The Procurement Law aims to promote transparency in anything that government needs to buy, provide, or construct, including bridges and roads. KEITH BACONGCO/AKP Images

Competitive public bidding for government procurement in the Philippines began more than a century ago when the United States Philippine Commission introduced the American practice of public bidding through Act No. 22, passed on October 15, 1900 and requiring competitive bidding for the purchase of materials and lands needed for the construction of highways and bridges.¹ Several more laws were subsequently passed requiring competitive public bidding when buying government supplies as well as in contracts for public works.

President Manuel L. Quezon and President Diosdado Macapagal subsequently issued executive orders (EOs) during their terms reiterating the need for public bidding for government contracts, equipment and services. President Ferdinand Marcos continued this when he issued Presidential Decree No. 1494 prescribing guidelines for government infrastructure projects. Presidents Corazon Aquino, Fidel Ramos, and Joseph Estrada all followed suit with their own EOs relating to procurement.

But the biggest legal shake up of the procurement process began on October 8, 2001 when President Gloria Macapagal-Arroyo issued EO 40 which consolidated procurement rules and procedures for all national government agencies. It was followed two years later, in January 2003, by Republic Act No. 9184, otherwise known as the Government Procurement Reform Act², which sought to codify all pertinent laws and rules governing government procurement. It tasked the Government Procurement Policy Board (GPPB) as the agency headed to oversee implementation of the new law.

RA 9184 was designed to cover everything government needs to buy, construct or provide. It set down that procurement along with the rules and regulations around it covered the following:

1. Acquisition of goods which includes all items, supplies, materials, and general support services, whether in the nature of equipment, furniture, stationery, materials for constructions, or personal property of any kind, including non-personal or contractual services, such as the repair and maintenance of equipment, and furniture, as well as trucking, hauling, janitorial, security, and related services
2. Consulting services which cover services for infrastructure projects and other types of project by the government requiring adequate external, technical, and professional expertise that are beyond the capacity and capability of the government to undertake such as, but not limited to: (a) advisory and review services; (b) pre-investment or feasibility studies; (c) design; (d) construction supervision; (e) management and related services; and (f) other technical services or special studies.
3. Infrastructure projects which include the construction, improvement, rehabilitation, demolition, repair, restoration or maintenance of roads and bridges, railways, airports, seaports, communication facilities, civil works components of information technology projects, irrigation, flood control and drainage, water supply, sanitation, sewerage and solid waste management systems, shore protection, energy/power and electrification facilities, national buildings, school buildings, hospital buildings, and other related construction projects of the government

The basic tenet is that there must be competitive bidding for the above regardless of the source of funds, whether local of foreign, by all branches and instrumentalities of government, its departments, offices and agencies, including government-owned and/or-controlled corporations and local government units. There are, however exceptions as provided in its revised implementing rules and regulations. These are:

1. Procurement for goods, infrastructure projects, and consulting services funded from Foreign Grants covered by RA 8182, as amended by RA 8555³;
2. Acquisition of real property which shall be governed by RA 8974⁴ and other applicable laws; and
3. Public-private sector infrastructure or development projects and other procurement covered by RA 6957⁵ provided, however, that for the portions financed by the Philippine government, regardless of source of funds, whether local or foreign, the provisions of the implementing rules and regulations of RA 91894 shall apply.

The government’s electronic procurement system makes public all matters on procurement. But the question remains to what extent government agencies use it and in what way intended. Courtesy of PhilGEPS website

The new law stipulated how public bidding should proceed – beginning with posting a notice on the Philippine Government Electronic Procurement System or PhilGEPS, the new and still developing portal of the GPPB, where all government procurement opportunities, notices, results of biddings, awards and reasons for the award must be published. All interested parties are invited to participate with the government agency involved obliged to hold a pre-bid conference, where it discusses the requirements and details of the project to the interested bidders, as well as entertaining questions from them.

