By: Francisco Orellana, CLD Guatemala (Escuintla office) and José de la Peña, Founder Partner CLD Guatemala.
ACQUISITIONS IN GUATEMALA
The pandemic continued to affect us! And that’s why at CLD LEGAL we continue to scan the weaknesses of our system and create solutions to the needs that our customers and the general population can face in their daily operations. This time we have analyzed:
THE CONTRACTOR’S PATRIMONIAL PROTECTION
Advertising, equality of bidders, and competition are the fundamental principles of public procurement. In Guatemala, although not expressly regulated in the standard, they are principles that are included within the different procurement phases regulated in Decree No. 57-92 of the Congress of the Republic of Guatemala “Law on Government Procurement”, although pitifully, are not always fulfilled.
Definitely, the procurement system in Guatemala must be updated and simplified, purifying unnecessary procedures, promoting the speed of processes, the permissibility of the resealing of fundamental and non-fundamental requirements, strengthening equality, and mainly ensuring that procurement processes are competitive in order to acquire quality goods and services at reasonable prices.
As regulated by the State Procurement Act, there are various processes through which the state acquires works, goods, and services, which are listed below:
- Acquisition of Imported Supplies
- Open contract
- Direct purchase
- Low-amount purchase
- Single-vendor acquisition
- Leasing and buying real estate
- Reverse electronic auction
- Acquisition by special entities
- Exception regime
Public procurement is a key factor for the country’s economy, where the elimination of bureaucracy and the quality of procurement-oriented spending to promote the common good (health, education, security, infrastructure) should definitely be priority targets for the Rulers.
A very important aspect is that government purchases affect the national economy because of the profits that occur from the award of different contracts, job creation, and outsourcing of goods and services, among others. All of this has a positive effect by raising income per capita in certain socio-economic sectors.
There are several important aspects that can be analyzed throughout a procurement process and that is that very few officials, analysts, and professionals deepen this with objective opinions and criteria aimed at seeking a balance between protecting the interests of the State, seeking the common good and seeing public procurement as an attractive and lawful business for traders.
During the last decade something that attracts attention, is the abstention in the participation of private entities and companies, which offer quality goods and services at reasonable prices. This is due in most cases to bad experiences in previous processes and poor technical and legal advice in the preparation of offers.
The Law on Government Procurement is somewhat stringent, establishing that where there is an error in a requirement of those classified as fundamental, tenders must be rejected without the option of dressing. This has led many companies to lose great business opportunities with the state, being mostly prestigious companies.
IS IT PROFITABLE TO SELL TO THE STATE?
When creating a company or starting a business, we rarely consider selling our goods or services to the State; the main reasons being:
i) We believe that it is very complicated because of the cumbersome procedures, registrations, and all the requirements that must be met;
ii) We believe that everything about the public sector is overrun by corruption;
These barriers that we create are not entirely right. Hiring with the State is not very difficult, and of course, you can get useful through such contracts; however, in order to achieve this, it must be learned to bid to be awarded, which involves studying the institution to which the offer will be submitted, researching the background, the requirements required and how that institution purchases goods and services through the GUATECOMPRAS SYSTEM.
This definitely implies the need for legal and technical advice that has the experience and knows the state structure, and that ensures compliance and thorough review of the requirements and documentation to be presented within the procurement processes.
There are many factors that define a good business and have a positive impact on the growth of companies, of course, that profitability is one of the most important, however, on many occasions, such profitability depends on sales that are made once a year or for short periods, and it is not that such practice is wrong, but it would be better if the goods, works, supplies, and services that we offer in our business have the capacity to endure for a long time.
In this sense and under the model of state procurement, we can do business that lasts since with the State the demand for goods, works, supplies, and services will always be there and will last as long as the constitutional obligation of the state, to provide health services, education, improvement of infrastructure, etc.; that is, business opportunities will always be.
PATRIMONIAL PROTECTION OF THE OFFERANT
In accordance with the Guatemalan legal order in force, and specifically as regulated by the Law on Government Procurement, they may offer:
- Individual traders (individual person registered as such before commercial registration).
- Legal entities (Anonymous company is the most used).
- Foreign entities
Planned protection is in two phases:
A. In Guatemala, among the existing types of legal entity, the Anonymous Company has been updated with greater promotion. So, we initially recommend acting within a process of contracting the State, through an Anonymous Company. This as it allows two important things:
- The property protection of investors/shareholders.
- The continuity and stability it can offer to the State, considering that many important projects or services are long-term implementations. This allows, in essence, to continue the execution and delivery of the expected result, since, in case of any change or eventuality that makes it necessary to change representatives or managers of the project or service, it continues to be executed and delivered to the State by the same entity to which it was awarded. On the contrary, if it is done through an individual person (individual trader), at the time this person dies, we would be faced with a limitation that would prevent us from continuing with the performance of the contract which would affect the interests of the state; precisely because in most contracts of this nature it is forbidden to subcontract, assign or alienate the rights acquired through the award and subsequent contracting.
B. Guatemalan society, may be owned by a foreign entity (holding company) in which, by security standards and guarantees, it is better to use those incorporated in Panama, and the reason for this lies in the fact that the Panamanian Registry has implemented many measures to ensure security and prevent fraud.
Considering that an entity incorporated in Panama, would be a partner of the Guatemalan society that we have been analyzing, we continue to give protection to the assets of investors, since against the projects and adversities that are presented, they can find the best solutions, framed within the framework of the law and providing stability to their companies, which they replicate in the stability offered to the State of Guatemala in the execution of the work or service that was awarded through a public procurement process.
“The formation of a good offer that meets all fundamental and non-fundamental requirements is a lawful way to be awarded and to combat the traditional procurement system; no one is above the law. And protected wealth provides stability to its investors and to the state itself.”