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HOW TO PARTICIPATE IN GOVERNMENT PROCUREMENT IN MEXICO?

Preface
Introduction to Mexico's Government procurement market
Government procurement procedures in Mexico
Steps to follow to participate in Mexican Government procurement market
The North America Free Trade Agreement and government procurement
Directory

PREFACE

The present document has been written by the Secretaría de Contraloría y Desarrollo Administrativo (Ministry of the Comptroller and Administrative Development) together with the Secretaría de Economía (Ministry of Economy), with the intention of providing information regarding to Mexican Government Procurement Procedures, carried out by Federal entities and enterprises, related to Chapter X of the North American Free Trade Agreement. Through questions and concrete answers related with Government Procurement, this guide intends to give information so those, actual or potential suppliers, can widen their market's opportunities. This document briefly describes some characteristics with regard to Mexican Government Procurement market. In addition, it presents a summary about the procedures of government procurement regulations and the steps that interested bidders will have to follow in order to participate in them. Finally, it states some dispositions related with the procedures ruled by the North America Free Trade Agreement.

INTRODUCTION TO MEXICO'S GOVERNMENT PROCUREMENT MARKET

1. HOW IMPORTANT IS MEXICO'S GOVERNMENT PROCUREMENT MARKET

 To fulfill its activities, Mexican government requires from important volumes of raw material, repair parts, finished goods, and hired services, to the execution of important infrastructure and construction works. In 1999, government procurement amounted 228,290.9 millions of pesos, of which 31% corresponded to goods, 44% to services and 25% to construction services, according with the Count of Federal Public Finance.

2. WHICH ARE THE MOST IMPORTANT ENTITIES AND ENTERPRISES IN MEXICO WITH REGARD TO GOVERNMENT PROCUREMENT

The federal entities that stand out for the number of contracts and volume of procurement are Secretaría de Comunicaciones y Transportes (SCT), Secretaría de Educación Pública (SEP), Secretaría de Agricultura, Ganadería, Desarrollo Rural, Pesca y Alimentación (SAGARPA), Secretaría de Hacienda y Crédito Público (SHCP) y Secretaría de Salud (SS).The enterprises that stand out for the number of contracts and volume of procurement are Petróleos Mexicanos (PEMEX), Comisión Federal de Electricidad (CFE), Instituto Mexicano del Seguro Social (IMSS) and Instituto de Seguridad y Servicios Sociales para los Trabajadores del Estado (ISSSTE).

3. WHICH GOODS AND SERVICES ARE MOST PROCURED BY THE GOVERNMENT

A wide variety of goods, from consumption goods (such as food, office supplies, clothing, footwear and medicines) to those that require strong investments (such as oil drilling equipment, sea platforms, electric power plant equipment, and towers for transmission lines). The most required services are building cleaning, maintenance of plants, machinery and equipment; vigilance; as well as services for system analysis, design, programming, and maintenance.Among the products and services more frequently requested by PEMEX (Mexican Petroleum) are: tubes, pipes, integral oil process, liquid and gaseous nitrogen, gas additives, gas analyzers, liquid chlorine, and tow truck repairmen; while the CFE (Electricity Federal Commission) requires transformers, cable, replacement parts for power plants, concrete and wooden posts, fuel, and charcoal.Furthermore, the SCT (Ministry of Transport and Communications) requires block signal systems, motor vehicles, architecture and engineering services for toll road constructions, as well as automatic data processing equipment.IMSS (Mexican Social Security Institute) mainly requires medicines, medical supplies, as well as laboratory materials. GOVERNMENT PROCUREMENT PROCEDURES IN MEXICO

