Opening up government procurement

The Ministry of Finance promulgated the Measures for the Administration of Government Procurement Methods Other Than an Invitation for Bids (政府采购非招标采购方式管理办法) (Measures) on December 19 2013. The Measures came into effect on February 1 this year and are designed to regulate and strengthen the supervision of government procurement activities conducted through methods other than invitation for bids, including competitive negotiation, sole supplier procurement and price inquiry.

Government procurement regulations

The PRC Government Procurement Law (中华人民共和国政府采购法), which was adopted in 2003, provides that government procurement may be conducted by means of public call for bids, bids invitation, competitive negotiation, sole supplier procurement, price inquiry and other methods authorised by the Ministry of Finance. It also states that public call for bids is the major method for government procurement and describes the application scope and basic proceedings for each method. The Measures for the Administration of the Invitation for and Submission of Bids for Government Procurement of Goods and Services (Decree No 18) (政府采购货物和服务招标投标管理办法), adopted by the Ministry of Finance in 2004, and the Implementing Regulations for the PRC Law on the Invitation for and Submission of Bids (中华人民共和国招标投标法实施条例) (Rules for the Implementation of the Law on Bid Invitation and Bidding), adopted by the State Council in 2012, provided more detail on public call for bids and bids invitation. However, since the Government Procurement Law, there has been no unified regulation on government procurement activities conducted through methods other than bids.

Public call for bids, the main method of government procurement, accounted for 83.8% of all government procurement activities in 2012. Nevertheless, competitive negotiation, sole supplier procurement and price inquiry have been frequently applied to particularly technical or peculiar government procurement activities in recent years. In practice, however, the lack of legislation on methods other than bids resulted in chaotic implementation and inconsistency among different regions and government organs. Additionally, the absence of unified regulations at a higher level led some local governments to adopt rules and proceedings that only applied locally, which underlined the lack of proper supervision and unified interpretation. Government procurement activities carried out through non-bidding methods have also been conducted under the rules and procedures of the bidding method. This has created a fundamental conflict with the legislative intent of the Government Procurement Law.

The scope of government procurement activities, under which goods used to be the main focus, has been growing with the increase in service and project procurements. The inclusion of public service into government procurement in particular has allowed for more dynamic activities. Meanwhile, this change also requires more flexibility to maintain the functionality of government procurement activities. The goods, services or projects being procured are often so technical or unusual that it is very difficult to determine the standards, specific requirements, or total price. Some instances require the supplier to provide a design or settlement proposal, in which case competitive negotiation will be more appropriate. These processes take less time as suppliers can be selected more easily, making such methods more effective and flexible.

Application scope

The Measures apply to the procuring entities of government goods, projects and services, as well as the procuring intermediaries involved in competitive negotiation, sole supplier procurement and price inquiry.

The Measures, subject to the application scope of government procurement under the Government Procurement Law, specify that non-bidding methods may be applied if: (i) the goods, services or projects are listed in the Centralised Procurement Catalogue and their value doesn't exceed the prescribed procurement thresholds; (ii) the goods, services or projects are not listed in the Centralised Procurement Catalogue, and their value exceeds the prescribed procurement thresholds but doesn't exceed the prescribed thresholds of public call for bids; (iii) even though the value of goods, services or projects exceeds the prescribed thresholds of public call for bids, the government grants approval for the use of these methods. While all three methods, i.e. competitive negotiation, sole supplier procurement and price inquiry, are available for procurement of goods, the procurement of goods and services can only be conducted through the first two methods.

The three alternatives to bidding:

According to the principles and application scope laid down by the Law of Government Procurement, the Measures mainly regulate three government procurement methods other than invitation for bids:

Competitive negotiation. This is a tendering method involving negotiations between the negotiation group and each qualified supplier for the procurement of goods, services and projects. The suppliers provide response documents and final bids in accordance with the requirements of the negotiation documents, and the procuring party selects the qualified supplier from the group of candidates provided by the negotiation group. Specifically, this method applies to procurement that is technical or special, difficult to detail requirements or to fix the total price in advance.

The basic procedure of competitive negotiation entails: sending and the amendment of negotiation documents, submission and the amendment of response documents, review and negotiation by the negotiation group, final bids by suppliers, issuance of review reports and the selection of candidates, and the determination of supplier. In scenarios where competitive negotiation is no longer applicable, or the procurement is affected by illegal conduct or less than three suppliers meet the requirements, the competitive negotiation shall be annulled and the procurement shall be restarted.

