Procurement reform in the

Philippines: the impact of elite

capture and informal bureaucracy
David Seth Jones
Faculty of Business, Economics and Policy Studies, University of Brunei,
Gadong, Brunei
Abstract
Purpose The purpose of the paper is to examine features and impact of recent reforms introduced
by the Philippines government to deal with the longstanding shortcomings in its procurement system.
Design/methodology/approach The research for the paper is based on reports by international
organizations, ofcial documents of the Philippines government, surveys by international and
domestic organizations, interviews with relevant ofcials and media reports.
Findings The ndings show that the reforms have focused on fostering competition, increasing
transparency, standardizing procedures, enhancing end-product quality and contractor reliability,
ensuring proper planning and budgeting, combatting corruption, and strengthening accountability.
These reforms were intended to create a procurement system more in line with international best
practices. However the paper shows that the impact has been less than promised. This is due to
limitations of certain provisions of the reforms and weaknesses in both implementation and in the
accountability of the procuring entities. A key factor in undermining the reforms is widespread
corruption, which continues to affect many aspects of the procurement system. The article identies
two important and related reasons for such failings: elite capture of the government and bureaucracy
by a powerful network of business leaders from well-established landed families, who have close links
with the political establishment; and second, a long-established culture of informal inuence in the
Philippine state bureaucracy (what may be termed the informal bureaucracy), which has been used to
maximum effect by the elite network of business leaders. As a result, this network has been able to
inuence the reforms to serve its own interests and ensure its continued dominance of the procurement
market.
Originality/value The value of the paper is to show how administrative reforms, no matter how
well formulated they are, may be readily undermined in the process of implementation by elite groups
able to inuence government bureaucracy through an informal culture.
Keywords Philippines, Government policy, Public procurement, Corruption, Public administration,
Reform, Elite capture, Informal bureaucracy, Implementation, Public sector reform
Paper type Research paper
Introduction
One year after the overthrow of President Marcos in 1986, a new constitution in the
Philippines was adopted. After nearly 15 years of autocratic rule, this laid the
foundation for a new democratic political order. Under the more open and
representative system of government, attention was focused on the low standards of
governance that had hitherto characterised policy making and public administration in
the Philippines. The features were waste, inefciency, and lack of transparency,
widespread corruption, low levels of capacity, and the absence of accountability. Public
procurement was as much affected as other sectors of public administration, resulting
The current issue and full text archive of this journal is available at
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International Journal of Public Sector
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Vol. 26 No. 5, 2013
pp. 375-400
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DOI 10.1108/IJPSM-05-2013-0068
in poorly resourced public services and an under-developed infrastructure (World
Bank, 2008, p. 8).
A wide range of measures have been implemented to remedy these shortcomings.
Among them have been reforms to improve the system of public procurement, the
centrepiece of which have been the Government Procurement Reform Act of 2003
(GPRA) and its Implementing Rules and Regulations (IRRs) of 2005, revised in 2009.
The intention was to create a system of procurement in line with international
standards (World Bank, 2008, pp. 8-9). Priority was given to fostering competition,
increasing transparency, standardizing procedures, combatting corruption, and
strengthening accountability. Equally important objectives were enhancing
end-product quality and contractor reliability, and ensuring proper planning and
budgeting in the procurement process. While the reforms on paper have created a
procurement system more in line with international best practices, they have been
undone by limitations of certain of their provisions serious failings in their
implementation, and a lack of proper accountability. At the heart of weak
implementation and limited accountability has been continuing widespread
corruption in day-to-day procurement practices, and shortcomings of both watchdog
and enforcement bodies and also bid challenge mechanisms.
The article will rst elaborate an analytical framework, and then describe the
system of government and administration in the Philippines. After this, it will examine
the organisation, process and methods of public procurement in the Philippines as
stipulated in the procurement laws and regulations and in the procurement manuals.
The article will then consider the reforms to improve the system of procurement,
focusing on the GPRA and its IRRs, as well as other measures to combat procurement
corruption. This is followed by an examination of how the impact of the reforms has
been undermined by limitations of certain of their provisions, weaknesses in
implementation (including pervasive corruption), and failings in the system of
procurement accountability. In conclusion, the paper will explain the limited impact of
the reforms in terms of two key ideas highlighted in the analytical framework: a) the
control exercised over procurement policy and its implementation by a powerful
network of business leaders and inuential families closely connected to the political
establishment (what may be termed as elite capture); b) a long established culture of
informal inuence in the Philippine state bureaucracy which has been used to
maximum effect by elite groups.
The article will draw on a range of sources. These include the reports and data of
the Philippine government agencies, those of various international organisations,
ndings of survey organisations, relevant statutes and regulations, the procurement
manuals and the bidding documents of the Government Procurement Policy Board of
the Philippines and interviews with Philippine public procurement ofcials, as well as
academic studies of corruption in the Philippines.
Analytical framework
The analysis in the latter part of the article which focuses on the limited impact of the
procurement reforms in the Philippines is shaped by the concept of elite capture and
the related concept of informal inuence in the bureaucracy or the informal
bureaucracy.
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The concept of elite capture has been long explored in the literature of sociology and
political science, two notable examples being the seminal studies of Bottomore (1993)
and Wright Mills (1956). It essentially refers to the way elite groups dominate political
life, shape policy agendas even in democratic societies, and inuence day to day
administration. Such groups may include members of powerful business networks,
prominent gures in the legal profession, top managers of state institutions, senior
ofcers in the military establishment, and in traditional societies, large landowning
families. Their inuence stems from being members of or having close links with the
political class of government ministers, elected politicians, party bosses, provincial and
local government leaders and senior bureaucrats (those links being often based on
personal, family and business connections).
Derived from the concept of elite capture is the notion of state capture which has
been expounded by the World Bank. This refers to the efforts of rms to shape the
laws, policies, and regulations of the state to their own advantage by providing illicit
private gains to public ofcials (Hellman et al., 2001). In other words, state capture is a
form of elite capture by businesses to inuence the formation of policy and the drafting
of laws and regulations (Hellman et al., 2000).
