Corruption in road projects

WB suspects, whistle-blowers bagged biggest DPWH deals

Our latest story reveals that the four contractors debarred by the World Bank anti-corruption unit, the Department of Institutional Integrity (INT), had received among the biggest contracts, by value, awarded by the Department of Public Works and Highways.

The companies — CM Pancho Construction, E.C. de Luna Construction Corporation, Cavite Ideal International Construction and Development Corporation, and China State Construction Engineering Corporation — secured a combined P1.6 billion worth of DPWH contracts, from 2005 to 2008, or even while the INT inquiry was under way or had wrapped up.

However, the contractors who had been spared from sanctions — apparently because they blew the whistle on the alleged cartel of contractors, bureaucrats and politicians rigging public works projects — in fact obtained an even greater amount of contracts from the DPWH.

Four of these firms that served as “whistle-blowers” or witnesses of the INT — Wee Eng Construction, Inc. R.D. Policarpio, P.L. Sebastian and J. M. Luciano Corporation — received contracts altogether worth P2.28 billion, or 42 per cent more than the contracts bagged by the sanctioned contractors. Of the P2.28 billion, about half or P1.1 billion went to Wee Eng, which bagged at least 24 project contracts from the DPWH, including 17 contracts signed in a week’s time, or from Nov. 17 to 24, 2006.

To do this story, the PCIJ mined the 1,102 web pages of data on awarded contracts from 2000 to 2008 that the DPWH has posted on its web site,

The PCIJ has requested the DPWH for an electronic spreadsheet version of the data but was told that it has yet to secure approval from DPWH Secretary Hermogenes Ebdane. If approved, the DPWH said it could only provide the PCIJ static PDF copies of the data.

Hence, to acquire and mine the database, the PCIJ developed a software application that copies each of the web pages and compiles the data into comma-separated values (CSV) format. The PCIJ will make this database available online on and for journalists and citizens to study further.

THEY MAY have played vastly different roles but both the suspects and the whistle-blowers in the World Bank investigation on collusion and corruption in Bank-funded road projects in the Philippines have one thing in common: They all bagged some of the biggest public works contracts from the Department of Public Works and Highways (DPWH).

But even bigger in value and number are the DPWH contracts obtained by the firms that served as whistle-blowers and witnesses — who were not sanctioned — in the investigation conducted by the World Bank’s anti-corruption unit, the powerful Department of Institutional Integrity (INT).

These are among the findings of an exhaustive analysis by the Philippine Center for Investigative Journalism (PCIJ) of 27,535 awarded public-works contracts from 2000 to 2008 that the DPWH has posted on its website, (see table)

The PCIJ has requested the DPWH for an electronic spreadsheet version of its data enrolled in 1,102 pages but was told that the request has yet to be cleared with Secretary Hermogenes Ebdane Jr. If approved, the DPWH said it could only provide the PCIJ static PDF (portable document format) copies of the database.

To acquire and mine the information, the PCIJ developed a software application that copies each of the web pages and compiles the data into comma-separated values (CSV) format.

Billions of pesos

Four of the debarred firms — Cavite Ideal International Construction and Development Corp, China State Construction Engineering Corp, E.C. de Luna Construction Corp and C.M. Pancho Construction Inc — are the 45th, 49th, 144th, and 390th biggest contractors, respectively, in terms of total value of contracts awarded by the DPWH.

Hanjin Heavy Industries & Construction Corp, which the INT had wanted to sanction but was not debarred, ranked as the 76th biggest contractor, out of a total of 1,791 contractors.

Profile of Companies Named in the World Bank Report

* Debarred
** Given sanctions notice but not debarred

Source: he DPWH posts 1,102 pages of data on awarded contracts (2000 to 2008) on its web site, The PCIJ has requested an electronic spreadsheet version of the data but was told by the DPWH that it has yet to clear the request with Secretary Hermogenes Ebdane Jr. If approved, the DPWH said it can only provide the PCIJ static PDF copies of the data. To acquire the information, the PCIJ developed a software application that copies each of the web pages and compiles the data into comma-separated values (CSV) format.