4. WHICH LAWS RULE GOVERNMENT PROCUREMENT IN MEXICO

Article 134 of the Mexican Constitution establishes the basic ruling principle for procurement, asserting that contracting will take place through open tendering procedures.& Specific procedures are provided in the Ley de Adquisiciones, Arrendamientos y Servicios del Sector Público y Ley de Obras Públicas y Servicios Relacionados con las Mismas (Law for Acquisitions, Leases and Services and Law for Public Works).This law can be consulted, in its Spanish version by Internet at the following electronic address:http://www.secodam.gob.mx/unaopspf/unaop1.htm& The relevant chapter there rules government Procurement under Free Trade Agreements signed by Mexico in.Up to date, Mexico has signed Free Trade Agreements with the following countries: - United States of America and Canada - Colombia and Venezuela- Costa Rica- Bolivia- Nicaragua- Israel- European Union- Free Trade European AssociationThese Agreements can be consulted, in its Spanish version by Internet at the following electronic address:http://www.economia.gob.mxThese provisions do not rule procurement carried out by a federal state (known in other countries as local or provincial governments) when it is carried out under its own budget.

5. WHICH ENTITIES AND ENTERPRISES DICTATE THE POLITICS, BASIS AND GUIDELINES OF GOVERNMENT PROCUREMENT PROCEDURES IN MEXICO

The Secretaría de Contraloría y Desarrollo Administrativo (Ministry of the Comptroller and Administrative Development, SECODAM), to fulfill its regulatory functions, establishes and promotes the necessary standards so that government procurement takes place by procedures that promote the equality of conditions for all the participants, as well as the transparency in contract awards.The Secretaría de Hacienda y Crédito Público (Ministry of Finance and Public Credit, SHCP) authorizes the budget for the "Annual Acquisitions Program of Goods, Leases and Services and Annual Public Works Program" (PAAAS and PAOP) presented by the entities and enterprises each year, in order to establish their procurement requirements.The Secretaría de Economía (Ministry of Economy) receives the PAAAS and PAOP from the Federal Public Administration, integrates and presents them to the business sector and promotes the participation of small business in government procurement.The corresponding, PAAAS and PAOP may be consulted on Internet at the following electronic address:SIEM: http://www.siem.gob.mxCOMPRANET: http://www.compranet.gob.mx

GOVERNMENT PROCUREMENT PROCEDURES IN MEXICO

6. HOW DOES THE MEXICAN GOVERNMENT PROCURE

Based on the Law of Acquisitions, Leases and Services and the Law of Public Works, procurement generally takes place by open tendering procedures, through public notice.In the process of open tendering, any supplier that fulfills all the requirements specified in the invitation to participate, and tender documentation can submit its bid. The process of open tendering may be:Þ National - When only Mexicans can participate, and the goods to be procured must have at least fifty percent of local content. Þ International - When foreigners and Mexicans can participate, and it will take place under the following circumstances:à When it is mandatory by Free Trade Agreements, orà In procurement to be performed by sources provided with loans from international financial institutions, orà When national offers cannot fulfill requirements, orà In case of price convenienceNotwithstanding, participation can be denied to foreigners from countries that are not part of a trade agreement or that don't grant Mexico reciprocal treatment. However, an entity or an enterprise can refuse foreign suppliers participation when Mexico has not a free trade agreement signed with the country whose supplier is from or that country does not grant a reciprocal treatment to Mexico in this matter.Additionally, on December 2000 came into force the " Acuerdo por el que se establecen las reglas para la aplicación del margen de preferencia en el precio de los bienes de origen nacional, respecto de los importados tratándose de procedimientos de contratación de carácter internacional" (Agreement that establishes the rules to apply a preference margin on prices for domestic goods with respect to prices of foreign goods in international tendering) which was published in the "Diario Oficial de la Federación" (D.O.F.) on November 2000.The putting into practice of this agreement has like objective to promote a larger competitiveness of domestic suppliers in government procurement, favoring, as well, a larger utilization of local plants and keeping and increasing of jobs.This preference margin does not affect the obligations established by Mexico in the Free Trade Agreement. STEPS THAT MUST BE FOLLOWED TO SELL TO THE MEXICAN GOVERNMENT

7. HOW CAN I FIND OUT ABOUT FEDERAL GOVERNMENT PURCHASING REQUIREMENTS

Currently, invitations to participate are advertised through a notice published in the specialized section of the Diario Oficial de la Federación, every Tuesday and Thursday of the year (except on holidays).Notices will also be published in a local state newspaper where goods will be used, services hired or construction works executed.SECODAM divulges information about open tendering procedures on the Sistema Electrónico de Compras Gubernamentales (COMPRANET) on this electronic address: http://compranet.gob.mx

