Liu Xiaochuan：Evergreen Undertaking of China’s Government Procurement

  ——Commentary on the "PRC Procurement Law (Revision Exposure Draft)”

■Liu Xiaochuan

It has been twenty years since the promulgation of the “Government Procurement Law of the People’s Republic of China” (hereinafter referred to as “Government Procurement Law”) in 2002, during which period China’s government procurement cause has been developing rapidly and made huge achievements. 2003 was the first year since the implementation of the “Government Procurement Law”, the scale of government procurement in that year was RMB 165.94 billion, accounting for 6.7% of the expenditures in the general public budget, the scale of government procurement in 2020 was RMB 3.69706 trillion, the ratio of which in the expenditures in the general public budget reached 15.1%, the scale of government procurement and the ratio in the expenditures in the general public budget grew by 22 times and 2 times respectively. With the social and economic development of China and the deepening of foreign opening-up and economic system reform, some new problems and new challenges have emerged in the practices of government procurement, which urgently need solving and standardization from the perspective of law. Recently, the Ministry of Finance issued the “Government Procurement Law of the People’s Republic of China (Revision Exposure Draft)” (hereinafter referred to as “Exposure Draft”), doubtlessly, this is a major event to promote the sustainable and healthy development of China’s government procurement cause, and an edged tool to guarantee the evergreen state of China’s government procurement cause. Compared to the existing “Government Procurement Law", the “Exposure Draft” made relatively extensive revisions, which specifically reflected in the two aspects of legal framework structural adjustment and solving of main problems. The “Exposure Draft” merged Chapter III (“Forms of Government Procurement”) and Chapter IV (“Procedure of Government Procurement”) of the existing “Government Procurement Law” into one and formed the chapter “Forms and Process of Government Procurement”, which reflected the objective requirement for consistency of practical operation of government procurement. The “Exposure Draft” added two new chapters of content, namely the “Government Procurement Policy” (Chapter III) and “Demand Management of Government Procurement” (Chapter IV), such an adjustment reflected the objective requirements for national will and scientific management in the development of China’s government procurement cause, and reflected the advancement of law revisions with the times. The terms of the “Exposure Draft” included 125 articles, compared to the 88 articles in the existing “Government Procurement Law”, the increase of contents reached 40%, it can be seen that the revision contents of the “Exposure Draft” had relatively big enrichment. The revision of “Exposure Draft” emphasized on adjustment of basic terms of the existing “Government Procurement Law”, and also added some contents, which can be concluded into highlights in six aspects. Firstly, clearly defined the basic institutional factors of government procurement. There must be institutional norms for the operational of public finance, the legal definition of basic institutional factors are particularly important. The basic factors of government procurement system include purchasing party, procurement fund, procurement object and procurement supplier. It was stipulated in Article 12 of the “Exposure Draft” that “Purchasing party means the government agencies, public institutions, organizations and other purchasing entities that implement government procurement”. The “Other purchasing entities” added at this time include the state-owned enterprises and some non-state-owned institutions that participate in public projects, which obviously expanded the existing scope of purchasing party, and will be good for the full coverage management of the sources of government procurement; the scope of procurement fund regulated in the “Exposure Draft” include fiscal funds and other state-owned assets, and specified that fiscal funds must be included into budget management, clearly the “Exposure Draft” not only expanded the scope of procurement funds, but also strengthened budget management; The types of procurement objects regulated in the “Exposure Draft” were still the three categories, namely goods, projects and services, but added the comprehensive fiscal object of “Partnership between Government and Social Capitals” that integrated the “Three major categories” into one (refer to Article 2 of the “Exposure Draft”); in the regulation of the “Exposure Draft” on procurement suppliers, it collectively included “Non-legal-person Organizations” and the “Social Capital Parties” that provide partnership projects between government and social capitals into procurement suppliers (refer to Article 13 of the “Exposure Draft”, which will have far-reaching influence on the enrichment, integration and optimization of government procurement suppliers team. Secondly, specified government procurement policy. The “Exposure Draft” added three policies on the basis of the three policy goals mentioned in the existing “Government Procurement Law”, namely “Protecting national security, supporting technological innovation and protecting the interests of disadvantaged groups”. Not only that, the “Exposure Draft” also added a special chapter (Chapter III) to respectively regulate the definitions of six government procurement policies as well as related measures, organization management, and other basic principles. With the continuous expansion of the scale of China’s government procurement, the role of its policy functions will certainly and increasingly strengthen, which is not only the inevitable course of realizing public finance functions, but also meet the international practices of government procurement. Thirdly, optimized the forms of government procurement. The “Exposure Draft” merged the “Open Tendering” and “Invited Tendering” in the existing “Government Procurement Law” into “Tendering”, and added two forms of government procurement, namely the “Innovative Procurement” and “Framework Agreement Procurement”. “Innovative Procurement is an effective move to implement the government procurement policy of supporting science and technology innovation, especially the adoption of two-stage