China Compliance: Chinese authorities push for stricter regulations and enhanced compliance on bidding
Introduction
On 1 September 2022, the Several Opinions of the National Development and Reform Commission and Other Departments on Strictly Implementing the Laws and Regulations on Bidding and Further Regulating the Acts of Bidding Entities (the "Opinions") took effect. The Opinions will be in force for five years until 31 August 20271.
The Opinions were issued in July 2022 jointly by 13 government authorities (including the Ministry of Industry & Information Technology, Ministry of Public Security, Ministry of Commerce, Ministry of Housing & Urban-Rural Development, Ministry of Transport, Ministry of Water Resources, National Energy Administration, National Railway Administration and National Audit Office) to further regulate the bidding system to prevent and penalize corruption, promote fair market competition and transparent bidding processes, and better capitalize public funds.
Background
In the Q&A session held with the media2, officials highlighted that the Opinions were issued against the backdrop of the central government's plan this year to tackle corruption issues and enhance compliance in certain key areas and critical stages of projects that have been supported by government policies, large investments and concentrated public funds. The Chinese Government is determined to carry out rigorous enforcement actions against corruption in areas such as public infrastructure and projects involving public resources or funds. Further, it is clear that lawmakers are committed to expedite the promulgation of further amendments to the existing PRC Bidding Law.
The Opinions
The Opinions set out 20 policy measures in five areas, which are summarized below.
I. Reinforcing the primary responsibility of the project owner / procuring entity
(1) Ensuring autonomy in bidding in accordance with law – no entity or individual may designate a bidding agency for a procuring entity by any means, illegally restrict the methods of bidding agency selection by a procuring entity, or force any procuring entity with independent bidding ability to entrust any bidding agency to handle bidding matters. No procuring entity may illegally set any prior approval or review procedures.
(2) Strictly implementing compulsory bidding rules – no circumventing is permitted of bidding or required bidding procedures, e.g. by dividing a project into several parts and contracting them out to several contractors, desegregating the items into parts, bidding for a small project but undertaking a large project, setting an unreasonable initial price, or fabricating a project involving confidential information or an emergency project3. False bidding such as deciding the bid winner in private although a bidding is made in public or initiating bidding after construction has started in the name of strategic cooperation or investment attraction, among other things, is prohibited. Except for special circumstances, all stages of the bidding process should be conducted electronically if an electronic bidding is required.
(3) Regulating the preparation and issuance of bidding documents – standard texts prescribed by the State should be used for bidding documents for projects where bidding is required by law. Qualification requirement should be reasonable, and comply with relevant laws, the specific characteristics of the projects and actual needs. Unreasonable conditions may not be set to exclude or restrict potential bidders. The form of bidding documents shall be simplified and paper binding , paper and obvious typographic errors should generally not be cited as reasons for rejections.
(4) Regulating the conditions and acts of the procuring entity's representatives – procuring entities should ensure that persons with professionalism, relevant expertise and integrity are selected as representatives. Conflicts of interest should be avoided. Private interaction with bidders, potential bidders, bid evaluation experts or other relevant interested parties is not permitted; likewise no interference with , or influence over, the integrity and independence of the experts is permitted.
(5) Strengthening the examination of bid evaluation reports – procuring entities should pay particular attention where experts' scores are inconsistent with the objective evaluation factors, or if the scores are abnormally high or low.
(6) Maintaining accessible and adequate channels for filing objections - procuring entities are responsible for handling objections and should actively support reports of violation and respond to such objections and reports.
(7) Contract performance management and oversight – procuring entities should set up a comprehensive monitoring framework to oversee the contract performance, to strengthen credit management and to prevent violations.
(8) Enhancing file management and record keeping - digitalization is promoted and encouraged.
(9) Strengthening internal control - compliance should also be one of the factors for performance evaluation of the relevant employees / personnel in the procuring entities.
II. Resolutely cracking down and curbing illegal bidding and dishonest contract performance
(10) Strict regulation and contract performance – providing false information, bid rigging, bribery, or malicious objections, complaints or reports are prohibited. The bid winner shall not transfer or illegally subcontract the project.
