UNDP Responds to Embassy Inquiries on Telecom

UNCLAS SECTION 01 OF 03 TEGUCIGALPA 002942

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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: UNDP Responds to Embassy Inquiries on Telecom

Ref: a) Tegucigalpa 02612, b) Kushnir, Chang, Matthewman,

Urdaneta, Williams teleconference of 12/9


1. (SBU) Summary. Post thanks Washington agencies for a
rapid response to reports of possible unfair procurement
practices by UNDP Honduras. We have been able to discuss
the Hondutel telecom tenders involving Harris Communications
and Midwest Cable with UNDP General Coordinator for telecom
bids, Mr. John Morris, and Juan Diego Zelaya (his
counterpart from Hondutel). Morris and Zelaya were more
forthcoming than any other UNDP representatives to date,
providing the timeline of the bid, describing the process
and addressing the rumors of undue influence by the French
company, Alcatel. Both contracts have now been signed, so
advocacy for the U.S. companies does not appear to be
feasible at this point. However, post would welcome IO's
offer to address the transparency of the process with UNDP
New York. End Summary


2. (SBU) On December 4 and 11, EconOffs spoke with Juan
Diego Zelaya and John Morris, the Coordinators for Hondutel
bids for Hondutel and the UNDP, respectively. Morris noted
his contracting section has accounted for over USD 109
million in telecom contracts this year. Though it appeared
that two of the 46 tenders were conducted in a less than
fair manner (reftel),both were very open and forthcoming on
both the process and the background on the two projects in
which U.S. companies lost to Alcatel.

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Harris and the Microwave Network Tender
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3. (SBU) Morris laid out the timeline for the microwave bid,
referring to UNDP-kept minutes at times for exact dates.
The microwave bid was published on May 16, 19 and 23.
Twenty-three companies purchased bid packet materials, but
only 4 companies -- Alcatel, Harris, Siemens, and Erickson -
- turned in bid packets on the due date, August 25. The
first two envelopes, the legal and technical packages, were
opened that same day. According to Morris and UNDP minutes,
Alcatel, Harris and Siemens all presented technically
acceptable bids. The evaluation committee submitted its
report and opened envelope 3, the economic envelope, on
September 11. Alcatel's bid was roughly USD 7.9 million.
Harris offered the second lowest bid at USD 10.2 million,
and Seimens finished out the group at USD 13.2 million.


4. (SBU) On September 19, the bids were sent to the local
contract committee for review and confirmation of the
evaluation committee's recommendation. Since the project is
valued at over USD 1 million, following approval by the
local committee, the packets were all sent to UNDP's
Procurement Advisory Committee in New York on September 22.
New York approved UNDP Honduras' recommendation on October
16 and notified Alcatel. Hondutel and Alcatel signed the
microwave contract on October 22, 2003.


5. (SBU) U.S. company, Harris Communications, requested USG
advocacy because of rumors that Alcatel's original offer
omitted USD 3 million worth of equipment in its bid which
was added in later for free. The bid also is alleged to
have included a low-quality network system that would have
to be upgraded later so that Alcatel's bid would remain the
lowest. Morris addressed this rumor explaining it as
follows: the project contains 80 different site locations
with each site requiring a variety of equipment, towers,
etc. After the evaluation committee opened the economic
envelopes, they proceeded to verify that Alcatel supplied
the lowest bid. During the verification of prices, the
committee contacted Alcatel to make sure the lot price for
each site matched the equipment count in the technical
proposal, and that all individual unit prices and overall
lot prices added up. In the technical proposal (envelope
2),all equipment was detailed but not priced. When asked
point blank if Alcatel had omitted any equipment and was
later allowed to add the same in, Morris responded by saying
no. Alcatel had included all equipment required from the
beginning. Note: Morris was concerned by the fact that
there was a leak in the evaluation committee and that
somehow other companies discovered that the evaluation
committee had even contacted Alcatel to verify equipment
count and prices. End note.


6. (SBU) The evaluation committee for the microwave tender
was made up of 8 members, 5 voting and 3 non-voting. All 3
non-voting members are UNDP employees, and the 5 voting
members were 1 UNDP engineer, 2 contractors / consultants,
and 2 Hondutel representatives. The local contracting
committee is comprised of all UNDP officials. While there
were no French members or observers on the evaluation
committee (all members were from Central and South America),
there was one French observer on the local contract
committee, Mr. Richard Barathe. Barathe is the Director for
corporate strategy and foreign relations. He reports
directly to UNDP representative, Jeff Avina. Barathe has
been quoted in recent months as telling Honduran colleagues
of his delight that U.S. companies are losing UNDP bids,
indirectly taking credit for the phenomenon.

