MOSCOW SCHOOL OF MANAGEMENT SKOLKOVO The Law Project Balance between the State and Business in state procurement

MOSCOW SCHOOL OF MANAGEMENT SKOLKOVO Table of Contents 1.Working steps 2.Scope of work 3. Pain Points for FL №94: Analysis and Recommendations 4. The Problem of FL №94 5. The Team Goal 6. Step 1 and 2: Bid Price 7. Step 3: Pre-qualification Requirements 8. Step 4: Quality Criteria

MOSCOW SCHOOL OF MANAGEMENT SKOLKOVO Working Steps 1. Analysis Analyze the 1 st intake report and third party research (magazines, literature) Expert interviews: over 15 interviews conducted, 1 round table for PR Study of international government procurement procedures 2. Problem 3. Modeling 4. Recommendations Defining problems for supplier, government worker and state Defining problems associated with e-auctions and electronic system Defining Pain Points to improve in the FL №94 Modeling of possible law changes and their effect on supplier, civil servant and state Modeling of possible prequalification criteria Modeling of quality criteria for 3 sectors (PR, Audit and Appraisal) Recommendation to tackle paint point of FL №94 Recommendation on transferable prequalification requirement Recommendation of quality criteria for 3 sectors (Audit, PR, Appraisal) WEEK

MOSCOW SCHOOL OF MANAGEMENT SKOLKOVO Scope of work Initial task assigned to us by client FL №94 AnalysisModeling Quality criteria Pain Points Prequalification PR Audit Appraisal

MOSCOW SCHOOL OF MANAGEMENT SKOLKOVO Pain Points for FL №94: Analysis and Recommendations 1. Starting bid over or underpriced - Overpriced starting bid to over-inflate the budget or show imaginary control of budget for personal gain - Underpriced starting bid due to insufficient knowledge of market quotations on the given type of work 1. Starting bid over or underpriced - Overpriced starting bid to over-inflate the budget or show imaginary control of budget for personal gain - Underpriced starting bid due to insufficient knowledge of market quotations on the given type of work Establishment of an average price per unit for all services in accordance with industry associations and the statistical agency 2. Price as leading factor in the evaluation of proposals - Supplier can win auction by simply lowering the price 20% - 40% - Not enough evaluation of quality in auctions, quality in service sector correlates with price 2. Price as leading factor in the evaluation of proposals - Supplier can win auction by simply lowering the price 20% - 40% - Not enough evaluation of quality in auctions, quality in service sector correlates with price Lower weight of price in evaluation criteria down to 40% Raise weighting of quality 3. Price dumping - Suppliers don’t calculate their costs accurately and are unable to finish their contract at all or with sufficient quality or in time 3. Price dumping - Suppliers don’t calculate their costs accurately and are unable to finish their contract at all or with sufficient quality or in time Recommendation to reject all proposals from suppliers when the sum of order is over 15% of their annual revenue

MOSCOW SCHOOL OF MANAGEMENT SKOLKOVO Pain Points for FL №94: Analysis and Recommendations 4. Risk of failure by supplier for the state - Suppliers are not able to stay within the first proposed budget - Suppliers run out of money before finishing their contract 4. Risk of failure by supplier for the state - Suppliers are not able to stay within the first proposed budget - Suppliers run out of money before finishing their contract Introduce mandatory detailed plan of working steps to be submitted by the supplier Payment is not done upfront and is instead done only after each completed working step 5. No differentiation in the procurement process regarding the size of the order - Same procedures for an evaluation of a 100,000 Ruble contract as a 20 mln. rubles contract 5. No differentiation in the procurement process regarding the size of the order - Same procedures for an evaluation of a 100,000 Ruble contract as a 20 mln. rubles contract Introduce harsh pre-qualification requirements for tenders over 2 000,000 rubles 6. Qualitative evaluation of proposals by the civil servant missing the necessary classification of sectors and sub sectors - Classification of services is sometimes misleading in e- auctions - Classification and scope of work not clarified in civil servants proposal 6. Qualitative evaluation of proposals by the civil servant missing the necessary classification of sectors and sub sectors - Classification of services is sometimes misleading in e- auctions - Classification and scope of work not clarified in civil servants proposal Establishment of strict guidelines for proposals by the civil servant Establish a classification for services, sectors and subsectors