8. WHAT IS THE "DIARIO OFICIAL DE LA FEDERACION" (D.O.F.) AND HOW CAN I OBTAIN IT

The D.O.F. is a government publication for official notifications. Currently, on Tuesdays and Thursdays, it includes a section with regard to government procurement (notices on invitations to participate, awarded notices or any modifications to tender documentation, etc.).It can be bought in some newsstands within the Mexican territory or can be available by subscription at the following address: - Abraham González No. 48, Planta Baja Colonia Juárez, México, D.F. C.P. 06600 52 (5) 546-72-84 Dirección electrónica: http://www.gobernacion.gob.mxThis gazette offers:Distributors in North Mexico or the border zone with the United States, calling:Monterrey: 52(8) 3-40-43-73Tijuana: 52(66) 85-45-71 or 88-12-14Ciudad Juárez: 52(16) 14-69-92 or 15-60-64An electronic version in diskette with weekly delivery that can be requested by calling:(52) 6-79-33-48 in Mexico City.Daily electronic transmission to your PC. For more information about this system, call: Mexico City: 52 (5) 7-26-00-70 Ext. 5635 Monterrey: 52 (8) 3-18-89-00 or 3-18-89-84Guadalajara: 52 (3) 642-88-00

STEPS TO FOLLOW TO PARTICIPATE IN MEXICAN GOVERNMENT PROCUREMENT MARKET

9. WHAT INFORMATION WILL I FIND IN THIS NOTICE

Name of the entity to which tenders must be submitted.2 Address, date, and schedules for obtaining tender documentation and its cost and terms of payment.2 Address, date and time for reception and opening of tenders.2 Description of the nature and quantity of goods or services.2 Date for starting or completion of the delivery of the goods or services.2 Statement to whether tendering is national or international, and if so, if it is under the coverage of a Trade Agreement.2 Language or languages in which tenders may be submitted.

10. WHEN AND HOW CAN I OBTAIN TENDER DOCUMENTATION

Since the day the notice is published and up to six days previous to the date of reception and opening of tenders, in the entity office, or by Internet in the Sistema Electrónico de Compras Gubernamentales (COMPRANET) in the following electronic address: http://compranet.gob.mx 1 Tender documentation can be consulted freely at any time during this term, previous to payment. 1 Nevertheless, only those who buy tender documentation and are not legally disabled will be able to submit tenders.

11. WHAT BASIC INFORMATION WILL I FIND IN TENDER DOCUMENTATION

Tender documentation must, at least, include all the conditions and necessary requirements for the development and presentation of the tender.These must be the same for all participants, specially concerning time limits and address for delivery, advanced payments, regulations, conventional penalties, guarantees, and means of payment.It shall also state:1 That the unfulfilled of any of the requirements established in the tender documentation will be a cause of disqualification. 1 That none of the conditions established in tender documentation or tender will involve negotiation.

12. HOW DO I SUBMIT MY TENDER

It should always be submitted in writing, to the address provided in the notice; in two sealed envelopes, one for the technical and the other for the economical tender and, if it is established in the tender documentation, by electronic communication means, using COMPRANET.

13. WHAT MUST I GUARANTEE AS A SUPPLIER

Validity of bid and bid securityF If the contract is awarded, performance securityF When advanced payment is granted, its adequate application.

14. HOW THE OPENING OF TENDERS WILL TAKE PLACE

The opening of tenders takes place in two stages:First stage:+ Tenders are presented in inviolable sealed envelopes. Opening of technical envelope takes place in a public meeting. Technical offers presented in writing will be first opened and later those presented by electronic communication means. Those that don't meet all conditions will be rejected. Participants will sign all technical offers presented. There will be a period of time during which the entity will carry out a thorough analysis of proposals.Only the ones that comply with the technical requirements will be accepted for the following stage.Second stage:4 Opening of economical tenders that were not rejected in the first stage. 4 In the case of two or more responsive bids, the one with lower price will be awarded. 4 When all tenders submitted do not comply with the conditions established, none is considered for award and a new tendering procedure takes place.

