Chapter 2. Increasing efficiency and fairness in the solicitation and contract award process in Nuevo León

This chapter provides an overview of the main procurement methods applied in the state of Nuevo León and identifies actions to drive efficiency throughout the public procurement cycle. This includes measures for market analysis, and the adoption of tools like framework agreements and consolidated purchases. While procurement committees already play a central role in Nuevo León, the OECD recommends that the government merge and streamline certain committees. In this chapter, measures are suggested for how these committees can enhance their roles, and in so doing, improve the effectiveness of the procurement process. Finally, this chapter examines how the State Government of Nuevo León (SGNL) can broaden its approach to the application award criteria by applying points and percentages for public tenders.

  

The structure of public procurement in Mexico has resulted in a two-tier system, as discussed in Chapter 1. All states in Mexico have to follow two distinct public procurement legal frameworks, depending on their source of funding. When using federal funds, contracting authorities (e.g., ministries, administrative units, decentralised bodies) are subject to the federal regulatory framework. When using local funds, requesting units have to follow the system developed at the local level by the state of Nuevo León. Thus, though the primary objective of this chapter is to assess the state public procurement system, it is important to be aware that federal funds are a significant part of overall public procurement in Nuevo León.

With the separation of the Undersecretariat of Administration (Subsecretaría de Administración) from the Secretariat of Finance and General Treasury (Secretaría de Finanzas y Tesorería General del Estado) in 2016, a new entity called the Secretariat of Administration (Secretaría de Administración) was created. It is now responsible for public procurement of goods and services in Nuevo León. The Secretariat of Finance and General Treasury played a significant role in procurement prior to the 2016 the reforms. It did so under a mandate from the Law for Acquisitions, Leasing, and Procurement of Services for the State of Nuevo León (Ley de Adquisiciones, Arrendamientos y Contratación de Servicios del Estado de Nuevo León) which has been in force since 27 March 2013. Due to the reforms, however, the responsibility for the public procurement of goods and services now lies with a unit called the Central Purchasing Body (Unidad Centralizada de Compras, UCC). The UCC is represented by the Secretariat of Administration (SA).

As is common in other Latin American countries, oversight and control of procurement processes will continue to play a significant role in the public procurement system in Nuevo León. However, the reform that the state of Nuevo León is adopting is meant to simplify the procurement process. It aims to do so by centralising procurement under the Central Purchasing Body, and thus increasing the efficiency and effectiveness of the central purchasing body.

Using the 2015 OECD Recommendation of the Council on Public Procurement as a benchmark, this chapter looks at how the state of Nuevo León can improve its public procurement processes. The chapter also examines how the SGNL is encouraging ministries, administrative units, decentralised bodies and public administration entities to drive efficiency throughout the public procurement cycle with the aim of satisfying the needs of the government and its citizens (see Box ‎2.1). To fulfil this aim, the government must actively assess the needs of public entities, the role of procurement committees and the processes for conducting market analysis. Subsequently, the government must utilise adequate tools to improve procurement procedures. These tools should include aggregation and exceptions to public tendering, though it is important that the government examine the extent to which these exemptions are applied. Furthermore, this chapter describes how the state of Nuevo León can engage more fully in a transparent and regular dialogue with suppliers and business associations. This is crucial, given the importance of stakeholder participation to effective procurement. The chapter asks whether clarification meetings and debriefings are being held at present, as both methods can contribute to a more efficient and fair solicitation and contracting process. Finally, this chapter expands on the importance of developing a more strategic outlook with regards to the assessment of bids which can lead to substantial benefits beyond the lowest price, such as green and sustainable procurement (Box ‎2.1).

Box ‎2.1. OECD Recommendation of the Council on Public Procurement

The Council:

VII. RECOMMENDS that Adherents develop processes to drive Efficiency throughout the public procurement cycle in satisfying the needs of the government and its citizens.

To this end, Adherents should:

i) Streamline the public procurement system and its institutional frameworks. Adherents should evaluate existing processes and institutions to identify functional overlap, inefficient silos and other causes of waste. Where possible, a more service-oriented public procurement system should then be built around efficient and effective procurement processes and workflows to reduce administrative red tape and costs, for example through shared services.

ii) Implement sound technical processes to satisfy customer needs efficiently. Adherents should take steps to ensure that procurement outcomes meet the needs of customers, for instance by developing appropriate technical specifications, identifying appropriate award criteria, ensuring adequate technical expertise among proposal evaluators, and ensuring adequate resources and expertise are available for contract management following the award of a contract.

iii) Develop and use tools to improve procurement procedures, reduce duplication and achieve greater value for money, including centralised purchasing, framework agreements, e-catalogues, dynamic purchasing, e-auctions, joint procurements and contracts with options. Application of such tools across sub-national levels of government, where appropriate and feasible, could further drive efficiency.

X. RECOMMENDS that Adherents drive performance improvements through evaluation of the effectiveness of the public procurement system from individual procurements to the system as a whole, at all levels of government where feasible and appropriate.

To this end, Adherents should:

i) Assess periodically and consistently the results of the procurement process. Public procurement systems should collect consistent, up-to-date and reliable information and use data on prior procurements, particularly regarding price and overall costs, in structuring new needs assessments, as they provide a valuable source of insight and could guide future procurement decisions.

ii) Develop indicators to measure performance, effectiveness and savings of the public procurement system for benchmarking and to support strategic policy making on public procurement.

Source: (OECD, 2015[1])

2.1. Framework for public procurement procedures

2.1.1. Nuevo León needs to address obstacles and delays in the public procurement process, by making purchases of minor goods more efficient

The public procurement system for state-funded goods and services is governed by the Law for Acquisitions, Sales, Leasing and Delivery of Services for the Public Administration of the State of Nuevo León (Ley de Adquisiciones, Enajenaciones, Arredamientos y Prestaciones de Servicios para la Administración Pública del Estado de Nuevo León, LAACSENL). The government has passed three reform bills that have modified the law over the past 30 years. The most recent legislative reform act was passed in 2013. The institutional reforms enacted in 2016 affect the roles and responsibilities of units and entities previously defined by the 2013 legislation, but the legislation has not yet been updated since the 2016 reforms. Despite the new reform laws, the LAACSENL published in 2013 remains vital. Some of its important aspects include:

  • the establishment of the principles of efficiency, efficacy, economy, transparency and honesty in the use of public resources

  • planning of procurement procedures to contribute to the achievement of goals established in the state’s development programme

  • the publicity of the Annual Procurement Programme in the Electronic System for Public Procurement (Sistema Electrónico para la Contratación Pública, SECOP)

  • consultation of records prior to any contract of consulting services

  • regulations establishing the Technical Secretariat (Secretario Técnico) inside the Procurement Committee, which aim to ensure that procurement follows its due process

Public procurement in Nuevo León is not only bifurcated in terms of funding, but also in terms of the type of good or service being procured. Public procurement in the state has to follow two different pieces of legislation depending on the origins of funding. In addition, a clear division exists between procurement of goods and services on the one hand, and public works on the other. The Central Purchasing Body (Unidad Centralizada de Compras, UCC) is the administrative unit responsible for procuring goods and services. The Secretariat of Infrastructure is in charge of planning and building public works. Regulations related to public works in the state are delineated by the Federal Law on Public Works and Related Services and the Law of Public Works for the State of Nuevo León. All aspects related to public procurement purchasing are addressed in this chapter. That said, state public work is rather limited compared to federal public works in Nuevo León.

Nuevo León uses four procurement methods which are each contingent on the size of the budget. They are 1) public tender; 2) restricted invitation (three suppliers); 3) direct award; and 4) electronic reverse auction – which is not contingent on any amount, and is optional. The general rule is that government agencies must use public tenders because they promote greater competition, better prices and higher quality goods and services. However, that is not always the case, as we will discuss later in this chapter. In order to determine which procedure to use, government officials must first determine the amount of funds they expect to spend. See Table ‎2.1 for the specific amounts of funds that determine each type of procurement procedure in Nuevo León.

Table ‎2.1. Procurement procedures and range of amounts

Procurement Procedure

Range of purchase UMAs (Measurement Units)

Approximate amount (2015, USD)

Public tender

> 24,000

>$96,000

Restricted Invitation (3 suppliers)

14,400-24,000

$57,600-$96,000

Direct award (3 estimations)

2,400-14,400

$9,600 - $57,600

Direct award

<2,400

< $9,600

Note: This table only considers the largest amount allowed for government agencies according to the budget of Nuevo León.

Source: (The State of Nuevo León, 2013[2])

In many European Union (EU) countries, the threshold for open tender is uniform. Thus, spending does not depend on the budget allocated to each contracting authority (CA), but rather on the total procurement value of each procurement procedure. This arrangement enables better monitoring of public spending. Table ‎2.2 provides a description of EU thresholds for open tenders.

