Termination of a contract under 44-FZ: how not to get included in the register of unscrupulous suppliers

It would seem that a government contract is the same kind of agreement. And it can also be terminated. However, in this case there are a number of unpleasant consequences that are best avoided.

Part 8 art. 95 of the Law on Public Procurement (No. 44-FZ) refers to civil legislation and states three options for terminating a contract:

• by agreement of the parties;
• unilaterally;
• through the court.

But if, when a contract between commercial organizations is terminated, everyone simply remains to their own, then in the case of a government contract there is a danger for the supplier (performer) to end up in the Register of Unscrupulous Suppliers.

Let's take a closer look at each option.

How can you terminate a government contract?

Federal Law No. 44-FZ on government procurement provides for several ways to terminate a government contract:

• by agreement of the parties;
• By the tribunal's decision;
• at the initiative of the customer;
• at the initiative of the supplier.

Most often, contracts are terminated by mutual agreement of the parties. This is the simplest procedure that does not entail risks for either the government customer or the supplier. According to the Ministry of Finance, in 2021, more than 441 thousand government contracts were terminated under this scheme. This is almost 98% of all terminated contracts.

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Examples from judicial practice 2021

The customer was not satisfied with the quality of services, but the court sided with the supplier (Resolution of the Arbitration Court of the Volga District dated November 19, 2014 No. F06-16631/2013 in case No. A49-2126/2014).

The subject of the contract was the provision of security services at controlled facilities (presence of one security point, service by one employee, security 24 hours a day). The customer checked the contractor’s activities and decided that the services did not comply with the terms of the contract. Guided by the results of the audit, he prepared an order for the unilateral termination of obligations. The supplier was informed of this intention of the opposing party and received notice.

In turn, the contractor sent a letter to the customer, informing him that the detected deficiencies had been corrected, and drew the customer’s attention to the fact that the contract did not contain a condition for unilateral refusal, that is, he did not have the right to initiate this action, and the contract could only be canceled in court order or by mutual agreement. The contractor considered that the customer violated the procedure for terminating obligations.

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Having considered the details of the case, the court ruled that the defendant could not cancel the contract unilaterally without going to court, that is, he committed illegal actions and violated the interests of the contractor.

The supplier refused to fulfill its obligations. What did the customer do? (Resolution of the Arbitration Court of the North-Western District dated February 17, 2015 in case No. A56-6651/2014).

The contractor wished to suspend the contract and informed the customer about this in his letter, but did not give reasons for this intention.

The court studied the situation and saw that the contractor did not actually begin to perform the work under the contract. Article 715 of the Civil Code of the Russian Federation states that if the contractor does not begin to implement the contract within the established period or works so slowly that it is clear that he will not meet the deadline, then the customer has the right to unilaterally cancel the contract and demand compensation for damage.

Based on the fact that the contractor did not actually begin the work, and on the basis of the letter received, which announced the supplier’s intention to cancel the contract, the customer prepared his own decision on his readiness to unilaterally terminate the obligations.

The supplier had 10 days to correct the violations that had arisen so that the customer could cancel his decision (Part 14 of Article 95 of 44-FZ), but he did not do this. The court supported the customer’s position and recognized the expediency of terminating the contract.

The contractor missed the established deadlines (Resolution of the Arbitration Court of the Ural District dated January 16, 2015 No. F09-9280/14 in case No. A60-10485/2014).

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The subject of the contract was the contractor's performance of design, survey, construction and installation work and their sequence in accordance with the technical specifications. Based on the contract, the contractor was to begin its activities on June 18, 2021, and complete the work within 19 months from the date of signing the document, including the preparation of the necessary documentation and putting the premises into operation.

According to clause 4.2.2 of the contract, the contractor was required to draw up working documentation to the extent necessary to obtain permission for construction, coordinate it with the opposite party and regulatory authorities, and provide it to the customer.

The contractor did not fulfill the terms of the contract within the prescribed period, and the customer filed a lawsuit demanding the cancellation of obligations in accordance with clause 1, part 2, article 450 of the Civil Code.

The court based its position on the fact that failure to comply with the deadlines established in the municipal contract is a significant violation. The department found that the contractor violated the provisions of the contract regarding compliance with deadlines for the preparation of working and estimate documents. At the time of the start of the proceedings in court, the contractor did not have time to fully prepare the working documentation.

