Public Procurement & Government Contracts 2020 Comparisons

Last Updated April 06, 2020

Law and Practice

Authors



Mejía, Guizar y Kargl, SC and Creel Abogados, SC collaborate in public procurement procedures in the three orders of government. The partners of both firms have been exhibitors and trainers at various forums regarding the 2009 reforms to the Acquisitions, Leases and Public Sector Services Law. In terms of hiring healthcare supplies, the firms have intervened in the main international public tenders called by the Mexican Institute of Social Security and the Institute of Security and Social Services of State Workers. Both firms have participated in the main PPP tenders relating to the acquisition of goods. In the energy sector, they have provided advice on constitutional matters and public procurement of strategic areas in preparation for the new reforms envisaged by the Law of Petróleos Mexicanos and its Regulation, the Regulatory Law of the Constitutional Article 27 in the Field of Oil, as well as on the administrative dispositions of Petróleos Mexicanos.

In recent years, due to various constitutional reforms, there has been a great fragmentation of the representative institutions of public power. This fragmentation was aimed at establishing greater autonomy for these institutions and preventing them from being contingent on the effects resulting from the changes that were previously experienced with government transitions, especially every six years when there is a new administration. Such fragmentation and the constant search for autonomy has permeated the public procurement regimes, creating as many regimes as institutions and making public procurement regulation in Mexico even more complex.

The legal basis for public procurement in Mexico is Article 134 of the Federal Constitution, which provides the principles pursuant to which public procurement is governed.

Despite the complex scenario on public procurement in different sectors, the most common public procurement can be divided according to the type of authority at the federal level and the sub-federal level; there are as many local contracting regimes as there are states in the country.

The federal level is ruled by the Law on Procurement, Leases and Services by Public Sector (LAASSP) and the Law on Public Work and Related Services (LOPSRM), both with their respective regulations.

The sub-federal level comprises state government and municipal authorities. The sub-federal level is autonomous under its own constitution and therefore has its own regulation – although in most cases it is similar to the federal legislation – and must be analysed on a case-by-case basis.

The regulating procurement procedures at local level sometimes reveal important discrepancies in the areas and stages of procurement. However, there are also great similarities, and sometimes even total correlation in the rules that regulate such procedures.

There are also special regimes, such as those applicable to productive state enterprises – eg, Petroleos Mexicanos (Pemex) and the Federal Electricity Commission (CFE) – as well as those applicable to autonomous constitutional bodies.

Other specific regimes apply to:

  • concessions granted for works and services, which are regulated by different laws (depending on the work or service); 
  • public-private partnerships for long-term contractual relationships between the public and private sectors for the provision of services to the public sector or the final user, which are regulated by the Public-Private Partnership Law; and
  • legislative and judicial powers, which follow their own public procurement rules. 

According to the public procurement laws, the entities that are subject to those regulations are:

  • the Presidency's administrative agencies;
  • federal ministries of State and the Legal Executive Office;
  • the Federal Prosecutor;
  • federal state-owned companies or trusts; and
  • Mexican states, municipalities and public agencies that totally or partially use federal resources.

The contracts that are mainly subject to the LAASSP are:

  • the acquisition and leasing of movable goods;
  • the acquisition of movable goods that are intended to be incorporated into immovable goods for the fulfillment of public works;
  • the acquisition of movable goods that will be installed into immovable goods under the responsibility of public agencies or bodies; and
  • the hiring of services related to consultancy, advisory and investigative work.

On the other hand, the contracts that are subject to the LOPSRM are mainly those whose main purpose is to build, install, extend, remodel, restore, preserve, maintain, modify or demolish immovable goods.

According to the LAASSP and the LOPSRM, it is possible for foreign suppliers to take part in Mexican bids under two specific type of procedures: (i) public tenders covered by international treaties that comprise a specific chapter on public procurement; and (ii) international open tenders that allow any national or foreign supplier to participate in the bids even if they have not signed an international treaty with Mexico. This option is available when a national tender has been declared uncontested or when it is being financed with foreign credit.

On a case by case basis, there could be some limitations for specific sectors like hydrocarbons or electricity.

There is no special requirement or obligation that foreign companies or private parties shall comply with in order to participate in tenders or other public procurement processes, provided that foreign suppliers are allowed to participate under the law.

