In Venezuela, public procurement is regulated by different statutory instruments. The main piece of legislation applicable to public procurement is the Public Procurement Act 2009 (PPA).2 The PPA is applicable to all contracts except those for the execution of works, acquisition of goods and provision of services, which are within the framework of international cooperation agreements between Venezuela and other states; employment contracts; real estate and financial leasing; and the sponsorship of sports, art, literature, science and academia. The authority in charge of enforcement of the PPA is the National Contracting Service, which oversees compliance with the PPA by the contracting authority and contractors.
The Rationality and Uniformity Law in Public Contracting (EWA)3 was enacted by the constituent assembly in January 2018. Although the EWA is an independent piece of legislation, it is essentially an amendment to the PPA aimed at modifying certain rules of the bidding procedure and the enrolment of contractors in the national contractors registry. Although the constituent assembly does not have legal or constitutional powers for the enactment of statutory instruments or 'Constitutional Acts', the fact that the Supreme Tribunal of Justice has not set this law aside allows its enforcement by the government.
The main changes implemented by the EWA in the Venezuelan public procurement regime are the:
- creation of the integrated system for government contracts, which prevails over any other feature of the public procurement regime. The integrated system will be ruled under the policy of simplification of proceedings, technological standardisation, the preferential use of electronic and digital mechanisms and the promotion of new economic undertakings;
- creation of a new 'unit for the arithmetic calculation of the maximum and minimum threshold' (UCAU), which determines the limits for the bidding process applicable for awarding a contract;
- abolition of the need to renew the enrolment before the national contractors registry; and
- establishment of new criteria for determining advantages to the national industry in the bidding proceedings for the adjudication of contracts.
There is also the Simplification of Proceedings for the Exportations and Importations of State-owned Companies Act 2009, which was published in the Extraordinary Official Gazette No. 5,933. This statutory legislation allows state-owned companies previously authorised by the central planning commission to use the direct adjudication of the contract in all their contracts for the procurement of goods from foreign providers.
Since the last modification of the PPA, the Fair Prices Act is applicable to public procurement matters, and must be taken into account for the contracting entity when preparing the basic budget of the project and by the bidder when preparing their offers.
Finally, there is the Decree-Law for the Promotion of Private Investment under the Concessions Regime 1998 (DLPPICR), which regulates the way private investors may enter into concession contracts for the building and exploitation of infrastructure and the provision of services offered by the national government.
II YEAR IN REVIEW
2018 was a complicated year for public procurement in Venezuela. The most significant of the sanctions imposed were the sanctions imposed by the government of the United States over the Venezuelan government and other public entities and state-owned companies, such as Petroleos de Venezuela, SA (PDVSA). Most sanctions related to Venezuela have targeted individuals, but in 2017 the US government issued the first sanction preventing the Venezuelan government, other public entities, PDVSA and its affiliated companies from accessing the US financial markets. This sanction imposed by Executive Order 13,808:
prohibits transactions by a United States person or within the United States related to: certain new debt of Petroleos de Venezuela, S.A. (PDVSA); certain new debt or new equity of the Government of Venezuela; existing bonds issued by the Government of Venezuela prior to August 25, 2017; and dividend payments or other distributions of profits to the Government of Venezuela from any entity owned or controlled by the Government of Venezuela. In addition, E.O. 13808 prohibits the purchase by a U.S. person or within the United States of most securities from the Government of Venezuela.4
This Executive Order contains two provisions particularly relevant to public procurement since it prohibits US persons from financing PDVSA for longer than 90 days, and the Venezuelan government (which is defined widely enough as to include any public entity) for longer than 30 days. The risk for contractors from the US to violate this prohibition because lack of payment by PDVSA or the Venezuelan government has made them take additional measures in order to avoid any liability when contracting with PDVSA or the government. The Office for Foreign Assets Control (OFAC) issued a licence No. 4 in order to exclude the application of sanctions on transactions related to agricultural commodities (food for humans or animals, seeds for food crops, fertilisers and reproductive materials for the production of food animals), medicines and medical devices.
More recently, pursuant to Executive Order No. 13,850, which provides for the freezing of assets and a general prohibition on dealing with designated persons because of their participation in the exploitation of gold or any other sector designated by the Treasury Department, PDVSA was included in the list of designated persons and, therefore, no US person is allowed to enter into any kind of contract with the Venezuelan state oil company, with the exceptions provided for in licences numbers 10, 11 and 12 issued by the OFAC, which allow certain activities in wind-down periods until July 27 as the latest case.
