Termination of a contract under 44-FZ by agreement of the parties: procedure

ABOUT UNILATERAL REFUSAL TO PERFORM THE CONTRACT. PROCEDURE. BASES.

Some experts consider unilateral refusal to perform a contract to be the simplest way to terminate a contract, in comparison with the other two provided for by the legislation on the contract system. The other two methods are by court decision and by agreement of the parties. Some customers use it with great pleasure. From our point of view, this method is fraught with many pitfalls and difficulties. The slightest failure to comply with the procedure can bring the customer a lot of trouble, legal costs and other difficulties.

GROUND AND PROCEDURE

Let us consider the procedure and grounds for unilateral refusal to fulfill a contract in more detail.

In 44-FZ, the provisions on unilateral refusal to perform a contract are set out in paragraphs 8 ... 26 of Article 95. This article provides for the following grounds for termination of a contract:

The customer has the right to decide on a unilateral refusal if two conditions are present simultaneously:

1. There are grounds provided for by the Civil Code of the Russian Federation for refusing to fulfill certain types of obligations.
2. The contract provides for the customer's right to unilaterally refuse to fulfill the contract.

We present to your attention another interesting case where the position of the Supreme Court contradicts the literal and logical interpretation of the provisions of the current law. We will talk about termination of the contract under No. 44-FZ due to the customer’s unilateral refusal to fulfill it.

The customer may refuse to fulfill the contract unilaterally on the grounds provided for by the Civil Code of the Russian Federation if this is provided for by the terms of the contract 1. The procedure for unilateral refusal is described in detail in No. 44-FZ. In particular, an important stage of such a procedure is to notify the contractor of the customer’s unilateral refusal.

To properly notify the contractor, according to the law, the customer must take three actions 2:

1) place the decision on unilateral refusal to execute the contract in the Unified Information System;

2) send the decision to the executor by registered mail with acknowledgment of delivery;

3) send the decision to the executor in some other way that allows the receipt to be recorded.

In the literal interpretation of the law, if the customer did not perform any of these three actions, then the contractor was not properly notified of the unilateral termination, and, therefore, the customer’s decision did not enter into force and the contract cannot be considered terminated 3.

The Federal Antimonopoly Service of Russia adhered to a similar position for a long time, officially consolidating it in 2014 4. As is known, one of the consequences of unilateral termination of a contract by the customer is the inclusion of the contractor in the Register of Unscrupulous Suppliers (RNP). The decision on this is made by the Federal Antimonopoly Service during a meeting to consider the customer’s application. The practice throughout the country was that if the customer violated the notification procedure, the contractor was not included in the RNP, even if violations of the contract on his part were obvious.

Time passed, and the decisions of the Federal Antimonopoly Service began to be considered in the courts. The practice was varied, the courts came to different conclusions about the possibility of including the contractor in the RNP, so in 2021 the Presidium of the Supreme Court officially consolidated its position on this issue 5. Suddenly, three mandatory actions for customers actually turned into one. In the interpretation of the highest judicial body, notification is considered proper if there is any confirmation that the contractor has received the customer’s decision on unilateral termination.

Apparently, such a free interpretation of the law was not to the taste of the Federal Antimonopoly Service, and in 2021 they continued to make decisions not to include performers in the RNP if customers violated the notification procedure. However, there were principled customers who went to court to challenge such decisions. Having lost in court 6, the OFAS in the Komi Republic also showed principles and tried to defend its position in the court of appeal 7 then in the court of cassation 8, and eventually reached the Supreme Court, which confirmed its opinion on the possibility of selective application of the law, formulated in 2021 9.

As a result, only at the end of 2021 FAS Russia officially announced a paradigm shift and recommended that its territorial bodies take into account the position of the Supreme Court when considering issues of including performers in RNP 10

We wish all executors of government contracts never to find themselves in a situation of unilateral refusal by the customer and remember that in the event of such termination of the contract, over time there are fewer and fewer opportunities to avoid ending up in the RNP.

Thank you for your attention!

Notes:

1. part 9 art. 95 No. 44-FZ
2. part 12 art. 95 No. 44-FZ
3. Part 13 Art. 95 No. 44-FZ
4. Letter of the Federal Antimonopoly Service of Russia dated March 28, 2014 No. IA/11604/14
5. clause 16 of the Review of judicial practice of application of the legislation of the Russian Federation on the contract system in the field of procurement of goods, works, services to meet state and municipal needs" (approved by the Presidium of the Supreme Court of the Russian Federation on June 28, 2017)
6. Decision of the Arbitration Court of the Komi Republic in case A29-15517/2018
7. Ruling of the Second Court of Appeal in case A29-15517/2018
8. Resolution of the Volga-Vyatka District Court in case A29-15517/2018
9. Supreme Court ruling N 301-ES19-22283
10. Letter of the Federal Antimonopoly Service of Russia dated September 29, 2021 No. IA/84081/20

UNILATERAL TERMINATION OF THE CONTRACT BY THE CONTRACTOR (CONTRACTOR, SUPPLIER)

In accordance with paragraph 19 of Art. 95 the contractor (contractor, supplier) also has the right to make a decision and terminate the contract unilaterally in accordance with the Civil Code of the Russian Federation, if the contract stipulated the right of the customer to decide to terminate the contract unilaterally.

