Guangdong Meidagao Highway collapse, there must be corruption inside. I am engaged in construction engineering, well aware of the serious corruption in Chinese projects. This article will discuss the corruption phenomena in the expert bidding process for construction projects in Beijing that I understand, such as corruption by contracting parties and bidding agents, among others to be discussed in another article.
The bidding market in Beijing, compared to other provinces and cities, is relatively more covert in terms of corruption and loopholes. The public bidding process for engineering projects starts from the project approval by the National Development and Reform Commission. Usually, the construction unit is determined at this stage, and the construction unit will participate in the preparation of the project budget estimate. In previous years, the budget estimate approval price was inflated to increase the profits of the contracting parties. However, starting from 2022, there has been a chill in the construction industry, and the budget estimate approval price has been getting lower and lower. In March 2023, during a certain district’s office meeting, leaders explicitly demanded a direct reduction of the submitted budget estimates by 30%-50% to save on financial expenditure (when the government is short of funds). Since the end of 2022, even the financial income and expenses of Haidian District have changed from surplus to deficit, and other districts in Beijing are even worse off.
After the budget estimate approval by the government or relevant agencies, a bidding agent company is assigned to issue the bidding announcement and begin the pre-qualification process. Generally, the contracting party (referred to as Party A) will participate in the evaluation along with the bidding agents. The purpose of Party A’s representation is very strong, representing the intentions of the senior leaders (or even higher authorities). Party A is composed of 1-3 individuals (typically 1 for regular projects and 3 for large projects), and social experts are randomly selected from the expert database of Beijing, with a total number of 5-9 people (including Party A), usually not exceeding 9 people.
When the bidding announcement is issued, many entities participate, often with hundreds of companies competing for the bidding rights of a project. How to ensure that the predetermined construction unit wins the bid among the hundreds of bidding entities and how to select 7 firms to ensure they are pre-determined contracting parties? Pre-qualification is the crucial step. (Before the implementation of Document No. 79 in April 2023, projects with a budget not exceeding 30 million required post-qualification review, which is not discussed in this article).
Pre-qualification typically selects 7 units to participate in the bidding. These 7 units are actually “accompanying bids” chosen by the contracting parties themselves, forming what is commonly known as a “closed circle”. There are several specific operational scenarios.
First, pre-contact by the contracting parties. Usually, 1-2 months before the pre-qualification announcement is issued, the contracting parties contact other qualified construction units which meet certain criteria such as having Class A qualifications in construction, installation, municipal public works, project management, or having a senior professional engineer as the technical director. 1 to 3 days before the pre-qualification announcement is issued, the “accompanying bidders” each submit their names and registration vouchers to the contracting parties, who then coordinate the preparation of pre-qualification response documents from these entities.
Second, if the number of participating entities in the pre-qualification process is not significant, the contracting parties will submit the bids as normal, providing Party A with a list of accompanying bid entities chosen by themselves. As Party A enters the evaluation area, they will brief other experts on the project specifics. At this point, Party A will generally state, “Our project is of utmost importance and is highly valued by the district or municipal authorities, so we request the experts to help us select the best bidding entity that can complete this project efficiently. Due to the tight project schedule, we are in a hurry to determine the bidding unit for construction commencement as soon as possible, so we urge the experts to conduct the evaluation promptly. We will provide expert fees based on the considerations of a certain amount.” While the Ministry of Finance sets the daily expert fee at 1000 yuan or 500 yuan for a half day, Party A typically offers expert fees ranging from 2000 to 100,000 yuan based on the difficulty level of controlling the bidding process during project evaluations. The expert fees are paid by the construction party, usually handed over in a discreet manner after the expert leaves the evaluation site where there are no surveillance cameras. In the case of large projects, construction personnel usually carry cash outside the evaluation site, waiting until the evaluation is completed to make the payment.
If the experts are satisfied with the expert fees offered, they will cooperate accordingly. The experts provide objective and subjective scores, with objective scoring based on detailed evaluation criteria shared by all experts, whereas subjective scoring is more varied and based on individual preferences, which includes two types in the Beijing market: ratings from project organizational personnel and ratings related to the proposed mechanical equipment. When assigning subjective scores, the team leader will ask Party A to review them. Party A will adjust the scores to ensure the entities they favor are selected as winning bidders and those they do not favor receive lower scores, thereby guaranteeing that the 7 bidders selected are pre-determined contracting parties that accompany the contracting party. With these 7 entities participating in the bidding, there is no competitive factor involved. During the bidding process, entities usually align the economic section of the bid documents closely with the controlled bidding price, ensuring the maximization of the interests of the construction party.
