Open tenders

By Liu Dong in Shanghai Source:Global Times Published: 2012-11-22 20:25:05

government procurement
Photo: CFP

It will be another busy week for Fei Siliang and his 29 colleagues at the Government Procurement Center of Shanghai Municipality (GPCSM). Each week, they handle millions of government procurement open tenders and contracts, though their work on the fourth floor of an ordinary downtown business building rarely attracts anyone's attention.

Fei is the deputy director of GPCSM, the department responsible for arranging billions of procurement contracts for the Shanghai municipal government. As the new year approaches, many government departments are hurrying to use up their annual purchase budgets, which means lots of overtime and working weekends for Fei and his team.

Last year, they accomplished a record 5.7 billion yuan ($915 million) in procurements, marking a 54 percent year-on-year surge. The major deals included 257 million yuan on procuring 714 government cars, 328 million yuan on 43,073 computers and 1.8 billion yuan on civil engineering projects. And this didn't even include district-level government procurements.

What is happening in Shanghai is the epitome of the rapid development of government procurement in China.

According to figures from the Ministry of Finance released in July, China's government procurement scale increased from 100.9 billion yuan in 2002 to 1.13 trillion yuan in 2011.

However, 10 years after China introduced the Government Procurement Law, most taxpayers still have little idea of how their money is spent.

Pioneering reforms

Shanghai is one of the first cities in the country to launch government procurement reform, as public questions surrounding the procedure continue.

According to GPCSM director Sun Zhaolun, Shanghai launched government procurement pilot tests in 1995 in the medical and education sectors when hospitals needed to purchase medical equipment.

"Economic development has required us to introduce open tenders in government procurement," Sun said.

In 1999, the Shanghai government set up a special committee in charge of government procurement affairs. In 2008, the Ministry of Finance required two separate departments to be established to take charge of purchasing and managing. In Shanghai, the Shanghai Finance Bureau is responsible for managing and supervising, while the GPCSM is an independent department dealing with the actual business aspect.

Sun said more than 80 percent of government procurements in Shanghai are now conducted through open tenders online, and a series of measures have been introduced to prevent unfair or unjust activities.

A document from the GPCSM explained that the process of procurement should be open and published online. The center has put all bidding information on websites for public supervision since 2008.

Buyers should first publish their procurement demands and detailed requirements online, and interested suppliers can then fill the bid documents based on the buyer's requirements and then submit them to the GPCSM by a specified deadline.

The GPCSM will then organize government procurement experts to hold a bidding evaluation. The suppliers who get the highest mark in the review will win the bid.

Professor Zhang Hui from the Shanghai Finance University is one of 3,388 such experts from different professions employed by the Shanghai Municipal Finance Bureau.

He told the Global Times that he usually receives a message on his cell phone from the GPCSM half an hour before a bidding evaluation takes place. He and four other randomly selected experts will come to the GPCSM and together review bid documents of all suppliers and grade two with the highest marks according to the buyers' requirements.

"I have no idea when the review takes place or what the bid is about until I arrive at the scene. That way, suppliers can't know who will review their bids in advance," Zhang said.

The results and names of the experts will all be published online after the review for a certain period according to law. Anyone who has complaints can appeal for a recheck from the managing authorities.

Playing by the rules

Zhao Jiawang, the senior editor of China Government Procurement News newspaper, believes that although the scale of government procurement in China has surged in recent years, ensuring that the process is open and fair remains a major challenge.

"We lack a unified platform, which results in the acquisition process not always following standards, and laws varying from place to place. No wonder we hear rumors and scandals about the government buying luxury goods and paying much more money than items are actually worth," Zhao said.

For Zhao, the recent scandal surrounding the Ministry of Railways' (MOR) online ticket booking system,, was a typical example.

The only officially approved online railway ticket purchase website went into operation in January 31, 2010. Since then, public criticism of its poor performance has been constant. The MOR apologized to the public after the system crashed under the heavy volume of people seeking to purchase tickets for the National Day and Mid-Autumn Festival holidays.

However, public and media outrage erupted again after it emerged that the MOR had spent 330 million yuan on building and updating the website.

