more often than not, we have just a couple of bidders showing up for a tender. And it often happens that one bidder acts as a spoiler to the other.
Then we need to introduce rationing of the main types of purchases. This is paramount for the investment climate, and so, too, is more competitive bidding.
The contractual system’s effect will not be limited to its economic impact, though. We also expect it to ensure that state needs are met with better quality, that repeat procedures are less time-consuming, that purchases are more transparent to the public, and that an effective system of public control is created, at long last. Importantly, the efficiency of involvement in purchases for businesses is expected to rise dramatically.
On to the next slide. With this in mind, the Expert Council has drawn up a comparison of Federal Laws 94 and 44 in an effort to identify risks and to assess the possibility of transition to a contractual system. As it has turned out, the most serious transition-period risks include possible foot-dragging on purchases, a huge amount of secondary legislation involved in regulation, inadequate information support and, equally important, a possibility of using public control mechanisms to make life a nightmare for businesses. There are lots of possibilities for public control now, but we need to think about public organisations’ legal awareness and their readiness to make a difference.
On to the next slide now. As Mr Medvedev has pointed out already, we have developed a whole set of related measures, with the key ones being the formation of a working group and the implementation of a pilot project to test contractual procedures in the provinces and at the Rosatom State Nuclear Energy Corporation. As its main area of activity, the Working Group developed proposals on contractual procedures, tested draft laws, and put together recommendations, which information the Ministry of Economic Development later used for preparing regulatory acts.
As for the pilot project, its main tasks include ensuring information transparency, developing effective models of public control, and doing fieldwork to test planning mechanisms, standardisation, and other contractual procedures on the ground, as it were. We cooperate with a group of regions that boast quite strong state contractor potential. I hope this point will be expanded on by other participants presenting pilot sites.
Next slide, please. I’d like to point out here it is the content of secondary legislation that will determine how the contractual system looks. Thirty-seven by-laws are to be drafted by the year end, which means that the Government should approve ten resolutions per month. The Expert Council is willing, both right now and in the future, to provide support for executive agencies, primarily the Ministry of Economic Development, in developing workable proposals on a contractual system. It’s largely from pilot regions that we source ideas, testing these within the Rosatom Corporation, as well as elsewhere.
We believe this kind of experience in paving the way to serious reform-oriented mechanisms could be used in other systemic transformations, too. My colleagues will expand on intermediary results, I expect. But here’s what I would like to mention with regard to our pilot projects.
First of all, their participants emphasise the growing complexity of procedures, and say they expect the realisation costs of the new contractual system to increase.
Secondly, government contractors suffer from a shortage of methodological support in preparing and introducing the contractual institution. A separate problem is personnel qualification and the capability of staff in contracted services to adapt to new circumstances.
Speaking of the effectiveness of public hearings, these are obviously a good tool for developing sensible or optimal solutions. At the moment, though, they serve as a fringe institution rather, not called for until all major procurement-related decisions have been made. This is why the Expert Council deems it necessary to examine the possibility of shifting the focus of public hearings to the initial phase of planning. Secondly, there is a need for clear-cut regulation of the work done by state contractors, chief managers of public funds, supervisory bodies, and public organisations to make sure they act in line with the results of public hearings.
At the moment, public hearings make almost no impact on government procurement contracts, except for on rare occasions when an honest contractor does heed their results and modifies the requirements of the contract accordingly.
With the law’s complexity in mind, we believe it necessary to propose a project on application of the federal law in the first two years, 2014 and 2015. This is about initial-stage expert support, so to speak. This would help identify major indicators of effectiveness, along with developing rapid response mechanisms for specific problems faced by contractors, so as to ensure the fastest possible feedback from law users to lawmakers.
To sum up, our proposal boils down to the following. First of all, continuing with the pilot project for the testing of the basic mechanisms of Law 44. Secondly, getting the comprehensive pilot project implemented in 2014 and 2015, in collaboration with the Expert Council, the Ministry of Economic Development, pilot regions and the other agencies and ministries concerned. Thirdly, we propose introducing a new scheme for working with procurement contracts in government agencies, which would involve personal responsibility for the result, contractor rating, and assessment of the effectiveness of contracting in line with some clear-cut criteria. The Expert Council is willing to develop related proposals and to submit them for discussion. And, finally, we recommend developing administrative regulations for government procurement contracting and, equally important, creating a system of methodological support and professional training for state contractors.
