Dear USCBC members,
On December 3, China’s National Development and Reform Commission (NDRC) issued a draft revision of the Tendering and Bidding Law for public comment by January 1, 2020. This is a revision of the previous version that went into force in 2000 and, along with the 2003 Government Procurement Law, is one of the main laws regulating government procurement in China.
While none of the proposed changes to the law apply uniquely to foreign-invested enterprises, according to the drafting explanation, the revisions aim to address common exclusionary practices designed to shut out potential bidders, which could improve access for foreign companies in China’s government procurement market.
The draft law also seeks to increase transparency by standardizing the bidding process and preventing collusion among bidders or between bidders and procurers. However, it lacks detail on several proposed changes. Effective implementation will be critical for the law to have a tangible impact on foreign companies. The drafting explanation states that the law’s supporting measures will be revised for additional guidance on enforcement of the updated law.
The US-China Business Council (USCBC) is soliciting member company feedback on the draft law and the potential impact on China operations and sales. Interested members should send any comments to Chris Miller and Jack Kamensky by Friday, December 13.
Takeaways from USCBC’s initial analysis
- Measures aimed at greater fairness: The draft bans tenders from including specific qualifications to ensure a favored bidder winning the bid, though it lacks details on how this could be practically achieved. It also bans explicit and implicit intervention in the bidding process to restrict the ability of tenderers to freely choose the winning bidder. Still, there does not appear to be anything that would restrict the government from arbitrarily shutting out foreign companies from bids by designating a bid as domestic-only.
- Transparency in bidding: The draft encourages public bidding and expands bureaucratic requirements for invitation-only bidding, although it does not ban the practice outright. Invitation-only bids are a key issue for foreign companies, and associated implementing regulations and guidance will likely determine how positive this change will be in practice. The draft also seeks to make tenders easily viewable via centralized online platforms. Companies sometimes miss public tenders due to the procurer only notifying a few companies. The draft includes specific requirements for information to be contained within public notices throughout the bidding process, such as requirements to publish bidding schedules.
- Shifting scope for tenders: The draft adds requirements for tenders to be issued for projects involving public funding, even if only partially publicly-funded. Exceptions allowing projects related to public interest and safety not to utilize bid tenders were removed. The draft also stipulates that a bidding process is only necessary for projects that reach a certain scale, although what that scale will be is not specified in the draft. Exceptions allowing certain large-scale infrastructure projects not to utilize tenders were removed.
- Greater consideration of quality vs price: The draft includes a number of stipulations and potential mechanisms to prevent selecting big winners based on price-point alone. Abnormally low-priced bids will be flagged for evaluation by the bidding committee. There are also measures encouraging the consideration of energy and environmental costs over the full life cycle of projects and setting minimum standards for technology, energy efficiency, and environmental protection. Such changes should be positive for foreign companies that often offer more expensive, but higher quality, products.
- Recourse channels: The draft would establish channels for companies to report unfair practices in the bidding process as well as engage in arbitration and mediation.
- Establishment of procurement credit system: The draft proposes a publicly shared credit evaluation system for tendering and bidding participants including punishments for those with low credit. Companies with poor credit may be restricted from government procurement bidding under China’s developing social credit system.
- Subcontracting: The draft still allows bid winners to subcontract, and it includes stronger language about prohibiting the subcontracting of primary and key work. Less qualified bid winners subcontracting to more qualified foreign companies has been an issue for some companies.