As seen recently and very publicly with the bids to provide automated election counting machines, bidders must comply with the requirements of the procuring entity and submit all these at the date and place scheduled, together with their bids. Eligibility is to be authenticated prior to opening bids with the one submitting the lowest figure declared the winner. However, even then the bidder still has to pass the post-qualification stage where the accuracy of the documents submitted will be checked and where necessary they undergo an inspection of their office, workplace or factory.

That at least is what the law lays down – and in very high profile cases such as procurement for the country’s first ever automated polling system where international scrutiny was understandably high and where several international companies were competing, there appears to be proper observance of it.

The Procurement Law adopted the following general principles in the ideal pursuit of good governance:

1. Transparency in the procurement process and in the implementation of procurement contracts
2. Competitiveness by extending equal opportunity to enable private contracting parties who are eligible and qualified to participate in public bidding
3. Streamlined procurement process that will uniformly apply to all government procurement. The procurement process shall be simple and made adaptable to advances in modern technology in order to ensure an effective and efficient method.
4. System of accountability where both the public officials directly or indirectly involved in the procurement process as well as in the implementation of procurement contracts and the private parties that deal with government are, when warranted by circumstances, investigated and held liable for their actions relative thereto.
5. Public monitoring of the procurement process and the implementation of awarded contracts with the end in view of guaranteeing that these contracts are awarded pursuant to the provisions of the Procurement Law and its implementing rules and regulations, and that all these contracts are performed strictly according to specifications.

The Supreme Court has acknowledged the problem of corruption in government procurement in the case of COA vs. RTC, et al⁶. Admittedly it did so prior to the new law, but the problems it found then still happen today. Specifically, the Court found the following manipulation of the bidding process:

1. Agreement to combine interest and divide the profit;
2. Agreement to withdraw from the bidding;
3. Agreement to bid on separate portion of the work;
4. Pre-arranged or rigged bidding;
5. Combination among bidders and a public official; and
6. Agreement to submit identical or uniform bids.⁷

Beyond bidding

Hermogenes Ebdane, secretary of the Department of Public Works and Highways (DPWH) which has repeatedly scored badly in public perception of corruption within government departments has been quoted as saying that “collusion is part of the way contractors do business but it does not mean that public works officials are involved in it.” Collusion in that way is of course against the law.

Ebdane adds however that his DPWH officials “cannot prevent contractors from talking among themselves” and comparing bid prices.

The law clearly prohibits collusion and other attempts to subvert the public bidding process. Specifically, RA 9184 prescribes the following:

1. When two or more bidders agree and submit different bids as if they were bona fide, when they knew that one or more of them was so much higher than the other that it could not be honestly accepted and that the contract will surely be awarded to the pre-arranged lowest bid.
2. When a bidder maliciously submits different bids through two or more persons, corporations, partnerships or any other business entity of which he has an interest in, to create the appearance of competition that does not in fact exist so as to be adjudged as the winning bidder.
3. When two or more bidders enter into an agreement which call upon one to refrain from bidding for procurement contracts, or which call for withdrawal of bids already submitted, or which are otherwise intended to secure an undue advantage on any one of them.
4. When a bidder employ schemes which operates to suppress competition and thus produce a result disadvantageous to the public.
5. Submit eligibility requirements of whatever kind and nature that contain false information or falsified documents or conceal such information in the eligibility requirements when the information will lead to a declaration of ineligibility from participating in public bidding.
6. Submit bidding documents of whatever kind and nature that contain false information or falsified documents or conceal such information in the bidding documents.
7. Participate in a public bidding using the name of another or allow another to use one's name for the purpose of participating in a public bidding.
8. Withdraw a bid after it shall have qualified as the Lowest Calculated Bid/Highest Rated Bid. This shall include the non-submission of requirements such as, but not limited to, performance security, preparatory to the final award of the contract.