Elite capture can go further and entail day to day decisions in policy
implementation. An example is regulatory capture, in which businesses and
nancial institutions affect how regulations are applied to ensure their interests are
safeguarded (Adams et al., 2007). The inuence over policy implementation may be
exercised through direct interference or indirectly through powerful intermediaries in
the political establishment.
Also affected by elite capture are watchdog and enforcement bodies with responsibility
to ensure government agencies are accountable for their performance. Such bodies may
likewise be subject to interference by elite groups in their efforts to expose and deal with
shortcomings in government agencies As Klitgaard (1998) has pointed out, this weakens in
particular efforts to combat corruption, which is further compounded by the absence of a
determination of political leaders to support those efforts (pp. 500-5).
The other concept shaping the discussion is the informal bureaucracy. Two aspects
of the informal bureaucracy are relevant to this study. One is the extent to which
ofcials in public agencies respond to ambiguities in rules and regulations by
developing their own criteria in making decisions and their own unwritten practices.
The other is the willingness of ofcials, especially in the bureaucracies of developing
countries, to make decisions and follow procedures deviating from policy statements,
laws and regulations, and to develop informal networks with elite groups. Such groups
may thereby exercise inuence over policy making and implementation (Woods and
Shlapentokh, 2009, pp. 538-45).
There is of course a connection between elite capture, the use of the informal
bureaucracy, and corruption. Michael Johnston has examined this connection,
identifying various types of elite control. One type of elite control he identies is the
oligarch and clan control, in which business elites and top ofcials, with powerful
personal and family connections, take advantage of a setting of rapidly expanding
political and economic opportunities and weak institutions to engage in corruption.
This type of elite control exploiting informal bureaucracy and weak institutions, is
reected, according to Johnston, in the Philippines ( Johnston, 2005, pp. 3, 44-6, 8, 120-4,
136-44; Johnston, 2010, pp. 7-13, 40-1).
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Elite capture through the informal bureaucracy is further guaranteed by the low
status of ofcials with management and operational responsibilities. Such ofcials nd
it difcult to resist the direct or indirect interference of members of powerful elite
groups, partly out of natural deference, especially in a traditionally ascriptive culture.
Equally important is the concern that resisting elite demands will harm their career
prospects, while acceptance will enhance them. This is coupled with the knowledge
that acceptance will also result in personal gain through bribery and kickbacks. In
consequence, ofcials have a commitment to and a stake in preserving the status quo.
This, Kelman has observed in his study of procurement reform, leads front-line
ofcials to erect a wall of resistance so as to ensure such reform does not lead to
genuine change. In his view, only when dissatisfaction with the status quo grows
among front-line ofcials do the prospects for genuine change in government agencies
increase (Kelman, 2005, pp. 5-9, 20-5, 39-54).
The problems encountered in the reforms of the procurement system in the
Philippines will be considered as reecting elite capture based on oligarchic and clan
control by powerful business groups and inuential landowning families, whose
inuence is facilitated by the prevalence of the informal bureaucracy.
System of government and administration in the Philippines
The 1987 Constitution established a democratic form of government in the Philippines
based on the presidential-congressional model in the US. It functions on the basis of
checks and balances between three co-equal and separate branches of government: the
executive, legislature and judiciary. At the head of the executive is the President, who is
also Head of State, supported by the vice-president, and a cabinet appointed by the
President comprising mainly political heads of the executive departments, known as
secretaries. The President and vice-president are each elected in separate elections, which
are themselves separate from elections to the legislature. Each incumbent serves a single
xed term of six years. The legislature comprises the bi-cameral Congress, consisting of
a 24 seat Senate (upper house) and a House of Representatives (lower house), with 240
seats. Senators serve six year terms while representatives three year terms.
There are four main types of institution in the state bureaucracy of the Philippines.
At the core are 17 executive departments directly under the control of the executive,
and various constitutional and specialist commissions (both commonly referred to as
national government agencies). In addition, currently 78 government-owned or
controlled corporations exist, many of which provide basic services and engage in
business-related activities. Some of them are stock corporations in which the
government through its holding companies owns all or the majority of the shares.
Others are non-stock corporations. All are governed by a board of directors, and
though raising their own revenue, most continue to rely on government subsidies. At
the local level, public services are delivered and certain types of infrastructure project
undertaken by local government units. These are organised into three tiers: provinces
(plus the autonomous region of Mindanao) at the highest level, which are divided into
cities and municipalities, each of which is sub-divided into barangays (local councils).
Under the civil service decree, all of these organisations are counted as part of the civil
service, including somewhat surprisingly government-owned or controlled
corporations and local government units (De Leon, 2002; Brillantes, 2009,
pp. 186-206; Government of the Philippines, 2010).
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The size of the state bureaucracy is not excessive by international comparison. The
payroll at the end of 2010 totalled 2,948,000 ( just 9.2 per cent of the working
population) including those working in government-owned or controlled corporations,
local government units, the police force and teaching service. Of this number, 1,771,000
are engaged in public administration, defense and social security (Bureau of Labor
and Employment Statistics, 2011). Total government expenditure was a modest 18.4
per cent of GDP at the outturn of 2009, increasing from just over 17 per cent in the
previous four years (ADB, 2010, p. 262). Only three of the nine countries of Southeast
Asia have a lower aggregate of public expenditure relative to GDP. The decit of 5.3
per cent of GDP recorded in 2002 had been gradually brought down, reaching 0.9 per
cent in 2008, before increasing to 3.9 per cent at the outturn of 2009 (ADB, 2010, p. 259).
Despite the recent record of scal restraint and sound nance, subsidies to
government-owned or controlled corporations, and general waste and inefciency
continue to be a drain on the public purse.
