By Carl B. Cheng and Zhou Yun, Freshfields Bruckhaus Deringer, Shanghai

Eight ministerial bodies headed by the State Development and Reform Commission (SDRC) recently issued the Invitation and Submission of Bids for the Survey and Design of Construction Projects Procedures (the Procedures), which will take effect on August 1 2003. The new regulations expand upon the PRC's existing construction-related bidding regulations and are intended to provide bidders with an operational framework.

The Bidding Process

The Procedures provide detailed procedural and documentation rules, which if complied with, will undoubtedly assist in creating a more fair and transparent bidding process.

One of the biggest problems that bidders have faced is the inability to obtain adequate access to information about the relevant project. Because the existing bidding rules were unclear, parties inviting bids would often provide less favoured bidders with incomplete or inadequate information. In order to level the playing field, the SDRC has required that 10 documents that it views as essential in allowing bidding parties to fully understand a project be included in the bid invitation. Further, the Procedures require that if at any time the tenderee responds to a question posed by a bidding party, that information must be shared with all bidding parties. Additionally, the Procedures will now require that a bidder be given at least 20 days to tender from the date that it receives the bid materials.

The Procedures require that the manner in which tenderees conduct the bidding process be in strict accordance with the terms announced in the bid invitation. To make bid invitations available to more parties, the Procedures also require that the bid invitation announcements be made public for a minimum of five workdays. In addition, it is stipulated that tenderees may not exclude bidders by means of a lottery or any other "unreasonable" method in order to limit the number of bidders.

Scope of Application

While the majority of the survey and design of construction projects that involve the invitation and submission of bids will be subject to the Procedures, the Procedures are limited to those projects that fall within the scope set forth in the previously released Standards for the Scope and Size of Construction Projects Requiring Invitation of Bids Provisions.

In addition, projects that meet any of the following criteria will, upon approval, be exempt from the Procedures: projects involving State security and State secrecy; crisis-related projects and those involving disaster relief; projects that rely heavily on certain patents or know-how; projects involving advanced technology and professional workmanship that limit the number of bidding parties to fewer than three; and expansion, improvement or technology reform-related projects that will be integrated with an existing system and therefore require the involvement of specified parties.

While it is clear that projects that meet any of the above criteria qualify for government exemption approval, the Procedures fail to specify which government body will issue that approval. Until SDRC interpretations clarify this issue, these exemptions may be arbitrarily applied.

Depending on the nature of the project, the Procedures are flexible enough to allow bids to be entered for either an individual phase of a project or for an entire project consisting of multi-phases.

Bidding Methods

Construction projects that meet the following criteria must conduct public bidding: projects that are fully invested by State capital; projects in which State capital takes a controlling or leading position; projects that are included in a list of key projects as determined by the "development and reform department of the State Council" (this most likely refers to the SDRC); and projects that are included in a list of key projects as determined by provincial authorities.

However, if the above four types of projects that otherwise require public bidding meet the following criteria, upon approval, the tenderees may conduct their bidding process by invitation: projects that include advanced technology or distinct environmental features that limit the number of potential bidders; projects whose public bidding costs would be too high (when compared with the project's total investment); and project specific limitations relating to the timing of the project's completion that would be significantly affected if bidding were conducted publicly.

While tenderees in bids by invitation are not required to post their invitation publicly, the Procedures require that they invite at least three bidders to take part in the process.

Tender

The Procedures state that only survey and design companies that meet criteria may enter bids. A foreign design and survey company may enter a bid only if: (i) it is duly registered in its home country; (ii) it meets the requirements which China made in its treaties and protocols; and (iii) it is in compliance with China's administrative regulations on market entry for survey design.

Joint tenders are expressly permitted but a party in a joint tender may not submit another tender in its own name or participate in other joint tenders.

Penalties

While it is clear that the Procedures focus on ensuring transparency by tenderees, they also include a detailed list of procedural rules for bidding parties. If bidding parties fail to abide by these rules, the evaluation committee, in many cases, may disqualify their bids.

The Procedures include specific penalties, usually fines, which will be enforced if the regulations are violated by tenderees. However, it remains unclear which government body will be in charge of enforcing the penalties and to what extent affected bidders will have recourse.