Even so, public procurement encompasses much more than the bidding process. To effectively route out corruption in procurement we need equally to address and monitor how priorities and terms of reference for processes are actually set. For example, who determines the scope and reference of a project? Who determines the criteria that bidders then need to compete on? Who determines that a bridge that serves a very isolated and very little-used road becomes more of a priority than a new school or hospital? A Commission on Audit Report on performance of the DPWH cites occasions where substantial two lane bridges have been built in places where there appear to be no pressing need for one.

Former COA commissioner Sofronio B. Ursal along with many others believes corruption in public procurement goes well beyond the actual bidding process. He maintains that along with secret agreements among bidders to stifle competition, the process is undermined by, among other things, the falsification of documents.

Then, after a contract has been won and awarded, the process may be further subverted by the likes of ghost deliveries, under-delivery, or delivery of inferior quality materials. In infrastructure projects, the irregularities may consist in the use of sub-standard materials being used and reporting unfinished projects, or even non-existing structures as complete. There can be many more opportunities to subvert the process: When the procuring agency has to certify that the delivered goods or completed infrastructure project conforms to the contract, there may be instances of outright bribery of senior agency officials in connivance with procurement inspectors.⁸

The framers of the Procurement Law, aware of all the problems that have plagued the procurement process, incorporated possible offenses that may be committed by a public officer or members of the Bids and Awards Committee (BAC). These include the following:

1. Opening any sealed bid prior to the appointed time for the public opening of bids or other documents
2. Delaying, without justifiable cause, the screening for eligibility, opening of bids, evaluation and post evaluation of bids, and awarding of contracts beyond the prescribed periods of bids or other documents
3. Unduly influencing any member of the BAC or any officer or employee of the procuring entity to take a particular bidder
4. Splitting of contracts which exceed procedural purchase limits and competitive bidding
5. When the head of the agency abuses the exercise of his power to reject any and all bids with manifest preference to any bidder who is closely related to him

Huge problem

The prescriptive way the new law was written, the observations made by the highest adjudicatory body in the country and the comments made by the head of a leading department which says it cannot stop collusion, all clearly suggest that the problem of corruption in procurement is a huge one. And certainly, several recent highly published allegations in the media –whether true or not – all appear to bear this out.

In January 2009, in an unprecedented move, the World Bank shelved its USD 33-million National Roads Improvement and Management Program 1 after it came out with a report divulging the irregularities that have attended the road project, citing corruption and connivance between private individuals and concerned government agencies. As a result of its own investigation, the World Bank banned three Filipino companies from bidding in its projects. EC De Luna Construction was permanently barred.⁹

Two months later, in March 2009, then Senator Mar Roxas exposed bidding anomalies at the National Irrigation Office (NIA) involving PhP 1.4 billion (USD 31 million) worth of heavy equipment. Senator Roxas, in his privileged speech, reported that the NIA favored certain heavy equipment distributors although these bid offers were higher than market retail rates and the companies failed to meet the requirement that they must have had a single transaction in the last ten years equivalent to 50 percent of the approved budget contract.¹⁰ The NIA later cancelled the contract.

Also in March 2009, Bayan Muna party list Rep. Teddy Casino alerted Congress to a potential multi-million peso anomaly in the government’s purchase of fire trucks. He stated that in 2007 and 2008, the Bureau of Fire Protection bought a total of 37 trucks amounting to more than PhP 342 million (USD 7.6 million) without any purchases undergoing the required public bidding process. Direct contracting was used instead despite it not being allowable in such circumstances. Conditions regulate when direct purchasing may be applicable. These include:

1. Procurement of goods of proprietary nature, which can be obtained only from the proprietary source, i.e. when patents, trade secrets and copyrights prohibit others from manufacturing the same items;
2. When the procurement of critical components from a specific manufacturer, supplier, or distributor is a condition precedent to hold a contractor to guarantee its project performance, in accordance with the provisions his contract; or,
3. Those sold by an exclusive dealer or manufacturer, which does not have sub-dealers selling at lower prices and for which no suitable substitute can be obtained at more advantageous terms to the government.¹¹

