New Procedures Govern Bids Relating To Major State Construction Projects
February 28, 2002 | BY
clpstaff &clp articles &Freshfields Bruckhaus DeringerThe State Development Planning Commission (SDPC) recently issued new rules governing bids in construction projects in the…
Freshfields Bruckhaus Deringer
The State Development Planning Commission (SDPC) recently issued new rules governing bids in construction projects in the form of the Supervision of Invitation and Submission of Tenders for Major State Construction Projects Tentative Procedures (the Tentative
Procedures).1 The main goal of the Tentative Procedures is to strengthen supervision over the invitation and submission of bids in respect of major State construction projects (including infrastructure projects), and to ensure that the bidding activities are conducted in accordance with the law.2 The Bidding Law,3 the State Council Notice4 and the Inspection and Supervision Measures5 serve as the basis for formulating the Tentative Procedures.
"Major State construction projects" are defined under the Tentative Procedures as construction projects that: (i) are funded or financed by the State; (ii) have been examined and approved by the SDPC; and (iii) have been submitted to the State Council for its examination and approval (Article 3). The definition of such projects under the Bidding Law has a wider scope than that in the Tentative Procedures; in the Tentative Procedures, financing from foreign governments or international organizations excludes such projects from qualifying as "major State construction projects". The complicated standards for identifying major construction projects that call for public bidding as stipulated in the Regulations on the Scope and Scale Standards for Construction Engineering Projects Tenders6 (the Construction Project Regulations) have now been replaced with the simpler standards as set out above.
The Tentative Procedures confirm that the scope, scale and criteria for invitation for bids, and the methods for evaluating bids, shall comply with the provisions of the Construction Project Regulations (Article 4); the requirement for announcement of the invitation for bids, similarly, has not been changed. Moreover, for major State construction projects, project companies must include information relating to invitation for bids in their feasibility study reports in accordance with the Tentative Measures for Adding the Contents Relating to the Invitation for Bids in the Feasibility Study Reports for Construction Projects.7 Based on the above, it is clear that in most respects the bidding practice has not been changed. Further, the Tentative Procedures give greater power to the SDPC in terms of not only supervising the entities that participate in the bidding process but also certain relevant supervisory authorities that are related to the bidding activity.
As for penalties for violations, the Tentative Procedures cover a wider range of entities than the Inspection and Supervision Regulations. Article 27 of the Inspection and Supervision Regulations only lists penalties for the inspected entities; but the Tentative Procedures cover entities that send out invitations for bids, agents who send invitations for bids, entities that submit bids, members of the bid evaluation committee and other relevant personnel. Further, the Tentative Procedures subject violators of the Bidding Law and other relevant laws and administrative regulations relating to major construction projects to the penalties set out under the Tentative Procedures.
In contrast to the less severe administrative penalties as provided under the Inspection and Supervision Regulations (Article 27), the Tentative Procedures, in Article 13, provide penalties that include: (i) a warning; (ii) an order to rectify within a certain period of time; (iii) fines (the amounts are unspecified); and (iv) confiscation of illegal gains (which can be very significant, depending on the projects). Article 14 of the Tentative Procedures also discusses revocation of agency qualifications, revocation of business licenses, order to suspend operations to rectify, administrative sanctions and legal sanctions, none of which is provided for in the Inspection and Supervision Regulations.
Foreign investors who participate in bidding activities in the PRC should therefore be sensitive to the fact that if they violate the Tentative Procedures or any other regulations mentioned therein, they may be subject to the penalties mentioned above.
In issuing the Tentative Procedures, the government is trying to standardize the bidding process and prevent or severely sanction any irregularities in bidding activities. The authorities hope this will ensure that the process of invitation, submission, evaluation and acceptance of bids in connection with major State construction projects will proceed in a fair and transparent manner. The Tentative Procedures represent efforts on the part of the SDPC to harmonize the existing regulations on bidding and to make clear that any violation of the law and administrative regulations will lead to serious administrative, legal and financial consequences.
Finally, the SDPC stated in a recent Notice8 that it would focus on certain major cases involving price related fraud and would impose severe penalties to ensure implementation of price related laws and regulations. The goal of the SDPC is to examine and penalize those that avoid public bidding, fix bids, transfer projects that have been obtained through bidding, and those liable for any act of local protectionism, interference with fair competition and monopoly within a particular industry. The promulgation of the Tentative Procedures is one more step towards achieving these goals.
Endnotes:
1 Promulgated on January 10 2002 and effective February 1 2002.
2 The Tentative Procedures, Article 1.
3 The PRC, Invitation and Submission of Bids Law (the Bidding Law), promulgated by the National People's Congress on August 30 1999 and effective January 1 2000.
4 Notice by the State Council Regarding Printing and Issuing the Opinion of the Relevant Departments of the State Council Regarding the Division of Responsibilities for the Administrative Supervision of Bidding Activities (the State Council Notice), issued by the State Council on May 3 2000 (Guo Ban Fa [2000] No. 34).
5 Inspection and Supervision Measures for Major State Construction Projects (the Inspection and Supervision Measures), promulgated by the SDPC on August 17 2000 and effective on the date of promulgation.
6 Approved by the State Council on April 4 2001, promulgated by the SDPC May 1 2001 and effective on that date.
7 Promulgated by the SDPC on June 18 2001 and effective on the date of promulgation.
8 SDPC Notice on Rectifying and Standardizing the Procedure and Work Relating to the Market Economy, June 6 2001 (Ji Jia Jian [2001] No. 934).
By Xianwu Zeng,
Freshfields Bruckhaus Deringer,
Hong Kong
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