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Mexico: Public Procurement Best Practice and Financing Resources

The Mexican government purchases large volumes of raw material, repair parts, finished goods, and hired services, to execute important infrastructure and construction works. Traditionally, the entities and enterprises with the largest purchasing budgets have been:

Public entities:

Secretariat of Communications and Transportation (SCT)

Secretariat of Public Education (SEP)

Secretariat of Treasury and Public Finance (SHCP)

Secretariat of Health (SSA)

Commission of National Security (CNS)

Secretariat of National Defense (SEDENA)

Navy (SEMAR)

Public enterprises:

Mexican Petroleum (PEMEX)

Federal Electricity Commission (CFE)

Mexican Institute of Social Security (IMSS)

Institute of Social Security and Services for Public Employees (ISSSTE)

While maintaining a representative or office in Mexico is not a prerequisite to obtaining most government contracts, it can simplify obtaining the information needed to prepare bid documents and support after-sales service and parts supply. It is strongly recommended that U.S. companies seeking government contracts work with a partner in Mexico. U.S. companies interested in participating in Mexico’s National Infrastructure Program as prime- or sub-contractors, suppliers, and service providers, are encouraged to stay abreast of developments in their sectors of interest. The U.S. Commercial Service can assist in identifying potential partners for U.S. companies.

U.S. firms are encouraged to carefully analyze with their representative the tender specifications. They may differ from entity to entity, depending on the value of operation, type of goods or services, budget limitations, etc. A bid will be disqualified if not received within the specified period of time. Stipulated bids can also be disqualified for not meeting technical details. Likewise, each tender includes a specific period of time for participants to ask questions. By paying attention to all the details, firms can avoid unnecessary disqualifications during the tender process. In some tenders, only written questions are permitted. Replies are given to all purchasers of the tender documents.

If a tender specifies a certain brand or gives preference to a supplier, a complaint can be filed with the General Directorate of Complaints before the contract is awarded. Each bid should only consider the exact specifications listed in the tender. "Additional solutions" and/or specifications not listed will disqualify the bid.

Finally, U.S. firms should communicate regularly with their Mexican representative and fine-tune all details related to the required documents. There have been numerous cases of disqualification based upon seemingly insignificant failures on the part of bidders to comply with tender regulations and procedures to the letter of the law.

Project Financing

For large infrastructure projects, a number of financing instruments are available. Project consortiums often develop a finance mix between development banks, multilaterals, commercial banks, and national export credit agencies, such as the U.S. Export-Import Bank.

U.S. Export Import Bank

The Export-Import Bank of the United States (Ex-Im Bank), an independent agency of the federal government, offers various short, medium and long-term export finance and insurance programs. Of specific interest to U.S. exporters are the guarantees for medium-term loans to foreign buyers of capital equipment. Most loans are made by U.S. banks with Ex-Im Bank’s guarantee. More than 85 percent of Ex-Im’s transactions in recent years directly benefited small businesses.

Much of Ex-Im Bank’s activity is under so-called bundling facilities. A bundling facility is a large medium-term loan made to a Mexican bank by a U.S. bank with the guarantee of Ex-Im Bank. The Mexican bank then makes loans for the purchase of American capital goods to Mexican companies. There also are a number of U.S.-based banks that extend Ex-Im Bank credits in Mexico. The major Mexican commercial banks have signed agreements with Ex-Im Bank to grant lines of credit to Mexican firms that purchase U.S.- made products. Many major Mexican banks (Santander, BBVA-Bancomer, and others) have Master Guarantee Agreements. Such credits generally are available only to Mexican blue chip companies and to their suppliers with firm contracts.

Additionally, Ex-Im has made financing for renewable energy a top priority since the inception of its Environmental Exports Programs in 1994 offering competitive financing terms (up to 18 years in some cases) to international buyers for the purchase of U.S. origin environmental goods and services.

The United States is Mexico’s biggest trading partner accounting for nearly 50 percent of the country’s imports. In Fiscal Year 2013 Ex-Im Bank’s total exposure in Mexico was $9.5 billion and guarantees authorizations were $1.8 billion. Mexico remains the largest market in Ex-Im Bank’s portfolio.

Overseas Private Investment Corporation

The Overseas Private Investment Corporation, OPIC, provides medium to long-term funding through direct loans and loan guaranties to eligible investment projects in developing countries and emerging markets. By complementing the private sector, OPIC can provide financing in countries where conventional financial institutions often are reluctant or unable to lend on such a basis.