Even schoolchildren have not been spared from procurements that would appear to break the law. In 2009, the Department of Education awarded a PhP 284 million (USD 6.3 million) noodle project to JEVERPS Manufacturing, Inc. at a priced amount of PhP 18 while very similar instant noodles can be bought for only PhP 5 a package. Although the agency stood by the regularity of the concomitant bidding process, it was found that the bidder won the department’s Food-For-School Program over the last five years. It also reportedly netted some PhP 750 million (USD 17 million) for the company.¹²

Another government project which attracted attention over procurement issues in 2009 is the Laiban Dam project, a PhP 50 billion (USD 1.1 billion) project which aims to address Metro Manila’s long-term water requirements. Instead of conducting a public bidding, the Metropolitan Waterworks and Sewerage System has by all accounts been secretive about the tendering business and has reportedly even kept the National Economic and Development Authority out of its confidences despite the fact that NEDA through a designated official is supposed to be party to all negotiations and joint venture contracts between state entities and private businesses.

Most recently, in January 2010, the Freeman, a local newspaper in Cebu, reported on an alleged irregularity in the purchase of PhP 14 million (USD 311,000) worth of school furniture by the Department of Education in Cebu. There were accusations that the procuring entity favored just one contractor.¹³

A listing of the above alleged anomalies necessarily substantiates the claim that most irregularities in government procurement occur with the so-called “big” projects, like construction contracts and the purchase of costly equipment and supplies. The author has seen how the law worked effectively when she sat, on several occasions, as a member of the Bids and Awards Committee of the University of the Philippines, the national university covered by government rules and regulations. However, most projects that the university has procured do not run in the millions, and cover the basic needs of a university like the procurement of computers, air-conditioning units, printing needs, and the like.

In a bid to simplify the purchase of basic government supplies such as stationery and computers – and to maximize cost savings from buying in bulk -- the Procurement Services within the Department of Budget and Management (DBM) has set up a system whereby government departments, agencies and authorities buy directly from it. However, despite the advertised savings and despite the clear quality control – and despite rules and regulations set up around the law – it says only 15 per cent of government units are using it.¹⁴ The rest continue to source basic generic materials locally – and with it the potential to inflate costs and break the law.

The DBM Procurement Services is very proud of the PhilGEPS and a delegation from the Indonesian government visited in March to see how it worked. With its automated bid process and online catalogue, it certainly seems very active and comprehensive with 155,530 bidding processes having gone through the system by mid March 2010.

Yet the question remains: to what extent are government departments and agencies are using it and in the way intended –especially on big ticket items? While a search on the word ‘rice’ in mid March brought up 143 bidding opportunities, these mostly related to local civic needs for food stuffs and associated machinery. There were only 20 listed opportunities published by the National Food Authority (NFA) in all regions– most relating to the refitting of local warehouses or trucking of foodstuffs. There were no posted opportunities for actual bidding on rice sales. These instead were only posted on the NFA website. In February the NFA came in for criticism from some rice merchants over the way it decided to allocate licenses to private firms to import rice.

Public participation

One instance where government procurement is highly successful can be found in Naga City in Bicol. Mayor Jesse Robredo has received various accolades from local and international institutions for the work he has done on procurement and governance issues there. His efforts to improve them predated RA 9184.

In a speech¹⁵ delivered in 2002 during Procurement Watch, Inc.’s¹⁶ Mid-Year Conference, he focused on the need to ensure transparency not only in the procurement process but equally in the outcomes. Following the principles laid down in the Procurement Law, to accomplish its objectives, Naga City made sure that there was wider dissemination of notices of bids and too serious public participation and oversight by creating an independent body composed of accredited businesses, non-government and people’s organizations.

