Telecom Procurement Practices, Less Than Fair?

UNCLAS SECTION 01 OF 02 TEGUCIGALPA 002612

SIPDIS

SENSITIVE

STATE FOR EB/CIP
GUATEMALA FOR COMMATT:MLARSEN
DEPT OF COMMERCE FOR THE ADVOCACY CENTER

E.O. 12958: N/A
TAGS: ECPS EINV KPRV HO
SUBJECT: Telecom Procurement Practices, Less Than Fair?


1. (U) Summary and action request. In an effort to promote
transparency in its procurement practices, the Government of
Honduras (GOH) decided to contract the UNDP to manage
procurements for major infrastructure projects by the state
owned telephone company, Hondutel. Unfortunately, in the
first two major tenders, both bids have ended with heavy
clouds of doubt and strong allegations of wrongdoing from
participating U.S. (and other international) companies. The
French company, Alcatel, has walked away winning both
contracts under highly questionable circumstances. Embassy
officers met with both American companies during each bid
process and passed along their concerns to the UNDP,
Hondutel and the GOH. One company chose to file an official
protest with UNDP headquarters in New York, but it appears
without success. Post requests assistance from EB/CIP and
Commerce Advocacy Center to discuss emerging problems with
UNDP. End Summary and Action Request.

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Fiber Optic Network - the first bid
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2. (SBU) The UNDP conducted its first Hondutel tender on
March 21, 2003. The bid was for a fiber optic network to be
installed from the North coast city of Puerto Cortes, down
through the middle of Honduras, to Tegucigalpa. Midwest
Cable Communications (Midwest) approached the Embassy before
the tender officially began, to notify the commercial
section of its interest in doing business in Honduras and to
give a brief company overview. Shortly after the bid
opening, Midwest notified the Embassy of rumors of
impropriety it had been hearing. Midwest claimed that
another bidder, an Israeli company, contacted one of its
U.S. subcontractors looking for information on supplies to
fill the bid, saying that it had heard Midwest had been
disqualified. Midwest became concerned since the bid
packages were still under review and should have been
confidential at that time.

SIPDIS


3. (SBU) Midwest was puzzled about the prospect of
disqualification as special efforts had been made to deliver
a high quality bid. When finally notified, the company was
told that thirteen other bidders, everyone except Alcatel in
fact, had been disqualified. Rumors began circulating that
Hondutel and the UNDP based the request for the fiber optic
network proposals on an unsolicited proposal previously
received from Alcatel.


4. (SBU) Midwest, it turned out, had the lowest bid price,
roughly USD 3 million lower than Alcatel's and lower than
other European firms as well. Econoffs, concerned by the
appearances of impropriety in a bid process in which so many
well-known international companies had been disqualified,
including the sole U.S. company, raised the issue with
Minister for Investment, Camilo Atala, Special Presidential
Advisor for Government Reinvention, Mauro Membreno, Hondutel
General Manager, Alonso Valenzuela, and UNDP/Honduras
representative, Jeffrey Avina. All of these interlocutors
indicated that it was the procedures used for this tender
that had resulted in these skewed results because not even
the smallest of omissions or ambiguities were allowed to be
clarified. In addition, Membreno indicated that the
procedure of opening both the technical and price envelopes
simultaneously, unusual in Honduras, contributed to the
confusion. Membreno, Valenzuela and Avina indicated that
the procedural errors would be corrected in future tenders.


5. (SBU) Most disconcerting of all for Embassy efforts to
assure a fair process for U.S. companies was the obvious
finger pointing and buck passing among the parties.
Hondutel officials shrugged off any responsibility for the
flawed process by indicating that the UNDP was managing the
bid, but UNDP in turn blamed Hondutel for providing them
with the complete bid package and tender procedures which
caused the disqualifications of all but the winning bidder.
Membreno, new to his post, showed interest in fixing the
problems for the future, but no willingness to reverse the
result.


6. (U) Midwest later discovered it had been disqualified on
sixteen different counts, a higher number than all other
bidders. Some of these `fundamentals' were as minimal as
not specifying the exact type/brand of office furniture to
be supplied. Midwest sent letters of dissent to the UNDP in
Honduras and Alonso Valenzuela, General Manager of Hondutel.
The Embassy also provided Midwest with contact information
for the UNDP in New York, but the company decided not to
file an official complaint. Note: Though Midwest indicated
to the Embassy it would not challenge this result in order
to be in good standing for future bids, it appears the
company has now lost interest and/or confidence in doing
business in Honduras. End note.

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Microwave Network System - the second bid
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7. (U) In the second UNDP-managed Hondutel bid, a new policy
on clarifications appears to have been implemented to the
opposite extreme. The request for proposals for microwave
equipment has a ceiling of USD 11 million. The U.S.
company, Harris Corporation, submitted the strongest
technical offer. Harris officials believe the company would
have had the lowest economic offer (USD 10 million) if the
French had not been allowed to add in required equipment
after the bid opening (illegal) and offer that equipment, at
an estimated value of USD 3 million, for free. Had Alcatel
included this equipment from the beginning its bid would
have been USD 11 million. According to Harris
representatives, the bid rules do not allow for their bid to
be `clarified' by adding this equipment in their bid after
bid opening, as it is a fundamental part of the project.
Alcatel is also rumored to have included a substandard
network management system in their bid that did not meet the
bid minimum requirements. The Alcatel bid allegedly
included an option written into the bid which would allow
for the Hondurans to upgrade the system later - a necessary
upgrade that would have added millions to their bid price.


8. (U) Emboffs met with Harris representatives and followed
up with calls to UNDP Honduras officials to underscore the
importance of Harris' concerns. The UNDP Honduras
representative expressed surprise at the allegations from
Harris, stating no company should know the details of other
companies' bids as the process was still under review and
any company having such knowledge should be disqualified.
The same official noted, however, that he had received
inquiries and complaints from the German Embassy as well.
Harris attorneys sent letters of dissent to Honduras UNDP
representatives and Hondutel General Manager, Alonso
Valenzuela, as well as UNDP headquarters in New York.

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Comment
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9. (U) The GOH decided to outsource to the UNDP procurements
in several ministries, precisely in order to assure
transparency and eliminate corruption. By most accounts,
the UNDP is doing a fairly good job at managing procurement
of medicines for the Ministry of Health and achieving these
aims. However, if these two telecom cases are any
indication, the UNDP (and GOH) are failing miserably in the
telecom procurement processes. In these two cases, each
involving only one U.S. company, even the most basic
requirements of sound procurement processes appear to be
ignored. In the fiber optic case, the government utility is
going to pay 30 percent more for a key infrastructure
project than needed because of the most minimal of omissions
in the bid package. In the microwave tender process, the
UNDP appears to be allowing the same French company to
change the key terms of the bid after learning the details
of other bidders' packages; moreover, UNDP did not
disqualify Alcatel for failing to provide software up to
specification. By our reading of Honduran procurement law,
this latter breach is patently illegal. And finally, in
both cases, Hondutel or UNDP officials working on the
evaluation committee leaked information about the state of
the tenders with impunity. The UNDP has not allowed any on-
the-record discussion of the flaws in the process, vaguely
threatening that any such discussions with the Embassy could
hurt the U.S. companies' chances of receiving redress. Any
guidance from Washington agencies for post on the
appropriate way to pursue these advocacy cases at this time,
or to call for an overall review of UNDP's program here in
Honduras, would be greatly appreciated. End comment.

Palmer