Our partner Antonia Rubilar talked to LexLatin about the entry into force of Decree No. 661, which regulates the Procurement Law and establishes Chile as a benchmark in the region in terms of public procurement.
With the recent entry into force of Supreme Decree No. 661, the country advocates transparency and sustainability. What impact will the Procurement Law have on the business ecosystem?
Chile has taken a decisive step towards the modernization of its public procurement system: Supreme Decree No. 661 came into force. This new legal framework regulates Law No. 19,886, on Bases for Administrative Contracts for Supply and Services, popularly known as the Procurement Law.
Now, what is the purpose of the modification? To strengthen the transparency of bidding processes, improve probity standards and make the public procurement regulatory system more accessible, efficient and competitive.
But beyond responding to these needs, the novelty: to include circular economy concepts in government procurement and to position the country as a leader in the region in public procurement.
“The enactment of the new Procurement Law and Regulations represents a significant advance towards sustainability in public procurement in Chile, positioning it among the most innovative in Latin America,” analyzes Alexandra Guerra, litigation associate and public law specialist at Cuatrecasas Santiago.
The ABC of the new regulations: modifications, specifications and new features
Why do many analysts consider that the regulatory update is, in reality, a structural transformation in the way Chile approaches public procurement? Because, on the one hand, they say, it makes it clear that it is no longer enough to modernize processes but that it is also essential to integrate values such as sustainability, transparency and inclusion in government procurement.
“Improving standards of probity and transparency in public procurement procedures is a strategy to increase the trustworthiness of society. The logic behind the implementation of these principles lies in the fact that, by ensuring greater accessibility and clarity in procurement processes, a more informed society is fostered, with a greater capacity to question and monitor the performance of the bodies in charge, as well as the development and implementation of bidding procedures. In this way, this social control contributes directly to strengthening confidence in the institutionality of public procurement”, says Antonio Rubilar, partner at az | albagli zaliasnik.
Guerra agrees that the new regulations are a guarantee of transparency and probity in public procurement processes: “Both the law and the regulations seek to promote the competitiveness of the processes, with the understanding that this will allow access to the best quality goods and services according to the needs of the bidding state agency”.
The contract between the State and suppliers includes changes ranging from the redefinition of award criteria to the implementation of more severe penalties for non-compliance.
According to experts, the modifications that make this regulation a milestone for the business ecosystem are:
- Transparency standards: Bidding procedures and contract execution should have greater levels of disclosure. “Contracts entered into should be published and made available to anyone who wishes to review them. The focus behind this is to generate greater social control and external oversight,” summarizes Rubilar.
- State Procurement and Contracting Information and Management System: All bidding entities must publish relevant information on contracting processes and contract execution. “It will make it possible to carry out the purchasing and contract execution processes, issue and accept purchase orders and develop and publish acts related to contracting,” says Rubilar.
- Registry of State Suppliers: It will be public and mandatory; it regulates the evaluation, duration and renewal, as well as grounds for ineligibility, suspension and even elimination of such registry and its operation. “Suppliers must update their information periodically and comply with the requirements established to maintain their registration and be able to contract with the State”, explains Guerra. For his part, Rubilar stresses that access to information on suppliers facilitates competition in bidding processes.
- Special contracting procedures: Framework Agreements, Agile Purchasing, Electronic Reverse Auction and Contracts for Innovation and Competitive Innovation Dialogue. “The Agile Purchase mechanism, for example, allows the acquisition of goods and services for an amount equal to or less than 100 UTM, prioritizing smaller companies and local suppliers,” explains Guerra.
- Procurement and Contract Management Procedures Manual: It will seek to provide a framework and standard to the entities of the main milestones of a bidding procedure, such as the formulation of bases, payment procedures, internal control mechanisms and guarantees associated with the processes, among others.
- Annual Procurement and Contracting Plan: Entities must detail the list of goods and services they will require each year, along with the quantity, budget and estimated contracting date.
- Integrity Program and reconfiguration of direct contracting: Restriction of the grounds for direct contracting to the exceptional cases specified in the regulations, confirming that the general rule in the provision of goods and services to the State is public bidding.
- Declaration of the inadmissibility of risky or reckless offers.
- Strengthening the powers of the Procurement Directorate, the Comptroller’s Office and the Public Procurement Tribunal: Improvements in the supervision and control of contracts. “This measure makes it easier for the respective bodies to carry out a more precise and rigorous supervision,” says Rubilar.
- Complaint and reserved complaint channels, administered by the Public Procurement and Contracting Directorate. “This channel will allow any person to denounce illegal or arbitrary actions or omissions during an administrative contracting procedure,” says Guerra.
Foreign investment
“Both the new Public Procurement Law and the regulation reinforce key aspects such as transparency, probity, digitalization and agility of the public procurement system, while promoting sustainability and innovation throughout the institutionality. These characteristics, which are increasingly valued, are especially appreciated by foreign companies and place Chile in a privileged position within Latin America, giving it a competitive advantage over its neighboring countries. Decree No. 661, in this sense, establishes Chile as a country with a more efficient, accessible, transparent and sustainable regulatory framework, benefiting both local and foreign companies”, says Antonio Rubilar, partner at az | albagli zaliasnik.
Cuatrecasas believes that foreign companies should carefully examine the regulations and requirements – both formal and substantive – in order to participate in the processes and be awarded the contract.
“The guarantees of probity and transparency have as a counterpart the increase of controls and requirements to offer goods and services to Chilean state agencies”, warns Alexandra Guerra, litigation associate of the firm.
Despite the strengthening of the public procurement process, the regulation recognizes that foreign suppliers may face difficulties in complying with certain requirements.
“In this sense, the regulation grants certain flexibility, without compromising its fundamental principles, to facilitate their participation. An example of this is when it comes to contracting goods and services to foreign suppliers in cases where, due to differences in language, legal, economic or cultural systems, among other factors, it is necessary to carry out the contracting procedure outside the Information System. In these cases, such exception will be allowed, provided that a substantiated administrative act is issued for such purpose. This flexibility should be positively valued by foreign companies, since it will allow them to participate in the processes without being limited by regulatory barriers beyond their control”, Rubilar.
az | albagli zaliasnik recommends that, in order to compete effectively with domestic companies, foreign investors consider partnering with local suppliers. “The regulation establishes that national suppliers have priority or preference over other suppliers, so it could be beneficial,” specifies the Chilean firm’s partner.
Circular economy and SMEs
One of the differentiating points that will be taken into account in the bidding process is that of sustainability and innovation criteria.
With the new regulation, Chile seeks to ensure that bidding processes are more equitable and accessible, promoting the participation of small and medium-sized enterprises (SMEs) and prioritizing sustainability criteria in procurement.
“The Regulation recognizes the implementation, by the Procurement Law, of circular economy principles, which implies considering the full life cycle of purchased goods and services. This includes reuse, recycling and waste reduction, promoting a more efficient and sustainable use of resources. Before making any acquisition, state entities must consult the circular economy platform to see if there are movable goods owned by other entities that can meet their needs,” says Guerra.
Rubilar emphasizes that the regulation establishes that matters that promote sustainability or environmental development are understood as having a high social impact: “Social economy enterprises provide goods and/or services in the market, prioritizing social or environmental objectives”.
For small producers and SMEs, Guerra believes, these measures translate into new business opportunities, incentives for innovation and the possibility of accessing markets that value sustainable practices. “At the same time, they contribute to the efficiency of public spending and to the protection of the environment, benefiting society as a whole,” he concludes.
