Pork, local projects most vulnerable

Daang matuwid? Payoffs
to pols still stalk contracts

Last of Two Parts

“I’M NOT hearing this,” the procurement expert recalls himself saying as he tried to cover his ears. He was recounting an interesting incident that happened sometime last year, while he was helping oversee a public bidding for civil-works contractors to build roads in a southern Philippines province.

The roads project was being funded by a major bilateral donor, which had hired the procurement expert to help ensure the selection of contractors was honest and transparent. The bidding had gone very well; there were many eligible participants and the price bids were genuinely competitive. Members of the bids and awards committee (BAC) also did not take a long time to recommend that the contract should be awarded to the lowest bidder.

But then, the expert said, the winner of the bidding approached him and the BAC members to tell them this: “The mayor just called to ask for his cut. He said we wouldn’t be allowed to enter his town if we didn’t give him something. What should I do?”

That’s when the procurement expert, who spoke to the PCIJ on condition of anonymity as his employment contract forbids him from talking publicly about the project, put his hands to his ears. He said he didn’t know how the story ended – whether the mayor got his cut and how much, if any. But for him, the incident underscores some of the ills that continue to plague many public works projects even as the central offices of the Department of Public Works and Highways (DPWH) begin to make some headway in curbing corruption and collusion in the implementation of big projects.

“For big projects, it’s clear that Secretary Rogelio Singson’s reforms are already making a significant impact,” said the procurement expert, an engineer who used to work for a government-planning agency. “But picking contractors for pork-barrel and local projects is still influenced to a large extent by congressmen or local politicians.”

Exactions by local pols

Even if they do not have a hand in choosing contractors, politicians try to take a slice off the private contractors’ profit margins by threatening to make it hard for them to secure various kinds permits from local authorities. Noted the expert: “Even contractors for major projects being supervised by the DPWH central offices are not spared. Congressmen and local officials demand that contractors see them first before they do any projects in their territories.”

Manolito Madrasto, executive director of the Philippine Constructors Association, the industry grouping of building and infrastructure contractors in the country, and a long-time construction industry veteran, says that as Singson slowly makes some headway in cleaning up the central offices of the DPWH, the problem seems to be shifting to exactions made by local politicians.

“There is still some leakage in public works contracts though it has probably gone down from 30 to 40 percent to only five to 15 percent, most of which go to pay off local officials and politicians,” Madrasto says.

A PCIJ review of the DPWH databases on bid summaries for civil works contracts as well as awarded contracts found that public tenders supervised by central and regional offices tended to be more competitive than those administered by engineering districts, which interact more with local officials. The average number of bidders for contracts worth P50 million and above bidded out by the central and regional offices was 4.4 per project but fell to only 2.4 for contracts worth less than P50 million, which are handled by engineering districts.

Similarly, the “price cut,” or the difference between the authorized budget ceiling, the maximum possible price, and the lowest bid for big projects managed by central and regional offices was 10.9 percent, but was only 4.7 percent for small projects handled by engineering districts.

Not likely to end

The vice president of a major Philippine construction company says exactions from politicians is a problem unlikely to go away soon in spite of Singson or the Aquino administration’s efforts to clean up the DPWH and other national government agencies.

“It seems to be ingrained in our political system,” says the construction bigwig. “I can’t blame these politicians for making these kinds of demands on private contractors because they are just responding to demands made on them by their political supporters and constituents for various kinds of favors. Go to any politician’s house or office, and you’ll see the long lines of people asking for everything from jobs to money for hospitalization.”

The president of a medium-sized construction company says that dealing with politicians’ demands for payoffs is just one of the many challenges facing private contractors on the ground. “In some ways, it’s similar to the problem posed by communist or Muslim rebels asking for revolutionary taxes,” he says. “The appropriate response will depend on the situation but it does not always involve giving them money. Sometimes, CSR (corporate social responsibility)-type of projects like building a school or a livelihood project will do.”

Still, in spite of the problems facing public works contractors, Madrasto says that many of the PCA’s big members are keen to participate in infrastructure projects, including those to be carried out under public-private partnerships (PPP), because of the reforms being put in place in DPWH and other infrastructure agencies.

No more chop-chop?

“We note that he (Singson) is trying to correct the past practice of chopping up a large project into several smaller ones just to accommodate contractors who are not qualified to carry out big projects,” remarks Madrasto. “That’s very encouraging for our members.”

The PCA is helping the DPWH curb collusion among contractors and public works officials, he says.

“We threw out an entire chapter composed of around 20 members because we suspected they were involved in collusive schemes to fix the results of biddings for public works contracts,” says Madrasto, adding that information on their collusive activities were submitted to DPWH.

PCA members are also looking forward to a new mechanism being developed by DPWH for long-term maintenance contracts, lasting five to 10 years, in road and bridge construction, Madrasto says. While holding private contractors to strict performance standards, they will be given a lot of leeway to develop the most cost-effective ways to meet such standards, he says.

