China partners question new trend for tender fees as concerns over corruption linger

Firms in China are increasingly being asked to pay to apply for panel appointments, as state-owned enterprises (SOEs) move to outsource procurement processes to tendering agencies amid concerns about corruption.

Partners dealing with SOEs in China say they have been asked to submit panel applications through agencies such as CITIC International Tendering Co and China CNTC International Tendering Corporation, and required to pay to take part.

One Beijing corporate partner at an international law firm said he was required to pay CNY1,000-2,000 (£105-£210) for request for proposal (RFP) documents when bidding for a place on the panel of a large sovereign wealth fund, and a further CNY7,000 (£730) after being selected.

"I find this practice odd because it is largely unnecessary," he said. "Firms have been deprived of the opportunity to make direct contacts with clients and the valuation has been limited to pricing, which is not fair to the company or law firms. The terms aren't that reasonable. 

"The RFP was also very loosely drafted. It was definitely drafted by someone who had little idea of what was going on. There were many blank forms and general requirements."

Projects partner Liu Yue, head of the international practice at Beijing firm Jia Yuan Law Offices, said the use of tendering agencies was a way for senior executives to minimise the risk of unethical behaviour by ensuring that external appointments are managed by neutral parties.

"It typically happens with SOEs – seldom with private companies. One of the reasons for this is the anti-corruption policies of SOEs. They want to avoid being criticised for someone getting in because there are relationships or suspicions of bribery, so they outsource this tendering to independent agencies. 

"The payments are not a bribery or corruption thing. They are a way to recover the tendering agency's service fees. The problem is that the tendering agencies have no knowledge about the legal services industry, so they think that lawyers' services are the same as construction contractors." 

He adds: "Two years ago, I never saw this in the market. But in the past two years, I have seen one or two cases and I think there will be more. Clients need to be educated and the bidding agencies need to be educated to understand how legal services are different from construction services."

Another partner at an international law firm agreed that the practice of paying fees to agencies was not ideal, but that it was still fairly uncommon. 

"There are agencies in the Chinese market who help clients deal with the selection process. With regards to the fees, I don't think we're talking about a huge amount – it's definitely not bribes because these are not people who are on the selection committee. 

"From what I understand, the clients themselves make the final decision, so these agencies have more of an administrative role. They hire these people to run the beauty parade, to deal with the selection process, so this is like paying for the agents fees, or sharing the cost of the running the selection process. 

"Of course it is not ideal – we would like not to have to pay anything to anyone. The good thing is that the clients will be very clear as to what they are asking for, which could be an advantage, because then you're not guessing blindly."

Tender processes in China have drawn more attention in recent years as companies become more cost-conscious and attempt to minimise risks of corruption.

Last year, partners in Hong Kong reported instances of SOEs asking them to reveal their fee quotes in front of competitors in an effort to control legal spend, with several magic circle and top US law firms among those required to bid publicly.

Some organisations have also begun to establish Western-style legal panels, with China Resources Group among those creating a formal roster of international firms this year.