US embassy cable - 04TEGUCIGALPA2267

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 &not 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