Developments in the Public Procurement Law

By Ana Lorena Morales

On September 8, the amendments to the Public Procurement Law No. 22 of 2006, introduced by Law 153 of May 8, 2020, will come into force. Among the new features, we can highlight the modernization of the purchasing processes, the promotion of local companies, the search for greater transparency in public contracting processes and the express recognition of the submission of public entities to the arbitration process, when they have agreed to an arbitration clause in their contracts.

In this essay we will comment on these novelties for easy reference by the reader and, besides, we will address new concepts introduced for the pre-contractual, contractual and performance stage which, in our opinion, seek to fill existing gaps in previous procurement provisions, avoiding discretion and promoting the participation of more bidders for the benefit of the State.  

Modernization in the purchasing process:

As of January 1, 2021, all proposals for all types of contracting must be submitted electronically in the Electronic Public Contracting System “PanamaCompra”, which is a great improvement in the digitalization process, which entails savings in costs related to the physical submission, to which we are accustomed. 

The amendments also encourage the “digital modeling” of public works for contracts involving the design, construction, operation and/or maintenance of public works, so that contracting entities can progressively create, incorporate, adjust and impose the use of systems to unify information and reports in the execution of projects under a digitalized platform.

Another novelty is the electronic submission of the bid bond, provided that it contains a method for validation by the issuer, so that the bidding entity can verify the validity and enforceability of the bond.

Transparency:

The new regulations assign additional functions to the Public Procurement Directorate, among which are the disclosure of contractor statistics, contracting procedures and exceptions to contractor selection procedures, training of public officials in public procurement, and the standardization of documents used by contracting entities in the pre-contractual, contractual and performance stages. In addition, they require the adoption of a Code of Ethics, a Project Integrity Pact and a Guide Manual for Public Contracting, which should include regulations to prevent collusion and corruption, as well as to promote transparency and good practices in public contracting.

Likewise, the Public Procurement Directorate must establish a “Digital Public Procurement Observatory” so that citizens can monitor all stages of the contractor selection procedures carried out by bidding entities, as well as file complaints.

New rules are introduced to provide greater transparency in the appointment of the members that will conform the verification and evaluation commissions and to achieve greater professionalism and independence of its members, through the elaboration of a list of professionals in attention to their profession, specialty and years of experience, that will be provided by the Electronic System of Public Contracting “PanamaCompra” in a random way to the contracting entity to conform the respective commissions, according to the type of procedure of selection of contractor and the nature of the work, good or service to be contracted. This list may include officials from the bidding entity, but in a minority basis.

However, in the case of bids for the execution of works or the acquisition of complex services, the bidding entity may request the General Directorate of Public Procurement to provide a list of external professionals; not included in the aforementioned list, who have extensive experience with respect to the object of the contract.

The advance payment bond is eliminated for contracts exceeding three million dollars ($ 3,000,000.00) and is replaced by the consignment of an equal amount by the contracting entity in a trust, which may be with a private trust entity authorized by the Superintendence of Banks of Panama.  This will undoubtedly contribute to the transparent management of these prepaid funds since previously there was no effective control over the use of such funds.

This novelty is in line with Law No. 93 of September 19, 2019, which creates the Public-Private Partnership regime for development as an incentive to private investment, social development and job creation, and also establishes in its Article 39, the creation of a Trust for the administration of all funds and resources contributed to a project, when it has been co-financed by the State and the Contractor.

Promotion of local businesses, micro and small enterprises: 

The amendments to the procurement law establish that bidding entities may carry out public bids with the exclusive participation of national companies in acts of contractor selection for the construction of works in the Republic of Panama that do not exceed Five million balboas (B/.5,000,000.00), except when any of the candidates to participate invokes the content of an international agreement or treaty in force between their country of origin and the Republic of Panama.

For the purposes of this modality, the law has defined national companies as those that comply with the following requirements:

  1.       i.         Be incorporated in accordance with the laws of the Republic of Panama.
  1. The final beneficiaries must be at least 80% Panamanians.
  2. Be registered with the Social Security Fund.

