Mexico has three basic hierarchical levels of government: federal, state and municipal. The Mexican Constitution generally requires a public bid process for all asset acquisitions and leases, services and public works agreements, to ensure the best conditions available for government entities in terms of price, quality, financing and other circumstances.
Mexico’s numerous international treaties with procurement chapters guarantee access on a most-favoured-nation basis to vendors from other countries. These treaties have equal status to federal laws.
At the federal level, the two most important government procurement laws are the Ley de Adquisiciones, Arrendamientos y Servicios del Sector Público ("Acquisitions, Leases and Public Services Law") and the Ley de Obras Públicas y Servicios Relacionadas con las Mismas ("Public Works and Related Services Law") (jointly referred as the "Procurement Laws"). The Procurement Laws empower the heads and/or governing bodies of government entities to issue specific policies, standards and guidelines (commonly known as "Pobalines") applicable to their contracts, which of course must be consistent with the Procurement Laws. Entities such as the Mexican Social Security Institute have their own regulations or Pobalines that are significant bodies of regulation in addition to the Procurement Laws.
At the State level, governments have all enacted their own laws on government procurement. These laws are all similar in structure and content to the Procurement Laws. Differences tend to be minor, such as requirements of a local domicile. However, depending on the specific treaty, State governments may not be subject to national treatment requirements of free trade agreements in the same way and to the same extent as is the federal government. Conversely, in those cases where the treaties do apply to state and local governments, local legislatures may not be as familiar with national treatment requirements and therefore, the state legislation may not conform to these obligations. Depending on the size of the potential contracts involved, foreign nationals may not have challenged non-conforming legislation. So before determining that a state public procurement process is not open to foreign participants, products or services, potential bidders should review the relevant provisions of treaty law. As a specific example, the national treatment provisions of the US-Mexico-Canada Agreement (USMCA) generally do apply to state and local governments. Given the relative size of contracts available and the general similarity of state procurement laws to the federal, this article will focus on the federal legislation.
The laws that establish autonomous government entities, such as Banco de México or the National Institute of Transparency, Access to Information and Protection of Personal Data (INAI), include carve-outs from the Procurement Laws in matters of government procurement. They establish their own guidelines and procedures, and the Procurement Laws apply only in matters not regulated in their provisions. These autonomous entities may also be exempted from national treatment requirements. This is the case, for example, with the USMCA. This is generally based on the concern that foreign suppliers may compromise the Mexican government's core functions as regulator (economic or otherwise) and/or arbiter of justice.
The law also provides a general exemption for those entities that have their own laws governing procurement. As an example, the productive state-companies (EPE) such as Petróleos Mexicanos (Pemex) and its subsidiaries, and the Federal Electricity Commission (CFE) have special regulations for their processes of acquisition, leases and contracting of services and works. Their regulations determine the principles and rules for its procurement processes, but empower the boards of directors of these entities to issue the specific guidelines that must be followed in procurement matters. Those guidelines are the General Contracting Provisions for Pemex and its Subsidiary Companies and the General Provisions Regarding Acquisitions, Leases, Contracting of Services and Execution of Works of the CFE and its Subsidiary Production Companies. In general terms, these provisions are similar to those found in the Procurement Laws. However, the boards of directors of the productive state-companies have more discretionary powers to determine specific powers to regulate their internal processes.
In contrast to the exemption that EPEs have from the Procurement Laws, they are generally covered by the trade agreements with procurement chapters (including the USMCA), and therefore must abide by national treatment standards. This may be explained by the economic importance of these activities for access by trading partners, as well as in part by the fact that they may not be considered core government functions.
One significant exception to the general rules is that some subsidiaries of these EPE are generally not subject to the same rules as the national subisidiaries. This is potentially a large loophole in the regulation and transparency of government procurement in Mexico. For example, although the Pemex procurement law covers its Productive Subsidiary Companies (empresas productivas subsidiarias), of which there are seven, the Affiliated Companies (empresas filiales), of which there are dozens, are left out of this regime even though they are also exempted from the Procurement Laws.
