News and Insights
- May 15, 2017
- by José Carlos Bernal Rivera
As reported in the excellent piece by Alejandro López Ortiz and Gustavo Fernandes in “A Year of Legal Developments for International Arbitration in Latin America”, Bolivia may have taken a step back in State arbitration with the passing of its new act on arbitration in 2015. The article remarks the limitations to arbitrability introduced by the new act, and the investment arbitration chapter of the act, which intends to provide a domestic arbitration framework for both national and foreign investors in Bolivia. The goals of these and other provisions of the new act are to keep arbitration proceedings (even investment arbitrations involving foreign investors) inside the country and subject to Bolivian law and its authorities.
So, how far does the new Bolivian arbitration act go in its intent to keep State arbitration inside the country? Aside from whether this mechanism will attract foreign investments, it is interesting to analyze the Bolivian proposal. Why is the government so disenchanted with international arbitration? How is the act’s investment arbitration chapter supposed to work? Are these limits to international arbitration a brand new feature of this act, or just a reflex of the policies implemented by the government since 2006? This brief article will try to dig deeper in the current situation of Bolivia, and the great lengths it is willing to go in order to avoid any more international arbitration cases involving the State or State entities in the future.
International arbitration boom in the last decade in Bolivia
In the last decade, a large amount of arbitration claims were filed against Bolivia as a result of investment disputes between foreign nationals and the State. The nationalizations carried out by the government of Mr. Evo Morales since he was elected to the Bolivian presidency in 2006, have, predictably, brought a large array of foreign investors to the negotiation table for reaching settlements with the government, and in several cases to arbitration instances. Bolivia promptly proceeded to withdraw from ICSID in 2007, becoming the first country in history to take this step.
Euro Telecom International reached a settlement agreement with Bolivia for approximately US$ 100 million for the nationalization of the telecom company ENTEL. Ashmore Energy International and Shell reached another settlement agreement with Bolivia in 2009 for US$ 241 million for the nationalization of pipeline infrastructure, and Pan American Energy settled with Bolivia for US$ 498 million in 2014 for the nationalization of the oil company “Chaco.”
Other companies were not able to reach settlements and opted for arbitration. Chilean company Quiborax was awarded US$ 48.6 million by an ICSID tribunal. Red Eléctrica of Spain was awarded US$ 65 million for the nationalization of its shares in the Bolivian company “TDE”. The Canadian company South American Silver is seeking US$ 385 million for the nationalization of the “Mallku Khota” mine in Bolivia, and Glencore has recently filed, in August 2016, a new arbitration claim against Bolivia for the nationalization of “Vinto” and “Colquiri” mines, for which the parties were initially negotiating a settlement agreement, which was unsuccessful. There are several other cases, but these are enough to illustrate the point.
It is not possible to say that Bolivia´s disenchantment with investment arbitration in international fora is based solely on the results of these cases. Bolivia’s policy rather fits well with the general discourse of the government regarding the recovery of natural resources from transnational companies. In 2009, the Bolivian Constitution was completely modified in order to implement the new policies of the government. One of the most remarkable changes was that of article 366, which states that all foreign companies operating within the oil and gas industry in Bolivia are bound to Bolivian sovereignty and authorities, and that “[n]o foreign jurisdiction or international arbitration will be accepted in any case […].” This is the first and only mention of the word “arbitration” in the Bolivian Constitution.
Against this background, the policies of the 2015 arbitration act are definitely not new. The ICSID withdrawal, the 2009 Constitution and, the repeal of key pieces of legislation (such as the repeal of the investment law which was in place since the nineties) were revealing factors regarding the shift in the investment policies of the government, and they all took place several years before the enactment of the new arbitration law of 2015. It is likely that the high amounts paid by the Bolivian government for the nationalizations were a contributing factor for the step back of Bolivia in State arbitration, although some people claim that the amounts paid actually reflect good results, if they compare to the amounts sought by the investors in the first place.
The “investment arbitration” chapter of the Bolivian act
This second part of the article analyzes the content of the new act in regards to investment arbitration in Bolivia and subject to Bolivian law. How would an investment arbitration case involving a foreign company be conducted in Bolivia?
One of the most important realizations about this chapter of the Bolivian act is that it might not be applicable to many of the foreign companies doing business in the country. Here is why. There are several restrictions to the participation of foreigners in some industries of the Bolivian economy (all in accordance to the general discourse of the current government, as explained in the first part of this article). The “strategic” sectors of the economy, which include some of the largest industries in Bolivia, such as oil, gas, mining and electricity, are reserved only for State-owned entities. Any participation of foreign companies in these industries can only be made in close connection with State-owned companies. This means that State-owned companies would either need to hire foreign companies to provide services (in which case the foreign companies would probably not be doing investments per se), or they would need to associate with the foreign companies in a sort of joint venture enterprise or “PPP.” The second scenario is less common in practice than the first.