Nevertheless, there are some restrictions for any private party intending to participate in the public procurement procedures and award of contracts, established in both LAASSP and LOPSRM, as well as in other pieces of legislation, such as the Federal Anti-Corruption Law on Public Procurement (FACLPP). The main prohibitions under FACLPP are the following:

  • to promise, offer or deliver money or any other gift to a public servant or a third party, in exchange for said public servant performing or refraining from performing an act related to his or her functions or to those of another public servant, for the purpose of obtaining or maintaining a benefit or advantage, regardless of the acceptance or receipt of the money or the gift or the result obtained;
  • to execute any actions that imply or have the purpose or effect of obtaining an undue benefit or advantage in federal public procurement;
  • to perform acts or omissions that have the purpose or effect of participating in federal public procurement, despite being prevented from doing so by law or administrative resolution;
  • to perform acts or omissions that have as their object or effect to evade the requirements or rules established in federal public procurement or to simulate compliance with them;
  • to intervene on his or her own behalf in the interests of another person or persons who are prevented from participating in federal public procurement, so that the latter may obtain, totally or partially, the benefits derived from contracting;
  • to unlawfully oblige a public servant to give, subscribe, grant, destroy or deliver a document or any good, in order to obtain an advantage or benefit for him or herself or a third party;
  • to promote or use its influence, economic, political or social power over any public servant, with the purpose of obtaining for him or herself or a third party a benefit or advantage, regardless of the acceptance of the public servants or of the result obtained; and
  • to file false or altered documentation or information for the purpose of achieving a benefit or advantage.

Moreover, according to LAASSP and LOPSRM, it is important to consider that government bodies shall refrain from receiving proposals or awarding any contract with among others, the following persons:

  • those in which the public servant who intervenes at any stage of the hiring procedure has a personal, family or business interest;
  • those suppliers that, for reasons attributable to themselves, the calling agency or entity would have administratively rescinded more than one contract, within a period of two calendar years commencing from the notification of the first termination;
  • those who submit proposals in the same item of goods or services in a contract procedure and that are linked to each other by a common partner or associate;
  • those who intend to participate in a contract procedure and have previously performed or are performing, by themselves or through companies that are part of the same business group, under another contract, quality analysis, control and monitoring, budgeting or the preparation of any document related to the procedure in which they are interested in participating, when on the occasion of the performance of said work they would have had access to privileged information that will not be made known to bidders for the preparation of their proposals;
  • those that, by themselves or through companies that are part of the same business group, intend to be hired for the preparation of decisions, expert opinions and appraisals, when they are to be used to resolve discrepancies arising from contracts that said persons or companies are part of;
  • those that enter into contracts on matters regulated by this law without being entitled to make use of intellectual property rights;
  • those who have used privileged information, improperly provided by public servants or their relatives by blood or civil contract, and by affinity up to fourth degree;
  • those who hire advisory, consulting and support services from any type of person on matters of government contracts if it is verified that all or part of the consideration paid to the service provider, in turn, is received by public servants  or by an intermediary, regardless of whether or not those who receive them are related to hiring (DOF 07-07-2005. DOF Reformed 05-28-2009);
  • those bidders who, unreasonably and for reasons attributable to themselves, have not formalised a contract previously awarded by the awarding authority;
  • tenderers who, unreasonably and for reasons attributable to themselves, have not formalised two or more contracts awarded to them by any agency or entity within two calendar years;
  • suppliers who have rescinded contracts in two or more units or entities within three years;
  • suppliers that do not fulfill their contractual obligations for reasons attributable to themselves and that, as a consequence, cause serious damage or harm to the agency or entity in question; and
  • suppliers that deliver goods or services without meeting the specifications established in the contract.

In general, prior to any contracting procedure, the awarding authority requires a market study to establish the optimum price that will be accepted by a proposal made by the bidders or participants.

According to the applicable regulation, this is defined as: “The prior verification of the effective existence of goods, leases or services of national or international suppliers and the estimated price based on the information provided by the dependence or entity, public or private organisations, manufacturers of goods or providers of the service, or a combination of the mentioned sources.”

The aims of the market study are to provide the pertinent information to carry out the corresponding public procurement process, to ensure the best economic conditions and  determine the market price of the service or supplies that will be acquired. The results of the market study shall include the following:

  • the existence of the goods, leases or services and the identification of possible international and national suppliers;
  • identification of replaceable goods or services;
  • alternative processes;
  • the prevalent price at the time of the research; and
  • an analysis of the competitive market.

This investigation seeks to eliminate the possibility that the contract is granted at a cost in excess of the market price, and allows the identification of two different price parameters: (i) unacceptable price; and (ii) maximum reference price.

Based on the above, the entity will be able to choose the best cost-benefit option from the proposals that does not exceed the maximum reference price.

The LAASSP and the LOPSRM establish the following procurement procedures:

  • public bidding, also known as open tender (as a general rule, this is the main procurement process);
  • restricted invitation, to at least three suppliers; and
  • direct award.

The public tender, as the main procurement procedure, comprises the following stages:

  • advertising of the call to tender; the call to tender is published (in Spanish) on the official website (CompraNet) and/or in domestic newspapers;
  • proposals: bidders must submit their technical and economic proposals for evaluation in two separate sealed envelopes, which will be opened in a public session where only a quantitative analysis will be made; and
  • clarification meeting: at least one clarification meeting must be held in order that competitors can eliminate any doubts.