The system of procurement
Organization of procurement
The system of public procurement in the Philippines is based on a conventional two
tier structure. At one level, operational responsibility for procurements is delegated to
the line agencies (national government agencies, government-owned or controlled
corporations and local government units), which in performing this role, are known as
procuring entities. In each procuring entity, practical management of the procurement
is undertaken and the recommendation of the contract award is made by the bids and
awards committee (BAC) (Government of the Philippines, 2009; Government
Procurement Policy Board, 2009a, pp. 12-13; Government Procurement Policy Board,
2009b, pp. 14-127). The BAC is supported by a technical working group, consisting of
suitably qualied personnel with technical, nancial and legal expertise in the area
relevant to procurement. Its role is to help the BAC in those aspects of procurement
which require such expertise, including drafting specications, evaluating bids and
drawing up contracts (Government of the Philippines, 2009; Government Procurement
Policy Board, 2009a, pp. 18-19).
Over and above the procuring entities is an umbrella body, the Government
Procurement Policy Board. It is responsible for the formulation of procurement policy,
and recommending amendments of the GPRA, as well as drafting and amending the
IRRs. Also part of its brief is to draft and amend the procurement manuals and
bidding documents. While not involved in day-to-day purchasing, the Board exercises
supervision over procuring entities to ensure they comply with the GPRA and its
IRRs, and other laws relating to procurement. Another part of its remit is to build up
expertise in procurement by organising and conducting training courses through its
technical support ofce, that cover the legal, nancial and technical aspects of the
procurement process (Congress of the Philippines, 2003; Government of the
Philippines, 2009).
The importance of the Government Procurement Policy Board is reected in the fact
that its membership largely consists of the secretaries of key executive departments. It
is chaired by the secretary of the Department of Budget and Management, with the
secretary of the National Economic and Development Authority designated as
vice-chairman. Other positions on the Board are occupied by secretaries from a range
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of departments, as well as a representative from the private sector appointed by the
President on the recommendation of the Board. Representatives from the Commission
on Audit, other public bodies and private companies may be invited to serve as
resource persons (Government of the Philippines, 2009).
Methods and processes of procurement
All the normal methods of procurement of goods, consultancy services and public
works (infrastructure projects) may be used by procuring entities in the Philippines.
Under the GPRA and its IRRs, the main method for higher value bids is the open
tender, in which all interested and eligible suppliers and contractors may participate.
At the outset, the specications detailing the features of the goods, services and works
to be acquired are drafted by the BAC of the procuring entity together with a
conrmation of the approved budget for the contract. The tender is then advertised,
and companies may respond by forwarding to the procuring entity an expression of
interest.
In the procurement of goods, companies who have expressed an interest are invited
to submit together both an application for eligibility to bid and their bid proposal. In
conjunction with this, one or more pre-bid conferences attended by would-be bidders,
may be conducted in order to clarify important details, as discussed in the following.
The bids submitted must consist of three envelopes to be handed in at the same time:
one containing the application for eligibility to bid, a second containing the technical
proposal of the bid and the third the nancial proposal (price offer). The eligibility
screening focuses on, among other things, the track record of the company, its nancial
standing, any commitment it may have to on-going contracts, and its fulllment of
nationality requirements. If any company fails to meet eligibility requirements, its bid
proposals cannot then be considered and its bid is rescinded. In the case of tenders for
infrastructure projects and consultancy services, companies who have expressed an
interest apply for eligibility to bid prior to the pre-bid conference and before they
submit their bid proposals. Those companies declared eligible are then required to
submit only two envelopes: one containing the technical and the other the nancial
proposal (Government of the Philippines, 2009; Government Procurement Policy
Board, 2009a, pp. 45-7).
After this, the evaluation of the bid proposals is undertaken by the BAC. The rst
step is to conduct a preliminary evaluation of the proposals to check if all necessary
documents and information have been submitted. A bidder will be disqualied if any
of the required documents is missing or does not contain the information required.
Once this is done, a detailed evaluation of both sets of proposals is carried out
(Government of the Philippines, 2009; Government Procurement Policy Board, 2009a,
pp. 45-7).
In tenders for goods and infrastructure projects, the technical proposals are rst
evaluated to determine if they meet the specications of the procurement. For those
that do (referred to as responsive bids), the corresponding nancial proposals are
considered. The bid offering the lowest price, known as the lowest calculated bid, is
provisionally selected. In tenders for consultancy services, after determining those bids
which meet the specications, the highest rated bid is identied within a ranking
based either on quality of the technical proposals only, or on both the quality of the
technical proposals and price or fee offered, as will be discussed in the following
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(Government of the Philippines, 2009; Government Procurement Policy Board, 2009b,
pp. 57-8; Government Procurement Policy Board, 2009c, pp. 53-4; Government
Procurement Policy Board, 2009d, pp. 58-9).
On the completion of the evaluation, the chosen bidder is subject to a
post-qualication check to conrm the validity, authenticity and accuracy of all
documents and particulars submitted. If everything is in order, the bid is declared the
lowest calculated responsive bid, or the highest rated responsive bid (for a
consultancy contract). The bidder is then duly recommended to be awarded the
contract by the BAC (Government of the Philippines, 2009; Government Procurement
Policy Board, 2009b, pp. 57-8; Government Procurement Policy Board, 2009c, pp. 53-4;
Government Procurement Policy Board, 2009d, pp. 58-9),
In the case of technically complex procurements such as a large IT or infrastructure
project, the open tender may entail a two-stage bidding process. Specications are
initially broadly dened and a rst round of bidding is conducted. Those bids that best
meet the specications are short-listed. Following negotiations with the short-listed
bidders, the specications are revised and expanded. A second round of bidding is then
conducted based on the more detailed specications, in which the short-listed bidders
submit revised proposals. The two-stage bidding process allows bids which are
inadequate to be weeded out in the rst round and also enables the procuring entity to
redraft specications in light of the initial proposals and further information (usually
from negotiations) provided by short-listed bidders (Government of the Philippines,
2009; Government Procurement Policy Board, 2009a, p. 95).