It seems like the investment chapter of the Bolivian law has in mind the rather uncommon scenario of mixed enterprises in which both State and the foreign company associate. This chapter of the law envisages two scenarios: one dedicated to Bolivian investment and, one dedicated to mixed investment and foreign investment. The terms “Bolivian investment”, “mixed investment” and “foreign investment” are not defined in the arbitration act, but their exact definition can be gathered from the Investment Promotion Act of April, 2014.
If a foreign company and a Bolivian State-owned company associate to work in a strategic sector of the Bolivian economy, this would probably be considered a mixed investment (it cannot be a “foreign investment”, because of the restrictions applicable to strategic sectors of the economy). In such a case, internal disputes between the two partners might be considered investment disputes, which the parties could potentially submit to the investment arbitration procedure established under the new act. What would such an investment arbitration case look like?
The investment arbitration chapter of the new Bolivian act establishes several mandatory provisions that will be applied to investment cases, thus limiting the right of the parties to freely determine the characteristics of the procedure in their arbitration agreement. The law mandates that, before submitting to arbitration, the parties must first engage into a conciliation process. The lex arbitri will be Bolivia’s, and the arbitration would be deemed local, not international (though the audiences can take place abroad). The arbitral tribunal must necessarily be composed of three arbitrators, and the arbitration cannot be ex aequo et bono, it must be decided under Bolivian law.
By far, the most relevant restriction in the investment arbitration chapter is that of the lex arbitri. The act mandates that the procedural laws applicable to investment arbitration cases be Bolivian law, which means that any annulment claim sought against an arbitral award issued in an investment case against Bolivia, would be reviewed by Bolivian courts. This is, as you can imagine, far from ideal for a foreign company. If the seat of the arbitration is that of the country against which the company has filed the claim, then many of the most attractive features of the institution of arbitration as an ADR mechanism are diminished.
There seems to be several reasons that have pushed Bolivia to withdraw from ICSID and try to establish a local alternative structure for investment arbitration cases. It is also clear, however, that the “local option” in the new arbitration law does not really offer a completely neutral forum for investors, and this might be a potent deterrent for investment. Bolivia must consider the possibility that, by trying to keep investment arbitration cases inside the country, it might be keeping foreign investment outside of it altogether.
- Mar 13, 2017
- by José Carlos Bernal Rivera
Bolivia’s new policies regarding foreign investment and arbitration have not gone unnoticed by ITN in the past. The laws on investment promotion and on arbitration are two of the most notorious pieces of legislation resulting from the process of change initiated by the Bolivian government under President Evo Morales since 2006. These two laws, along with the law on state-owned companies, have been labelled by the Attorney General of Bolivia as the “New Investment Laws” of Bolivia, and reflect Bolivia’s public policy regarding investment protection and the participation of the private sector in the economy.
However, it is still hard to provide a clear and certain answer to one of the most important questions that these laws were meant to resolve: can Bolivian state-owned companies submit to international arbitration? Different answers can be drawn depending on the type of state-owned company, the transaction at hand and the specific industry. For this, we must make a careful reading of the three New Investment Laws altogether. However, even combining the three laws, the drafting of the norms on this topic is unclear and may be subject to different interpretations. This note tries to describe the current scenario in Bolivia.
1. Why are state-owned companies so important for Bolivian investment policy?
The structure of the Bolivian economy has undergone many changes under the Morales presidency. Before 2006, the key companies and public services in Bolivia were “mixed corporations,” with capital from both the state and foreign private companies, as a result of the privatization and capitalization measures implemented in the 1990s (Law 1554 of 1994). Since 2006, the government has implemented a policy to recapture natural resources, which led to a series of nationalizations and expropriations, and to the rise of many state-owned companies.
The state’s new role in the Bolivian economy is the reason why state-owned companies are now so important for investment policy. They have become protagonists in the most important industries of the Bolivian economy. As part of this new policy, the Bolivian Constitution was reformed in 2009, and the recapture of natural resources was one of the most important changes in the new Constitution. Article 309 of the Constitution provides that managing the property rights over natural resources and controlling the production and industrialization of such resources is one of the objectives of state-owned companies. The Constitution only mentions the word “arbitration” once, and it does so to provide that foreign companies performing activities in the oil and gas sector may not submit to international arbitration (Art. 366).
Under the Constitution, the state’s role in the economy is “to direct and control the strategic sectors of the economy” (Art. 316), such as oil and gas, mining, electricity and others. The result of this policy change is that strategic industries of the Bolivian economy are inaccessible to foreign investors, unless the investment is channelled through or made in collaboration with state-owned companies.
In addition, many smaller state-owned companies have entered non-strategic sectors of the economy and compete in them with the private sector. Among these companies are Papelbol (paper), Cartonbol (carton), Lacteosbol (milk products) and BOA (airline). It is reported that currently 63 state-owned companies, with varying degrees of state intervention, operate in Bolivia.