Table ‎2.2. EU thresholds for open tenders

Central Government authorities

Works contracts, subsidised works contracts

EUR 5,225,000

All services concerning social and other specific services listed in Annex XIV

EUR 750,000

All subsidised services

EUR 209,000

All other service contracts and all design contests

EUR 135,000

All supplies contracts awarded by contracting authorities not operating in the field of defence

EUR 135,000

Sub-central contracting authorities

Works contracts, subsidised works contracts

EUR 5,225,000

All services concerning social and other specific services listed in Annex XIV

EUR 750,000

All other service contracts, all design contests, subsidised service contracts, all supplies contracts

EUR 209,000

Source: (European Commission, 2014[3])

The state of Nuevo León is now consolidating more power in the Secretariat of Administration (SA) in order to carry out public purchases centrally. The SA currently services 21 central agencies (dependencias centrales) and 24 parastatal entities (entidades paraestatals) out of a total of 65 with cooperation agreement. The UCC only services the central administration in Nuevo León, not the 51 municipalities. These municipalities are autonomous, and thus can establish their own procurement processes. That said, they have to follow either state procurement laws or the federal procurement legislation, depending on the source of funding.

One of the main challenges facing the SA is how it will improve the process for minor direct purchases. Currently, between 150-300 requirements are registered on a daily basis in the procurement system. The process for getting authorisation to purchase, including establishing that funds are available and making a purchasing order, tend to create delays. This is true even for very simple and basic purchases of goods and services that are needed immediately. During the OECD fact-finding mission, this issue was raised frequently. The OECD found several examples of public employees purchasing minor goods with their own money because the good was so desperately needed and the procurement process was so inefficient. Part of the problem lies with the centralised structure of the payment system in Nuevo León, as all payments are made by the Secretariat of Finance and General Treasury. Furthermore, the purchasing process within the SA needs to be more effective – from when a request is received through the delivery of goods.

2.1.2. Comprehensive overview of the public purchasing system

Nuevo León needs to improve its data and information systems in order to be able to manage public purchasing in the state more effectively

The 2015 OECD Recommendation on Public Procurement encourages countries to drive performance improvements through evaluation of the effectiveness of the public procurement system – from individual procurements to the system as a whole – at all levels of government, where feasible and appropriate. This requires assessing the results of the procurement process periodically and consistently. It also requires that governments collect consistent, up-to-date and reliable information. Governments must collect data on prior procurements, particularly regarding price and overall costs, for the purpose of structuring new needs assessments. The reason for this is that these data provide a valuable source of insight, and can guide future procurement decisions. Governments should also develop indicators to measure the performance, effectiveness and savings of their public procurement systems. These indicators can aid the government in creating benchmarks, and can also support government efforts to be strategic in public procurement policy making. Therefore, Nuevo León should develop concrete indicators to address key dimensions of the procurement process. See Box ‎2.2. for examples developed by different OECD countries (OECD, 2015[1]).

Box ‎2.2. EU thresholds for open tenders

In February 2013, the Leading Practitioners on Public Procurement asked the OECD to help develop a set of indicators to measure the performance of public procurement systems and their evolution over time. Following the Leading Practitioners’ meeting, the Task Force on Public Procurement Performance Indicators was formed. The task force identified the four areas listed below for the development of indicators.

Efficiency of the public procurement process: Efficiency in public procurement refers to the proportionality between, on the one hand, the costs and time of each public procurement procedure, and on the other, the value of the contract. Ensuring the best possible ratio of cost and time to contract value will maximize efficiency. Furthermore, it is possible to achieve efficiency gains through the use of consolidation mechanisms and e-procurement.

Openness and transparency of the public procurement process: Openness is understood as fair, equal and equitable treatment of participants in the public procurement process. According to the United Nations Commission on International Trade Law (UNCITRAL), transparency in public procurement involves five main elements: public disclosure of the rules applied in the public procurement process; publication of public procurement opportunities; prior determination; and publication of what is to be procured and how submissions are to be considered; visible conduct of public procurement according to the prescribed rules and procedures; and the existence of a system to monitor that these rules are being followed, as well as measures empowering authorities to enforce these rules, if necessary.

Professionalism of the public procurement workforce: Having a public procurement workforce meeting high professional standards and being capable of achieving strategic government objectives is essential. Key factors for the professionalism of the public procurement function include: sufficient staff in terms of numbers and skills; recognition of public procurement as a specific profession; certification and regular trainings; integrity standards for public procurement and contracting officials; and the existence of a unit that analyses public procurement information so that the government can monitor the performance of the public procurement system.

Contract management and supplier performance: This indicator aims to examine the contract performance phase. Contract performance management activities can be grouped into three areas: delivery management (ensuring that whatever is ordered is then delivered at the required level of quality and performance, as stated in the contract); relationship management (seeking to keep the relationship between the supplier and the contracting authority open and constructive); and contract administration (managing the formal governance of the contract and any permitted changes to documentation during the life of the contract). Consistently monitoring and documenting supplier performance allows public officials to be in a position to require corrective actions from suppliers when they are not in compliance with contract requirements. Performance monitoring can also provide a feedback loop in the selection of potential suppliers, which contributes to improvement of the pre-qualification system. An element for measuring the performance of government in contract management is whether suppliers are paid on time.

Source: (OECD, 2014[4])

Obtaining an overview of the scale of public procurement in the state of Nuevo León requires carefully documented information on the system. Currently, the SA systems are unable to extract information on: the average number of responses received to open public tenders; the proportion of open tenders declared unsuccessful; the volume of purchases for each procurement procedure; the amount spent on state public procurement; or the number of exceptions to public tender, among others.

What can be learned from other OECD projects in the region, specifically Mexico City, is that federal funds amount to between 30-40% of total public procurement. That said, the proportion of federal funds used is higher at times in geographically large states, like Nuevo León. The only data available on public procurement in Nuevo León is from 2012-2014. During that period, procurement surpassed approximately USD 546 million without considering taxes. The yearly average for procurement amounted to USD 182 million per year for the central administration. (This figure refers to funding for goods and services, excluding federally funded projects executed by parastatal entities and municipalities.) In terms of volume, this is not a large sum – considering the size and number of residents in Nuevo León. However, it only represents a part of total public procurement; how large, is unclear. The entities that carry out most of the state’s procurement procedures are the Secretariat of Public Security (Secretaría de Seguridad Pública), the Secretariat of Social Development (Secretaría de Desarrollo Social) and the Secretariat of Education (Secretaría de Educación). These ministries are also largely funded by the federal government.

The information available from 2010-2014 clearly shows that direct award is by far the most popular method used in Nuevo León. Between 2012 and 2014, procurement in Nuevo León was, on average, USD 180 million per year with close to 90% being purchased through direct awards. Direct awards have risen in recent years in terms of amount, though they have decreased in terms of number. This might indicate a more frequent use of exceptions. How often direct awards are being applied instead of public tenders is unknown. Public tenders for goods and services rose between 2010 and 2014; in fact, they almost doubled in that period, reaching 113 in 2014. No data was provided on the number of public tenders taking place for goods and services in 2015 and 2016, but according to SGNL officials, the state largely opted for electronic reverse auction in 2015.

It is imperative that the state of Nuevo León have a system that can provide data and information about key public procurement indicators. The SA has been working on developing a matrix of key performance indicators (KPIs), see Table ‎2.3. The current version of this matrix addresses issues such as level of competition, savings and time, required preparation, and participation in bidding. That said, the current system is unable to produce much of the information needed. The state needs to continue working to refine the KPI matrix. That said, it is essential that the core indicators remain, and that more effort and resources be directed towards upgrading the procurement system.

Table ‎2.3. The key components of Nuevo León’s matrix for performance indicators 2017

Narrative summary

Indicators

Means of verification and source of information

Assumptions

Indicator

Formula

Frequency

Goal

Contribute to increasing budgetary savings in the procurement of goods and services through efficient and transparent processes

Rate of change of budgetary savings

(((Budget savings year T - budget savings year T-1) / budget savings year T -1)*100

Annual

Database SECOP

Purpose

The units have the goods and services contracted with the best conditions of price, quality and opportunity

Rate of variation of the result of evaluation of the level of satisfaction in the contracting of goods and services

(Result of evaluation of the level of satisfaction in the contracting of bins and services year T- Result of evaluation of the level of satisfaction in the contracting of bins and services year T-1) / Result of evaluation of the level of satisfaction in the contracting of bins and services year T-1)*100

Annual

Intranet database

Suppliers meet the quote times and the system works properly

Components

C1. Procurement of goods and services by tender

Average for contracted amounts

Amounts contracted / contracts made

Quarterly

SECOP Database / Contest Management

The suppliers present the technical and economic proposals and comply with the bases of participation

C2. Updated Supplier Registration

Percentage of verified suppliers

(Verified Suppliers / Supplier Registration) * 100

Quarterly

Supplier Registration Headquarters Database

Suppliers are interested in belonging to the supplier registry

C.3. Annual Programme of Acquisitions, Leases and Contracting of Services (PAAS) elaborated

Rate of change in consolidated contracts

(Consolidated contracts year T - Consolidated contracts year T-1) / Consolidated contracts year T-1)*100

Quarterly

Information from the Procurement Department

The central government agencies send in time and form its annual programme of acquisitions, leases and contracting services

C4. Direct purchases of goods and services carried out

Average amount of direct purchases

Amount of direct purchases made / total purchases

Quarterly

Database SECOP

Suppliers quote on time and in form

Source: Information provided by the State of Nuevo León

2.1.3. Use of exceptions from competitive bidding

Nuevo León should develop more comprehensive and clear rules for justifying and approving exceptions to procurement procedures

The OECD Recommendations on Public Procurement (OECD, 2015[1]) state that rules for justifying and approving exceptions to procurement procedures should be comprehensive and clear, such as in cases of limiting competition. The OECD recommends that competitive (open) procedures be the standard method for conducting procurement. It recommends this as a means of driving efficiencies, fighting corruption, obtaining fair and reasonable pricing, and ensuring competitive outcomes. If exceptional circumstances justify limitations to competitive tendering and the use of single-source procurement, such exceptions should be limited, pre-defined and should require appropriate justification when employed. In addition, these limitations should be subject to adequate oversight that takes into account the increased risk of corruption, including by foreign suppliers. See Box ‎2.3 for examples of exception processes used by countries.

