Procurement management

Management approach

In its relations with suppliers and contractors the Company seeks to provide equal access to procurement, ensure openness and transparency and foster fair competition.

Russian Railways’ procurement activities are governed by:

• Federal Law No. 223-FZ On Procurement of Goods, Work and Services by Certain Types of Legal Entities dated 18 July 2011;
• other procurement laws and regulations for state-owned companies;
• Regulation on the Procurement of Goods, Work and Services for the Needs of Russian RailwaysApproved by the Board of Directors of Russian Railways on 28 June 2018..

Russian Railways complies with anti-corruption and tax clauses, and no conflict of interest requirements. Suppliers may be included in the register of bad faith suppliers only on the grounds and in the manner set forth by applicable Russian laws.

Procurement risks

The Company’s key procurement risks include:

• procurement of materials and resources at inadequate prices;
• procurement of materials and resources in volumes insufficient for Russian Railways’ units;
• failure to procure from small and medium-sized businesses as required;
• violation of laws when arranging and holding procurement procedures;
• violation of laws when making procurement disclosures;
• improper preparation of documents for competitive procurement.

To manage these risks, the Company:

• analyses market prices and monitors initial (maximum) prices;
• considers/plans procurement taking into account the requirements for purchases exclusively from small and medium-sized businesses;
• monitors if its units fulfil the requirements for procurement from small and medium-sized businesses;
• monitors legislative changes and amends its procurement regulations;
• monitors changes in the functions of information systems;
• standardises documents to arrange and hold procurement procedures;
• trains its employees;
• makes sure that planning, procurement and contracting are timely;
• automates processes and improves the functions of information systems;
• provides timely responses to queries on procurement.

Procurement in 2022

In 2022, we amended our regulations aiming to improve, streamline and increase the transparency of our procurement activities, as well as engage more players from various economic sectors.

The Regulation on the Procurement of Goods, Work and Services for the Needs of Russian Railways was amended as follows:

• a new method of sourcing from SMEs via an e-procurement marketplace for procurement amounts not exceeding RUB 20 m was introducedIn line with Decree No. 2323 of the Russian Government dated 16 December 2021.;
• specific procurement provisions and procedures were put in place in response to political and/or economic sanctions imposed on Russian Railways by foreign countriesPursuant to Decree No. 301 of the Russian Government dated 6 March 2022.:
  • the procedure for disclosing details on procurement, participants and persons selected to be awarded contracts was defined,
  • timeframes for reviewing bids and announcing results were reduced and internal procedures for approving and amending contracts simplified,
  • requirements were put in place for non-competitive procurement to follow the same procedure as that for competitive procurement,
  • the application scope of simplified procurement procedures was expanded, including their use for the purchase of domestic products;
• the contract payment periods were shortenedPursuant to Decree No. 417 of the Russian Government dated 21 March 2022 and Federal Law No. 104-FZ dated 16 April 2022.:
  • for contracts with SMEs, the payment period was reduced from 15 to 7 business days from the date of signing the acceptance documents (for goods delivered, work performed or services rendered),
  • for other contracts, deadlines were set for payments for delivered goods, performed work (its results) or rendered services. The maximum payment period was set at 60 consecutive days, with the payment procedure and terms required to be set out in the procurement documentation and draft contractsAccording to the standard payment terms of Russian Railways as approved by Russian Railways’ Order No. 1594r dated 1 August 2006.;
• amendments entitling the customer to require a specific country of origin of goods were introducedIn line with Federal Law No. 104-FZ On Amendments to Certain Legislative Acts of the Russian Federation dated 16 April 2022.;
• uniform requirements were put in place for independent guarantees of SMEs participating in competitive e-procurementUnder Decree No. 1397 of the Russian Government dated 9 August 2022.;
• pursuant to the directives of the Government of the Russian FederationDirectives No. 14241p-P13 dated 23 December 2021, No. 2182p-P13ks dated 6 March 2022, No. 12061p-P13 dated 14 October 2022.:
  • the list of grounds for single-source procurement was extended to include procurement of goods with no Russian analogues from defence companies;
  • specific contract execution provisions were put in place in connection with economic restrictions imposed against Russia by unfriendly foreign states and in connection with partial mobilisation in Russia announced based on Presidential Decree No. 647 dated 21 September 2022.

To secure a uniform procurement approach, amendments were made to procurement documents to factor in antitrust measures:

• the list of documents and information required to be submitted by the bidder was reduced (with document forms simplified, the requirement to declare compliance with mandatory requirements and to provide publicly available documents (e.g., licences) eliminated and the customer required to carry data checks on their own);
• foreign agents were banned from taking part in procurementIn accordance with Federal Law No. 255-FZ On Control over Activities of Persons Under Foreign Influence dated 14 July 2022.;
• the procedure for rejecting bids due to the provision of inaccurate information was clarified;
• mandatory criteria for requesting additional information from the bidder were established, including in case of discrepancies or the need to clarify the information provided.

