Transparency boost as e-bidding introduced

On February 4 2013, the National Development and Reform Commission (NDRC) and seven other ministries jointly promulgated the Measures for the Electronic Invitation for and Submission of Bids (国家发展和改革委员会等八部门电子招标投标办法), effective as of May 1 2013. The Measures are based on the PRC Law on the Invitation for and Submission of Bids (中华人民共和国招标投标法) (Bidding Law) 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) (Implementing Regulations). The Measures further develop the public tender system established under these two pieces of legislation. The Measures are divided into nine chapters, followed by extensive technical appendices and define “electronic bid invitation and submission activities” as “bid invitation and submission transactions, public service and administrative supervision activities wholly or partially completed in the form of data messages through an electronic bid invitation and submission system”(Article 2).

Pursuant to the Bidding Law and the Implementing Regulations, the following major construction projects, including surveying and prospecting, design, engineering and supervision, procurement of major equipment and materials, must be put out for tender:

1. large-scale infrastructure facilities and public utilities involving the social and public interests and public safety;

2. projects which are, completely or partly, invested by state-owned funds or funded through state financing; and

3. projects using loans or aid funds from international organisations or foreign governments.

The minimum scope and scale of projects subject to public bidding requirements are set out in a number of subsidiary pieces of legislation. The Implementing Regulations specifically encourage the use of electronic bidding, although prior to the Measures, there were no generally applicable regulations governing the establishment of e-bidding systems and networks (Article 5).

Reducing corruption

The Measures can be seen as the natural result of the interaction of two larger societal trends in China: the effort to reduce corruption through the use of more transparent systems for the sale of public assets; and the increasing use of electronic and web-based systems to raise the efficiency of government administration. At the same time, the widespread use of both public and private electronic bidding platforms in many places around the world provides evidence of the viability of such platforms. From this perspective, the timing of the release of the Measures is not surprising, especially given the high priority that the new administration of Xi Jinping has placed upon the anti-corruption struggle and upon the overall reform of the PRC administrative bureaucracy. Indeed, in introducing the Measures the NDRC has described them in the context of the 18th Party Congress' focus on advancing and developing the process of the digitisation of China's economic and administrative infrastructure. If well-implemented, the Measures can potentially contribute to these important social, economic and legal objectives.

Electronic bidding has been promoted in China, as elsewhere, for providing certain benefits to project owners, bidders, government and the general public. Such benefits for bidders include the elimination of the need to travel to submit a bid; the availability of bid submittal 24 hours a day, seven days a week; easier access to bid information; faster processing of bid documents; time savings in bid preparation; and the ability to make last minute changes to a bid. For the project owner, e-bidding substantially reduces the likelihood of non-compliant bids and bidding errors; reduces calculation errors; streamlines the bidding process; offers a secure reliable exchange with bidders; enables savings in personnel costs incurred in the preparation and distribution of bid proposals; provides access to a potentially larger group of bidders for each bid; automatically enforces bid submission cut-off times; and streamlines the bidding process by eliminating paper bidding. Benefits to government and society, in addition to the above, include reduction in transaction costs, savings in resources and a more transparent system that enables greater supervision to reduce fraud, collusion and corruption.

According to the NDRC, the Measures are intended to create uniform technical standards and data interface requirements for electronic bid invitation and submission activities in order to facilitate the establishment of a nationwide interconnected, multi-level electronic bid invitation and submission network. The purpose of such a unified system is to prevent the construction of competing systems that could potentially lead to isolated information islands and market partition, resulting in redundancy and inefficiency. It is anticipated, however, that the process of constructing such a system will take time and will proceed in stages. Another purpose of the Measures is to enable the government to guide and adjust the market. At the same time, the Measures recognise that resource allocation should be primarily driven by market forces and demand, and that the role of government should be limited to providing overall guidance, specifying technical standards, promoting information sharing, and the like.

While the Measures apply to all electronic bidding activities within China, they do not expressly require electronic bid invitation and submission for all projects covered by the Bidding Law and Implementing Regulations. Rather, the Measures provide that bidding activity via data messages or documents in hard copy format have the same legal force and effect. As the process of establishing an electronic bidding network is in its infancy, such flexibility is necessary. However, for the system to achieve its goals of transparency, efficiency and cost-reduction in the long run, at some point it would be advisable for it to be mandatory for at least all government-sponsored projects to require electronic bidding. Under the Measures, if the bid requires the submission of documents in hard copy format, this must be expressly stated in the bid invitation documents. In the event of a discrepancy between the hard copy documents and the data messages, the data messages shall prevail, unless otherwise specifically provided in the bid invitation documents.