Box ‎2.3. Use of exceptions from competitive bidding

To ensure a level playing field, exceptions to competitive bidding should be strictly defined in order to avoid abuse. In addition, governments should consider setting up procedures to introduce transparency and integrity measures for exceptions to competitive tendering. Assessment of OECD countries shows that:

  • Written justification for the use of non-competitive tendering procedures is required in almost all respondent countries.

  • Random reviews or audits of non-competitive procedures are required in three-quarters of respondent countries.

  • A higher level of authorising personnel is required for non-competitive tenders in half of respondent countries.

  • A small proportion of the countries surveyed require that the amendments to contracts be made publicly available. In addition, a small number of countries require independent validation for large or high-value procurement (30% of respondent countries).

Source: (OECD, 2013[5])

Article 42 of the Nuevo León procurement legislation provides grounds for dispensing with the public tendering procedures. Contracts referred to in Article 42 are supposed to be carried out through restricted invitation procedures. Examples of these cases are provided in sections VIII, IX, X (first sentence), XII and XV of the procurement legislation (see Box ‎2.4). The sum of operations carried out under Article 42 in sections VII to XVIII are not supposed to exceed 20% of the budget for procurement, leases and services authorised to the agency or entity that is seeking procurement in each budget year. In exceptional cases, the corresponding procurement committee may set a higher percentage than the 20% stated above. The UCC is responsible for the review of exceptions.

Box ‎2.4. Exception to open tender according to Article 42 of the Law for Acquisitions, Leasing, and Procurement of Services for the State of Nuevo León

The centralized purchasing units may contract acquisitions, leases and services, without subjecting themselves to the public bidding procedure, through the procedures of restricted invitation or direct award, when:

I. The total of each transaction does not exceed the maximum amounts established for this purpose in the State Law on Budget Expenditure to make purchases through restricted invitation or direct award, provided that those transactions are not divided into fractions so they can be included in the hypothetical cases of exception to the public tender referred to in this article;

II. There is no substitute or technically reasonable substitute for goods or services, or there is only one possible offeror in the market or the vendor is a person who owns or exclusively licenses patents, copyrights or other proprietary rights; or because they are works of art, or goods with historic, archaeological or cultural value;

III. In cases declared by the relevant authority as emergency, urgency, or when the public order, economy, public services, public health, security, or environment of any area or region of the federal state may be in danger or disturbed as a consequence of unforeseeable circumstances or force majeure;

IV. There are circumstances that could produce significant losses or additional costs, quantified and justified;

V. Tenders for public security or law enforcement purposes, including the areas of intelligence and the social rehabilitation centres [prisons], when confidentiality or strategic issues can be compromised, as provided for in the relevant laws. The administrative requirements that do not involve security issues are not included in the hypothetical cases referred to in this section, which apply to those subject to this law;

VI. As a result of unforeseeable circumstances or force majeure, it is not possible to obtain goods or services through the open tender procedure in the time required to deal with the event at issue. In this case, the amounts or goods should be limited to what is strictly necessary to deal with the situation, all information should be provided to the Procurement Committee;

VII. A contract awarded through open tender is terminated, in which case the contract may be awarded to the bidder who got the second or subsequent position, provided that the price difference with respect to the proposal initially awarded does not exceed a margin of ten percent. In the case of contracts whose evaluation was carried out through the method of points and percentages, they can be awarded to the second or subsequent tenderer, within the margin aforementioned;

VIII. A public tender has been declared void (provided that the requirements set forth in the call for tenders are maintained), the absence of suitable proposals in a public tender whose non-compliance has been considered as the grounds for rejecting the tenders because they directly affect the solvency of the proposals. In this situation, the restricted invitation will first proceed, unless one of the hypothetical cases stated in sections III, IV or VI of this article occurs; and if the absence of suitable proposals in the tender is declared again, the purchase shall become a direct award;

IX. There are justified reasons for acquiring or leasing goods or the rendering of services from a particular brand;

X. These are purchases of perishable goods, cereals and basic or semi processed food products and stock. Likewise, in the event of used or restored goods whose price is not greater than the one established by an appraisal to be carried out by banking institutions or third parties authorised to do so according to the applicable provisions, issued within the previous six months and valid at the time of awarding the corresponding contract;

XI. Whether it is consulting or advisory services, studies or research. In these cases, the direct award or restricted invitation procedures shall be applied, according to the contracting amounts established by the State Congress for the corresponding fiscal year;

XII. It is the procurement of goods made by the obligated parties referred to in Article 1, sections VI and VII, for direct marketing or to subject them to productive processes that they perform in pursuance of the corporate purpose or line of business expressly stated in the legal action of their incorporation;

XIII. It is the procurement of goods coming from persons who, without being regular suppliers, offer goods under favourable conditions because they are in liquidation or dissolution, or under judicial intervention;

XIV. These are services rendered by a person referred to in section III of Article 8, provided that these are performed by themselves without needing the use of more than one specialist or technician. In these cases, the contracting may be carried out directly or through a partnership or association in which the service provider is a partner or associate;

XV. There are maintenance services of property where it is not possible to define their scope, establish the quantities of work or determine the corresponding specifications;

XVI. The subject matter of the contract is the design and manufacture of a good that serves as prototype to perform the tests that prove its operation. In these cases, the government body, agency, entity or administrative unit may agree that the rights to the design, use or any other proprietary right is constituted in favour of them, as applicable;

XVII. There is specialised equipment, substances and materials of chemical, physicochemical or biochemical origin to be used in experimental activities required in scientific research and technological development projects, provided that such projects are authorised by whoever is assigned by the head of the agency or the governing body of the entity;

XVIII. Acceptance by the Treasury of the State or the respective municipal treasury of the procurement of goods or the rendering of services by way of datio in solutum (transfer in lieu of payment), as provided for in the State Tax Code and other applicable laws;

XIX. When, due to the nature of the negotiation, there are circumstances or characteristics of the contract that make it absolutely essential to use the direct award method, as per the criteria or cases stated in the regulations of this law; and

XX. It is the signing of specific contracts that derive from a framework agreement. Contracts referred to in this article shall preferably be carried out through restricted invitation procedures, in the cases provided for in its sections VIII, IX, X (first sentence), XII and XV.

Source: (The State of Nuevo León, 2013[2])

During the OECD fact-finding mission, representatives of the state of Nuevo León raised the issue that there are too many exceptions in Article 42. They stated that some exception clauses are used excessively and without proper justification. In addition, there are certain exceptions to the procurement law in Nuevo León that have never been used, but are quite promising. Clause XVI, for example, encourages innovation to take place. Nuevo León could use these kinds of exceptions more, while discouraging exceptions that cause inefficiencies. Several clauses in Article 42 are weak and can be activated easily if procurement preparation or planning is not carried out properly. This issue was also raised by government officials in Nuevo León during the fact-finding mission. They stated that insufficient planning and delays of requests until late in the year lead to a high number of requests for exceptions. As shown in Box ‎2.5, the number of exceptions to the procurement law in Nuevo León is quite high, compared to exceptions in some of the neighbouring countries in Latin America.

Box ‎2.5. Exceptions for specific public procurement procedures in Colombia and Peru

In Peru, the regulatory framework allows a number of exceptions that make it possible for a contract to be awarded directly to a specific supplier. Legislation No. 1017 and 30225 on state procurement provide exceptions for the following procurements:

Law No. 1017

Law No. 30225

a) those undertaken between public entities;

1) advertising services provided by the media;

b) in the case of an emergency situation derived from catastrophic events, or from situations that affect national defence and security;

2) consulting services that are the continuation or update of a previous work performed by an individual consultant;

c) in a shortage situation that affects or prevents the public entity from fulfilling its activities;

3) goods and services for research, testing or development of a scientific or technological nature;

d) a procurement that is secret and related to the military or due to internal reasons;

4) the lease of real estate and the acquisition of existing real estate;

e) whenever there is a single supplier of goods or provider of services that does not allow for substitutes; and

5) specialised legal services for the protection of officials, servants or members of the armed forces and police;

f) special services delivered by natural persons.

