The Public Bidding Process in Guatemala

On the one hand, the Guatemalan Government faces political pressure to solve immediate problems such a as the lack of electricity in many areas. Not having the technical and financial resources, the only option is to call upon the private sector for it to serve as a contractor or concessionaire of the Government, in order to offer the needed services.

On the other hand, we see what a great incentive it is to become a Government concessionaire. The privileged company will automatically operate without having to pay attention to competitors' pressure.

In other words, the economic interests at stake are out of reach for modest entrepreneurs, when the installation of an electricity generation plant is set up for public auction, or when a long term generation contract or a mobile cellular telecommunications band is to be obtained.

Recent history in Guatemala has shown that the legal regime concerning concession matters has been modified or reinvented three times in the last 15 years. This tells us that at least one sector of the population, politicians, and among these, especially those in power, recognize the importance of having a contracting regime adequate to their Government goals.

The contracting regime responds to the following questions: Which is the right procedure to set the sale price? Who can participate in public auctions? Can the Government suddenly end a bidding? Can the Government grant concessions without privileges? Who evaluates the offers? Can the final decision be made by an independent Certified Public Accounting Company?

Without any doubt, transparency in the bidding process is of such importance that it should be unquestionable. It should also be clear that multinational corporations that invest thousands and thousands of dollars preparing their offers, must be serious, and far from risking their prestige and commercial image by using dishonest maneuvers, they only see in this or that bidding process a great potential of income yield capacity. An example: each company interested in bidding for a recent auction of cellular phone services had to pay US$10,000 just to obtain the rules for participation!

The present Public Auction Law is problematic, not only because it enables the Government of Guatemala and autonomous institutions to withdraw from the process when it is almost over, without carrying any responsibilities, but most importantly because it doesn't authorize that public bidding be carried out and established by independent firms.

There are also a series of complicated requirements to place an offer. Article #9 of the Law of Contracts establishes that the highest authority on public auctions is the Board of Directors of the institution by themselves. And article #10, by establishing that the Concessions Board (elected by the Board of Directors itself) is the only competent organ to receive, qualify offers and make concessions, practically eliminates any chance to contract, for example a wellknown auditing firm that could do a good job.

The Contracting Law is creating an environment conducive to corruption, by enabling the same institution to monopolize control and management of the public auctioning process. A system which provides the right incentives for transparent processes, that minimizes discretionality and subjectivity, needs to be established.