Every year the National Assembly approves the General Budget of the State, which includes the expenditures and investments of all the public institutions. It is then up to the State to execute said budget so that each entity can carry out its different tasks and functions, fulfilling the needs of the citizens.
In general, Law 22 of 2006 ("Law 22") establishes the norms, rules and basic principles that govern the contractors selection procedures and public contracts carried out by the Central Government and its entities, including financial intermediaries and corporations in which the State owns 51% or more of its shares or assets, as well as those that are carried out with public funds or national assets.
As a general rule, all contracts for acquisitions or leases of goods carried out by State entities, execution of public works, disposition of State assets, including leases, provision of services, operation or administration of State assets, concessions or any other contract not regulated by special law, must observe the norms, rules and principles established in Law 22.
It is worth highlighting that Law 22 expressly excludes from its scope of application the acquisition of medicines, supplies and medical equipment by the Social Security Agency (Caja de Seguro Social), which is governed by the provisions of Law 1 of 2001 regarding medicines and other products for human health.
Public procurement in Panama must adhere to and be based on eight fundamental principles: (i) transparency, (ii) economy, (iii) responsibility, (iv) effectiveness, (v) publicity, (vi) efficiency, (vii) due process and (viii) equality of the participants (bidders), as indicated in Law 22.
Likewise, Law 22 establishes that public contracts must maintain equality between rights and obligations when proposing or contracting, and the parties must take the necessary measures to reestablish said equality in the event that it is broken for provable reasons that are not attributable to the affected party. For these purposes, the parties enter into agreements to reestablish the contractual equilibrium which typically include amounts, conditions, formulas, forms of payment of additional expenses and recognition of financial costs, if applicable.
CONTRACTOR SELECTION PROCEDURES
Depending on the type of contract (object, amount and degree of complexity), the contracting entities will apply one of the following contractor selection procedures:
(i) Minor Contracting (Contratación Menor): For the acquisition of goods, services or works that do not exceed fifty thousand balboas, complying with a minimum of formalities.
(ii) Public Procurement Procedure (Licitación Pública): For the acquisition of goods, services or works that exceed fifty thousand balboas. In this procedure the price is the determinant factor, provided that all the requirements and technical aspects required in the bid specifications are complied with.
(iii) Public Procurement Procedure for Best Value (Licitación por Mejor Valor): For the acquisition of goods, services or works with a high level of complexity and with a contract amount greater than one hundred thousand balboas. In this selection procedure, economic, administrative, technical and financial aspects are weighted, awarding the participant that obtains the highest score, provided that the participant complies with the minimum obligatory requirements established in the corresponding bid specifications. It is important to mention that in this procedure the price shall not represent less than 40% or more than 49% of the total points for the award.
(iv) Public Procurement Procedure for Best Value with Separate Evaluation (Licitación por Mejor Valor con Evaluación Separada): For the acquisition of goods, services or works with a high level of complexity and with a contract amount greater than one hundred million balboas. In this procedure the price shall not represent less than 40% or more than 49% of the total points for the award. The contracting entity will prepare a budget for the project. Said amount will be known as the estimated price, which will be kept in a sealed envelope in a vault of the National Bank of Panama, and will be revealed after the technical proposals are opened.
Some contracts executed under this procedure are Lines 1 and 2 of the Panama Metro, the Third Electric Transmission Line and the Expansion of the Tocumen International Airport.
(v) Public Procurement Procedure for Framework Agreement (Licitación para Convenio Marco): Procedure for selecting one or more participants with whom a contract called framework agreement is signed, where prices and specific conditions for goods and services are established, as well as the execution of works that do not imply a high level of complexity, during a defined period of time. In these procedures, the selection criteria are defined by the General Directorate of Public Procurement (Dirección General de Contrataciones - hereinafter, "DGCP") according to the needs of the State.
(vi) Public Procurement Procedure of Reverse Auction (Licitación de Subasta en Reversa): Bidding and counter bidding procedure to obtain the best price for a good, service or work for the institution or institutions, within a certain period.
(vii) Auction of Public Assets (Subasta de Bienes Públicos): Procedure in which the State can offer its movable assets and real estate for sale or lease.
There are also exceptional and special contracting procedures, special procurement procedures in case of emergencies, as well as the pre-qualification of participants. However, these procedures are applied less frequently, so they will not be addressed in this section.
Law 22 establishes the minimum content of the bid specifications that the contracting entities draft in preparation for the selection of contractors. Likewise, this law regulates the minimum terms for the publication of the announcement of the selection procedure, in relation to the date of submission of proposals (considering the amount and complexity of the contract); as well as the modifications to the bid specification and the minimum days of anticipation for the publication of said modifications before the proposal submission date.