6) an urgent need to continue implementation of non-performed features from a determined contract or a contract declared void;

7) training services that have a selection process for the acceptance of the persons interested.

In Colombia, the number of exceptions are more specific, allowing direct awarding in the following cases:

  1. manifest urgency;

  2. loan agreements;

  3. agreements between government agencies (including agreements to undertake jointly the mission of government agencies as well as the actual business between government agencies and state-owned enterprises which affect open competition);

  4. goods and services for the defence of government agencies that require keeping data in reserve;

  5. trust agreements to be entered into by the subnational level when agencies have started an organisation of debt proceedings;

  6. when there is no plurality of bidders;

  7. for professional services to support the operations of the government agency;

  8. lease and sale of real estate.

Source: (OECD, 2017[6]) (OECD, 2016[7])

In Colombia, the number of exceptions are more specific, allowing direct awarding in the following cases: 1) manifest urgency; 2) loan agreements; 3) agreements between government agencies (including agreements to undertake jointly the mission of government agencies as well as the actual business between government agencies and state-owned enterprises which affect open competition); 4) goods and services for the defence of government agencies that require keeping data in reserve; 5) trust agreements to be entered into by the subnational level when agencies have started a reorganisation of debt proceedings; 6) when there is no plurality of bidders; 7) for professional services to support the operations of the government agency; and 8) lease and sale of real estate. When discretion in selecting a contracting method is available in Colombia, contracting officials are asked to evaluate both the nature of the procurement as well as broader procurement (OECD, 2016[7]).

The standards set by the OECD on exceptions from competitive tendering call for a more thorough analysis on behalf of the UCC of the exceptions allowed in Nuevo León. There is a need to reconsider the number of exception clauses in Article 42. It is not enough to classify a purchase as a good or service for the security of the state; there needs to be a clear justification of why certain goods should be exempt, despite being purchased by the police. The UCC has to confront the excessive use of non-competitive procurement methods. The UCC should develop specific criteria for evaluating whether a specific tender is eligible for exception. Furthermore, these criteria should be objective, transparent and equitable.

2.1.4. The use of consolidated procedures to achieve value for money

Nuevo León needs to consider ways to ensure that units and parastatal entities with cooperation agreements take advantage of consolidated purchasing, as large procurement volumes generate better prices

The state of Nuevo León practices consolidated purchasing. Consolidated purchasing is when a group of entities can procure goods and services jointly by publishing only one public tender. This allows procurers to take advantage of the economy of scale, and to contract goods and services with the best conditions for the state. The objective of consolidating purchasing is to get lower prices for the goods being purchased. In Nuevo León, the process works as follows. First, the treasury must authorise procurement of the specific goods. Then, these goods must be listed in a catalogue. The UCC justifies the decision to consolidate the purchase on the grounds of evidence based on market research. This research mainly involves receiving quotes from suppliers to create a reference price, while taking into consideration the minimum and maximum quote. The UCC, which is responsible for organising these procedures, also relies on historical prices from previous purchases. From 2010-2014, Nuevo León carried out 35 consolidated purchases, or between 6-8 a year. These consolidated purchases were made for goods and services like stationery, cleaning, toners for printers, hardware, plumbing, drugs, reagent and food. In some ways, the UCC functions like a wholesaler, but it doesn't have a warehouse for products, as they are either kept by the supplier or by certain units that have the ability to store them. All central administration units in Nuevo León are obligated to purchase through the consolidated purchasing process, except for parastatal entities which can join in on their own terms.

As stated above, the objective of consolidating purchasing is to obtain lower prices for the goods being purchased. However, the current processes in the state of Nuevo León are not conducive to achieving this goal. The yearly planning for public procurement is still quite fragmented. Public entities have a certain amount of flexibility within an agreed budget to purchase other goods and services than those initially planned, as long as they stay within the budget. However, that can be detrimental to participation in consolidated purchasing. In addition, the UCC does not engage in long-term planning and additional funding requests to the treasury are frequent during the business year. Currently there is a lack of information prior to consolidating purchasing. This results in limited and ever-changing plans. Additionally, some of the products that the state of Nuevo León purchases are better suited for framework agreements, such as stationery, cleaning, toners, hardware and plumbing (unless units are able to store yearly stock of these goods.) With the current process, units often buy the same product for different prices, which doesn't lead to best buy.

With larger procurement volumes, increasing competition in the market normally follows, affecting prices and other terms in ways that are favourable to the purchaser. The potentially large sales volumes that can be expected under centralised procurement mean that economic operators can exploit economies of scale. Nuevo León’s UCC will need to gradually establish itself as a driving force for change and efficiency; one way it can do this is by making a persuasive, evidence-based case for the benefits of bulk buying. Public units need to know that they will reap value-for-money benefits when they buy in bulk. In addition, the UCC needs to do better long-term planning. The government needs to make a real commitment to purchasing from selected suppliers. If it does this, economic operators will be motivated to return to the value chain to ensure better prices from their suppliers. For example, the UCC should consider setting standards for certain products, such as chairs and desks. In this scenario, the UCC would than announce six months in advance that the government would be purchasing 1 000 chairs of type A, 200 chairs of type B and 600 chairs of type C. This kind of specific and long-term planning would give economic operators the time to prepare their offers. It would also allow operators to go back into the value chain, as they would have a guarantee of potentially selling several hundred chairs.

There are no public procurement strategies in place in Nuevo León at present that aim to increase savings and efficiency. The state of Nuevo León is, however, applying consolidated purchasing in a more strategic manner. Going forward, it should continue these efforts, and adopt a few best practices. The UCC should aim to standardise requirements for goods and services. It can do this by applying a method called homologation, which also aims to help the UCC spend less time on the definition of requirements – if some of these requirements have already been defined by a national government entity. One of the challenges Nuevo León is facing is how it can use the bargaining power of the state in a centralised procurement system. The government needs to utilise its full buying power to secure lower prices.

2.1.5. Introducing framework agreements

Nuevo León needs to increase its usage of flexible contractual vehicles providing efficiencies and higher savings, such as framework agreements

Nuevo León does not practice framework agreements. That said, the state’s procurement legislation stipulates that the UCC can organise framework agreements with one or more potential suppliers, if evidence presented in market studies shows that such an arrangement would be advantageous. If the UCC decides to adopt framework agreements in the future, officials should bear in mind a few key points. Agreements should include technical and quality specifications for particular goods. Framework agreements must indicate the price and estimated demand. And they must also be authorised by the treasury, according to the state procurement law. Procurement that is subject to a framework agreement may only be purchased outside of this arrangement if the purchasing area can demonstrate that the goods and services are being acquired through better conditions than those found in the framework agreement.

The use of framework agreements by some or all procuring entities at the central government level is widespread among OECD countries. 97% of responding countries reported using framework agreements in 2012, according to the 2012 OECD Survey on Public Procurement (OECD, 2012[8]). Ireland is one of many European countries that have a long tradition of using framework arrangements. In Ireland, the Office of Government Procurement (OGP) has put in place 122 frameworks agreements. These agreements have delivered a total estimated value of EUR 2.5 billion. 89% of frameworks in Ireland were established with a mix of both quality and cost as award criteria. Of those, the median split was 60/40 in favour of quality.

The range of items that are usually covered by framework agreements includes:

  1. ICT (information and communication technology) products and services (computers, photocopiers, printers, servers, software), generally the largest product area in terms of purchasing volume;

  2. telecommunications products (networks, mobile phones, landline phones, telephone exchanges);

  3. office furniture;

  4. travel services;

  5. office equipment and supplies;

  6. vehicle and transport services;

  7. fuel (for heating and transport) and electricity;

  8. food (foodstuffs, meal tickets);

  9. organisational and human resources development services.

In Latin America, framework agreements are becoming popular in countries like Mexico, Peru, Chile and Colombia (see more in Box ‎2.6). In Colombia, the first framework agreement was put in place in late 2013. It helped public agencies in buying fuel at service stations in Bogota. The framework agreement was a breakthrough for government agencies in Colombia. Prior to the agreement, it took four months to complete an open tender. With the agreement, procurement now takes less than an hour, as officials can place purchase orders via the Colombian State Online Store (Tienda Virtual del Estado Colombiano), an e-procurement platform within Colombia’s SECOP suite of e-procurement systems. In addition, after the implementation of the framework agreement, suppliers offered a discount on the reference price for fuel in a greater number of service stations. Furthermore, the government created a fuel supply management system to increase control over fuel expenditure. Colombia Compra Eficiente, the central purchasing body of Colombia, currently offers public agencies 34 frameworks agreements, including insurance, vehicles, janitorial services and cloud services, among others. The total value of purchase orders placed is more than EUR 1.25 billion, and there is a growing trend for subnational-level entities to use these contracts.

Box ‎2.6. Framework agreements in Colombia and Ireland

Colombia Compra Eficiente has the duty of designing and implementing framework agreements for the use of procuring agencies in the country. Law mandates that central government agencies procure through framework agreements. Other institutions, including Congress, the judiciary system, oversight institutions and institutions at the subnational level, may use the agreements if they deem them useful. Suppliers are awarded work via a public tender carried out by Colombia Compra Eficiente. The awarded suppliers sign a contract where all the technical characteristics and conditions for delivery are delineated. Procuring entities use the Tienda Virtual del Estado Colombiano to ask for quotations and place purchase orders. Thus, the process is seamless and paperless.

