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Paul McKenzie
and Jacqueline Teoh
 eijing's
hosting of the summer Olympic Games in 2008 presents China with a tremendous
opportunity to cement its reputation as an emerging economic powerhouse
and to showcase Beijing as a world-class capital city. Yet the task
of preparing the city's infrastructure and facilities to host the games
is formidable. For this reason, Beijing officials are looking to foreign
companies to help supply the long list of goods and services the city
needs. The Beijing Organizing Committee for the XXIX Olympic Games (BOCOG,
 , di 29
jie aolinpike yundonghui zuzhi weiyuanhui)—established in December
2001 under the State Council—has billed the 2008 games as the "Green,
High-Tech, and People's" Olympics, with projects in each of these areas
receiving special attention and most of the available funding. Estimates
of the total price tag have ranged from $25 billion to $40 billion.
At this stage, more than 140 key projects are in the pipeline, with
the majority devoted to basic infrastructure, the environment, and pollution
control and reduction. Fully one-third of the projects require some
high technology. Numerous cultural and tourism-related projects are
also in the planning stages.
Most of the sporting events will take place in Beijing, but Shanghai,
Tianjin, Shenyang, Liaoning; Qingdao, Shandong; and Qinhuangdao, Hebei,
will also host events. This article concentrates on developments in
Beijing, as the tender procedures for work in these other locales should
be similar to those in the capital.
Companies
will need a bidding strategy—and
financing—to win a place at the Olympics
construction starting line
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The
Olympic Action Plan
BOCOG released the official Beijing Olympic Action Plan (the Plan)
on July 13, 2002, the first anniversary of the awarding of the
games to Beijing. The Plan sets out a detailed blueprint for Olympics-related
infrastructure and other public investments. It also lays out
an ambitious timeline, dividing the period from the establishment
of BOCOG until the opening of the games into preparatory, development,
and pre-games operational stages (see "Olympic Timeline").
This timeline will drive the scheduling, flow, and nature of foreign
investment in games-related projects.
More recently, in October 2002, BOCOG released specific draft
plans for environmental protection and the development and structural
adjustment of the high-tech and energy sectors. These plans detail
the areas of government attention within each sector. Foreign
investors interested in Olympics-related opportunities, or seeking
to enhance their bids for Olympic venues, should focus their investment
and bid strategies on these areas.
The bidding
The principal government agencies charged with supervising the
bid process for Olympics-related projects are BOCOG and the Beijing
municipal development and planning authorities, namely Beijing
Development Planning Commission (BDPC, 
Beijingshi fazhan jihua weiyuanhui) and the Beijing Municipal
Planning Commission (BMPC, 
Beijingshi guihua weiyuanhui). These representatives of the
PRC government have repeatedly emphasized that Olympics-related
projects will be awarded through an open tender system, with bids
accepted on a global and competitive basis (see "Who's
Who in the Bidding Process"). Tenders will be drafted and
contracts awarded based on requirements set out in the PRC Bidding
Law and the Beijing Municipal Bidding Regulations (together the
Bidding Rules); the Olympic Ownership Bidding Measures and the
Beijing Municipal Ownership Bidding Regulations (together the
Olympics Bidding |
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Olympic
Timeline
The Beijing Olympic Action Plan (The
Plan) divides the period from the establishment of the
Beijing Organizing Committee for the XXIX Olympic Games
(BOCOG) until the opening of the games into three stages:
Preparatory stage, December 2001 to June 2003
BOCOG was established and the Plan published. The ownership
tender process for key Olympic venues should also be completed
and all bids for these venues awarded.
Development stage, July 2003 to June 2006
The Chinese government expects all of the Olympic venues
and related facilities, in addition to key projects, such
as those for environmental protection and infrastructure,
to be completed.
Pre-games operational stage, July 2006 to the
opening ceremony in July 2008 Competition and
training venues will be tested to ensure compliance with
International Olympic Committee standards, and any remaining
projects will be completed.
—Paul McKenzie
and Jacqueline Teoh
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Rules);
and the PRC Government Procurement Law (see "Bid-related
Laws and Regulations").