Finally, there is a special regime for construction projects and the provision of public services that involve infrastructure provided by private entities: the Law of Public-Private Associations. For these, the Procurement Laws would only apply only in matters not regulated in its provisions.
The entities subject to the Procurement Laws are the entities of the federal public administration, including:
Generally, all federal agencies are subject to the Procurement Laws, except those that have their own procurement laws, as discussed in 1.1 Legislation Regulating the Procurement of Government Contracts.
States and municipalities are directly subject to the Procurement Laws only on projects that involve monies from the federal government. Otherwise, they apply their local regulations.
In general, all public works, purchases or goods and services, and all lease agreements are subject to the Procurement Laws. This means that all acquisitions, leases, services and public works must be awarded by a process of public bid. Only if an exception applies can one of the alternative procedures be implemented: a restricted invitation (invitation to at least three individuals or legal entities) or a direct award process. The justifications for the exceptions in each of these should be documented and, especially for direct awards, the rules are not easy to meet in most cases.
With regard to nationality of participants and origin of goods, the law defines the different types of public bids.
Further Classifications of Bids
The Procurement Laws also classify public bids according to the technology used to participate, which may be in-person, electronic or mixed. Public bids may also award “framework agreements,” under which the general pricing structure is defined, but the volume is left open to the requirements of the government purchaser.
The Procurement Laws provide that amounts for acquisitions, leases, services and public works must be subject to the maximum amounts established in the Federal Expenditure Budget. Each year, the Federal Expenditure Budget determines the maximum budget for acquisitions, leases, services and public works.
According to the classification of public bid process (national, international under international treaty or open international), the procedures are open for the participation of Mexican nationals or foreigners. Because of the way the Procurement Laws are worded, many government officials and business-persons assume that the decision on whether to hold a national or international public bid belongs to the government entity, and fail to take into consideration the national treatment obligations of the government treaties. Due to vested interests, the task of convincing the government entity to open the bid to international participants can be arduous, even when the treaty law mandates it and it would result in significant savings for the government agency.
The rights and obligations for participants in public procurement procedures are established in the bid documents, which include model contracts published by public entities of each procurement process. The Procurement Laws do not establish specific obligations for the participants of government procurement processes.
The Procurement Laws provide that public entities must inform, no later than January 31st of each year, their annual program of acquisitions, leases, services and public works they intend to contract for each fiscal year. The information must be published on Compranet and the website of the public entities. In practice, however, this program is not set in stone, and is often updated during the year, sometimes on very short notice.
Compranet is the electronic system of governmental public information on acquisitions, leases and services, which contains a registry of suppliers, a list of “social witnesses” (ostensibly independent observers from other government entities), suppliers de-barred by federal government, calls for bids and their modifications, minutes of clarification meetings, etc.
The Procurement Laws also mandate that, prior to the formal publication of the requests for proposal (RFP), government entities may communicate/publish their RFPs for projects in draft form and private parties (individuals or entities) considered as potential participants in the bids may provide their comments and opinions. The government entity must then publish the full version of the RFPs in Compranet and a summary of the RFPs in the Federal Official Gazette.
As a part of their preparation for publishing a RFP, government entities should conduct a market study analysing the existing commercial conditions regarding the goods, services or public works that will be involved in the RFP, to establish the most favourable format for the RFP. The market study should obtain information from public and private sources. In practice, it is not always entirely clear whether a government entity is seeking input for a market study or a bid under a limited invitation format. For smaller projects, the market studies are rarely formal.
The process of a public tender is as follows:
Government entities subject to the provisions of Free Trade Agreements signed by Mexico must verify whether the value of the acquisition of goods, services or public works exceeds the thresholds provided therein and determine whether there are any reserves applicable to those goods or services. Further, a market study should be conducted.