With all the irregularities that have attended procurement in various levels of government, the Procurement Law embodies what transparency should be. Former COA commissioner Ursal acknowledges that the Procurement Law is a step in the right direction.¹⁷ He says that its provisions requiring at least two observers from a recognized private group sector and a non-government organization, to sit in bidding committees in all stages of the procurement process, certainly enhances transparency.

The implementing rules and regulations of the Procurement Law likewise gave these observers more clout when it provided that the absence of observers will not nullify the proceedings provided that they have been duly invited in writing. This essentially means that the procuring entity has the obligation to send out such invitations. Failure on the government’s part to do so could lead to the nullification of the bidding process.

Yet unfortunately, despite the law, in practice, it seems there is much less public participation in the procurement process than intended. Estanislao Granados Jr., executive director of the DBM Procurement Services says representation of the public in the BAC is very low because there is little incentive or support for them to do so. “On the one hand it would be good to pay them – but on the other, people quite rightly would be suspicious about that,” he told the Philippine Public Transparency Reporting Project.

There are other provisions in RA 9184 that promote transparency in the procurement process:

1. The BAC shall invite a representative of the Commission on Audit.18
2. All invitations to bid contracts under competitive bidding shall be advertised by the procuring entity in its premises, its website, newspapers of general circulation, and the PhilGEPS. The BAC shall publicly open all bids at the time, date and place specified in the bidding documents.
3. The minutes of the bid opening shall be made available to the public upon written request and payment of a specified fee.
4. The bidder shall submit a sworn affidavit that he or she or any officer of the corporation is not related to the head of the procuring entity by consanguinity or affinity up to the third civil degree.

Apart from limitations like lack of public representation in bidding and awards committees, RA 9184 still remains unfamiliar to the general public, and, unfortunately, even to government. GPPB arrived at this conclusion in February 2009 after its consultations on the Implementing Rules and Regulations of the law with different local government units across the country. It later came out with a summary of recommendations to address this issue, including these:

1. Politicians and local chief executives should be given an orientation on the Procurement Law and should be enlightened on the effects of their interference on the implementation of the law.
2. Local chief executives must undergo mandatory training on the law; create proper information drive.
3. nvite the politicians for a seminar to apprise them of the law.
4. GPPB should consistently conduct seminars/trainings for procurement professionals, including all elected officials.
5. It is suggested that the local chief executives and other local officials shall be oriented on the law, otherwise no Internal Revenue Allotments.¹⁹

Battle is not lost

The discussion above has shown us how the government procurement process works in the Philippines. We have seen its strengths, its flaws, how private individuals, corporate entities, and even people in government have manipulated it to suit their own interests, with not a care about the repercussions to the nation’s coffers, and the people’s protracted struggle for clean and good governance.

The battle is not lost. The Philippines has the Supreme Court where it can turn to when there is a palpable violation of RA 9184. The Court has once and again decided cases confirming the force and validity of the Procurement Law.

In a 2008 case²⁰, the Supreme Court struck down as void the Manila International Airport Authority’s authority to enter into negotiated contracts for its janitorial and maintenance services without holding a public bidding.²¹ It said:

“The rationale behind the requirement of a public bidding, as a mode of awarding government contracts, is to ensure that the people get maximum benefits and quality services from the contracts. More significantly, the strict compliance with the requirements of a public bidding echoes the call for transparency in government transactions and accountability of public officers. Public biddings are intended to minimize occasions for corruption and temptations to abuse of discretion on the part of government authorities in awarding contracts.”

In the highly publicized NBN-ZTE scandal, the Supreme Court dismissed²² the petitions to declare the project null and void for mootness²³ and because their resolution requires the reception of evidence which cannot be done in an original petition brought before it. However, Justice Antonio T. Carpio, in his strongly-worded dissent, declared the nullity of the said project for violating the Constitution, the Administrative Code of 1987, the Government Auditing Code of the Philippines and the Government Procurement Reform Act. He said foreign-funded projects are not exempt from public bidding like the ZTE Supply Contract as the need to safeguard public interest against anomalies exists in all government procurement contracts.

