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Cablegate: Panama Canal Authority Bidding Process

VZCZCXYZ0003
PP RUEHWEB

DE RUEHZP #0732/01 2522305
ZNY CCCCC ZZH
P 082305Z SEP 08
FM AMEMBASSY PANAMA
TO RUEHC/SECSTATE WASHDC PRIORITY 2493
INFO RUEAIIA/CIA WASHDC PRIORITY
RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY

C O N F I D E N T I A L PANAMA 000732

SIPDIS

DEPT OF COMMERCE - MATTHEW GAISFORD
DEPT OF TREASURY - SARA SENICA

E.O. 12958: DECL: 08/11/2018
TAGS: ECON EINV ETRD MARR PM EWWT
SUBJECT: PANAMA CANAL AUTHORITY BIDDING PROCESS

Classified By: Ambassador Stephenson for reasons 1.4 (b) and (d).

1. (C) Summary: Consistent with normal operations, the Panama
Canal Authority (ACP) is running a fair, transparent, and
predictable process for the Panama Canal expansion contracts.
Bids for the 3.2 billion dollar third set of locks contract,
the centerpiece of the overall 5.25 billion dollar expansion
project, are due December 10. Post assesses that the bid
process would be difficult to manipulate and that the
government of Panama (GOP) and the ACP remain committed to a
clean process. Reportedly, disarray in the French consortium
could lead to a request to extend the bidding deadline or the
failure of the group to submit a bid. Post continues to
advocate for a level playing field for all companies
competing for the expansion contracts while generally
encouraging the selection of the American-led consortium and
the maximization of U.S. content by all participating
consortia. End Summary.

-------------------------------------
Process of Awarding the Lock Contract
-------------------------------------

2. (C) ACP Administrator Alberto Aleman Zubieta explained the
bidding process for the third set of locks contract to
Ambassador Stephenson during her August 21 courtesy call.
Aleman stated that on December 10, 2008, the remaining three
or four competing consortia are required to submit their bids
for the locks contract for the Panama Canal expansion.
(Note: There are four prequalified multinational consortia:
Bechtel (American led), United Group for the Canal (Spanish
led), Atlantic-Pacific Consortium of Panama (French led), and
CANAL Consortium (Spanish led).)

3. (C) Aleman further explained that the ACP requires all
consortia to include separate technical and financial
packages. The Authority promises to immediately lock the
unopened financial packages in the National Bank vault, while
the four separate sub-committees of the Technical Committee
will evaluate independently portions of the technical
packages based upon known objective criteria. Aleman expects
these committees to finish in March, with an independent
auditor documenting all of their work and decisions.

4. (C) When the Technical Committee finishes assigning points
to the technical packages, the ACP will conduct a public
televised opening of the financial packages, Aleman noted.
The process will then advance by the ACP immediately scoring
the financial submissions and openly adding the technical and
financial scores together to determine a winner. The
technical score contains a maximum of 5500 points or 55
percent of the total possible points. The financial score
contains a maximum of 4500 points or 45 percent of the total
possible points. For the financial score, the lowest bidder
will receive the entire 4500 points and the other consortia
will receive points proportional to how much more expensive
their bid are compared to the lowest bid. ACP interlocutors
believe a proposed 400 million USD performance bond will
inhibit a consortium from trying to win the contract with a
lowball bid and then not being able to complete the project.
Aleman finished by stating he had told each consortium that
the process was based upon the "best effort with the best
price" and not any political or monetary influence. He
emphasized that the process would be fair, transparent, and
predictable.

---------------------
Perception of the ACP
---------------------

5. (C) ACP's management of the bidding process is consistent
with their overall reputation. The ACP is considered by the
Panamanian public, Post, CH2MHill (the project management
advisor), and Bechtel to be a model of a fair and transparent
organization. For example, the ACP cites its safety record
(29 accidents in 2000 versus 10 accidents in 2007), profits
(580 million dollars in 2000 versus 1 billion 760 million
dollars in 2007), and ability to maximize the volume of
shipping of the canal (230.2 versus 312.8 million net tonnage
based on the Panama Canal Universal Measurement System). The
ACP procurement system also exemplifies its efficiency and
transparency. The Authority advertises all needed goods and
services on-line and subsequently lists the winning company
along with the price paid and the procurement decision-maker
in the ACP.