procurement (refer to Article 65 of the “Exposure Draft”), which will be helpful in energetic promotion of the establishment of a social atmosphere of science and technology innovation through the risk sharing mechanism of science and technology innovation activities; The “Framework Agreement Procurement” targets the procurement projects that are not easy to separate goods, projects and services, and implements procurement in form of pricing based on package deal (refer to Article 69 of the “Exposure Draft”), such a procurement form will continuously increase along with the development of science and technology, and will in turn promote the development of scientific and technological innovation projects. Fourthly, strengthened demand management of government procurement. The “Exposure Draft” added a chapter of “Demand Management of Government Procurement”, which included the proposed internal control management requirements mainly targeting the government procurement projects with high technology requirements on procurement objects, complex procurement organization, etc. By the demand plan of government procurement formed by procurement party, including the formation of goals in the aspects of project performance, project technology, project business, etc., it ensures value for money in government procurement, and benefit the optimization and upgrading of government procurement management. Fifthly, established the awareness of government procurement performance. The funds for government procurement are mainly sourced from fiscal funds, and the entity of government procurement is government agencies, so the performance of government procurement is very necessary. The “Exposure Draft” stated the requirements on government procurement performance with comprehensive dimensions, multiple levels and focuses based on the spirit of the “Opinion by the CPC Central Committee and the State Council Regarding Comprehensive Implementation of Budget Performance Management”. There are a total of 19 points of statement in the “Exposure Draft” regarding government procurement performance, covering a total of 18 terms in 7 of the 10 main chapters of the “Exposure Draft”. The “Government Procurement Principles” in the “General Provisions” proposed the “Stressing Performance Principle” for the first time; Chapter III “Government Procurement Policy” stipulated that “The procurement party shall include the implementation of government procurement policy into project performance goals” (refer to Article 28 of the “Exposure Draft”); Chapter IV “Demand Management of Government Procurement” stipulated that the procurement party must “Implement requirements of performance goal” (refer to Article 30 of the “Exposure Draft”); Chapter V “Forms and Procedures of Government Procurement” required, regarding competitive negotiation, to “Determine the main functions or performance goals” (refer to Article 59 of the “Exposure Draft”); Chapter VI “Contract Management of Government Procurement” required the procurement party to “Stipulate performance incentive terms in contract” (refer to Article 72 of the “Exposure Draft”); Chapter VIII “Supervision and Inspection” required the supervision and management departments of government procurement to “assess the …procurement effect and procurement efficiency…, and release the assessment results” on the procurement party and collective procurement institution (refer to Article 9 of the “Exposure Draft”). It’s obvious that the awareness of performance has penetrated the whole process of government procurement. Sixthly, the scope of government procurement responsibility expanded, and the intensity of publishment for law violations strengthened. The “Exposure Draft” separately presented the responsibilities of procurement party, procurement agency, collective procurement institution, review committee, suppliers and the staff of regulatory department, which is helpful for division of responsibility and precise punishment. For example, the responsibilities of procurement party and procurement agency have been increased from 16 items to 20 items and from 6 items to 10 items respectively from the existing “Government Procurement Law”, which reflected the finance authority’s attitude of strict regulation. The amount of punishment for violations on procurement agencies in the “Exposure Draft” also increased from the “More than RMB 20 thousand and less than RMB 100 thousand” as stipulated in the existing “Government Procurement Law” to “More than RMB 100 thousand and less than RMB 200 thousand” (refer to Article 108 of the “Exposure Draft”). Besides, the “Exposure Draft” also added specific amounts of punishment for violations on members of review committee (refer to Article 110 of the “Exposure Draft”) and suppliers (refer to Article 112 of the “Exposure Draft”), which demonstrated the aim of the principle that all people are equal before the law. But at the same time, there are still some unsatisfactory aspects in the “Exposure Draft” that need improvement. Firstly, regarding the government procurement policy. The principles of policy standards of government procurement, the division of organizational hierarchy of policy formation, and the definition of policy tools and methods need to be specified in form of law. Secondly, regarding the demand management of government procurement. The systematic framework of demand management of government procurement should be further clarified, including management goal, management mechanism, management means, management organization, etc. Thirdly, regarding government procurement performance. It’s necessary to further specify the characteristics of the concept of government procurement performance, particularly it should differentiate its contact and difference with government budget performance and market performance. Fourthly, regarding the government procurement projects with partnership between government and social capitals. It’s necessary to well handle the definition of procurement party identity between non-profit organizations and for-profit institutions, as well as the handling of inclusion of partnership project funds into government procurement management, otherwise it may cause abnormal phenomenon such as fiscal funds get away from regulation or having excessive regulation. (The author is the Executive Director of the China Public Finance Institute of Shanghai University of Finance and Economics)