Hong Kong: The Bid Challenge System Established Under The World Trade Organization´s Government Procurement Agreement

Last Updated: 18 January 2001
Article by Kevin Owen
Most Read Contributor in Hong Kong, October 2018

Hong Kong acceded to the World Trade Organization's Government Procurement Agreement ("GPA") on 20th May 1997. The GPA requires that the procurement of goods and services undertaken by central government bodies and government-funded entities are carried out in a fair and non-discriminatory manner. Its provisions apply to tenders issued by all Government Departments and Bureaux, MTRC, KCRC and the Airport, Housing and Hospital Authorities which exceed specified financial thresholds (approximately HK$4.5 million for general products and services and HK$56 million for construction services).

Article XX of the GPA requires each signatory to establish a non-discriminatory, timely, transparent and effective procedure to enable suppliers to challenge alleged breaches of the GPA by procuring entities in respect of procurements in which they have an interest.

Parties to the GPA have a choice under Article XX either to rely on the courts to undertake reviews or to establish an impartial and independent Review Body which is secure from external influence. Article XX goes on to provide that any Review Body which is not a court is to be subject to judicial review or is to have procedures which enable participants to be represented, participants to have access to all proceedings, for proceedings to take place in public and for witnesses to be present.

Article XX also requires any challenge procedure to provide for rapid interim measures to correct breaches of the GPA and to "preserve commercial opportunities". Such rapid interim measures may include the suspension of the procurement process, although this is subject to any "overriding adverse consequences" for the procuring entity (including the public interest) in determining whether such interim measures should be applied.

The Government of the Hong Kong SAR elected to set up an administrative review body to deal with bid challenges under the GPA rather than giving the courts jurisdiction. Rules of Operation of the Review Body on Bid Challenges were therefore developed and issued in December 1998 by (what now is) the Commerce and Industry Bureau. These have recently been revised and a new edition of the rules was published by the Bureau in July 2000. The revisions made, however, are relatively minor in nature.

Set out below is a brief description of the Rules of Operation of the Review Body on Bid Challenges and the respective rights and obligations of suppliers and procuring entities.

Composition Of The Review Body

The Review Body comprises 12 members, consisting of the Chairman (currently Mr. Neil Kaplan Q.C.), two Deputy Chairmen and nine members. The Chairman and Members are appointed by the Secretary for Commerce and Industry and it is a requirement that the Chairman and the Deputy Chairmen are legally qualified. The Rules also provide that the Members of the Body are to be selected from a wide spectrum of society.

The duties, functions and powers of the Review Body are to receive challenges from suppliers in respect of alleged breaches of the GPA by procuring entities to conduct inquiries into the challenges made and to make determinations and recommendations in accordance with the Rules of Operation.

The Bid Challenge Process

Suppliers are required to submit a challenge in the prescribed form to the Review Body within 10 working days after the supplier "knew or reasonably should have known" the basis of the challenge. In the event that the supplier requires the Review Body to request the implementation of "rapid interim measures", then the supplier is required to state this in the request and to provide justification and representations in the challenge which is lodged.

The Chairman of the Review Body is given a discretion to consider challenges submitted after the prescribed 10 day period if he finds that reasonable cause for delay is shown. However, a challenge is not to be considered if it is filed later than 30 days after the supplier knew or reasonably should have known the basis of the challenge.

The Chairman is then required within a period of seven days from the issue of a "Notification of Receipt of Completed Application" to confirm that the application has been completed in the prescribed form, that all required information has been received, whether a prima facie case is established for the challenge to be accepted for inquiry and for a panel to be appointed to consider the challenge.

Issues which the Chairman is to take into account include whether the supplier has an interest in the procurement concerned, whether the information provided discloses a reasonable indication that the procurement has not been carried out in accordance with the provisions of the GPA and whether the supplier has filed sufficient information.

The Chairman may also make a decision that the application should not be accepted for inquiry and may elect to request further information to be provided to assist him in deciding whether the challenge should be accepted for inquiry.

Establishment Of The Panel

If the Chairman decides that the challenge should be accepted for inquiry, he is obliged to appoint a panel. The Secretariat (provided by the Commerce and Industry Bureau) is required to inform the procuring entity and the supplier of the Chairman's decision to appoint a panel within two working days of his decision. The procuring entity is also to be informed if the supplier has requested rapid interim measures to be implemented.

Each panel established to deal with an inquiry is to consist of the Chairman and two members appointed by him.

Where rapid interim measures have been requested by a supplier, the relevant procuring entity may make written representations to the Panel not later than five working days after receipt of notification of establishment of the Panel. The Panel may, within 10 working days of it being established, recommend appropriate rapid interim measures to be taken to correct breaches of the GPA or "to preserve commercial opportunities".

If the Panel decides to recommend that rapid interim measures should be taken, then the procuring entity is required, within seven days, to advise the Panel whether it will implement the rapid interim measures and if not, the reasons for not so doing.