2. What do the New Investment Laws provide for state-owned companies?
Considering that foreign investment in Bolivia is intrinsically connected to the operation of state-owned companies, the importance of the question in this note is more evident. What norms are applicable to state-owned companies? In particular, can state-owned companies submit to arbitration with private companies investing in Bolivia? A close reading of the Arbitration Law (Law 708), the Law on State-Owned Companies (Law 466), and the Investment Promotion Law (Law 516) provides us with some clues, but not with definitive answers.
a. Laws on State-Owned Companies and on Investment Promotion
These two laws deal with arbitration only indirectly. The Law on State-Owned Companies—which predates the Arbitration Law—simply provides that disputes among the partners within state-owned companies (namely, between private companies and the state) will be subjected to specific norms to be established in the new arbitration law to be created.
However, it also develops important concepts. It distinguishes three kinds of state-owned companies: i) State Companies have 100 per cent of state capital; Mixed State Companies have more than 70 per cent of state capital; and iii) Mixed Companies have more than 50 per cent of state capital (Law 466, Art. 6).
The Investment Promotion Law takes a similar approach regarding dispute resolution. It mandates the publication of a new arbitration law, which “shall include specific regulations for dispute resolution regarding investments” (Law 516, Transitory Art 3.I) and must be framed in the “principles of equity, truthfulness, good faith, confidentiality, impartiality, neutrality, legality, celerity, economy and mutual acceptability” (Law 516, Transitory Art. 3.II). In line with this mandate, the arbitration law enacted later includes a separate section addressing investment dispute resolution and expanding the principles of law applicable to that specific section.
In another important feature, the Investment Promotion Law reinforces the provisions of the Constitution by providing that only subject to the rights granted by the state may private investors develop economic activities in strategic sectors (Law 516, Art. 6). It also defines the differences between Bolivian, Mixed and Foreign Investments. These terms are also used in the Arbitration Law enacted later.
b. Law on Arbitration
To arrive at the core part of the question, it is necessary to take a closer look at Law 708 on Conciliation and Arbitration.
The point of departure is the list of non-arbitrable matters (that is, matters expressly excluded by law from being subject to conciliation and arbitration). Among these, the law expressly excludes “property over natural resources,” “administrative contracts, with the exceptions set forth in the Law,” and “matters affecting the public order” (Law 708, Art. 4).
Therefore, administrative contracts cannot be subject to arbitration, with some unclear exceptions not expressly mentioned. State Companies may enter into administrative contracts, but also into commercial agreements, which, under this article, should not be reached by this restriction. Also, the ambiguity of the term “public order” provides ample room for discussion. Would any right of a state-owned company be considered non-arbitrable, as it affects public interests and thus would be considered “a matter affecting public order” within the meaning of the law?
What are the exceptions not expressly mentioned? The law seems to provide two possible answers. First, it provides that state entities and state-owned companies may initiate arbitration regarding disputes arising only from agreements entered into with foreign companies not domiciled in Bolivia (Law 708, Art. 6). Second, state-owned companies may include arbitration clauses in their administrative contracts, “while” (“en tanto” in Spanish) these companies migrate to the legal regime set forth on Law 466 on state-owned companies (Law 708, Transitory Art. 4).
Regarding these two points, it is important to note that Article 6 might be contrary to the constitutional provision that prohibits according foreign enterprises conditions more favourable than those accorded to Bolivian companies (Constitution, Art. 320). Why is it possible for foreign companies to submit to arbitration, while this option is not available for Bolivian companies? On the other hand, Transitory Article 4 also creates interpretation problems regarding the word “while” (“en tanto” in Spanish), because it is unclear whether arbitration is available to the companies that have already migrated to Law 466 or whether it is only available to companies that have not yet migrated to the new regime.
Finally, the Arbitration Law establishes a whole new section on “disputes with the state regarding investments” (Law 708, Title IV, Chapter II). In this section, the law relies heavily on the definitions of the other New Investment Laws, by establishing different rules for Bolivian Investments, on the one hand, and for Mixed and Foreign Investments, on the other. However, in both cases, the law provides that arbitration shall be domestic and have its seat in Bolivian territory, and that Bolivian law shall be the procedural law applicable to the arbitration (lex arbitri), thus barring the possibility of subjecting investment disputes to international arbitration facilities.
It is logical to assume that these provisions on investment are applicable to all kinds of investment made in Bolivia, including foreign direct investment. However, as a result of the constitutional provisions explained above and of the heavy presence of the state in so many industries in the Bolivian economy, it is likely that these provisions would have special importance for investments channelled through Mixed Companies or Mixed State Companies.