It is important for companies to distinguish between projects related
directly to the Olympic venues (see p.10) and those slated
for Beijing's overhaul of infrastructure and services. The latter include
a variety of basic infrastructure projects, such as the construction
and operation of water- and waste-treatment facilities and power plants,
which will also be of interest to companies but will follow a different
timeline. (For a detailed list of projects and current invitations to
bid, see www.chinabidding.com.cn
and www.bjinvest.gov.cn.
The other two official media outlets charged with publishing tender
information for Beijing projects are the China Daily and the
People's Daily.) The various Olympic venues were and are to
be subject to ownership tenders in late 2002 and early 2003. BDPC officials
have said that the winning bidders and new venue owners will have a
great deal of autonomy in deciding how to construct and operate the
venues and how to award this work. The vast majority of the work for
the construction and operation of the venues should also be subject
to tender. Any tenders initiated by the venue owners must conform to
the Bidding Rules and, if the venue owner is a government agency, the
Government Procurement Law.
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Officials
have said that the
winning bidders and new venue
owners will have a great deal of
autonomy in deciding how to
construct and operate the venues
and how to award this work. |
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Scope
of the laws governing bids
The Olympics Bidding Rules make it clear that the Bidding Rules
will apply to the ownership tenders for key Olympic venues. In
general, the Bidding Rules apply to large construction projects
that have a "public" aspect, are funded by the state (or through
state-owned sources), or use foreign loans. These include basic
infrastructure projects, public utility and social projects, government-funded
projects at all levels, |
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and
projects using loans from the World Bank or Asian Development Bank or
aid funds from international organizations or foreign governments.
Moreover, the Bidding Rules will apply to an entire project or a particular
contract for project survey, design, construction, supervision, or procurement,
above a specific monetary threshold. For example, any construction contract
worth more than ¥2 million ($241,293) or procurement contract for key
equipment or materials worth more than ¥1 million ($120,961) must adhere
to the Bidding Rules. Because these threshold amounts are so low, most
of the ancillary projects for the games, and the principal procurement
contracts for them, will likely be subject to the Bidding Rules.
Article continued below
| Olympic
Venues Project Tenders |
First
round of tenders
The Beijing Municipal People's Government
and the Beijing Organizing Committee for the XXIX Olympic
Games (BOCOG) in April 2002 invited bid submissions for
the design and conceptual planning of the Beijing Olympic
Green and Beijing Wukesong Cultural and Sports Center. The
Beijing Olympic Green, where many of the key Olympic venues
will be constructed, is located in the northern tip of the
city's central axis. San Francisco-based Sasaki Associates,
Inc., in conjunction with a local firm, Tianjin Huahui Architectural
Design & Engineering Co., secured the winning bid for the
Olympic Green and second prize for the Wukesong facility.
Second round of tenders
In October 2002, the Beijing Development
Planning Commission (BDPC) officials issued the Pre-qualification
and Call for Expressions of Interest documents for several
of the major venues located within the |
Beijing Olympic Green,
including:
National Stadium, which will host the opening
and closing ceremonies and track and field events.
National Swimming Center, which will host
swimming and diving events.
National Indoor Stadium and Olympic Village,
which will house athletes and coaches.
Convention Center, which will be used for
meetings and exhibitions.
Main commercial facilities, which will
include hotels, office buildings, and parking.
Beijing Wukesong Cultural and Sports Center,
which will host basketball events.
Olympic Aquatic Park, which will host canoe
and kayak events.
Beijing Equestrian Park (expansion and renovation),
which will host equestrian events.
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Ownership of most of these venues will be subject to a
public tender to be completed in two stages: pre-qualification
and tender. For the National Swimming Center, however,
only operating rights will be offered. BDPC
officials have said they will release a list of qualified
bidders in January 2003. The full tender for the projects
should begin in late January 2003 and the winning bids
awarded by mid-2003. Unofficial reports indicate consortia
comprised of foreign and local parties will lead the tenders.
Next round of tenders?
Once they win the tenders for the major
venues, the new owners will seek to award contracts for
the construction and then the operation of the relevant
venues. Still more contracts will be awarded for "Olympic
overlays," or temporary facilities and construction necessary
to host the games. BOCOG will be responsible for running
the tender and supervising the work in relation to Olympic
overlays.
—Paul
McKenzie and
Jacqueline Teoh |
|
Companies will need
to keep the requirements of both the Bidding Rules and the Government
Procurement Law in mind when contracting with any government agency,
public institution, or social organization in connection with the Olympics.