In October, Beijing lawyer Dong Zhengwei submitted an open request to the MOR asking that it disclose the acquisition information to the public. The MOR response was far from satisfactory.

"They just gave some information that didn't touch on the core issues," Dong told the Global Times.

According to Dong, the information was incomplete and unconvincing. It lacked essential details, such as how much money was spent on the finished website and how much would be spent on the upgrade, who the other bidding competitors were and details of the bidding document.

"It just showed that the current acquisition system is far from transparent enough. When the government uses taxpayers' money to buy things for public services, there is no reason why people should not know how their money was spent," Dong said.

Common misunderstandings

"People have had some misunderstanding about government procurement for a long time. Most people think it is simply about buying stuff, which is far from the truth," Sun said.

"The expansion of the procurement scale does not contradict our goal of decreasing the public expenditure of a smaller government. Government procurement is not only aimed at meeting the demand of maintaining normal government operations. In fact, it also includes purchasing public services and products to serve ordinary people," Sun said.

According to Sun, the proportion of China's procurement value in the services sector has increased dramatically in recent years. In Shanghai it grew from 3.5 percent in 2009 to nearly 50 percent in 2012.

"Services like medical insurance for students, community services, property services, vehicle maintenance, HR training, exhibition and event services, auditing and even purchasing books for libraries are all in the government procurement list," Sun said.

Meanwhile, Sun said government procurement also had an important function in terms of implementing national economic policy.

"For example, all government procurement products are required to fully meet national energy saving and environmental protection demands, which prompts companies to follow the country's economic policy," Sun said.

"Meanwhile, we pay between 6 and 10 percent more to small- and medium-sized enterprises, which is aimed at helping SMEs develop," he added.

Another rarely mentioned policy is preferential treatment for national brands. Sun said that under current laws, only goods produced in China or companies registered in the country can take part in government procurement.

Future development

China passed its Government Procurement Law in 2002 and started to implement it the next year after joining the World Trade Organization (WTO). Before that, the Chinese government mostly conducted administrative procurement under its planned economy system.

Wang Zhouhuan, deputy director of the Government Procurement Division at the Shanghai Municipal Finance Bureau, explained that the promotion of government procurement in China is largely due to the demands of the reform and opening-up policy, especially after the country joined the WTO.

China was required to form a government procurement system as a major part of reforming its financial system.

In China, government procurement specifically refers to all levels of government departments, public institutions and organizations that use funds to purchase designated goods, engineering projects and services listed in purchase catalogues stipulated in the law.

The purchasing lists are diverse and are mainly classified under three categories: goods, engineering and services.  Items can include anything from office equipment and air conditioners to road construction and civil services.

Last year, government procurement accounted for 11 percent of State expenditure and 2.4 percent of GDP. The rapid increase of government procurement in China is due to the expanding range of procurement as well as the increase in funds allocated for procurement. Through this process, some 660 billion yuan in State funds has been saved, according to a Ministry of Finance report.

However, Cheng Yuanzhong, deputy director of the China Federation of Logistics and Purchasing believes much more can still be achieved and improved in China's government procurement system.

"In developed countries, government procurement has a wider range, which is sometimes called public procurement. It usually accounts for 15 percent or more of their GDP and 30 to 50 percent of State expenditure. China's government procurement is still in a fledging stage. A lot of purchases are not yet included in the system," Cheng told the Global Times.

According to Cheng, worldwide public procurement reached $6 trillion in 2011. As China makes up more than 10 percent of this market, its potential is huge.  

"The current subject and definition of China's government procurement is still too narrow. And if we add public education, healthcare services, affordable housing and railway construction, which are currently not in the government procurement catalogue, the total amount would be 5 trillion yuan, which would be the highest in the world," Cheng said.

At the same time, Cheng said it is important to urge authorities to continually promote a more transparent environment as well as encourage public supervision.

"One of the key issues is to put the needs of government procurement into a scientific management system with the aim of strengthening government budget planning to make it clear what they need and why they need it, thereby avoiding unnecessary waste," he said.

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