It is not easy to draw hard conclusions on inconclusive norms. I believe that the best way to summarize this note is from the perspective of the foreign investor. If the foreign investor participates in a strategic sector of the Bolivian economy (for example, oil and gas), international arbitration with the state seems to be completely barred by constitutional provisions. Contracts between foreign investors and state-owned companies regarding other industries may be submitted to arbitration, but only if the agreements are not administrative in essence, or provided that the barrier of “non-arbitrable” matters can be successfully avoided by applying one of the exceptions of the arbitration law. On the other hand, if a foreign investment takes place through a state-owned company, disputes between the investor and the state as partners of the company may be submitted to arbitration, but following the specific norms applicable to the different types of investments and of state-owned companies, in which case international arbitration is out of the question. Clear and conclusive jurisprudence will be very important to shed more light on these intricate rules.
- Aug 09, 2017
- by Jorge Inchauste | Alejandra Guevara
1. What is the relevant legislation regulating the award of public contracts?
The main regulation applicable to the award of public contracts is Supreme Decree 0181, 28 June 2009 (Supreme Decree 181). Although this regulation is only a supreme decree and, as a consequence, hierarchically inferior to a law, given the current legislative strategy of the Bolivian administration, it was the fastest and most efficient way in which to standardise public procurement procedures.
Given the many limitations included in Supreme Decree 181 (such as, the limitation of awards of public procurement contracts to foreign companies and the limitations to the negotiation of certain types of contracts), the Bolivian government issued a series of other regulatory supreme decrees whereby certain ambiguities were corrected. An example of one of these regulations is Supreme Decree 26688, modified by Supreme Decree 2030, which provides that public entities will be able to award public contracts to foreign companies when such awards are justified through legal and technical reports, and as long as such goods and services are not available in the domestic market and offers cannot be received in the country. Before Supreme Decrees 26688 and 2030, foreign companies wishing to take part in public procurements had to be incorporated in Bolivia.
In addition to Supreme Decree 181, the government created a series of productive public entities (PPEs) in economic areas into which the current administration was planning to venture, such as the export of almonds and almond-based products, the sale of paper and carton-based products, and the creation of a state bottling company. These PPEs are regulated and supervised by an entity called the Service for the Development of Productive Public Companies (SEDEM). The crea- tion of PPEs and SEDEM, in turn, gave the government an opportunity to expand the application of Supreme Decree 181 and take foreign negotiation and contractual principles into consideration during public procurement procedures.
2. Is there any sector-specific procurement legislation supplementing the general regime?
Several sectors have been classified as ‘strategic development enter- prises’. Such enterprises include the national oil and gas company; the national electricity company; the Bolivian mining corporation; and the national telephone company. Such strategic development enterprises have their own sector-specific procurement regulations. Regulations that, following the general principles of the general procurement norms (Supreme Decree 181), may have different requirements and exceptions.
In addition, as stated above, the government created a series of PPEs, which are currently dedicated to the following areas: milk, carton- based products, sugar, almonds and almond-based products, cement, bottles and any other public entity that the government believes that would be beneficial for the state. Each of these companies is supervised and ‘developed’ by SEDEM. In order to differentiate public procurement procedures applicable to every other public entity from PPEs, the government issued a special regulation for SEDEM and Supreme Decree 2030, which allows PPEs to contract foreign companies for the provision of goods and services, as long as such goods and services can- not be procured within Bolivia and are beneficial for the state.
3. In which respect does the relevant legislation supplement the EU procurement directives or the GPA?
Bolivia is not a part of the EU procurement directives or the GPA. In this regard, it is worth mentioning that Supreme Decree 181 provides principles that are manifestly the opposite to the governing principles of the GPA, mainly the difference in treatment between national and foreign companies, and the fact that dispute settlement may only be carried out pursuant to Bolivian law and generally before Bolivian tribunals.
4. Are there proposals to change the legislation?
No, there are no proposals to adapt the current legislation to comply with EU law requirements.
Applicability of procurement law
5. Which, or what kinds of, entities have been ruled not to constitute contracting authorities?
Law 466, also called the Law of Public Companies. This law provides the conditions under which public or mixed (a combination of both state and privately controlled) entities or companies, may be called ‘public entities’.
Article 1 of Law 466 specifies that according to article 248 of the Bolivian Constitution, the executive power in Bolivia has the faculty to create and incorporate public entities and companies. In this regard, any state-owned enterprise, mixed enterprise, joint ventures and intergovernmental state enterprises, or any other legal entity in which the Bolivia state takes part and carries out its activities within a state-private level, is considered a public entity under Law 466’s spectrum.
As a consequence, any company or entity not controlled or that does not have the participation of the Bolivian State is not considered a public entity and as such, may not fall within the standards applicable to contracting entities included in Supreme Decree 181, described above, for public procurement procedures.
6. Are contracts under a certain value excluded from the scope of procurement law? What are these threshold values?
As long as the procurement is carried out by a public entity, no contract and no value is excluded from public procurement conditions.