Alternatives to open bidding may be adopted in certain situations dened in the
IRRs, and involve less or no competition. These include limited source tendering
(sometimes called selective tendering), in which only pre-selected suppliers are invited
to bid, and shopping, applicable to low value and routine purchases, in which three or
more pre-selected suppliers are invited to submit price quotations. The maximum
threshold for shopping is normally Philippine Peso (PhP) 500,000 (US$11,500), but can
be below this in smaller local government units. In addition, single source procurement
may be undertaken. The main one is negotiated procurement in which the procuring
entity, instead of adopting a tender, pre-selects one company who is awarded the
contract after negotiation. Single sourcing can also be applied to simple and low value
purchases, being referred to as direct contracting (Government of the Philippines, 2009;
Government Procurement Policy Board, 2009b, pp. 81-96; Government Procurement
Policy Board, 2009c, pp. 73-7; Government Procurement Policy Board, 2009d, pp. 81-7).
Reforms of public procurement
In response to the long standing failings in public procurement in the Philippines,
reforms have been implemented in recent years. These are contained within the GPRA,
the IRRs and procurement instruction manuals, as well as in measures to improve the
accountability of the state bureaucracy and to combat corruption. These reforms will
be discussed in the following.
Creating a more competitive system of procurement
Over the years, many of shortcomings in public procurement in the Philippines were
due to the lack of a genuinely open and competitive system of procurement. A central
aim of the GPRA and the IRRs is to establish this, so as to ensure value for money and
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fairness based on equal access. Both the GPRA and the IRRs stipulate open
competitive bidding as the standard method of public procurement, while the IRRs
state also that BACs shall evaluate all bids on an equal footing to ensure fair and
competitive bid comparison (Congress of the Philippines, 2003; Government of the
Philippines, 2009).
Further enhancing competition are the restrictions and prohibitions placed on the
various means that could be used by procuring entities to avoid competitive bidding.
Of particular importance are the restrictions imposed on less competitive methods of
procurement mentioned previously limited source tendering, shopping, direct
contracting, and negotiated procurement, as well as repeat orders, and adjacent or
contiguous projects (an additional project similar to and extending an on-going
project). The range of situations in which these are permissible is narrowly and clearly
dened, and entail circumstances in which it is obviously sensible and justied to
avoid competitive tendering. For example, the conditions in which negotiated
procurement is permitted, as stipulated in the IRRs, are two failed rounds of bidding,
emergency cases, projects requiring highly technical consultants, contiguous
contracts, purchases involving NGO and community participation, and small value
purchases. Competition is enhanced too by the strict prohibition on the splitting of
contracts under the GPRA and its IRRs. Splitting involves dividing the quantity of a
bulk item to be purchased into several smaller quantities. The value of the procurement
of each quantity is thus reduced to the extent that a less a competitive form of
procurement is permissible such as shopping or direct contracting (Government
Procurement Policy Board, 2009b, pp. 59, 65, 94).
Enhancing procurement planning and budgeting
Another reform under the GPRA was to establish a mandatory framework of
procurement planning and budgeting. Hitherto, government agencies often did not
draw up detailed yearly procurement plans, since there was no legal obligation to do
this. Those doing so, did not then always adhere to them. Without proper planning,
there was little way of determining whether the procurements were compatible with
the policy priorities of the procuring entity and how much of its capital and current
budgets to earmark for them. A consequence of the latter was that approved
procurements were not undertaken or projects were abandoned or delayed for lack of
sufcient funds (World Bank, 2003, pp. 22-8; Government of the Philippines, 2009;
Government Procurement Policy Board, 2009a, pp. 31-42).
As the rst stage in the planning process, according to the GPRA and its IRRs,
end-user units of a procuring entity draft a list of requested procurements for the
following nancial year, including a statement of the need for each procurement. They
provide details in each case of the type and extent of the goods, services and public
works to be procured, the procurement method to be adopted, time schedules of the
procurement and contract implementation, and the estimated contract value. The list,
known as the project procurement management plan, is then submitted to the budget
ofce of the procuring entity for its evaluation. If approved, it is vetted by the head of
the procuring entity, following which, subject to any amendment, it is consolidated
with the plans of the other end user units to form the annual procurement plan of the
procuring entity. Once the budget for the procuring entity has been nalized, as part of
the national budget, and approved by the Congress, the end-user units will be asked to
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adjust their project procurement management plans in light of the funding allocated to
their programs and activities. The annual procurement plan of the procuring entity is
then accordingly amended and submitted to the BAC for its nal evaluation and
approval (Government of the Philippines, 2009; Government Procurement Policy
Board, 2009a, pp. 31-42).
Creating greater transparency and standardization in procurement
Down the years, public procurement in the Philippines has been characterised by a lack
of transparency. While the laws and regulations governing procurement prior to the
GPRA emphasised transparency, they were often ignored or sidestepped. Although
procurements were generally advertised and bid awards published, the procurement
process itself was characterised by behind the scenes deals to ensure that a contract
was awarded to a particular company, even in open tenders. Alternatively re-bidding
was permitted without any explicit justication, so as to allow a favoured company to
re-submit a price or proposals to ensure that it secured the contract (World Bank, 2003,
p. 22). Making matters worse was the fragmentation of the procurement system. The
World Bank noted in its assessment report of 2003 that there existed a proliferation of
outdated and fragmented laws and [a] multiplicity of uncoordinated executive
issuances. It further commented that at times they are inconsistent with one another
and constitute a source of confusion (World Bank, 2003, pp. 10-11).
The GPRA has sought to address both these issues, and included transparency and
standardisation among it guiding principles. A number of measures were stipulated to
enhance transparency. One was to allow outside observers from the Commission on
Audit and civil society to attend meetings of BACs, and be given access to all relevant
documents. This is provided for in section 13 which states:
To enhance the transparency of the process, the BAC (bids and awards committee) shall, in all
stages of the procurement process, invite, in addition to the representative of the Commission
on Audit, at least two observers to sit in its proceedings, one from a duly recognized private
group in a sector or discipline relevant to the procurement at hand, and the other from a
non-government organization: provided, however, that they do not have any direct or indirect
interest in the contract to be bid out (Congress of the Philippines, 2003).
The private group mentioned previously may include for goods, a relevant chamber of
commerce, for infrastructure projects one of the recognized associations in the
construction and engineering sector, and for consulting services a professional
association such as the Philippine Institute of Certied Public Accountants and the
Confederation of Filipino Consulting Organizations (Government of the Philippines,
2009). A key civil society organization that has been involved as an observer is
Procurement Watch Inc, whose task is to expose corruption and waste in procurement
(Kristina and Pimentel, 2005, pp. 42-4).