Sole supplier procurement. This is a tendering method through which the procuring party procures goods, services and projects from one particular supplier. If the procurement exceeds the prescribed thresholds of public call for bids, it shall be subject to professional scrutiny and discussion and public notification before the approval of the financial department. If disapproved, additional scrutiny and discussion are necessary. The procuring entities or intermediaries shall, with the presence of professionals, negotiate the price with suppliers and keep the negotiation under record.

Price inquiry. The request group asks for a final price by sending a request notice to suppliers and subsequently draws up a candidate list, from which the procuring party selects the qualified supplier. The price enquiry procedure entails: sending the request notice, submission of response documents, drafting review report by the request group, making the candidate list and determining the supplier.

Achieving consistency

Relative to the principles and guidelines set forth in the Government Procurement Law on the application and proceedings of the three procurement methods other than invitation for bids, the Measures stipulate concrete and integrated rules. These make government procurement more applicable in practice.

The PRC Law on the Invitation for and Submission of Bids (中华人民共和国招标投标法) (Law on Bid Invitation and Bidding) regulates the procurement of projects through bids, whereas the Government Procurement Law regulates government procurement of goods, services and projects. The latter provides that bids invitation and bids on project procurement shall apply to the former. In practice, the application of the Government Procurement Law, the Law on Bid Invitation and Bidding, and the Rules for the Implementation of the Law on Bid Invitation and Bidding on government procurement of projects has always been disputed. In the meantime, the issue of whether the financial authorities can supervise the bids on government procurement of projects, as well as the problem of how to supervise the government procurement of projects through the methods other than invitation for bids, are also under discussion. However, the Measures encompass all government procurement of goods, services and projects, which effectively alleviates these problems.

Competition among suppliers has always affected decision-making. With regard to competitive negotiation and price inquiry, the Government Procurement Law only provides that the negotiation group and request group shall “choose three or more among all the qualified suppliers in the name list and afterwards present them the documents for negotiation”. Nevertheless, the validity of results may be questioned in instances where, although more than three suppliers have received the negotiation documents or request notice, less than three qualified suppliers are on the candidate list because of late submission of bids or response documents by some suppliers. The Measures therefore require a minimum of three suppliers on the candidate lists for competitive negotiation and price inquiry. This sets forth higher requirements on the suppliers to be invited and the arrangement of the entire proceeding. This increases the competitiveness of the two methods.

As for sole supplier procurement, the Government Procurement Law simply states that this method can be conducted if the goods or services “can only be procured from one particular supplier”, and does not regulate the decision making and authorisation processes. Consequently, this method has been relatively arbitrary and less competitive in practice. The Measures, however, clearly state that the decision making of the sole supplier procurement application shall be subject to professional scrutiny and discussion and public notification before the approval of the finance department, as well as to additional scrutiny and discussion if there is any objection following public notification. Furthermore, price shall be negotiated between professionals and the supplier; this increases the transparency and competitiveness of the sole supplier procurement method.

Increasing transparency

From a hierarchical perspective of laws and regulations, the Measures are adopted by the State Council and set forth implementation rules for the principles laid down by the Government Procurement Law. They do not change any principles or the spirit of the Government Procurement Law, nor do they grant any new rights or impose any new obligations on investors who want to play a role in government procurement activities in China. Therefore, the adoption of the Measures will not have direct influence on foreign investment in China.

In addition, China has not joined the Government Procurement Agreement (GPA), a WTO Treaty. According to the Government Procurement Law, government procurement activities shall be limited to domestic goods, services and projects. However, there have been no criteria to define “domestic”. In practice, the principle of place of origin applies; this means the goods, services and projects that are produced in China by investors shall be deemed domestic. This opens a lot of doors for foreign investors to enter into the government procurement market in China.

Government procurement activities have also become more transparent and fair, as a result of the detailed regulations on the application scope, basic procedure and legal responsibilities on the use of methods other than invitation for bids. By imposing certain procedural obligations and liabilities on procuring entities and intermediaries, government procurement activities conducted through methods other than invitation for bids become less arbitrary and more reasonable. This further opens up the market for suppliers and ensures both parties the right to participate and compete.

It also needs to be noted that, as opposed to the laws and regulations on government procurement which only regulate the government procurement of goods and projects by ways of bids, the Measures focus on the methods of competitive negotiation, sole supplier procurement and price inquiry. This enlarges the scope of services that the government procures via non-bidding methods. The Chinese government may take further steps to improve the laws and regulations on government procurement for services, and pay more attention to government procurement of public services. Both domestic and foreign corporations will have the opportunity to actively partake in the service sector, as well as in the large government procurement market.


Liqiu Lv and Qingliang Meng, Guantao Law Firm, Beijing


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