The threshold values are divided as follows:
- minor procurement: 1-20,000 bolivianos;
- national support for production and employment: 20,001-1 million bolivianos;
- public bidding: from 1,000.001 bolivianos;
- contracting by exception: unlimited amount;
- emergency contracting: unlimited amount; and
- direct contracting of goods and services: unlimited amount.
7. Does the legislation permit the amendment of a concluded contract without a new procurement procedure?
Supreme Decree 181 allows for the modification of concluded contracts without the need of a new procurement process as long as the following conditions are met:
- the modifications are supported by technical and legal reports and contained in a modification contract;
- the modifications must not exceed 10 per cent of the principal amount; and
- there may be a máximum of two modifications, provided they do not exceed the term of the main contract.
In case of construction contracts (EPCs), modifications may be carried out through change orders, and again, such orders may only be applica- ble when the required change involves a modification of the price of the contract or its term, without giving rise to the increase of unit prices or the creation of new items.
Change orders must be approved by the entity responsible for monitoring the work and may not exceed 5 per cent of the principal con- tract’s amount.
8. Has there been any case law clarifying the application of the legislation in relation to amendments to concluded contracts?
There have been many cases regarding modification contracts. However, no case law amends the regulation applicable to concluded contracts or discusses modifying contracts in depth.
9. In which circumstances do privatisations require a procurement procedure?
Since the current administration reached office in 2009, no privatisation procedure has been concluded. The applicable regulation to the subject at the moment only focuses on expropriation and nationalisation of private entities.
10. In which circumstances does the setting up of a public-private partnership (PPP) require a procurement procedure?
At the moment, there are no PPP regulations applicable in Bolivia. This situation has mainly been caused by the current administration, which relies on public works. Projects such as massive hydroelectric and gas production companies are funded by public finances as well as loans from international organisations such as the Inter American Bank, the China Investment Bank and others.
However, based on current economic markers, there is a remote possibility that Bolivia will use the experience of neighbouring coun- tries, such as Ecuador and Peru (which created a public entity specifically in charge of PPPs), and start looking into the possibility of creating regulation for PPPs, which would then be applicable to future projects such as the transatlantic railroad, which will need the participation of foreign financial entities as well as foreign governments. If this is the case, then based on applicable international case law and practice, it is very likely that public procurement procedures will be enforced for PPPs.
Advertisement and selection
11. In which publications must regulated procurement contracts be advertised?
Procurement contracts must be advertised in the official state website called the system for public contracting (SICOES).
12. 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?
Supreme Decree 181 does provide for certain specific criteria when contracting for tender procedures. Based on a publication by the Ministry of Finances on 29 June 2006, the day on which Supreme Decree 181 was issued, this regulation provides convenient criteria for contracting, but also incorporates mechanisms of social control. Among the modifications, article 14 provides that the reference price will be public, and included into the Basic Document of Contracting (DBC). This will avoid the discretionary use of information and, therefore, of corruption.
Supreme Decree 181 provides criteria and parameters that limit certain contracting procedures. Another example of these types of limita¬tions is article 30, which provides that certain conditions will be given an additional margin when grading. In this regard, companies with participation of Bolivian partners holding more than 51 per cent of the com- pany, get a 5 per cent margin increase when competing against other international companies.
In conclusion, Supreme Decree 181 does provide for a series of limitations when organising public tender procedures and most of such limitations are based on the preference of contracting Bolivian nationals over international competitors.
13. Is it possible to limit the number of bidders that can participate in a tender procedure?
Article 59 of Supreme Decree 181 states that an indeterminate number of bidders may take part in a tender procedure. Generally when there are less than three bidders the tender may be declared deserted and a new tender should be convened, with bidders that took part in the first tender invited to bid again.
14. 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?
Article 43 of Supreme Decree 181 provides for problematic conditions in tender procedures. In this regard, this article divides such conditions into two categories, those which cannot be regulated and those which, after a certain amount of time has elapsed, may be regulated.
The first category includes the following situations: having unresolved debts with the state; executed sentences prohibiting the bidder to exercise trade activities; executed criminal sentences regarding crimes included in Law No. 1743 of January 1997, which approves and ratifies the Inter-American Convention against Corruption or its equivalent crimes provided in the Bolivian Criminal Code; bidders who are associated with consultants who advised in the elaboration of the content of the DBC; bidders declared as bankrupt; bidders whose legal representatives or whose shareholders or controlling partners have a marriage or kinship relationship with the maximum authority in charge of the tender, up to the third degree of consanguinity and second degree of affinity, in accordance with the provisions of the Bolivian Family Code.
