The identification and handling of abnormally low prices is a major problem in the field of government procurement. Although the mainland has regulations on abnormally low prices, they are relatively crude and the supporting mechanism is not perfect, resulting in many problems in practice. The abnormally low price discussed in this article refers to the bidding quotation stipulated in Article 60 of the Administrative Measures for the Bidding and Bidding of Government Procurement of Goods and Services (Decree No. 87 of the Ministry of Finance) that is significantly lower than the quotation of other bidders that have passed the conformity review, which may affect the quality of the product or cannot perform the contract in good faith, and the bidder cannot prove reasonableness. Abnormally low prices not only lead to low performance quality of government procurement projects, affect the efficiency of the use of financial funds, but also disrupt the order of the government procurement market. From the perspective of grassroots government procurement, the author attempts to discuss the current problem of abnormally low prices in the field of government procurement and related countermeasures, hoping to provide useful reference for relevant departments.
Problems
-- The identification criteria are not clear, which affects the fairness of procurement. For example, the maximum price limit of a school's dining table and chair procurement project is 2.9 million yuan, while the bid price of company A is 2.112 million yuan, which is closer to the project limit price and average price, but it is determined by the bid evaluation committee to be unreasonably low price in the compliance review stage. For another example, the budget amount of a medical device procurement project is 40 million yuan, and the quotation of a company is 15 million yuan, which is far from the budget amount and the average quotation, but it has passed the compliance review. These situations are not uncommon in the practice of government procurement.
In the author's opinion, the root cause of the problem lies in the unclear identification criteria, the uneven level of evaluation experts, and the different evaluation scales of different batches of bid evaluation committees, resulting in large differences in the identification standards and results of abnormally low prices in different projects. Since the bid evaluation committee has the authority to judge the reasonableness of the supplier's quotation, in the absence of evidence to prove that there are illegal circumstances in the evaluation process, it is difficult for either the procurement agency or the government procurement supervision department to overturn the determination of the bid evaluation committee.
-- The main responsibility of the purchaser is not in place. The regulation of abnormally low prices is essentially to prevent the quality of the goods or services provided by the supplier from being of poor quality, which can lead to serious performance problems. Therefore, the procurer, as the main body of procurement and the main body responsible for government procurement projects, has the obligation to verify the abnormally low price.
In view of the fact that the procurement budget is prepared by the purchaser, the procurement demand is determined by the purchaser's investigation, and the procurement contract is signed and performed by the purchaser and the acceptance is organized, the purchaser shall have a full investigation and understanding of the budget prepared by the purchaser and the market transaction of the purchased products. As a result, the purchaser is in a position to verify the abnormally low price.
However, in practice, on the one hand, some representatives of purchasers do not speak at the review site, act as "hands-off shopkeepers", or are not familiar with procurement needs, do not understand government procurement rules, and do not fully perform their duties; On the other hand, under the current government procurement system, the purchaser is constrained by the bid evaluation committee, and even after the bid evaluation committee makes an unreasonable decision on an abnormally low price, it can only passively accept it. In addition, there is a lack of a review and correction mechanism for the review errors found after the review, which to a certain extent leads to the inability to implement the main responsibility of the purchaser.
-- The budget of some projects is not reasonable enough. The budget of government procurement projects is the basis for suppliers' bidding quotations, and a reasonable budget amount should give suppliers a certain profit margin on the basis of products. In practice, the budget amount of some procurement projects is too high, which is detached from the actual market transaction price of the purchased products, resulting in a situation where the supplier's reasonable quotation is far from the budget amount. For example, the budget amount of a sterilizer procurement project is 1.8 million yuan, but a supplier reflects that according to the technical parameters required in the bidding documents, the cost of products that meet the requirements on the market is about 550,000 yuan, that is, the winning bid price is about 880,000 yuan (excluding warranty) or 1 million yuan (including three-year warranty). Therefore, the supplier suggested that a maximum price limit of $1 million should be set. Subsequently, after re-investigation and demonstration and adjustment of some configuration parameters, the purchaser set the maximum price limit of 1.29 million yuan.
- Insufficient performance management and insufficient use of the results of performance evaluation. Strengthening the management of government procurement performance and acceptance is an important link in ensuring the quality of procurement, carrying out performance evaluation, and forming closed-loop management, as well as an important guarantee for improving the efficiency and quality of government procurement. However, in practice, some purchasers do not have a good understanding of performance management, resulting in insufficient performance management, such as lack of refinement of management measures, superficial performance acceptance, and failure to investigate the liability of defaulting suppliers in accordance with the law. In addition, the mainland has not yet established a mechanism for the performance management and evaluation results of suppliers, resulting in low costs for suppliers to breach contracts and violate the law. In the author's opinion, if the back-end is not tightened, the bad performance behavior of the abnormally low price winning supplier is included in the scope of supervision, and a nationwide mechanism for the use of performance evaluation results is established, then it will be difficult to effectively regulate the abnormal low price bidding behavior. As a result, it is impossible to complete the effective closed-loop management of the whole chain and process of government procurement, nor can it ensure the efficiency of the use of government procurement funds.