This law requires these various government agencies to comply with a
complex government procurement framework, in many cases working through
a designated procurement agent. So far, Beijing and a few other cities
have issued official catalogues of goods and services subject to mandatory,
centralized procurement through a procurement agent. The Ministry of
Finance has said it will issue a national catalogue shortly.
The Government Procurement Law places a priority on awarding contracts
to providers of domestic goods and services. This emphasis is of concern
for foreign investors, because it is not yet clear how "domestic" is
defined or how this limitation will apply to Olympics projects. Whether
the Government Procurement Law applies to a particular contract will
depend on who initiates the tenders for the contract.
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Tips
on Bidding for Projects
Monitor relevant state-designated media in the industry.
Invitations to bid will likely be in Chinese only.
Obtain tender documents from the agency inviting bids.
Submit bids on time.
Note specific requirements such as bid evaluation criteria
and the corporate status of bidders, especially if bids
can only be submitted by or through an entity established
locally.
Assemble co-bidders if necessary. Look for synergies
on financial, technical, and operations matters. Local
partners, in particular those affiliated with the Beijing
municipal government authorities, will add value.
Plan and source financing, local and otherwise.
—
Paul McKenzie and
Jacqueline Teoh
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Public
tender:
Bid procedures are clear...
The Bidding Rules contemplate two methods of tender, private and
public, and require that the public tender system be used unless
special circumstances dictate otherwise (see "Tips
on Bidding for Projects"). The Beijing Municipal Bidding
Regulations set out the circumstances under which a private tender
would be more appropriate, subject to relevant government approval.
The circumstances are vague and subject to discretionary interpretation
by the authorities. They include projects that are "technically
complex or have unusual requirements." The Olympic Ownership Bidding
Measures expressly stipulate that the ownership tenders for Olympic
construction projects be undertaken as public tenders.
Under the public tendering process (
gongkai zhaobiao), an invitation to bid is announced through
state-designated media. The bid documents must specify all of
the requirements and conditions, including the technical requirements,
of the project. They must also contain the standards to be used
to judge a bidder's qualifications, pricing requirements, bid
evaluation standards, and the principal terms of any contracts
to be executed in relation to the project. The Beijing Municipal
Ownership Bidding Regulations detail the requirements of bid documents
for the Olympic venue ownership tenders.
Once an entity issues an invitation to bid, bidders have 20 days
to submit their bids. The Bidding Law allows bids from both single
bidders or consortia. If a consortium submits a winning bid, the
members of the consortium must agree to be jointly and severally
liable for the project. |
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The sealed bids are opened just after the submission deadline for any
single project. Bids are to be opened in a public forum and manner,
with all bidders invited to attend.
According to the Bidding Rules, an independent evaluation committee
must evaluate the bids. This committee is composed of a representative
from the bid inviter and relevant experts in the field. It must contain
at least five members, or any odd number of members above five. Two-thirds
of the committee members must be experts qualified according to criteria
stated in the law. The committee must evaluate bids on the basis of
the requirements set out in the bid invitation documents, the law, and
price. It must submit a written report of its evaluation and must include
either a recommendation for the winning bid or suitable candidates.
The bid inviter must issue a letter of acceptance to the winning bidder
and must conclude an agreement with the bidder within 30 days of issuing
the letter. According to the Bidding Law, bid winners may sub-contract
nonessential parts of any project tendered.
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...but
are not always followed
In practice, conflicts of interest have plagued proper implementation
of the national Bidding Law in the past. Government authorities
have allegedly published invitations to bid in a less-than-public
manner, for example by using industry journals to invite bids
from a restricted audience, and have supposedly awarded bids on
illegitimate grounds. China International Business, a
publication authorized by the Ministry of Foreign Trade and Economic
Cooperation to publish new laws and regulations, recently reported
that less than 50 percent of tenders in |
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Conflicts
of interest have plagued
proper implementation of the
national Bidding Law in the past.
Government authorities have
allegedly published invitations to bid
in a less-than-public manner, for
example by using industry journals
to invite bids from a restricted
audience, and have supposedly
awarded bids on illegitimate grounds. |
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China
are public, despite the requirements of the Bidding Law. The Beijing
Municipal Bidding Regulations and Government Procurement Law seek to
address these problems by giving bidders and suppliers wider legal recourse
to file a complaint or bring a suit against the bid inviter or procurer.