The category that allows for the regulation of impediments includes the following situations:
- former public servants who performed functions in the convening entity, until one year before the publication of the tender, as well as the companies controlled by them;
- public servants who currently exercise functions in the convening entity, as well as the companies controlled by them;
- bidders who, after having been adjudicated, have withdrawn from executing the contract, may not participate until one year after the date of withdrawal, except for reasons of force majeure or fortuitous events, duly justified and accepted by the entity; and
- suppliers, contractors and consultants with whom contracts have been terminated due to causes attributable to them, causing damage to the state, may not participate until three years after the date of the termination, according to information registered by the corresponding entity in SICOES.
The procurement procedures
15. Does the relevant legislation specifically state or restate the fundamental principles for tender procedures: equal treatment, transparency and competition?
The relevant legislation specifically states the fundamental principles for tender procedures, providing such principles from the public officer’s perspective.
16. Does the relevant legislation or the case law require the contracting authority to be independent and impartial?
Supreme Decree 181, which includes every type of public procurement, does provide that public officers in charge of public procurement procedures must be impartial in their decisions. The principle of independence for contracting authorities is not mentioned.
17. How are conflicts of interest dealt with?
Conflicts of interest are taken seriously within public procurement procedures. This principle is included in article 236 of the Bolivian Constitution, providing that public officials are prohibited from acting when their private interests conflict with those of the entity where they provide their services, and enter into contracts or conduct businesses with the public administration directly, indirectly or on behalf of a third person; and are prohibited from appointing individuáis in public positions with whom they are related up until the fourth degree of consanguinity and second of affinity.
This principle is, in turn, repeated in Supreme Decree 181, which provides that officers in charge of reviewing the bidding participants’ documents, may not delegate their responsibility ‘except in cases of conflict of interest’; and article 44, which specifically deals with conflicts of interest by providing that individuals or companies, whether associated or not, advising a public entity in a procurement process, may not participate in such process, under any reason or circumstance; and that individuals or companies, or their corresponding subsidiaries, contracted by the convening entity to provide goods, perform works or provide general services, may provide consulting services in respect thereof.
18. How is the involvement of a bidder in the preparation of a tender procedure dealt with?
In accordance with article 44, any consultant participating during the drafting of the bidding may not take part in such process, under any circumstances. As a consequence, the prohibition is absolute.
19. What is the prevailing type of procurement procedure used by contracting authorities?
The prevailing type of procurement procedure depends on the goods being bought or the service needed.
For example, and given the many restrictions for foreign bidders to take part in national bidding procedures, practice has shown that many specialised services or technological goods are often contracted by means of the direct contracting of goods and services process, which bypasses the bidding phase completely. The reason for this is because there is no minimum or maximum amounts to these types of contracting procedures and offices such as SEDEM, as well as strategic development sectors (mining, hydrocarbons, energy, telecom) developed their own regulations, whereby they may be allowed to turn to foreign bidders whenever the specific services or goods that are needed cannot be found in Bolivia.
20. Can related bidders submit separate bids in one procurement procedure?
There is no provision regarding an applicable procedure whenever related bidders submit bids during procurement processes. As a consequence, and given that it is not prohibited, the requirements and conditions applicable are the same as with any other bidder.
21. Is the use of procedures involving negotiations with bidders subject to any special conditions?
Supreme Decree 27328 of September 2015, provides for two types of situations when bidders may negotiate bidding terms with public officials:
- Small bidding procedures (equal to or less than 160,000 bolivianos), in which case, public officers may use negotiation tables and inverse fairs, which consist of fairs organised by public entities and governmental authorities in order to offer their different programmes to possible bidders. In order to be applicable, these types of negotiations may only be for amounts that are less than 160,000 bolivianos and may be granted through direct contracting procedures or comparison of prices procedures.
- Calls for bids based on expressions of interest, which consist of bidding procedures for consulting firms and may only be applicable to amounts equal or more than 800,000 bolivianos. The only additional condition is included in article 105 of Supreme Decree 27328, which provides that under no conditions may the negotiations carried out between the bidders and the entity calling the bid, modify the contract.
22. If the legislation provides for more than one procedure that permits negotiations with bidders, which one is used more regularly in practice and why?
Given the difference in prices, each negotiation is applicable to different situations and as such, they cannot be equally compared. However, and given recent advertising, we could conclude that the negotiation most regularly used in recent practice is the one carried out by means of negotiation tables and inverse fairs.
23. What are the requirements for the conclusion of a framework agreement?
A framework agreement is called a basic document for contracting (DBC) in Bolivia.
Supreme Decree 181 provides one draft DBC that may be adapted by the corresponding entity calling for bids, in accordance with the conditions issued by the maximum executive authority (MAE), and it must include the necessary technical conditions, evaluation methodology, procedures and conditions for the hiring process under which the public procurement procedure shall be based.
Given its importance for public procurement procedures, and with the intent of equalising and making such procedures more transparent, the current administration included a draft DBC to be included in every public procurement above 20,000 bolivianos. Any modification to this draft must be first informed and approved by the applicable MAE. In consequence, the strength of this document surpasses that of a mere contract, given that its terms are provided by a national regulation, and are very difficult to modify, if at all.
