US embassy cable - 03TEGUCIGALPA2612

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 
----------------------------------- 
 
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. 
 
----------------------------------------- 
Microwave Network System - the second bid 
----------------------------------------- 
 
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