Debt Recovery from a State-Owned Institution under a Government Contract

Case Profile

The Background

The Department of Construction of the City of Moscow entered into government contract No. 0173200001515000657 dated February 24, 2016, with our Client to perform the functions of a technical customer. The scope of the contract involved managing the construction and commissioning of a public transport terminal building, including the expansion of its turnaround facility.

At a later stage, the rights and obligations of the government customer were transferred to the State-Owned Institution of the City of Moscow "Capital Construction Management" (GKU "UKS").

Under the contract terms, the technical customer was responsible for organizing, coordinating, and supervising construction operations, which included submitting regular progress reports. Payment was due within 10 business days following the signing of the completion certificates. Concurrently, the contract included a provision for a 10% guarantee retention from the service cost, to be held until specific conditions were met, including the transfer of documents to authorized agencies and the official commissioning of the facility.

The contract term was extended via an addendum until August 2017. Although all works were fully completed and delivered, several contractually mandated payments—specifically the guarantee retention, construction control service fees, and customer service maintenance costs—remained unpaid. A formal pre-trial demand sent to the customer was left unanswered.

Client Risks

The primary challenge lay in the lack of clear guarantees for the return of the retained 10% of the contract value, despite the actual performance of all obligations. The contract tied the release of the retention directly to the actions of the state customer, creating massive legal uncertainty and making the client dependent on the defendant's discretion.

Furthermore, the customer's refusal to pay completion certificate No. 6 for construction control and maintenance increased the risk of losing a significant portion of revenue without compensation. Even though the certificates had been properly delivered and a formal claim submitted, the customer ignored them. There was a high risk that the court might consider the contract expired and release the state customer from its financial obligations.

Our Strategy & Legal Support

KDPartners lawyers provided comprehensive legal support throughout the dispute. Initially, we conducted a thorough legal audit of the contract terms. We identified a critical flaw in the retention release clause: making the payment entirely dependent on the customer's own actions directly violated Article 190 of the Civil Code of the Russian Federation. This allowed us to build a solid argument that the payment obligation had matured regardless of any pending formal state procedures.

We then drafted and filed a lawsuit supported by a solid body of evidence, including completion certificates, cost estimates, facility construction value reports, and proof of document delivery to the defendant. Additionally, we leveraged the effective court rulings from case No. A40-93416/2017, a prior dispute between the same parties, where our Client's performance as a technical customer had already been legally recognized as proper.

Our litigation strategy combined these factual records with established provisions of the Russian Civil Code and the Commercial Procedure Code.

The Outcome

The Moscow Arbitration Court ruled entirely in favor of our Client regarding the principal debt. The court confirmed the legitimacy of recovering:

• 77,880.75 RUB — retained guarantee amount;
• 53,533.75 RUB — construction control services;
• 27,280.00 RUB — customer service maintenance costs.

The total principal debt awarded amounted to 158,694.50 RUB. 

Additionally, the court ordered the defendant to reimburse part of the client's legal fees (5,000 RUB) and the state court filing fee (5,763 RUB).

All claims were recognized as well-founded, the fact of full performance by the plaintiff was legally established, and the arguments regarding unlawful retention and non-payment were accepted by the court. The ruling is subject to immediate enforcement.