Thirdly, if there is an excessive number of participating entities in the pre-qualification process, the following measures may be taken: initially, social experts will evaluate the pre-qualification applications of the accompanying bidders selected by the construction party to ensure their objective scores are top-ranked and their subjective scores meet the basic requirements to avoid disqualification. Based on the advantageous specialties or unique strengths of these entities, additional supplementary pre-qualification documents may be issued to exclude some participants or the list of registered entities may be handed over to the construction party, who will take the lead and work with the bidding agent to discourage entities familiar with the process from submitting pre-qualification responses. If these measures are not sufficient, the participating construction units may be required to submit original certificates for certain aspects (given that fraudulent practices are common during the bidding process, many units lack original documents), thereby reducing the final number of participating construction units, following the subsequent evaluation operations as mentioned in the second scenario.
In cases where experts are unsatisfied with the expert fees offered by Party A, negotiations are typically carried out by the evaluation team leader with Party A to reach a mutually agreeable fee before proceeding with the evaluation until completion. (The evaluation area is under surveillance, capturing even minor gestures and sounds. However, for the sake of personal interests, experts may take risks, knowing that unless reported, no one will investigate the surveillance recordings. Moreover, negotiations usually occur silently, with consultants pretending to review the pre-qualification documents and exchanging information, writing down figures when terms are being negotiated. Once the negotiation is settled, the paper with written figures is often destroyed discreetly.)
If a consensus cannot be reached at the end, this may result in non-accompanying bid entities selected as winners. In such a scenario, some Party A members may accept the evaluation results and encourage the winning entities to accept compensation for withdrawal. Depending on the project size, the withdrawal fees can vary significantly, ranging from 100,000 to even millions or tens of millions of yuan for larger projects. Therefore, within the acceptable range of expert fees, the construction party generally agrees to ensure that the situation does not escalate to this point, unless the expert demands unreasonably high fees. In practice, before entering the evaluation area, Party A would inquire about the upper limit of evaluation fees, and the construction party would typically be quite flexible or set a very high limit to facilitate the operational process by Party A.
Fourthly, if Party A cannot attend due to being unable to send representatives, or when leaders are under investigation and unwilling to take risks, the bidding agent company would inform the construction party precisely (to the minute) when expert selection would take place, prompting the construction party to find social experts in the market. Bidding agents typically have contact information for thousands of experts, and they may attempt to reach out to experts through telephone calls, with some experts declining directly due to ethical concerns and others expressing interest in seeking benefits. At this point, it is uncertain if the expert would evaluate the bidding process favorably, as dozens of bids are being evaluated daily in the evaluation area, and various experts are assigned at different times. The construction party would craft numerous small notes with the names of the accompanying bid entities they chose and distribute them to the experts evaluating bids during that specific time period, offering a red envelope with 5000 yuan per expert found, 2000 yuan for smaller projects, and negotiating further compensation if all their entities are selected or if one entity is chosen, typically offering amounts ranging from 100,000 to 1-3% of the contract value, with varying sums for different scenarios. The contact person would leave a contact number for the expert, who would then initiate contact after leaving the evaluation area to communicate the results, with the promised compensation from the construction party being fulfilled after the results are made public.
The above-mentioned are the general operational procedures. There is a highly unusual scenario where the construction party obtains the expert selection results when the Development and Reform Commission draws experts from the platform. This is rare because unless there is direct acquaintance or a special relationship with the platform administrator and certain personnel, the platform personnel are reluctant to provide such information. In my nearly twenty years of experience as an expert, I have encountered only two instances where the other party accurately identified 5 evaluating experts. In such cases, the expert fee typically does not exceed 30,000 yuan, with the construction party paying a higher price for obtaining the expert list.
Additionally, there are instances when a particular bidding agent in a district, under different guises, plays multiple roles such as being a feasibility study provider, design entity, supervisor, construction party, or settlement auditor. However, such occurrences are relatively rare since potential risks for the person involved and the leadership team in the district are high if such an individual encounters trouble.
As the capital city, Beijing exemplifies a significant moral decline among experts in the bidding sector, and the situation is exacerbated elsewhere. Present-day Chinese society is marked by a general pursuit of financial gain. The process I have briefly described is based on my firsthand knowledge, and this article will end here.