Public Procurement in Panama

Legislative framework

What is the relevant legislation regulating the award of public contracts?

The main legislation is Law 22 of 2006, which regulates public procurement (the Public Procurement Law), as amended by Law 61 of 2017. Further regulation of Law 22 of 2006 was implemented by Executive Decree 366 of 2006.

Additional legislation of relevance includes:

• Executive Decree 188 of 2009, which regulates contractor selection procedures through PanamaCompra, Panama’s electronic public procurement system;
• Law 38 of 2000, which establishes the framework for administrative proceedings;
• Law 48 of 2016, which establishes retaliatory measures for countries discriminating against the Republic of Panama;
• Law 16 of 1992, which establishes privatisation proceedings; and
• Law 1 of 2001, which regulates the acquisition of medicines, supplies and medical equipment, by the Social Security Administration.

Is there any sector-specific procurement legislation supplementing the general regime?

Panama’s Public Procurement Law governs all public contracts made by:

• the central government;
• autonomous and semi-autonomous entities;
• municipalities;
• the Social Security Fund;
• financial intermediaries; and
• public limited companies in which the state owns 51 per cent or more of shares or equity.

State-owned corporations may have their own rules for public tenders; however, the Public Procurement Law will be of supplemental application. Such is the case for state-owned Aeropuerto Internacional de Tocumen SA, a corporation managing several airports, including Panama City’s main hub.

Public utilities are regulated by a special agency that is charge of telecommunications, electricity, water and sewage, radio and television. Law 26 of 1996, as amended, regulates all licences and concessions on public utilities.

Energy generation, distribution and commercialisation is further regulated by Law 6 of 1997, as amended, through state-owned company Empresa de Transmisión Eléctrica SA.

The Panama Canal Authority has a special procurement regulation established by Accord 24 of 1999, as amended.

In which respect does the relevant legislation supplement the EU procurement directives or the GPA?

The Republic of Panama has been an observer of the World Trade Organization’s Committee on Government Procurement since 29 September 1997.

Are there proposals to change the legislation?

Law 61 of 2017 recently amended the legal framework on the Public Procurement Law. These amendments came into force on 29 March 2018.

Applicability of procurement law

Which, or what kinds of, entities have been ruled not to constitute contracting authorities?

Privatised former utility companies in which the state owns less than 51 per cent of the shares are considered private entities and therefore do not constitute contracting authorities.

Are contracts under a certain value excluded from the scope of procurement law? What are these threshold values?

Contracts worth less than US$50,000 have a special expedited process, with fewer formalities, but within the scope of the Public Procurement Law.

Contracts worth less than US$10,000 will have a special process based on quotations for the goods or services required.

Contracts by municipalities and communal boards in rural areas that are worth less than US$30,000, will be subject to a special expedited procedure, established by Executive Decree 54 of 2011.

A special process applies to contracts worth less than US$10,000. This special process is based on a comparison of quotes on the goods or services requested.

Does the legislation permit the amendment of a concluded contract without a new procurement procedure?

The Public Procurement Law allows an exceptional procurement procedure under the following circumstances:

• contracts for the acquisition or lease of goods or services, in which the state acts as a lessor or lessee, as well as the sale of goods or services of the state, in which there is no more than one bidder or no adequate substitute;
• when there is extreme urgency, which does not allow the necessary time to hold the public tender;
• swap contracts for the acquisition of movable or immovable property, with a previous appraisal;
• contracts exceeding US$300,000, which constitute simple extensions of existing contracts, provided that the price does not exceed the agreed price, there is an existing budget and there is no substantial change in the contract (including leases);
• social benefit contracts, or ones of strategic importance for national development, including projects related to the development of energy resources, water resources and the environment;
• contracts for works of art or technical works, the execution of which can only be entrusted to reputed artists or recognised professionals; and
• contracts celebrated by the National Assembly that surpass US$50,000.

The said procedure would allow the state entity to select a contractor without any tender or competition between bidders. State entities employing this process must present a Substantiated Technical Report, explaining the circumstances for the application of the exceptional procurement procedure.

Has there been any case law clarifying the application of the legislation in relation to amendments to concluded contracts?