Publication of the RFP in Compranet and Federal Official Gazette
The RFP must contain the rules of the procedure and description of the participation requirements, describing the goods, services or public works to be acquired or leased, the type of procurement process, model of the contract that must be executed with the winning bidder, etc.
The RFPs may be modified up to seven days before the date set for the presentation and opening of bids. Any modifications made in this manner to the RFPs are considered an integral part of the RFP.
The purpose of the clarification meetings is to resolve any doubts from the potential participants regarding technical or others aspects described in the RFP. The last clarification meeting must take place at least six days before the presentation and opening of bids.
Presentation of Bid Proposals
The participants' bid proposals must be delivered in a sealed envelope, which must contain the technical and economic offer. Some procedures allow for electronic bid submission. The deadline for submitting proposals may not be less than 15 days (for national tenders) or 20 days (for other tenders) after the publication of the RFP. Two or more individuals or companies may present joint proposals without needing to constitute a special purpose vehicle for the project, but they must appoint a common representative.
Opening of Bid Proposals
After receiving the bid proposals in a sealed envelope, a legal representative of the government entity that published the RFP will publicly open the envelopes in the presence of the participants, announce the documentation presented by each participant and draft the minutes in which the amount of each bid proposal is recorded. The RFP must establish the date for opening of bid proposals.
Award to the Winning Bidder
Within 20 days after opening the bids (extendable for 20 more days), the government entity must declare a winner or declare the process deserted. The contract will be awarded to the offer considered the best if it meets the legal, technical and economic requirements established in the RFP.
Execution of the Contract
Within 15 days following the award to the winning bidder, the parties must sign an agreement and the contracting parties become obligated by the provisions of the RFP and the attached contract.
The conditions described in the RFPs and in the bid proposals may not be modified by the parties.
Unless an exception applies, government procurement must be carried out by public tender. If one or more exceptions apply, government entities may choose (or in some cases, be obligated) not to carry out the public bid procedure and instead conduct a “restricted invitation” process (invitations to at least three individuals or entities) or make a direct award. Examples of exceptions are:
The timing of a public bidding process, under normal circumstances and without extensions, is is 35 days from call to tender to the contract award.
Individuals or companies that intend to participate in the clarification meetings must present a letter expressing their interest in participating in the tender at least 24 hours before the time and date of the meeting. Likewise, they must present their proposals within the period indicated in the RFP, which (except in cases of emergency exceptions) cannot be less than 20 days.
The Procurement Laws do not define the criteria that interested parties must meet to participate in procurement processes. Instead, the RFPs must establish the specific requirements that individuals or entities interested in participating in procurement processes must meet. Criteria must not limit free participation or economic competition.
Restricted invitations (invitations of at least three individuals or companies) can be extended exceptionally when special circumstances arise and the invitations are necessary to conduct the procurement process. Examples include when a limited number of potential bidders is qualified to provide the goods or services.
The process applicable to restricted invitations is as follows:
The deadlines for submitting proposals must be set for each operation that is intended to be carried out, taking into account the nature of the goods, services or works to be contracted, but may not be less than five days from the delivery of the last invitation. In practice, these processes tend to be flexible and less formal due to the specialised nature of the goods or services.
The Procurement Laws require government entities to verify that proposals comply with the technical requirements established in the RFPs by using one of two criteria:
The RFPs must establish the criteria they will use to evaluate the bidders' proposals.
In Mexico, the authorities must disclose the evaluation criteria for the proposals submitted by participants. Decisions issued by government entities regarding the award of a contract must contain the following:
Entities may declare a tender "void" (desierta) when the proposals submitted do not comply the requirements requested in the RFP or the prices offered are not acceptable at the discretion of the authorities. In this context, if the need to contract the goods or services persists, the entities can issue a second call or they can opt for a restricted invitation or a direct award.
The Procurement Laws do not establish any obligation to notify “interested parties” (as distinguished from the bidders) who were not selected for participating in the contract. However, unless there are exceptions that apply, government bids and contracts are open to the public and should be duly published.