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Midwest Cable - Fiber Optic Tender
--------------


7. (SBU) In the case of the fiber optic contract, the
economic bids were opened at the same time as the technical
bids and NO clarifications were allowed. Midwest Cable had
the lowest bid ($3 million lower than winner Alcatel's $13
million). However, because of the lack of ability for
clarification and the extreme strictness of the evaluation
committee, all applicants were disqualified on technical
grounds except for Alcatel. Midwest had 16 deficiencies, at
least half of which were trivial. UNDP claims that it has
no responsibility for the skewed outcome of this tender
(with every company but one being disqualified) because
Hondutel prepared the whole packet including the technical
specs. Hondutel claims that the technical specs were
completely reviewed and substantially revised by UNDP. We
asked Hondutel staff if it is true that Alcatel had written
an unsolicited bid for a fiber optic project (one of the
rumors) on which the technical specs were based, which would
have explained why that company alone was found to qualify.
Zelaya indicated that Hondutel had developed its draft specs
and posted them on the web, asking for public comment. Any
company could have commented. So it is possible that
Alcatel's comments could have influenced the original design
of the bid. But Zelaya reiterated that the bid
specifications were revised by UNDP before the tender was
launched. UNDP has never explained, to our satisfaction,
the early notice of Midwest's disqualification provided to
Alcatel and subcontractors, weeks before Midwest itself was
notified.

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Background on UNDP Procurement Process
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8. (U) The fiber optic and microwave tenders were two of 51
tenders that had been planned for 2003. Of these, 46 are in
the pipeline. The fiber optic project was the first. Based
on the experience with it, the procedures were revised. A
Hondutel official provided us with the following description
of the typical process.


9. (U) Hondutel staff put together a project profile
(sometimes with technical specs, if they have the expertise)
and an in-house cost estimate. The project goes to the
Hondutel board of directors for a decision on whether to do
it or whether to send it to UNDP. Hondutel tends to handle
simple procurements (tire repair, water supply) and civil
works itself. They will always send to UNDP any complicated
procurement that has any chance of generating legal
challenges.


10. (U) If the Board decides to send the project to UNDP,
the Hondutel staff sends the documentation to UNDP. UNDP
then hires consultants to either write the technical specs
or to review and revise the specs provided by Hondutel.
Once completed, UNDP launches the bids. There is a question
and answer period, and Hondutel and UNDP always respond to
the questions together.


11. (U) Once the Q&A period is completed, an evaluation
committee is formed, and the bids are received and reviewed.
The technical proposal is opened at the time of bid
submittal to ensure all necessary documents are included.
The evaluation committee will include up to one or two
members from Hondutel; the remaining members should be UNDP
employees although sometimes consultants will be included as
well if specialized expertise is needed. The majority will
always be UNDP (Hondutel will never have majority). A UNDP
rep will always chair the group. There should be no
outsiders included in the evaluation process. The committee
evaluates the bids, engages in a clarification process with
bidders when needed, and decides which bids are compliant in
meeting the technical requirements. For those bidders that
are compliant, the economic bids are opened, and the lowest
price wins. The evaluation committee prepares its report.


12. (U) The evaluation committee's report goes to the local
contract committee, which decides to approve or not. If
approved, it goes to the advisory committee on procurement
in New York for final decision. If approved, Hondutel is
then notified and asked if they have any objections to the
final decision. Hondutel would only object if the offer
price of the finalist is higher than budgeted. This has not
happened to date.

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Comment
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13. (SBU) As the contracts have already been signed, Embassy
recommends informing Harris that it will not be possible to
request a re-bidding of the microwave tender. Zelaya and
Morris provided a plausible version of events in these two
tenders. They appear to demonstrate that the procurement
processes, while controversial and in some ways less than
transparent, were not overtly unfair. We will not be able
to obtain more information from UNDP or Hondutel here in
Honduras. If Washington agencies deem it feasible, we
welcome inquiries in New York about the unusual outcomes in
these two tenders (all bidders but Alcatel being
disqualified in the first and Alcatel winning the microwave
tender with a price far below the expected budget),as well
as the lack of transparency, and the apparent coziness among
Hondutel, UNDP and Alcatel officials. End comment.

Palmer