Russia. Government Procurement of Pharmaceuticals

[May 31st, 2013] On April 5, 2013, the legislature adopted Federal Law No. 44-FZ on the Contract System of Procurement of Goods, Works and Services for State and Municipal Needs (the “Government Procurement Law”), the majority of the provisions of which will become effective as of January 1, 2014. The Government Procurement Law introduces:

• a system of planned procurement based on annual and three-year procurement plans;
• additional methods of selecting a provider, including rules relating to requests for proposal, tenders with limited participation and two-step tenders;
• monitoring, auditing and public oversight of procurement; and
• anti-dumping measures intended to ensure that participants in the procurement process comply with their price undertakings and select suppliers based on other important criteria, such as corruption potential.

Among other things, the anti-dumping measures require suppliers of goods deemed to be basic necessities (which include pharmaceuticals) to offer a price that is at least 25% below the initial (maximum) contract price for the applicable goods3 and to provide the customer with evidence of the supplier’s ability to furnish the goods at the price offered. Failure to meet these requirements results in the exclusion of the supplier from the public tender or auction process.

In addition, the Government Procurement Law contains the following regulations:

• Protection of the rights of suppliers of essential and vital pharmaceuticals. Under the new law, a supplier of essential and vital pharmaceuticals for which no maximum sales price is registered in the register maintained by the Russian government4 may be excluded from the Government Procurement process only if the supplier has not complied with all applicable requirements or has provided false information with respect to its compliance with those requirements. By contrast, if there is a maximum registered sales price for such pharmaceuticals, the supplier can be excluded from the Government Procurement process if the sales price offered by the supplier exceeds the maximum sales price and the supplier refuses to reduce the offered price.
• Promotion of competition by expanding pharmaceuticals eligible for the participation in Government Procurement. Under the new law, documentation with respect to the procurement of pharmaceuticals must specify their international nonproprietary name (commonly referred to as a “generic name”) or, if there is no generic name, their chemical and group names. The procuring entity may indicate the brand name of the pharmaceuticals sought to be purchased only if the pharmaceuticals are included in a list approved by the Russian government. This rule promotes competition and directly impacts the accessibility of the Government Procurement process. For example, if the terms of a Government Procurement tender are defined based on brand names, pharmaceuticals with the same characteristics but different brand names may not participate in the tender. As a result, more participants should be able to participate in a tender to purchase pharmaceuticals defined by generic names rather than by one of the brand names in such pharmaceuticals’ generic name groups.
• Promotion of competition by encouraging purchasing from multiple bidders. Government Order No. 301, dated April 6, 2013, establishes the maximum initial offer price5 at which a procuring entity may offer to purchase a single lot of pharmaceuticals with different generic names in a Government Procurement auction.6 If the procuring entity wishes to purchase pharmaceuticals with different generic names for a total price exceeding the prescribed maximum initial offer price, the procuring entity must offer to purchase multiple lots. This rule is designed to make Government Procurement auctions more competitive by allowing more bidders to participate in the auction and avoiding the situation where the procuring entity contracts with a single bidder for the entire quantity of pharmaceuticals sought to be purchased.
• Counteracting corruption and promoting competition by defining exceptional cases when pharmaceuticals can be procured without a tender or auction. Under the new law, a customer may procure pharmaceuticals by way of a request for proposals, rather than through a tender or auction, if a medical commission deems the pharmaceuticals medically necessary for a particular patient and the quantity of pharmaceuticals so purchased does not exceed the amount required for the treatment of the patient. A customer may also procure pharmaceuticals by way of a purchase from a sole supplier, rather than through a tender or auction, if a medical commission deems the pharmaceuticals medically necessary for a particular patient, the contract price does not exceed RUB 200,000 (approximately US$6,600) and the quantity of pharmaceuticals so purchased does not exceed the amount required for the treatment of the patient.

Source: Debevoise & Plimpton LLP