As was previously mentioned, and depending on each procurement process, some aspects of the contract contained in the DBC may be modified by the contracting entity and the adjudicated bidder, as long as such modifications do not exceed 10 per cent of the main contract’s price and units.
24. May a framework agreement with several suppliers be concluded?
Article 24 of Supreme Decree 181 provides that in cases of technical or economic advantage procurement processes, the contracting of goods and services may be adjudicated by items, lots, tranches or packages, through one single call and framework agreement.
In order to be applicable, the DBC must list and refer to each item, lot, tranche or package, individually.
Only in cases when one of the items, lots, tranches or packages is not awarded is an additional competitive procedure necessary.
25. Under which conditions may the members of a bidding consortium be changed in the course of a procurement procedure?
There are no specific provisions regarding changes in consortiums dur- ing the course of a procurement process. However, and given the pro- visions of Supreme Decree 181 with regard to the various forms that need to be filled by consortiums in order to take part in procurement procedures, we believe that such a change would lead to the rejection of such consortium.
26. 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?
The specific mechanism included to increase the participation of small and medium-sized enterprises in procurement processes is provided by article 31 of Supreme Decree 181, which provides that in the procurement of goods and services under the modalities of public biddings and national support for production and employment (ANPE), a margin of preference of 20 per cent shall be granted to the price offered for micro and small companies, associations of small urban and rural producers and farmers.
Regarding the division of contracts into lots, as it was previously pointed out, DBCs may be divided into items, lots, tranches or packages, in cases when construction of services require so. There is no limit to the proponents who may bid, since each condition would be provided by the corresponding DBC.
With regards to the award of certain items or lots to single bidders, article 24 provides that when a bidder submits his or her proposal for more than one item, lot, tranche or package, he or she must only submit one set of legal and administrative documentation; and one technical and economic proposal for each item, lot, tranche or package. As a consequence, there are no limits to the lots a single bidder may be awarded.
27. What are the requirements for the admissibility of variant bids?
Typically variant bids are not acceptable, and the bidder must present only one bid. The only case in which variant bids may be presented is where there are different items or lots being bid simultaneously, in which case bidders may be allowed to provide as many as they can, provided the DBC allows for various lots and items within the procurement process.
In this regard, bidders must adjust their proposals to the DBCs published by the bidding authority at SICOES.
28. Must a contracting authority take variant bids into account?
During the presentation stage of procurement procedures, article 27 of Supreme Decree 181 provides that public officials may declare a bid as void: if no proposal had been received; if all economic proposals exceed the reference price; or if no proposal complies with what was specified in the DBC, among others.
As a consequence, we can conclude that if a variant bid is filed that does not comply with the DBC, then such bid will be declared void.
29. What are the consequences if bidders change the tender specifications or submit their own standard terms of business?
The applicable regulation provides that whenever bids do not comply with the conditions of DBCs, where the tender specifications and technical standards are included, the procurement process must be declared void.
30. What are the award criteria provided for in the relevant legislation?
Article 23 of Supreme Decree 181 provides that the following methods of selection and adjudication will be considered for procurement procedures of goods and services: quality, technical proposal and cost; fixed budget; lower cost; and lowest evaluated price, according to what is established in each DBC.
Each of these adjudication conditions are in turn supported by preference margins, which range from products and services created and provided in Bolivia, to a preference margin for companies where less than 49 per cent is owned by foreign companies or individuals.
31. What constitutes an ‘abnormally low’ bid?
There is no definition of what constitutes an ‘abnormally low’ bid. However, looking into published DBCs, abnormally low bids do not have a specific amount but do include a verification procedure, which includes a comparison between the estimated price that was included in the framework agreement, and the price list provided by the bidder, in order to confirm the consistency with the methods and proposed calendars.
32. What is the required process for dealing with abnormally low bids?
As in question 31, bids containing abnormally low prices must be compared with the original price proposed by the framework agreement. If the price of the offer proves to be abnormally low, the offer may be rejected for lack of consistency. If adjudicated, and having evaluated the price, taking into consideration the terms of payment envis- aged, the public entity may request that the amount of the complianceguarantee is increased by the bidder to a sufficient level in order to protect the state from any loss in case of non-compliance with the terms of the contract.
33. Which authorities may rule on review applications? Is it possible to appeal against review decisions and, if so, how?
The authorities that rule on review applications are organised in a ratings commission, each member being appointed by the person responsible for the recruitment process, who is, in turn, appointed by the MEA in charge of the procurement process.
It is possible to appeal against review decisions, by means of an administrative challenge recourse, which may only be filed against decisions regarding the content of the DBC, adjudication decisions and bids that were declared void.
34. If more than one authority may rule on a review application, do these authorities have the power to grant different remedies?