Cavite Ideal International Construction and Development Corp.* 524,466,616 45
China State Construction Engineering Corp.* 486,343,416 49
Hanjin Heavy Industries & Construction Co.** 349,000,000 76
E.C. de Luna Construction Corp.* 207,474,692 144
C.M. Pancho Construction Inc.* 61,219,397 390
China Geo-Engineering, China Road and Bridges Corp., China Wu Yi Co. Ltd., Dongsung Construction Co. Ltd.* No data available
China International Water & Electric Corp., Daewoo Engineering & Construction Co. Ltd., EEI Corp., Italian-Thai Development Public Co. Ltd., Sammi Construction Co. Ltd. and Shingsung Corp General Contractors & Engineers** No data available
Wee Eng Construction Inc. 1,109,537,233 16
P.L. Sebastian Construction 424,274,052 58
R.D. Policarpio & Co. Inc. 400,918,765 61
J.M. Luciano Construction Inc. 345,615,312 78
China Harbour Engineering Co., Daelim Industrial Co. Ltd., Heunghwa Industry Co. Ltd. and Keangnam Enterprise Ltd., Yoshida Construction Co. Ltd., Shinhan Bank No data available

Together, the five companies bagged public works contracts with a combined value of P1.6 billion.

But the combined value of the DPWH contracts won by four other companies that were not the subject of the probe but assisted as witnesses of the INT, reached P2.28 billion.

About half of that P2.28 billion went to Wee Eng Construction Inc. alone, including 16 chopped up road projects in Quezon province that the DPWH awarded in just a week’s time — from November 17 to 24, 2006.

Emerging as the 16th biggest contractor among those with contracts with the DPWH, Wee Eng outranks all the debarred companies in terms of total value of its DPWH deals. The three other cooperative companies, meanwhile, beat out E.C. de Luna and C.M. Pancho.

Whistleblowers R.D. Policarpio & Co, and J.M. Luciano Construction came in as the DPWH’s 61st and 78th biggest contractors, respectively. The owner of the 58th biggest contractor, P.L. Sebastian Construction, was also interviewed but did not reveal damning information.

Bribe-taker’s cartel

The voluminous INT probe reports — while frustratingly incomplete because investigators did not interview DPWH officials and politicians named as members of a “cartel” of bribe-takers — raise important questions on the scale of collusion and corruption in infrastructure projects that cost billions of pesos. A huge chunk of these funds are loans that will eventually be billed on taxpayers.

Unfortunately, local oversight of how infrastructure funds are spent is terribly sparse and spotty that the officials of implementing agencies, the budget department, and even the Commission on Audit cannot really be sure what proportion of government’s annual infrastructure budget is spent according to authorized purposes.

Between 2000 and 2008, the Public Works department alone awarded more than 27,500 contracts worth P138.5 billion. The contracts, which averaged about P5 million each in value, were tendered and awarded by 191 DPWH engineering district offices and other implementing offices to 1,791 contractors.

The third biggest contract listed on the DPWH website — Package C.4: South Luzon Expressway Service Road (East and West) valued at P524.5 million — was awarded by the DPWH’s Urban Roads Project management office to Cavite Ideal in May 2005, one of the firms debarred by the World Bank.

China State, also debarred, won the fifth biggest contract — Contract Package C.5 — Quirino Highway (NLEX Junction to North Fairview) valued at P486.3 million — in August 2005. Again, the contract was awarded by the DPWH’s Urban Roads Project management office.

Hanjin, which escaped sanctions because there was not enough evidence against it, won the 13th biggest contract — Completion/Construction of Subic-Cawag-Balaybay Road, Phase II (Segment IV) in Subic, Zambales valued at P349 million — from DPWH Region 3 in October 2006.

Among the companies that escaped Bank sanctions because they did not participate in the two disputed tenders for NRIMP-1, Wee Eng won the 11th biggest contract — Concreting of Surigao-Davao Coastal Road (Marihatag-San Agustin Section) in Surigao del Sur valued at P373.8 million.

The project was awarded by DPWH Region 13 in December 2007, or after the INT had wound up its interviews with respondents and witnesses on the alleged collusion in the first phase of the National Roads Improvement and Management Project or NRIMP-1.

Modus operandi

From the INT’s account of its investigation and “records of interviews” with the respondents and witnesses, the picture that emerges is a syndicate or “cartel” that instructs contractors on their exact bids to simulate a genuinely competitive tender. The cartel members have even gone as far as submit fake bids and pre-qualification documents to make it appear that a foreign company was taking part in at least one international competitive tender.

