Obscure firms fly high, bag huge DPWH deals

SHE HAS been president for the last seven years, but Gloria Macapagal Arroyo could also be called “queen” — queen of roads, that is.

QUEEN OF ROADS. Arroyo's obsession with road projects is such that she wanted networks of roads and bridges rolled out across the nation, so that she could visit the towns and provinces on weekends and while there, preside over project inaugurals. Photo by Tita Valderama.

Arroyo seemed so obsessed with roads that her first budget secretary, Emilia T. Boncodin, recalls: “You could point to a road anywhere on the map of the Philippines, and she could tell you its name. She had memorized it all.”

According to Boncodin, the president had told her first Cabinet that she wanted to roll out networks of roads and bridges across the nation so that on weekends, she could visit the towns and provinces and while there, preside over project inaugurals.

Quickly, public works officials and contractors began moving gravel, sand, and equipment just so Arroyo could regularly inaugurate roads that are now bound to be part of her legacy. To be sure, she is not the first Philippine president to turn to public infrastructure as political shrines that would perpetuate his or her memory. “It just so happens,” says Boncodin, “that the easiest projects to build are roads and bridges.”

They are, however, apparently not the cheapest, especially when the government is footing the bill. Based on a two-month scrutiny of the online database of the Department of Public Works and Highways (DPWH), the PCIJ has found that the total value of civil-works contracts the department awarded from 2000 to 2008 reached a staggering P138.5 billion ($2.87 billion).

Yet a big proportion of those projects did not result in new roads. Instead, over half of the 27,535 contracts awarded during the period involved the regraveling, repair, maintenance, or improvement of barangay and local roads.

And while Public Works Secretary Hermogenes Ebdane Jr. says that “infrastructure investment has been recognized as a critical pillar in economic development and poverty alleviation under the administration of President Gloria Macapagal Arroyo,” these projects did little to reduce poverty incidence in eight of the 10 provinces that got the biggest value of contracts.

Politics and profit

In truth, the rush to roll out multiple projects might have been driven by a combination of political considerations and personal concerns for profit-making. One congressman, for instance, points out that regraveling is often done on farm-to-market roads and repeated almost on a yearly basis because “this is the easiest thing to do to make money. The contractor puts gravel on a road, and when heavy rains pour, the gravel is washed away, and you are back to having a dirt road again that needs regraveling.”

The less-than-altruistic motivation also led to the flouting of laws, while the fast-paced awarding of contracts only helped to overwhelm a bureaucracy already riddled with inefficiency and ineptitude. Thus, obscure contractors, including some with insufficient licenses and registration papers, were able to snag government projects worth billions of pesos each even though there appeared to be no proof that they were capable of doing quality work.

Photo by Tita C. Valderama

Fixated as she was on roads, Arroyo, according to Boncodin, “did not give as much thought to cost and quality.”

The PCIJ had conducted its review of the DPWH contracts database as a follow-up to the January 2009 report of the World Bank’s anti-corruption unit, the Department of Institutional Integrity (INT), which established collusion and corruption in Bank-funded road projects implemented by the DPWH.

The PCIJ corroborated and correlated the DPWH database with other official databases on poverty, health and education; election turnout in 2004 and 2007; appropriate laws and relevant reports from registration, procurement, budget and audit agencies; statements of assets and liabilities of public officials; and interviews and site visits to the offices of the contractors in Metro Manila, Bulacan, and Batangas.

The PCIJ imported the database in its entirety, keeping intact the integrity of the information to the last decimal digit. The PCIJ later organized the database into a searchable file using a customized comma-separated values format program.

The PCIJ adopted this research method after DPWH officials denied a written request in January 2009, as well as repeated follow-up queries, for a spreadsheet version of the department’s database.

Total deals: 27,535

A total of 27,535 contracts were posted on the agency’s website, www.dpwh.gov.ph. These excluded as yet projects funded under the Priority Development Assistance Fund (PDAF), also derisively called “pork barrel” and other lump-sum project funds lodged with the DPWH for implementation.