MOSCOW SCHOOL OF MANAGEMENT SKOLKOVO Pain Points for FL №94: Analysis and Recommendations 7. Board of control - Under current law the board of control must consist of at least 5 people, however these people can be employees of the contractor or civil servant 7. Board of control - Under current law the board of control must consist of at least 5 people, however these people can be employees of the contractor or civil servant Our recommendation is to include experts from industry associations onto the board of control 8. No protection against disregardful participants - Currently only companies are listed in the register of disregardful market participants 8. No protection against disregardful participants - Currently only companies are listed in the register of disregardful market participants Our recommendation is to include disregardful individuals into register of disregardful participants and deny them the opportunity to open new companies under their control 9. Lack of transparency and criteria for assessment of quality delivered by the supplier - Access to information about the results of tenders, their detailed assessment and information about the quality and result of work are restricted 9. Lack of transparency and criteria for assessment of quality delivered by the supplier - Access to information about the results of tenders, their detailed assessment and information about the quality and result of work are restricted Need for transparency to public regarding results of a tender and the evaluation of quality criteria in auctions Need for transparency to public regarding the progress of work along each step of the job Ability to cancel contract by contractor and name no.2 at auction on each step

Before the Law Over inflation of Budget and corruption No or only Imaginary economy of budget High margins for contractor MOSCOW SCHOOL OF MANAGEMENT SKOLKOVO The Problem of FL №94 Today Economy of Budget by supplier Lack of quality in services No profits / looses for contractor Unqualified suppliers misuse the system Must be optimal outcome when there is a balance between the State and Business interests in the state procurement

MOSCOW SCHOOL OF MANAGEMENT SKOLKOVO The Team Goal Forming starting Bid Forming starting Bid Bid Price Barrier Upper than 2 mln. rub. Upper than 2 mln. rub. Up to 2 mln. rub. Up to 2 mln. rub. Prequalification Requirements Auction Quality criteria steps to create the Evaluation System for Bidders in the Field of Intellectual Services

MOSCOW SCHOOL OF MANAGEMENT SKOLKOVO Step 1 and 2: Bid Price 1. Forming the starting bid - Establishment of an average price per unit for all services in accordance with industry associations and the statistical agency -Establish a classification for services, sectors and subsectors to know the exact service to be purchased 1. Forming the starting bid - Establishment of an average price per unit for all services in accordance with industry associations and the statistical agency -Establish a classification for services, sectors and subsectors to know the exact service to be purchased 2. Making the differentiation in the procurement process regarding the size of the order -Introduce harsh pre-qualification requirements for tenders over 2 000,000 Rubles basing on the statistical information industry professionals on the average market volume of a large contract 2. Making the differentiation in the procurement process regarding the size of the order -Introduce harsh pre-qualification requirements for tenders over 2 000,000 Rubles basing on the statistical information industry professionals on the average market volume of a large contract

MOSCOW SCHOOL OF MANAGEMENT SKOLKOVO Step 3: Pre-qualification Requirements Criteria for orders > 2 000,000 Rubles

MOSCOW SCHOOL OF MANAGEMENT SKOLKOVO Step 4: Quality Criteria for Bidders Evaluation (Initial Task assigned to the group by the Client)

MOSCOW SCHOOL OF MANAGEMENT SKOLKOVO Our team Mark Zotkin Fedor SarokvashaRobert BowenBoris Agababov Irina AmbartsumyanArevik Sahakyan Alexey Germanovich, Public Projects Director, Professor of Practice

MOSCOW SCHOOL OF MANAGEMENT SKOLKOVO THANK YOU FOR YOUR ATTENTION!