The decision must be made known at the public meeting that may be attended by bidders who have submitted a proposal. A copy of the award decision should be provided to them. Likewise, a copy of the decision should be published on Compranet and should be sent via email to the participants.
From the time of the issuance of the award, the rights and obligations established in the model contract in the RFP will be enforceable and will obligate the government entity and the awarded winner(s), to sign the contract on the date, time and place provided for in the ruling itself or in the RFP. In the absence of such provisions, the contract must be signed within fifteen calendar days following the aforementioned notification.
Mexican legislation establishes several processes through which government procurement participants may sue for remedies:
Regarding controversies over the fulfillment of contracts, the Procurement Laws establish a Conciliation Procedure, which must be initiated before the Secretary of Public Administration. In the event that no agreement is reached, fulfillment of the contract may be sued through the courts (in contrast to the administrative procedure before the Secretary of Public Administration).
Furthermore, administrative agreements usually provide an arbitration clause that obligates the parties to appear before an arbitration tribunal in the event of any dispute related to the performance of the contract.
In practice, remedies are limited and largely symbolic. If the agreement has not yet begun to be fulfilled, the award may be modified. However, most “remedies” are in reality administrative sanctions against the government officials involved, and of little practical value to the bidder that presents the appeal. The principal value may be as a prophylactic measure to influence future bidding processes. However, potential retaliatory actions must also be considered.
The Procurement Laws establish that in the process of the appeal of nonconformity, the contracting process could be suspended if the challenging party requests it, if there are notoriously acts that are potential contrary to the Procurement Laws and/or to the public interest or to maintenance of public order. The suspension will only be granted if the challenging party submits a guaranty or bond to cover the potential damages that may be caused by requesting the suspension.
Any person that submitted a proposal as part of the procurement process may challenge the award decision.
The nonconformity appeal against an awarding authority's decision must be presented within the six working days following the meeting in which the decision was made known or the bidder was notified of the decision (when a public meeting has not been held).
If a participant in the bidding procedure presents an appeal against the award or conduct of a procurement proceeding, the typical length of the appeal depends on the provisions of the contract. Generally speaking, an estimate of time would be between two and three years, not taking into consideration the opportunity the parties have to file for other appeal proceedings such as the amparo trial protection. However, if the claim can be pressed pro-actively at the Internal Control Committee stage, there is a possibility of a more expeditious resolution.
According to the Activity Report of the Secretary of Public Administration, from January 2019 to September 2020, at a federal level, 1323 nonconformity appeals were resolved and 1212 requests for conciliation processes were concluded, and in 520 of them, an agreement was reached between the parties. Traditionally, government bid participants were reluctant to present appeals and other challenges to government bids. This reluctance was due to fears of reprisals from the government authorities challenged.
Government officials would often demand that the appeals be dropped before even engaging the bidder in discussions. However, depending on the economic or industry sector, over the last ten to fifteen years the practice has become much more acceptable and commonplace.
Access to justice in Mexico is a constitutional right, so court fees, if any, are nominal. Attorney or other representation fees will vary according to the skill levels and demand for the services of the representative.
Government entities may modify contracts once they are awarded, but only for well-founded and explicit reasons. As a matter of course, they may increase the volume of the contract or the amount of goods, leases or services requested provided that the modifications do not exceed, as a whole, 20% of the amount or quantity of the concepts or volumes originally established in the contracts and the price is equal to that originally agreed.
When suppliers demonstrate the existence of justified causes that prevent them from complying with the total delivery of the goods in accordance with the amounts agreed in the contracts, the agencies and entities may modify them by cancelling items or part of the amounts originally stipulated, as long as it does not exceed ten percent of the total amount of the respective contract. This mechanism is separate from a force majeure or Act of God analysis.
