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30 August 2018
On 17 July 2018 the Federal Competition Commission (FECC) issued its Competition Agenda for Public Procurement, in which it presented its findings regarding competition issues that arise during the public procurement process. In the agenda, the FECC also proposed certain courses of action (both administrative and legislative) to promote effective competition in public procurement.
This is not the first time that the FECC has raised concerns over competition in public procurement. In 2015 it issued recommendations to promote competition in this market. Similarly, it concluded several investigations into the commission of absolute monopolistic practices in public procurement procedures (mainly public tenders), which resulted in penalties for the relevant economic agents. In particular, the FECC has undertaken several investigations into the following markets:
The FECC recently initiated investigations into possible public tender collusions in several markets, including:
Notably, competition issues in the public procurement sphere may be the result of acts of corruption between individuals or companies and public officials.
The FECC has summarised its key concerns regarding public procurement as follows.
Collusion can happen as early as the market investigation phase
During the market investigation phase, companies may manipulate quotes submitted to the procuring entity to obtain the contract at a higher price than that prevailing under competition conditions by creating an artificially higher maximum reference price. This may reduce competition due to the disqualification of certain bidders that offer unnaturally low prices. Further, companies may coordinate to make it difficult for a greater number of companies to participate by inducing the imposition of technical or other restrictions.
Exemption methods restrict competition and may encourage collusion
Public tenders are generally the preferred method of public procurement for promoting competition and are therefore the most effective way to obtain better conditions in terms of quality, price and opportunity. However, the Public Procurement Law provides certain circumstances in which public entities may be exempted from using such methods. Given that these circumstances are vague, they may be used excessively without a clear and valid justification and thus as a means to collude.
Subcontracting may be used as a mechanism to collude
Subcontracting has certain efficiencies (eg, it may aid the completion of high-impact projects or allow for a company's specialties to be taken advantage of). However, it may also facilitate collusion, as it can be used as a payment mechanism in a collusive agreement.
Companies of the same economic interest group may simulate competition
Under the Public Procurement Law, public entities must abstain from receiving proposals in a public procurement procedure regarding the same type of goods or services from two or more individuals linked by a common partner or associate. However, this prohibition is not applicable to economic agents that have no common partners, but are part of the same economic interest group.
The participation of bidders that belong to the same economic interest group could raise the following competition issues:
Using points or percentages to evaluate proposals may favour less-agreeable proposals
The current evaluation mechanism for evaluating proposals requires the procuring entity's discretion as:
Modification of agreements facilitates a distortion of the competition process
Under the Public Procurement Law, agreements can be modified with regard to the volume of goods or services by up to 20%. Further, under the Public Works Law, agreements can be modified as long as the volumes or deadlines do not exceed 25% of those agreed in the original contract and no substantial changes are made to the original project. However, such modifications may restrict competition, as a contract extension may impede a supplier from offering its services, even when it may offer the government better conditions.
Modifications of concessions, permits and contracts used to avoid competing
The granting of extensions for concessions and permits is not subject to transparency rules; therefore, this may be used as a mechanism for concessionaires to extend the temporality of their titles without competition. Further, most modifications of conditions or clauses include a renegotiation to the original terms of the adjudicated contract.
Disqualification needed to deter collusion
The FECC imposes administrative fines for collusive acts, which acts as a deterrent. However, such fines must be complemented with other mechanisms, such as disqualification from participating in public tenders, in order to increase the incentive for companies to comply with competition law. Despite the fact that the FECC has, in some cases, notified the Ministry of Public Affairs of a collusive act, the ministry appears to have initiated no investigations.
Laws and rulings that govern public procurement contain obstacles to competition
In a 2016 study, the FECC concluded that there are 32 different legal frameworks in the Mexican states, which contain several obstacles to competition – namely:
As a result, the FECC issued two types of recommendation:
Executive actions, which require no legislative amendment, include:
Non-executive actions, which require legislative amendments, include:
The FECC's Competition Agenda for Public Procurement is an important tool for minimising the possibility of collusive agreements and the preferential treatment of certain economic agents that restrict competition. This is especially relevant considering that multiple FECC investigations have uncovered the existence of collusion in the public procurement sphere.
Further, the FECC's agenda aligns with two key objectives of the recently elected President Andres Manuel Lopez Obrador, who will take office in December 2018:
Both of these objectives could be achieved through the implementation of the recommendations set out in the Competition Agenda for Public Procurement.
For further information on this topic please contact Lucía Ojeda Cárdenas or Felipe García Cuevas at SAI Consultores SC by telephone (+52 55 59 85 6618) or email (email@example.com or firstname.lastname@example.org). The SAI Consultores website can be accessed at www.sai.com.mx.
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