Amendments to concluded contracts are allowed and recognised by case law as a reaffirmation of the parties’ willingness to contract. Amendments are deemed part of the main contract and part of the same contractual obligation and relationship.

To make modifications and additions to the contract based on the public interest; the following rules must be followed:

• the type of contract and its object may not be modified;
• any change in prices and costs will require the contracting parties’ agreement;
• any modifications made to the main contract will be part of it, considering the original contract and its modifications as a single contract, for all legal purposes;
• the contractor must continue the work while the administrative act is being approved; and
• unitary prices may be reviewed and modified if the cost of the alterations is more than 25 per cent of the amounts on the total or initial value of the contract, respectively.

No modifications to the contract may exceed 40 per cent of its initial value.

Modifications and amendments will continue to be subject to the review and approval of the General Comptroller of the Republic of Panama.

In which circumstances do privatisations require a procurement procedure?

Law 16 of 1992, as amended, establishes special procedures for privatisations, allowing the transformation of state entities into corporations, and the subsequent public sale of their shares. The public sale of shares must be done through processes established by the Public Procurement Law.

In which circumstances does the setting up of a public-private partnership (PPP) require a procurement procedure?

PPPs are not expressly regulated under Panamanian law. However, in practice, PPPs may be established by individual laws, of which Law 41 of 2004 is an example. Law 41 of 2004 created a special regime for the establishment and operation of the Special Panama-Pacific Economic Area and a state autonomous entity called the Panama-Pacific Special Economic Area Agency. This area has been developed jointly by a private enterprise and the Panama-Pacific Special Economic Area Agency.

Advertisement and selection

In which publications must regulated procurement contracts be advertised?

As a rule, all publications pertaining to public procurement must be done through the electronic procurement system PanamaCompra, and on specially designated boards on the contracting entities. Should PanamaCompra not be available, publications must be made on a nationally circulating newspaper in consecutive editions on different dates.

Some state contracts and law contracts, especially those concerning concessions, once subscribed and countersigned by the Comptroller General, will be published in the Official Gazette, the state newspaper.

Are there limitations on the ability of contracting authorities to set criteria or other conditions to assess whether an interested party is qualified to participate in a tender procedure?

There is no limitation on the ability of contracting authorities to set criteria or other conditions to assess bidders. However, said criteria and other conditions must be expressly stated in the tender specifications.

Is it possible to limit the number of bidders that can participate in a tender procedure?

The Council of Ministers may exceptionally order that certain projects, taking into account their cost and complexity, may require bidders to be subject to a pre-qualification process. This would limit the number of bidders participating in the final tender.

As a rule, under the Public Procurement Law, should there be a single bidder, and said bidder complies with all the requirements, the recommendation of the award may fall to them if the price offered is convenient for the state.

Some of the sector-specific procurement legislation may require a minimum of two bidders to validate the tender procedure.

There is no ‘self-cleaning’ process under Panamanian Law. A bidder excluded because of past irregularities will be able to participate once the exclusion or disqualification period expires.

How can a bidder that would have to be excluded from a tender procedure because of past irregularities regain the status of a suitable and reliable bidder? Is the concept of ‘self-cleaning’ an established and recognised way of regaining suitability and reliability?

A bidder that has been fined, excluded or disqualified may file an appeal before the Administrative Court for Public Procurement. The exclusion or disqualification is imposed for a period of time and once this period expires the bidder may once again engage in public tenders.

The procurement procedures

Does the relevant legislation specifically state or restate the fundamental principles for tender procedures: equal treatment, transparency and competition?

Public Procurement Law specifically states that the following principles shall govern public tenders: equal treatment, transparency and competition, among others previously stated.

Does the relevant legislation or the case law require the contracting authority to be independent and impartial?

Public Procurement Law specifically states that authorities must select bidders objectively and fairly. It also states that the Administrative Court for Public Procurement must be independent and impartial.

How are conflicts of interest dealt with?

All tender bids are reviewed by Verification Committees, which are comprised of professionals within the scope of the tender. Both the advisers of the committees and the members of these must be free of real or apparent conflicts of interest with respect to the bidders.

