Lawyer of company No. 7, 2012
Design Institute ”Volgastroyproject” (hereinafter- “the company”, “Volgastroyproject”) was included into the register of unfair suppliers through no fault of his own. The company took part in the auction by electronic form and after winning didn’t evade from execution of the government contract. However, it turned out that financial statements of its surety was unreliable, though “Volgastroyproject” did not even know about that. That was the reason the company was denied entering into the government agreement and included into the register of unfair suppliers. This fact meant the cloud on the reputation of the Company and complete termination of business.
Participation in the auction
On March, 2011 the governmental customer (one of the Moscow budget organizations) held an open auction in electronic form: the customer was looking for a performer to provide a quality audit for the roads repair. Three applications were submitted.
The proposal of the company was the second by the price but the first winner was recognized evaded from the contract, therefore “Volgastroyproject” was recognized the winner (according to p. 13 of art. 41/12 of the Federal Law “On governmental procurement” dd. 21st of July, 2005 No.94, hereinafter - the Federal Law 94). Since the auction documentation had a requirement of surety, the company provided the signed draft of the agreement and the surety agreement with the copy of financial statements as well (p. 4 of art. 41.12 of the Law 94).
Denial in entering into the contract
Instead of signed contract in April the company got the resolution on denial in entering into contract where the company has been recognized evaded from entering into contract. The reason was the following: the surety agreement secured the performance of obligations in volume less than the required auction documentation. According to the governmental customer this is equal to non-provision of the surety agreement.
As a matter of fact the volume of security was in full compliance with the auction documentation. The draft of the contract provided by the customer had a clause on the amount of surety different from the auction documentation placed in www.zakupki.gov.ru, and no amendments were made by the customer.
It became clear that missing the profitable contract is not the biggest problem at all. In a month the Moscow Department of the Federal Antimonopoly service (hereinafter – MD FAS) on the appeal of the customer issued the resolution on including the company into the register of unfair suppliers for two years (p.1, 8 of art. 19 of the Law 94).
A new reason for inclusion into the register
От the meeting of commission of MD FAS regarding the inclusion of the company into the register of unfair suppliers the representative of the governmental customer gave a new reason for denial. The customer requested tax authorities to provide the confirmation that that surety's financial statements are equal to those submitted to the tax authorities. In response the tax authorities gave no confirmation of compliance. The request of such confirmations from tax authorities is common practice for governmental and municipal customers. Moreover, FAS in the letter #IA/4178 dd. 13th of February, 2012 even recommends requesting information from the tax authorities.
According to p. 22 of art. 41.12 of the Law 94 the contract may be concluded only after the winner provides the surety agreement and copies of financial statement of the surety confirming the compliance to the requirements set in p.20 of this articles (on the amount of net profit, assets value, etc). Since the provided documentation was unreliable according to tax authorities, the antimonopoly service recognized this as provision of surety agreement only and. respectively, the reason for recognition of the company as being evaded for entering into contract (p.11 of art. 41.12 of the Law #94)
Effects of being included into the register
After being included into the register of unfair suppliers the company referred for legal assistance. Maria Kalinina, head of legal of Law Firm PRIORITET, says: "Our client works with governmental contracts only because of the specific character of his business, since the orders are being issued from state authorities only. The inclusion into the register of unfair suppliers would mean a complete termination of business. The Client would have been disqualified for tenders and, respectively, to enter into the contracts, but still has to pay expenses for self-regulating organizations and to pay salaries to employees. After being included into the register the company had a redundancy, the personnel took unpaid leaves. It's a blow to the reputation, which was always very good, confirmed by certificates as fair supplier and taxpayer in Chuvash republic (the place of its registration)".
Lawyer's tactic
Inclusion of information regarding the participant of auction into the register of unfair suppliers could be appealed in court (p.12 of art. 19 of the Law 94). Maria Kalinina made respective application to arbitration court immediately.
Legal position
It was easy to refute an argument that the company provided the surety in less volume. By increasing the amount of surety the governmental customer should have reflected that in his documentation. The amendments are possible by using website www.zakupki.gov.ru only, but the governmental customer did not do that, so the amount of the surety remained the same.