III SCOPE OF PROCUREMENT REGULATION
i Regulated authorities
The PPA applies to the following subjects, which are the only contracting authorities:
- all public bodies and government agencies of the national, state and municipal levels of government, either centralised or decentralised;
- public universities;
- the Central Bank of Venezuela;
- civil partnerships and mercantile companies where the state and subjects named in (a), (b) and (c) above have an interest equal or above 50 per cent of the patrimony or shareholding (state-owned companies in the first degree);
- civil partnerships and mercantile companies where state-owned companies in the first degree have an interest equal or above 50 per cent (state-owned companies in the second degree);
- the foundations incorporated by any of the subjects named in (a) to (e) above; and
- community councils or any other community organisation handling public funds.
ii Regulated contracts
According to Articles 4 and 5 of the PPA, there are some contracts that are excluded from the application of its rules (see Section I). The type of contracts excluded from the application of procurement procedures include contracts dealing with:
- the provision of professional services and employment;
- the provision of financial services;
- the acquisition and renting of real estate, including leasing;
- the acquisition of cattle;
- the acquisition of artistic, literary or scientific works;
- commercial and strategic alliances for the acquisition of goods and provision of services between natural or juridical persons and contracting public bodies;
- the utilities required for the functioning of the public contracting entity;
- the acquisition of goods from other public entities;
- the acquisition of goods and services:
- with day-to-day cash;
- during the validity of emergency decrees; and
- for defence and intelligence operations; and
- the provision of services and execution of works entrusted to other public entities.
IV SPECIAL CONTRACTUAL FORMS
i Framework agreements and central purchasing
Framework agreements are defined in Article 6.33 of the PPA and widely regulated in the Regulations of the PPA. Article 6.33 and Regulation 2 of the PPA define the framework agreements as the contract establishing the unit price for the allowances composing the acquisition of goods, provision of services and building works with a maximum total amount for the contract, which will be performed through purchase orders, establishing the terms and conditions of the particular requirement. The public entity will not be obliged to issue purchase orders for a given amount or pay the upper limit of the price established in the contract. The terms and conditions of the framework agreement is deemed as incorporated in the purchase orders.
Article 7 of the PPA Regulations obliges public entities to consider framework agreements when the preparatory activities lead to the conclusion that the recurrence of the object of the contract makes it viable to use a single bidding proceeding for the adjudication of a framework agreement. According to Article 90, the contracting entity is required to elaborate a global estimate of the price limit and quantities to be included in the list of the price of the framework agreement. On the basis of this amount, the contracting entity will be obliged to apply the corresponding bidding proceeding. The price of each unit will be set by the contracting entity on the basis of the offers submitted (if the requirements exceed the limits).
The PPA also provides for a different kind of framework agreement in Article 6.34, where the service of national contractors selects providers for the contracting entities to purchase goods and services offered through electronic catalogues. This kind of framework agreement will be executed directly by the contracting entity.
ii Joint ventures
Public joint ventures and public authorities are not required to participate in bidding procedures, and contracts will be awarded directly to them in accordance with Article 5 of the PPA. Therefore, public joint ventures and other public entities are allowed to supply their parents with goods, services or works without a prior procurement process.
In the case of public–private partnerships (PPPs), the rules apply in their full extent unless the public partner is a subsidiary of a state-owned company. Since the PPA applies only to state-owned companies and their subsidiaries, in this case, a PPP would be out of the scope of the PPA. When the private sector partner is participating in a project under the DLPPICR, the choice of such a partner must have been done through a competitive bid in accordance with the PPA rules for the open contest.
The Organic Law on Hydrocarbons establishes rules for the incorporation of PPPs, but the bidding process is not established in this statute.
V THE BIDDING PROCESS
All contracting entities are obliged to publish the call for bids on their websites when the contract is to be awarded through an open contest. All calls for bids must also be published on the website of the national contracting service. In both cases, the call must remain online until the day before the receipt of the bids. Article 79 of the PPA allows public entities to publish the call for bids in open contests in the national, regional or local media, particularly where building works are concerned. In the case of open international contests, the call for bids may be published in foreign media if authorised by the central planning commission.
The call for bids must contain, among others:
- the object of the bid concerned;
- identification of the contracting entity;
- the address, unit and date of when the terms for the bidding process will be available;
- the place, day and time of the public hearing, or time that the bids and other documentation will be received; and
- the bidding procedure applicable.
The type of procedure depends upon the value of the contract. The different procurement procedures are applicable according to the following thresholds:
- open contest: when the value of the goods is above 20,000 UCAU, above 30,000 UCAU for services subject to the contract, or, in the case of building works, above 50,000 UCAU. The open contest takes three different forms:
- a single hearing for the letter of intent, clarification and offer;
- a hearing for two statements concerning the letter of intent and offer; however, only the letter of intent and qualifying documents will be reviewed, while the offer will be reviewed in a separate hearing the following day; or
- separate hearings for the submission of the letter of intent, which will be received in the first hearing to evaluate who is qualified to submit an offer and who will be called for the second hearing for the submission of the offer;
- closed contest: when the contract for the acquisition of goods is between 5,000 and 20,000 UCAU, provision of services is between 10,000 and 30,000 UCAU, or, in the case of building works, between 20,000 and 50,000 UCAU;
- request for quotations: when the contract for the acquisition of goods and services is below 5,000 UCAU and, in the case of building works, below 20,000 UCAU; and
- direct award: this is the only procurement procedure related to exceptional circumstances and not the value of the contract.
