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:
According to the public procurement laws, the entities that are subject to those regulations are:
The contracts that are mainly subject to the LAASSP are:
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:
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:
Under public procurement regulation, the authority has the obligation to disclose and publish the call for public tenders via the electronic platform CompraNet: https://compranet.hacienda.gob.mx/web/carta.html
This free-access platform is the electronic system administrated by the Secretariat of Public Function where all the information related to the call for competition on public tenders and all the activity related to the process can be found.
Among other things, the call for bids must include:
Tenders financed entirely or partly by foreign credit are published according to the guidelines of the authorised credit institution.
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:
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:
The public tender, as the main procurement procedure, comprises the following stages:
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:
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:
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 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 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:
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:
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.
During 2018, 2019 and the beginning of 2020, the topic of health protection and access to essential products entered the public debate in Mexico. Today the topic occupies a very important space in the conversation among analysts, the press and the public in general.
With the new federal administration, three key issues were put at the centre of the discussion: (i) fighting corruption; (ii) universal coverage in providing health services; and (iii) the public procurement of health products, not only of medicines but also of medical devices and the equipment necessary for treating illnesses. The new federal administration within its National Development Plan has been emphatic about making the fight against corruption the pillar of all public policies in different spheres, including public procurement. In this regard, during the campaign and once elected, the President of the Republic has made strong statements with respect to the lack of efficacy of the Mexican health system, and the effectiveness of universal access to free health services. For this purpose, the new federal government began a dynamic and drastic process of changing the structure of the public procurement of medicines and medical devices, with the intention of eliminating distributors and establishing a direct contractual relationship with the manufacturers and their affiliates in Mexico. Such a change has resulted in logistical challenges for an adequate distribution and dispersion of the products and their timely delivery at health centres.
Therefore, it is important to write this chapter to provide a brief overview of the current situation in relation to public procurement of healthcare products; first providing a synthesis of the legal regime applicable in this area.
Before explaining the current state of procurement, we should emphasise that in Mexico health protection is recognised as a human right by the Constitution, which is legally linked to the international human rights treaties that protect a range of human rights (including health protection), and establish an obligation to always interpret the applicable rules in favour of the person. On 3 February 1983 a constitutional reform was published in the Official Federal Gazette adding a new paragraph to Article 4 of the Constitution to include the right to health protection in the following form:
"Every person has the right to health protection. The Law will define the bases and methods for access to health services and will establish the participation of the Federal Government and the states in relation to general health, as established in section XVI of article 73 of this Constitution."
In 2011 that right, together with the other individual rights, were redefined as human rights under the framework of constitutional protection and the protection of international human rights conventions and treaties. It should nevertheless be kept in mind that all the issues related to public procurement by the Mexican state have a direct impact on the protection of the human right to health. This is not an administrative governmental matter to be resolved acquiring goods to satisfy such governmental need; in the case of medicines and other health products, it is a matter of ensuring people’s health and their human rights. Now, the legal regime applicable to public procurement in Mexico will be analysed.
Public sector purchases in Mexico imply an important business opportunity that should be taken into consideration by national and foreign companies. Under the current law, the participation of national and imported products is permitted and there are mechanisms that protect the rights of participants in these processes. The idea has grown that having the government as a client is generally problematic and risky. On the one hand, it is argued that the law and legal rules that must be complied with make the sector unattractive; and at the same time there is the perception that there are great risks inherent in these types of transactions.
A company that is willing to sell or provide services to the government has to know and comply with the particular legal provisions; the business transaction cannot be carried out just through negotiations between the governmental institution and a supplier, since every step taken and document signed must have a legal basis. Below are some basic principles with respect to these public acquisitions:
The Constitution and Government Purchases
There are two basic articles that apply to government purchases: Articles 126 and 134 of the Constitution.
Article 126 specifically establishes that no payment may be made that is not budgeted or included in a law. In other words, for the government to spend anything (use revenue), it must be budgeted.
Article 134 of the Constitution is the legal pillar supporting the rest of the legal provisions and consequently the legal regime of government purchases. This Article addresses several topics, such as (i) procurement and its principles (the tender); (ii) the exception to the tender (direct acquisition); (iii) the obligation of public officials to observe the principles; and (iv) transparency and open procedures.
The fundamental principles of Article 134 of the Constitution in matters of public sector procurement are the following: the funds of the federal government, states and municipalities shall be administered with efficiency, efficacy, economy, transparency and honesty; the provisions of funds will be audited; the acquisitions, leases, public works and services the government contracts will be made through public tender, so that public offers may be freely presented, should be presented in a closed envelope that is opened publicly, and should ensure for the state the best conditions of price, quality, opportunity and financing. When the bids are not adequate (ie, patented products), the laws may establish the cases and requirements for following another system for acquisition or contracting.