(11) Reinforce enforcement – close attention shall be paid to those bidders that have abnormally low bid-winning rates (and bid not for the purposes of winning), or entities with abnormally high bid-winning rates (e.g. via lending qualifications) and other red flags of collusion. Violations should be strictly penalized.
III. Strengthening the management of bid evaluation experts
(12) Implementing strict bid evaluation disciplines – the evaluation experts should act impartially, honestly, ethically and with integrity.
(13) Improving the quality of the evaluation – procuring entities should encourage the evaluation experts to apply independent judgment and professional standards and raise any issues they note in the bidding documents or processes to the procuring entities.
(14) Strengthening the dynamic management of bid evaluation experts – the administration entities managing the bid evaluation experts databases are to establish a holistic management system which includes verification before admission to the pool of experts, pre-assignment training, continued education, evaluation and integrity education.
(15) Strictly regulating and optimizing the forms of organizing bid evaluation – remote and non-local online bid evaluation shall be actively promoted, and small circles of local bid evaluation experts are to be eliminated; high-quality expert resources should be shared across provinces, cities, and industries.
IV. Regulating bidding agency services
(16) Effectively regulating bidding agency acts - bidding agencies and their employees shall operate with integrity and not undertake business by such illegal means as offering bribes, providing kickbacks, or transferring illicit benefits; and may not accept any requests in violation of principles and professional ethics and shall maintain confidentiality of the relevant bidding information.
(17) Strengthening the management of bidding agencies and their employees - interdepartmental joint spot-checks and random inspections as well as public release of violations shall be carried out. Strict administrative penalties and credit records shall be applied.
V. Further implementing supervision and administration duties and responsibilities
(18) Improving the regulatory mechanism – the relevant local administrative supervision authorities are to publicize investigation results of complaints, and encourage internal whistleblowers, internet supervision and data-sharing cross regulatory authorities.
(19) Intensifying regulatory enforcement – zero tolerance is required in regulatory enforcement; local protectionism and industry protectionism should be minimized.
(20) Improving the credit system – the establishment of a credit system for bidding activities is to be expedited so that information on bidding offenders can be shared across various relevant information platforms nation-wide, including Credit China website.
Observations
The Opinions set a clear tone from the central government on its determination to crackdown on corruption and illegal bidding activities. As such, we can expect to see more bidding related enforcement actions in the construction industry, in particular concerning projects that involve public infrastructures, public funds or public interest. This follows the current enforcement trend in the finance and technology industries and is in part a response to the impact on the Chinese economy, which has been impacted by Covid-19 and geopolitical uncertainty - the State has pushed out a number of fiscal stimulus to support the economic growth, including on infrastructure projects. As such, the government is keen to ensure the injected funding is optimized and not eroded away due to corruption.
It is also noted that the digitalization and the credit system are expected to play a bigger role in the whole bidding process, from the initial publication and announcement of projects to handling objections and complaints. This reduces corruption risks and allows data-sharing cross-provinces and cities, cross-industries and cross-authorities to enhance transparency and compliance in market conducts.
Various unethical schemes and red-flags have been recognized by the Chinese authorities and specifically highlighted in the Opinions, such as pre-bidding reviews, bid rigging, conflict of interest, designating bidding agencies, private interaction with interested parties, abnormally low or high winning rates. Corporations, particularly those in high-risk sectors, are advised to review their bidding and procurement processes as well as their third party management (such as the use of bidding agencies) and consider an internal strategy plan for responding to random inspections and dawn-raids by enforcement authorities in this regard.
1【关于严格执行招标投标法规制度进一步规范招标投标主体行为的若干意见(发改法规规〔2022〕1117号)】-国家发展和改革委员会 (ndrc.gov.cn)
2 国家发展和改革委就严格执行招标投标法规制度进一步规范招标投标主体行为《若干意见》答问 (scio.gov.cn)
3 According to the Opinions, for a project involving emergency rescue, disaster relief, epidemic prevention and control, or any other emergency or a small amount of construction added to a major construction project upon approval, bidding is not required in accordance with Article 66 of the Bidding Law and Article 9 of the Regulation on the Implementation of the Bidding Law, and the responsibilities of project entities in such aspects as the use of funds and quality safety shall be intensified at the same time.
