VZCZCXYZ0029
PP RUEHWEB

DE RUEHZP #0195/01 0691514
ZNY CCCCC ZZH
P 101514Z MAR 09
FM AMEMBASSY PANAMA
TO RUEHC/SECSTATE WASHDC PRIORITY 3112
INFO RUCPDOC/DEPT OF COMMERCE WASHDC PRIORITY
RULSDMK/DEPT OF TRANSPORTATION WASHDC PRIORITY
RUEATRS/DEPT OF TREASURY WASHDC PRIORITY

C O N F I D E N T I A L PANAMA 000195

SIPDIS

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

E.O. 12958: DECL: 03/03/2019
TAGS: ECON EINV ETRD MARR PM EWWT
SUBJECT: PANAMA CANAL EXPANSION BIDS SUBMITTED

REF: A. 2007 PANAMA 1719
¶B. 2008 PANAMA 320
¶C. 2008 PANAMA 732
¶D. 2008 PANAMA 820
¶E. 2008 PANAMA 851

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

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SUMMARY
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¶1. (U) Under the lights of TV cameras in a packed
auditorium, three consortia, including one led by American
firm Bechtel, submitted bids to the Panama Canal Authority
(ACP) on March 3 to build the 3.3 billion USD set of locks
for the already under-construction third lane of the Panama
Canal. The bid submissions end a year-long and often
contentious licitation process between the ACP and four
pre-qualified consortia (one of which did not submit a bid)
that was considered transparent by the Panamanian people and
to the consortia.

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BID SUBMISSION PRESENTATION
---------------------------

¶2. (U) During a March 3 televised presentation including
representatives of three of the four pre-qualified consortia,
government officials, the diplomatic corps, President
Torrijos, and ACP officials, ACP Administrator Aleman proudly
accepted three bids for the 3.3 billion USD third set of
locks contract, the centerpiece of the overall 5.25 billion
dollar expansion project. The ACP also submitted its own
"price proposal" in a sealed envelope, which sets the upper
limit of what the ACP will pay. In full view of
representatives from the consortia, the public, and the
press, the lead ACP Contracting Officer, a Notary Public, and
ACP Inspector General theatrically moved a sealed box
containing the price proposals by motorcade from the ACP
auditorium to a vault in the National Bank of Panama. The
three technical proposal bids were immediately brought to a
secure, controlled access building. The ACP plans to publicly
retrieve the price proposals once the technical proposal
evaluations are completed in June or July. A new
administration takes office July 1.

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TRANSPARENCY
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¶3. (C) After the presentation, ACP Board Chairman said, "The
ACP has created an airtight process," and the ACP "is firmly
committed to an open, fair, rigorous and transparent bid
process." Supporting the rhetoric, ACP officials have taken
steps throughout this process to emphasize the transparency
of their actions and the fairness of the bidding process.
Every milestone has been accompanied by a public meeting and
all licitation documents were available on the ACP website.
Recently, the GOP publicized the criteria for choosing a
winner by holding a press conference, taking out paid
full-page advertisements in leading Panamanian newspapers,
holding conference calls with interested parties, publishing
official licitation documents, and meeting with the
diplomatic corps. The consortia and associated companies
have not criticized the transparency of the process to
Embassy. While there have not been complaints about
transparency, the consortia have complained about the large
number of changes to the process. See reftels.

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BID EVALUATION PROCESS
----------------------

¶4. (U) The winner will be determined by a "best value"
methodology in which each consortium will receive a combined
score based 55% on the technical proposal and 45% on the
price proposal. The ACP Inspector General, contract auditor
Deliotte, and the lead ACP contracting official will
supervise the fifteen member ACP technical evaluation team as
they score the bid proposals in isolation. The three
technical proposal bids were immediately brought to a secure,
controlled access building. According to the ACP, the
documents are not permitted to leave the building and the
computer systems in the building do not communicate beyond
the walls of the building. If the technical evaluation team
needs additional technical expertise, forty specialized
engineering experts who are on retainer can be immediately
brought to Panama to advise the group. All participants have
signed confidentiality agreements. The three bids will
receive a numeric score based upon criteria published in
licitation documents. When the Technical Committee finishes
its scoring, the ACP plans another televised presentation in
which it will announce the technical scores, and then
retrieve and open the price proposals. Immediately, the
technical and price scores will be apportioned for a combined
score, and a winner will be publicly declared.