As a general rule, in contracts with an amount that exceeds one hundred and seventy-five thousand balboas, the contracting entity will hold a public meeting called "prior meeting and homologation", in order to answer questions, clarify aspects related to the bid specifications or other documents, and make observations that may affect the participation in equal conditions of the potential participants.
Once the corresponding commission - composed of suitable and independent members - applies the corresponding evaluation criteria according to Law 22 and bid specifications, it will prepare a motivated report addressed to the legal representative of the contracting entity, containing its evaluation and recommendation so that the legal representative awards or declares deserted the contractor selection procedure, if the formalities established in Law 22 are considered to have been fulfilled.
Except for a few cases, the resolutions and administrative acts, as well as the communications issued by the contracting entities during the contractor selection procedure and execution of the contract, and those issued by the DGCP and Administrative Tribunal of Public Procurement (Tribunal Administrativo de Contrataciones Públicas - hereinafter, "TACP"), will be published and will be notified in the Electronic Public Procurement System "PanamaCompra" (http://www.panamacompra.gob.pa).
Law 22 establishes the following three legal challenges in relation to public procurement:
(i) Claim Action (Acción de Reclamo): It can be filed before the DGCP against any illegal or arbitrary act or omission that occurs during the contractor selection procedure before the awarding or declaration of desertion of a selection procedure.
(ii) Contesting Action (Recurso de Impugnación): It can be filed before the TACP, by the participants that consider themselves affected by a resolution that awards, declares deserted a selection procedure, rejects the proposals or any act that affects the objective selection of the contractor, in which the participants consider that illegal or arbitrary actions or omissions have been committed. It should be noted that in the case of public procurement covered by the U.S.‐Panama Trade Promotion Agreement, the deadline to submit this action is longer than the standard term (ten business days instead of five). The action must be filed together with a Contesting Action Bond, for an amount equal to a percentage of the value of the contesting participant's proposal (10% for goods and services; and 15% for works).
(iii) Appeal Action to the Administrative Resolution of the Contract (Recurso de Apelación a la Resolución Administrativa del Contrato): Participants may appeal the resolutions that administratively resolve (terminate) a contract, by announcing the appeal to the contracting entity and supporting it before the TACP.
Law 22 contemplates the following types of bonds in regard to public procurement:
(i) Proposal Bond (Fianza de Propuesta): Pre-contractual guarantee established in the bid specifications and presented at the proposal submission meeting, in order to guarantee the proposal of the participants, the signing of the corresponding contract and the presentation of the performance bond in case of being awarded.
(ii) Advanced Payment Bond (Fianza de Pago Anticipado): It guarantees the reimbursement of an amount of money given as an advanced payment to the contractor. This guarantee is enforceable in case that the contractor does not use the advanced payment for the timely and proper execution of the contract.
(iii) Performance Bond (Fianza de Cumplimiento): It guarantees the faithful fulfillment (performance) of the contract by the contractor, as well as the correction of the defects, if applicable.
(iv) Investment Compliance Bond (Fianza de Cumplimiento de Inversión): It guarantees the effective investment of a sum of money by the contractor, within the term and under the agreed conditions, in those contracts for acquisition or disposition of goods that require it.
(v) Contesting Action Bond (Fianza de Recurso de Impugnación): It guarantees the damages and injuries that may be caused to the public interest in the presentation of contesting actions.
Law 22 establishes that public contracts governed by said law are subject to Panamanian law, specifically Law 22, complementary provisions, and supplementary provisions of the Civil Code or Commerce Code that are compatible with the purposes of public procurement.
Law 22 regulates aspects such as the exorbitant power of unilateral termination of the contract by the contracting entity (grounds for resolution and administrative rescue), the assignment of the contract, the assignment of credits, the rules for additions and amendments to the contract based on public interest, payments, maximum terms and extensions, penalties and incentives, validity and liquidation of contracts, grounds for nullity of acts and contracts (absolute and relative), and in particular work contracts, supply contracts, services contracts and consulting contracts, as well as the turnkey contracts or contracts of similar modality.
Finally, it is worth highlighting that on March 14th, 2018, the Unified Version of Law 22 of 2006 was published in the Official Gazette (including the latest amendments introduced by Law 61 of September 27th, 2017). On April 11th, 2018, Executive Decree No. 40 of April 10th, 2018 "which regulates Law 22 of 2006, which regulates public procurement in the Republic of Panama" was published in the Official Gazette,
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.