Framework agreements in Ireland are aggregated procurement arrangements established through competitive procurement processes. These arrangements are agreements with suppliers or service providers. They set out the terms and conditions under which specific contracts can be made during the period of the agreement. Frameworks agreements are put in place by central purchasing bodies like the OGP. Public sector clients can then modify the amount of goods and services they purchase from suppliers in the framework by means of direct draw down or mini-competitions.

The benefits of framework agreements are plentiful, they:

  • Deliver value for money: Aggregating different purchasers’ potential needs means individual purchasers can buy goods and services at prices below those normally charged. It also means that individuals can buy goods with special added benefits or more advantageous conditions.

  • Are compliant: Centrally initiated framework arrangements are fully compliant with procurement regulations. Thus, they reduce the potential for fraud or corruption. 

  • Are consistent: The use of these arrangements drives a more consistent and professional approach to procurement processes. This consistency and professionalism helps educate officials and suppliers dealing with the central procurement body, as well as improve their approaches to each tender exercise.

  • Are faster: Framework agreements remove the need for contracting authorities to conduct full tender exercises or lengthy supplier evaluations. This saves time, and reduces the costs associated with procurement exercises.

  • Have less risk: Each of the suppliers in a framework agreement has been subject to a rigorous procurement process. This ensures that they offer the type of goods and services required, and that they meet a certain threshold of quality. Framework agreements establish terms and conditions. This fact means that there is no need to re-draft terms or renegotiate when each procurement is undertaken.

  • Leverage scale: The public sector has substantial purchasing power. Framework agreements harness the opportunity to leverage this purchasing power and thereby ensure that value for taxpayer money is achieved.

Source: Information provided by OGP in Ireland and CCE in Colombia

Framework agreements generally involve the advertisement of an opportunity by a contracting authority (or authorities). This authority then enters into a contract or other arrangements with one or more economic operators for the provision of works, supplies or services over a fixed period. The rationale behind the framework method of purchasing is to achieve savings – both in terms of the cost of procurement and the time spent on the procurement process. It is worth noting that the most significant savings are commonly achieved when purchasing using framework agreements is combined with centralised procurement and e-procurement. In many OECD countries, key tasks of CPBs include aggregating demand and purchasing, managing framework agreements (see Figure ‎2.1). The roles that are less commonly undertaken by CPBs include co-ordinating training and establishing polices; these are instead some of the main roles of regulatory agencies in Latin American countries (OECD, 2017[9]). (OECD, 2016[10]). The majority of OECD countries make it mandatory for contracting authorities at the central level to use framework agreements. Only Korea and the Slovak Republic make it mandatory for all contracting authorities to use framework agreements. (OECD, 2017[9]). (OECD, 2016[10]).

Figure ‎2.1. The role of CPBs in OECD countries
picture

Source: (OECD, 2014[11]) (OECD, 2017[9])

The benefits of framework agreements have already been established. However, Nuevo León’s UCC must be aware that framework agreements may not be suitable for all types of purchasing. The most appropriate use of a framework agreement is in a situation where a contracting authority has a repeated need for works, services or supplies, but does not know the exact quantities that are required. In order to assess the suitability of a framework agreement, contracting authorities need to understand the advantages and disadvantages of framework agreements, the different types of framework agreements, how they are set up and how they operate in practice (OECD, 2016[12]).

2.2. The role of the UCC within the public procurement process

2.2.1. Adopting a strategic approach to market studies

Nuevo León needs to adopt more advanced methods for carrying out market studies, by going beyond quotes and reviews of historical prices

The role the UCC within the Secretariat of Administration is key for the successful application of public tenders and other minor purchases. The procurement process is mainly managed by three directorates within UCC (see Table ‎2.4). Their involvement starts when a requesting unit requires the procurement or leasing of movable property or real estate, or the rendering of services. The request has to be based on specific needs, and must be aligned with the State Development Program. The unit makes a request called requisition. This requisition is then loaded into the Integrating System of Government Electronic Resources platform. Finally, the request is paired with a fact sheet (tech spec) that describes the requested goods or services.

Table ‎2.4. Functionalities within the State of Nuevo León procurement system

Requiring Unit

UCC (Directorate of Procurement and General Services)

UCC (Directorate of tenders)

UCC (Directorate of Maintenance and General Services)

Procurement Committee

Winning bidder

Pre-tendering phase

Participation

Procurement planning

Definition of requirements

Market research

Determination of estimated value or reference value

Development of tender documents

Tendering phase

Participation

Tender notice

Clarification about tender documents

Modification of tender documents

Integration of tender documents

Tendering

Evaluation

Award

Award approval

Settlement of disputes in open tenders

Post-tendering phase

Participation

Signing of the contract

Subcontracting

Additions and reductions

Extension of the agreed period

Complementary contracts

Mechanisms for settlement of disputes (i.e. conciliation and arbitration)

Source: Information provided by the State of Nuevo León

After an approval process determining that the procurement can go ahead, the request goes to negotiators within the Directorate of Maintenance and General Services. These negotiators are responsible for conducting market research in order to find the best purchasing conditions for the requesting units. The law specifies that procedures for direct awards that fall under the exceptions to public tenders do not require market research if they fall under sections I, III, V, VII, VIII, XI, XIV, XVI, XVIII and XIX of Article 42 of the Law for Acquisitions, Leasing, and Procurement of Services for the State of Nuevo León. However, every other tender requires market research. These studies must include the following:

  • Verification of the existence of goods, leasing arrangements or services and suppliers at the local, national or international level.

  • The maximum reference price based on the information to be obtained from states, municipalities, government agencies, public or private organisations, suppliers, or a combination of these sources. Market research may be based on local, national or international information.

The negotiators in Nuevo León mainly apply a two-way approach to market studies. First, they search for bidders that meet the technical requirements in a supplier registry, and then they request quotes directly from these suppliers.

Market studies are vitally important, and should be used in a more strategic way by the state of Nuevo León. They should be undertaken even when there is no legal requirement to do so, particularly for tenders of large value. A thorough understanding of all prevailing market conditions and potential suppliers is essential if contracting authorities want to both buy effectively and detect and avoid bid rigging.

Though main market studies for public procurement are carried out by the UCC, requesting units have to get a pre-price quote during the preparation for the budget. The procedures applied by the requesting units are similar to those of the UCC, as they rely on historical prices or quotes. The UCC and requesting units need to further develop the market studies methodology they apply. Market studies should be conducted by individuals with procurement or research expertise, who are provided with sufficient time and resources. To address this issue, the UCC should establish a guide for the minimum acceptable content for market studies. It can do this by developing a manual which can be used by requesting units and UCC staff when they undertake their market studies. Furthermore, the manual should clearly state that market analysis is undertaken in the planning stage of a procurement procedure, well before the launch of the procedure. That said, market analysis may be undertaken at set times during the year for purchases that are procured on a regular basis.

Nuevo León needs to implement a comprehensive methodology or guide for how to conduct market research. This guide should include ways:

  • To increase awareness of the characteristics of the market and of recent market developments or trends that may affect competition for the tender, or may make collusion more likely (e.g. small number of suppliers, standardised or simple products, little or no entry, among others).

  • To collect information on suppliers and their products, prices and cost structures. If possible, a comparison of prices offered in business-to-business procurement is recommended.

  • To collect information about recent price changes. This will help procurement practitioners be informed about prices in neighbouring geographic areas, and about prices of possible alternative products.

  • To collect information about past tenders for the same or similar products.

  • To co-ordinate with other public procuring authorities that have recently purchased similar goods, services or works in order to improve understanding of the market and suppliers.

A market analysis is a general survey of the potential in the market to satisfy the defined need of a requesting unit. In order to be successful, this analysis has to be conducted in an open and objective manner, focusing on what general solutions are available in the market – and not just on preferred or favoured contractors. Market analyses may also involve direct engagement with economic operators and other organisations with relevant expertise, such as trade bodies or chambers of commerce. Direct engagement can complement desk-based research, providing first-hand knowledge from the market’s economic operators. Direct engagement with economic operators is also commonly referred to as “market sounding”, “solicitation of supplier information” or “preliminary market consultation”.

2.2.2. Breaking down barriers and improving procurement procedures

Nuevo León should simplify certain phases of the public procurement process to increase competition and maximise value for money

The OECD’s assessment of the procurement process in the state of Nuevo León identified several areas for improvement. These include: drafting of technical specifications, creating an approval process for purchasing, drafting of contract documents, notice for submitting tenders, guarantees and the payment process. The latter two subjects are discussed in more detail in Chapter 9.

