China: Revising Government Procurement Law

On December 8th, China’s Ministry of Finance invited public comments (by January 5, 2021) on its proposed revision of the Government Procurement Law (GPL), one of its primary procurement laws. The proposal seeks, inter alia, to promote the integration of China’s government procurement system with internationally accepted rules. This links to China’s ongoing negotiations to join the WTO Government Procurement Agreement (GPA), in which the parties will need to confirm that China’s procurement system complies with GPA requirements, in addition to reaching a market access agreement. This post highlights elements of the proposed revision, particularly in light of GPA requirements.

China implemented the GPL at the beginning of 2003, a year after it became a WTO member, and made minor revisions in 2014. This is its first major revision.

Buy China Policy: The proposed revision continues a Buy China requirement that obligates agencies to purchase domestic goods, services and construction projects, with certain exceptions (e.g., not available in China, cannot be obtained on reasonable commercial terms, or for use outside China). The State Council will issue regulations for determining what is a domestic product. This provision is inconsistent with the GPA’s national treatment mandate, so will have to be removed or waived for procurement covered by the GPA, as the U.S. does with the Buy American Act of 1933.

National Security Reviews: A potential concern is a new requirement of a national security review of any procurement that “may affect national security.” The proposal provides no detail on the scope of the inquiry, what might trigger a review or how it may affect a procurement.

Procurement Methods: One of the aims of the revision is to improve and clarify the procedures for the different government procurement methods, which include open competition, limited competition (selective tendering), competitive negotiation, single-source procurement and framework agreements. The revision prohibits the use of any procurement method that obstructs or restricts suppliers from entering a government procurement market. 

Procurement Procedures: The draft revision sets out specific transparency and procedural requirements for each of the procurement methods. They generally require invitations to suppliers to participate in a procurement; timely provision of bidding documents that include procurement requirements, supplier qualifications, evaluation factors and the method of selection of the winning supplier; notification of all suppliers of substantial changes in procurement documents; and the timely public reporting of successful winners and informing unsuccessful suppliers of the results. 

The proposed revision simplifies the qualification of suppliers and requires that qualifications be adapted to the actual needs of the procurement and that performance requirements not be limited to the performance in a specific area or for a specific government entity. Evaluation factors should be detailed and correspond to the business conditions and technical requirements of the procurement. In evaluating bids, procuring entities use the lowest price or comprehensive scoring (most advantageous tender in the GPA). 

The GPL proposal requires protection of supplier information, for example in negotiations, neither party may disclose the technical data, prices and other information of other suppliers. It also prohibits conflicts of interest and the offering and accepting of bribes or other improper benefits. The draft encourages but does not require the use of electronic procurement.

Conditions for Participation: Consistent with the GPA, a revised GPL would require suppliers participating in a government procurement to have the ability to undertake a procurement. The procuring entity could stipulate the specific conditions of the supplier in accordance with the special requirements of the procurement project but must “not subject the supplier to differential or discriminatory treatment based on unreasonable conditions such as location and ownership.” The proposed revision’s conditions for excluding a supplier from a procurement, such as failure to pay taxes or illegal acts, correspond to the GPA.

Tendering Period: The draft revision sets a minimum 20-day bidding period (between issuance of bidding documents and bid deadline) and allows its reduction to 10 days in certain cases. This contrasts with the GPA’s 40-day requirement (between a notice of a procurement and the tendering deadline), which can be reduced to 25 days if electronic procurement is used or 13 days for commercial goods and services.

Limited Competition: The proposed revision generally accords with the GPA with regard to the use of limited competition (selective tendering). The procuring entity must issue a pre-qualification announcement, conduct pre-qualifications and issue invitations to bid to qualified suppliers. The proposal provides, as in the GPA, that unless the pre-qualification announcement specifies a limit on the number of qualified suppliers who will be invited to submit bids and the criteria for limiting the number, the entity must issue bid invitations to all qualified suppliers. 

Limited Tendering: The proposed revision generally provides the same circumstances for use of single-source (limited) tendering as the GPA. However, it adds several conditions that warrant closer scrutiny. For example, one would permit its use where there is a need to rely on a leading institution or natural person in a specific field to provide services. The procuring entity must submit a written report on single-source procurement within 15 working days after its conclusion.

Dispute Settlement: The draft permits a supplier who believes that the procurement documents or process or selection of the winning supplier have harmed its rights and interests to raise its concerns with the procuring entity or another government entity. During the processing of a complaint, the procuring entity may be required to suspend the procurement for up to 30 days. If dissatisfied with the handling of the complaint, the supplier can take the complaint to a court. 

Overall, the proposed GPL revision would bring China’s procurement system closer to conforming with the GPA. This process could be enhanced further with implementing regulations that provide greater detail. China issued implementing regulations for the GPL in 2015 and would be expected to issue new regulations when the GPL revision is finalized.  

With regard to other laws affecting procurement, the proposed revision carries over two current GPL provisions. One provides that regulations for military procurement will be developed by the Central Military Commission. The other states that the Tendering and Bidding Law applies to construction works. (A year ago, the National Development and Reform Commission proposed revisions of that law.) However, the GPL revision does not refer to the procurement provisions in the Foreign Investment Law, implemented at the beginning of 2020. 

Jean Heilman Grier

December 17, 2020

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