The court sided with the plaintiff and ruled not in favor of the contractor, since he violated the essential terms of the contract by failing to meet the specified deadlines.

Refusal to accept, the court supported the position of the performer (Resolution of the Ninth Arbitration Court of Appeal dated December 23, 2014 No. 09AP-51223/2014 in case No. A40-94139/2014).

Under the terms of the contract, the contractor was required to supply the budget organization with spare parts for office equipment according to the list established in the specification, including the preparation of documentary stages (invoice, invoice, waybill TORG-12, goods acceptance certificate).

Clause 3.3 of the agreement spoke about the requirements for packaging that ensures careful transportation of materials, and with markings: identifier, volume, weight, country and name of the manufacturer, model of equipment for which the spare part is intended.

According to clause 9.1 of the contract, the supplier was given 5 working days to complete the delivery, that is, he had to meet it by April 11, 2014.

The supplier provided the goods on April 10, but was refused due to the fact that the goods were not shipped in full, the number of product units in the documentation was indicated incorrectly, there was an error in the name of the cargo, there were no identification numbers of consumables in the acceptance certificates, and there was no production date materials.

Soon the contractor delivered the required volume of cargo, but did not correct the errors in the accompanying papers. The customer requested compensation for penalties for late shipment in 100% terms and unilaterally refused the services of the supplier, citing incorrect paperwork. Part 1 of Article 520 of the Civil Code of the Russian Federation speaks of the buyer’s right to demand the provision of missing goods if he has not received it in the required quantity within the prescribed period.

According to civil law and the terms of the contract, the buyer does not have the right to refuse the goods if they are not presented in full.

During the proceedings, the court found that during the acceptance of the cargo, the customer had no complaints about the quality of the material, which further confirms the illegality of the actions of the customer who refused to accept it.

Inaccurate wording in the accompanying documentation about the goods also cannot be grounds for refusal to accept a shipment of goods and unilateral termination of obligations.

The requirements for a penalty were not fully satisfied, since the contractor did not meet the delivery deadlines, but the collected penalty was reduced on the basis of Article 333 of the Civil Code of the Russian Federation, since the goods were partially delivered within the established period. The court recognized the unilateral termination of the contract as unlawful, thereby supporting the position of the contractor.

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When a government contract can be terminated by agreement of the parties

Law No. 44-FZ does not contain a list of situations in which a government contract can be terminated by mutual agreement of the parties. Typically this procedure is used if:

• the supplier cannot fulfill its obligations due to force majeure (flood, war, strikes, sanctions, etc.);
• the contract has expired and the customer has not purchased the entire declared volume of goods;
• the customer no longer needs to supply the goods, and the supplier agrees to terminate the contract without compensation for damage;
• the customer did not receive the necessary funding from the budget;
• the supplier cannot fulfill its obligations, and the customer agrees to refuse the government contract.

IMPORTANT. If the contract is terminated by mutual agreement of the parties, the supplier will not be included in the register of unscrupulous suppliers. But if the contract termination agreement does not indicate that “the obligations of the parties are terminated, including in terms of liability,” then the customer will be able to recover penalties at any time until the statute of limitations has expired (clause 1 of Article 196 of the Civil Code of the Russian Federation) .

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Unilateral termination of a government contract

In this case, the contract can be terminated either at the initiative of the customer or at the initiative of the contractor.

The customer will terminate the contract if:

• the supplier shipped low-quality goods;
• the contractor performed the work/provided services poorly
• due to inaccurate information in the application, which made it possible to win the auction;
• work was started late or not started at all.

Based on part 16 of Art. 95 of Law No. 44, information about the organization with which the contract was terminated at the initiative of the customer will be included in the RNP. The customer also has the right to compensation for damage incurred under Part 23 of the same article.

The supplier can also terminate the contract. But only for compelling reasons such as:

• unreasonable refusal of the customer to accept goods or pay for services rendered
• force majeure circumstances
• significant change in circumstances, based on Art. 451 Civil Code.