The only authority in charge of ruling over administrative challenge recourses is the MEA in charge of the conflicted procurement process.
35. How long do administrative or judicial proceedings for the review of procurement decisions generally take?
Article 97 of Supreme Decree 181 provides that these types of procedures should take up to 10 days. However, in practice, administrative proceedings for the review of procurement decisions take between two to four months.
36. What are the admissibility requirements?
In order to be admissible, an administrative appeal must be accompanied by a renewable, irrevocable and immediate execution guarantee.
Regarding the standing capacity of bidders, article 11 of the Administrative Procedure Law provides that any individual or entity, public or private, whose subjective right or legitimate interest is affected by an administrative action, may appear before the competent authority (in this case the MEA) to assert their rights or interests, as appropriate, without having to prove personal and direct interest in relation to the act that motivates their intervention.
37. What are the time limits in which applications for review of a procurement decision must be made?
Article 97 of Supreme Decree 181 provides that the MEA must issue an express decision within a period of a maximum of five days, counting from the filing of the administrative appeal. The resolution that resolves the administrative appeal does not allow further administrative appeals, opening the way to judicial involvement.
38. Does an application for review have an automatic suspensive effect blocking the continuation of the procurement procedure or the conclusion of the contract?
Article 96 of Supreme Decree 181 provides that the filing of the application for review will suspend the contracting procedure, which may restart, once the administrative recourse is exhausted.
There are no provisions regarding the lifting of such suspension. Based on administrative legislation applicable to administrative recourses, theoretically it would be possible for the suspension to be lifted if a bidder files and wins a constitutional claim (amparo) based on the grounds that the suspension has affected the bidder’s constitutional right to work, or some other constitutional right.
39. Approximately what percentage of applications for the lifting of an automatic suspension are successful in a typical year?
There are no provisions regarding the lifting of automatic suspensions, and none have taken place so far.
40. Must unsuccessful bidders be notified before the contract with the successful bidder is concluded and, if so, when?
The analysis and adjudication of a procurement process is public information, and must be published at the SICOES.
41. Is access to the procurement file granted to an applicant?
Article 22 of Supreme Decree 181 provides that once the adjudication has been made, the proposals that were not awarded will not be public, and their subsequent use for other purposes will be prohibited, unless written authorisation of the bidder is received.
In public tenders, the proposals may be returned to the correspond- ing non-adjudicated bidders, at their request, as long as the contracting entity keeps a copy. This option is not available in public procurement processes related to national support for production and employment.
42. Is it customary for disadvantaged bidders to file review applications?
Given that there is no public information available with regards to applications for review, it is very difficult to determine the exact number of filings, or the type of bidders who filed such recourses.
However, based on current practice, it is not customary for disadvantaged bidders to file review applications, given that such a procedure is very lengthy and expensive, and the outcome is almost always granted in favour of the contracting authority, given the way in which the procedure is created and given that it is the contracting entity itself that must resolve a decision of the officer appointed by it.
43. If a violation of procurement law is established in review proceedings, can disadvantaged bidders claim damages?
As long as such violation of procurement law generated direct damages to disadvantaged bidders, it is possible for them to claim damages. In order to be able to prove this, the bidder would need to prove that the violation of such procurement laws generated loss of profit and damages that were a direct consequence of such violation.
44. 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 decision regarding review proceedings can indeed deal with the adjudication of the contract and declare such adjudication as invalid. If that is the case, the decision must specifically annul the adjudication ‘down until the oldest vice in proceedings’.
45. Is legal protection available to parties interested in the contract in case of an award without any procurement procedure?
In case of fraudulent adjudications, without a proper procurement process, the legal protection for the party interested in the contract would be based on a criminal procedure against both the officer who granted the contract and the bidder.
46. What are the typical costs of making an application for the review of a procurement decision?
The costs of making an application for the review of a procurement procedure depend on the guarantee that needs to be provided at the beginning of the procedure, the lawyer who is overseeing the case, the amount of the contract and any other miscellaneous costs, such as legalisation, translation and notary costs in case of foreign bidders.
Update and trends
With the creation of SEDEM, new regulations have been created in order to allow such entity to directly contract with foreing providers, who, otherwise, would have had to overcome too many obstacles in order to be able to provide their services or goods in Bolivia.
However, such opportunities can, sometimes, be a double-edge sword, given that practice has shown and recent news demostrated that loopholes in applicable legislation provide an opportunity for nepotism and sidestepping rules that should allow for more transparency, such as the comparison between offers, the negociation of public procurement contracts and the publication of bidder's information at SICOES.
Note. Reproduced with permission from Law Business Research Ltd. Getting the Deal Through: Public Procurement 2017, (published in June 2017; contributing editor: Totis Kotsonis, Eversheds Sutherland) For further information please visit https://gettingthedealthrough.com/area/33/public-procurement-2017