More clarity needed

The Regulations expand upon evaluative procedures used to determine whether a bidder is qualified to participate in the bidding process. Specifically, the Regulations provide a regulatory framework for a prequalification evaluation process for potential bidders. The articles under this framework make an effort to regulate the prequalification process, its notification and submission periods as well as the consistency of information dissemination across different mediums.

The other supplement in the Regulations is the explicit delineation of the following conducts that constitute tendering entities unduly restricting or excluding potential bidders:

Providing different information to different potential bidders or bidders in the same tendering and bidding activities

1. Set qualification requirements, technical and commercial conditions which do not correspond to or relate to the specific features or actual needs of the projects where bidding is statutorily required;

2. Set the performance or awards in special jurisdictions or set special industries as preferential conditions or bid winning conditions;

3. Applying different qualification review or bid evaluation standards for different potential bidders or bidders;

4. Designating use of specific patents, trademarks, brands, countries of origin or suppliers;

5. Where bidding is statutorily required, illegally limiting potential bidders or bidders based on their share ownership forms or types of organisational structures;

6. Restricting or excluding potential bidders or bidders by other unreasonable conditions.

Expanding protections and limitations

Chapter 3 of the Regulations sets forth a series of provisions that offer protection to bidders from improper administrative interference and potential bidders with unfair advantages and expand upon the Tendering and Bidding Law's prohibition of bidder collusion and fraud. First, the provisions that protect bidders from administrative interference represent an effort to strengthen such language in comparison with the original Tendering and Bidding Law. Moreover, the new provisions in the Regulations prohibit potential bidders from submitting a bid if a bidder has stakes with the tendering party which may affect the fairness of the tendering process or controls or manages several organisations that seek to bid for the same project.

Secondly, the provisions on prohibiting bidder collusion and fraud have been expanded under the Regulations, which explicitly delineate 17 circumstances that constitute collusion between bidders and also between bidders and tendering parties. Of the 17 circumstances, the first five circumstances as set forth under Article 39, detailing colluding activities between bidders, includes bidders that engage in cooperative activities that seek the winning of bids or exclusion of certain bidders. Article 40 sets forth another set of six circumstances which are constructively deemed as collusions, such as where bidding documents from different bidders are prepared by the same organisation or individual, contain certain information that is similar or identical across different bidders' bidding documents, or where bidding bonds from different bidders originate from the same account. Finally, Article 41 sets forth another set of six circumstances where collusion occurs between tendering parties and bidders.

Preventing corrupt practices

The chapter on bid opening, evaluation, and selection is most notable for its extensive supplements that guide the duties and obligations of both tendering parties and the bid evaluation committee members. These new provisions seek to clarify the original Tendering and Bidding Law and eliminate, where possible, corrupt practices in the bidder selection process, most specifically among bid evaluation committee members. New provisions related to bid evaluation committee members include the following:

1. All public tenders must employ a bid evaluation committee with randomly assigned members who are drawn from so-called governmental “bid evaluation expert banks”.
2. In the event that a selected committee member has stakes with a bidder, the bidder must relinquish their position on the committee.
3. When evaluating bidder submissions, bid committee members shall not use evaluation standards and methods “not specified in the tender documents” as provided by the tendering party.
4. Bid evaluation committee members shall not:

a) privately contact bidders;
b) accept bribes;
c) converse with the tendering party regarding the determination process of the bid winner;
d) accept requirements to select or exclude specific bidders from any organisation or individual; or
e) commit any other subjective or unfair acts while implementing their duties as bid evaluation committee members.

Complaints and legal liabilities

The Regulations contain a set of provisions that expressly state that bidders, within a specified number of days, have a right to lodge complaints with the regulatory authorities if they believe that a tendering party is not compliant with the law. The authorities then have three days to accept or reject the complaint and another 30 days, excluding time for inspection, verification and expert review, to make a written decision regarding the complaint, should the authorities accept the complaint.