¶5. (C) There are two known future sources of possible
turbulence in the process. 1) Sacyr, a Spanish company that
leads a consortium, is considered by press accounts and the
other consortia to be technically bankrupt. If Sacyr wins,
it may not pass the final financial viability review and/or
may not be able to meet the contractual obligation of a 400
million USD surety bond. This outcome may jeopardize the
viability of current bid process. As reported in reftel E,
the concern over Sacyr's financial situation dates to Fall of
¶2008. 2) The winner's price proposal may be higher than
ACP's "price proposal" (Partida Asignada), which is the
maximum price the ACP will pay for the locks contract. Under
this condition, the ACP would negotiate the price with the
winning consortium. The likely outcome would be a descoping
of major tasks from the locks contract and then reclassifying
these tasks as capital improvements not part of the
expansion. Thus, the money would be out of the regular ACP
budget. If the ACP and the winning consortium do not come to
an agreement, then the ACP will request new price proposals
from the three consortia that submitted bids. If this action
does not produce a low enough price proposal, the ACP will
start a new licitation process or raise the amount it is will
to pay. (By Panamanian law, the ACP can only spend 5.25
billion USD on the Expansion Project that includes many major
contracts besides the locks contract. If the 5.25 billion
USD is exceeded, the National Assembly must approve the extra
needed money.)

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FRENCH CONSORTIUM DID NOT SUBMIT A BID
--------------------------------------

¶6. (C) Over the past six months, ACP officials,
representatives from other consortia, and representatives
from program manager CH2MHill, informed Embassy officials
repeatedly that the French consortium was in disarray and
that most consortium members were not working on the
proposal. See reftel E. These reports proved true when the
French consortium did not submit the bid package. As a
result of failing to submit a bid package, the French
consortium will not share in the $15 million stipend set
aside for the losing consortia.

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COMMENT
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¶7. (C) The submission of the bids ended a year-long and often
contentious licitation process that endured 24 amendments, 51
meetings between the consortia and the ACP to primarily
discuss the shifting of technical and financial risk from the
consortia back to the ACP, and tension between the Minister
of the Canal, the Administrator of the Canal, and the Canal
Expansion Program Manager, U.S. company CH2MHill. Past major
sources of turbulence included: 1) Originally the European
consortia wanted the ACP to accept sovereign guarantees of
their financial health. Now the consortia must post bonds.
2) At first, the ACP placed all risk on the consortia; the
risk level is now more balanced. 3) In the past month, the
ACP added the requirement that the winner of the contract
must recertify their financial well-being due to the world
economic downturn. To work toward successful ACP solutions,
the Embassy actively engaged ACP interlocutors at multiple
levels to resolve issues.

¶8. (C) The reftels outline in detail the ACP brinkmanship to
maximize the amount of risk on the consortia while promoting
an environment for competitive bids. While the number of
amendments and meetings illustrate an initial lack of
knowledge in running a multi-billion dollar construction
project and a sometimes antagonistic manner to attempt to
obtain advantage over the consortia, the ACP designed and
implemented a process that was transparent to the Panamanian
people and to the consortia. The desire for transparency may
be rooted in the professional pride of the ACP and a
Panamanian desire to show that without help from others, they
can run a first world organization and process. One business
rationale for the level of transparency could well be to
mitigate the effects of the inevitable litigation from the
losing consortia. End Comment.
STEPHENSON