Gun deal reveals flaws in procurement law

Last of two parts

THE HEART of the government’s procurement system lies on the banks of the Pasig, just across the river from Malacañang Palace. But it is not a gleaming edifice that houses the state agency wielding considerable power over multimillion-peso government contracts. Instead, the Procurement Service of the Department of Budget and Management (PS-DBM) sits on one part of a huge warehouse that is filled to the rafters with all sorts of government supplies.

The warehouse itself lies at the end of a dead-end alley in Paco, Manila, connected to the rest of the street by a small rickety bridge. To get to that end of the road, visitors and motorists must first negotiate the stretch made narrower and dangerous by children darting in the path of vehicles, and squatter communities congesting both sides of the street.

PS-DBM officials joke that most visitors to their office usually get lost the first time they visit. Like clockwork, however, a steady stream of suppliers, contractors and government procurement officers every Tuesday and Thursday manage to find their way to the PS-DBM offices to make their cases before the DBM’s Inter-Agency Bids and Awards Committee (IABAC). These are the days reserved for the committee to discuss and decide on an assortment of procurement contracts covering anything from electric fans, medicines and books, to radios, combat boots and even assault rifles.

Once barely noticed by anyone, the PS-DBM since last year has hosted these IABAC meetings and now handles the procurement for more than 2,000 agencies all over the country. As the implementing agency for Republic Act 9184, the new procurement reform law, it is also the entity that signs contracts on behalf of all government institutions and is the repository of the funds coming from these. It serves as the final check before precious government money is released.

But such tremendous powers can create tremendous temptations and opportunities for malfeasance. At the very least, the sheer volume of procurement traffic that heads the PS-DBM’s way can sometimes result in lapses in procedure.

Among the more recent examples of such lapses is one involving the P102 million-contract for some 97,000 combat boots intended for the Armed Forces of the Philippines (AFP). The matter was investigated by Prof. Carolina Hernandez, presidential adviser to implement the Feliciano Commission recommendations.

Although Hernandez said in her report that the PS-DBM conducted the bidding “according to the (implementing rules and regulations) of RA 9184,” she noted that doubts on the integrity of the bidding process could be avoided in the future had the PS-DBM attended to procedural details that one of the bidders questioned, such as formal notices on testing schedules of goods being procured, and improving the recording of the proceedings. She also recommended making available to the public “authenticated minutes of the conduct of the bidding,” and ensuring the presence of civil society groups and media representatives.

It was not a losing bidder, however, who put the spotlight on another recent and questionable deal entered into by the PS-DBM.

Philippine National Police (PNP) Chief Edgar Aglipay, hoping to avoid the scandal that has hit the AFP over its former comptroller Maj. Gen. Carlos Garcia, was conducting a campaign to check corruption in the PNP when he was alerted by officers of the police Special Action Force (SAF) about a P54-million deal to repair and refurbish more than 3,000 assault rifles awarded to a supplier who had previously botched a similar job.

In his October 15, 2004 letter asking the PS-DBM to stop the contract, Aglipay said “key officers of the SAF have…strongly suggested we forego with the refurbishing because of the bad experience they had with the use of refurbished firearms.”

But the PNP can no longer back out of the deal, apparently because of how the PS-DBM had proceeded with it.

Because there were still no funds available when it awarded the job to Precision Munitions Inc. last September, the PS-DBM issued not a contract, but a Memorandum of Understanding (MOU) to the company. It then told the company to proceed with the work, thereby making it practically impossible to renege from the agreement without inviting a lawsuit from Precision.

Among the curious things about the entire episode, however, is that, as one legal expert points out, “There’s no such creature as an MOU in the IRR (implementing rules and regulations) of the procurement law.” The rifle-repair-and-refurbishing project was also apparently decided upon and signed within a matter of days-lightning speed by government standards.

The Agency Procurement Request (APR) that is supposed to trigger the whole procurement process, was initialed by Aglipay last September 2. Five days later, the project was awarded to Precision through the MOU signed by Precision Munitions Chair Edgar Lucas and PS-DBM Director Estanislao Granados on September 15. The APR was stamped received by the PS-DBM on September 8.

There had been no public bidding for the project because Precision Munitions Inc. was the only company accredited by the PNP’s Directorate for Research and Development (DRD), or so that office told the PS-DBM. The PNP website lists 98 accredited gun-repair shops in the country as of March 2004, although 35 of these are inactive. Precision Munitions Inc. appears not on this list but on that of accredited gun dealers. It is another company that has Lucas as general manager — Elitools Precision — that appears as an accredited gun-repair shop.