The Public Procurement Law states that public servants may not celebrate, by themselves or through interposed persons, contracts with the entity in which they work, or participate in as owners, partners or shareholders of the company or as administrators, managers, directors or legal representatives of the bidder in a public tender.

Any violation of this principle may give way to action before the General Contracting Direction, an agency in charge of overseeing all public procurement. The General Contracting Direction may order the correction of any step in the tender process that was not done in accordance with the law. The Administrative Court for Public Procurement may declare the nullity of the tender process should a conflict of interest be proven.

How is the involvement of a bidder in the preparation of a tender procedure dealt with?

Any person who is hired as a consultant to elaborate studies, feasibility projects, diagnostics, plans, designs and other actions that have a relationship with a project cannot participate in the future tender selection because of incompatibility and conflict of interest. This prohibition is absolute.

What is the prevailing type of procurement procedure used by contracting authorities?

The most widely used procedure is the public tender - a process in which the price is the determining factor, given that all the legal, financial and technical aspects required are fulfilled. This procedure will be used when the amount of the contract exceeds US$50,000.

Can related bidders submit separate bids in one procurement procedure?

Yes, companies from the same economic group may submit separate bids. However, there must be at least one other bidder that does not belong to the same economic group. If all the proposals come from the same group, the tender process will be void.

An economic group exists in the cases:

• of subsidiaries and affiliates;
• when at least 50 per cent of one company’s capital belongs to another company participating in the tender;
• when companies have integrated their boards of directors or their legal representatives are the same persons; or
• when, in any form, there is effective control of one of the companies on the others or part of them.

Is the use of procedures involving negotiations with bidders subject to any special conditions?

Procedures involving negotiations with bidders are not provided within the Public Procurement Law. There is, however, a meeting with all bidders for standardisation of the tender process, a stage in which bidders may offer different solutions.

If the legislation provides for more than one procedure that permits negotiations with bidders, which one is used more regularly in practice and why?

Procedures involving negotiations with bidders are not provided for within the Public Procurement Law.

What are the requirements for the conclusion of a framework agreement?

The General Contracting Direction will set the selection criteria for the framework agreement. The awarding of this tender may fall to one or more bidders and the contract is for a defined period. This period is usually no longer than two years, but may be extended for up to one additional year.

Once bids are presented, the General Contracting Direction will review and decide on the selected bids and new lines to a specific framework agreement, as well as receive bids from new interested parties to participate in the framework agreement. However, new lines and new bidders will enter only for the remaining period of time for which the agreement is in effect.

During the duration of the framework agreement, the favoured bidders may improve the price they have offered. Before engaging in new tenders for products or services, contracting authorities must review the Electronic Catalogue, and verify whether the products or services required by said authority are included in the Catalogue.

Framework agreements may be terminated, in respect to the supplier, if the contractor does not duly fulfil the purchase orders requested by the General Contracting Direction, or if the General Contracting Direction is able to verify that the provider contractor’s prices for the state are higher in relation to market prices.

May a framework agreement with several suppliers be concluded?

Framework agreements may include one or more suppliers. A contract for mass and daily use goods or services will be signed, and certain prices and conditions will be established. These prices and conditions will remain during a defined period.

The General Contracting Direction will include all goods and services within an Electronic Catalogue, and contracting entities will be able to freely select from the suppliers’ offerings. Suppliers may review and decrease their prices to make them more competitive.

Once a contracting authority decides to purchase any goods or services from the Electronic Catalogue, purchase orders will be issued. These orders require the endorsement of the Office of the Comptroller General of the Republic for validity. There is no additional competitive procedure required. However, prices are subject to constant review.

Under which conditions may the members of a bidding consortium be changed in the course of a procurement procedure?

The members of a bidding consortium may be freely modified up until the submission of the tender offer. Once the tender offer is submitted or the contract is adjudicated, the members of the consortium may not be modified without the consent of the contracting entity. During the execution of the contract, should one of the consortium’s members be dissolved, the contract may continue as long as the other members are able to comply.

