Regulations bid to clean up unclear bidding procedures

    By Wang Jihong and Zhang Xiaofeng, V&T Law Firm
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    The issuance of the Implementing Regulations for the Law on the Invitation and Submission of Bids (the Regulations) has enhanced the operability of the bid invitation and submission system and addressed procedural issues such as the method and time limit for the advance review of qualifications. In practice, there are incidents where bid inviting parties have used unreasonable advance reviews of qualifications to preclude or restrict bidders.

    Wang Jihong V&T Law Firm
    Wang Jihong
    Managing Partner
    V&T Law Firm

    Articles 15 to 22 of the Regulations provide for the operational method for advance reviews of qualifications. First, a bid inviting party is required to publish an advance review announcement in the media designated by the National Development and Reform Commission (NDRC), and the publication of such announcements is to be handled in accordance with the Provisional Measures for the Publication of Bid Invitation Announcements issued by the commission in July 2000.

    Second, the period of sale and the deadline for submission of advance qualification review documents may not be less than five days each, and the revision of advance qualification review documents is to be completed at least three days before the deadline. Third, for a project that legally requires the invitation of bids, and in which state-owned funds hold a controlling or predominant position, the bid inviting party is required to organise a qualification review committee at the time of the advance review of qualifications. Finally, an objection procedure has been created the reviews.

    With respect to failures to comply with the aforementioned provisions, Articles 63 and 64 of the Regulations specify that the relevant administrative supervision authority will order rectification and may fine the bid inviting party.

    Zhang Xiaofeng V&T Law Firm
    Zhang Xiaofeng
    Partner
    V&T Law Firm

    Complaint procedures

    The Regulations specify that if a bidder or other materially interested party is of the opinion that the bid invitation and submission activities are not in compliance with laws and administrative regulations, it may file a complaint with the relevant administrative supervision authority within 10 days from the date on which it learned of the discrepancy. However, for objections in respect of the advance qualification review documents, bid invitation documents, opening of bids and the results of the awarding of the bid, a complaint should first be filed with the bid inviting party. The administrative supervision authority is required decide whether it accepts the complaint within three working days of receiving it, and render its written handling decision within 30 working days from the date of acceptance.

    Fraudulent bid invitations

    Article 32 of the Regulations sets circumstances that constitute unreasonable conditions to restrict or preclude potential bidders, including: provision of different information to different potential bidders; setting threshold conditions that are irrelevant to the project; setting a specific administrative area or the performance or awards of a particular industry as conditions for additional points for winning the bid; using different qualification review criteria or bid evaluation criteria for different potential bidders; using a ‘short list’ of patents, trademarks, brands, origins or suppliers; placing restrictions on the form of ownership or organisational form of the potential bidders, etc.

    If any of these circumstances applies, the relevant administrative supervision authority will order rectification and may fine the bid inviting party not less than RMB10,000 and not more than RMB50,000.

    Collusion in submissions

    In Articles 39 to 41, the Regulations set forth 17 circumstances that constitute collusion in the submission of bids, including: bidders reaching agreement on substantive particulars of their bidding documents; reaching agreement on the winning bidder; agreeing that certain bidders will renounce their bid and other such joint action taken to preclude other bidders; the bidding documents of different bidders being prepared by the same party; different bidders having the same bid submission agent; the bidding documents of different bidders being unusually similar; the bid deposits of different bidders being transferred from the same account and other such acts that are deemed collusion; the bid inviting party divulging confidential information to a bidder before the opening of the bids; expressly or implicitly indicating to a bidder to lower or increase its bid price; and other such acts whereby the bid inviting party and a bidder co-operate so that a specific bidder wins the bid.

    Where such collusion exists, the winning bid is void, the illegal income will be confiscated and a fine will be imposed. If the violation is serious, the qualifications of the relevant bidder to participate in the bidding for projects will be cancelled for a specific period.

    Refund of bid deposit and interest

    The Regulations specify that the bid inviter shall refund the bid deposits, with interest at the rate for bank deposits of the same term, to the winning bidder and the losing bidders no later than five days after the execution of the written contract.

    This provision shatters past regular practice, i.e. deposit of the bid deposits into the bid invitation agency’s account and refund of such deposits by the bid invitation agency only after a fairly lengthy period of time after the execution of the contract, with the interest thereon usually going into the pockets of the bid invitation agency.

    Consortium members

    The Regulations state that a consortium shall be assembled before the submission of the application documents for the advance review of qualifications. If a consortium adds, removes or replaces members after the advance review, its bid shall be invalid.

    In practice, after winning the bid and executing the contract, the project company established by the consortium brings in an investor that is not a member of the consortium, with this investor assuming construction tasks as a sub-contractor for the works.

    Whether such a circumstance constitutes a change in the members of a consortium and is prohibited by law may be disputed in practice. This author believes that this circumstance may be a violation of the law, for two reasons. First, although the invitation of bids for concession investors is not an invitation of bids for construction and does not fall within the scope of projects that require an invitation of bids as specified in the Law on the Invitation and Submission of Bids (the Law), the invitation of bids for a concession project similarly is required to comply with the principles of transparency, fairness and impartiality specified in the Law.

    Second, the construction of subcontracted works falls within the scope of projects that require an invitation of bids as specified in the Law. Therefore, since the new investor did not participate in the bidding for the concession project, it may not carry out construction directly as a subcontractor.

    Wang Jihong is the managing partner of V&T Law Firm. She practises in the field of infrastructure development. Zhang Xiaofeng is a partner at V&T Law Firm

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