Perspective | An Analysis of Legal Applicability Issues in Government Procurement Projects

First, government procurement projects are one of the three types of government procurement (goods, services, projects) and must meet the requirements of government procurement, namely, the procurement entity is national agencies, public institutions, and group organizations at all levels, the procurement funds are public funds, and the procurement objects are projects within the legally established centralized procurement catalog or above the procurement threshold. If any of these conditions are not met, it is not a government procurement project.

Second, the object of government procurement projects is engineering. According to the "Government Procurement Law" and its implementation regulations, the term "engineering" refers to construction projects, including the new construction, reconstruction, expansion, decoration, demolition, and repair of buildings and structures. According to the "Regulations on the Management of Production Safety in Construction Projects" and the "Regulations on the Quality Management of Construction Projects," construction projects refer to civil engineering, building engineering, pipeline and equipment installation engineering, and decoration engineering. According to the "Classification Standards for Construction Projects" (GB/T 50841-2013), construction projects are various buildings and engineering facilities that provide the material and technical foundation for human life and production. Examples of construction projects include mines, railways, highways, water towers, walls, bridge projects, factories, shops, schools, hospitals, and residential buildings, as well as power, communication lines, oil, gas, water supply, drainage, heating, and various mechanical equipment installation projects. Examples of non-construction projects include shipbuilding, information network projects, environmental protection projects, and medical rescue projects. Whether it belongs to construction projects should be judged in conjunction with the "Classification Standards for Construction Projects" (GB/T 50841-2013).

Unlike government procurement of goods and services, which fully applies relevant laws and regulations (except for emergency procurement due to severe natural disasters and other force majeure events and procurement related to national security and secrets), some government procurement projects need to apply bidding laws and regulations. Article 4 of the "Government Procurement Law" stipulates that government procurement projects that require bidding are subject to the bidding law. To maintain consistency with the meaning of "engineering construction projects" as defined in the "Implementation Regulations of the Bidding Law of the People's Republic of China," Article 7 of the "Implementation Regulations of the Government Procurement Law" further adjusts and clarifies the scope of government procurement projects applicable to the bidding law, adding that goods and services related to engineering construction that are procured through bidding are also subject to the provisions of bidding laws and regulations, while narrowing the scope of government procurement construction projects applicable to the bidding law. That is, besides the new construction, reconstruction, and expansion of buildings and structures, only renovations, demolitions, and repairs related to the aforementioned new construction, reconstruction, and expansion may be subject to the bidding law, while those unrelated are not governed by the bidding law. What is meant by renovations, demolitions, and repairs unrelated to new construction, reconstruction, and expansion? According to the "General Specification for Civil Buildings" (GB 55031-2022), new construction refers to the construction of new buildings or the complete demolition of existing buildings for reconstruction; expansion refers to enlarging the scale or volume of existing buildings; reconstruction refers to demolishing part of existing buildings for reconstruction or changing the use nature or structural system of the building. Thus, new construction, reconstruction, and expansion are all structural changes made to buildings. If renovations, demolitions, and repairs do not involve the aforementioned new construction, reconstruction, and expansion, and do not involve changing the main structure or load-bearing structure of the building, they are not projects that need to apply the bidding law.
 

Regarding goods and services related to engineering construction, Article 7 of the "Implementation Regulations of the Government Procurement Law" stipulates that goods must be inseparable from the project and necessary for achieving the basic functions of the project. According to the Ministry of Finance's explanation, inseparability does not merely mean being fixed to the building, but refers to goods whose value cannot be realized without the building, such as doors, windows, steel, cement, and elevators. Achieving the basic functions of the project means that the building meets the basic conditions for being put into use, not necessarily achieving its additional functions. For example, a school teaching building can be put into use after completion and decoration, rather than waiting for various furniture and equipment to be installed. Therefore, furniture and equipment are not goods or services related to engineering construction, and their procurement does not apply to the bidding law. Services related to engineering construction refer to services necessary for completing the project, such as surveying, design, and supervision, while services not necessary for completing the project, such as feasibility study services for government procurement projects, are not considered related services.

Only the aforementioned government procurement projects may be subject to the bidding law; other engineering projects cannot be procured through bidding and cannot apply the bidding law.