The PPA allows awarding authorities to use electronic auctions. To be able to participate, the call for bids must be under the principle of neutrality and include the technical specifications of the technology used in the bidding process.
iii Amending bids
Once an offer has been submitted, it cannot be amended. It is possible for the contracting entity to change the conditions of the bid up to two days before the hearing (whichever is first, in accordance with the applicable procedure).
i Qualification to bid
The disqualification of a bidder is regulated by Article 84 of the PPA, which is fully reproduced in Article 106 of the Regulations of the PPA and provides for the following grounds for disqualification:
- if the required information has not been submitted by the participant;
- if the participant is declared bankrupt during the qualification process;
- if one of the parties to a consortium or alliance withdraws;
- if the participant does not comply with one of the criteria established in the bidding package; and
- if the contracting entity determines that the participant has submitted false information.
The aforementioned rules only apply to bidding procedures for the adjudications of contracts within the scope of the PPA and for the adjudication of concessions in accordance with Article 12 of the DLPPICR.
ii Conflicts of interest
In Venezuela, conflicts of interest with regard to public officials gives rise to disciplinary and administrative sanctions, as established in the Statute of Public Function Act, which provides for the removal of the public official. These administrative sanctions are provided for in the Controller General's Office and National System of Accountability Act, which establishes sanctions that vary from a fine to the suspension of the official for up to 24 months, or his or her removal and prohibition from performing a role in the public sphere for up to 15 years. The Organic Law on Administrative Proceedings also provides for remedies in the case of conflicts of interest with regard to public officials, who may be challenged by the participants in public procurement procedures.
iii Foreign suppliers
Foreign suppliers may bid unconditionally. While domestic value added (DVA) enables local companies to obtain better assessment, it may be applicable to foreign bidders if they employ a local workforce or use local products, and under other similar conditions.
Foreign bidders are also allowed concession contracts, provided they are able to give evidence of their financial and technical capabilities, among others.
i Evaluating tenders
Once the offers are submitted, the awarding authority is obliged to evaluate them on the basis of the information provided in the tender documents. Particularly, Article 66.13 of the PPA provides a system of evaluation that determines the points reached by the offers and the weight given to each factor, including price. The awarding authority is free to determine the value to be given to each criteria, and the lowest price is not always the most important factor.
ii National interest and public policy considerations
In the Venezuelan system, the concepts of public policy and national interest are found in every aspect of public law, and contracts are no exception. Article 151 of the Venezuelan Constitution provides for a relative Calvo Clause when it includes the compulsory jurisdiction of Venezuelan courts of law and Venezuelan law for contracts of public interest, when their nature does not allow otherwise.
In concession contracts, the DLPPICR provides that, in projects originated by private parties, some of the key requirements for the assessment by the authorities are the description of the social benefits that the project may bring, and the study of environmental impact. Also, all bidders for contracts within the scope of the PPA are obliged to include a social responsibility commitment that would not exceed 3 per cent of the price of the contract and may be offered in money or products, building works or services.
Domestic suppliers are given some possibilities to level the playing field with foreign bidders. Chapter III of the PPA is focused on 'Measures for the Promotion of Economic Development' and gives the President the power to establish categories of contracts to be awarded to local bidders, incorporation of goods produced in Venezuela, transfer of technology, hiring of local staff and workforce, and others. When offers differ by less than 5 per cent from the best offer, the awarding authority must award the contract to the offer with the largest DVA when it concerns the procurement of goods. When the contract is for building works, the award will be for the bidder headquartered in Venezuela that has the largest incorporation of local products, and largest participation of local staff and workforce.
Article 16 of the EWA provides for the elements that make up the DVA for the purposes of the award:
- raw material;
- basic and detailed engineering studies performed by companies domiciled in Venezuela;
- professional services rendered by Venezuelan professionals;
- financial costs paid in Venezuela; and
- depreciation of the equipment installed in Venezuela.
The EWA also includes a description of the way that the DVA is to be valid in order to be taken into account for the assessment of the offers and establishes some aspects that will not be considered as DVA.
VIII INFORMATION FLOW
Bidders are obliged to submit legal and financial information specified in the tender documents for the proper assessment of the bidder and his or her offer. If the information required by the awarding authority in the tender documents is not supplied by the bidder, the authority is obliged to disqualify him or her.
The awarding authority is obliged to notify all the bidders of the outcome of the evaluation of the offers before the execution of the contract. Once the notification of the award has been performed, all bidders will have access to this information.
