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Changes proposed to Russia's military procurement system - paper

RIA Novosti

2:04 27/08/2010

MOSCOW, August 27 (RIA Novosti) - The Russian Federal Service for Defense Contracts (Rosoboronzakaz) has proposed changes to the country's procurement system, a business daily said on Friday.

Rosoboronzakaz wants to bring the scheme in line with the U.S.'s Defense Federal Acquisition Regulation Supplement (DFARS), Vedomosti said.

The Defense Procurement Law presupposes market mechanisms of price formation, Rosoboronzakaz Deputy Director Vladimir Muravnik said, adding that these mechanisms have little if nothing to do with what actually goes on.

There are only three suppliers at the very most, so there is no competition, he said. He claimed that one result of this was "numerous cases of contract overpricing". This is also due to the fact that defense procurement is monitored by Rosoboronzakaz, not the Federal Anti-Monopoly Service, Muravnik said.

The DFARS develops uniform acquisition policies, demanding suppliers, or in most cases one supplier, to justify their pricing by providing the proper documentation as well as drawing on labor input and profitability rates.

Pricing should be flexible and account for expenses, Muravnik said.

The majority of the Pentagon's contracts with Boeing, Northrop Grumman and General Dynamics are flexible, meaning that the pricing changes after all of the expenses are accounted for.

If a supplier has raised the price, as is often the case, it should be penalized, Rosoboronzakaz said. Any distortion in accounts should be likewise punished, it added.

President Dmitry Medvedev saw red recently over an overpricing row in the south Russian Rostov region, where several X-ray machines were bought on a government contract for three times the original price.

Rosoboronzakaz said that if the proposals go through, it will help save some 10% of budget funds allocated for defense procurement.

Russia plans to spend more than 600 billion rubles ($19.4 billion) on defense procurement this year.

The government has not yet made any decision on the proposals, Prime Minister Vladimir Putin's spokesman told Vedomosti.

While leading suppliers, including NPO Saturn, are in favor of the changes, there are fears they may increase the amount of red tape and paperwork.



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