The rest of the procurement laws and processes revolve around those principles; they must always be observed during the respective procedures.
The following is a brief description of the process.
Concept of Tender
Article 134 of the Constitution indicates that the governmental acquisition and contracting procedures must be carried out through public tenders. It is important to understand this concept to be able to analyse the public acquisition process.
To tender is understood as offering a price for something in a public auction or sale.
A public auction is understood as:
So, a tender is the act of participating in a public auction offering services, goods or public works.
Legal Provisions Regarding Public Contracting
These provisions contain the rules for the processes of government procurement. First, we will discuss the Law and then the Treaties.
The Public Sector Procurement, Leases and Services Law
Previously we determined that the Constitution requires adherence to basic principles for public contracting, which are legislated in detail in the Law. The principle is that every acquisition or contracting of the government must be through a tender. The Law establishes three types of tenders, depending on the origin of the products, as are explained below.
Types of tender
The Public Tender Procedure
There are several stages, which range from a draft of the tender (pre-invitation) to the signing and execution of the contract that is awarded.
For the purpose of maintaining transparent and free-access procedures, favouring competition and free enterprise, the Law establishes that the entities of the government that will initiate a public tender process may publish a draft of the tender, which is to mention the invitation.
Stages of the tender
As indicated previously, currently the criteria of the traditional tender, which considers the lowest-priced offer to be the best offer, is not the only or necessarily the prevailing criteria. Changes made in 2009 introduced new evaluation criteria and recognised other factors that should also be taken into consideration when doing evaluations.
Points and percentages
The terms of reference to the tender should establish the items and sub-items of the technical and economic proposals that make up the proposal so they have a numeric or weighted grade that can be reached in each of them.
Cost benefit evaluation criteria
The terms of reference to the public tender will indicate the information that the bidders must present as part of their proposal, for the application of the criteria this chapter refers to.
Binary evaluation criteria
This is applied when the inviting agency does not require linking the conditions that the suppliers must comply with to the characteristics and specifications of the goods or services to acquire because they are standardised in the market and the preponderant factor for awarding the contract is the lowest price. The reason for applying this criterion and not points or percentages or cost benefit must be specified, leaving a record in the contracting procedure file.
Awarding the contract to the one who complies with the requirements established by the inviting agency and offers the lowest price will be applicable when it is not possible to use the criteria of points and percentages or cost benefit.
Just in time
Just in time consists of having the inventory necessary to meet the commitments made; it presumes large savings in working capital since there is no immobilised resource. It is the efficient use of resources.
The concept of citizen witnesses has been included in Mexican law, trying to ensure transparency and legality in the procurement procedures.
These witnesses are appointed by the Ministry of Administrative Function (when the tenders exceed the equivalent to five million days of general minimum wage in force in the Federal District).
This is the administrative act through which the inviting agency decides which proposal will win, which is to say, which of the participants can supply the goods or provide the services needed. This act has various characteristics, including the following: the award must strictly abide by the terms of the invitation to tender, and those of any clarification meetings if the terms of the invitation have been changed.
Since this document establishes the rules under which the procurement of goods or services will be governed, this is the culmination of a tender; one of the documents attached hereto is a supply contract template that shows the primary characteristics.
As stated initially, contracting with the government involves abiding by strict legal rules that result in obligations for the participants.
Now that the system for participating in government procurement has been discussed, the sanctions for violating those provisions will be analysed.
Sanctions during the participation in the tender procedure are as follows.
Regarding the contracts executed between public agencies and suppliers, it should be kept in mind that both the Law and the invitations require the inviting institutions to request performance bonds to guarantee the obligations assumed in the contracts executed for the procurement of goods or services.
Exceptions to public tenders
There are two exceptions to the public tender system: the direct award and the invitation to three persons, which apply for the case of unique products in the market (patented) or in other cases such as national security, works of art and force majeure. This type of contracting must be duly supported to justify the exception.
This is a brief summary of the legal regime applicable to public procurement.
With respect to acquisition of healthcare products, there are several considerations to be made: (i) the availability of products for providing health services; (ii) sanitary control to guarantee safety, efficacy and quality of the health products to be purchased; and (iii) the sanitary control of any process engaged in the manufacture and distribution of health products. All the participants related to procurement and public acquisitions of healthcare products are, in one way or another, integrated into the national health system, which is composed of the agencies and entities of the public administration, both federal and local, and the individuals or entities of the social and private sectors that provide health products and services, therefore are obligated to comply with the healthcare law, as well as with the public procurement legal system, with the main purpose being to fulfil the obligation to protect health.
There are legal-sanitary principles: (i) the obligation of the government to purchase medicines and products; (ii) respect for the legal provisions in relation to public procurement; (iii) the observation of the laws relative to sanitary control of the health products; (iv) respect for industrial property rights; and (v) for a product to be used in treating an illness, it must have a duly issued marketing authorisation. To obtain it, the product’s safety, efficacy and quality must be proven through submission to a registration protocol.