Any modification to the contracts must be in writing and must be signed by both contracting parties. The agencies and entities will refrain from making modifications that refer to prices, advance payments, and, in general, any change that involves granting more advantageous conditions to a supplier compared to those originally established. The stipulations established in the contract must not modify the conditions set forth in the RFP and its clarification meetings.
The Procurement Laws permit direct contract awards under the circumstances analogous to the application of restricted invitations. These have been controversial in Mexican politics. Direct assignments were identified in the 2018 Presidential campaign as a leading source of corruption in government contracting. The eventual winner, Andrés Manuel López Obrador, was the most outspoken against corruption and many perceived his victory was a result of this rhetoric. In reality, far from a reduction in the number and value of direct awards, the López Obrador administration has presided over a significant increase in the number and value of direct awards in government contracting.
The Secretary of Public Administration has recently issued guidelines that strongly recommend not using the direct award processes, and recommend limiting the direct award processes only in the following cases:
Despite the above, a 2019 study showed that three out of four public contracts were granted by direct award and in 2020, eight out of ten contracts were awarded through direct awards.
Mexican court decisions are only binding in subsequent controversies when they are confirmed at least four times, and thereby form what is called jurisprudencia. As a result, relatively few cases form true precedent. Over the past year, there have not been important decisions in terms of public procurement processes. However, in November 2020, non-governmental organisations (NGOs) MCCI (Mexicanos Contra la Corrupción y la Impunidad) and Transparencia Mexicana (Mexican chapter of Transparency International) published the "Reporte de corrupción en los procedimientos de contratación de Petróleos Mexicanos y sus Empresas Productivas" (Report on corruption in the contracting processes of Petróleos Mexicanos and its Productive Companies), which is a study based on publicly available information that seeks to identify and quantify the risks of corruption in Pemex, based on contracts entered into by Pemex with private parties.
The purpose of the report was to identify and quantify the risks of practices associated with corruption in Pemex's contracting processes from December 2018 to 31 October 2020. The report described corruption-related practices such as conflicts of interest, lack of competition, collusion and violations of the rules of public procurement processes established in the Ley de Petróleos Mexicanos, such as:
In this context, despite the provisions that establish that as a general rule, Pemex procurement should be contracted by public bids procedures, from December 2018 to October 2020, Pemex entered into 2,775 contracts with private parties and 56.7% were awarded through open bids, 35% by direct award and 8.3% by restricted invitation.
In 2020, due to the pandemic of COVID-19, the Procurement Laws were modified to establish that their regulations would not govern the acquisition of goods or the provision of health services contracted by government entities with international organisations.
In addition, the amendment allows direct awards for the acquisition of medicines and healthcare materials, regardless of whether these are carried out under an ordinary or emergency context, such as the COVID-19 pandemic. It represents an exception to the application of the Procurement Laws to agreements between government institutions, which is one of the schemes that has given rise to more cases of corruption in recent years.
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The year 2020 has been a profound transformation for public acquisitions in Mexico, in two ways:
These changes represent a challenge for the acquisitions structure in Mexico. Purchases of health products by public health institutions at the federal level are, to a large extent, being made through international organisations; this implies the implementation of processes outside of the Mexican legal framework to follow the mandates and manuals of such organisations.
At the time of writing, those acquisitions are in the process of implementation. For the good of patients and the National Health System, it is hoped that they will be successful; however, it should be indicated that they deviate from the Mexican legal system in this area.
Current Framework and Context in Mexico
From 1 December 2018, the position of the federal administration has been that there is “profound corruption in the purchase of medicines”.
Measures were taken to prevent the participation of distributors in the public acquisition processes, only permitting the holders of marketing authorisations to participate in them.
Resolution of the Ministry of Health
A Resolution of the Ministry of Health was published on 28 January 2020 (the "Resolution"), which permits the acquisition of medicines from abroad, even when they do not have a marketing authorisation in Mexico, creating a system of equivalency with other regulatory agencies and expedited approval of marketing authorisations.
