Analysis Of Public Procurement Mechanism When Implementing Financial Policy Of State

Abstract

Russia consumes large amounts of public financial resources to provide national and municipal needs. The main objective of meeting the needs is to improve the efficiency of using these resources and transition to financial austerity. The state explores various techniques and tools of financial activity to meet the requirements. One of the techniques is the contract system in the field of purchase of goods, work and services for the state and municipal needs. At the present stage of development of the market system of management in Russia, the importance of this system has increased. The contract system is a tool of necessity for the direct expenditure of most financial resources of the state aimed at managing social and economic processes and maintaining the defence capacities and security, supporting all the state and municipal authorities. Financial and legal relations referred to managing state and municipal expenditures through the contract system for purchasing goods, work and services are of particular significance. The President of Russia has repeatedly drawn attention to problems of state procurement in financial activities of the state and municipal units. The ways of informing are the proceedings of Annual Budget messages, address to the Federal Assembly. Issues related to implementation of the contract system in the field of procurement activities are widely studied in economic literature. However, these problems are considered by scientists in the field of civil, business and administrative law. Financial and legal regulation of the contract system within procurement activities remains insufficiently examined.

Keywords: Stateprocurementneedsfinanceeffectivepolicy

Introduction

Significant expenditures of the budgets of all levels on state and municipal procurement activities keep the requirement to develop their implementation mechanism current in compliance with financial policy of the state. There is a need for the analysis of procurement activities to identify their role and place in the system of state regulation of the economy while improving the system of public procurement management both at the state and regional levels.

Problem Statement

Financial science does not give due consideration to procurement activities, despite the fact that this direction is currently one of the key ones in the financial and legal policy of the state. And it is the process of improving the efficiency and effectiveness of state and municipal expenditures what financial science should pay special attention to.

Research Questions

The subject of the research is the process of improving the system of public procurement management and its qualitative changes within economic relations, organization and management, institutional environment, procurement technologies that are reflected in the social and economic development of the country.

Purpose of the Study

The purpose of the research is to analyse and provide rationalization for the practical basis as well as to work out recommendations for the development of the public procurement financing mechanism aimed at achieving the highest efficiency of the use of budgetary funds.

Research Methods

The methodological background of the research is based on such general scientific methods as dialectical, systemic-structural, logical, analysis and synthesis ones.

Findings

The implementation of procurement activities is a world-wide practice of maintaining the work of state and municipal authorities. In Russia, the process of functioning of public procurement (municipal) has a much shorter period, and therefore there is a need to search for forms and methods of supplier relationship management (Kramin, Grigoriev, & Kramin, 2015).

The purpose of this research is to analyse the system of public procurement activities as based on such a factor as public control, presented in the Universal information system. Table 1 shows the dynamics of state and municipal contracts negotiated in 2015-2017.

Table 1 -
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The growth rate of the number of state and municipal contracts gained in 2016 is 104 % compared to 2015. In total there are 3453584 contracts in 2016; in 2017 there is only a 2 % increase compared to 2016 with 3510977 contracts. There is an inartificial growth of contracts gained in the period under review owing to both increasing customers' needs and functioning in a proper way in the Unified information system of procurement and on the electronic trading platform where state purchase contracts can be placed. So, the number of contracts for the period from 2015 to 2017 increased slightly by 6 %, despite the fact that the number of customers during this period increased by only 10%. This trend is explained by the lack of qualified personnel in the field of public procurement, as well as by the lack of technological means of the system. Still, the implementation of the Federal Law “On the contract system in the field of procurement of goods, work and services for the state and municipal needs" presents a problem in terms of customers' preparing annual procurement plans and procurement schedules, as well as in terms of going through the treasury control (part 5, paragraph 99 of the Federal law, April 5, 2013 № 44 "on the contract system in the field of procurement of goods, work, services for state and municipal needs". It makes the process of purchasing goods, work and services for state and municipal needs more time-consuming.

The system of procurement management within the current legislation can be represented by three levels: Federal level, regional level (the level of territorial units of the Russian Federation), municipal level (the level of municipal units) (table 2 ).