Are there specific mechanisms to further the participation of small and medium-sized enterprises in the procurement procedure? Are there any rules on the division of a contract into lots? Are there rules or is there case law limiting the number of lots single bidders can be awarded?

Yes, the Public Procurement Law establishes that the state will promote the competitive participation of micro, small and medium-sized enterprises (SMEs) in certain procurement procedures. In the event of a tie between tender offers, the award would go to the duly accredited SME.

Dividing a contract into lots is illegal; in such a case, the award will be nullified and the public servant will be sanctioned. Division of a contract is only allowed within framework agreements and in exceptional procurement procedures for state emergencies.

There are no rules or case law affecting lots awarded to single bidders, as long as the price is fair for the state.

What are the requirements for the admissibility of variant bids?

There is no specific rule regarding variant bids. The contracting authority is free to specify its requirements within the tender specifications.

Must a contracting authority take variant bids into account?

There is no specific rule regarding variant bids. A contracting authority must take into consideration the compliance of the requirements set forth in the tender specifications, which will include the criteria and methodology for proposals qualification.

What are the consequences if bidders change the tender specifications or submit their own standard terms of business?

Bidders may not change the tender specifications, nor submit their own standard terms of business. Any substantial change in the specifications within a bidder’s offer may result in disqualification from the process.

What are the award criteria provided for in the relevant legislation?

The contracting authority must base its award criteria on the parameters included in the tender specifications. If the selection process requires criteria surpassing price assessment, the tender specifications may include all qualifications and evaluation parameters. The Public Procurement Principles will also be taken into consideration in the evaluation.

What constitutes an ‘abnormally low’ bid?

An ‘abnormally low’ bid is a proposal that offers a price or technical conditions that are considered risky or materially difficult to fulfil for the purpose of the contract.

The tender specifications may also include a maximum percentage, to price, for risk margin effect.

What is the required process for dealing with abnormally low bids?

An abnormally low bid will be disqualified. If all bids are abnormally low, the process will be void.

Review proceedings

Which authorities may rule on review applications? Is it possible to appeal against review decisions and, if so, how?

The General Contracting Direction may review applications before the tender adjudication or void declaration is in force. After the tender adjudication or void declaration is in force, the Administrative Court will review applications for public procurement.

If more than one authority may rule on a review application, do these authorities have the power to grant different remedies?

The General Contracting Direction may order the completion of omitted procedures, or the correction or suspension of illegal procedures.

The Administrative Court for Public Procurement may order:

• cautionary measures;
• mediation or conciliation;
• a confirmation of the act by the contracting authority;
• a modification of the act by the contracting authority;
• the revoking of the act by the contracting authority;
• an annulment of the act by the contracting authority; and
• a review of the administrative resolution of a contract.

How long do administrative or judicial proceedings for the review of procurement decisions generally take?

Admissions by the General Contracting Direction may take up to two business days and decisions must be rendered within five business days. If the General Contracting Direction does not render a decision within five business days, the process will be sent to the Administrative Court for Public Procurement.

Admissions by the Administrative Court for Public Procurement may take up to two business days, and decisions must be rendered within 10 business days if no evidence needs to be taken. Should evidence be taken it will be done within a term of 10 business days and an additional common term of two business days for closing arguments.

Once the Administrative Court for Public Procurement reaches a decision, action may be filed before the Third Chamber of the Supreme Court of Justice, which may take three years or more to issue a ruling.

What are the admissibility requirements?

For actions before the General Contracting Direction, the claim must be filed before the tender adjudication or void declaration is in force. Actions must relate to any act or omission that may be deemed illegal or arbitrary during the procurement procedure.

For actions before Administrative Court for Public Procurement, the claim must include a bond for 10 to 15 per cent of the total proposal amount. Actions must relate to the resolution adjudication, rejecting or declaring void the procurement procedure.

For actions before Third Chamber of the Supreme Court of Justice, the recourse before the Administrative Court for Public Procurement must be duly exhausted. The Third Chamber of the Supreme Court of Justice may declare the nullity of the process or the contract.

What are the time limits in which applications for review of a procurement decision must be made?

A claim to be heard before the General Contracting Direction must be filed before the tender adjudication or void declaration is in force.