In a written response to PCIJ’s queries, Secretary Ebdane indicated that the online data were not complete. He said that from 2004 to 2008 alone, “a total of P185.341 billion ha(s) been allocated covering 92,737 projects under the Department of Public Works and Highways.”

But the data on the DPWH website were enough to yield interesting information, such as the names of the top 10 companies that bagged the biggest value of contracts.

Because of their huge projects load, the PCIJ presumed that contractors that received from P2 billion to P5 billion worth of DPWH projects over the last seven years would be registered as corporations. Yet the PCIJ found out that four contractors in the top 10 list operate only as sole-proprietorship entities.

In theory, these entities should have no problem taking on low-cost projects, which they are allowed to bid on under the law. In reality, they clinched billion-peso project portfolios, and did so by winning multiple low-cost to big contracts, with the acquiescence of the DPWH’s Bids and Awards Committees (BAC).

Boncodin offers an explanation: “The DPWH BAC members did not know, they didn’t check, or the contractors fooled them.” She adds, “obviously, they (contractors) have very, very powerful connections.”

P8B for Gardiolas

Even more surprising, though, is that a single clan — the Gardiolas of Mataas na Kahoy in Batangas — own and control two companies in the DPWH’s list of top 10 contractors: JSG Construction Company Inc, which is ranked No. 1, and E. Gardiola Construction, which is ranked No. 7. (see table)

JSG Construction has so far obtained a total of P5.7 billion in public-works contracts, while E. Gardiola Construction has won contracts worth a total of P2.3 billion. Together, the Gardiola companies have secured contracts from DPWH worth P8 billion.

AN E. Gardiola project: Improvement/rehabilitation of Bayorbor-Nangakaan Road in Mataas na Kahoy, Batangas. Photo by Tita Valderama.

JSG Construction is owned by Judy S. Gardiola and her husband, Edwin Gardiola.

Edwin’s brother Elmer and wife Elaine are owners of E. Gardiola Construction. Elmer is also among the incorporators of JSG Construction.

JSG alone has landed 464 projects spread across the Philippines, even as far as Mindanao. E. Gardiola, for its part, bagged 135 projects between 2006 to 2008.

According to the Gardiolas’ spokesperson, Lito Marana, JSG’s owners could neither confirm nor recall the 464 projects it is listed as having undertaken for the DPWH. Those projects, however, represent about four percent of the total value of contracts awarded by the DPWH since 2000. This is way above the average amount of contracts received per contractor (P77.3 million) and the median P13.5 million.

Still, the Gardiolas said in a statement issued through Marana: “We would like to believe that perseverance and hard work has a lot to do with that. We started small but with a big dream, we actively participated in various biddings and fortunately was able to get a lot of winning bids.”

They also said, “We have a proven track record for finishing projects on time and not been involved in any anomalous transactions or engage(d) in ghost projects.”

Gas station office?

How they have managed to do so, however, is unclear. After all, a field visit to JSG’s declared office address in Mataas na Kahoy, Batangas, showed that the multi-billion-peso company — at least by DPWH standards — holds office at a gas station that is also owned by Judy and Edwin Gardiola.

OFFICE of the JSG Construction Co. Inc. in Mataas na Kahoy, Batangas. Photo by Tita C. Valderama.

A similar visit to the company addresses of E. Gardiola listed in the government directory and the DTI database meanwhile yielded curious results. The firm had vacated a condominium office on Panay Avenue, Quezon City over a year ago, according to the building security guard, while no authorized company officials could be reached at another address, a residential unit in Filinvest I in Fairview, Quezon City.

(By coincidence, Filinvest I’s residents include Public Works Secretary Ebdane. Years ago, Ebdane had bought a lot in Filinvest I but it was only recently that the house was constructed, neighbors said.)

E. Gardiola also lists a branch office in Mataas na Kahoy but it could not be located at all in the town. The local residents, asked for directions on the E. Gardiola office, pointed to the residence of Edwin Gardiola instead. A secretary named Lily at the Gardiola residence in Filinvest I also gave Mataas na Kahoy as the company’s office address.