2022 performance

In 2022, a total of 12,362 competitive procurements (lots) were conducted, with an average number of bidders of 2.9 (3.1 among SMEs).

Competitive procurement continued to account for the largest share in the total procurement volume. Nearly one third of all procurements were sourced from a single supplier. Procurements through competitive negotiations and online marketplace combined were below 2.0% of the total procurement volume.

Procurement savings totalled 3.0% of the sum of initial (maximum) bidding prices.

Import substitution

Russian Railways continued to replace foreign products with domestic ones of equivalent performance and properties in line with its Comprehensive Import Substitution Programme through 2025Approved by Russian Railways’ Order No. 3125/r dated 31 December 2019..

Priority import substitution areas:

• reducing dependency on imported complex technical systems such as railway automatics and telematics equipment;
• reducing railway industry dependency on imported transportation machinery;
• preferred use of domestic software;
• equipping railway infrastructure with import-independent hardware and software;
• scheduled replacement of foreign products with domestic ones.

To facilitate the procurement of domestic goods and services from Russian suppliers, the Company:

• introduced amendments to procurement documents entitling the customer to require a specific country of origin of supplied goods;
• put in place new mechanisms for prompt procurement, including non-competitive procurement (tenders, auctions, requests for quotations, requests for proposals), competitive negotiations, and an increased e-procurement cap (to RUB 3 m);
• allowed for domestic goods being prioritised over foreign ones in the course of procurementIn accordance with Decree No. 925 of the Russian Government dated 16 September 2016..

In 2022, the share of procurement contracts for domestically sourced equipment, work and services was

97.1 %

of the total number of contracts.
Russian-made goods accounted for

94.5 %

of the total volume of goods procured in the reporting period.

Procurement from small and medium-sized enterprises

In its procurement activities, Russian Railways complies with legislative requirements for sourcing from SMEs. We run a permanent partnership programme for SMEsApproved by Russian Railways’ Order No. 276r dated 5 February 2014., which serves to provide information and methodological support to our partners.

On the margins of the St Petersburg International Economic Forum, the Company signed a 2022–2024 cooperation roadmap with OPORA RUSSIA and SME CorporationNo. 1081 dated 16 June 2022.. Among other things, it provides for fostering SME development with a view to engaging SMEs in major customers’ procurement.

To this end, the Company:

• approved instructions on setting up programmes to foster SME development with a view to engaging SMEs in the Company’s procurement, which set out key requirements for the said programmes to be set up by the Company’s units as customersRussian Railways’ Order No. 3368/r dated 19 December 2022.;
• approved the SME Development Programme to Foster SME Participation in Procurement through 2025Russian Railways’ Order No. 3473/r dated 27 December 2022, which sets forth measures to support SMEs with respect to a certain range of goods and is available on the official websites of Russian RailwaysThe programme is available at website under item “The SME Development Programme to Foster SME Participation as Providers in Russian Railways’ Procurement” (in Russian). and SME CorporationThe programme is available at website under item “Russian Railways’ Supplier Development Programme” (in Russian)..

To create a pool of suppliers meeting the Company’s key procurement needs, Russian Railways seeks to make its procurement process more accessible for market players by:

• training procurement participants, including SMEs;
• publishing procurement guidelines in the Procurement and Bidding section of its website;
• participating in workshops for SMEs run by SME Corporation across Russia (the reporting year saw 33 open workshops which welcomed 2,895 participants);
• helping nurture future suppliers from among SMEs and maintaining a list of potential production sites across nearly all regions of Russia (the list is available on SME Corporation’s website).

In 2022, the total share of procurement from SMEs stood at 74.7% against the annual statutory requirement of 25.0%. The share of procurement involving only SMEs came in at 20.6% exceeding the annual statutory requirement of 20.0%.

Russian Railways’ efforts to promote a favourable competitive environment for suppliers, including SMEs, was recognised at the 26th St Petersburg International Economic Forum with a number of accolades and rewards.

Sustainable development and supplier engagement

Occupational health and safety

The Company relies on the Regulation on OHS Relations of Russian Railways with Contractors to ensure safe work of contractors on its sites.

It stipulates OHS requirements for contractors in service contracts, putting relevant branches where contractors perform work in charge of overseeing compliance. In case of violations, the contractor is penalised as provided for in the contract.

Contracts for work on Russian Railways sites and premises include the following:

• OHS provisions regulating responsibilities of the customer and contractors, including contractor liability for breaching safety rules;
• provisions on contractor staff compliance with Russian Railways’ OHS requirements;
• provisions on the timely notice to the Company of all accidents, injuries, health impairment and illnesses of employees, and other work-related emergencies.

Supplier hotline

A dedicated hotline is available for suppliers of Russian Railways to address any enquiries related to procurement. It ensures that legal entities and individuals can exercise their right to access information about the Company’s procurement of goods, work and services and participate in procurement.

The hotline is available 24/7, with enquiries published in the Q&A section.