The DRD, though, says the website list is no longer valid since it is updated every month. As of now and as far as the DRD is concerned, only Precision Munitions Inc. is accredited by the PNP to repair and refurbish rifles.

Lucas says his company used to go by the name Precision Technology Producers’ Cooperative. The name change came with its transformation into a corporation, which in turn was for greater financial flexibility. Precision the cooperative wanted to buy the former facilities of the government’s M16 rifle factory and it could do this only as a corporation.

Records at the Securities and Exchange Commission show that Precision Munitions Inc. has a paid-up capital of P2.1 million, which is highly disproportionate to the P54-million contract it got. In the certificate of accreditation issued by the DRD, the contract amount “should not aggregate more than its paid-up capital…at any given time.”

Then again, Precision would still have a chance under the rules of the PNP’s own accreditation committee, which says that it has the discretion over whether or not a company that does not meet this criterion can participate in the bidding process, subject to the approval of the PNP chief.

It had been under the name Precision Technology Producers’ Cooperative that Lucas’s company was awarded a contract by the PS-DBM in behalf of the SAF in 2001 to refurbish long arms. This was the job that the SAF officers had told Aglipay Precision had bungled, resulting in supposedly repaired and refurbished rifles that proved defective.

Had it not been for those defective rifles, Precision’s bagging of the new P54-million deal would probably have not attracted much attention. After all, the procurement reforms law specifies that companies angling for contracts with the government should have track record and must be able to show that they have similar contracts in the recent past or currently ongoing.

PSDBM’s Granados says that other companies could have vied for the project but only if they had “a track record, (and could) present the contracts of a similar nature like for example refurbishing. There should have been many of them, but (first) show us a contract that says over the last few years that you have had a similar contract like refurbishing guns.”

Atty. Norman Daanoy of the Legal Affairs Office of the Department of National Defense, says this requirement encourages cartels and monopolies, and is therefore one of the procurement reform law’s loopholes. “The original intention,” he says “was to remove the ‘old boys’ club.’ (With the provision), what will happen to new entrants?”

The PS-DBM itself says there is no room for greenhorns in the procurement law, which they admit has been called “anti-new, anti-young, and anti-small.” This is because, it says, the government is not a guinea pig on which new and young companies can experiment. PS-DBM officials say companies just starting out can formjoint ventures with older ones or first gain experience in the private sector.

But government institutions like the PNP and the AFP have highly specialized needs. Only they, for instance, offer contracts such as the repair and refurbishing of assault rifles in bulk. It would be impossible for new companies to get such experience in the private sector. Hence, only those with previous contracts with the PNP and the AFP are likely to corner similar contracts in the future. The procurement law’s one-size-fits-all approach to government contracts, therefore, may prejudice the special needs of specific agencies.

Other government suppliers have pointed out yet another flaw in RA 9184. Although it has a protest mechanism that technically allows losing bidders to submit a formal complaint regarding the bidding or awarding process, in reality that privilege seems to be reserved for the very rich. This is because the complainant must first pay a fee of one percent of the project cost. Since government contracts often run into seven to eight figures, that would mean forking over a hefty sum.

Fortunately for the SAF officers, they were not Precision’s rival bidders, so they were able to lodge their protest against the PNP’s new deal with Precision without having to dig into their pockets. And to allay their worries, the PNP’s Directorate for Logistics has ordered the recall of M16 rifles including those repaired from the 2001 contract.

Soon, however, Precision will be delivering the latest batch of repaired and refurbished rifles, and the SAF officers can only brace themselves regarding the rifles’ performance.

According to the MOU for its recent deal with the PNP, Precision is supposed to spread the work out over a four-month period, turning in 500 units of refurbished rifles every half month from September 30 to December 27. Last week, a team composed of representatives from the DBM, SAF and the PNP’s Directorates for Research and Development (DRD) and Logistics (DL) visited Precision’s warehouse in Quezon City for an onsite inspection. The inspection was intended only to confirm Precision’s claims that it was almost halfway through.

The PNP-DRD says the DBM had provided the scope of the inspection, or the guidelines for their visit. Accordingly, the team merely conducted a physical inventory of the firearms: 1,544 completed rifles awaiting new barrels that were to come from the AFP, and 1,309 dismantled or knocked down. It made no judgment on the quality of the work.