Defence procurement law fundamentals

Mandatory procurement clauses

Are there mandatory procurement clauses that must be included in a defence procurement contract or that will be read into the contract regardless of their actual inclusion?

Yes, all public procurement agreements must contain the following:

  • the name or corporate name of the government contracting body;
  • the nature of the procedure by which the agreement was granted to the contractor;
  • information regarding the authorisation of the budget granted to the corresponding government body to execute the agreement;
  • information that proves the legal existence of the contractor;
  • a description of the goods, assets or lease, subject matter of the public procurement agreement;
  • a consideration price to be paid for the goods, assets or services rendered by the contractor;
  • the terms of payment;
  • guarantees to be granted by the contractor;
  • cases in which extensions may be granted;
  • grounds for termination of the agreement;
  • latent defects provisions;
  • the general terms and conditions of the applicable contractual penalties;
  • liabilities regarding the breach of intellectual property; and
  • dispute resolution procedures.

Moreover, if no dispute resolution procedure has been agreed and included in the corresponding public procurement agreement, all disputes will be resolved in the Mexican federal courts.

Cost allocation

How are costs allocated between the contractor and government within a contract?

All costs arising from or regarding the public bidding process and in connection with the execution of the public procurement agreement are to be bear by the contractor.

Disclosures

What disclosures must the contractor make regarding its cost and pricing?

The contractor must disclose the price per unit and the total price of the goods or services to be rendered. Also, if applicable, the contractor must disclose the way in which the final price is determined.

The contractor should also indicate if the price is fixed or variable. If it is variable, the contractor should indicate the formula by which an increase in the price will be calculated.

Audits

How are audits of defence and security procurements conducted in this jurisdiction?

Pursuant to the Public Procurement Law, the Ministry of Public Affairs may verify, at any moment, that all public procurement agreements have been duly executed in accordance with the applicable laws. At the local level, the applicable laws may allow certain local governmental body to conduct such audits.

Moreover, the Ministry of Public affairs may conduct visits and inspections to the government bodies that requested and executed the corresponding public procurement agreements, and may also request, from the involved officials and contractors, all related data and information.

The Ministry of Public affairs may also conduct product quality verifications.

There is no exception with regard to audits of defence and security procurements as such. The only exemption is that all defence and security procurements executed through a direct award and not via public bidding must not be reported by the corresponding government body to justify their exemption from the traditional public bidding process.

IP rights

Who gets the ownership rights to intellectual property created during performance of the contract? What licences are typically given and how?

Unless there is a specific prohibition or impediment, the ownership over all intellectual property created during performance of the contract will be granted to the contracting government body.

Economic zones

Are there economic zones or other special programmes in this jurisdiction commonly utilised by foreign defence and security contractors for financial or other procurement related benefits?

During the past federal administration, Mexico implemented a special economic zones programme. These zones are designated geographical areas in which economic, tax and other administrative advantages are to be granted to the private sector, which operates in them. They were designed as an instrument to boost economic development in underdeveloped regions. Each special economic zone has a specific niche and, therefore, only certain industrial or commercial activities can be developed in such regions, and only those activities will be subject to the advantages contemplated in the Federal Law of Special Economic Zones. If a special economic zone is declared in which defence and security related goods or assets are to be manufactured or produced, then the manufacturer or producer installed in such zone may be subject to certain economic, tax and other administrative advantages.

Notwithstanding the aforementioned, the new Federal Administration recently announced the cancelation of the special economic zones that were created during the past administration. However, the Federal Law of Special Economic Zones is still in full force and effect, and, although it is unlikely, the creation of new special economic zones in the future may not yet be discarded.

Forming legal entities

Describe the process for forming legal entities, including joint ventures, in this jurisdiction.

Legal entities, such as corporations and companies are incorporated pursuant to the provisions contained in the General Law of Business Corporations. Certain steps must be taken to incorporate a legal entity in Mexico. In general, these are the following:

  • getting the approval of the Ministry of Economy for the use of the desired corporate name;
  • after drafting the articles of incorporation (which must contain all information stated in the Business Corporation Law), such articles will be formalised before a Mexican notary public and constitute the articles of incorporation of the newly formed legal entity. These articles of incorporation must also be registered in the corresponding Public Registry of Commerce;
  • other important information must be contained in the articles of incorporation, such as the company’s attorneys-in-fact and their corporate authority, the appointment of the board of directors and managers, etc; and
  • the newly formed entity should also be registered before the Mexican Internal Revenue Service.

This process usually takes no longer than two to three weeks and its costs are relatively low.

Access to government records

Are there statutes or regulations enabling access to copies of government records? How does it work? Can one obtain versions of previous contracts?

In terms of the Federal Law of Transparency and Access to Public Government Information, all public entities must provide each year, general or specific information via ‘CompraNet’ (the official website regarding government procurements) no later than 31 January, all information regarding their annual procurement programme, with respect to the ongoing fiscal year.

Nonetheless, certain contracts (and related documentation) may be exempt from disclosure, since such information may be sensitive and thus pose a risk to national security.

Supply chain management

What are the rules regarding eligible suppliers and supply chain management and anti-counterfeit parts for defence and security procurements?

As stated in the Public Procurement Law, persons will not be eligible to execute a contract if:

  • they share a personal or business interest with their employer, such as that which may provide personal benefits or advantages;
  • they are employed or have a position or commission with the public service or legal entities that involved, without prior authorisation by the Public Service Ministry;
  • they are a supplier that the ministry or legal entity that executed the contract cancels or rescinds such contract with;
  • they are disabled by a resolution of the Public Service Ministry in terms of the Public Procurement Law;
  • the suppliers are delayed in the delivery of the goods and supplies with respect to prior executed contracts;
  • they have been declared in a bankruptcy process or any other similar process;
  • they are suppliers or legal entities who file certain propositions in the same field of a good or service in a contracting procedure that may be related;
  • they are suppliers or legal entities who pretend to participate in a contracting procedure and that are part of a holding corporation that has been or is currently involved in another contract;
  • they are suppliers or legal entities that execute contracts with respect to matters regulated by the Public Procurement Law, without express faculties to use intellectual property rights;
  • they use unduly provided privileged information;
  • they contract advice, consulting services or any other support in terms of governmental contracts; or
  • they are bidders who did not formalise the contract for unjustified causes.

With respect to supply-chain management, there are no general rules or regulations that establish how to proceed; a supply-chain agreement will be valid even if it is executed by and between the government and any other part. However, regarding anti-counterfeit parts, any contractor that commits fraud or acts in bad faith in any of the government procurement contracts will be subject to the fines and penalties established in the Public Procurement Law.