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An Analysis of the State of the Public Procurement System in Russia and an Elaboration of Proposals on how to Organise Price Monitoring within it

2011
The project has been carried out as part of the HSE Program of Fundamental Studies.

The object of study is the public procurement system in Russia and interactions between the main participants of this system.

The goal of the project is to make a complex analysis of the public procurement system in its current state and to elaborate policy advice on how to improve public procurement regulation in Russia.

Using the unique dataset of 2000 procurement contracts carried out in 2008-2010 for one major public customer we define the contracts with higher risk of suppliers’ non-performance. We found that under the current regulation of public procurement in Russia the risks of suppliers’ non-performance are higher for large contracts, contracts executed in October-December and contracts placed at open auctions. However, contrary to anecdotal evidence and expectations of procurement specialists, initial price decrease under competitive placement does not influence the performance of contractors. Based on our results we provide policy implications for public procurement regulation in Russia and other economies in transition.

Another part of the project considers the main consequences of public procurement reform in Russia in 2005-2006. Using data from two surveys of manufacturing enterprises we show that before the reform firms with government stakes, old firms (established before 1992) and larger firms had advantages in access to government orders. 2009 data demonstrated substantial growth in the share of firms participating in government procurements. Large firms retain their advantages in access to government orders. The participation of firms in public procurements in 2005 had a positive influence on the access to government orders in 2009. The estimated scale of “kickbacks” in 2009 was virtually the same as in 2005. According our results active restructuring of the enterprises had no influence on the enterprises’ access to government orders. Thus the principal goals of the radical reform of public procurement in Russia were never achieved. We discuss the reasons for this failure and provide some policy implications.

We have also investigated the place that public procurements occupy in the system of relations between business and the state; whether or not we can regard public procurements as a component in the "system of exchanges" between enterprises and authorities; and the extent to which public procurements are combined with measures for direct support of enterprises. For this investigation, we used the data from a survey of enterprises conducted by the Institute for Industrial and Market Studies at the National Research University – Higher School of Economics (HSE) in 2009. Our econometric study demonstrates that in Russia, public procurements cannot be regarded as a component in the system of exchanges, and the extent of combination between direct and indirect support depends on the level of the supporting government. Our analysis gives us grounds to believe that as the economic development of a region rises, direct support of enterprises declines, giving way to indirect support by means of public procurements.

Regarding corruption, it can be concluded that a set of factors exists which explain the increase in bribery. Illegal practices are highly competitive and popular in the economic sector, and political instability is an influence on company performance. But when there is a governmental stake in the company the probability of bribery falls.

Publications:


Demidova O., Yakovlev A. A. State-Business Relations and Participation of Firms in Public Procurements in Russia: An Empirical Study / NRU HSE. Series WP1 "Институциональные проблемы российской экономики". 2011. No. 03.