Not all government procurement projects, goods, and services that meet the conditions specified in the previous section can adopt the bidding procurement method. For government procurement projects, only those that must be tendered can be subject to bidding. The relevant laws and regulations on bidding clearly stipulate the projects that must be tendered. Article 3 of the "Bidding Law of the People's Republic of China" stipulates that construction projects, goods, and services related to engineering construction that must be tendered include: (1) large infrastructure and public utility projects that relate to social public interests and public safety; (2) projects that use state-owned funds for investment or state financing in whole or in part; (3) projects that use loans or aid funds from international organizations or foreign governments. Subsequently, the National Development and Reform Commission issued several normative documents to clarify this. First, the "Regulations on Projects That Must Be Tendered" (Order No. 16 of the National Development and Reform Commission) explains what constitutes projects that use state-owned funds for investment or state financing in whole or in part (projects using budget funds of 2 million RMB or more, and that funds account for more than 10% of the total investment; projects using funds from state-owned enterprises and institutions, and that funds account for a controlling or dominant position) and what constitutes projects that use loans or aid funds from international organizations or foreign governments. Furthermore, for large infrastructure and public utility projects that relate to social public interests and public safety and must be tendered, the specific scope is clarified in the "Notice of the National Development and Reform Commission on Issuing the <Regulations on the Scope of Infrastructure and Public Utility Projects That Must Be Tendered>" (Document No. [2018] 843). The above are the provisions of the bidding laws and regulations on the scope of projects that must be tendered. If a government procurement project meets the specified project scope, it satisfies the requirements for projects that must be tendered. In addition to meeting the above scope requirements, projects that must be tendered must also meet scale requirements.
 

Article 5 of Order No. 16 stipulates the procurement scale standards that must be met for construction projects and related goods and services that require bidding, namely: (1) the estimated price of a single construction contract is above 4 million RMB; (2) the procurement of important equipment, materials, and other goods, with an estimated price of a single contract above 2 million RMB; (3) the procurement of services such as surveying, design, and supervision, with an estimated price of a single contract above 1 million RMB. To prevent the contracting party from evading bidding by breaking down projects into smaller parts, Order No. 16 also stipulates that the procurement of construction projects and related goods and services that can be combined within the same project, with a total estimated contract price reaching the standards specified in the previous paragraph, must also be subject to bidding. According to the notice from the General Office of the National Development and Reform Commission on further improving the implementation of the "Regulations on Projects that Must Be Bidded" and the "Scope of Infrastructure and Public Utility Projects that Must Be Bidded," "can be combined within the same project" refers to similar procurement projects that are suitable to be procured together based on the actual project, as well as industry standards or practices, meeting the requirements of scientificity, economy, and operability.

Therefore, if the government procurement engineering projects that must be bid meet the above procurement amount standards, the relevant provisions of the bidding law apply.

In addition, Article 66 of the Bidding Law and Article 9 of the Implementation Regulations stipulate the scope of engineering projects that do not require bidding among the projects that must be bid. If the government procurement engineering projects meet the above provisions, they may not be subject to the bidding law.

Government procurement engineering projects subject to the bidding law must carry out the corresponding bidding and evaluation processes in accordance with the provisions of the bidding law and its implementation regulations, and bear corresponding legal responsibilities. The supervisory management agency for government procurement engineering activities subject to the bidding law is no longer the financial departments at all levels. According to the provisions of the implementation regulations of the bidding law, financial departments only supervise the implementation of government procurement policies for government procurement engineering projects that implement bidding. The bidding activities are supervised by relevant departments according to their designated responsibilities.
 

Although some government procurement engineering projects need to apply the bidding law for procurement, these projects are still government procurement projects. In other aspects, such as the preparation of government procurement budgets, the implementation of government procurement policies, and the payment of procurement funds, which are outside the bidding process, the relevant laws and regulations on government procurement should still be followed.

For government procurement engineering projects that do not meet the conditions for mandatory bidding, whether the procurer and the agency can choose to apply bidding or other procurement methods. Article 25 of the Implementation Regulations of the Government Procurement Law stipulates that "government procurement engineering projects that are not legally required to bid shall be procured according to the competitive negotiation or single-source procurement methods stipulated by the Government Procurement Law and these regulations." Article 3 of the Management Measures for Non-Bidding Procurement Methods (Ministry of Finance Order No. 74) stipulates that situations where competitive negotiation and single-source procurement methods can be used include government procurement engineering projects other than those that must be bid according to the bidding law and its implementation regulations. Additionally, the situations where competitive negotiation can be used for procurement as stipulated in the Interim Measures for Competitive Negotiation Procurement also include engineering projects other than those that must be bid according to the bidding law and its implementation regulations. Furthermore, according to the Ministry of Finance's reply on issues related to the legal application of government procurement engineering projects (Finance and Treasury Letter [2020] No. 385), projects that are not legally required to bid should be procured according to the provisions of Article 25 of the Implementation Regulations of the Government Procurement Law, using competitive negotiation, competitive consultation, or single-source methods. Therefore, for government procurement engineering projects that are not required to bid, the procurer and the agency cannot choose to use the bidding method for procurement but must select procurement methods according to relevant government procurement regulations. This helps prevent some procurers and agencies from abusing procurement methods to evade supervision by financial departments, thereby maintaining the legality, order, fairness, and justice of the procurement process for government procurement engineering projects that are not required to bid.