After the award of the contract, the observers individually or jointly are required to
submit a report to both the head of the procuring entity and to the Public Procurement
Policy Board. These contain their feedback on the meetings attended and the
documents examined, pointing out any irregularities that may have been committed. It
is reasoned that with outside observers the procurement process can be independently
assessed to determine if due procedures have been followed, the method of
procurement adopted is in accordance with the conditions laid down in the GPRA and
its IRRs, and the awards made are in favour of the lowest calculated responsive bid
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for goods and infrastructure projects or highest-rated responsive bid for consulting
services (Kristina and Pimentel, 2005, p. 43; Congress of the Philippines, 2003;
Government of the Philippines, 2009).
Also in the interests of transparency, the GPRA mandated the disclosure of the
approved budget for the contract in the tender notice, with the stipulation that any bids
above that would be discarded. This is intended as well to forestall collusion resulting
in awards at abnormally high prices. The ceiling is now specied in all tender notices,
though the World Bank and the Asian Development Bank have expressed misgivings
on the grounds that normal price competition may be distorted by such disclosure
(World Bank, 2008, pp. 10, 28, 34-5).
Another aspect of the procurement process introduced by the GPRA which has
promoted transparency are pre-bid conferences. Under this arrangement, the BAC of
the procuring entity meets the prospective bidders, before bids are submitted. The
purpose of the meeting is to explain eligibility requirements, clarify specications,
answer queries and where necessary to arrange on-site visits for infrastructure
projects. Pre-bid conferences are useful in the case of technically complex
procurements and reduces confusion and uncertainty on the part of bidders when
they submit their bid proposals. For contracts with an approved budget of PhP1
million (US$22,900) or more, at least one pre-bid conference is mandatory. Under that
amount, any pre-bid conference is at the discretion of the procuring entity (ADB and
OECD, 2006a, pp. 4, 8; Government of the Philippines, 2009).
The most signicant step to enhance transparency was the creation of a
comprehensive E procurement system, known as PhilGEPS, set up in 2007. The
expressed aim is that it becomes the primary source of information for procurement,
and creates a more efcient, convenient, transparent, and open procurement process
(Philippine Public Procurement Service, 2010). PhilGEPS publishes procurement laws,
regulations and bidding procedures, and announces procurement opportunities, known
as bid notice abstracts, with a facility for downloading bid documents. Bid notice
abstracts contain information on the type of goods, services and infrastructure project
to be procured, the approved budget ceiling for the contract, any pre-bid conference,
and the method of procurement to be adopted (shopping, open bidding etc.). The on-line
portal too discloses the name of the company awarded a contract, the reason for the
award, and the contract sum. A further provision is an E catalogue for purchasing low
value items (Philippine Public Procurement Service, 2010). However, there is no facility
yet for submitting on-line quotations and bids, although this, together with electronic
payment of suppliers and contractors, are part of the plan to expand the role of the E
procurement system over the next two years (World Bank, 2008, pp. 9-10, 16, 18-19, 40).
Also facilitating greater transparency in the Philippines has been the
standardisation of procurement procedures, through the use of procurement
manuals to be used by all agencies, model contracts, and uniform bid documents.
The bid documents sent to the would-be bidder must comprise or state the approved
budget for the contract, invitations to apply for eligibility and to bid, eligibility criteria,
detailed technical or functional specications, bid evaluation criteria, information of
post-qualication, conditions of contract, instructions for submitting a bid, and date,
time and place of both the pre-bid conference, and the submission and opening of bids.
Included too are standard bid submission forms to be completed or signed by the
bidder and returned to the procuring entity, including forms stating price offered,
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detailing the technical proposal, and indicating delivery time or completion schedule
(Government Procurement Policy Board, 2009e, pp. 1-35). This contrasts with the
previously fragmented and opaque procedures, instructions, and document formats
which varied from one procuring entity to another (ADB and OECD, 2006b, pp. 4, 6-7;
World Bank, 2008, pp. 6, 10, 16, 51-55). Standardisation has been achieved in part by
aligning the procurement rules, procedures, manuals, and bidding documents with
those of the World Bank and ADB (World Bank, 2008, pp. 51-5).
Promoting quality and reliability
In response to long standing concerns about the quality of the end product and
reliability of suppliers and contractors, measures to improve both were incorporated
into the GPRA and its IRRs. Reliability refers to the likelihood of suppliers and
contractors nishing a project or completing it on schedule.
With respect to quality, the main priority has been to upgrade the standard of
consultancy services for infrastructure projects. To ensure a high caliber of technical or
design proposals, either of two methods of evaluation are used in consultancy tenders.
One is called the quality-based evaluation procedure. The consultants submit a
technical or design proposal and fee offer in separate envelopes. The technical or
design proposal of each submission is numerically rated and after a ranking is done,
the highest rated bid is identied. The fee offer of that bid is then considered, and the
rm in question is then asked to negotiate a nal fee which cannot exceed either the
approved budget for the contract or the fee offered (Government Procurement Policy
Board, 2009a, pp. 58-60). The second method of evaluation is the quality-cost
evaluation procedure. Again the consultants submit two separate envelopes for the
technical or design proposal, and the fee offer. Separate numerical ratings are given for
the technical or design proposal and the fee proposal. The fee proposal rating is
calculated based on the lowest bid scoring method, so that the maximum rating is
given to the lowest bid (100 points) with the scores of the other bids being inversely
proportional to it. The overall rating of each bid is then calculated with a weightage of
60 to 85 per cent accorded to the rating of the technical or design proposal and a
weightage of 15 to 40 per cent given to the rating of the fee proposal (Government
Procurement Policy Board, 2009d, pp. 58-61; Government of the Philippines, 2009).
The evaluation of the technical or design proposal must take into account the plan
of approach and methodology with the emphasis on the clarity, feasibility,
innovativeness and comprehensiveness together with the quality of interpretation of
project problems, risks, and suggested solutions (Government of the Philippines,
2009). Also included in the evaluation is the caliber of personnel assigned to the project
with respect to their experience, qualications, education and training, as well as the
overall experience of the rm and its quality of performance in similar previous
projects (Government of the Philippines, 2009).
