Gov. procurement
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Joera Mulders
March 20, 2011
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The Runet and Russia’s print media have been aroused by a public debate featuring blogger, activist and could-be politician Alexey Naval’ny. It doesn’t happen often that the establishment publicly debates with an opposition figure, let alone takes the initiative for such a confrontation. Doubting that many of the avid commentators would actually take the time to watch the 3.5 hour debate, I thought I’d take the burden. I learned a lot of new things about the actual process of government procurements in Russia and its problems. I also learned that not everyone is as interested in finding a solution, as we would normally expect.

In the process of shady procurement deals the Russian budget annually looses 1 trillion rubles, which is about two and half times the budget for education. When learning about these numbers in November 2010 president Medvedev ordered state departments to work out an alternative to the current government procurement law. There are 5 weeks left before the deadline.

The Ministry of Economic Development (MER) has been put in charge, coordinating their activities with the Ministry of Finance and the Federal Anti-Monopoly Service. MER in turn has charged the Higher School of Economics (HSE) with the task.

Conflict of interest

Yaroslav Kuz’minov, the rector of the HSE, is married to the Minister of Economic Development, Elvira Nabiullina. One cannot escape the impression that there might be a conflict of interest here. Shouldn’t the Minister have picked another perhaps less qualified institute to avoid the impression of a conflict of interest?

Naval’ny attacks

Enter ‘blogger’ and minority shareholder rights activist Aleksey Naval’ny. Naval’ny can be described as an up and coming independent politician, who is very popular among the growing online community, for telling things as many people see it. The state sucks. Period.

On his well-read blog Naval’ny criticized a preliminary concept for government procurement worked out by HSE and thereby set the tone for the coverage in the liberal print media. For those of you who do not read Russian newspapers regularly; the majority of the printed press can be considered liberal in its views.

Ergo, the assumption was created and spread that the new concept for state procurement would abolish all constraints placed on corruption in government procurement, effectively giving the bureaucrats complete freedom to steal more money from the people. According to Naval’ny and the journalists parroting his line, the Minister would advocate the interests of the bureaucratic class and so would her husband.

Kuz’minov made it happen

Husband Kuz’minov, however, is not easily provoked and he invited Naval’ny to a public discussion on the premises of the Higher School of Economics. Hundreds of students and a wide range of other experts and state officials were present in the room and its adjacent quarters. 10.000 people watched the online translation of the 3.5 hour debate.

One could consider this event an exceptional moment in Russia’s democratization process. After all, a leading opposition figure was given a central place in a public debate. For comparison: the Deputy-Minister present was given but a tenth of Naval’ny’s speaking time.

There is much to say for this enthusiasm, but the reader should also know that such public discussions take place regularly. Elena Panfilova (Transparency International) for example noted that she had been present in the same room, in the same enthusiastic atmosphere only four years ago, when the current law for government procurement, back then also still a proposal, was discussed.

What made this event top the news headlines was the presence of a notorious ‘oppositioner’ like Alexey Naval’ny. Like we hardly ever hear about a protest that does not feature Nemtsov or Limonov, Russia’s civil society is widely ignored as long as there is not the semblance of a conflict between that society and the state.

Praise should go to Kuz’minov, who invited his criticaster and accepted a long sequence of direct and indirect insults from his guest. Not only was Kuz’minov’s expertise and independence questioned by referrals to his marriage to the Minister, much of Naval’ny’s time was also spent on direct accusations of corruption delivered at the Higher School of Economics itself. The HSE had paid a large amount for online advertisement on several websites that according to Naval’ny receive less traffic than his own blog. Had Kuz’minov asked his students from the marketing faculty, they had known better. Amidst a room of students, Naval’ny couldn’t have performed better.

Law 94FZ

We’re gradually getting into the matter things. The current law on government procurement, which Naval’ny is so afraid to substitute, is primarily oriented on the price of the products or services. The cheapest deal is the best deal. Everything else smells of corruption.

This law numbered 94FZ covers tenders only. In Russia there are no regulations for quality of demanded goods or services, no regulations for facturing their exploitation costs, no regulations for the establishment of a reasonable minimal price and no regulations for the execution of the contract. The result is that state organs which follow the letter of the law often get contractors that did ask the lowest price, but cannot follow up with quality work or even the complete execution of the contract. Parts of the contracts are fulfilled. The rest is stalled. Contractors buy time by bribing the officials and if that doesn’t work simply disappear. This is Russia.