A little about the last reason. If, for example, the contractor refused the contract due to an increase in prices for the supplied products, and the contract became unprofitable, then this, of course, is his right. However, in court it will be very difficult to prove that the price increase could not have been predicted, and therefore, the contractor is recognized as evading the fulfillment of the contract. As a result, he will end up in the RNP.

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How to terminate a contract by agreement of the parties

Law No. 44-FZ on public procurement provides for the possibility of terminating a contract by agreement of the parties, but does not in any way regulate this procedure. Therefore, in this matter, one should rely on the norms of Chapter 29 of the Civil Code, which establishes the general procedure for amending and terminating contracts.

Article 452 of the Civil Code of the Russian Federation states that an agreement to amend or terminate a contract is made in the same form as the contract. That is, on paper or electronically.

The text of the agreement can be drawn up by either the customer or the supplier. The document should indicate:

• details of the parties,
• reasons for termination of a government contract,
• quantity of goods already delivered and paid for,
• deadlines for returning the advance or security (if necessary),
• absence of mutual claims.

The drafter of the agreement signs it, puts a stamp (if any) and sends the document to the counterparty for signature. The contract is considered terminated from the moment it is signed by both parties.

The customer sends information about contract termination to the Unified Procurement Information System (UPI). The system records information about the date of termination of the government contract, the grounds for its termination, as well as details of the relevant agreement of the parties.

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ATTENTION. If the supplier has violated the mandatory terms of the transaction (missed deadlines or delivered low-quality goods), then the contract cannot be terminated by agreement of the parties. In such cases, the customer refuses the transaction unilaterally or goes to court. The customer will be fined and will be included in the register of unscrupulous suppliers.

Explanations on the topic

About the author of this article

Dmitry Sidaev Higher and specialized education in procurement: KhSUEP, diploma with honors in the specialty “Jurisprudence” and GAPM named after. N.P. Pastukhova, diploma with honors in the program “Procurement Management”. Author and ideological inspirer of the projects “GoodWin Project: Tenders made simple” and “Antidote 44-FZ: a cure for headaches in procurement.” Trains in procurement under 44-FZ, advises suppliers and customers, works as a guest manager of the tender department. Invited expert in many projects on public procurement.

Other publications by the author

• 2021.10.13News and changesFeatures of changes in prices for construction government contracts will be extended to geological exploration purchases
• 2021.10.06EISInstructions for unilateral refusal to execute a government contract: as amended in 2022
• 2021.09.30 Procurement control Is it possible to change the essential terms of a government contract: changes from 2022
• 2021.09.29223-FZInstructions for canceling purchases under 44-FZ or 223-FZ: what will change in 2022

Consequences of termination of a contract by mutual consent

The consequences of termination of a contract by agreement of the parties are regulated by Article 453 of the Civil Code. The main consequence is the lack of mutual obligations. And the only requirement that the customer can present to the supplier is the fulfillment of warranty obligations.

Please note that the government contract cannot be partially terminated. This was reported by the Russian Ministry of Economic Development in a letter dated January 16, 2017 No. D28i-130. Let's explain with an example. The hospital entered into a contract for the supply of medicines in several stages. At a certain point, the customer refused to accept the goods. He referred to an oversupply of goods in the warehouse and suggested that the supplier terminate the contract unilaterally. The customer cannot demand this from the supplier. The customer is obliged to either continue to perform the contract, or terminate the entire contract by agreement of the parties and pay for the completed amount of work.

Termination of contract by court decision

An appeal to the court is filed if:

• the contract does not provide for the possibility of terminating the contract at the initiative of one of the parties
• the possibility is provided for in the text of the contract, but only one of the parties insists on termination, and the other does not agree with the basis for this

Possible consequences! The consequences will depend on whose position the court takes. If a decision is made in favor of the customer, then information about the contractor will be included in the RNP.

At what stage can inclusion in the RNP be avoided?

The most effective way to do this is at the stage of consideration of the application to the FAS. 90% of success in protecting your rights from inclusion in the RNP depends on how convincingly and confidently the supplier explains his position to the FAS commission.

At the meeting, we will be able to present arguments to prove your reliability as a supplier. In this case, there is every chance of avoiding inclusion in the RNP.

How we act to protect client interests

We analyze the current situation and clearly outline the prospects for you. If the situation allows us to prove the reliability or unintentionality of the violation, we draw up a strategy and collect all the necessary documents and evidence. We present the chosen strategy and the prepared package of documents to the commission at a meeting at the FAS. Warranty obligations on our part are specified in the contract.

