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Mexico

Launch of the report “Fighting bid rigging in Mexico: A review of CFE procurement rules and practices”

 

Remarks by Angel Gurría

OECD Secretary-General

Mexico City, Mexico, 10 January 2018

(As prepared for delivery)

 

 


Director General, Secretary for Energy, Ambassador, Ladies and Gentlemen:


Supporting Mexico in combating corruption, strengthening competition and improving transparency in its institutions is a priority for the OECD. It is therefore my great pleasure to launch the OECD report “Fighting bid rigging in Mexico: A review of CFE procurement rules and practices”.

 

It is an honour that public institutions as important as the Federal Electricity Commission (CFE) seek the OECD’s co-operation to review their new regulatory procurement frameworks. It is an even greater honour that the CFE has done so twice. In 2015, a time when the CFE fell within the scope of the general public procurement procedures, it sought the assistance of the OECD in order to analyse both the regulatory framework in place at the time, and its internal practices. As a result, the OECD drew up a report containing recommendations on how to improve the CFE’s procurement procedures in order to prevent bid rigging and promote competition.

 

This time, in connection with the design and adoption in December 2016 of its new procurement procedures, the CFE once again called on the OECD to evaluate whether the new procedures were in line with the recommendations we made in our 2015 review. Allow me to make a few remarks on the report.

 

The importance of the CFE and the risk of bid rigging

First, we must acknowledge that the CFE is one of the largest public procurement entities in Mexico and has one of the largest procurement budgets, alongside PEMEX, the IMSS and the Secretariat of Communications and Transport. In 2016, the total cost of procurement by the CFE was around 7% of the total budget recorded in CompraNet with a figure of MXN 29 billion. In terms of sheer numbers, the CFE accounted for 12% of all contracts issued by the Federal Public Administration.

 

In order to prevent abuse and bid rigging of any kind, it is therefore of utmost importance for bidding to be conducted in the most transparent fashion possible using procedures and systems based on best international practice.

 

Bid rigging by public institutions erodes the State’s government capabilities, the quality of public services, and public confidence not only in the authorities but also in business. When businesses collude, the cost of goods and public services can rise by up to 20%. That figure can be even higher: in Mexico, the Competition Authority (COFECE) has calculated that the Mexican Institute of Social Security (IMSS) was overpaying by 57.6% for insulin as a result of collusion in the pharmaceutical sector.

 

That is why this review, and in particular the partnership between the CFE and the OECD, are so important in combating bid rigging.

 

The CFE has taken some important steps

Our report recognises the progress the CFE has made to date, especially as a result of the Energy Reform. For instance, in the past few years, it has built up its capacity in market analysis – the chief source of information upon which procurement decisions are made. In fact, the CFE recently approved the establishment of a Specialist Market Intelligence Unit to conduct analysis of that kind.

 

The new CFE procurement procedures analysed in this second report will help to increase the transparency of the process. First, because they provide for greater opportunities for foreign bidders, thereby increasing competition. And secondly, because they introduce electronic tools that will digitise most stages in the procurement process.

 

Under the new procedures, measures have also been taken to streamline procurement processes for goods and services in order to create economies of scale with suppliers. One particularly important measure is the introduction of unique reference codes for each good or service purchased. This has led to a reduction in the product catalogue from 793 000 to 226 000 items. The review highlights a number of other important areas of progress.

 

The reforms are very welcome, but much remains to be done

The CFE is moving in the right direction, but there is still work to do. First, efforts to raise awareness among CFE directors and officials of the risks of bid rigging must be intensified. The OECD has therefore drawn up a training manual that CFE instructors can use to design training programmes on bid rigging.

 

Secondly, the CFE must continue to increase competition in procurement. Our report sets out a series of recommendations to that end. For instance, we recommend that the CFE should restrict the use of exceptions to electronic procurement procedures. It is also very important to reduce the number of direct awards. Between 2012 and 2016, the percentage of contracts awarded directly by the CFE to suppliers was 78% (2012) and 63% (2016), while contracts awarded as a result of open tenders accounted for only 7% and 11% of the total respectively. These figures must improve, and the use of direct awards must be restricted as much as possible. Other institutions such as PEMEX have made significant progress. In 2015, PEMEX was conducting 81% of its procurement through direct awards; between April and August 2016, PEMEX’s own figures show a fall in that proportion to 23%.

 

It is also essential that when the CFE sets up the new market investigation unit, it pays special attention to certifying the unit’s independence to ensure that its investigations are objective and delivered by the expected deadline.

 

Another significant step we recommend is to establish a database containing information on all procurement decisions, to enable easy data analysis both by the CFE and the competition authorities. Additionally, in order to increase detection of collusion, the CFE should set up a reporting mechanism to allow procurement officers to provide anonymous information on suspected bid rigging.

 

Ladies and Gentlemen:

Bid rigging is a form of stealing, and rigging public procurement contracts is stealing from the public, from the nation. But it is also a direct attack on the cornerstone of our market economy: competition. Accordingly, measures to discourage and prevent this kind of behaviour are a matter for the State, a matter of public interest, and the subject of intelligent policy-making.

 

We congratulate the CFE on the progress it has made, its commitment to combatting bid rigging and to improving its public procurement processes. We hope that this report will contribute to better tendering and bidding outcomes and thereby improve the quality of the services that the CFE provides to Mexico.

 

The OECD stands ready to continue to support you in this work.  Thank you very much.

 

 

 

See also:

OECD work on Competition

OECD work with Mexico

 

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