Corrupt state officials love 94FZ, Kuz’minov argues. They pray to the law every morning. Loopholes are manifold. When citizens complain that construction plans paid for by the budget are not completed or orders paid for by budget funds have never been delivered, these officials may escape administrative scrutiny or legal persecution by only showing that the tender itself had been conducted according to the regulations. It’s doesn’t get more Kavkaesque than this.

When 94FZ was enacted in 2006 77% of state procurements where conducted on the basis of tenders, in 2007 55%, in 2008, 51%, in 2009 44% and in 2010 43%. Each year state officials make less use of tenders, instead applying for exemption based on the argument that their order is too specific to be based on the strict rules of 94FZ tenders. Most orders simply are too specific. The law may work for the purchase of petrol or gravel, but not for science centers or hospitals that need to buy technological equipment. Outside the legal framework of the 94FZ tenders, however, there is no regulation for government procurements at all.

Federal Procurement System

The new Federal Procurement System proposed by Kuz’minov aims to look at the entire process of government procurement, not just the tenders for standard goods. Waving with a thick booklet Kuz’minov argues that 94FZ is no holy cow either. The amendments passed in the last half year number 120 pages. There are but a few experts left, who truly understand the law, Kuz’minov continues, without looking at Naval’ny. Their rates now ‘rise up into the heavens’. Why not take a step back, look at the entire system and build a new system that is understandable. Naval’ny on the other hand, who repeatedly calls himself THE professional expert on the 94FZ law, expresses complete horror at the idea of substituting law 94 with a new Federal Procurement System.

The presumption of honesty

Naval’ny’s main argument stems from a formulation he found in the concept which reads that the new Federal Procurement System would be based on the presumption of honesty. Naval’ny fears that this would mean that regulation of government procurement would become voluntary and dishonest bureaucrats could freely steal as much as they want. Kuz’minov replies that the larger part of the current law will be incorporated into the new system. No one advocates the removal of anti corruption mechanisms, the abolition of tenders or the end to transparency, he says. When asked what clauses of the law Naval’ny would like to see incorporated in the new system, the activist remained silent. There was not one moment he would do anything else than condemn the new initiative.

The discussion about the presumption of honesty was lively and interesting. We’re often presented with the view that Russia’s opposition figures are liberal, because they’re opposed to the state, while everyone who’s doing the state’s bidding should be considered a conservative, statist or nationalist.

This time however it were foremost the liberal economists who disagreed with opposition man Naval’ny. Evgeny Yasin, minister from 1994 till 1997 and currently research director at the HSE, argued that the introduction of many anti corruption mechanisms have failed especially because the stricter the laws, the more bureaucratic controls, the more corruption: ‘Flexibility is not the cause of corruption, it’s the lack of flexibility that is the cause of corruption.’

Another professor, this time from the business faculty recollected a joke about a Georgian winemaker, who hired a 2nd laborer to make sure the first worker didn’t drink the wine. He then had to hire a third laborer to check on the both of them, etc. In the end all the wine had been drunk. Her question for Naval’ny: ‘Do you seriously think you can build an effective, legal system based on the presumption of dishonesty? I doubt that it is possible. We would have to control everything.’ Backed into a corner Naval’ny had to resort to demagogy. Should traffic rules be abolished too?

Naval’ny envisions a Russia in which all government procurements are subjected to civic control. This is the system that works for him. He knows this specific law and he knows when to dispute a tender by sending a letter to the Federal Anti Monopoly Service. There should be more people like him. Such activists however should also try to look constructively at proposals made by the authorities and affiliated institutes, even when a change in the situation for better or worse would require these activists to reinvent themselves anew. Not everything the government does is doomed to fail, as Naval’ny rhetorically repeats throughout the debate. We need a real solution at last, Kuz’minov countered: You Mr. Naval’ny comfort the people with a law only you understand and thereby distract these people from the necessity for change. Wittingly or unwittingly, you partake in the creation a smokescreen.