Perspective | Is the winning contract valid if both parties sign a framework agreement before the bidding?
Published:
2024-10-25
For projects that require bidding, if both parties reach a preliminary agreement before the bidding process, is the winning contract valid?
(2019) Supreme Court Civil Final Case No. 347
On July 11, 2011, a real estate company signed a "Construction Cooperation Framework Agreement" with a certain bureau, agreeing that: 1. The construction content is the construction of an apartment (public rental housing) project; 2. The total estimated cost of the project is approximately 300 million RMB, with specific estimated values to be agreed upon by both parties after the planning documents and design scheme are determined; 3. The bureau shall pay a performance bond of 10% of the contract price to the real estate company.
On May 8, 2012, the bureau obtained the apartment (public rental housing) project through bidding, and the two parties signed a "Construction Contract" the next day, detailing the project overview, scope of work, contract duration, contract price, conditions for termination, etc., and re-agreed that the remaining 5% of the project price would be used as a quality guarantee. Later, the real estate company severely delayed payment for the project, leading to the contract reaching termination conditions.
In February 2017, the bureau filed a lawsuit in court, requesting the termination of the "Construction Contract", demanding the real estate company pay the project price and interest, and return the performance bond and interest. The real estate company argued that since both parties negotiated and signed the "Cooperation Framework Agreement" before the bidding, the "Construction Contract" was invalid.
Dispute Focus
For projects that must be bid, if the parties reach a preliminary agreement before bidding, is the winning contract valid?
Key Points of Judgment
The Supreme People's Court believes that the "Cooperation Framework Agreement" is valid under certain conditions, and the validity of the winning contract is judged from two aspects:
1. If the "Cooperation Framework Agreement" does not stipulate substantive content, the winning contract is valid.
If the parties signed a cooperation framework agreement before bidding, and the content does not specifically stipulate major substantive terms such as project scope, construction period, project quality, and project price, and contains many uncertain terms, the project will still proceed according to the winning contract. Especially when the cooperation framework agreement contains many leading clauses, stating that project price, duration, construction content, etc., are subject to the winning contract, it will not undermine the status of the winning contract and does not constitute an agreement on substantive content.
2. If the "Cooperation Framework Agreement" does not affect the bidding result, the winning contract is valid.
According to Article 55 of the "Bidding Law of the People's Republic of China" (2017 Revision), for projects that must be bid, if the bidder and the bidder negotiate substantive content such as bidding price and bidding scheme that affects the bidding result, the winning bid is invalid. Therefore, to determine that the winning contract is invalid, two conditions must be met: both parties negotiate substantive content and that negotiation affects the bidding result. If it can only be inferred that the "Cooperation Framework Agreement" affected the bidding result based solely on the agreement, the party claiming the invalidity of the winning contract bears the burden of proof. If the party claiming the contract's invalidity fails to provide evidence, the winning contract is deemed valid.
Lawyer's Advice
To avoid legal risks of contract invalidity after winning the bid, lawyers suggest:
1. Both parties should avoid substantive negotiations before bidding.According to Articles 43 and 55 of the "Bidding Law of the People's Republic of China" (2017 Revision), before bidding, the parties must not negotiate substantive content such as bidding price and bidding scheme; otherwise, the winning bid is invalid. Therefore, to avoid losses caused by the subsequent invalidity of the winning contract, both parties should try to avoid negotiations regarding price or plans before bidding.
2. Even if both parties need to negotiate, they should ensure that the framework agreement does not involve specific content that may affect the fairness of the bidding, meaning the content of the framework agreement should not be too explicit.In the above case, the Supreme Court found that the content of the "Construction Cooperation Framework Agreement" signed by the real estate company and the bureau was relatively vague, and there was no evidence to prove that the agreement affected the bidding result. Therefore, the Supreme Court ultimately deemed both the agreement and the winning contract to be legal and valid. In practice, agreements reached by both parties before bidding can refer to the provisions of the case-related "Construction Cooperation Framework Agreement", which do not make detailed stipulations on project content and project price, but can only clearly stipulate the performance bond.
Relevant Legal Provisions
Bidding Law of the People's Republic of China
Article 43: Before determining the winning bidder, the bidder must not negotiate substantive content such as bidding price and bidding scheme with the bidders.
Article 51: If the bidder imposes unreasonable conditions to restrict or exclude potential bidders, discriminates against potential bidders, forces bidders to form a consortium to bid together, or restricts competition among bidders, they shall be ordered to correct and may be fined between 10,000 and 50,000 yuan.
Article 52: If the bidder discloses the names, quantities, or other circumstances of potential bidders who have obtained bidding documents that may affect fair competition, or leaks the bid price, they shall be warned and may be fined between 10,000 and 100,000 yuan; responsible personnel and other directly responsible persons shall be punished according to law; if a crime is constituted, criminal responsibility shall be pursued according to law.
Regulations on the Implementation of the Bidding Law of the People's Republic of China
Article 34: Legal persons, other organizations, or individuals with interests that may affect the fairness of the bidding shall not participate in the bidding. Units with the same person in charge or with controlling or management relationships shall not participate in the bidding for the same section or the same bidding project that has not been divided into sections. If the above two provisions are violated, the relevant bids shall be invalid.
Article 41: It is prohibited for the bidder and the bidders to collude in bidding. The following circumstances constitute collusion between the bidder and the bidders: (1) The bidder opens the bidding documents before the bid opening and leaks relevant information to other bidders; (2) The bidder directly or indirectly leaks bid prices, members of the bid evaluation committee, and other information to the bidders; (3) The bidder explicitly or implicitly instructs the bidders to lower or raise the bidding price; (4) The bidder instructs the bidders to replace or modify the bidding documents; (5) The bidder explicitly or implicitly facilitates a specific bidder to win the bid; (6) Other collusion behaviors taken by the bidder and the bidders to seek a specific bidder to win the bid.
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