Table 2 -
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According to the price distribution of contracts gained by the levels of corporate customers in the period of 2015-2018, the trend can be characterized as stable both to the reduction of contracts gained by corporate customers at the Federal level and to the growth of contracts at the regional and municipal levels respectively. Thus, in 2015, the number of contracts of corporate customers at the Federal level is 38.49%, at the regional level it reaches 43.66% while at the municipal level it comes up to 17.5%. In 2017, there is a decrease of Federal corporate customers to 33.46%, while there is an upward trend for regional ones up to 47.15% and at the municipal level up to 19.39%.

From 2015 to 2017, the number of registered corporate customers in the public procurement system working under the contract system increases by only 10%, while the number of customers working in accordance with the Federal Law No. 223-ФЗ "on purchasing goods, work and services by some types of legal entities", 18.07.2011, grows by 14%. It can therefore be assumed that the customers took the advantage of the provisions of the Federal Law “On the contract system in the field of purchase of goods, work and services for the state and municipal needs" №44-ФЗ that allows procurement by state-financed establishments in compliance with the requirements of the Federal Law No. 223-ФЗ "on purchasing goods, work and services by certain types of legal entities". Thus, it can be concluded that the Federal law №223-ФЗ has "more liberal" requirements than the Federal law № 44-ФЗ. Thus, there appear more corporate customers within the Federal Law № 223-ФЗ.

Part 1 of Paragraph 30 of the Federal Law No. 44-ФЗ “On the contract system in the field of purchase of goods, work and services for the state and municipal needs" claims that customers, except for the cases of implementation of purchases of goods, work, services for national defence and security of the state, as well as purchases of work in the field of nuclear energy use, are obliged to purchase (clause 5 of paragraph 30 of the Federal Law) goods, work, or services from small business subjects and socially oriented non-profit organizations equal to 15 % or more of the total annual volume of purchases provided by the schedule.

Table 3 shows the number of lots published by small business subjects in 2015-2017.

Table 3 -
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The data of Table 3 shows an upward trend for small businesses in public procurement. The number of tenders for 3 years increased by more than 2 times. In the meanwhile, it should be noted that the number of tenders of small businesses that win the auction is constantly decreasing. In addition, the participation of small businesses is still very inert, as the total value of contracts gained with small businesses is no more than 4%.

Despite the fact that the total number of announced procedures is increasing year by year, the actual number of stocks on order turns out to be lower, since some of them are eventually recognized as failed. The reasons for the lack of tenders for such orders, in our opinion, are low availability of information and lack of awareness. Moreover, entrepreneurs do not have enough confidence in the procedure of public procurement. Customers have to be highly qualified to participate in the auction. Sometimes small businesses cannot cope with certain financial, time and labour resources requirements.

Thus, we can say that in general the contract system in our country is functioning. However, the new law on the contract system has not solved many problems yet.

The analysis of the financial component of the risks of functioning regional socio-economic system suggests significant financial and resource losses in the process of regional economic activities. They are caused by both subjective and objective reasons. There are also external factors (interregional and international ones) and internal impacts (intercompany, management and production ones) (Kallagov, Tedeev, & Gergaeva, 2018). We see the solution to the problem in the facilitating of the contract system in the regions.

Let us consider the implementation of public procurement activities in the Republic of North Ossetia-Alania.

Table 4 -
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There is an increase of registered organizations in 2016 compared to 2015 by 34 organizations and a decrease in 2017 by 15 organizations. But, at the same time, the number of procurement plans offered is increasing year by year.

The number of offered regulations and notices is characterized by a downward trend in 2017. It is likely that it is connected to the reduction of budget expenditures due to the crisis phenomena in the economy. Thus, the number of regulations increases threefold in 2016, and is reduced by half in 2017.

The initial (maximum) price of the offered purchases significantly increases in 2016 compared to 2015 thirtyfold, while in 2017 there was a decrease that equals 52179 mln. RUB. Accordingly, the same trend has the indicator of the sum of contracts in the disclosure data.

