HONDURAS: UNDP PROCUREMENT DEBATE CONTINUES TO

C O N F I D E N T I A L SECTION 01 OF 04 TEGUCIGALPA 002267

SIPDIS

STATE FOR EB/IFD, IO/EDA, WHA/EPSC, AND WHA/CEN
STATE FOR IO/EDA (CCHANG)
TREASURY FOR DDOUGLAS
COMMERCE FOR AVANVUREN, MSIEGELMAN
STATE PASS AID FOR LAC/CAM

E.O. 12958: DECL: 10/11/2014
TAGS: EFIN ECPS EINV PGOV EWWT KJUS KMCA HO UNDP
SUBJECT: HONDURAS: UNDP PROCUREMENT DEBATE CONTINUES TO
SIMMER

REF: TEGUCIGALPA 2165 (UNDP PROCUREMENT)

Classified By: Economic Chief Patrick Dunn for reasons 1.4 (b) and (d)


1. (SBU) Summary: On September 27, the Honduran National
Association of Industries (ANDI) issued a two-page open
letter denouncing the United Nations Development Program,s
(UNDP) handling of the ongoing bid process for container
inspection systems at Puerto Cortes. Post has already
received complaints from two U.S. firms about the conduct of
this bid process and has raised this issue with the Minister
of Transportation and the local UNDP representatives. Post
finds that while there is no evidence of corruption per se,
it appears that the terms of reference and the conduct of the
process could be viewed as giving undue advantage to one
bidder. On October 6, following allegations of corruption
involving French telecommunications firm Alcatel in Costa
Rica, the GOH announced it would launch an investigation into
Alcatel behavior in Honduras, including in UNDP-managed
procurements. Post will report on this investigation septel.
End Summary.


2. (SBU) In a two-page open letter published September 27 in
La Tribuna, the Honduran National Association of Industries
(ANDI) issued a denunciation of the United Nations
Development Program,s (UNDP) handling of the ongoing bid
process for container inspection systems at Puerto Cortes.
They further complained that their attempts to investigate
allegations of bid-rigging have been stymied, saying that
&unfortunately, the UNDP did not wish to give any
information whatsoever to ANDI that would permit us to
evaluate the allegations.8 Post spoke with UNDP ResRep Kim
Bolduc, who told us that UNDP Copenhagen has completed its
review of the matter, but that due to its sensitivity it has
been sent to UNDP New York for a final review. Bolduc had no
further information about the status of the procurement, but
she dismissed reports that the procurement was on the verge
of failure and would be canceled.


3. (SBU) Post has already received complaints from two U.S.
firms about the conduct of this bid process (one firm that
was ultimately not invited to bid and another that was
invited but which is concerned the process is biased). A
third firm, also a U.S. firm, has publicly dropped its bid,
claiming the process is rigged to yield a pre-determined
winner (see paras 8-11). Post has raised this issue with the
Minister of Transportation and the local UNDP representatives
(reftel) and finds that while there is no evidence of
corruption per se, it appears that the terms of reference and
the conduct of the process could be viewed as giving undue
advantage to one bidder. Post has raised the matter with the
Department of Commerce Advocacy Center and understands the
State Department Bureau of International Organizations has
also raised it with UNDP headquarters.


4. (SBU) On October 6, in the wake of the emerging corruption
scandal allegedly involving OAS Secretary General Rodriguez
and French telecommunications firm Alcatel, the GOH announced
it will launch an investigation into Alcatel activity in
Honduras. Because Alcatel has won previous procurements that
were administered in Honduras by the UNDP, the GOH has
announced that UNDP procurement practices will also be
examined. Post will report on this investigation septel.

--------------
The Letter
--------------


5. (SBU) The open letter from ANDI lays out the results of
ANDI,s investigation into the procurement of a container
inspection system at Puerto Cortes and lists seven key
findings:

- The Request for Proposals (RFP) did not adequately
consider crucial technical evaluation criteria, while
overweighting &trivial aspects8 that favor a specific
technology. As part of this finding, ANDI,s letter also
references the complaints made on August 14 by Cargo Security
Services (CSS),the local representative of U.S. firm
American Science and Engineering (AS E),when it withdrew
from the procurement process, alleging rigging (see paras
8-11, below).

- The RFP included subjective evaluation criteria on
points such as the financial health of the bidding firms,
leaving the process vulnerable to &arbitrary and biased8
decisions.

- There have been previous public complaints from
Congressmen (Honduran) about the handling of this and other
bid solicitations by the UNDP for the GOH. (Note: The GOH
is one of the largest users of UNDP procurement management
services, totaling over USD 114 million in procurement as of
2003, according to figures supplied by State/IO. End Note.)

- The initial bid documents called for inspection
services at a price of not less than USD 38 per container.
Former bidder and leading global supplier AS E alleges a
competitive bid from a competent firm should offer those
services at no more than USD 25 per container. Similarly, an
estimate by the United Nations Economic Commission for Latin
America and the Caribbean (ECLAC) determined that based on
the characteristics, size, and volume of trade of the Port of
Cortes, the service should cost USD 23.98 per container.
According to ANDI, the difference in costs between the
minimum cost specified in the bid package and what they
consider a reasonable (lower) cost, at current trade volumes
of 300,000 containers per year, would add an estimated USD
3.9 million to the cost of shipping through the port,
dramatically and unnecessarily reducing the port's
competitiveness. Under a barrage of criticism, UNDP
reportedly removed that criterion. Nevertheless, ANDI
writes, &Even though the minimum price condition has been
eliminated, ANDI views with concern and disagrees with
continuing a subjective process of evaluation where greater
importance is given to trivial technical aspects than the
cost of services, and which could result in awarding the bid
to more expensive bids.8

- The RFP incorrectly overweights technical aspects over
cost of services, harming port competitiveness. According to
ANDI, given the world-class caliber of the bidders, there
should be no doubt that the firms are capable of meeting and
ensuring quality machinery and services.