The contractor (contractor, supplier), no later than three working days from the date of the decision, notifies the customer of the decision made, by registered mail with return receipt requested to the customer's address specified by the customer in the contract or by telegram, or by email, or other means of delivery that ensure that the contractor receives confirmation of its delivery to the addressee.

In this case, the date of notification to the customer is considered to be the date the contractor (supplier, contractor) receives confirmation that the customer has received a notice of the contractor’s decision to terminate the contract, and the decision to terminate the contract comes into force ten days after notifying the customer.

The procedure for terminating a government contract under 44FZ

Termination of a government contract at the initiative of one of the parties is subject to almost the same procedure for the supplier and the government customer.

Important!

Under specific circumstances, to terminate a contract, the government customer has the right to terminate in compliance with a specific procedure.

The state customer is obliged to publish the decision on the official website within 3 working days from the date of adoption, and within the same period send it to the supplier in compliance with the rules on proper notification.

Proper notification is also considered the date of return of the letter to the government customer with a postal stamp indicating receipt of the letter, non-receipt of the letter, or absence at the location of the contractor's organization. If such confirmation cannot be obtained, then the date of official notification is considered to be the date after 30 days from the date of publication of the information on the official website.

The law allows notice of termination of a contract to be given:

• by post with acknowledgment of delivery,
• by fax,
• by telegram,
• by email with a record of receipt of the letter.

But, in practice, only sending by postal service reliably confirms receipt of the letter, so in practice government customers use this method.

Important!

The decision to terminate a government contract at the initiative of the government customer comes into force 10 days from the date of proper notification to the supplier.

The law provides for the obligation of the state customer to cancel the decision if, within 10 days from the moment the supplier receives such a decision, the latter eliminates the violations of the state contract that became the basis for termination and reimburses the costs of the examination (if it was carried out by experts). This rule does not apply if the government customer repeatedly decides to terminate the government contract.

Important!

Termination of a government contract at the initiative of the government customer entails inclusion of the supplier in the register of unscrupulous suppliers if the termination procedure is fully complied with.

The procedure for terminating a government contract by a supplier is almost the same.

Within the same period, the supplier is obliged to send the government customer a decision to terminate the government contract unilaterally and cancel the decision to terminate if the violations are eliminated. There is no need to publish anything on the official website, since the supplier has not gained access to this system.

Does the 10% price change rule apply upon termination of the contract?

Letter of the Ministry of Economic Development of Russia dated February 10, 2017 No. OG-D28-1549 “On the customer’s unilateral refusal to fulfill the contract”

Letter of the Ministry of Economic Development of Russia dated February 16, 2017 No. D28i-938 “On termination of the contract and liability of the supplier (contractor, performer) in case of incomplete performance of the work stipulated by the contract”

Letter of the Ministry of Economic Development of Russia dated 02/01/2017 No. D28i-1156 “On termination of the contract and sending information about its termination for inclusion in the register of contracts”

Letter of the Ministry of Economic Development of Russia dated 04/07/2017 No. D28i-1818 “On the conclusion, amendment and termination of a contract in the field of procurement”

Letter of the Ministry of Finance of Russia dated November 16, 2017 No. 24-03-07/75960 “On unilateral termination of the contract by the customer”

The Department of Budget Policy in the field of the contract system, having considered the appeal on the application of the provisions of the Federal Law of April 5, 2013 N 44-FZ “On the contract system in the field of procurement of goods, works, services to meet state and municipal needs” (hereinafter referred to as the Law N 44-FZ) regarding unilateral termination of the contract by the customer, reports the following.

General procedure for termination

The process is built on the basis of the desire of the two parties to preserve mutual benefits and interests in a difficult, often insurmountable by continuing interaction, situation. An attempt to punish the unlawful actions of the other party by causing material or moral damage to it may be fraught with consequences for the initiator himself.