The UCC receives so called “tech sheets” from requesting units along with a request for a purchase. When carrying out a market analysis, the UCC is also trying to shape the technical specifications of a tender. The collaboration between the UCC and the requesting units is close, with the requesting unit also assessing the bids of technical offers. The way the UCC goes about assessing the technical specifications is mainly by identifying whether a specific product exists, and in what condition the state can receive it. Currently there is limited specialisation within the UCC with regards to specific categories. This means that the work of assessing technical specifications is limited to checking whether certain “tech sheets” are in accordance with legislation. It is important for the UCC to have officials specialised in certain categories, as they will be better able to assess bids. In turn, this kind of educated assessment is likely to reduce the risk of discriminating against some suppliers while favouring others.

The process for initiating a purchase in the state of Nuevo León is quite bureaucratic and needs to be made more effective. A requesting unit with a need has to send a request for requisition to the operations department within the UCC. The operation department (OP) receives the request, reviews and checks whether there are funds for the product. When the requesting unit has signed the classification of the good, the OP guides the process to a specific negotiator. The OP operates as an internal controller, assuring everything is in place for the negotiator to find the best suitable product for the requesting unit. When the negotiator has found a product which the requesting unit agrees to, the negotiator sends the OP documents so that it can start preparing the purchasing order. The purchasing order is then delivered to the supplier. This process for purchasing relatively simple products can take days or weeks, which can result in the requesting unit having to wait and delay some of its activity.

Contractual terms must be clear and specific in order to avoid establishing unnecessary requirements. Furthermore, contractual terms should favour free competition and equality of opportunity in order to increase the number of participants in the tendering process. In many countries where the procurement process is more decentralised than in the state of Nuevo León, central purchasing bodies develop obligatory standardised tender documents for public entities. These documents include guidelines for the setup of tender documents, as well as model contracts. Hence, prior to a tender there are several types of model contracts already available. Legal departments are often responsible for providing procurement entities with an ad hoc tendering model that is in line with strategic sourcing. Once the contract is awarded, the legal department customises the draft contract with the data. Then the contractor or supplier sends this draft contract and data to the legal department, accompanied by supporting documentation to allow for a legal review and continued processing. Within the UCC there is a department that sets up the contracts according to the legislation. That said, no standardised tender documents or model contracts exist.

The state of Nuevo León should develop prototypes of solicitation documents for open competition, restricted invitation and direct award. Central purchasing bodies normally play a significant role in the development of standardised tender documents (see Box ‎2.7). The government should develop guidelines and policies relating to the creation of model contracts in various forms. These policies should be applicable to public events and formats which are essential for the operation of procurement under the existing regulatory framework. The model contracts should then be included with the solicitation documents for open competition, restricted invitation and an offer for direct awards. Model contracts should include the following elements, at minimum: the type of contract, the identification of risks linked to the project, processes and the execution of the contract, prevention and mitigation, the concentration of contracts in a single supplier, and the scale and complexity of the object of the contract.

Box ‎2.7. Development of template tender documents in Ireland

The Office of Government Procurement (OGP) in Ireland is responsible for drafting public procurement policies, and for regulating and coordinating the national public procurement system. In addition, the OGP is in charge of the preparation of standardised tender documents, as well as guidance material.

The OGP has created a standard suite of template tender documents to drive best practices and to reflect the new EU Procurement Directives which came into force in 2016. The OGP’s website offers a repository of knowledge section that provides an extensive amount of template documents and guidance material. There are currently six model documents available and more are planned. These templates cover the tender process and the contract phase of procedures.

To date, this suite of documents has been used across the public service for the procurement of low-to-medium risk goods and services. The popularity of these template documents is primarily due to their ease of use and clarity. These documents provide a further opportunity to help professionalise, streamline and standardise the procurement function among Contracting Authorities in the Irish state.

Source: (Office of Government Procurement, 2017[13])

The window for submission of tenders in the state of Nuevo León is not overly small, like in other parts of Mexico. For example, in Mexico City, tender documents can be available for only three days after the publication of the tender notice. In Nuevo León, tender documents for open national tenders remain available to the public for 15 calendar days after the date of publication of the tender call in the State Official Journal and in one of the newspapers in the region with the most circulation. For open international tenders, Nuevo León allows the tender call to remain available for 20 calendar days after the date of publication in the State Official Journal and high-circulation newspaper mentioned prior. For restricted invitation tenders, the time between the publication of the notice and the opening of tenders is 10 calendar days after the delivery date of the last invitation. This only applies to goods and services. Public works allow for 20 calendar days after publication in the State Official Journal and high-circulation newspaper listed prior.

No data is publicly available on the amount of time Nuevo León offers suppliers to submit their bids. The OECD was not provided with information regarding this issue by the SGNL. Furthermore, no information is available on the number of suppliers participating in bids. In Europe, the time offered to suppliers before submitting their bids is long, though it can be shortened (see Box ‎2.8). The state of Nuevo León should consider extending the deadlines set in its regulatory framework to enhance the participation of suppliers in procurement opportunities.

Box ‎2.8. Time limit for submitting bids in the European Union (EU)

Open procedure

In an open procedure, any business may submit a tender. The minimum time limit for submission of tenders is 35 days from the publication date of the contract notice. If a prior information notice was published, this time limit can be reduced to 15 days.

Restricted procedure

In a restricted procedure, any business may ask to participate, but only those who are pre-selected will be invited to submit a tender. The time limit to request participation is 37 days from the publication of the contract notice. The public authority then selects at least 5 candidates possessing the capabilities required, who then have 40 days to submit a tender from the date when the invitation was sent. This time limit can be reduced to 36 days, if a prior information notice has been published.

Source: (European Commission, Accessed 5 July 2017[14])

2.3. Streamlining and merging procurement committees

2.3.1. Role of the Central Purchasing Committee

Nuevo León needs to ensure that its public procurement committee has an enhanced role in driving efficiency and value for money by leading the implementation of a public procurement strategy

There are a number of procurement committees active in the state of Nuevo León. Their responsibilities vary depending on whether their procurement involves goods and services or public works. These committees operate within two different legal environments – state and federally funded procurement. The main committee for goods and services is the Central Procurement Committee (CPC). Requesting units also have procurement committees, as do parastatal entities. The CPC has the following obligations, according to Article 16 of the Nuevo León’s procurement legislation:

  • acknowledging the annual procurement programmes (including those of multi-annual nature)

  • partaking in every stage of the procurement process, whether public tenders or restricted invitation

  • issuing an opinion on proposals submitted by bidders in public tenders and restricted invitations to tender

  • analysing and evaluating procurement procedures carried out by any state-level entities

  • ruling in cases of exceptions to public tenders

  • defining integration and operational procedures of procurement sub-committees

  • proposing to the state treasury or to competent public entities indicated in this Law, the establishment of norms, criteria and guidelines regarding the acquisition and leasing of movable property

  • commenting on those matters because of their importance

  • in the case of municipalities, giving an opinion on matters that, due to their importance for the municipal government, are referred to the CPC by a municipal president or municipal treasurer.

The CPC has the authority to invite representatives of any state-level entities to its sessions when the nature of the procurement process requires their presence. In cases of consolidated purchases or framework agreements, the CPC can also sign coordination agreements between stakeholders. The committee members on the CPC differ from the members on the requesting unit committees, according to Nuevo León’s procurement legislation. Both committee formats include representatives that have a say but cannot vote. The CPC tends not to vote, but to reach a unanimous decision. Every procurement committee should have a technical secretary (secretario técnico) as the authority responsible for the following functions and actions, according to Article 20 of the procurement legislation:

  • prepare the proposals of calls, agendas and the lists of the subjects that will be treated in the sessions

  • include in the corresponding folders the necessary documentation, and send it to the members of the committee

  • draw up the list of attendees at the meetings of the committee

  • take minutes at each session of the committee

  • follow-up on compliance with the committee's agreements

  • ensure that the committee's file of documents is complete and up-to-date

  • assist in the discharge of the functions of the committee.

The composition of the CPC can be seen in Figure ‎2.2. The members of the committee do not work permanently for the committee; they have day jobs in their respective units. The members are appointed to the committee for an undisclosed time. The committee meets frequently, but it tends to vary between seasons. Early on in the year, the committee might have 2-3 sessions per week. The busiest time of the year is normally at the end of the year. This is when all units are preparing the forthcoming year’s budget, and thus need to finish what is left of the current year’s budget. This is also when requesting units often realise that they are running out of time to try to get exemptions.

Figure ‎2.2. Integration of the Central Procurement Committee
picture

The CPC has a responsibility to be highly active throughout the central state administration’s procurement process. Currently, the workload within the UCC is immense. During the OECD fact-finding mission, officials raised questions regarding whether the UCC had the capacity to fulfil its commitments. It is clear that the workload of the CPC is heavy. This is problematic, because it puts the committee at risk of being in a situation where decisions are made despite the fact that not all committee members have had the opportunity to study the documents. A procurement committee should ensure that procurement is being carried out in accordance with the legislative framework, but that should not be the primary objective of public procurement. The primary objective of public procurement is value for money and, second, supporting secondary objectives. The state of Nuevo León should reconsider whether the involvement of a representative from the Attorney General or the Office of the Comptroller and Government Transparency is conducive to the procurement process.

