In Mexico, some public institutions consolidate the procurement requirements of their entities into one public tender to save costs and increase efficiency. For example, since 2006, the Mexican Social Security Institute (IMSS) has purchased therapeutic goods through annual consolidated tenders with a national scope. These consolidated tenders have rendered considerable savings; according to public information, this method saved the IMSS approximately Ps12,758 million (approximately $670 million) between 2013 and 2018.(1)
This article considers a recent consolidated tender issued by the federal government and the competition concerns associated with this practice.
On 5 June 2019 the federal government issued a consolidated tender under a new purchasing scheme.(2) The tender consolidated the purchase of all therapeutic goods required by six government institutions(3) for the second semester of 2019 into a single public procurement process. In total, the tender aimed to purchase 3,090 batches of goods, of which 1,069 were medications and 2,021 were healing materials. The alleged rationale for this additional degree of consolidation was to achieve even greater savings than those achieved under the previous scheme, which had consolidated the requirements of only one public institution and one type of therapeutic good.(4)
Consequently, the volume of tenders required for each good was considerately larger than in previous tenders. In addition, the tender granted short timeframes to deliver the goods to the government institutions' warehouses. This further hindered each supplier's ability to provide all of the purchased goods on time, as bidders were allowed to submit only one proposal per batch which had to correspond to 100% of the volume required for that batch.
On 28 June 2019 the tender process concluded with only 38% of the batches being awarded. The remaining 62% of batches, corresponding to a total of 1,923 goods, were declared vacant. This percentage is considerably higher compared with the percentage of vacant batches in the previous consolidated tender, which was less than 10%. One of the reasons why so many batches were not awarded in the tender may be the fact that the tender's required volumes were so high that a single supplier could not supply 100% of a given batch on its own.
The tender included the option of two or more competing suppliers presenting a joint proposition in order to provide 100% of each batch. This option complies with Mexico's public acquisition law, which acknowledges the possibility of various companies participating in a public tender through a joint proposition provided that any agreement between the bidders is implemented in accordance with the Federal Law on Economic Competition.(5) Nonetheless, few bidders presented a joint proposition.
The federal government's tendency to issue a consolidated tender which covers substantial volumes of goods is likely to transcend the therapeutic goods industry and become a common feature of procurement processes in general. As such, joint propositions among competitors may be the solution for companies that wish to participate in such processes and provide the required volumes. However, there are no official guidelines or criteria on how joint propositions between competitors should be negotiated or implemented so that they do not pose a risk to competition.
The Federal Economic Competition Commission (COFECE), among other regulators,(6) has previously addressed the subject of joint propositions by acknowledging that they can be beneficial to the relevant market. However, joint propositions may pose a risk to competition and could have anti-competitive effects, especially when they are entered into by competitors. To mitigate these risks, the regulators have recommended that joint propositions be allowed only when they:
- do not involve economic agents that could participate individually in a tender; and
- serve to increase the number of independent participants in the procedure – for instance, when:
- each party participates in different geographic or product markets that complement each other as part of an integrated service; or
- the volume or time requirements cannot be met by a single participant, such as in the above case.
Regardless, it remains unclear when or how competitors could evaluate and negotiate the possibility of a joint proposition without hindering competition. Thus, the COFECE and the federal government must provide companies with greater legal certainty on this issue in order to mitigate any potential competition risks which may arise from joint propositions in Mexican procurement processes.
Notwithstanding the foregoing, companies interested in evaluating, negotiating or presenting a joint proposition should do so in accordance with the COFECE's Guidelines for the Exchange of Information.(7) Among other things, these guidelines recommend that:
- any exchange, assessment or discussion of commercially sensitive information be completed through an independent third party or a so-called 'clean team' that can safeguard the information and ensure that it is used only for legitimate purposes; and
- access to exchanged information be limited through the implementation of internal protocols.
Endnotes
(1) Further information is available here.
(2) Tender LA-012000991-E82-2019.
(3) The six government institutions were:
- the Ministry of Health,
- the Ministry of the Navy;
- the IMSS;
- the Institute for Security and Social Services for State Workers;
- Petroleos Mexicanos; and
- the Decentralised Administrative Agency for Prevention and Social Rehabilitation.
(4) For example, through the previous scheme, the acquisition of medications was done through a different tender than the acquisition of healing materials.
(5) This is the case even if the parties do not form a new legal entity for that purpose, as long as each party indicates the obligations that they would assume.
(6) Other such regulators include the Organisation for Economic Cooperation and Development and the Mexican Institute for Competitiveness. These benefits and risks have also been acknowledged in the guidelines on joint propositions produced by competition authorities in other jurisdictions, such as Denmark, Wales and Ireland.
(7) Available in Spanish here.
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