Likewise, it is established that for minor contracts, this being understood as the procedure that allows, in an expeditious manner, the acquisition of goods, services or works that do not exceed fifty thousand dollars ( $ 50,000.00), the participation of the greatest number of local companies will be promoted, provided that they are natural persons of Panamanian nationality or legal persons that comply with the provisions of the above paragraphs and, furthermore, that, in accordance with the information contained in their operation notice, they have their domicile in the municipality where the work that is the object of the contract will be executed.

In minor contracts, in which several bidders participate, the company domiciled in such municipality shall have priority in the award, provided that it complies with all the requirements and demands of the bid terms and conditions and the proposed price is not greater than 5% in relation to the amount of the lowest price proposal submitted by a company domiciled in a municipality other than that in which the work is being executed; if it is greater, the company offering the best price shall be chosen.

It is also established that for minor contracts, entities must preferably select micro and small enterprises, as long as these companies comply with the requirements and demands of the bid terms and conditions and the price proposed is not greater than 5% in relation to the lowest price proposal submitted by a company other than Micro, Small and Medium-sized Companies; among Micro, Small and Medium-sized Companies, the one offering the lowest price must be chosen.

In order to promote goods and services of national origin, the new legal provision establishes that the bidding entities must seek, in the first instance, the viability of the contracting of goods and services produced within the territory of the Republic of Panama in accordance with their availability and quality.

Another novelty to encourage economies of scale is the new legal requirement for the State to ensure that, in subcontracting, contractors give priority to micro and small enterprises.

The micro and small companies must be classified as such within the Bidders Registry, of the Electronic System of Public Contracting “PanamaCompra”, so that the bidding entity may verify their condition in accordance with the law.

Pre-contractual stage

  1. Increased flexibility in the presentation of documents:

In cases where a bidder formed by a group of companies participates using the legal figure of consortium or joint venture, the companies that form it must comply with all the common mandatory requirements established in the electronic template of the Electronic Public Contracting System “Panama Compra”; however, the other requirements may be satisfied by any of the companies that form the consortium or joint venture, without this leading to the disqualification of the bidder.

This inclusion gives meaning to the concept of consortium, which seeks to ensure that each of the companies that make up the consortium provide one or more of the elements required in the bid terms and conditions, since under the previous rule it was at the discretion of the contracting entity to require all the other non-mandatory requirements from all the members of the consortium.

Another novelty that will speed up and generate cost savings for bidders is that the entity will not require general documents issued by the different national authorities (i.e. national tax payment certificates, public registry certificates and operation notices) in the bidding documents, since these will be electronically validated by the bidding entity at the time of verification and evaluation of the requirements of the bid terms and conditions.

Another advantage for the bidders, with the aim of encouraging participation in public tenders, is that the new regulations establish as an obligation for the contracting entity to adopt the addenda to the tender documents that they have agreed with the majority of the participants in the homologation meeting or meetings. This promotes the improvement of the terms and conditions of the bidding documents and the contractual balance between the State and private parties.  

Another issue that I consider important, which is more about form, but which helps significantly in the preparation of the proposals, is that when the bid terms and conditions are subject to modifications that affect the preparation of the proposals, the bidding entity must consolidate the bid terms and conditions document with all the reforms made and publish it together with the last addendum in the Electronic Public Contracting System “PanamaCompra”.

  1. Complaint Actions

Only one complaint action may be brought against the report of the verification or evaluation commission, and this action must contain all the aspects or facts that the complainant wishes to resolve.

Likewise, the obligation is established, when the claim action is directed against the report of the verifying or evaluating commission, that the claimant has submitted to the bidder, within the term provided by law, its remarks to said report, as prerequisite for filing the claim action before the General Directorate of Public Procurement. Usually, the proponents skipped this step when the law did not require a pronouncement on said observations by the contracting entity, so the claim action was presented directly.

