By YVONNE T. CHUA
THE World Bank has identified at least a dozen stages in the country’s road projects, from procurement to payment, that are prone to corruption.
The “key corruption risks” in infrastructure contracts are listed in the bank’s project appraisal document on the $232 million loan it gave last year to the Philippine government for the second phase of the National Roads Improvement and Management Project (NRIMP-2).
As early as 2003, the World Bank rejected bids for two contracts worth $33 million it was funding under the first phase of the project or NRIMP-1 because of bid rigging. The bank released in 2000 a $150 million loan for NRIMP-1.
After two more rounds of bidding—in 2004 and 2006—yielded the same results, the bank called in its Department of Institutional Integrity (INT).
Bank investigators have since concluded that “a cartel of contractors (was) engaged in corrupt and collusive practices in all three rounds of bidding, undermining competition in roads construction in the Philippines and inflating prices by up to 30 percent.”
Last month, the World Bank debarred seven firms and an individual from bidding on future World Bank projects.
Recently, First Gentleman Jose Miguel Arroyo was identified as a “patron” of Eduardo de Luna, owner of the blacklisted E. C. de Luna Corp.
According to excerpts from the INT report disclosed by Sen. Panfilo Lacson, 10 witnesses interviewed by the bank also linked Arroyo to kickbacks.
The report also identified the following politicians and government bureaucrats as purportedly having taken bribes from contractors: the late administration senator Robert Barbers, former Surigao del Sur Rep. Prospero Pichay, former Negros Occidental Rep. Jacinto Paras and former Public Works Secretary Florante Soriquez.
According to the World Bank’s project appraisal document on NRIMP-2, bid rigging for the $33 million contracts in the first phase resulted in the lowest bids initially reaching more than 36 percent of the project estimates. The prices were reduced only to 15 percent in the third round. These contracts were covered by international competitive bidding (ICB).
The bank said the prequalification of bidders for these contracts was manipulated in the first round and was improved through the use of the computerized Civil Works Registry in the second round. “But the process did not effectively address the operation of the cartel,” it acknowledged.
For contracts that were bidded out through national competitive bidding (NCB), the World Bank said prices exceeded more than 30 percent of estimates, and evaluation and award periods took exceptionally long: up to 400 days.
In the case of consultancies, the World Bank said a few “encumbent” firms dominated the market. The other problems it listed: inconsistent technical evaluations of experience, evidence of attempts to use lowball pricing to win, and a pattern of very high subsequent cost increases through contract amendments and extensions.
The World Bank said the following were “key corruption risks” in NRIMP-2:
Collusion: Bidders are manipulated by an “arranger” under the direction of a patron, who for large national or ICB bids is typically a senior politician or elite, and who for regional or district level bids is typically a local politician. (High risk)
Bid rigging: Bid prices are established by the arranger, with a sufficient margin above the cost estimate to pay kickbacks to the patrons, cartel participants and some officials. The margin is often high, e.g., 15-36 percent, but appears subject to controls as the Bank began rejecting high bids in 2003 the margin evident in the bids decreased first to less than 30 percent and recently to less than 15 percent. The Patron often requires payment at the time of award recommendation, other payments are usually made from the advance payment. (High risk)
Misrepresentation of bidder qualifications: Falsification of work history, productivity or financial records. Most elements were eliminated through introduction o f computerized Civil Works Registry in 2002, but its effectiveness has been limited since by waivers and misuse. (Substantial risk)
Fraud: Falsification o f documents. (Substantial risk)
Bid evaluation: Manipulation of bid evaluation is relatively rare or minor under recent internal controls, but could re-emerge; for consulting services, manipulation seems common and high. (Substantial risk)
Bid process: Interference with bid submission, substitution o f documents or mis-reading of bid prices relatively rare in foreign-assisted projects (FAP) due to observer controls, but may occur in locally-assisted projects (LAP) and could re-emerge. (Substantial risk)
Contract processing: Bribes to facilitate processing o f contract award and subsequent payments are highly probable. The approval process has multiple layers and extended delays occur in key offices, e.g., legal services, construction, executive, project management office. (High risk)
Preferred suppliers: Nomination of preferred agents for key contract services such as bank guarantee, security, indemnity insurance, who provide kickback to project level officials is common. (High risk)
Contract variation: The size of some variations is inflated through estimates of quantities for pay items which are difficult to confirm or audit, such as repairs, excavation, landslide removal, etc. Usually results from collusion o f contractor with officials, but may involve collusion of supervising consultant also. (High risk)
Implementation quality: Falsification of quality control test results, defect or repair inspections, etc. through collusion between contractor and supervising officials or consultant. Incidence very dependent on particular individuals and firms, ranging from negligible to modest in most FAP, but minor to serious in LAP. (Substantial risk)
Internal controls: Internal control environment generally weak, e.g. cash advances not liquidated, false invoicing, double-billing, etc. (Substantial risk)
Payment processing: Certification of invoices for payment may involve delays and bribes to project officials or supervising consultants, but this appears minor and has not been reported to be a major problem in FAP. Once submitted, the invoices are processed electronically in the computerized e-NGAS accounting system, and processing status is queued and published on the agency web-sites o f both implementing agency (Department of Public Works and Highways) and disbursement agency (Department of Budget and Management). (Moderate risk)
Fund flow: Weak controls on fund transfers, sub-allotment advices, etc. (High risk)
The World Bank’s findings on corrupt practices in NRIMP-1 have been referred to the Office of the Ombudsman and DBM. The bank has also involved civil society organizations in monitoring the projects through Bantay Lansangan or Road Watch.
The Senate is set to resume on Feb. 12 its inquiry into corruption allegations surrounding NRIMP.