You can find successful cases of protection against RNP REVIEWS .

The procedure and timing for posting information in the UIS

Information about a terminated government contract must be entered into the register of contracts within 3 days. The register displays information about the date of termination of the government contract, the grounds for its termination and the details of this document. The reason for the recognition of the contract as invalid by conciliation by the parties should not be entered into the register by the customer. Here it is enough to enter the code “01”.

Within 7 days after signing the agreement, the customer must report to the Unified Information System on the execution of the government contract. It should also indicate that the contract has been terminated and indicate the reason for this decision of the parties. The report is generated in accordance with the conditions of Government Decree No. 1093 of 2013.

Such reporting is not published by customers if the purchase was made in a non-competitive format for an amount up to 100 thousand rubles. from a single supplier, or if goods, works and services were purchased on the territory of a foreign state, contain signs of state secrets.

Termination of a municipal contract: main nuances.

The termination agreement is drawn up in the same form as the contract itself. If the parties do not reach an agreement, each of them has the right to file a lawsuit to terminate the municipal contract. Such a claim can be made only after the second party refuses to terminate it voluntarily or fails to receive a response to the claim under the municipal contract within the prescribed period. If this requirement is not met, the claim will be left by the court without consideration.

On July 23, 2010, a budgetary cultural institution (customer) entered into a municipal contract for the production and supply of a bar counter. According to the contract, payment must be made as follows: 30% of the cost of work is paid after signing the contract, 70% - within 15 days after signing the certificate of completion of work. Delivery date – 08/20/2010. In fact, the prepayment (30%) was made on August 27, 2010 (the payment was delayed by the Department of Culture and the Department of Finance when registering the budget obligation). The supplier, citing a delay in prepayment, delays the fulfillment of the obligation to supply the rack. As of September 29, 2010, the work was not completed by the supplier, his phones are turned off or are out of reach, and there is no communication with him. According to the contract, the institution filed a claim for payment of a penalty. The supplier refuses to pay it. What is the right thing to do in this case: terminate the contract and carry out the procedure for returning the advance payment, or wait for the delivery of the goods and file a claim for payment of the penalty in court? From what day should the penalty be accrued?

In the economic activities of most Russian organizations, delays in the delivery of goods or performance of work by the supplier, unfortunately, are more a pattern than an exception to the rule. To terminate the concluded contract and demand the return of the advance payment from the unscrupulous counterparty or to wait for the delivery of the goods and collect a penalty from the supplier for late fulfillment of the obligation is, of course, up to the head of the organization to decide. But at the same time, he must proceed from the economic feasibility of a particular behavior option, time costs, and in the case under consideration, also the compliance of the chosen behavior option with current legislation.

Nuances of terminating a service agreement

When signing a service agreement, it is assumed that certain work will be performed in favor of the customer. Usually the performer performs them gradually, sometimes for a long time. Payment can be made in stages or in full after completion of the work. If the contract is terminated not immediately after conclusion, but after some time has passed, when part of the work has been completed, this means that the parties may have the following questions:

• how the contractor will transfer incompletely completed work to the customer;
• in what way and in what amount will the customer pay for the work performed;
• how the costs of the implementing organization will be taken into account;
• how the costs of the customer company for the purchase of materials, tools or equipment that are necessary to complete the work will be taken into account.

Therefore, these points must also be specified in the agreement. To do this, the parties must make mutual settlements, agree on procedures for paying for work or transferring unused materials.

Termination of the contract in part

Sometimes the parties do not want to terminate the contract completely. The possibility of renunciation of the contract regarding those obligations that were not fulfilled is prescribed by law (Article 450 of the Civil Code of the Russian Federation).

In essence, this is simply a change in the terms of the contract; this can be formalized by concluding an additional agreement, which will make changes to the existing contract. It is not prohibited to draw up an agreement to terminate the contract in part with the consent of both parties. This is applicable in cases where the nature of the services provided makes it possible to divide their volume into parts.

Such an agreement will be similar to a standard termination agreement; it will need to specify which obligations the counterparties will no longer fulfill, how payment will be made, and other nuances.