- The determination of which firm receives the contract
should, therefore, be based on costs.

- The announced goal of improving customs enforcement
could be achieved just as effectively, and much more
efficiently, with inspections of 50 percent of all containers
passing through the port, rather than the current plan to
inspect 100 percent. Random spot inspections would cut the
costs of enforcement in half, and steep fines for violations
would provide a sufficiently strong deterrent.


6. (SBU) Elsewhere in its letter, ANDI reiterates that it
does not necessarily support the privatization of this
service and would prefer to see a public, non-profit service
established. Furthermore, ANDI does not see the need for
user fees, noting that the increased tax and customs revenues
should be used in part to self-finance the inspections
services.


7. (SBU) ANDI concludes by writing, &ANDI demands that the
...bid process be carried out in a manner that guarantees a
just and transparent adjudication of the contract, under
conditions that assure a high degree of competence, in such a
way that the bidder that meets all the requirements and
offers the best price wins.8

--------------
Background
--------------


8. (SBU) The open letter from ANDI protesting this bid
process follows a similar letter Cargo Security Services
(CSS),which presented itself as the local representative of
U.S. firm American Science and Engineering (AS E),published
in local newspaper La Tribuna on August 14, withdrawing from
what they called a &totally shameful8 process. CSS wrote
they would ¬ participate in, nor endorse by (their)
presence8 the bid process, calling it &totally shameful and
aimed at benefiting a specific manufacturer.8 The letter
goes on to deride the USD 38 minimum price floor (as detailed
above) and says that inspection of 30 percent of all
containers would be more than sufficient to meet the goals of
the program, while minimizing user fees.


9. (SBU) Sergio Gonzalez, writing for CSS, reportedly said
that another bidder, Swiss firm COTECNA, chose not to submit
a bid for similar reasons.


10. (SBU) In its most serious allegation, CSS,s letter says,
&The direct insertion of those with ties to the government
(into the process) to steer the bid specifications to a
specific group and, by so doing gain personally, is
unacceptable to us and we will not endorse acts of corruption
in a matter as important as hemispheric security.8 Post
contacted AS E to request further information regarding these
allegations of corruption. In a letter dated October 8, AS E
responded that it &was not aware of the Open Letter, nor was
it involved with the points described in the Letter or is
familiar with bid selection process for this project.
Therefore, the views and opinions expressed in this letter by
Cargo Security Services (&CSS8) are in no way
representative of the views of AS E.8 CSS had been the
local representative of AS E, but that agreement expired last
year. The letter goes on to say that &AS E will officially
withdraw this bid if it still active.8 For its part, CSS
has not contacted Post, and Post has thus far been unable to
reach Mr. Gonzalez.


11. (C) CSS,s letter provoked other reactions, including
Liberal Party Congressman Angel Valentin Suarez,s allegation
that UNDP had &cooked8 the bid process. Valentin
complained that despite complaints, little information was
available, since the process was designed and run out of
Copenhagen. In particular, he criticized the decision to
remove the minimum cost, saying that a high minimum cost for
services would guarantee that service providers would bring a
modern system to Honduras. (Comment: Post finds this
unconvincing, since the desired technology could easily have
been specified in the terms of reference. Since all bidding
firms were required to take on local partners, and since
higher fees mean higher commissions for those partners, Post
questions whether padding the profit margins isn,t the true
root of this particular complaint. End Comment.) Other
vocal criticisms came from former Attorney General (1990-93)
and National Party politician Leonardo Matute Murillo, who
alleged that the UNDP is, &in an abusive manner violating
the laws and court decisions of Honduras8 and violating the
rights of workers under cover of its immunity. He further
alleges that UNDP routinely makes bids known to overseas
bidders before national bidders, disadvantaging local firms.
Those foreign firms, he said, are &interested only in taking
our money.8


12. (SBU) Comment: The bureaucratic and hermetically sealed
UNDP process for managing bid solicitations and awards was
put in place by the GOH in large measure to prevent
corruption or the appearance of corruption in the process.
Following extensive discussions with the UNDP, the GOH, and
firms involved in this bid process, Post has found no clear
evidence of the corruption alleged by CSS. That said, the
opacity of the invitation-only, limited bid process, combined
with the allegations (detailed in reftel) that the UNDP
refused to alter bid specification even after their flaws
were pointed out by competing bidders, leaves the GOH and the
UNDP vulnerable to such claims of malfeasance.


13. (SBU) Comment continued: The UNDP system is rigorous,
but fundamentally it carries out the terms of reference
requested by the GOH, with assistance from technical advisors
hired by UNDP Copenhagen. If the original terms requested by
the GOH reflected a desire to steer the bid to one firm, and
if those terms were not altered by UNDP even after complaints
by competing firms, then it is conceivable that the final
terms of reference could have the effect of biasing the
process in favor of one bidder. Local UNDP reps cannot
clarify this matter, as they recused themselves from the
process and passed it on the UNDP Copenhagen for disposition.
UNDP Copenhagen is reportedly unwilling to discuss the
matter, since the bids are still currently under review.
Post has no credible evidence that UNDP has violated any
Honduran laws, and does not find allegations that foreign
bidders hear about bids first to be credible. In our view,
the populist and demagogic tone of Matute,s remarks speak
for themselves. Post will continue to follow with interest
GOH inquiries into this matter, and will continue to press
for transparent and trustworthy procurement practices. End
comment.

PIERCE

Pierce