Another novelty is that in the event that the verifying or evaluating commission issues a new report in response to the order of the General Directorate of Public Contracting, no claim against the report shall be admitted, unless the report has been issued in contravention of what was previously ordered by this Directorate, which shall specifically address the controversial points in this new report.

The new regulations establish a bond for complaint actions, previously non-existent, which shall be presented together with the complaint action, before the Public Procurement Directorate, required for complaint actions against the second verification or evaluation report issued by the verification or evaluation commission by order of the Public Procurement Directorate. This complaint action bond shall be for 10% of the reference price for public tenders related to the acquisition of goods, services and works.

We believe that this new requirement is due to the innumerable claims presented by the bidders, which delayed the processes of awarding important public works of national interest, as has been the case of the new Children’s Hospital. 

Contractual Stage:

  1. Addendums

The new regulations establish that, in no case, the quantification of the sum of all the modifications made to a public procurement during its validity may exceed 25% of the total amount originally agreed (40% in the regulations in force to date) and, in exceptional cases, when the modifications exceed 25%, the contracting entity must justify technically and economically this increase in cost, for which it will require the approval of the National Economic Council.

  1. Contract Extensions:

Delays caused by causes not attributable to the contractor or when situations of force majeure or unforeseen circumstances occur, shall entitle the contracting entity to extend the duration of the contract and the period of execution of the work by a period not less than the delay, which shall be dealt with by the contracting entity, ex officio or at the request of a party. In cases where it is decided to grant the extension of the period of execution of the work or the provision of the service, it shall be documented as an adjustment, in the case of a purchase order, or as an addendum, in the case of a contract, which may be completed even after the expiry of the period of execution established in the originally signed contract.

  1.  Validity and settlement of contracts:

The new regulations give effect to the contract until its settlement is completed, within the agreed term and, if it has not been agreed, within the term established by law.  

These clarifications made by the new law give a contractual framework and legal certainty to contractors who, due to time and bureaucratic procedures, were left in a legal limbo after the expiration of the contract.

  1. Arbitration clause:   

By virtue of the constitutional reforms of 2004, two provisions were introduced into the National Constitution that gave arbitration constitutional status and made it mandatory for public entities to participate in arbitration proceedings when they have agreed to an arbitration clause in their public contracts.

Notwithstanding the foregoing, the law on public contracting did not contemplate arbitration as a method of conflict resolution and it is only now, with Law 153, that this legal vacuum has been filled.

The reforms to the Public Procurement Law establish that public entities may include in the bid terms and conditions documents and/or contracts they enter into, arbitration clauses to resolve disputes that arise in all aspects related to the breach, interpretation and execution of the contract, among other disputed aspects, which cannot be resolved by mutual agreement between the parties, and indicates that the rules of Law 131 of 2013, which regulates national and international arbitration, will be applicable to arbitration arising from public procurement.

The inclusion of the arbitration clause in public contracts will certainly attract more bidders and will be of great benefit, especially in complex public contracts that require a high degree of specialization in resolving disputes, in addition to providing confidence to contractors regarding the impartial and independent resolution of disputes by a neutral tribunal.   

Last but not least, it is worth commenting on the much-questioned grounds for legal disqualification from contracting contained in our public procurement regulations.

Under the new regulations, a final and enforceable court decision issued by a foreign court for crimes against the public administration, crimes against the economic order, crimes against collective security and crimes against economic property is included as grounds for disqualification for five years;  and/or crimes against the public faith, within the five years prior to the convening of the public event in which they wish to participate and for three years to companies that enter into judicial collaboration agreements in which they acknowledge the commission of any of the above-mentioned crimes, being excepted from this case, if the effective collaboration leads to the clarification of the crime, prevents its further execution, prevents other crimes from being carried out, or if the information provided is essential to discover its actors or participants. We consider this exception to be unfortunate since, in our opinion, every collaboration agreement involves the solving of a crime, and this provision therefore invalidates the disqualification of companies that enter into collaboration agreements.

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