To determine if a company is reliable and equal to the task of undertaking and
completing a project, certain requirements have been incorporated into the eligibility
screening. To be eligible, the company must prove it has the nancial means to
undertake the project. For this purpose, it must have completed in a recent period
(specied in the bidding documents) a similar contract worth at least half of the
approved budget for the contract under tender, or two or more similar contracts which
together are equal to this amount (of which one contract must be 50 per cent of this
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amount). In addition, the company must have a cash facility in or a credit line
certicate from an approved bank equal to 10 per cent of the approved budget for the
contract, or a net nancial contracting capacity (NFCC) at least equal to the approved
budget. The NFCC is a multiple of its current net worth discounted by the value of the
incomplete portion of its on-going projects. The multiple ranges from 10 for contracts
of less than one year to 20 for contracts extending over two years or more. To further
ensure reliability, the company must declare contracts either on-going or in the
immediate future to which it is committed. This is intended to address the concern that
suppliers and contractors often are unable to complete a project or may nish it behind
schedule as a result of such commitments (Government of the Philippines, 2009;
Government Procurement Policy Board, 2009c, pp. 31-4).
To further attain high standards in public infrastructure projects, contractors are
evaluated under the Constructors Performance Evaluation System (CPES). Ratings are
given for standards of workmanship, the quality of materials used, the progress made
if an on-going project, and the timeliness of completion. Also rated are regard for
environmental health and safety and the use of resources in site management. Two
overall ratings out of 1.0 are given, each being an aggregate of the individual weighted
ratings: one is given during the project and the other at the end. A score below .75 is
poor, and between .75 and .82 unsatisfactory. A score between .82 and .89 is
satisfactory and from .89 to .96 very satisfactory, with any score above that rated as
outstanding. The individual and aggregate ratings are taken into account in eligibility
screening and in bid evaluation in a subsequent project. As well, they facilitate quality
control during the project, and help to determine whether the certicate of completion
should be issued at the end (Construction Industry Authority of the Philippines and
Philippine Domestic Construction Board, 2009, pp. 1-5; Government Procurement
Policy Board, 2009c, pp. 82-3).
Furthermore, when goods, services and public works are sub-standard, the supplier,
consultant or contractor can be disqualied from public bidding for one year, and if
repeated in a subsequent contract, for two years. In the case of consultants, this applies
to producing defective designs and prescribing materials which are inappropriate
and sub-standard. Contractors may be blacklisted for abandonment of project, tardy
progress in its execution, and failure to meet other contractual terms relating to the
quality of materials and workmanship (Government of the Philippines, 2009;
Government Procurement Policy Board, 2009a, pp. 63-72; Government Procurement
Policy Board, 2009c, pp. 58-59).
Combatting corruption in procurement
Corruption has been widespread in public procurement. All the major types of
corruption have been pervasive including bribery, kickbacks, embezzlement, fraud,
cronyism, nepotism, and collusion. Since 1987 a number of reforms have been
instituted to combat procurement-related and other forms of corruption (Quah, 2003a,
pp. 91-4; Quah, 2003b, pp. 251-2). The foundation for these reforms was actually laid as
far back as 1960 through the Anti-Graft and Corrupt Practices Act. Several key reforms
have been passed in recent years to build on this legislation. One were provisions
within the Constitution of 1987, spelling out the ethical responsibilities of public
ofcials. These were followed by an Act Establishing a Code of Conduct and Ethical
Standards for Public Ofcials and Employees, passed in 1989, which laid down in a
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more detailed form the legally binding standards of personal integrity of civil servants
(Congress of the Philippines, 1989). In addition, in 1991, the Act Dening and
Penalizing the Crime of Plunder was passed, intended to deter mass embezzlement.
Referred to as ill-gotten wealth of at least 75 million pesos (US$1.72 million), such
embezzlement shall be punished by life imprisonment with perpetual disqualication
from holding any public ofce (Congress of the Philippines, 1991).
The proscriptions of corrupt practices were spelt out as well in the GPRA, its IRRs
and the procurement manuals. Among the forms of corruption highlighted are unduly
inuencing or exerting undue pressure on any member of the BAC (bids and awards
committee) or any ofcer or employee of the procuring entity to take a particular
bidder and offering, giving, receiving, or soliciting of anything of value to inuence
key decisions in the procurement process (Congress of the Philippines, 2003;
Government of the Philippines, 2009; Government Procurement Policy Board, 2009a,
p. 63; Government Procurement Policy Board, 2009e, p. 14). This is designed to combat
bribery, kickbacks and inuence pedalling, involving members of BACs, other public
ofcials (including elected politicians), and private individuals. To combat nepotism,
no head of a procuring entity can reject bids as a result of manifest preference to any
bidder who is closely related to him. A family member or a close relative is legally
dened in the Philippines as consanguinity or afnity up to the third civil degree.
Equally important are specic provisions prohibiting collusion and bid rigging by
companies, feigning of competition through multiple bids by one company and
fraudulent practices (submitting false information to gain eligibility to bid or to win a
bid) (Government of the Philippines, 2009; Government Procurement Policy Board,
2009a, pp. 63-7).
The GPRA, its IRRs and the procurement manuals specify the penalties (both
judicial and administrative) that can be levied for the main types of corruption
offenses. As a measure of the seriousness with which such offenses were viewed by the
framers of these reforms, those who have been convicted, whether public ofcials or
private individuals, are liable to prison terms ranging from six to 15 years. If a
company or partnership has committed the offense, then any directors, ofcers, or
employees directly involved are convicted. Furthermore, the partnership or company
may incur civil liabilities, requiring it to pay liquidated damages for any resultant loss
incurred by the procuring entity, and to pay compensation to its competitors in the
tender (Congress of the Philippines, 2003; Government of the Philippines, 2009).
