This content is from: Local Insights

Modernising government procurement

Mexico's federal Congress recently passed a bill to amend the two main pieces of legislation that regulate federal government procurement, the Law for Government Acquisitions, Leases and Services (Ley de Adquisiciones, Arrendamientos y Servicios del Sector Público) and the Public Works and Related Services Law (Ley de Obras Públicas y Servicios Relacionados con las Mismas).

The Law for Government Acquisitions applies mainly to purchasing and leasing of movable goods, but also to hiring long-term services in which the provider renders the services with its own assets or with assets provided by third parties. The Public Works Law applies primarily to the procurement of construction of public infrastructure and the related services such as planning, designing and supplying equipment, among others. Both laws use public bidding as rule of thumb in tendering procedures. However, exceptionally and under particular circumstances, procurement may be achieved by selective and expedited processes of direct awarding of contracts or by inviting at least three suppliers to tender.

Under the new legislation, the procurement process is simpler, more attractive to bidders, more modern and aimed at promoting local investment.

The authorisation process of an intended procurement has been simplified and expedited. The amendment eliminated the requirement of obtaining a specific budget authorisation as a first step for any procurement process. This specific budget authorisation was historically a major set back in any intended procurement, since it usually took weeks or even months to obtain. Now, the procuring entity may initiate the procedure based only on the annual authorisation of its budget. Therefore, we can expect a more expedited process.

The amended procurement process is more modern and accessible, since the tender documentation will now be available to anyone, electronically via the internet and free of cost. Previously, the documentation needed to be purchased by interested bidders, and usually at the procuring entity's offices. This particular change to increase access to the tendering information is substantial, since setting a certain cost to purchase the tender documentation was customarily used to filter desirable bidders.

The new legislation promotes local investment by increasing the difficulty of holding an open international bid. Before, open international bids, where nationals from any country were eligible to participate, were readily available if the procuring entity determined it was more suitable, due to considerations of pricing and availability of the desired goods or services. Under the recent legislation, the entity must first carry out an international bid under treaties that include chapters on government procurement, if so required by such treaties; or otherwise hold a national bid in which only Mexican bidders can tender and the desired goods are produced in Mexico with at least 50% local content. If the international bid, or both national and international bids, are carried but were unsuccessful, the entity can then hold an open international bid. As a result, local bidders will have a better chance to compete amongst each other or with foreigners from countries usually under free-trade regimes where pricing of goods and services is set under more comparable conditions.

The amendment also encourages a more efficient use of the government's procurement budget. Procedures held under the Law for Government Acquisitions will benefit from more use of reverse bidding, which in turn will lower the purchase price of desired goods or services. The former legislation already permitted reserve bidding, but the amendment clarifies the situations in which a procuring entity can choose to have the bidders publically compete against each other by lowering their purchase price in a reverse auction. This will allow the procuring entity to benefit by getting the lowest price available in the market.

The Law for Government Acquisitions also increases access to procurement by preferring an evaluation of tenders based on points, rather than excluding unqualified suppliers and simply awarding the contract to the qualified tender offering the lowest price. A likely consequence of applying a point-based evaluation will be a larger number of qualified tenders, which in turn might decrease the purchase price due to the competition. However, a point-based system might also have its drawbacks, such as the difficulty in determining what and how to evaluate when purchasing goods or services for which the procuring entity does not require a particular technology or feature, but rather a good or service that simply fulfills a certain purpose.

Each change alone would probably not make much of a difference, but as a whole might help to increase private local investment and job creation within the country. Also, it is clear that government procurement on its own will not fix the economy; but the government's efforts in this one field might be rewarded.

Rodrigo Conesa and Rosemarie McLaren

Instant access to all of our content. Membership Options | One Week Trial