The current federal administration has created a new system under which it pretends to assure the supply of pharmaceutical products, following a brief description of the new regulation.
It recognises, as equivalent, the requirements established by the Mexican regulations and the ones of Switzerland, the USA, Canada, Australia and the European Commission, as well as regulatory authorities pre-qualified by the World Health Organization or regulatory agencies that are members of the Pharmaceutical Inspection and Cooperation Scheme (PIC/S) (all the agencies are referred to hereinafter as “The Agencies”) for the obtaining of marketing authorisations for new molecules, generic medicines, biotechnological medicines, innovative, bio comparable, as they may be of national or foreign manufacture. This new decree includes the possibility to perform the importation of medicines with or without marketing authorisation in Mexico, aimed at any disease or ailment, for medicines that have been previously authorised by the above-mentioned Agencies.
Establishes the possibility to import medicines according to need, with the goal of guaranteeing the supply for the correct and prompt lending of services (it does not define the meaning of that concept), through co-ordination between the Health Ministry and the entities related to the national supply and internment to national territory of health products (health institutions, the Mexican Petroleum State Company or national security institutions).
Other considerations of the Regulation
It determines that by need, medicines that may require importation and do not have marketing authorisation in Mexico should be authorised by regulatory authorities pre-qualified by the Agencies.
The Regulation establishes a term of five business days after the first importation to issue the application for the marketing authorisation.
It establishes that it may be a cause of rejection of the marketing authorisation, the evidence that the product pretended to authorise has been bolted by the World Health Organization, by any regulatory agency member of the International Council for Harmonisation of Technical Requirements for Pharmaceuticals for Human Use or the PIC/S, or by the regulatory authorities of Switzerland, the USA, Canada, Australia or the European Commission.
The Regulation establishes a maximum response term of 60 business days for the granting of the marketing authorisation issued according to the Regulation; once that term has elapsed, a negative sense resolution will apply.
If necessary, the Regulation mentions that the Federal Commission for Protection against Sanitary Risk will “deploy its faculties to avoid a possible health risk, regarding the medicines that do not have marketing authorisation in Mexico, imposing the obligation to the health units that administer those medicines, to implement intensive pharmacovigilance in terms of the applicable law”.
COVID-19 and Government Procurement of Healthcare Products in Mexico
As mentioned in the first paragraph of this document, at the beginning of 2020 the Mexican government issued a decree making flexible the importation of healthcare products, without the need for a marketing authorisation issued in Mexico. This year a “black swan” appeared and disrupted the world: the virus SARS-Cov-2. On 14 March 2020 the World Health Organization made the following remark: “We have therefore made the assessment that COVID-19 can be characterised as a pandemic”. The Mexican healthcare authorities started to follow this issue in January and detected the first confirmed case of an infected individual in February 2020. Since then, more slowly than needed, the Ministry of Health started to take steps and sanitary measures trying to control the spread of the virus in Mexico. One of the most important issues regarding health protection is the existence of sufficient supplies of all the products required because of this public health emergency of international concern (term defined in the International Sanitary Regulations). Such products include pharmaceutical products as well as medical equipment and devices. Since 2019, the new Mexican government's policies regarding public procurement have created a lack of appropriate supply of these goods. This situation has been exacerbated during this emergency. The authors hope that the government will take urgent actions to resolve the problem and assure that all the products needed will be available, including products required to protect the healthcare professionals that are in the front line of this healthcare emergency.
Based on the above-mentioned Word Health Organization's remark about the existence of a pandemic, the Mexican healthcare authorities issued two important legal resolutions on 30 and 31 March 2020: one decreed by the General Sanitary Council (Consejo de Salubridad General; a constitutional authority in charge of healthcare emergencies) that declared a public health emergency and instructed the Ministry of Health to take all actions necessary to attend the same and protect public health. Therefore such Ministry issued a decree confirming the emergency and resolved that, when needed, the acquisition and supply of healthcare products will be made urgently, without delay, abbreviating all the regulatory and public procurement rules; instructing all the authorities involved to obey the resolution. This will mean that during the health emergency, the acquisition and importation of healthcare products, equipment, devices and security equipment will be performed in an expeditious and abbreviated manner, without the need to observe the legal provisions regarding healthcare regulatory authorisations as well as the ones applicable to public procurement.
The public procurement regulations in Mexico are in place to control budget expenditure, corruption and lack of transparency.
The new federal administration has within its main goals to fully control public procurement of healthcare products. For the above, it has created strong structures and systems.
One of the purposes of the new federal administration is to get access to healthcare products from elsewhere, with the aim of obtaining the best possible prices. This new policy might put at risk the obligation to provide secure products to the patients.