It remains to be seen if the reforms to curb collusion and corruption will take root and spread across the entire DPWH organization throughout the country as the agency steps up the implementation of infrastructure projects.

This year, the department is expected to bid out P170 billion worth of projects compared to P156 billion planned last year.

Down then up

The PCIJ review of DPWH data on awarded contracts show that the total value of awarded civil works contracts entered in the agency’s public works registry began to go up toward the end of 2011 after sharply declining in the second half of 2010.

From P121.9 billion, the value of civil works contracts registered with the DPWH in the last year and a half of the Arroyo administration fell by more than half to only P54.96 billion in the first year and a half of the Aquino administration. To be sure, the big slump is not just due to the spending slowdown after the new government reviewed and froze some projects. Some of it is also the effect of the surge in spending under the Arroyo administration just ahead of the May 2010 national elections.

(Click here for a larger version of this figure.)

The number of projects fell from 14,816 to only 9,530 during the same period. But then the value of awarded contracts surged to P7.96 billion in December 2011, the highest since March 2010.

But guarding against collusion among bidders and ensuring the government gets the best price bids when it puts up a public works contract for bidding are not the only challenges facing the DPWH in selecting contractors to build or repair roads, bridges, flood control dikes and other infrastructure projects. It must also choose only those who are qualified to do the work on time and within budget, and with the track record to prove it.

To get a glimpse at the track record of construction companies being awarded millions of pesos worth of public-works contracts, PCIJ generated a list of the hundreds of contractors who won the 9,530 awarded civil works contracts registered since the Aquino administration took over in July 2010, and compared these with some items in the Constructors Performance Evaluation System (CPES) report for 2009, the year before the new administration came in.

The CPES report is prepared by the Construction Industry Authority of the Philippines and Philippine Domestic Construction Board (CIAP-PDCB), joint public-private sector bodies that audit the performance of construction companies carrying out infrastructure projects. CIAP and PDCB have developed a scoring system for a contractor’s workmanship, materials and timeliness in implementing projects. It then adds up the scores and assigns an overall rating for the contractor’s performance for the project. These range from “Outstanding,” “Very Satisfactory,” “Satisfactory,” to “Unsatisfactory” and “Poor.” (Click here to view a copy of the CPES report.)

Bad guys get deals

There were 121 contractors that received a rating of “Poor” and “Unsatisfactory” for at least one completed project between 2007 and 2009, according to the 2009 CPES report. The PCIJ found that 77 of these, or almost two-thirds, were still awarded civil works contracts from the middle of 2010 to 2011.

Altogether, they won contracts worth an aggregate value of P6.4 billion or 11 percent of the total contracts awarded in the last year and a half.

What’s more, even the worst-performing contractors who got more than one “Poor” or “Unsatisfactory” ratings still managed to win huge contracts; the vast majority only have a single failed rating.

A contractor that has four failed ratings got nine projects worth P186.9 million, which is more than four times the average value of contracts per company.

Another with three failed ratings won 32 contracts with a combined value of P245.2 million.

A company with two failed ratings won contracts worth P361.4 million, making it one of the 20 biggest contractors.

A ranking of the contractors by value of aggregate projects showed that two of the Top 10 contractors are not registered with the Securities and Exchange Commission (SEC). It appears that two of the 10 biggest contractors are not in the SEC online database at all, possibly suggesting they are not corporations but only single-proprietorships.

Same with Arroyo

This brings to mind a similar finding made by the PCIJ in 2009 when it examined summary information on over 27,000 DPWH awarded contracts between 2000 and 2008, and discovered that four of the ten biggest contractors were not corporations but only sole-proprietorships.

Another contractor in the Top 10 list seems to be operating with a revoked SEC registration. That seems odd not only for one of biggest contractors around but one which also built the DPWH’s two biggest projects. Though it first registered way back in 1977, the company has no single report filed with the SEC’s online corporate records system.

Perhaps an SEC registration does not count for much in the construction industry so long as a contractor can do the job well. Indeed, nine of the contractors in the Top 10 list had a General Engineering rating of AAA, the highest, while one had a rating of AA, the second highest, according to the Philippine Construction Accreditation Board, the public-private joint body that issues licenses to construction companies wishing to do business in the country.

A PCAB rating of AAA or AA implies a certain degree of financial capacity to carry out and complete large-scale infrastructure projects. If a contractor is not registered with the SEC or does not submit timely reports to the corporate regulator, that makes it harder for the potential clients and the wider public to independently verify its financial position.

Madrasto says that some wily contractors file different financial statements with different agencies to suit different purposes. “They submit inflated figures with PCAB when seeking accreditation and deflated figures with the BIR (Bureau of Internal Revenue) to avoid paying a lot of taxes,” he says. “We in the PCA are advocating the harmonization of submissions to the different regulatory agencies.” – With additional research by Karol Ilagan, PCIJ, April 2012