The second reason (nonconformity of the surety with the requirement of the Law 94) was more problematic. Position of the antimonopoly authority based on the explanation of FAS in letter #AK9281 dd. 17th of March, 2011, so if the surety agreement is made by the person non-complying the requirement of the Law 94, the agreement is considered improper and non-provided. Apparently, according to this explanation, antimonopoly authorities started to include the companies into the register of unfair suppliers from the beginning of spring 2011 in case no confirmation of reliability of financial statements has been received from the tax authorities.
At that moment no court practice existed regarding the contestation of inclusion the companies into the register of unfair suppliers therefore the legal position was made from the grassroots.
The main idea was that the company did not evade form entering into the contract. First of all, Maria Kalinina assumed that unreliability of the Financial statements of the surety does not mean the evasion of the winner to enter into the contract. The Law 94 has limited list of cases of evasion from entering into the contract. There is no such reason for evasion like unreliability of the financial statements of the surety. The non-compliance of the surety to the requirements of the Law 94 obviously is not equal to non-provision of surety agreement.
Secondly, the inclusion of the company into the register of unfair suppliers is the enforcement measure applicable to the person made violation (evasion from entering into the contract). This violation implies the negative consequences such as impossibility to take part in auctions further. Therefore inclusion of the person into the register is impossible without his guilt. The name of the register itself is about the unfair behavior by reason and conscious.
The recognition of the winner evaded from entering into contract because of the unreliability of the financial statements of the surety does not comply with the fault-based liability. The auction participant receives the copies of the financial statements from the surety. The Law 94 does not imply the liability to verify the reliability of information in financial statements. No reasons for mistrust since the copies are certified by seal of tax authority. Moreover, the participant of the auction has no legal possibility to verify information on his own because of the tax secrecy regime (art. 102 of the Tax Code).
Appeal to Court
In June 2011 an application to the Arbitration Court of Moscow was filed with respect to illegality of the FAS's decision on inclusion of the company into the register of unfair suppliers and charging with duty to exclude an information from the register.
"As expected, the representative of FAS in the court referred to the FAS letter #AK/9281 dd. 17th of March, 2011, says Maria Kalinina. Moreover, he insisted that our client has a possibility to verify the reliability of information in financial statements of the surety, but did not do that. In support of this point my opponent referred to the laws and non- normative acts relating to absolutely different situations. In subsequent instances he insisted that the company admitted negligence which is a form of guilt".
To the moment of the last court hearing the representative provided the decision of Moscow Arbitration court (case № А40 -61296/11106-263). In this case the Court made a decision for MD FAS. Therefore the representatives of the antimonopoly service provided this decision in support of their position against ”Volgastroyproject” hoping that the court would prefers the same position. At this time the other courts also took the similar decisions regarding the recognition of the participant evaded from entering into the contract because of unreliability of the financial statements of the surety (Regulation of FAS of Ural region dd. 28 June 2011, case № А50-24417/2010).
What has been achieved
Notwithstanding the negative arbitration practice, in this case the court made a decision for ”Volgastroyproject” dd. 27 October, 2011 in case № А40-67874/11-17-579 . The court confirmed all main arguments of the plaintiff: no formal reasons for recognition of the participant evaded from entering into the contract, no obligation to verify the financial statements of the surety and possibility to verify them neither. Moreover, the court confirmed that the customer unreasonably refused to enter into the contract with ”Volgastroyproject” since no fact of noncompliance of the amount of surety to the requirements of the auction documentation was revealed.
The court decided that company's behavior was not unfair and guilty therefore the antimonopoly authority had no legal reasons to include the company into the register of unfair suppliers. Antimonopoly service appealed this decision with no success further. (Regulation of the Ninth Arbitration Appeal court dd. 19 January 2012, FAS of Moscow region dd. 28 May, 2012 on case № А40-67874/11-17-579).
After decision came in force the company was excluded from the register and now conducting its business asuccessfully.