15. WHEN AND HOW DO I FIND OUT IF I WAS AWARDED

Decisions on contract awards will be notified in a public meeting to which all bidders can freely assist or, if it is agreed upon, they will be notified in writing. In addition, the information of the award decision will be notified in COMPRANET. 2. Entities will also have the obligation to provide all suppliers with information concerning the reasons for not being awarded. 3. Likewise, a notice of the contracts awarded will be published in the "Diario Oficial de la Federación", within 72 days of the award decision.

16. WHEN SHOULD CONTRACTS BE SIGNED

In a term no later than twenty days after the date of the award for goods and services acquisition. In a term no later than thirty days after the date of the award for public works. ? If this does not occur for cause imputable to the entity, the supplier can be dismissed of the contractual liability of providing the goods or services and, therefore, has the right to enforce a civil penalty on irreparable damages.

17. WHEN WILL I RECEIVE THE PAYMENT

The supplier will receive the payment of the price established in the contract within the following forty-five days, taken from the date that payment can be made required.For public construction works, payment is made by authorization of estimated works done, and it should be paid in a term no longer than 20 days from the date of authorization.

18. WHERE CAN I APPEAL IN CASE OF COMPLAINTS OR BID CHALLENGE CONCERNING THE PROCUREMENT PROCESS

To the Secretaría de Contraloría y Desarrollo Administrativo (SECODAM), by the Internal Controller Organ of the entities and enterprises. SECODAM is the only reviewing authority empowered to take notice and solve bid challenge in actions that contravene the Law of Acquisitions, Leases and Services and the Law of Public Works or that derive from Trade Agreements signed by Mexico.Bid challenge can be exercised by either persons or firms that consider that their rights were affected, either by decision on award, or by any of the stages of tendering; taken from the publication of the notice.Bid challenge must be filed in writing or by electronic ways, in a term not exceeding 10 working days from the date the basis of the complaint became known or reasonably should have become known to the supplier.The bid challenge document can be delivered personally or by certified mail or specialized messenger services. Facts stated in the bid challenge document must be declared under oath.Resolutions to bid challenge by the "Dirección General de Inconformidades" may be the following:ý Nullity of the tendering procedure taken from the irregular act or acts, and issue of necessary recommendations to the government institution so that the procedure regains legality.ý Total nullity of the procedure.ý Dismissal of the complaint.Against a determined resolution of SECODAM you can interpose and appeal for annulment accordant to the Federal Law of Administrative Procedure, or you can make an objection before the competent authority. THE NORTH AMERICA FREE TRADE AGREEMENT AND GOVERNMENT PROCUREMENT

THE NORTH AMERICA FREE TRADE AGREEMENT AND GOVERNMENT PROCUREMENT

19. WHICH ARE THE PRINCIPAL ADVANTAGES OF THE NORTH AMERICA FREE TRADE AGREEMENT

In general terms, the North America Free Trade Agreement creates the world's largest free trade zone in the world, greatly simplifying commercial transactions between Mexico, the United States of America, and Canada, due to the following:Ä It eliminates commercial barriers.Ä It clarifies and simplifies rules of trade, making their application more transparent,Ä It permits foreign enterprise from signing countries to do business in Mexico under the same basis and conditions imposed to locals.Ä Requirements and tariffs on imports (except for some agricultural products, automobiles, textiles and energy) will be eliminated in a 10-year period.

20. WHAT ADVANTAGES DOES THE NORTH AMERICA FREE TRADE AGREEMENT OFFER IN DOING BUSINESS WITH THE MEXICAN GOVERNMENT

Market opportunities rise significantly.þ Due to the elimination of impediments to market access, the suppliers task is simplified.þ Goods, services and construction service market in Mexico will gradually be accessible in increased stages over the next 10-year period.þ Bid challenge and dispute settlement procedures are designed to be expedited.þ Guarantees suppliers of signing countries with national treatment and non-discrimination.