Dmitry Medvedev: Thanks a lot.
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After the meeting, Minister Mikhail Abyzov took questions from reporters.
Transcript:
Question: Mr Abyzov, does the issue of improving public control include passenger transit subsidies? It is no secret that the government tends to cut transport subsidies every year and it is low-income population groups that are hit the hardest.
Mikhail Abyzov: Starting next January, all government spending and contracting will be effected via an entirely new procedure. The main objective of today’s discussions was to consider ways of streamlining the regulatory acts that the government should adopt before January 1, which would make it possible to introduce the new federal contractual system properly and in time.
Mikhail Abyzov: The main focus of the Prime Minister’s meeting today with Expert Council members was the enactment on January 1, 2014, of federal law clauses providing for the introduction of a new contractual system. In other words, starting next January, all government spending and contracting will be effected via an entirely new procedure. The main objective of today’s discussions was to consider ways of streamlining the regulatory acts that the government should adopt before January 1, which would make it possible to introduce the new federal contractual system properly and in time.
Government expenditures, and subsidies as part of government spending, were not discussed at length today. This is not the focus of the regulations at hand. However, the issue of optimising public funds management is directly linked to the quality of government procurement contracts and to the training of the personnel managing them.
Our agenda today was dominated by issues related to government agencies’ work to ensure that the new regulations right the wrongs of the infamous federal law 94, much criticised by the public, as well as by members of the professional community and market operators.
Question: What are the strongest points of the federal contractual system as compared with Law 94, in your personal opinion and in the Expert Council’s view?
Mikhail Abyzov: The new federal contractual system allows a more flexible use of competitive procurement procedures, including repeat tenders and price adjustments with the final participants in contract bidding.
On the other hand, the system creates the conditions for smart procurement contracts on goods and services, as well as for government investment related to life-cycle contracts. The cheapest buy is not necessarily the most cost-effective one, as cheap goods are often short-lived. The new federal contractual system provides for procurement contracts with result-oriented fine-tuning of the quality of services and merchandise.
A lot of work will have to be done in 2014 to prepare personnel and the new administrative regulations for government agencies involved in introducing the new contractual system. This is a new regulatory field, but we still have enough time to adopt relevant resolutions at governmental level.
As the meeting participants pointed out, a lot still remains to be done in the regions that are also switching over to the new system from January 1. This work is unlikely to produce quick results, though; it will involve long preparatory and transition efforts, and will require a level of high competence from government procurement managers.
Mikhail Abyzov: "The new federal contractual system allows a more flexible use of competitive procurement procedures, including repeat tenders and price adjustments with the final participants in contract bidding."
Question: Mr Abyzov, I hear experts have suggested introducing KPI’s and a special rating system for contractors. Have these ideas been approved, and if so, how could they be translated into reality?
Mikhail Abyzov: These suggestions have been approved in principle, yes. Indeed, our current system doesn’t allow us to rate government agencies’ procurement performance. We often face criticisms concerning their performance, yet the agencies’ related work and its results are not really analysed. This is why it is hard to assess which practices are the best and which are faulty and involve risks. We have now decided to develop a set of procurement performance criteria with which we could objectively gauge the quality of procurement-related activities at various government agencies. This will be within the first quarter of 2014 and I hope the preliminary application results will be made public in the year-end reports already.
Question: Mr Abyzov, speaking of the pilot projects, how would you appraise their initial results?
Mikhail Abyzov: The application of new contractual regulations in pilot regions has made it evident that the new scheme is more effective than Federal Law 94. But our work in pilot regions and agencies has also revealed a whole number of shortcomings, to be corrected during the government’s finalisation of related clauses. There are problems related to the overstretching of databases in government procurement activities, for example; these problems are still possible to solve before the end of this year. The Treasury, which runs our main online resource on government procurement, will be instructed to work toward that objective. Thank you.