According to the INT report, the cartel, through public-works officials, can even artificially inflate approved budget for contracts to increase potential pay-offs to various parties. It can also punish contractors who refuse to take part in the collusive scheme or renege on agreements by disqualifying them from taking part in future tenders.

After three rounds of tenders between 2002 and 2006, the collusive scheme has grown to involve not just small or marginal players but some of the biggest local and foreign roads contractors operating in the country, based on the list of 15 companies and one person that the INT had sought to sanction back in May 2008.

Appeal motions

The World Bank sanctions board eventually debarred eight companies and one individual in January 2009. Two debarred Philippine firms, E.C. de Luna and C.M. Pancho, have announced separate plans to file motions to appeal the sanctions ruling, the last stage in administrative proceedings that the INT conducts, to determine violations of the Bank’s procurement guidelines.

The INT believes that World Bank money that could have been diverted to illegal payoffs in the NRIMP-1 projects was at three to four times the initial estimates.

“In the two Packages examined in this matter, tangible losses from Bank funds would have been nearly $10 million had they been carried out,” the INT report said. “However, INT believes that the entire NRIMP-1 Project has been corrupted, putting at least $30-45 million of the entire $150 million loan at risk.”

Indeed, the World Bank staff first became suspicious that irregularities were afoot as early as January 2001, less than a year after the $150 million loan for NRIMP-1 was approved.

Then DPWH Secretary Florante Soriquez proposed to repackage of the contracts into five sub-contracts. The Bank’s task team leader then, Denis Robitaille, rejected the proposal and wrote to Soriquez: “It seems that the repackaging is being proposed only to fit the capacity of certain size of contractors.”

In June 2002, William Paterson, who succeeded Robitaille, objected to the DPWH’s report on the pre-qualification of bidders for the first round of tenders later that year because, among others, “joint venture partners were improperly rated”; “some firms were inappropriately declared ineligible for multiple contracts”; and “some bidders’ pre-qualification application assertions appeared questionable.”

The outcome of the tenders for two components of the roads improvement project in October and November 2002 bolstered Paterson’s suspicions of collusion. The winning bids “both came in more than 25 per cent above the agency estimate and had relatively fewer bidders,” he wrote in an internal email in January 2003. “A local Senator has been pressing for (a disputed) bid to be accepted and accused the BAC (bids and awards committee) chairman of interference when the BAC began to investigate.”

In April 2003, Paterson asked the INT to come in and investigate. The Bank’s anti-corruption unit sent investigators to interview some of the contractors in August 2005.

Suzuka’s story

One of the first contractors they interviewed was Tomatu Suzuka, who told the INT during the interview on August 5, 2005 in Japan that he had met with the late Senator Robert Barbers and Jose Miguel ‘Mike’ Arroyo, President Gloria Arroyo’s husband.

Suzuka was trying to get business in the Philippines for his construction company. According to the INT interviewer’s account of the conversation, “Mr. Suzuka stated that ‘they first discussed bribes’ and that ‘they had a rough approach.’”

In a statement read by his lawyer at the senate hearing Thursday last week, Mike Arroyo categorically denied the allegation, saying he had not met the Japanese contractor. Barbers’s sons have also decried the dragging of their late father’s name into the row.

By all indications, Suzuka’s tale was one of the most important breaks the INT’s anti-corruption investigators ever had. It’s not very often that they encounter a witness who talks about meeting the spouse of a country’s president to discuss bribes.

Oddly enough, however, the INT interviewers did not press Suzuka for more details such as the time and place of the meeting, and exactly what Arroyo and Barbers said about bribes. Neither did the investigators try to get in touch with Mike Arroyo or Barbers, who died in December 2005.

Still, World Bank officials and INT investigators were convinced that they were dealing not just with a group of wily contractors, but with a well-organized syndicate supported by powerful political figures and public-works officials.

High-level support

“Evidence suggests (that) the cartel may enjoy support at the highest levels of the Government of the Philippines, including several officials of the DPWH and even reaching the husband of the President (Gloria Macapagal Arroyo) herself,” the INT later wrote in the Notice of Sanctions Proceedings.

INT investigators knew they had a political bombshell on their hands and so sought to handle the matter carefully, according to at least one person whom the investigators consulted in Manila. But the Arroyo administration, after years of dealing with a string of controversies, had developed an extraordinary ability to defuse politically explosive issues. Already, the administration’s political bomb squad seems to be hard at work.

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