21. WHAT IS NATIONAL TREATMENT AND NON-DISCRIMINATION

National Treatment: Each of the countries involved in the Agreement shall grant to the goods and suppliers of the other countries, treatment no less favorable than the most favorable that it grants to:1. Its own goods and suppliers, and2. Goods and suppliers of another country.Non-discrimination: No country will treat a locally established supplier less favorably than another locally established supplier on the basis of degree of foreign affiliation or ownership; or discriminate against a locally established supplier on the basis that the goods or services offered by that supplier for the particular procurement are goods or services of another country.National treatment does not apply measures related to:þ Customs duties.þ Charges on or in connection with importsþ Duties or chargesþ Other import regulations.

22. CAN MEXICO APPLY RULES OF ORIGIN TO GOODS IMPORTED FROM ANOTHER COUNTRY

In no case Mexico can apply different rules from or inconsistent with the rules of that it applies in the normal course of trade.

23. TO WHICH MEXICAN GOVERNMENT PROCUREMENT MARKET CAN I SELL WITH THE ADVANTAGES OFFERED BY THE NORTH AMERICA FREE TRADE AGREEMENT

 To the Federal Government entities and enterprises that are listed in the Government Procurement Chapter of The North America Free Trade Agreement, in the procurement of goods, services, and construction services under its coverage, when the value of the contract to be awarded is estimated to be equal to or greater than the thresholds established in the proper chapter.The tendering procedures under The North America Free Trade Agreement are similar to those used for national tendering.

24. IN WHICH CASES, IN SPITE OF THE FORMER, WILL GOVERNMENT PROCUREMENT IS NOT UNDER THE NORTH AMERICA FREE TRADE AGREEMENT COVERAGE

In case of exception.2. When the Mexican government considers it a set-aside.3. When procurement is to be performed by sources provided by loans from international financial bodies

25. WHICH ARE CASES OF EXCEPTION

Commercial resale by government-owned retail stores.b. Procurement by one entity from another entity.c. Procurement of transportation services that form a part of, or are incidental to, a procurement contract.d. When it is essential for national security or defense.e. Measures that are necessary to:O Protect public morals, order or safety.J Protect human, animal or plant life or health.& Protect intellectual property.f. Procurement related to goods or services of the handicapped, of philanthropic institutions or of prison labor.g. When there are circumstances and conditions that require limited tendering, such as:! In the absence of tenders in response to an open tender.$ For works of art, protection of patents, copyrights or other exclusive rights.À For reasons of extreme urgency brought about by events unforeseeable by the entity. For goods purchased on a commodity market.B For purchases made under exceptionally advantageous conditions. Where an entity needs to procure consulting services regarding matters of a confidential nature.

26. WHAT CONSTITUTES MEXICO'S SET-ASIDES

There are two types of set-asides:

a) Transitional· Until the year 2003, Mexico may set-aside, from the obligations of the Government Procurement Chapter, a determined percentage of the total value of procurement contracts for goods, services and construction services procured by PEMEX and CFE in the year, that are above thresholds set out in the proper chapter. · It may also set-aside a determined percentage of the total value of construction services contracts procured in the year, that are above the thresholds, excluding procurement contracts for construction services by PEMEX and CFE.Notice: The value of contracts does not include contracts bound to loans from regional or multilateral international financial institutions.· Until the year 2001, Mexico may set-aside procurement by the Secretaría de Salud, IMSS, ISSSTE, SEDENA and SEDEMAR of drugs not currently patented in Mexico or whose Mexican patents have expired.

b) Permanent set-asides· Mexico may set aside procurement contracts that may be allocated by all entities except PEMEX and CFE, not exceeding the sum of: · US $ 1.0 billion, in each year until December 31, 2002, and · US $ 1.2 billion, in each year beginning January 1, 2003 · The total value of contract set-aside by PEMEX and CFE under these permanent set-asides may not exceed US$ 30 million in each year beginning January 1, 2003.