Three interconnecting platforms

The Measures divide electronic tender and bidding systems into three categories, based upon their respective functions: transaction platforms, public service platforms and administrative supervision platforms. A transaction platform is an information platform using data messages to complete bid invitation and submission transaction activities. A public service platform is an information platform that satisfies the requirements of information exchange and resource sharing between transaction platforms and that provides information services to market entities, administrative supervision authorities and the public. An administrative supervision platform is an information platform for the online supervision of electronic bid invitation and submission activities by the supervision authorities. The Measures specifically require that servers for all transaction platforms be located in mainland China. It goes without saying (and is not specifically stated in the Measures themselves) that the latter two types of platforms, being government controlled and operated, will also utilise servers located inside the country.

A transaction platform must be tested and certified by the relevant government authorities. Those that have passed this certification process shall be listed on the public service platform at the provincial level or above. Transaction platforms shall be operated in accordance with the principles of unified standards, interconnectedness, transparency, security and efficiency and shall provide the following: a complete transaction procedure for the online completion of bid invitations and submissions; compilation, generation, linking, exchange and publication of relevant bid invitation and submission data and information. It shall also provide the channel required by supervision authorities to carry out supervision and accept complaints. A transaction platform shall be registered with a public service platform and shall provide the latter with the relevant information regarding all tenders listed on the transaction platform.

A public service platform is to be maintained by the district level and above of the development and reform department of the relevant municipal government. This kind of public service platform shall provide, among other things: links to the websites of the People's Governments at different levels and publish relevant laws, statutes, rules, regulations and regulatory documents, and information on market regulation and services; links to electronic bid invitation and submission transaction platforms and the specified announcement media; links to pools of bid evaluation experts; and provide the supervision channel required by the supervision authorities to carry out monitoring and supervision. Public service platforms must provide free of charge all information the disclosure of which is legally required.

Security concerns and a reality check

Bids may be prepared offline, but when submitted the bids must be encrypted in accordance with the specifications provided by the transaction platform, which itself must possess sectional or bulk encryption and decryption functions. The transaction platform shall refuse to accept bid documents that a bidder fails to properly encrypt. Messages and communications arising in the course of bid invitation and submission activities must further be electronically signed and electronically filed in accordance with the requirements of the PRC Electronic Signature Law (中华人民共和国电子签名法). Such provisions notwithstanding, given the increasing prevalence of cybercrime, hacking and online industrial espionage, data security concerns are likely to be an issue for many parties. System reliability and the potential for failure during periods of peak usage (especially just prior to bid submission deadlines) raise other concerns that will need to be addressed as the system is put into place. Slow internet speeds, common in many parts of China, may also have a negative overall impact, especially during the bid opening process.

The Measures stipulate that bids shall be opened publicly on the transaction platform at the time indicated in the bid invitation documents, and all bidders are to participate in the online bid opening by decrypting their bid documents using the method of decryption specified in the bid invitation documents. Once the decryption has been completed, the names of the bidders, the bid quotes and other information specified in the bid invitation documents will be announced to all the bidders. The candidates for the status of winning bidder and the awarding of the bid for a project shall be posted and announced on a transaction platform for all projects legally required to be put out to bid.

Despite the smooth sounding nature of the bid opening procedures discussed above, the potential for technical challenges is significant. Anticipating this, the Measures include several provisions to cover the event of technical failure during the bid opening process. In particular, the Measures stipulate that if the decryption of bid documents fails due to a reason attributable to the bidder, the bidder shall be deemed to have cancelled its bid. On the other hand, if the decryption of bid documents fails due to a reason not attributable to the bidder, the bidder shall be deemed to have withdrawn its bid documents and the bidder shall have the right to require the liable party to compensate it for the direct losses incurred. Further, the bid inviting party may specify in the bid invitation documents a remediation scheme in the event that the decryption of bid documents fails. It seems probable that the combination of these provisions and the likelihood of technical failures will lead to significant amounts of litigation in the years to come.

A major undertaking

The Measures represent an important advance in China's regulation of tendering and bidding activity and a serious attempt to reduce corruption in the construction, procurement, project engineering and related sectors. To create the type of nationwide, interconnected, multi-level network envisioned by the Measures and to ensure the necessary level of data security essential for its proper functioning, however, is a major undertaking that will require considerable effort and time, and which no doubt will encounter various practical, technical, and social challenges along the way. Nevertheless, the Measures themselves mark an important milestone in China's on-going process of reform and as such should be welcomed both by industry participants and by those concerned with the overall development of China's legal system.

Tarrant Mahony, Tsinghua Law School, Beijing