For small businesses there were purchases offered to the amount of 726 618.2 mln. RUB. in 2017, which is 10.66% of the total annual volume of purchases under the schedule. In 2016 there were purchases offered to the amount of 633 019.3 mln. RUB, which is 8.1% of the total annual volume of purchases under the schedule. In 2015 there were purchases offered to the amount of 399 684.9 mln.RUB, which is 4.27% of the total annual volume of purchases under the schedule. The indicators show the increased participation of small and medium-sized businesses in the public procurement procedure in the Republic of North Ossetia-Alania.

Savings resulting from the gaining of contracts in he Republic of North Ossetia-Alania are presented in table 5 .

Table 5 -
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Thus, for the three analyzed years the total budget savings when gaining contracts amounted to 2 871 008 110 RUB, which is 8.77% of the initial price of all orders.

The budget expenditure of North Ossetia-Alania in 2015 amounted to 21 993 mln. RUB, in 2016 it was 22 687 mln.RUB (Tedeev & Gusakova, 2017). Accordingly, budget savings when gaining contracts in the Republic of North Ossetia-Alania amounted to 1.7% and 9.2% of budget expenditures.

In January 1, 2018 the preliminary control of the procurement documents in the Unified Information System returned. This means that the placement of documents on the procurement website without the approval of control authorities is no longer possible. The rule for blocking documents before the examination was introduced by the government in January 2017. It caused failures in the Unified Information System. Now this circumstance directly affects order schedules for procurement activities. While the treasury board examines the information, customers' documents in the Unified Information System are blocked.

Due to the fact that the public procurement system is developing and becoming more and more complicated, it prevents customers from using it in an effective way. It is necessary to simplify and make it unambiguous for all participants of the procurement process. Formalization and unification will allow us to see how digital technologies make the system transparent and allow both customers and regulatory authorities to understand where there are deviations in terms of price regulation.

In view of the foregoing, it is necessary to introduce some changes for all the participants to succeed within the procurement processes.

So, in the Republic of North Ossetia-Alania it is necessary to create a provider portal when adopting the experience of Moscow. The service is a showcase for all the procurement activities of the city of Moscow, where suppliers can register, post an offer, get information about scheduled and announced procedures by using the Unified Information System, as well as make the analysis of open data on issues the customer is interested in (Azarenko & Mikheenko, 2017).

An important part of digitalization is to improve the efficiency of management personnel, to develop universal regulations for all participants' "behaviour» so that any entrepreneur in any part of the country could participate in tenders held in different territorial units. For example, in Bryansk region there is an open access to the Internet shop of Bryansk region and a procurement showcase, which allows both suppliers and customers to be able to equally use their financial and information resources.

In the context of the global economic crisis, the countries, which economies are focused on innovative development and technological level, try to promote procurement system in various ways. At least three points depend on how effective the system of public procurement is in the country: how effectively the budget will be spent; what competitive environment will be formed and what are the prospects for further development of the economy in the field of innovation. Following this line of reasoning, there are two areas of importance in improving its efficiency in the current conditions of economic management in the whole country and in some regions:

  • improving the efficiency (effectiveness) of budget spending;

  • increased control of financial flows and prevention of uncontrolled growth of expenses and reduction of budget expenditures.

  • Single-sourcing of the system of public procurement (municipal) contributes to the automation of all stages of the procurement process. They are:

  • forecasting activity and scheduling procurement activities for state and municipal needs;

  • justification of initial prices and other components of contracts, as well as control over their being observed;

  • placement of the state (municipal) procurement;

  • execution of state (municipal) contracts;

  • monitoring and accounting of the results of procurement activities for state (municipal) needs (Smutin, 2016).

Together with positive changes, the current state of the public procurement system has some problems that require a comprehensive solution:

  • the contradictory nature of some regulatory legal acts, manifested in incomplete regulation, as well as the lack of official explanations of a number of controversial provisions;

  • insufficient level of functionality of the Unified Information System due to technical problems specific to the official portals, poor information support of public procurement; errors in the forms of documents, as the automation system cannot follow the changes in legislation immediately; the work is associated with significant labour costs, because some operations have to be done manually (e.g., determination of the initial (maximum) price of the contract through the official website when organizing the placement of the procurement), so it is necessary to develop the automation of the official website;

  • imperfection of the scheduling and forecasting system that causes delays in competitive procedures;

  • the lack of effective control over the implementation of the established rules and regulations of public procurement, as not all customers take into account the recommendations of experts;

  • insufficient material and technical support for the activities of corporate customers, control authorities;

  • the shortage of professionally trained specialists (Gasanalieva, 2016).