Article continued below
| Who's
Who in the Bidding Process |
The Beijing Organizing Committee for the
XXIX Olympic Games (BOCOG), the Beijing Development Planning
Commission (BDPC), and the Beijing Municipal Planning Commission
(BMPC) will oversee most of the project tenders.
BOCOG's executive board is made up of
senior officials from the Beijing Municipal People's Government,
the Chinese Olympic Committee, and athletes. At present,
it has 15 departments, which are responsible for various
aspects of developing the games, including environmental
management and venue planning. BOCOG will oversee the bid
process for projects related to the games, |
including
those for projects outside of Beijing.
Under the Olympic Ownership Bidding Measures,
however, the Beijing Municipal People's Government and relevant
district and county governments will invite the bids for
the ownership tenders for key Olympic venues, with day-to-day
oversight and implementation of the bid process for most
of these projects assigned to BDPC. Bid winners must obtain
final approval from the State Development Planning Commission
for all large projects. BMPC will manage the bid process,
evaluation of design enterprises, and site planning of Olympic
venues. |
BDPC has appointed several tender agencies
(listed in the pre-qualification documents for the ownership
tenders of the Olympic venues issued in October 2002)
to carry out the detailed tendering work on its behalf.
In contrast to preparations for the
2000 Olympic Games in Sydney, where the organizing committee
and municipal authorities were widely rumored to be at
loggerheads, the delineation of responsibilities shown
thus far in Beijing should facilitate preparations for
the 2008 games. As in Sydney, it appears the municipal
authorities of the host city might ultimately run the
show.
—Paul
McKenzie and
Jacqueline Teoh |
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In
designing successful
financing structures for any
Olympic projects, investors
must resolve the uneasy
relationship between Olympic
and post-Olympic use
of the facilities. |
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Funding
options
Funding for the games is expected to come from a variety of sources,
private and public, much of it from overseas.
Reports on how much of the overall budget will be funded by the
government, and how much by the private sector, vary. Conservative
estimates put private-sector financing at one-third of the budget.
Funding for projects may also come through BOCOG from The Olympic
Partners program and its sponsors, including Eastman |
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Kodak
Co., The Coca-Cola Co., and Schlumberger-Sema Telekom. But these funds
are likely to be earmarked for "Olympic overlay" projects (temporary
facilities and construction for the games), for which BOCOG is responsible.
In designing successful financing structures for any Olympic projects,
investors must resolve the uneasy relationship between Olympic and post-Olympic
use of the facilities. BDPC has emphasized that successful bids for
Olympic venues must include creative and profitable solutions for post-Olympic
use. But investors must weigh project risk against expected profits.
Construction deadlines for Olympic projects are inflexible and subsequent
damages for default can be burdensome. And revenue from Olympics projects
is far from certain. Foreign investors may be able to extract "non-compete"
clauses from the municipal authorities to ensure that similar infrastructure
is not built in the city, but the value of these clauses will depend
on whether and how they are enforced. The ability of an investor to
shift some of these risks onto the Beijing city authorities will depend
on the government's appetite for private investment.