Other top 10 companies whose offices turned out to be in residential areas include Meditechtrade and Development, which has its headquarters in Barangay Maytunas, San Juan, a residential area. Meditechtrade is No. 2 in the DPWH list and has won contracts with a total value of P4.7 billion.

L.R. Tiqui Builders, which ranks sixth and won bids on projects worth a total of P2.3 billion, operates out of a modest three-story building located inside a compound in Sta. Maria, Bulacan.

Under the Generic Procurement Manual, administrative overhead cost for the headquarters of contractors is imputed in contracts. This amounts to eight to 15 percent of the total value of the contracts.

Confusing PCAB data

Data from the Philippine Contractors Accreditation Board (PCAB) show that of the top 10 contractors in the DPWH database, companies ranked No. 3 to No. 10 supposedly have a “General Engineering – AAA” license category. This means they have obtained the track record and minimum “1,150 minimum overall credit points” required.

OFFICES of L.R. Tiqui Builders in Brgy. Bagbaguin, Sta. Maria, Bulacan (above) and Meditechtrade and Development office in Brgy. Maytunas, San Juan (below). Photo by Tita Valderama.

Triple A contractors are qualified to join bids for roads and projects from Medium B to Large B types, or worth from P3 million to P50 million, and from P3 million to any higher amount, respectively.

However, JSG, which is ranked No. 1. and Meditechtrade, ranked No. 2, only have license categories of “B” and “A,” respectively.

For contractors with license category B, the cap on value of contracts is P3 million to P15 million only. License category A companies may bid for projects worth P3 million to P30 million only.

What sticks out as inexplicable in the PCAB data are two entries — the date PCAB issued the top 10 contractors their first license, and how the contractors were classified by type of business.

The PCAB said it gave JSG its first license in 1987, and classified the firm as a “corporation,” even as the company had registered with the SEC only in 1994, and had this registration revoked in 2006.

Sunwest Corporation, ranked No. 5 in the DPWH database, got its first license from PCAB in 1992, and was listed as a “corporation” even as it registered with the SEC only in 1997.

Hi-Tone Construction, ranked No. 3, got its first license from PCAB in 1997, and was classified as a “corporation” although no records could be found in the SEC confirming its existence as such.

In contrast, Meditechtrade, ranked No. 2, and E. Gardiola, ranked No. 7 in the DPWH database, were enrolled as “sole proprietorship” entities by PCAB even as they registered as corporations with the SEC.

DPWH Bureau of Research and Standards Director Antonio Molano Jr. explains that “triple A (AAA) contractor” usually denotes a “large” company. “We should be expecting that it has a proper office with proper staff because contractors are supposed to have ‘sustaining technical employees’ who would do the regular work,” he says.

“I have known contractors in the same category (AAA) but these are large companies with very big offices,” says Molano, mentioning the likes of F.F. Cruz and D.M. Consunji. ”They even have branches.”

Still and all, Molano considers E. Gardiola in “good standing,” considering its PCAB credentials. E. Gardiola also has the other requisite registrations, signing up with the Department of Trade and Industry (DTI) on January 28, 1994, and then with the Securities and Exchange Commission (SEC) on February 21, 2008 as A.E. Gardiola.

Under Republic Act No. 9184 or the government procurement law, registration with SEC is one of the minimum eligibility requirements for contractors participating in a public bidding for a DPWH project. This applies to corporations or companies. Registration with the DTI is required for sole proprietorship.

From big to small

The Procurement Reform Act of 2002 also specifies that for infrastructure projects, contractors must have “a valid (PCAB) license and registration for the type and cost of contract to be bid.”

According to Molano, who is also a current member of the DPWH’s BAC, a company needs to maintain a certain amount of net worth as a requirement in securing such a license. He says that if a contractor is not able to undertake several projects and the net worth requirement is not reached in the annual renewal of the PCAB license, it will opt to downgrade.