The digitalization of the economy has also affected the sphere of public procurement. Legal regulations of economic relations in this area began with global amendments to the law on the contract system (Law No. 44-FZ). In particular, the amendments suggest an open tender, a competition with limited participation, a two-stage tender, an electronic auction, a request for quotations, an electronic enquiry message. Negotiated purchasing can also be electronic on the resolution of the Government of the Russian Federation. But from July 1, 2018, the electronic procedures are the customer's right, from January 1, 2019 they are the obligation. The tender for the electronic competition will consist of parts:

  • information about the product (work, service);

  • information about the procurement party and

  • contract price offer (Nemchenko, 2017).

The amendments also provide for a single procedure for gaining a contract based on the results of the electronic procedure; the concept of "specialized electronic platform" for closed procurement procedures has been introduced. Thus, Russia does not stand aside from the global process of digitalization and proceeds from the fact that the creation of a digital economy increases the competitiveness of the country, the quality of life of citizens, transparency and efficiency of public procurement, and in general it provides economic growth and national sovereignty..

Conclusion

The analysis of the results of implementation of the contract system revealed the problems that currently need considering to continue achieving the objectives approved by the Government of the Russian Federation when implementing the contract system. The contract system provides transparency of the process of public procurement and a systematic approach to all stages of the procurement activities.

During the period of the Federal law № 94-FZ, 21.07.2005 on "Tendering for the supply of goods, performance of work, provision of services for state and municipal needs" only the stage of placing the order was relatively transparent and subject to public control. In such a situation, the corruption potential was most often formed at the planning stage. Within the implementation of the contract system at the legislative level, this drawback was taken into account through the introduction of the mechanism of mandatory public procurement discussion and its streamlining. In this context, there can be a possibility of public review of the procurement process, starting from the date of placing procurement schedules in the Unified Information System.

Currently, mandatory public discussions of purchases are taken place when the initial (maximum) price is more than 1 billion RUB. But it is possible to establish additional criteria for this procedure at the regional and municipal levels.

Taking into consideration the common practice of placement of municipal purchase, when the customers use artificial fragmentation of procurement of goods, work and services to evade the procedure of public discussion, and the analysis of the structure of expenses for the purchase, it is advisable to introduce appropriate additional criteria to control:

  • Availability of the same subject matter of contracts in accordance with the Unified nationwide classification of products by types of economic activity.

  • The aggregate value of the initial (maximum) prices of contracts, defined by the first criterion, from the total annual volume of purchases in the entire municipal unit, but not less than 5%.

Participation of citizens and public organizations in the functioning of the contract system involves both public discussion of procurement and public control. In order to create a unified approach to evaluating the effectiveness of the procurement activities and of the principle of comparability of information through the comparative analysis of efficiency of local authorities to implement the contract system, it is advisable to use the indicator of complex assessment of efficiency of municipal procurement as one of the elements of quantitative and qualitative assessment of the effectiveness of the implementation of the contract system fullfilled by public organizations.

Despite the statutory right of public associations and associations of legal entities to request information about the implementation of procurement process and the execution of contracts, it is necessary to optimize the procedure of public control by local authorities through periodically (at least once a year) publishing a summary of the results of the procurement process, which should include the values of indicators characterizing the effectiveness of each stage of the procurement process.

The proposed measures will simplify the procedure of monitoring and control of procurement process by public organizations. They will help reduce time costs and provide the compliance with the principles of openness, transparency and unity of the contract system.

References

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29 March 2019

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Cite this article as:

Batrodzovna*, T. Z. (2019). Analysis Of Public Procurement Mechanism When Implementing Financial Policy Of State. In & D. K. Bataev (Ed.), Social and Cultural Transformations in the Context of Modern Globalism, vol 58. European Proceedings of Social and Behavioural Sciences (pp. 1166-1174). Future Academy. https://doi.org/10.15405/epsbs.2019.03.02.135