In addition, administrative penalties are levied on offending individuals and
entities. Those who are public ofcials will be permanently or temporarily disqualied
from holding ofce in a public agency. Businesses who have engaged in unsolicited
bribery, collusion, and fraud, as well as committing other forms of default, can be
disqualied for one year from public bidding, and then two years if the offense is
repeated. When the corrupt or defaulting practice occurs during project
implementation, the contract can be immediately terminated (Congress of the
Philippines, 2003; Government of the Philippines, 2009; Government Procurement
Policy Board, 2009a, pp. 63-7).
Whats more, if the president, chairman, and any shareholder owning 20 per cent or
more of the equity of a disqualied corporation (and also their family members), hold
any of these positions in another company, that corporation will be likewise
disqualied from public bidding for the same period. One of the intentions is to prevent
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a rm debarred for corruption or other defaulting practices being re-registered under a
different name and articles of association and so able to still tender for public contracts
(Government Procurement Policy Board, 2009a, p. 70).
In addition to the direct prohibition of corrupt dealings, attention has been given to
preventing conicts of interest in the procurement process, which could result in
ofcials favouring businesses to which they or their families are connected. Under the
Constitution of the Philippines, public ofcials (both elected and non-elected) are
required on taking ofce to declare their assets, liabilities and net worth. Under the
Code of Conduct and Ethical Standards referred to previously, they are obliged to
relinquish any position, shareholding, or partnership stake in a business where a
conict of interest arises, and shall not, directly or indirectly, have nancial or
material interest in any transaction which requires the approval of their ofce
(Congress of the Philippines, 1989; Quimson, 2006, pp. 19, 29). This is reinforced under
the GPRA by the stipulation that no bidder can be related to the head of the procuring
entity, any member of the BAC, its secretariat, and the technical working group, the
head of the project management ofce, or any of the project consultants. The bidder
includes the sole proprietor of a business, or any partner, director, ofcer, or
shareholder with 20 per cent more of the ownership of a partnership or company
(Congress of the Philippines, 2003; Government of the Philippines, 2009; Government
Procurement Policy Board, 2009e, p. 15).
Creating and strengthening watchdog and enforcement institutions
A key aspect of the reform of public procurement in the Philippines has been to make
procuring entities more accountable by creating or strengthening watchdog and
judicial bodies, which monitor procurement practices and enforce the relevant laws and
regulations. There has now arisen a signicant group of institutions whose remit is to
exercise oversight over the procurement process, to unearth evidence where anomalies
have occurred, and, where appropriate, to facilitate, initiate or undertake enforcement
action. The key watchdog institutions, which have been created or whose powers have
been increased, are the Commission on Audit, the Ofce of the Ombudsman, the
Government Procurement Policy Board, Sandiganbayan (anti-graft court) with the
remit to try high level cases of corruption, and the Procurement Transparency Board.
However, the Presidential Anti-Graft Commission was abolished in November 2010,
with its functions (mainly to investigate corruption of presidential appointees)
transferred to the Ofce of the Deputy Secretary for Legal Affairs under the Ofce of
the President.
Worth noting is the revamped Ofce of the Ombudsman (OO), established under the
Ombudsman Act of 1989, which has become the lead investigative and enforcement
agency in combatting corruption and has the power not only to investigate corrupt
dealings but also to prosecute those who are charged, even supplanting the role of the
public prosecutor (Quimson, 2006, pp. 26-7; Ofce of the Ombudsman, 2009). The work
of the Ombudsman has been helped by the Procurement Transparency Board, set up in
2007. Composed of a mix of senior public ofcials and civil society representatives, its
mandate is to oversee the management of a tender. When deviations from the
provisions of the GPRA and its IRRs occur, it may recommend to the Ombudsman the
ling of penal, civil and administrative charges (Ofce of the President, 2008).
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Limitations in certain provisions of the reforms
Although the GPRA and its IRRs are comprehensive, certain provisions still create
obstacles to the achievement of a procurement system in line with international best
practices. The main ones are those which impose restrictions on access to the
procurement market for overseas rms, despite the commitment to competition
mentioned previously. As stated in a resolution of the Government Procurement Policy
Board in, 2005, the GPRA adopts as a general principle preference for Filipino
nationals in the award of government contracts in line with the policy to promote
Filipino labor, domestic materials, and locally produced goods (Government
Procurement Policy Board, 2005).
As reafrmed in the 2009 revised IRRs (section 23) and procurement manuals, a
business may be eligible to bid for the supply of goods and to provide consultancy
services, if 60 per cent of the ownership is in the hands of Philippine nationals, with a
further requirement that the actual delivery of consultancy service be undertaken by a
Philippine national(s). In tenders for infrastructure projects, it is mandated that, in
most cases, 75 per cent of the ownership of the company must belong to Philippine
nationals (Government of the Philippines, 2009; Government Procurement Policy
Board, 2009b, pp. 43-5; Government Procurement Policy Board, 2009c, pp. 31-3;
Government Procurement Policy Board, 2009d, pp. 34-5; Government Procurement
Policy Board, 2009e, p. 16).
Under the IRRs, foreign companies are allowed to participate in a restricted number
of situations. Their eligibility to bid may be granted when provided for under any
Treaty or International or Executive Agreement (including donor sponsored projects),
and when the goods sought to be procured are not available from local suppliers [. . .]
or when there is a need to prevent situations that defeat competition or restrain trade.
The hiring of foreign contractors in infrastructure projects is only permitted in the rst
situation mentioned previously. Under section 43 of the revised IRRs, even when
foreign suppliers and contractors are allowed to tender, a preferential margin is applied
in favour of domestic businesses. In this case, the lowest of the domestic bidders will be
awarded the contract so long as its price is no more than 15 per cent above the lowest
price offered by the foreign bidders, and provided it is willing to match that price offer
(Government of the Philippines, 2009).
It should be noted that the restrictions on foreign participation in tenders were
included in the revisions to the original version of the Government Procurement
Reform Bill introduced during its passage in the House of Representatives (Campos
and Syquia, 2006, p. 25). It is difcult to know what pressures and considerations were
brought to bear on this matter, but it could be surmised that inuence may have been
exerted by those business groups in the Philippines who had hitherto dominated the
procurement market and thus sought to protect their own interests.