As mentioned in 2.3 Tender Procedure for Award of Contract, the general rule for public procurement is to deliver an award via an open tender, however, by exception and under specific circumstances, the awarding authority can choose either of the other two types of procedure if those conditions are met.

For the restricted invitation, at least three suppliers who meet certain prerequisites are preselected and the contract is awarded to the one that presents the best bid. Specific scenarios where this type of procedure applies are established in law.

For the direct award, the contract is directly awarded to a supplier without any competition. This is usually when the value of the purchase is low or when public tenders or restricted invitations are unsuccessful.

Public entities are obliged to make available to the public through the digital system CompraNet their annual acquisition programme at the beginning of the year, no later than 31 January.

In addition, the awarding authority must publish the call with all the necessary requirements, formats and documents that participants must meet in order to participate and keep to the terms and conditions set therein.

In public bids, participants must submit their technical and economic proposals on a specific date within 15 to 20 days after publication of the call for competition.

All government procurement regulations prohibit governmental bodies or agencies from receiving proposals or awarding contracts from participants that:

  • have a family, business or labour relationship with the awarding authority, or where a government officer that participates in the bidding process could otherwise benefit from the relevant contract;
  • have a conflict of interest with the awarding authority or other participants in the same tender process;
  • have been condemned by a final and non-appealable judgment in the previous three years in connection with government procurement contracts;
  • have had a public procurement contract terminated;
  • are insolvent or subject to an insolvency proceeding;
  • have been administratively disqualified;
  • have delayed in the execution of another contract with the same authority;
  • present proposals on the same item of goods or services in a procurement procedure that may be linked to each other by a partner or subsidiary; and
  • intend to participate in a public procurement before they have carried out, by themselves or through subsidiary companies, the specific previous works or activities established in the contract.

Certain tenders may be limited to only national participants, such as when the products to be acquired are manufactured in Mexico and have a national content of at least 50%.

The awarding authority as an exception can opt to award a contract through a restricted invitation process to at least three participants. The selection of this proceeding must be justified according to the specific circumstances allowed by law and must rely on principles such as economy, efficiency, impartiality, transparency, and honesty in order to ensure the best purchase conditions for the government.

The LAASP and the LOPSRM envisage the hypothesis that allowed the awarding authority to choose this via.

In any case, the potential suppliers must have the capacity  for immediate response as well as sufficient economic and technical capacity and all the necessary resources. In addition, economic or professional activities shall be directly related to the main object of the contract.

Proposals are evaluated according to the criteria selected by the awarding authority, which can be:

  • points and percentages, which evaluates the best ranking based on quality and price;
  • cost-benefit, which evaluates the economic proposal and the direct benefits in monetary terms; and
  • binary system, which is used in exceptional cases and is based on the lowest price when it is impossible for the entity to use of any of the above-mentioned criteria.

The evaluation criteria and the conditions that must be met by the competitors must be published in the call for bids.

The contract must be awarded in a public meeting within a period of 30 days from the submission of the proposals. The final decision must include:

  • the list of the disqualified competitors and the reasons for their disqualification;
  • the list of competitors that fulfill all the requirements;
  • the name of the awarded bidder; and
  • the date for signing the contract.

The contract must be awarded in a public meeting within a period of 30 days from the submission of the  the proposals. The final decision must include:

  • the list of the disqualified competitors and the reasons for their disqualification;
  • the list of competitors that fulfill all the requirements;
  • the name of the awarded bidder; and
  • the date for signing the contract.

The act by means of which the contract award is given to the participants shall be signed and a copy must be handed to each of them. In addition, the calling entity must make the same information publicly available in its office within no less than five working days.

In addition, the judgment must be uploaded and published on CompraNet. 

Once the contract has been awarded, the obligations arising from it become enforceable. The contract must be signed on the date specified in the bidding conditions or within a period of 15 days.

Nonconformity complaints against the contract award decision can be submitted by participants that consider that the judgment is not aligned with the provisions of the law or the terms and conditions of the bidding process.

The Ministry of Public Function through the internal comptroller of the contracting entity will be responsible for deciding the legality of the decision. That verdict can be appealed at the Federal Court of Administrative Justice through a nullity claim. Furthermore, the judgment of the Federal Court can be challenged at the Federal Collegiate Tribunals, with that decision being final.

In the event of disagreements between the government and a contractor in connection with the performance of the contract, the parties can opt for the following proceedings:

  • rescission: dependencies and entities may at any time administratively terminate contracts when the supplier is in breach of its obligations;
  • conciliation: the suppliers or the agencies and entities may at any time submit a request for conciliation to the Ministry of Public Function, due to disagreements arising from the fulfillment of the contracts or upon request; and
  • arbitration: an arbitration commitment may be agreed with respect to disputes that arise between the parties due to interpretation of the clauses of the contracts or issues arising from their execution.