“So ‘yung iba, nagtayo ng mas maliit na company. Of course, hindi puwedeng magsabay ‘yun sa bidding of the same projects (So others formed a smaller company. Of course, it is not allowed for both companies to bid in the same projects),” says Molano.

E. Gardiola is also not the only one among the top 10 to be registered with both the SEC and DTI. Four more are registered in both agencies: Meditechtrade in San Juan, Sunwest Construction and Development in Legazpi City, L.R. Tiqui Builders in Bulacan, and Grace Construction in Ozamis City.

But two of the top 10 firms, Hi-Tone Construction and Development in Legazpi City and G.C.I. Construction in Camarines Sur, are registered only with the DTI, while Ulticon Builders in Butuan City is registered only with the SEC.

Then there are JSG Construction and Northern Builders, which both had their respective SEC registration revoked and now have only DTI registration. According to Molano, some companies do shift from corporation to sole proprietorship because a “smaller company” would be able to participate in “small projects.”

Revoked registration

The Gardiolas’ spokesperson, Marana, however, says that the SEC revoked JSG’s registration in 2006 due to the oversight of the company’s previous accountant, and that “we are preparing a Petition to lift said revocation.”

He adds that since the revocation of its SEC registration, JSG has decided to temporarily keep away from biddings and contracts. “They (JSG) maintain that it was in 2007 that they last participated in the bidding and that (in) 2008, they have not participated in any bidding and whatever projects they were handling were for projects awarded to them in 2007,” says Marana in an e-mail.

The Gardiolas themselves have refused requests for interviews from both the PCIJ and GMA-7 News.

The DPWH database, though, indicates that JSG has continued to win contract bids in 2008. Its last project was undertaken in Biliran — rehabilitation and improvement of national roads and bridges along road sections Almeria-Kawayan and Looc-Tabunan worth P19.2 million — with a Notice to Proceed dated May 30, 2008.

Temporary license?

Another document posted on the official website of the Government Procurement Policy Board (GPPB), the agency assigned to monitor agency compliance with procurement laws, also indicates that the DPWH’s No.1 contractor has only a temporary PCAB license. In the document titled “List of PCAB Renewal Applications for CY 06-07 Eligible for Temporary License (as of 11 July 2006),” JSG Construction Company, Inc. is listed as having only “Temporary License No. 9350,” along with another frequent DPWH contractor, Ulticon Builders, Inc., which was assigned “Temporary License No. 17267.”

But Marana denies this, asserting that JSG has a “permanent (PCAB) license valid until June 2009.” He says that JSG has “religiously filed (its) financial statement with the BIR (Bureau of Internal Revenue) annually as a requirement for accreditation with PCAB.”

GPPB executive director Ruby Alvarez herself expressed surprise when told of the PCAB temporary license list. She said that the idea of contractors having only “temporary license” does not exist in procurement laws, even as the term “special license” is applied to local contractors joining bids for foreign-funded projects.

Alvarez checked with a PCAB official on the phone and the latter was similarly surprised.

PCAB Director Rene Fajardo, however, says a temporary license, which is valid for only 30 days, is issued to contractors whose license is about to expire. He says this acts as an “extension” while PCAB is still processing the license renewal of the contractor until they are given a regular license.

Banned by DOH

It seems, though, that the DPWH is simply not that nitpicky with its contractors. The No. 2 company in its list, in fact, was serving out a ban imposed by another government agency while it was winning bids with the DPWH.

The year-long ban (from March 9, 2005 to March 9, 2006) had been imposed by the Central Bids and Awards Committee of the Department of Health (DOH) for Meditechtrade’s failure to deliver within deadline 28 units of eight-cubic-foot, single-door refrigerators for the contract price of P429,759.20. In the end, the company delivered nothing at all.

Meditechtrade won P9.29 million worth of contracts with the DPWH in 2005. The figure shot to P416.4 million in 2006, increased some more to P2.58 billion in 2007, and ended 2008 with DPWH projects that had a total price tag of P1.7 billion.

From 2004 when it started contracting with the DPWH, Meditechtrade had bagged a total of P4.65 billion in contracts with the department.