It should therefore be noted that procuring entities are not obliged to comply with recommendations issued by the Panel requesting implementation of interim measures. They can elect to decide not to comply due to reasons such as potential damage to its commercial interests, the public interest or any other "overriding adverse consequences" of implementing the recommendations.

Where rapid interim measures are not requested by the supplier, and the procuring entity wishes to make a response to the general challenge lodged by the supplier, then such a response must be made within 30 days of the issue of the notice of establishment of the Panel.

The Hearing

Paragraph 34 of the Rules provides that where the Panel conducts an inquiry into a challenge, it is obliged to consider the facts of the challenge and all written representations made by the parties. It is then obliged to determine whether the procurement was conducted in accordance with the requirements of the GPA. A full hearing is required to be held only if a request for such a hearing is made either by the supplier or the relevant procuring entity or if the Panel of its own initiative believes that a hearing is required, based on the facts of the challenge.

The Panel is required to determine the validity of a challenge within 90 days of the date of issue of the Notification of Receipt of Completed Application, although it is possible for the Panel to extend the time for making a determination and recommendation of corrective measures or compensation, to a maximum period of 180 days after issue of the Notice.

If the Panel reaches the conclusion that a challenge is valid and that there has been a breach of the GPA by the procuring entity, then it may recommend "such remedy as it considers appropriate". The Panel is then obliged to make a written report of its opinions or recommendations and to issue a statement describing the basis of the opinion or recommendation.

Implementation

An obligation is placed on procuring entities to use "reasonable endeavours" to implement recommendations made by the Panel and it is required to advise the Panel in writing within 30 days of the date of issue the Panel's decision of the measures which the procuring entity intends to take or, as appropriate, the reasons why measures recommended by the Panel are not to be taken.

Paragraph 29 of the Rules provides that reasons for a procuring entity not to implement recommendations of the Panel may include potential damage to the commercial interests of the procuring entity and "any other overriding adverse consequences" of implementing the recommendation, or the public interest. If such reasons are provided by the procuring entity, the Panel may, within 30 days of receipt, make further recommendations regarding compensation for loss or damage suffered by the supplier. Such costs are, however, to be limited to the cost of preparation of the relevant tender or the cost of making the protest under the bid challenge rules. Again, an obligation is placed on the procuring entity to use reasonable endeavours to comply with any such further recommendations and to notify the Panel in writing if the procuring entity does not intend to fully implement the recommendations.

Additional Information

Under Paragraph 31 of the Rules, the power is given to the Panel at any time following receipt of the challenge to request additional information relating to the relevant procurement which is in the possession of the parties and an obligation is placed on the parties to provide information requested expeditiously. The parties may, however, refuse to disclose information if to do so would impede law enforcement; would be contrary to the public interest; would prejudice the legitimate commercial interests or fair competition between suppliers; would be in breach of legal professional privilege; or confidentiality between the party concerned and a third party and where the consent of the third party to the disclosure of such information cannot be obtained. Any refusal to disclose information is to be accompanied by reasons in writing.

In relation to confidential information which may be requested by the Panel, a party may request that such information should only be made available to members of the Panel. In such cases, a statement is to be provided by the relevant party identifying the confidential information, together with a copy of the confidential information (which is to be provided to the Panel only) and one copy of the documents where the confidential information has been deleted is to be supplied to the other party.

Panel's Report

The report of the Panel in formulating recommendations or reaching an opinion is to be made available both to the supplier and the relevant procuring entity and to members of the public on a request being made.

Summary

The Review Body established by the Commerce and Industry Bureau in accordance with Article XX of the GPA provides contractors and suppliers with a means to seek redress against government and quasi government entities which have failed to comply with the obligations set out in the GPA. It is to be noted, however, that recommendations and opinions of the Panel are not binding on procuring entities and that the proceedings before the Panel are merely administrative. While a reasonable endeavours obligation is placed on procuring entities to comply with the recommendations and opinions of the Panel, there is no sanction against non-compliance other than for the order of compensation in favour of the relevant supplier, which will be limited either to the costs of the tender or the cost of operation of the challenge itself.

Since the Review Body was established, only two complaints have been referred and both were withdrawn prior to a hearing being held. Accordingly, a panel has yet to be established in accordance with the Rules of Operation.

The Bid Challenge Procedure does, however, provide tenderers with a new means of redress where there has been discrimination in tender evaluation and parties which participate in the procurement process in Hong Kong should acquaint themselves with the provisions of the Rules and be aware of the remedies which may be sought in accordance with its provisions when submitting tenders to Government and quasi Government bodies.

The original email legal update is copyright Johnson Stokes & Master at the date written first above. All rights reserved. This publication provides information and comments on legal issues and developments of interest to our clients and friends. The foregoing is intended to provide a general guide to the subject matter and is not intended to provide legal advice or a substitute for specific advice concerning individual situations. Readers should seek legal advice before taking any action with respect to the matters discussed herein. Please also read the JSM legal publications Disclaimer.

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