Step-by-step actions when terminating a civil contract if you are the initiator of the termination:

• Clearly formulate the reason why you consider it necessary to terminate the contract with the other party(ies).
• Take the text of the concluded cooperation agreement, read it carefully and find those points that the unlawful party does not fulfill or performs improperly.
• Formulate a claim based on agreements and discrepancies with them.
• Draw up a written notice of termination of the contract with a mandatory extract of those points that were specified in the contract, but were not observed. Please note that the wording is accurate, operate with specific facts, and not emotions regarding violations. This document may become the basis of a lawsuit.
• Send the letter by post with acknowledgment of receipt or by courier delivery, being sure to receive a document confirming sending and receiving.
• Expect a response regarding violations within a month. Perhaps during this period the wrongful party will correct its mistakes, and cooperation will be established.
• If the party has given an answer about the decision to terminate the contract on its part, the contract can be terminated by mutual agreement of the parties, without unnecessary material and moral costs.
• In this case, it is necessary to draw up a termination agreement that suits all parties and defines the responsibilities of the parties in the process of terminating the contract.
• Make mutual settlements between the parties.
• Look for new partners more carefully, based on the experience gained, taking into account possible risks.

If it is necessary to terminate a banking agreement, the procedure is based on the same general procedure.

If you have received a notice that the contract concluded with you is going to be terminated, you must take the following steps:

• Read the notice carefully and consider the reasons that became the basis for terminating the contract.
• Take the text of the concluded agreement and check all the points on the basis of which the notification was drawn up. Pay attention both to the indicated facts of violations, and to the terms of the agreements and the correctness of the execution of the relevant points in the notification.
• If inconsistencies are found in the specified facts or the specified reason was not stated in the terms of the contract, or the notification is drawn up in an ambiguous, vague form, make a written claim.
• In your complaint, indicate all weak or inappropriate points from the text of the notification, providing your strong arguments to refute them.
• Send the claim to the return address with mandatory notification of receipt.
• Expect an answer that will determine your further actions.
• Prepare an argumentative basis for the possible initiation of a case in court if your opponent commits illegal actions or does not make mutual settlements that preserve your interests.
• If you agree with the reasons given in the notice and consider them fair, respond to the notice with consent and terminate the contract by mutual agreement.

We invite you to read: Termination of an employment contract during the vacation period

Please note: if the drawn up agreement was certified by a notary, then the agreement on its termination must be certified by a notary.

The document is drawn up in simple written form, with the obligatory indication of the following points:

• Date and place of compilation;
• Information about the contract being terminated (number and date of conclusion);
• Data of the parties to the contract;
• Reason for termination of the contract;
• Date of termination of the contract;
• Information about the absence of mutual claims between the parties.

A proposal to terminate the contract can be sent to the other party in any way convenient for you: for example, by registered mail with acknowledgment of receipt.

If the other party refuses to terminate the contract, or if you do not hear from them within 30 days, you will need to apply to the court to terminate the contract.

Art. 131 of the Civil Code of the Russian Federation states that any statement of claim must indicate:

• Name of the court to which the application is filed;
• Details of the plaintiff (full name/name of organization, place of residence/location of organization, etc.);
• Data of the defendant (full name/name of organization, place of residence/location of organization, etc.);
• The plaintiff’s demands (in this case, the demand to terminate the contract for paid services);
• The circumstances on which the plaintiff bases his claims;
• Information on compliance with the pre-trial procedure for contacting the defendant;
• List of documents attached to the statement of claim.

Go to court

As a general rule, a statement of claim for termination of a contract for the provision of services for a fee is filed with the district court at the place of residence (location) of the defendant.

If the court satisfies your demands, then after the court decision comes into force, the contract will be considered terminated and your obligations under it terminated.

In Part 12 of Art. 95 44-FZ states that proper notification of unilateral termination of a contract under 44 Federal Law is considered if 3 actions are taken:

1. An electronic version of the decision was published in the EIS. For this purpose, there is a special register of additional information on procurement and government contracts.
2. We sent the decision by registered mail with return receipt requested to the address specified in the government contract.
3. Sent the decision in any of the following ways: by telegram, by fax, by email, or in another way that allows you to record the notification and receive confirmation of its delivery.

Do this within three business days from the date you decided to terminate the government contract. If you don’t do this, you risk getting a fine under Part 3 of Art. 7.30 for failure to place the necessary information in the Unified Information System. For an official, the sanction is up to 50,000 rubles, and for a legal entity - up to 500,000 rubles.

Cancel the decision to terminate the contract unilaterally by the customer under 44-FZ, if within 10 days from the date of proper notification the contractor eliminated the violation and reimbursed the costs of the examination (if it was carried out). Do not reverse the decision if the termination of the government contract is associated with a repeated violation. This is indicated in Part 14 of Art. 95 44-FZ.

After termination, enter into a new deal without holding a tender. This transaction is made with the participant who is assigned the second number. The main thing is that the counterparty is included in the RNP. When concluding a new agreement, comply with the requirements of Part 1 of Art. 34 and part 18 of Art. 95 44-FZ. The participant with whom the new contract is concluded agrees to fulfill it and provides it.