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| Bid-related
Laws and Regulations |
| Law |
Issuing
Body |
Issue
Date |
Effective |
|
| General |
|
PRC
Law on the Invitation and Submission of Bids (the Bidding Law,  Zhonghua
renmin gongheguo zhaobiao toubiao fa) |
Standing
Committee of the National People's Congress (NPC) |
August
30, 1999 |
January
1, 2000 |
|
Regulations
on the Scope and Threshold Standards for Bids of Construction Projects
( gongcheng
jianshe xiangmu zhaobiao fanwei he guimo biaozhun guiding) |
State
Development Planning Commission (SDPC) |
May
1, 2000 |
May
1, 2000 |
|
Provisional
Measures on the Supervision of the Invitation and Submission of
Bids for Large-Scale State Construction Projects
( guojia
zhongda jianshe xiangmu zhaobiao toubiao jiandu zanxing banfa) |
SDPC |
January
10, 2002 |
February
1, 2002 |
|
Regulations
of the Beijing Municipality on the Invitation and Submission of
Bids (the Beijing Municipal Bidding Regulations,  Beijingshi
zhaobiao toubiao tiaoli) |
Standing
Committee of the Beijing Municipal People's Congress |
September
6, 2002 |
November
1, 2002 |
|
| Olympic
Venues |
|
Measures
on the Administration of the Invitation and Submission of Bids for
Ownership Tenders of Olympic Construction Projects (the Olympic
Ownership Bidding Measures,  aoyunhui
jianshe xiangmu faren zhaobiao toubiao guanli banfa) |
Beijing
Organizing Committee for the XXIX Olympic Games |
July
28, 2002 |
July
28, 2002 |
|
Regulations
of the Beijing Municipality on the Procedures on the Invitation
and Submission of Bids for Ownership Tenders of Government Projects
(for trial implementation) (the Beijing Municipal Ownership Bidding
Regulations,  Beijingshi
zhengfu xiangmu faren zhaobiao toubiao chengxu guiding (shixing)) |
Beijing
Municipal People's Government |
September
25, 2002 |
October
1, 2002 |
|
| Government
Procurement |
|
PRC
Government Procurement Law
( Zhonghua
renmin gongheguo zhengfu caigou fa) |
NPC
Standing Committee |
June
29, 2002 |
January
1, 2003 |
|
2002
Government Procurement Plan of Central Government Entities ( zhongyang
danwei 2002 nian zhengfu caigou jihua) |
Ministry
of Finance |
May
18, 2002 |
May
18, 2002 |
|
Notice
on the 2003 Government Procurement Catalogue of the Beijing Municipality
( 2003
nian Beijingshi zhengfu caigou mulu de tongzhi) |
Beijing
Municipal Finance Bureau |
July
2, 2002 |
July
2, 2002 |
|
| SOURCE:
Paul McKenzie and Jacqueline Teoh |
|
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Also of interest to investors is the level of government funding
that will be available, whether by way of grants or loans or in
the form of guarantees. Press reports indicate that Beijing city
authorities are contemplating an issue of "Olympic" bonds and
the establishment of a special "Olympic Investment Fund." BOCOG
Secretary General Wang Wei gave a
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Beijing city officials insist there will be
little funding from government coffers
and express the hope that private
capital will finance the vast majority of
projects through creative structures. |
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| presentation
in October 2002 in Hong Kong during which he alluded to a national sponsorship
program that the Beijing municipal authorities will launch in spring
2003 to increase the funds available for Olympic venues. Despite these
funding efforts, Beijing city officials insist there will be little
funding from government coffers and express the hope that private capital
will finance the vast majority of projects through creative structures.
Analysts expect this will be reflected in the ownership tenders for
Olympic venues. The Sydney Olympic Village, for example, was largely
funded by a development consortium, which pre-sold housing in the village
to private buyers, enabling it to raise debt financing for construction.
Race to the finish
After a successful bid, any foreign or foreign-led consortium of bidders
faces the challenge of launching the project. Investment in and operation
of the Olympic venues and other Olympic projects will have to conform
to the general framework of rules governing foreign direct investment
in China and the issues that these rules raise. Key among them are
intellectual property protection; technology and equipment import
and transfer; foreign exchange remittance and payment; and securing
the proper industry permits and licenses to construct and operate.
The ambitious plans for Beijing over the next six years present opportunities
for foreign companies, but the successful companies will plan carefully,
keeping these issues in mind.
In large part, the success of the games will be measured against the
level of profit that investors will earn from Olympic projects. Olympic
Games are not known for being commercial successes, however. And China
has a relatively undeveloped framework, legal and otherwise, for supporting
large-scale project financing. But spurred by the high level of interest
in the games and the long-term opportunities for foreign investors
in China, Beijing city authorities—and foreign bid winners—may yet
buck the historical trend and turn a profit on the 2008 Beijing games.
| Paul
McKenzie
(pmckenzie@perkinscoie.com)
is a partner, and
Jacqueline
Teoh
(jteoh@perkinscoie.com)
an associate, in Perkins Coie LLP's Hong Kong office. Both are
members
of the firm's China Practice Group.
The
authors would like to thank Du Xiaohong, a senior consultant in
the Beijing office of
Perkins Coie LLP, for her research assistance for this article. |
|
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The
China Business Review, Volume 30, Number 1, January-February 2003
Copyright 1997-2008 by The China Business Review
All rights reserved.
Last Updated:
07-Jan-2003
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