IX CHALLENGING AWARDS
Challenging awards is rare in Venezuela. Since the decision of the award is rendered by a government authority, administrative legal remedies are available. Unsuccessful bidders will have two main options: administrative remedies, including a reconsideration petition and an appeal before the highest authority; or judicial remedies, through applications for judicial review of administrative matters before a court of law.
In practice, the time frames established in the law are rarely respected. According to the Organic Law on Administrative Proceedings, the administrative remedies should not exceed 15 working days in the case of a reconsideration petition or 90 working days in the case of appeal before the maximum authority. Judicial remedies are governed by the Organic Law on Administrative Jurisdiction 2010 and the proceedings may take a year and a half to reach the deliberation phase. However, it is extremely difficult to predict how long take the judge may take to render a decision.
If the bidder decides to challenge the award of the contract through administrative remedies, the process is simple. A petition for reconsideration should be filed with the contracting authority that rendered the decision, and any documentary evidence should be produced jointly with the petition, but there will be chance to produce evidence up to the day before the decision is rendered. If the contracting authority dismisses the petition, the general rule is that an appeal before the maximum authority of the awarding entity may be filed. If the decision of the highest authority is to dismiss the appeal, the bidder is entitled to file an application for judicial review of administrative matters. The filing of administrative or judicial actions must not prevent the execution of the contract.
The reconsideration petition and appeal before the highest authority must be filed within 15 working days of the decision being notified to the bidder. The mentioned deadlines are established in Articles 94 and 95 of the Organic Law on Administrative Proceedings.
According to Article 32 of the Organic Law on Administrative Jurisdiction 2010, the application for judicial review must be filed:
- within 180 days of the notification to be challenged or within 90 days of the filing of an administrative remedy that has not been decided by the authority; or
- if the administrative decision has temporary effects, within 30 days of notification.
ii Grounds for challenge
In general terms, a challenge to the award of a contract may be brought on the grounds of unconstitutionality or illegality of the decision. The Organic Law on Administrative Proceedings provides for grounds of absolute nullity of the decision based on:
- the determination by a constitutional rule;
- violation of res judicata administrative decisions;
- when the content of the decision is impossible to enforce or when enforcement would be illegal; and
- when the decision has been rendered by an incompetent authority, or with complete prescience of the legal proceeding.
Other defects or facts may bring a relative nullity of the decision.
Article 121 of the PPA establishes that the contracting entity is obliged to set aside the contract when there is evidence that the award was granted without following the proceedings established in the PPA or any other rule governing public procurement, and when the contract executed differs from the terms and conditions established in the tender documents and offers.
The courts are entitled to grant injunctions, set aside contracts, order new tenders and award damages for breaches of procurement law.
Article 166 of the PPA establishes that public officers will be subject to administrative liability, which is sanctioned by the Controller General with a fine, because of the omission or the wrongful application of the bidding procedures provided for in the PPA.
The development of the political and economic crisis in Venezuela is difficult to foresee since it is a complex crisis with many aspects that come together. If the current political regime manages to maintain its position in the Venezuelan government, the trend of the crisis will be to get deeper. In this scenario, any change on the regulation of public procurement would be for the public entities to extend their prerogatives in the management of governmental contracts. Sanctions by the international community, starting with the United States, are likely to increase pressure on the government finances.
If there is a change in the current regime and the interim president manages to access real power in Venezuela, it is highly possible that the public procurement legislation will change dramatically. The current status of the infrastructure in any field (for instance, transport, energy (oil, gas and electricity), education and health) is almost completely destroyed. Therefore, the country will require the highest level of private investment for its own reconstruction. This will imply changes in the terms of government contracts and their regulation in order to establish controls over public spending practices and the performance of contractors. It would be desirable that the Venezuelan authorities enter into the international standards for the regulation of public procurement. If a change in the political situation actually occurs, Venezuela will become one of the busiest and most attractive markets for public contractors.
In both cases, one of the major concerns of the government (the current or the new one) will be dealing with providers of goods and services because of the high level of debt owed to them during the past several years. Some of these contractors have been exploring options for the enforcement of their contractual rights or those arising out of international law, when applicable.
1 José Gregorio Torrealba R is a senior partner at Leĝa.
2 Official Gazette No. 39,165, dated 24 April 2009, amended on 19 November 2014, Extraordinary Official Gazette No. 6,154 and its Administrative Regulation established in Decree No. 6,708 (Official Gazette No. 39,189, dated 19 May 2009).
3 Official Gazette No. 41,318, dated 11 January 2018, the 'Constitutional' Law against economic war for rationality and uniformity in the acquisition of goods, services and public works.
4 US Department of State. Venezuela Related Sanctions. Available at www.state.gov/e/eb/tfs/spi/venezuela/ (Last visited 20 March 2018.)