After filing the complaint, the procurement process will be suspended until the proceeding is finished. Regarding the final decision, the complaint does not automatically suspend the execution of the contract but the claimant relying on specific and critical circumstances can request an injunction, which may be granted or not.

The procurement proceedings can be challenged by the competitors in the following cases:

  • the call for bids and the clarification meeting: only those participants that had officially expressed an interest in taking part in the bid process are able to submit a complaint within six days of the clarification meeting taking place;
  • the official restricted invitation: only those who had been invited to bid are able to submit a complaint;
  • the act of presentation and opening of the proposals: only the competitors that had officially submitted a proposal are able to file a complaint;
  • the cancellation of the tender: only the competitors that had officially submitted a proposal are able to file a complaint; and
  • acts or omissions that prevented the execution of the contract under the terms and conditions set forth either in the call for bids or the laws on public procurement: only the awarded bidder is able to file a complaint.

As a general rule, the competitors have six days after the execution of the challenged act to submit a complaint and ten days if the bidding is in the framework of an international agreement.

Likewise, the time limits are 30 working days for a nullity claim and 15 working days for an extraordinary constitutional claim before the federal court (amparo).

Considering the complex challenge scheme that exists in Mexico in relation to administrative matters and the existence of optional means of defence, the duration of the claims can vary greatly; however, in the case of disagreements to which they refer LAASSP and LOPSRM, it is common that the proceedings take between three and five months.

It is worth mentioning that the administrative challenge system in Mexico implies the existence of other means of defence such as the administrative contentious trial and the amparo trial, which can often lead to the challenge process taking up to two years to reach a definitive resolution.

The review body for tenders is the Ministry of Public Administration, however, each agency and entity of the federal public administration has an internal control body under the said Ministry of Public Administration. These internal control bodies are responsible for receiving, processing and resolving the disagreements presented by bidders and suppliers on the occasion of the contracting procedures convened by each entity or agency.

According to the 2019 Audit Report, from 1 December  2018 to 31 December  2019, the Ministry of Public Administration received 196 disagreements and resolved 206 files, including matters from previous years, since as of 30 November 2018, there were 52 pending.

However, since the vast majority of disagreements are resolved by internal control bodies, the above statistics are not representative of the total number of complaints filed in relation to contracting procedures that are convened throughout the country.

The review bodies in Mexico are not authorised to charge any kind of fee in the matter of challenging public procurement decisions.

The awarding authority can agree to increase the amount of the contract in justified circumstances provided that such amount does not exceed 20% of the original sum.

In addition, if the supplier is not able to fulfill with the totality of the contract, the authority can cancel part of it provided that the amount does not exceed 10% of the total original amount of the contract.

Public procurement laws usually allow a direct award when the value of the purchase is low. In addition, contracts can be directly awarded when public tenders or restricted invitations are unsuccessful.

The Second Chamber of the Supreme Court of Justice of the Nation has established that because the law does not set a time period for the Ministry of Public Function to initiate its powers of ex officio verification with respect to public procurement procedures, the right to the legal security of individuals is violated.

In that sense, according to the LAASSP, the Ministry of Public Administration may at any time verify that the purchases, leases, and services are carried out in accordance with the provisions of the law, which in the current context allows the government to reopen files of concluded contracting procedures, without any time limit; hence the limitation established by the judiciary is an important tool in avoiding the reopening of files based on merely subjective grounds.

With the beginning of the new administration, there is a new perspective for public procurement. The idea of eradicating corruption has led the new government to centralise the public procurement process within one authority.

On this basis, new faculties have been granted to the Ministry of Finance and Public Credit; this authority will be in charge of issuing the official calls to centralise the process and avoiding further acts of corruption in the different public sectors.

In addition, the new government is in the process of implementing framework contracts to be signed with suppliers.

As this scheme is still being implemented, the real effects of the new centralised public procurement on corruption are yet to be seen.

Law and Practice in Mexico

Authors



Mejía, Guizar y Kargl, SC and Creel Abogados, SC collaborate in public procurement procedures in the three orders of government. The partners of both firms have been exhibitors and trainers at various forums regarding the 2009 reforms to the Acquisitions, Leases and Public Sector Services Law. In terms of hiring healthcare supplies, the firms have intervened in the main international public tenders called by the Mexican Institute of Social Security and the Institute of Security and Social Services of State Workers. Both firms have participated in the main PPP tenders relating to the acquisition of goods. In the energy sector, they have provided advice on constitutional matters and public procurement of strategic areas in preparation for the new reforms envisaged by the Law of Petróleos Mexicanos and its Regulation, the Regulatory Law of the Constitutional Article 27 in the Field of Oil, as well as on the administrative dispositions of Petróleos Mexicanos.