-----------------
Views of CH2MHill
-----------------

6. (C) Panama-based representatives of CH2MHill, the U.S.
firm that serves as the project management advisor to the ACP
for the canal expansion, maintain that the ACP is supervising
the bidding process for the locks contract and other related
contracts in a fully transparent manner. CH2MHill
representatives maintain that their reputation is at stake if
the process is perceived as being less than fully
transparent. They praised the U.S. position calling for
transparency and that a contract awarded on best price and
technology was appropriate. The CH2MHill representatives
opined that the United States and the many U.S. companies
involved in the expansion and the consortia would be best
served if the USG maintained its public posture of monitoring
and assuring a transparent process.

-----------------------------
French Consortium in Trouble?
-----------------------------

7. (C) CH2MHill representatives reported that the French
Ambassador recently called on a senior GOP official (not an
ACP official), whom they did not identify. Supposedly, the
French Ambassador made a blunt push on behalf of the French
led consortium and it appeared to have been rebuffed. The
French group, allegedly, had run into issues that it calls
"deal-breakers". From contacts in the ACP, Post learned that
the last extension for bid submissions (to December 10, 2008)
was granted to satisfy the French and that the French came
back once again asking for more time and/or concessions.
CH2MHill representatives speculated that the French challenge
might have reflected cash flow issues and the group's comfort
level in mitigating the overall risk of the project rather
than actual contractual elements. It was also possible,
CH2MHill reps added, that the French were looking for a way
to leave the competition for reasons other than these. They
believed that the evaluation process was immune to
extraordinary efforts due to the transparency,
comprehensiveness, and the number of people involved in the
process. The ACP recently implemented a rule that mandated
that the ACP Inspector General (IG) be present at all
meetings between the consortia and CH2MHill; supplementing
the prior requirement that the IG be present for all meetings
between the ACP and individual consortia. The CH2MHill
representatives advised that they would not hesitate to
contact the Senior Commercial Officer if they thought the
bidding process was less than transparent or one of the
consortia used unethical means to win the contract.
Representatives of Bechtel, Caterpillar (who expects to
supply the winning consortium with equipment), and CH2MHill
told Senior Commercial Officer in separate meetings that the
French consortia was in disarray and would likely bow out.

-----------------------------
Current U.S. Embassy Advocacy
-----------------------------

8. (U) Since the inception of this project, the U.S. Embassy
has pushed the GOP to be fair, transparent, and predictable
in its dealings. Bechtel is the only U.S. company that is
leading a consortium; however, each consortium plans on
procuring goods and services from the United States due to
the proximity of the United States and the weak dollar.

9. (U) Since each consortium needs to purchase U.S. goods and
services, the Department of Commerce provided additional
guidance to the Senior Commercial Officer (SCO) to maximize
the percentage of "U.S. content" in each of the four
consortia. The SCO provided names of U.S. companies that can
provide specialized goods and services to each of the
consortia.

--------------------------------------------- -----
Bechtel's Advocacy Request and Views of Bechtel UK
--------------------------------------------- -----

10. (C) According to the U.S. Department of Commerce Advocacy
Center, Bechtel submitted a request for "soft advocacy" from
its U.S. based offices. The Advocacy Request is pending. A
representative of Bechtel UK, the Bechtel Office leading
Bechtel's bid for canal expansion work, confirmed to the
Senior Commercial Officer that Bechtel only wanted "soft
advocacy" - which Bechtel defined as advocacy for an open and
transparent process, as well as expressing the Embassy's hope
that an American company wins and is able to carry on the
tradition of Panamanian-American collaboration in the Canal.
He believed that the "hard advocacy" would not be effective
E
or in Bechtel's best interests. Bechtel representatives
repeated the "soft advocacy" request to the incoming Economic
Counselor during an August 22 meeting at their Frederick,
Maryland office.

-------
Comment
-------

11. (C) Post will continue to monitor the bidding process and
to advocate for a level playing field through a fair,
transparent, and predictable process. We will also, as
appropriate, indicate that the United States - Panamanian
partnership in the future would be bolstered by an American
company at the helm of the flagship expansion project. To
date, Post sees no evidence that the bid process is in danger
of being subverted, but will remain vigilant. Post looks
forward to a U.S. company winning the locks contract.
Concurrently, Post continues to maximize the U.S. content in
all four consortia.
STEPHENSON

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