There is currently no public procurement strategy in place for Nuevo León, as discussed in Chapter 1. Nuevo León needs a strong strategy, and it should be the role of the CPC to support the implementation of this strategy. Officials delineate a plan for each year during the annual planning process. However, the plan is ever changeable with units transferring funds between different products, which prevent any coherent plan from being implemented. By developing a strong strategy for the long-term, the UCC can avoid this situation. In addition to reducing the number of committee members and focusing more on the strategy and plans for the forthcoming years, the UCC could also develop a checklist for assessing public tenders based on risk, value and more. A checklist of that sort could help prioritise the workload, leaving certain less risky or minor tenders to the UCC to complete with minimum oversight from the CPC.

2.3.2. Controlling for public works

Nuevo León should consider expanding the role of the Central Procurement Committee by allowing it to address the value and quality of public works tenders

The Law of Public Works for the State and Municipalities of Nuevo León (Ley de Obras Públicas del Estado y Municipios de Nuevo León) is the legislation that governs procurement of public works in the State of Nuevo León. It is distinct from the legislation that governs procurement of goods and services in the state. There is no readily available data on the number of public tenders for state or federally funded public works in the Nuevo León. Furthermore, no data is available on the total state expenditure for public works – or for federally funded work – in the state. In Nuevo León, there is no procurement committee for public works per se. There is, however, a committee (comité de fallos) which functions more as an internal control board. The public works process is more decentralised then the procurement process for services and goods, with procurement committees or technical departments carrying out market analyses, drafting tech sheets and more. Currently, there are four large technical departments preparing public works tenders in Nuevo León. They are: the Secretariat of Infrastructure (INFRA), Water and Drainage Services (Agua y Drenaje), the Institute for Education and Sports (ICIFED), and the State Highway Network (Red Estatal de Autopistas, REA). INFRA is obligated to give support to all public entities but not the other aforementioned large technical departments or the parastatal entities.

The committee (comité de fallo) for public works is located within the Secretariat of Infrastructure. Its only function is to review the paperwork of winning bids alongside those that get disqualified, and give an opinion. The opinion is given in order to ensure that the legal framework has been adhered to throughout the procurement process for a particular tender. The committee (comité de fallo) is composed of representatives; each has the power to give his or her opinion, and to vote. The members of the committee include representatives from the Secretariat of Administration, Secretariat of Finance and General Treasury, the Secretariat of Social Development and the requesting unit. If a vote is tied, a facilitator from the Secretariat of Infrastructure breaks the tie. The Office of the Comptroller for Government Transparency has a voice on the committee, but not a vote.

The committee takes action when the requesting unit has a proposal for who it wants to choose as a supplier for a given tender. That proposal is submitted to the committee prior to making the decision known to the winner. The committee then makes a thorough assessment, looking at all aspects of the tender, from the technical specifications to the economic offer. The committee suggests that the work should be awarded to the lowest bidder. The opinion is only for the requesting unit, it is not publicized; it is an internal control mechanism for the requesting unit. The committee only provides an opinion in the case of state or federally funded public tenders. In the case of direct awards, the committee is not required to issue an opinion.

Though the configuration of public procurement in Nuevo León is not unique, some questions have been raised about its effectiveness. The system is quite complicated with two different legislations, different registries, different e-platforms, distinct standard templates and different awarding criteria. In addition, the 51 municipalities in the state could be working much more closely with the state authorities than they are at present. The committee for public works is an internal control committee, primarily concerned with the correct application of the law. There is no central purchasing body for public works in Nuevo León. That said, INFRA functions as a technical support department. If the State Government of Nuevo León is keen to move towards a more efficient public procurement system, it should modify INFRA’s role and expand the role of the Central Procurement Committee by allowing it to address the value and quality of public works tenders, with INFRA providing technical support. The current committee of public works is incapable of that work, but could continue on as an internal control reviewer of public works, as necessary or annually.

2.4. Designing the appropriate evaluation and award criteria

2.4.1. Nuevo León should consider broadening the award criteria by applying points and percentages for public tenders

It is important that Nuevo León manage the public procurement process properly beginning at the early stages. A suitable set of conditions must be provided, including adequate selection and award criteria that will allow for equitable results from the bidding process. Tender evaluation has been identified as a particularly vulnerable step in that process. All evaluation criteria must be directly linked to requirements, be as objective as possible and must be designed not to favour a particular supplier. In Nuevo León, the public procurement legislation establishes that government authorities should use the method indicated in the call for tender for the evaluation of proposals. The criteria for evaluating proposals must be quantifiable and objective. When ministries, entities or administrative units need to obtain goods, leases or services that involve the use of complex, high-technical specialisation or technological-innovation characteristics, the use of the evaluation method of points and percentages may be justified. The evaluation criteria must include at least the following (Article 39):

  1. the total cost of the good or service, which should take into account costs incurred from acquisition to disposal, including production capacity, lifetime, maintenance costs, disposal costs, and, as appropriate, certificates under the applicable legislation;

  2. in the case of services, the experience, accredited performance, technical skills, material and human resources of the participant, as well as their administrative systems and the proposed methodology;

  3. in the case of consulting, consultants' relevant experience, the quality of the methodology, an assessment of whether the work plan observes the terms of reference, the qualifications of professional staff and the adequacy of the knowledge transfer; and

  4. where appropriate, the environmental criteria of the good to be acquired or the service to be contracted, and, in general, criteria referring to the preservation of the environment.

Despite allowing the use of points and percentages for public procurement, the method most used in Nuevo León is binary. The criteria established in procurement calls are supposed to be equitable for all the participants – according to a technical file that includes market research. That is, however, not always the case. During the OECD fact-finding mission, civil society organisations made several serious claims. These claims referenced two types of experiences. One in which suppliers were unfairly discriminated against, and the other in which certain suppliers were shown favouritism despite the fact that they did not fully meet procurement criteria. These practices are not unique to Nuevo León. They are common in many countries, and can significantly hinder competition. It is therefore important to ensure bidders receive equal treatment and equal access to information both during the preparation and evaluation of bids. See Box ‎2.9 for an example of objective award criteria.

Box ‎2.9. Objective award criteria

Ensure that award criteria are clearly and objectively defined by:

  • Using economic benefit as a basis for evaluation, unless the procurement is of a commodity purchase. In this case the basis of the lowest may be used;

  • Specifying the relative weight of each criterion, and justifying them in advance.

  • Specifying the extent to which these considerations are taken into account in award criteria when using economic, social or environmental criteria.

  • Including any action that the procuring agency is entitled to make with regards to the criteria (such as negotiations, specific conditions, etc.) and recording them.

Source: (OECD, 2009[15])

Best practices for public works tenders are as follows. Once tenders are evaluated, a contract is awarded to the bidder whose proposal observes all the legal, technical and economic requirements stated in the call for tenders. Such a bidder guarantees that it will honour the necessary obligations. It is also the bid that obtained the best result in the evaluation, according to the methodology established in the call. If there is a level playing field, preference will be given to the proposals offering the highest degree of protection to the environment. If a tie persists, preference will be granted to the individuals integrating the micro, small and medium enterprises (SME) sector from the state. This is rarely the case in Nuevo León, though, as public officials usually pick the lowest priced bid – which is not necessarily the best offer.

Nuevo León’s binary approach poses challenges to those managing technical specifications. There is a need for high-level capacity among employees when using the binary approach, as this approach does not incentivise companies to come up with new solutions during bidding. By using the binary system, the state of Nuevo León is excluding certain other criteria, such as quality and longevity. This binary system also deters more innovative companies to participate. The state of Nuevo León should consider using the points and percentages criteria in all public tenders. It should weigh criteria’s such as: 1) the environment; 2) social goals; 3) improvements to technical requirements; 4) delivery terms; and 5) the experience of key staff, among others. Colombia has practiced this approach for some time (see Box ‎2.10).

Box ‎2.10. Points-based evaluation in Colombia

Open tenders in Colombia are evaluated using three criteria: 1) economic; 2) technical; and 3)the nationality of goods and services offered. Economic points are awarded according to the price of the bid. As for technical points, the procuring entity must allocate points based on the quality, delivery time or sustainable sub-criteria. Up to 20% of points must be given to bids of goods and services whose origin is Colombia or one of its trading partners, following the rules set in trade agreements.

For example, in the open tender carried out by Colombia Compra Eficiente to select suppliers for the janitorial services framework agreement, formulas were set to allocate points based on the prices offered by bidders. Bidders provided prices for the provision of persons in charge of cleaning and performing related activities, as well as the price of the necessary products needed to complete these tasks. Technical points were given to suppliers that offered environmentally friendly cleaning products, and to those that committed to hiring victims of war or former guerrilla members.

Source: (OECD, 2016[7])

The award criteria is important to ensure value. The final ranking of tenders is determined by weighting set by the requesting unit in the tender documents. The scoring rules for both technical and financial evaluation are at least as important as the weights in defining the relative importance of all the different award criteria. The combination of weights and scoring rules determines how relevant each award criterion is in contributing to the value of the bid (see Box ‎2.11 for evaluation scores in Peru). Weights and scoring rules also determine how much more the buyer would be willing to pay for better quality proposals. Hence, behind weights and scoring rules there is value for money. This is why weights and scoring rules should not be set following intuition and common sense, but after sound analysis and simulation exercises. By doing this, officials can avoid unsatisfactory contract awards. The binary approach does not meet most strategic objectives being set today for public procurement. It is important that the state of Nuevo León move forward, but in order to do so, it needs to increase its internal capacity. Only then will the state be able to deliver change.