OPIC also offers insurance to U.S. investors, contractors, exporters and financial institutions involved in international transactions. Political risk insurance can cover currency inconvertibility, expropriation and political violence, and is available for investments in new ventures, expansions of existing enterprises, privatizations and acquisitions with positive developmental benefits.

Typically, OPIC requires that U.S. investment in a given project represent at least 25 percent of the total investment value in order to be eligible for assistance. The Overseas Private Investment Corporation (OPIC) offers its full range of programs services in Mexico. OPIC’s current financial exposure in Mexico is $480 million.

U.S. Trade and Development Agency

The U.S. Trade and Development Agency (USTDA) provide funding for feasibility studies and other forms of technical assistance to help promote U.S. exports. By assisting U.S. firms to become involved in the early stages of project development, USTDA leverages U.S. exports during the implementation stages. USTDA works closely with the various development banks, including the World Bank and the Inter-American Development Bank, to help U.S. firms take advantage of those banks’ projects. Additionally, in the case of a competitive bid for a large infrastructure project, USTDA can offer a de minimis training grant, or another form of technical assistance, to help the U.S. Company or consortium make their bid more attractive. USTDA has an active program in Mexico, funding projects in a wide range of sectors. During 2013, USTDA funded two reverse trade missions in Solar Power and Unconventional Gas Development, two definitional missions and supported desk studies on Water and ITS Technology.

U.S. Small Business Administration

The U.S. Small Business Administration (SBA) provides financial and business development assistance to encourage and help small businesses in developing export markets. The SBA assists businesses in obtaining the capital needed to explore, establish, or expand international markets. SBA’s export loans are available under SBA’s guaranty program. Prospective applicants should tell their lenders to seek SBA participation, if the lender is unable or unwilling to make the loan directly.

SBA also offers an Export Revolving Line of Credit (ERLC) program that is designed to help small businesses obtain short-term financing to sell their products and services abroad. The program guarantees repayment to a lender in the event an exporter defaults. The ERLC protects only the lender from default by the exporter; it does not cover the exporter should a foreign buyer default on payment. Lenders and exporters must determine whether foreign receivables need credit risk protection.

Inter-American Development Bank

The Inter-American Development Bank (IADB) finances public sector projects in Mexico and the other 25 borrowing countries in Latin America and the Caribbean. The IADB has focused its lending programs on infrastructure needs in Mexico, while the World Bank has favored human resource development and structural reform initiatives.

U.S. companies are eligible to compete for contract awards from public sector executing agencies. However, in contrast to trade finance institutions, U.S. companies do not apply directly to the IADB. U.S. companies interested in competing for public sector projects financed by the IADB may maximize their chances of winning by contracting a local partner in Mexico. The U.S. Commercial Service maintains an office in the IADB to assist U.S. companies in taking advantage of IADB funded projects.

World Bank

The World Bank is a multi-lateral development bank that provides loans to developing countries with the stated goal of reducing poverty. The World Bank is comprised of two institutions: the International Bank for Reconstruction and Development (IBRD) and the International Development Association (IDA). IBRD is active in Mexico, supporting large scale infrastructure projects such as highways, airports, and power plants.

Mexico is currently the Bank’s largest borrower in terms of exposure with $15.1 billion in outstanding debt as of January 2014. The active portfolio is composed of 18 projects including six standalone Global Environment Facility (GEF) projects totaling U.S. $2.1 billion in net commitments. A $300 million Development Policy Loan in the education sector was approved on December 2013.

The International Finance Corporation (IFC), the private sector arm of the World Bank, promotes infrastructure development, particularly water and renewable energy as well as inclusive markets such as microfinance, housing, health and education.

Particularly given the tight credit market, it is common for governments to leverage financing from several sources (World Bank, export credit agencies, private equity funds, etc.), when developing large projects.

Links and Additional Resources

U.S. Government

U.S. Commercial Service Mexico http://www.export.gov/mexico

U.S. Export Import Bank http://www.exim.gov

Overseas Private Investment Corporation http://www.opic.gov

U.S. Trade and Development Agency http://www.ustda.gov

U.S. Small Business Administration http://www.sba.gov

Inter-American Development Bank http://www.buyusa.gov/idb

World Bank http://www.worldbank.org

Mexican Government

Mexican Government Procurement Portal http://www.compranet.gob.mx

Mexico’s National Infrastructure Program (NIP) 2014-2018 http://presidencia.gob.mx/pni/

Mexican Institute of Industrial Property http://www.impi.gob.mx

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