Small businesses in the Extreme North to get advantage in government contract awards
The Ministry for the Development of the Far East and Arctic has prepared a draft amendment to the federal law on the contract system concerning the procurement of goods, works and services for state and municipal needs. The document was developed as part of the National Program for the Socioeconomic Development of the Far East until 2024 and until 2035 adopted by the Russian government on September 24, 2020. The new amendments will give small businesses registered and operating in the Extreme North and similar areas preferential terms to participate in government procurement of goods or services in the northern territories.
In particular, if an entrepreneur working in the Arctic offers the lowest price and wins the bidding, the offered price will be raised by up to 15 percent but not above the maximum price stipulated by the procurement documents, so as not to augment the regional expenditures. In this situation, entrepreneurs from the regions of the Extreme North will be able to initially offer a lower bid than their competitors from other regions.
This support mechanism for small businesses in the northern territories of Russia actually arises from the Labor Code of Russia, which requires employers to establish special northern bonuses – social guarantees and compensation for employees working in the Extreme North regions. Employers fully pay social security contributions on these additional amounts.
According to expert estimates, employers’ spending on social guarantees, combined with the extreme natural and climatic conditions and underdeveloped infrastructure, increase the cost of starting and running a business in the Extreme North by 50-100 percent compared to other regions in Russia. This makes goods, works or services supplied by small companies operating in the northern territories essentially uncompetitive, and consequently limits such businesses’ access to state and municipal procurement procedures.
The new legislation will help to level the playing field and also promote socioeconomic growth in the northern territories. This decision has already been supported by the reginal authorities in the Extreme North and similar areas.