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Construction Law International - June 2021 - Country Updates: Panama

Luis H Moreno IVMonday 28 June 2021

Changes to Panama’s public procurement law

​​​​​​​Luis H Moreno IV

Panama City

Panama’s public procurement law is found in Law 22 of 2006, which regulates how the government and its entities execute their yearly budget regarding the acquisition of goods, services and works, based on strong principles and a variety of procurement processes available for different types and sizes of acquisitions.

Although this Law has undergone many changes, its latest amendment (through Law 153 of 2020) is probably the most significant one in its history. Most of the modifications to this Law respond to the efforts from the government to strengthen the efficiency and transparency principles that govern public contracting in Panama, avoiding project execution blockades by losing bidders, as well as shortening the adjudication process.

Risk factor and reference price

Law 153 eliminated the famous ‘risk-factor’ from different procurement procedures, promoting competition from the bidders, avoiding common scenarios where all the economic proposals were the same. The risk-factor essentially established a ‘floor’ or maximum percentage allowed for bidders to make an economic proposal below the reference price in each bid.

The reference price for bids is still determined by the public contracting entity, but under the latest modification to Law 22, the Public Procurement Directorate may request public contracting entities to demonstrate how such a reference price was determined, being able to suspend the bid if such evidence or explanation is insufficient.

Bid bonds

Another change is that bids of less than US$500,000, will not require bid bonds. Also, bid bonds will now be presented to the public contracting entity and verified by such entity electronically, instead of physically.

Evaluation and verification committee reports

The term for the issuance of the public contracting entities’ committees report was shortened in some procurement processes, making the adjudication faster and project execution more efficient.

Claim actions

The term for bidders to challenge the reports from the evaluation or verification committees is also reduced. Previously, a bidder could challenge the mentioned reports directly to the Public Procurement Directorate, without presenting its arguments to the public contracting entity. Now, bidders must first share their observations with the public contracting entity and allow such entity to decide whether or not to order the commissions, to change or reconsider their evaluation and/or verification process as per the arguments of the challenger. Only after the observations are shared with the public contracting entity, and if because of such observations the public contracting entity:
(1) does not order the according changes or reconsiders the corresponding committee, or (2) remains silent about such observations, the bidder is able to file the legal challenge (better known as ‘claim action’) before the Public Procurement Directorate.

If, on the other hand, the public contracting entity does order the corresponding committee to change or reconsider its report, such committee shall follow through and issue a new one. This new report may be subject to claim actions, but in most cases will require a claim action bond, guaranteeing that the challenger is not purposely trying to delay the process unjustifiably. This claim action bond is also a new element to the Law.

Another important change to the Law is that claim actions against bid specifications (the bid document itself), are only available to those who participated in the official confirmation meeting and must be filed with a minimum anticipation from the bid proposal presentation date. This varies, depending on the amount of each bid. The confirmation meeting is a publicly accessible meeting between the public contracting entity and all interested parties, where the bid document/specifications are discussed, and the concerns of interested parties cleared. It is common for interested parties (possible bidders) to make several public requests to the public contracting entity regarding changes to the bid document at the confirmation meeting. The new criteria is that if an interested party does not participate in the meeting, it should not be able to challenge the bid document at a later date, as the specified time to share comments and make requests for changes directly to the public contracting entity is at the confirmation meeting. It was even included in the latest change to Law 22, that if most of the participants at the confirmation meeting agree with the public contracting entity to a certain change to the bid document, such change must be implemented.

Another change to the Law is that claim actions must contain all the bidder’s arguments, and no further claim actions shall be available from the same bidder with new arguments. This measure anticipates avoiding the common practice of bulking bid processes with multiple claim actions by the same bidders.

Claim actions may now not only be filed before the adjudication or the declaration of deserted act (when no proposal complies with the bid requirements), but also against proposal rejections and the cancelation of bid processes.

Appeals and impugnation recourse

Contractors may challenge fines or penalties during the execution phase of contracts, before the Public Procurement Administrative Tribunal, as well as via sanctions which restrict a party from contracting with governmental entities.

Impugnation recourses (a type of second instance claim), should now be resolved within 30 business days as opposed to the 60 business days established in the Law before the latest modification.

Best value bid with separate evaluation

This contractor selection process has been abolished, as it was deeply unpopular, and from a technical standpoint, it did not add any value to government. Under the former process, bidders would present two separate proposals – economic and technical. The economic proposals were kept in sealed envelopes in a vault in Panama’s National Bank, where they remained until after the technical proposals were evaluated, supposedly as to not influence the evaluation committees’ decisions. The reference prices for bids were also not made public, being kept in the vault. The problem was that public opinion distrusted the alleged secrecy of such a mechanism, and this led to acrimony regarding possible leaks of secret reference prices and economic proposals.

Exceptional process

The general rule regarding acquisitions by government and its entities is that they must take place via a competitive procurement process. These processes are described and regulated in Law 22, where an ‘exceptional process’ is also available in certain circumstances, which are expressly listed in the Law. Law 153 has reformed the exceptional process, so that it now requires public contracting entities implementing such a process to obtain at least three proposals instead of just one. Alternatively, they must prepare a report explaining the reasons why it was unfeasible, impossible, or inconvenient to obtain three proposals. In this sense, it is fair to say that direct public contracting is now more difficult than before.

Bureaucratic requirements

Law 153 establishes as a new obligation for public contracting entities that general public documents which have been issued by other public entities in Panama (eg, good standing certificates, commercial permit, and similar documents) are not required to be included in the bid documents. Instead, public contracting entities are required to validate the fulfilment of these requirements in public bids electronically. This should ease the process of participating in public procurement processes.

Electronic proposals

All bid proposals shall now be presented electronically, instead of physically. This is a major practical improvement as, in the past, most of the bid proposals were not only presented in-person in big heavy boxes, but included several copies, which were rarely used.

Amendments to the bid document

Law 153 increases the minimum amount of time that shall elapse between a modification to a bid document and the date for proposal submissions. Also, a unified version of the bid documents must be uploaded to the public procurement website (PanamaCompra), including all modifications by amendments before the bid proposal submission date.

Advanced payments and amendments to public contracts

For contracts of more than US$3m that include an advance payment component, such advance payment will now be consigned into a trust to be created by the Ministry of Economy and Finance, rather than being paid directly to the contractor.

Regarding contract amendments, the sum of all amendments to the price of a public contract is now limited to 25 per cent instead of 40 per cent.

Transparency, level playing fields and professionalisation of public procurement

Law 153 includes the development of a capacity- building programme for public servants in the different public contracting entities, as well as the creation of a Public Procurement Observatory that will allow the public to follow the various stages of ongoing public contracts and file complaints. This is in addition to the existing public procurement website where all public bids are available to view.

The obligation for public contracting entities to include authentic, exact, and precise information in the bid documents has also been included in Law 22, creating a level playing field for all interested parties.

Although there is a long way to go to reach perfect or near-perfect public procurement legislation, several of the latest changes to Law 22 should help the Government of Panama attract new private investment and contribute to the economic reactivation of the country.

Luis H Moreno IV is a lawyer at Alfaro, Ferrer & Ramirez in Panama City, Panama. He can be contacted at lhmoreno@afra.com.