It is hardly surprising that there are reasons for the termination of the procurement agreement by the customers. To this should be added a list of reasons that motivate these suppliers' actions. However, in both cases, one can expect the inevitable consequences that can be encountered in cases of early termination of agreements concluded based on public tenders.
Most of the questions can be answered in the research conducted in the framework of the USAID / UK aid "Transparency and Accountability in Public Administration and Services / TAPAS" project.
You can learn more about the analysis of agreements in the Prozorro system terminated from 2017 to 2019 from the report of experts. This is how the reasons for terminating such agreements are classified into categories. In addition, a number of recommendations have been proposed to reduce the probability of interruptions and optimize the relevant data in the system.
Features of displaying the reasons for termination in the Prozorro system by customers
An increase in the probability of early termination most often occurs during the implementation of agreements on planned procurement. This circumstance is the reason for the transition of the agreement in the Prozorro system from "active" to "terminated". For this reason, the entry "Reasons for termination of the agreement" appears.
If you need to fill in the information in this field, the entry will be made in arbitrary form. However, when it comes to describing the grounds for termination of the agreement by customers, it is often mostly general wording or the complete absence of any explanations. This is why there are difficulties in finding out about the problems that arise during the implementation of the agreement.
To clarify this set of issues, a study of the reasons for termination of agreements was introduced. A description of the impact of such circumstances on customers and suppliers is provided in the relevant report of specialists. This is where the recommendations for reducing the risk of termination of agreements are contained.
Reasons that motivate the customer to terminate the procurement agreement
This usually happens via such circumstances:
- Disappearance of further need to purchase certain goods, services, works;
- Changing needs (decrease or increase) in the volume of goods, services, works that were planned to be purchased;
- Termination of budget allocations, or their significant reduction, reduction of expenditures and estimates;
- Lack of a pre-approved passport for budget programs;
- Redistribution of budget subventions or restriction of funding, which leads to the replacement of the object of the planned works;
- Errors and inaccuracies that occurred during the publication of the agreement.
All this is done in order to prevent or eliminate violations of the law, which were identified by stakeholders themselves or with the help of regulatory authorities. Example of the similar situations can be:
- Lack of electronic digital signature;
- Erroneous definition of code ДК 021:2015;
- Violation of the principles of legality in application of the negotiation procedure.
In cases where a technical or mechanical error occurs in the Prozorro system, then there is an urgent need to apply changes to correct them. As an example, the task of correcting, adjusting or finalizing relevant agreements or documents may be considered. The reason for this will be the publication of erroneous information due to technical failure or duplication of the system.
What are the reasons for termination by the supplier
In this regard, the following should be mentioned:
- Lack of possibility to fulfil the undertaken obligations, which is preceded by a warning in the form of appropriate appeals, statements and letters explaining the difficulties regarding the further fulfilment of these obligations due to unforeseen circumstances.
- Procrastination in obtaining approvals and permits.
- Inclusion of a specific supplier in the sanctions list and his stay in the blocked zone of the temporarily occupied territories, due to which it is impossible to fulfil any obligations.
- Failure to comply with the terms of the agreement and the obligations of the supplier without any warnings from the customer about the timing, quality of goods and complications with the work.
- Termination or change of activity due to bankruptcy of the supplier, closure of the business or death.
- Change in value both for a unit of goods and for materials and current tariffs.
When the termination of contracts is still taking place
Here are the following reasons:
- Agreement between the parties;
- Reorganization (full or partial) or changing banking details;
- Transfer of property to another subordination, change of the main administrator of funds, liquidation of separate structural subdivisions of the enterprise or creation of several institutions on the basis of the former;
- Expiration of the agreement or end of the budget year.
If you pay attention to the conclusions of this study, it turns out that the initiator of termination of the agreement in 60% of cases is the customer. Researchers conducted 46 interviews with customers and suppliers to determine the importance of information on the reasons for these actions.
As a result of the received information, it has shifted that the verification of customers' reliability is almost not applied. Here everything is explained by the motivation of the business, which consists in immediate participation in each purchase, which promises at least some profit from sales. Moreover, by the way, some suppliers have "blacklists" of customers who are banned from bidding due to poor experience of past cooperation.
However, since the number of terminated agreements is not considered a rare phenomenon, almost no one creates problems in this regard. Priority is given to those agreements for which there is no postponement of delivery or analogues, which exclude the possibility of any complications in the supply of goods. Such an example is the purchase of gas during the heating season. This includes the purchase of food by the Department of Education for schools.
What to do to reduce risks
In order to exclude cooperation with unscrupulous partners, customers are encouraged to carefully analyse bidders. A variety of sources can be used for this:
- Available online resources;
- Various analytical platforms;
- Open registries;
- Tax office databases.
One of the most important tools is to turn to the public module of Prozorro analytics. In this way, it is possible to use the opportunity to assess the history of agreements by one or another participant. To this end, the indication by suppliers of violations of delivery times and product quality requirements should be considered mandatory and effective in preventing problems with other customers.
Expected result also guarantees the requirement for bank guarantees of compliance the agreement. Otherwise, it is quite possible to pay the guarantee amount to the counterparty. This is exactly what they do in large procurements, that is, they require similar agreements from participants and written feedback from other customers who have experience working with the specified supplier. It is an irreparable mistake to react to what is happening when a problem arises.
Prevention of such troubles is possible only thanks to preventive actions. To minimize possible losses, they resort to such actions:
- Ensuring favourable prices by concluding an agreement not for a year, but for a shorter period (quarter, month);
- Framework agreement for the product of interest, instead of a permanent competitive bidding procedure, which provides an opportunity to speed up the order of goods and receive payment without additional verification of participants and collection of documents.
The advantages of speeding up the procedure should be considered not only savings of 4 days waiting for the auction, but also simplification of the change of supplier (in case of problems with compliance). In addition, the penalties specified in the agreement for violating the requirements for delivery time or quality of goods are effective. However, do not forget the reminder letters before the deadline, which must include a warning about fines and daily penalties. Of course, this possibility arises only if all these penalties are provided by agreement of the parties.