DIRECTORY

Further information In México

Secretaría de Economía

Oficina de Negociaciones Comerciales con América Latina,
Acceso a Mercados y el ALCA.Alfonso Reyes No. 30 Piso 16
Col. Hipódromo CondesaMéxico 06170, D.F.
Tel.: 57-29-91-06

Secretaría de Economía

Dirección General de Industrias
Insurgentes Sur No. 1940, 6 piso
Col. FloridaMéxico 01030, D.F.
Tel.: 52-29-61-23Fax: 52-29-65-05

Secretaría de Contraloría y Desarrollo Administrativo (SECODAM)
Unidad de Normatividad de Adquisiciones,
Obras Públicas, Servicios y Patrimonio Federal
Av. Insurgentes Sur No. 1735
Col. Guadalupe InnMéxico 02010, D.F.
Tel.: 56 63 36 36 ext.2435Fax: 56-62-32-39

Secretaría de Hacienda y Crédito Público (SHCP)
Subsecretaria de Egresos
Constituyentes No. 1001, torre "A", 6° nivel
Col. Belén de las FloresMéxico 01110, D.F.
Tel.: 5228-52-94 with 7 linesFax: 5228-46-00 ext. 5294

United States Consulate in Guadalajara
Progreso No. 175Col. América
Guadalajara 04100, Jalisco
Tel.: 52(3) 825-27-00

Canadian Consulate in Monterrey
Edificio Kalos, piso C-1, local 108A
Zaragoza y Constitución
Monterrey 64000, Nuevo León
Tel.: 52(8) 344-32-00Fax: 52(8) 344-30-48

Cámara de Comercio de Estados Unidos En México
Lucerna 78Col. JuárezMéxico 06600, D. F.
Tel.: 5741-38-00Fax: 5703-29-11

Embassy of Canada,
Commercial DivisionSchiller No. 529
Col. PolancoApartado Postal 105-05
México 11560, D.F.Cable: Canadian Mexico City
Tel.: 5724-79-00Fax: 5724-79-82

Embassy of the United States,
Commercial Division
Paseo de la Reforma No. 305
Col. Cuauhtémoc
México 06500, D.F.
Tel.: 5209-91-00 Fax: 5208-33-73

Canadian Chamber of Commerce
Plaza Inverlat
Blvd. Manuel Avila Camacho No. 1 Desp. 710
Col. PolancoMéxico 11560, D.F.
Tel: 5580-41-43Fax: 5580-28-73

Banco Nacional de Comercio Exterior (BANCOMEXT)
Coordinación de Licitaciones Internacionales
Periférico Sur 4333
Col. Jardines en la Montaña de Tlalpan
México 14210 D.F.
Tel.: 5449-90-00 ext. 9968Fax: 5449-90-70

Cámara Nacional de Comercio (CANACO)
Paseo de la Reforma 42,
Piso 3
Col. Centro México 06600 D.F.
Tel.: 55-92-26-77Fax5705-74-12

In the United States
Embassy of Mexico
1911 Pennsylvania Avenue
North WestWashington, D.C. 20006
Tel.: (202) 728-17-00

Mexican Consulate in Los Angeles
2401 West 6th
Los Angeles 90057,
California
Tel.: (213) 351-68-00

Mexican Consulate in New York
8th East 41st Street
New York 10017
Tel.: (212) 689-04-56 and 689-04-57

Secretaría de Economía
NAFTA OFFICE
1911 Pennsylvania Avenue
North WestWashington, D.C. 20006
Tel.: (202) 728-17-00Fax: (202) 728-17-12

In Canada
Embassy of Mexico
45 O´Connor Street,
Suite 1500Ottawa, Ontario KIP 5G4
Tel.: (613) 233-89-88Fax: (613) 235-91-23

Mexican Consulate in Ottawa
Tel.: (613) 235-77-82

Secretaría de Economía Representation
130 Albert Street, Suite 1700
Ottawa, Ontario KOP 5G4
Tel.: (613) 235-77-82Fax: (613) 235-11-29

 For further information contact: Secretaría de Economía (Ministry of Economy)
Tel: 5229-61-00 Ext. 4404