Box ‎2.11. Scores depending on evaluation criteria in Peru

In Peru, tender evaluations can be based on price and other criteria established by the entity in the tender documentation. The competition criteria established by the new legislation are referred to as: 1) the environment; 2) social goals; 3) improvements to the technical requirements; 4) delivery terms; 5) the experience of key staff, and more.

 

Legislative Decree No. 1017 

Law No. 30225

 

Technical score

Economic score

Technical score

Economic score

Goods, services and works

Minimum weighting

Minimum weighting

Minimum weighting

Minimum weighting

60% of the total score

30% of the total score

0% of the total score

50% of the total score

Maximum weighting

Maximum weighting

Maximum weighting

Maximum weighting

70% of the total score

40% of the total score

50% of the total score

100% of the total score

Consultancy

Minimum weighting

Minimum weighting

Minimum weighting

Minimum weighting

70% of the total score

20% of the total score

70% of the total score

20% of the total score

Maximum weighting

Maximum weighting

Maximum weighting

Maximum weighting

80% of the total score

30% of the total score

80% of the total score

30% of the total score

Source: (OECD, 2017[6])

2.5. Engaging with suppliers prior to and after the tendering process

2.5.1. Nuevo León should consider setting up a formal mechanism for debriefing

The Law for Acquisitions, Leasing, and Procurement of Services for the State of Nuevo León regulates the clarification meeting stage. At least one clarification meeting is required by law, and participation on behalf of potential bidders is optional. Interested parties must submit a written statement expressing interest in participating that includes general information and the name of their representative. Questions and inquiries may be sent through the Electronic Public Procurement System or in physical form depending on the approved format, which is established in the call for tender. The deadline for questions is twenty-four hours before the scheduled clarification meeting date. Each clarification meeting is documented and published in the Electronic Public Procurement System, except when there are any legal restrictions, such as confidential information. In the case of public tenders where the time from the publication of notice and submission of tender is 15 days, the clarification meeting should be held seven days before the submission day.

The state of Nuevo León has no regulatory framework for debriefing bidders. There are also no procedures for debriefing meetings with suppliers. In general, the answers provided by the UCC to contractors are published solely on the Internet. Unsuccessful tenderers may want to know why their tender failed, but they don’t have many avenues for obtaining feedback. The amount of information that can be conveyed varies according to the circumstances of the particular contract, but the UCC could give a broad indication of reasons suppliers have been rejected, based on cost and where they ranked in the tender list.

The OECD recognises verbal debriefing as a good practice that is commonly used in many OECD countries to engage with the market and expand the supply base. Implementation of adequate debriefing with the suppliers provides a valuable opportunity for both parties to benefit from the process. Verbal debriefings can improve relationships with suppliers, as well as the quality of their offers, while providing valuable insight to both parties. A debriefing can even be made available to a successful bidder as a first step in establishing a sound working relationship – and a precedent for constructive feedback. However, verbal debriefings must be used judiciously. Debriefings must operate under a clear framework in order to reduce any associated risks and costs. In order to increase the benefits of such debriefings while mitigating any potential risks, the state of Nuevo León should develop clear framework guidelines for debriefings. The OECD recommends that certain generic content be considered during the development of these guidelines (see Box ‎2.12).

Box ‎2.12. The benefits of debriefing

Debriefing is beneficial to bidders because it:

  1. helps them to rethink their approach in order to make future bids more successful;

  2. offers targeted guidance to new or smaller companies to improve their chances of doing business in the public sector;

  3. provides reassurance about the process and suppliers’ contribution or role;

  4. provides a better understanding of what differentiates public sector procurement from private procurement.

Debriefing can also assist Nuevo León by:

  1. identifying ways to improve subsequent solicitation processes, including associated communications;

  2. making sure best practices and guidance are updated to reflect any relevant issues that have been highlighted;

  3. encouraging better bids from suppliers in the future;

  4. getting a better understanding of how that segment of the market thinks, enhancing the organisation’s market intelligence;

  5. helping establish a reputation as a fair, open and ethical buyer with whom suppliers will want to do business in the future; and

  6. potentially reducing the number of challenges.

Source: (United Kingdom Office of Government Commerce, 2003[16])

2.6. Proposals for action

The state of Nuevo León is going through a transitional period with the creation of the Secretariat of Administration and the expanded role of the UCC, which will likely grow in coming years. Nuevo León needs to take significant steps in order to move the process forward. This will require legal and cultural changes within the public sector. Nuevo León’s procurement procedures are highly control-oriented. Procurement could be made more effective if officials strive for goals like value for money, while de-emphasising adherence to formalities. Changes in institutions and institutional cultures are needed, not just in Nuevo León, but in Mexico as a whole. That said, there seems to be an understanding among certain units within the state administration about the need to focus on simple and faster processes. This is a good thing. Nuevo León’s public procurement system needs to be more transparent, accessible and service-oriented. In order to improve the efficiency and value of the procurement system, the proposals below could be considered.

Framework for public procurement procedures

  • Nuevo León needs to address obstacles and delays in its public procurement process, with special attention paid to making purchases of minor goods more efficient.

  • Nuevo León needs to improve its data and information systems to be able to manage public purchasing in the state more effectively.

  • Nuevo León should develop more comprehensive and clear rules for justifying and approving exceptions to procurement procedures.

  • Nuevo León needs to consider ways to ensure that the public entities and parastatal entities with cooperation agreements take advantage of consolidated purchasing, as large procurement volumes generate better prices.

  • Nuevo León needs to increase the use of flexible contractual vehicles that provide efficiency and higher savings, like framework agreements.

The role of UCC within the public procurement process

  • Nuevo León needs to adopt more advanced methods for carrying out market studies in order to go beyond quotes and reviews of historical prices.

  • Nuevo León should simplify certain phases of the public procurement process to increase competition and maximise value for money.

Streamlining and merging procurement committees

  • Nuevo León needs to ensure that its public procurement committee has an enhanced role in driving efficiency and value for money by leading the implementation of a public procurement strategy.

  • Nuevo León should consider expanding the role of the Central Procurement Committee by allowing it to address value and quality of public works tenders.

Designing the appropriate evaluation and award criteria

  • Nuevo León should consider broadening award criteria by applying points and percentages for public tenders.

Engaging with suppliers prior to and after the tendering process

  • Nuevo León should consider setting up a formal mechanism for debriefing.

References

European Commission (2014), Thresholds, https://ec.europa.eu/growth/single-market/public-procurement/rules-implementation/thresholds_fr (accessed on 05 July 2017).

European Commission (Accessed 5 July 2017), Tendering Rules and Procedures, Brussels, http://europa.eu/youreurope/business/public-tenders/rules-procedures/index_en.htm (accessed on 12 June 2017),

OECD (2009), OECD Principles for Integrity in Public Procurement, OECD Publishing, Paris, http://dx.doi.org/10.1787/9789264056527-en.

OECD (2012), “OECD 2012 Survey on Public Procurement”, OECD, Paris.

OECD (2013), Implementing the OECD Principles for Integrity in Public Procurement: Progress since 2008, OECD Publishing, Paris, http://dx.doi.org/10.1787/9789264201385-en.

OECD (2014), “Towards public procurement performance indicators”, http://unpublished.

OECD (2014), “OECD Survey on Public Procurement”, OECD, Paris.

OECD (2015), OECD Recommendation of the Council on Public Procurement, http://www.oecd.org/gov/ethics/OECD-Recommendation-on-Public-Procurement.pdf.

OECD (2016), Towards Efficient Public Procurement in Colombia : Making the Difference, OECD Publishing, Paris, http://dx.doi.org/10.1787/9789264252103-en.

OECD (2016), Government at a Glance: Latin America and the Caribbean 2017, OECD Publishing, Paris, http://dx.doi.org/10.1787/9789264265554-en.

OECD (2016), “Centralised purchasing systems in the European Union”, SIGMA Papers, Brief. 19, http://www.sigmaweb.org/publications/Public-Procurement-Policy-Brief-19-200117.pdf.

OECD (2017), Government at a Glance 2017, OECD Publishing, Paris, http://dx.doi.org/10.1787/gov_glance-2017-en.

OECD (2017), Public Procurement in Peru: Reinforcing Capacity and Co-ordination, OECD Publishing, Paris, http://dx.doi.org/10.1787/9789264278905-en.

Office of Government Procurement (2017), Office of Government Procurement in Ireland, http://www.etenders.gov.ie/ (accessed on 15 June 2017).

The State of Nuevo León (2013), Law for Acquisitions, Leasing, and Procurement of Services for the State of Nuevo León, 2013, https://www.pjenl.gob.mx/CJ/Transparencia/01MJ/LAACSENL.pdf.

United Kingdom Office of Government Commerce (2003), Supplier debriefing.