A claim to be heard before the Administrative Court for Public Procurement must be filed within five business days after the tender adjudication or void declaration is in force.

A claim to be heard before the Third Chamber of the Supreme Court of Justice must be filed no later than two months after the Administrative Court for Public Procurement is published.

Does an application for review have an automatic suspensive effect blocking the continuation of the procurement procedure or the conclusion of the contract?

Before the General Contracting Direction and the Administrative Court for Public Procurement, the admission of the claim will have an automatic suspensive effect. No recourse is available for a contracting party to lift the suspension. The suspension is lifted once a ruling is issued.

Before the Third Chamber of the Supreme Court of Justice, the claim does not have an automatic suspension effect. There is, however, a special petition to seek a stay, although it is generally not granted.

Approximately what percentage of applications for the lifting of an automatic suspension are successful in a typical year?

No recourse is available for a contracting party to lift the automatic suspension. A writ of amparo (a challenge seeking protection against orders breaching constitutional guarantees) may be filed before the Supreme Court of Justice, however the resolution of said challenge may take up to a year, and procurement automatic suspensions rarely last longer that the terms previously stated.

Must unsuccessful bidders be notified before the contract with the successful bidder is concluded and, if so, when?

No. Unsuccessful bidders will only be notified of the final adjudication through PanamaCompra electronic public procurement system.

Is access to the procurement file granted to an applicant?

Yes, the complete tender file may be found at PanamaCompra electronic public procurement system, including tender offers and recourses filed. This applies to tenders being supervised by the General Contracting Direction under the Public Procurement Law.

Contracting authorities with their own tender rules may not publish it on PanamaCompra; however, access to the file is usually granted.

Is it customary for disadvantaged bidders to file review applications?

Yes. In 2018, up to October, 154 review applications had been filed before the Administrative Court for Public Procurement. Final information for the year 2018 has not been made available yet. In 2018, 843 review applications were filed before the General Contracting Direction.

If a violation of procurement law is established in review proceedings, can disadvantaged bidders claim damages?

Public procurement law established that persons or companies that use falsehoods or fraud in the tender process are liable for damages caused. Such claims would be filed within civil or criminal jurisdictions. Winning bidders are legally responsible for having concealed, when contracting, any exclusions, disqualification, incompatibilities or prohibitions or for having supplied false information.

May a concluded contract be cancelled or terminated following a review application of an unsuccessful bidder if the procurement procedure that led to its conclusion violated procurement law?

Yes, a concluded contract may be challenged by action before the Third Chamber of the Supreme Court. However, this remedy is rarely granted and review usually takes two years or more.

Contracts not concluded are subject to review application before the Administrative Court for Public Procurement. In 2018, out of 154 review applications filed, 107 had been resolved by October. Information has not been made available with regard to acts revoked, declared null, confirmed, rejected or declared non-viable.

Is legal protection available to parties interested in the contract in case of an award without any procurement procedure?

No, only parties that file a tender offer within the procurement process legally constituting themselves as bidders have legal protection and access to remedies.

What are the typical costs of making an application for the review of a procurement decision?

For review application before the General Contracting Direction, the average legal fees for the proceedings are US$3,000.

For review application before the Administrative Court for Public Procurement, average legal fees are US$5,000, and the plaintiff must file a bond for 10 to 15 per cent of the total proposal amount.

For review application before Third Chamber of the Supreme Court of Justice, average legal fees for the proceedings are US$30,000.

Update and trends

Are there any emerging trends or hot topics in public procurement regulation in your country? In particular, has the scope of applicability of public procurement law been broadened into areas not covered before (eg, sale of land) or on the contrary been restricted?

The amendments to Law 22 of 2006, which regulates public procurement, introduced by Law 61 of 2017, came into force on 29 March 2018. Local Communal Boards have been included in the scope of applicability of the Public Procurement Law. These local boards are in charge of local community projects and were previously subject only to the usage of PanamaCompra. Through Law 37 of 2009, which regulates government decentralisation, Local Communal Boards have an assigned budget stemming from property tax contributions in the local communities, which provides a more ample margin for investment in community projects.