There are several relevant points to the Resolution, including the following.
Obtaining marketing authorisations
The Resolution recognises, as equivalents, the requirements established in the RIS to obtain marketing authorisations of new molecules, generic medicines, biotechnological medicines, innovative, bio-comparable, whether manufactured domestically or abroad, with the requirements requested and evaluation procedures carried out. This is in addition to:
Importing medicines for necessity
It establishes the possibility of importing medicines for necessity (in order to guarantee the supply for the correct and timely providing of services, it does not define what such concept refers to), through the coordination between the Ministry of Health and the agencies related to the national supply and entry into national territory of health products (IMSS, ISSSTE, PEMEX, INSABI, SEDENA, SEMAR or CCINSHAE).
Other considerations of the Resolution include the following:
Processing marketing authorisation
The Resolution of November 18 titled"Resolution establishing administrative measures to ease the processing of the marketing authorization of medicines and other health products from abroad"determined the following:
The Public Sector Acquisitions, Leases and Services Act
For the purpose of implementing the international purchases of health products, on 11 August 2020 the Public Sector Acquisitions, Leases and Services Act was amended. The following paragraph was added to Article 1:
“The acquisition of health goods or provision of health services contracted by the agencies and/or entities with international inter-governmental bodies, through mechanisms of collaboration previously established, are exempt from the application of this Act, provided the application of the principles established in the Political Constitution of the United Mexican States is shown”.
This indicates clearly that the terms of the Act will not apply in the case of acquisitions of health products implemented through international organisations, the road was left open for them.
International organisations from which Mexico has decided to purchase medicines
On 31 July 2020 Mexico announced the execution of an agreement with two international organisations for the purchase of medicines.
The United Nations Office for Project Services (UNOPS) and the Pan American Health Care Organization (PAHO) are the international organisations through which they will be executed.
UNOPS is an entity of the United Nations (UN) that provides project administration services in each area in which the UN has a mandate to meet, including, among others, prevention and raising awareness on the use of explosive mines, health sector reform, IT solutions and the eradication of poverty.
UNOPS prepares development projects or provides specialised services, as may be necessary. Those services include:
It is the largest services provider of the United Nations system, which works on behalf of more than 30 departments and organisations of the UN.
The suppliers interested in working with the UNOPS (or with any of the other twelve United Nations organisations), must be registered in the UNCSD (United Nations Common Supply Database), visiting the website.
The UNOPS calls public tenders and locates suppliers through Internet searches, contacts with trade offices, business missions, chambers of commerce, professional associations, commercial archives and catalogs. Its principles are:
The steps to follow to implement public acquisitions are:
It implements direct purchases itself without tenders when the nature of the goods or the particularities of the project require it, for example in the case of medicines protected by patents.
PAHO is the international organisation specialised in the public health of the Americas through the health of the inter-American system and serves as the regional office in the Americas for the World Health Organization (WHO).
The PAHO provides technical co-operation in health to its member countries, combats transmissible diseases and attacks chronic illnesses and their causes, strengthening the health systems and responding to emergency and disaster situations.
All ministers of health and governmental institutions of the public health services network of the countries that are members of PAHO can acquire medicines and supplies through the strategic fund. to do so it is only necessary to sign an agreement with the organisation.
It uses two funds for the purchase of the products:
Strategic fund for medicines
Thus fund buys:
Suppliers must be evaluated and pre-qualified by PAHO, providing evidence that they meet the current requirements of best manufacturing practices and apply appropriate warranty and quality control standards.
They must be registered on the electronic tender system (In-Tend), where the information on the company can be updated and changed, tenders responded to and the referenced documentation maintained, securely, through the internet.
This is the new legal framework for making governmental health product purchases. An important quantity of such products will be acquired through these procedures. As indicated previously, it is hoped that this effort is for the good of the protection of people’s health in terms of the fourth Article of the Political Constitution of the United Mexican States.