US embassy cable - 03TEGUCIGALPA2942

UNCLAS SECTION 01 OF 03 TEGUCIGALPA 002942 
 
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: 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. 
 
--------------------------------------- 
Harris and the Microwave Network Tender 
--------------------------------------- 
 
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 
-------------------------------------- 
 
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