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| 14.06.2006 |
| State ordering stuck on price |
| gazeta |
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«St Petersburg Business»
Smolny asserts that the system of state ordering saves St Petersburg 3 billion roubles each year. But companies are not rushing to take part in the bidding.
Even in the private sector, business isn’t in the best state – far from all firms are rushing to create a system of open bidding for the purchase of goods and services. A round table discussion about the problems of organising contract bidding procedures was organised by the editorial board of “St Petersburg Business” and the website www.tender-spb.ru
Ahead as always
The President of the Russian Federation, Vladimir Putin signed a Federal Law on the 21st of July 2005 “Concerning the placing of orders for goods, work and services for state and municipal requirements” According to this law, all state and municipal services for the Russian Federation are obliged to purchase necessary goods and services by means of a government contract.
As usual, the Smolny officials assure us that St Petersburg was the pioneer of this system and that government contracts – the system of decision-making on purchases for the city – was put into operation by the city government at the beginning of 2004. According to a statement by Olga Romashova, vice chairperson of the St Petersburg Committee for Economic Development, Industrial Politics and Trade (KERPPiT), with the introduction of government contracts the economy in state spending was increased by a factor of 12 in comparison with the period when the system was not in place.
“ In fact for the money we are saving on purchases, we could repair two bridges in St Petersburg,” reports Olga Romashova.
“The big players are showing an interest in the tenders for state orders in recent times. In point of fact builders hold an outdated belief that the budget will not pay properly, but we want to assure the community that the budget is always calculated so as not to run into debt,” relates Alexander Glebov, Vice President of the Construction Committee of St Petersburg.
Price vs quality
Officials have emphasised repeatedly that the purpose of the government contract is transparency in purchasing and reduction in prices. Many representatives of business in St Petersburg point out that often reduction in the price leads to a lowering of the quality. Precisely because of this many companies do not want to take part in the tenders.
“Striving to reduce prices, sub contractors resort to dumping. Their complaints are as follows: forced into dumping they economise on the quality of work. And also the tenders are open to organisations that do not have the professional skills and the personnel to implement the project” declares Mikhail Victorov, General Director of the Association “Industrial Construction Complex of the North West” (12974)*. In his words dumping prices of more than 15 –18% in a government contract, is unrealistic. Either the company is cheating with regard to its own profit, or it is economising on the quality of construction and technologies.
Anton Zailinger, President of the ALS Group (specialising in programming and websites) advises that more than once the company had to win government tenders at a loss. But the wish to have a serious client makes companies incur these expenses.
“In the situation of the Konstantinovsky Palace website, the money we received for the work did not even cover costs. However, it was the only chance to get such a serious client in our portfolio,” relates Anton Zailinger.
Pavel Sozinov, Director of the Expert Council for Determination of the Reliability of Companies in the Construction Industry (86135)* “I understand that for the state customer, to be bound by the law might not be convenient or effective. A balance should be struck between the technical requirement and a qualified choice. There are fewer problems for private customers. In fact there are experts who can assess projects”.
More flexible
Companies, in contrast with governmental organisations, are more flexible when organising tenders. For them the price is not the only criterion for selection. Dmitry Serov, procurement manager of the October Railway Company – a subsidiary of the public limited company “Russian Railways” (02883)*, considers that more attention should be paid to the quality of goods and services.
“The October Railway Company purchases everything it needs via open competitive tenders. We get quotations from all our suppliers and welcome the opportunity of purchasing everything from one supplier. If anything which has been supplied, particularly spares for moving stock, were to fail, the loss to Russian Railways would be significantly greater than the amount of money saved by choosing an inferior supplier,” comments Dmitry Serov.
No problem
However, Olga Romashova doesn’t see that the problem as being that some companies are winning tenders by dumping or not being sufficiently qualified.
“ I consider that companies who want to work on state contracts should take into account where they are working. The city takes a hard line, not advancing money on future projects. It follows that companies need to have sufficient working capital and be prepared for very strict terms on the part of the city. To say that the city is losing quality is not true. Of course, dumping companies do exist, but they rapidly adapt and think again about the advisability of continuing such policies,” declares Olga Romashova.
The problem of unscrupulous suppliers is one of the most acute problems of government contracts, “Now the client is protected by law against unscrupulous suppliers, from reductions in price with the consequent failure to fulfil obligations. The law allows a financial guarantee of up to 30% of the contact value to be required from the supplier. However to pay out 30% of the contract value as a collateral guarantee is a big problem for any company. Insurance companies in St Petersburg are proposing their solution to the problem.
“An insurance company can be an additional filter in the organisation of the tender. At the present time there is no insurance company in Russia which could undertake contract insurance. There are several insurance companies which, perhaps through lack of knowledge, do not distinguish between insurance and responsibility. We have now, together with the KERPPiT developed a system allowing insurers access to statistical data on the profits and losses of companies. Using the collected data we will be able to construct a grid of tariffs. Sometime in the next few months a real insurance product will appear,” promises Anatoly Kuznetsov, insurance director of the construction complex subsidiary of SAO, “Gefest”.
“In the meantime the city is not demanding insurance of the contract, but we developed new insurance rules and handed a pile of documents to KERPPiT. At the same time it will not be a universal “all risks” insurance policy. It will not protect against fraud, but against essential risks in fulfilment of the contract, and when a real working company is involved, the risk will be covered,” declares Nikolai Malov, Deputy Director of the St Petersburg subsidiary of the public limited company “Military-Insurance Company” (16237)*
Pavel Fyoderev |
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