Countermeasures and suggestions
——The right to determine the abnormally low price is handed over to the purchaser. The supplier's bidding quotation is directly related to the supplier's cost control, which in turn affects the supplier's performance ability and performance quality. Since the purchaser has the obligation and conditions to verify the abnormally low price, and the bid evaluation committee is relatively lacking in the investigation and understanding of the project budget, procurement demand and product market situation, coupled with the uneven level of the evaluation experts and the tight review time, the author suggests that the right to determine the abnormally low price should be handed over to the purchaser, that is, the purchaser shall identify and deal with the supplier's abnormal low price at the qualification review stage, and the procurement agency shall provide assistance.
-- Standardize procedures and standards for determining abnormally low prices. The author has consulted and studied the provisions of international government procurement rules on the handling of abnormally low prices, such as the Agreement on Government Procurement of the World Trade Organization, the Public Procurement Directive of the European Union, and the Procurement Guidelines for Abnormally Low Bidding of the Asian Development Bank.
Step 1: Low price identification. The project budget amount, the average quotation of bidding suppliers and the average transaction price of similar government procurement products in the past three years are used as the benchmark, and a certain proportion on this benchmark is stipulated as the reference line for the purchaser to identify the low price, so as to provide clear and actionable identification guidelines for this link.
Step 2: The low-cost supplier provides an explanation and provides evidence. For suppliers located below the low-price reference line, the purchaser shall require them to provide explanations and evidence for the quotation, that is, the supplier shall be required to provide project cost analysis (raw material costs, labor costs, management expenses, taxes, etc.), quotation advantages (technological innovation, management innovation, government subsidies, etc.) and supporting materials (cooperation agreements, purchase price lists, etc.). In addition, the tender announcement and tender documents should set out the procedures and criteria for identifying abnormally low prices, so as to inform suppliers in advance and give suppliers sufficient time to prepare.
Step 3: Identification and handling of abnormally low prices (unreasonably low prices). The purchaser may distinguish different circumstances based on the supplier's evidence, the amount of the project budget, the average quotation of other bidding suppliers, and the average transaction price of similar government procurement products in the past three years, and then make a determination and treatment.
If the purchaser believes that the supplier's low price is not sufficient to prove its ability and quality of performance, it shall determine that it is abnormally low (unreasonably low) and reject the validity of the bid, but shall provide the supplier with the fullest possible basis for determination. For example, in the above-mentioned procurement project of a school dining table and chairs, the purchaser explained that the style and material requirements of Company A's example project were different from those of the procurement project during the complaint investigation stage, and that the cost of product materials for the procurement project had increased by at least 20% compared with the cost of Company A's example project when the project was awarded. Therefore, the purchaser did not approve Company A's offer.
If the purchaser can accept the supplier's low price, but there may be a performance risk, it can retain its bidding qualifications, and at the same time, the supplier shall be required to increase the proportion of performance bond payment, so as to protect the purchaser from the economic losses caused by the poor performance of the low-price winning supplier, and take the low-price winning project as the purchaser's key performance inspection object. If the supplier refuses this request, the procurer shall reject the validity of its bid.
If the purchaser recognizes and accepts the supplier's low price statement, the supplier passes the qualification review.
-- Establish a database of government procurement data resources. It is suggested that the public information on government procurement projects (budget amount, project requirements, bid-winning amount, bid-winning product specifications and models, contracts and performance evaluations, etc.) be uniformly collected and classified, and a nationwide government procurement data resource database should be established. Purchasers can obtain historical procurement information of similar products through one-click search, providing data support for purchasers' decision-making.
-- Improving the scientific and rational nature of budget formulation. The purchaser should further scientifically and reasonably prepare the budget, and reasonably determine the budget amount of the procurement project in combination with the specific market conditions. For major projects with a high budget amount and involving people's livelihood, or complex projects with more disputes, the purchaser shall invite a third-party professional institution or industry expert to demonstrate the procurement needs and budgets, and publicly solicit opinions, so as to improve the scientificity and rationality of budget preparation and demand determination.
-- Strengthen the management of the performance and acceptance of the contract by all parties. The purchaser may invite a nationally recognized quality inspection agency or other third-party review to participate in the acceptance. For suppliers who fail to pass the acceptance, they should be strictly investigated for breach of contract and reported to the relevant departments for processing. The government procurement supervision department may make the management of performance acceptance a key inspection item for purchasers, and pursue the legal responsibility of suppliers for serious bad performance in accordance with law.
-- Establish a mechanism for the use of the results of the implementation evaluation. It is recommended that government procurement laws and regulations clarify the legal liability of suppliers for serious violations of contract agreements and poor performance quality, and establish a credit evaluation system for suppliers by classification and grading. Suppliers who seriously violate the contract and have poor performance quality will be included in the integrity file, and publicized nationwide, and then strengthen punishment measures by increasing the proportion of bidding and performance bonds, deducting points for the next round of evaluation, not renewing contracts, and prohibiting participation in government procurement activities if the circumstances are serious. For suppliers with good performance quality, positive rewards can be implemented by waiving bidding and performance bonds, adding points for the next round of evaluation, and renewing high-quality contracts.
Author: Lu Weihong Author's Affiliation: Shenzhen Exchange Group Co., Ltd. (Shenzhen Public Resources Trading Center)
Source: Chinese Government Procurement News