The conclusion Justice Carpio wrote in his dissent best captured the current sentiment of the public against the seemingly brazen acts of corruption in government procurement:

“It is time to put an end to government procurement contracts, amounting to tens of billions of pesos, exceeding even the annual budget of the Judiciary, that are awarded and signed without an appropriation from Congress, and without the required public bidding.”

Philippine Public Transparency Reporting Project

(The author works as the university legal counsel at the University of the Philippines Office of Legal Assistance, handling procurement, intellectual property, corporate and taxation matters of the university.)

^[1] Abaya, et al vs. Ebdane, et al. G.R. No. 167919.  February 14, 2007.

^[2] Alternatively referred to in this paper as Procurement Law or Republic Act No. 9184.

^[3] Under the law, the President of the Philippines may, when necessary, agree to waive or modify the application of any provision of law granting preferences in connection with, or imposing restrictions on, the procurement of goods or services.

^[4] “An Act to Facilitate the Acquisition of Right-of-Way Site or Location for National Government Infrastructure Projects and for Other Purposes”.

^[5] “An Act Authorizing the Financing, Construction, Operation and  Infrastructure Projects by the Private Sector, and for Other Purposes”, as amended by R.A. 7718.

^[6] G.R. No. 85285 (July 28, 1989).

^[7] Ursal, Sofronio B. (2004). “Government Procurement Tool Kit (pp. 304-305). Quezon City: Good Governance Books.

^[8] Ursal, Sofronio B. (2004). “Government Procurement Tool Kit (pp. 303-304). Quezon City: Good Governance Books.

^[9]Retrieved from http://www.straitstimes.com/Breaking%2BNews/SE%2BAsia/Story/STIStory_326529.html.

^[10]http://www.senate.gov.ph/press_release/2009/0304_roxas1.asp.

^[11]Retrieved from http://teddycasinoforsenator.blogspot.com/2009/03/on-potential-multi-million-peso-anomaly.html.

^[12]Canlas, Jomar. (2009, May 1). Alleged DepEd Noodle Scam Stirs House to Action. The Manila Times. Retrieved from http://www.manilatimes.net/national/2009/may/01/yehey/metro/20090501met1.html.

^[13] Sollano, Jose P. (2010, January 1). Expose on anomaly improves Deped’s bidding process. The Freeman. Retrieved from http://www.philstar.com/Article.aspx?articleId=537255&publicationSubCategoryId=107.

^[14] Philippine Public Transparency Reporting Project Interview with Estanislao Granados Jr, Executive Director of Procurement Services, DBM, February 2010.

^[15] http://www.naga.gov.ph/cityhall/pwi.pdf.

^[16] Procurement Watch, Inc. is a non-profit, non-partisan, civil society organization created by a group of concerned and seasoned individuals from government, academe, the legal profession, and the private sector, brought together by the challenge of reducing, if not eliminating, graft and corruption in government through procurement reform.

^[17] Ursal, Sofronio B. (2004). “Government Procurement Tool Kit (p. 297).Quezon City: Good Governance Books.

^[18] The constitutional body empowered to examine, audit, and settle all accounts pertaining to the revenue and receipts of, and expenditures or uses of funds and property, owned or held in trust by the government.

^[19]http://www.gppb.gov.ph/irrb/rec01.htm.

^[20] MIAA, et al vs. Gana, et al. G.R. No. 146184-85.  January 31, 2008.

^[21] Notwithstanding the nullification of the negotiated contract, the Supreme Court ruled in favor of  MIAA when, instead of pursuing the contract without a public bidding, it hired janitorial staff as its employees.

^[22] Suplico vs. NEDA, et al. G.R. No. 178830.  July 14, 2008.

^[23] The Supreme Court deemed the case moot and academic since the Philippine government cancelled the said project.