In addition to the provisions on complaint processing, the Regulations also modify and expand upon legal liabilities for noncompliant parties in the tendering and bidding process. Of the liabilities and penalties listed, the most onerous ones relate to bidders who:

1. win a bid by means of bribery;

2. collude in a bidding process more than two times within a three year period;

3. cause Rmb300,000 or more of direct economic loss by colluding in the bidding process;

4. commit other gross violations with respect to bidder collusion;

5. forge qualification certificates or other licenses needed to win a bid;

6. bid in the name of other parties more than two times within a three year period;

7. practice fraud in the bidding process and cause Rmb300,000 or more of direct economy loss; or

8. practise other gross violations of fraud in the bidding process.

In the event that a bidder is found guilty for any of the above violations (collusion or bribery), then the winning bid, if won, shall be null and void. Criminal liability will be investigated and, if applicable, a violating bidder's bidding qualification credential shall be cancelled for one to three years. Moreover, if a bidder is caught committing one of these violations a second time within three years from the day of expiration of the execution of the punishment, or colludes with other parties in bidding or wins the bid by giving bribes, with gross violation, the competent industrial and commercial administrative authorities shall revoke the business licence of the bidder.

Finally, the legal liability provisions also establish penalties for bid evaluation committee members and public servants who commit malfeasance in a tendering and bidding process. Concerning bid evaluation committee members, they are liable for violating conduct rules, which includes accepting bribery and noncompliance with evaluation standards. Penalties for bid evaluation committee member violations include fines up to Rmb50,000 and revocation of their qualification credentials for bid evaluations. Additionally, public servants who improperly interfere with a tendering and bidding process may face penalties that include demerits, demotion or dismissal from their position; a criminal investigation will also be conducted if criminal liability exists.

Possible benefits and risks for FIE bidders

The Regulations demonstrate the State Council's effort to strengthen a law that has led to corruption since its implementation in 2000. Moreover, the law's ambiguity has diminished, leaving fewer opportunities for malfeasance to occur in the tendering and bidding process. While both domestic and non-PRC firms will undoubtedly be able to rely on a more legitimate regulatory framework for project procurement, there are features of the new regulations that will be significant for foreign-invested enterprises in China (FIEs).

Bidding on state-owned projects

New provisions make public tenders the default selection for State-owned projects unless the project satisfies the criteria for an invitational bid. As such, this could open up more opportunities for FIEs to participate in public tenders that might have otherwise been executed as invitational tenders had the Implementing Measures not been put into effect. The consequences of this provision also underscore the great potential for discrimination that is inherent in invitational tenders. Therefore, making public tenders the default selection for State-owned projects also reduces the ability of tendering parties to specifically discriminate against FIE bidders.

Protection against discrimination

Publicly tendered projects reduce the ability of tendering parties to specifically discriminate against FIE bidders. This is further supported by provisions that ensure equal access to public tender notices and relevant documents needed for bidding parties that wish to submit a bid for a public tender; such provisions in the Regulations call for consistent dissemination of tender notices and documents across all government-approved mediums. Tendering parties are also legally liable for selectively placing obligations and conditions that are not relevant to the project upon bidders. As such, this provision protects FIE bidders that might have previously been excluded from submitting or winning a bid because of onerous and irrelevant conditions that were placed exclusively on FIE bidders. If such foul play persists under these new regulations, FIE bidders can seek recourse through an improved complaints process that imposes response time limits upon the supervising authorities.

A fairer and more efficient selection process

There are new and extensive provisions that regulate the actions of tendering parties, bidders, bid evaluation committee members, and government officials who improperly interfere with a tendering and bidding process. Of these, the provisions on liabilities associated with bidder collusion will provide protection for FIEs from exclusionary practices that might be a motive of other domestic bidders competing to win a particular bid. Nevertheless, in the event that a tendering party elects to pre-qualify bidders through a prequalification process, a bidding FIE will be responsible for providing all requested documentary evidence, including licences and certificates. For a prequalification process, a tendering party might be able to establish requirements that an FIE might not be able to fulfil and thus exclude such FIEs from bidding on the tender. Moreover, these requirements might be legally permissible if the tendering party can prove that they are necessary for completing the project subject to tender. Due to such uncertainty, it remains to be seen how the new Regulations will play out effectively for protecting FIEs and ensuring a level playing ground for these FIEs in the bidding process.

Libin Zhang and Ben Manthey, Broad & Bright, Beijing with Zhang Mengxi and Chen Fengyan