Panama Canal: Transparent Process

The Panama Canal has been transparent in its multi-billion dollar bidding process, experts say.

The Panama Canal Authority is getting ready to award its contract for the third set of locks at the waterway and a European-Panamanian consortium appears to be the recipient. (Photo: ACP)

Experts praise the bidding process for the largest contract in the $5.2 billion Panama Canal expansion.

“When I left the board…my biggest concern was there would be too much politics involved in any of the contracts,” says Robert McMillan, a former chairman of the Panama Canal Commission and author of Global Passage: Transformation of Panama and the Panama Canal. “To the contrary, they’ve been extremely transparent. I give a lot of credit to Panama and [Panama Canal Authority CEO] Alberto Aleman Zubieta.”

A European-Panamanian consortium, Grupo Unidos por el Canal, is the likely winner of the contract to build a third set of locks at the waterway after receiving the best overall score on price and technical merit, beating firns like U.S.-based Bechtel and Japan-based Mitsubishi.

“Now the proposal has to be reviewed to make sure it is fully in compliance with the request for proposals,” McMillan says.

Although the Panama Canal Authority (ACP) has said that a formal contract won’t be announced until a later date, most experts believe it will end up being Grupo Unidos por el Canal (GUPC). “The formal winner of the bid [is] likely to be the above-mentioned group,” Global Insight said in a commentary today, referring to GUPC.

Meanwhile, an official at ACP told Spanish news agency EFE that GUPC is “virtually the winner of the contract” as it received the best technical score of all the bids, had the lowest price and the only one that was under the ACP budget for the contract.

GUPC offered to do the work for $3.1 billion, which was under the ACP budget of $3.5 billion. That figure was “maintained secret during the bidding and selection process,” Global Insight points out.

By comparison, the Bechtel-Mitsubishi consortium proposed to do the work for $4.2 billion, while a consortium that included Spain-based ACS Servicios and Mexico-based ICA, offered to do so for almost $6.0 billion.

Despite the big difference in price proposals, experts like McMillan believe GUPC’s bid should be realistic. “If I look at them and thought they were fragile and small I would really wonder about the pricing [but] they are very, strong companies...with vast experience in major projects,” McMillan says. “With Deloitte, a very responsible accounting firm, overseeing the whole picture [and] assuming the vetting comes out 100 percent, I feel comfortable with the proposal, which I think is good for the canal that it comes in at that [lower] level.”

The ACP, the government agency that runs the canal, will likely announce the contract the next few days, Aleman said in a statement yesterday after the ACP held a live event where it opened the price bids for the first time. It then added points for technical merit, which was the result of a four-month long process since the proposals were submitted on March 3.

More than 50 local and international experts provided on-the-ground support for the ACP’s Technical Evaluation Board, working in coordination with the official ACP Contracting Officer, while accounting firm Deloitte served as auditor and reviewed the process to certify that this committee followed the necessary procedures to evaluate the bids, the ACP said in a statement. Meanwhile, all Technical Evaluation Board members signed confidentiality and conflict-of-interest agreements, it added.

“Throughout the review period, the ACP’s Technical Evaluation Board and external auditors worked tirelessly to ensure an airtight course of action that reflects our staunch commitment to a fair, rigorous and transparent contracting process, Aleman said.

That process should help ease concerns that there was a conflict of interest. GUCP includes Panama-based Constructora Urbana, which is owned by relatives of Aleman – a fact criticized among many Panamanians.

“We’re related, but there hasn’t been any type of tip, information or benefit,” Aleman said yesterday, according to local newspaper La Prensa.

McMillan says he doubts that Aleman, the ACP and Deloitte would be part of anything that wasn’t completely transparent. “I can’t see them doing that in light of international community [spotlight],” he says. “Knowing Deloitte, their credibility is so important. If they saw one possibility of a tip off, they would have expressed themselves.”

The GUCP’s other members are Spain-based Sacyr Vallehermoso, Italy-based Impregilo and Belgium-based Jan De Nul.

The GUCP competed against a consortium consisting of Bechtel, Mitsubishi and Japan-based Taisei Corporation and a third consortium known as C.A. N.A.L. That group consisted of ACS Servicios, ICA, Germany-based Hochtief Construction and Spanish firms Acciona Infraestructuras an Fomento de Construcciones y Contratas.

In addition to presenting the lowest offer, GUPC also got the highest technical score of the three consortia - 4,088.5 versus 3,973.5 for C.A.N.A.L and 3,789.5 for the Bechtel-Mitsubishi group.

The ACP used a “best value” process to determine the winner, with technical considerations weighing more heavily – 55 percent – than the cost, 45 percent.

ON TRACK

McMillan also praises the fact that the expansion is on track despite the global economic crisis.

In October last year - while the global economic meltdown was going full speed ahead -- the ACP secured a $2.3 billion loan package from a group that include the Japan Bank for International Cooperation ($800 million), the European Investment Bank ($500 million), the Inter-American Development bank ($400 million), the International Finance Corporation ($300 million) and the Andean Development Corporation ($300 million). That followed news in September that Moody’s had given the ACP an investment grade.

The loans, along with toll revenues, will help pay for the $5.2 billion expansion, the ACP has stated.

”Even with the downturn in the economy [and] even retreating a little from toll rises, even with all that put together they will finish on time,” he says.

He’s also encouraged by the fact that the expansion will be completed under the watch of Panama’s new president, Ricardo Martinelli, a former chairman of the ACP and canal affairs minister.