As mentioned previously, the GPRA lays down restrictive and well dened
conditions under which procuring entities may avoid competitive tendering. However,
under two of the provisions of the GPRA, limited tendering is allowed for the
procurement of highly specialized types of goods and consulting services which are
known to be obtainable only from a limited number of sources and for the purchase of
major plant components where it is deemed advantageous to limit the bidding to known
eligible bidders in order to maintain an optimum and uniform level of quality and
performance of the plant as a whole (Congress of the Philippines, 2003). Such terms as
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specialized, limited number, advantageous, optimum, and as a whole are all a
matter of interpretation, so giving procuring entities discretion in deciding whether to
adopt limited tendering. Such ambiguity may allow powerful elite groups to unduly
inuence BACs on how they exercise such discretion in relation to limited tenders.
A further limitation of the GPRA and the IRRs is the provision creating but limiting
the independence of a bid challenge mechanism. This will be considered in the
following in the discussion on accountability in the procurement system.
Failings in the implementation of the reforms and the prevalence of
corruption
The impact of the procurement reforms has been further undermined by failings in
their implementation by procuring entities and by weaknesses in watchdog and
enforcement bodies. As pointed out by the World Bank in its 2008 report. much
progress has been made in procurement reform in terms of rules and regulations but
implementation and enforcement are still weak, and the objectives of the reform have
not been fully achieved (World Bank, 2008, p. 45).
Closely associated with weak implementation is widespread corruption (which may
be perceived as both the cause and result of weak implementation). Despite the range of
measures introduced to combat corruption, it is still prevalent in day-to-day
procurement. Surveys conducted by three international organisations and one
domestic organisation continue to indicate widespread corruption in government
administration, including public procurement. These organisations are the World
Bank, Transparency International, World Economic Forum, and the Philippines
survey organisation, Social Weather Stations.
The World Banks measure of Control of Corruption for 2010 gave Philippines a
point score 20.82 within the range of 22.5 to 2.5, compared to a score of 20.31 in
1996, and a global percentile rank of only 22.5 compared to 44.7 in 1996 (the lower the
rank the greater the extent of corruption) (World Bank, 2011a). These scores are
corroborated by references to continuing corruption in public procurement in the
World Banks recent procurement assessment reports of the Philippines (World Bank,
2005, p. 15; World Bank, 2008, pp. 24, 40-1). The ndings by the World Bank are
supported by those of Transparency International (TI). In its Corruption Perceptions
Index in 2011, the Philippines was ranked at 129 out of 183 countries (the higher the
rank the greater the corruption), and given a score of only 2.6 out of 10. In 1999, its rank
was 54 out of 99, with a score of 3.6 out of 10. Both surveys point to a discernible
increase in corruption over the last ten years or so (Transparency International, 2011a).
These ndings are consistent with the survey of conditions affecting business
competitiveness in 139 countries conducted by the World Economic Forum and
published in The Global Competitiveness Report, 2011-2012. The survey sample in the
Philippines comprised 93 businesses, ve of which employed over 5,000 people. Four
questions in the survey focused on corruption and unethical conduct. One of the
questions was: In your country, how common is the diversion of public funds to
companies, individuals, or groups due to corruption? (1 very common; 7 never).
The average score for the Philippines was 2.3 giving it a rank of 127 out of 142 (the
higher the rank the greater the degree of corruption). In response to a second question,
How would you rate the level of public trust in the ethical standards of politicians in
your country? (1 very low; 7 very high), the rating for the Philippines was 1.8
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giving it a rank of 128. In response to a third question, In your country, how common is
it for rms to make undocumented extra payments or bribes connected with imports and
exports; public utilities; annual tax payments; awarding of public contracts and licenses;
obtaining favourable judicial decisions? (1 very common; 7 never occurs), the
average rating was 3.0 giving the country a ranking of 119. The fourth question, To
what extent do government ofcials in your country show favouritism to well-connected
rms and individuals when deciding on policies and contracts? (1 always show
favouritism; 7 never show favouritism), elicited a score of 2.4 giving a ranking of 118.
The responses to this question are perhaps further evidence of the ability of business
leaders connected to powerful families to affect decisions of BACs through informal
channels in the bureaucracy. The ratings and rankings are the worst overall among the
Asian countries surveyed (World Economic Forum, 2011, pp. 392-394, 396).
Equally important are the ndings of the polls conducted by Enterprise Survey
conducted under the auspices of the World Bank. In 2009 it surveyed 1,326 rms in the
Philippines, and among those who had been involved in quotations and tenders in the
previous 12 months, 58 per cent reported they were expected to give gifts to secure a
government contract, although only 22 per cent identied corruption a major
constraint (World Bank, 2011b). A similar nding was made by the Philippine polling
organisation Social Weather Stations (SWS). In its most recent survey of corruption
conducted in 2008, 402 private sector managers were interviewed with 267 from small
and medium enterprises and 135 from large enterprises. On a four point scale
measuring the extent of corruption from a lot to none, 62 per cent of the sample
indicated that there was a lot. Nearly 50 per cent of respondents stated that almost
all/most companies in their line of business paid bribes to secure a public contract
while 41 per cent declared to having personal knowledge of public sector corruption
in their line of business in the past three months. The median amount paid as a bribe
was 15 per cent of the contract value (Social Weather Stations, 2009).
The rst two sources (Control of Corruption measure and Corruption Perception
Index) measure perceptions of corruption in general. These are a valuable but not
always precise measures of actual corruption as pointed out by a number of writers
(Olken, 2006; Johnston, 2008; Donchev and Ujhelyi, 2009). One of the limitations are
variations in the understanding of corruption from one country to another. Two other
sources, Enterprise Survey and SWS Survey, go beyond measuring general
perceptions and more directly assess knowledge and experience of specic forms of
corruption among businesses. In addition, the questions in the survey conducted by
World Economic Forum cover different aspects of corruption. All the sources are
consistent in pointing to widespread corruption.
Apart fromthe survey data, further evidence of corruption is provided by the Ofce of
the Ombudsman. According to its 2009 report, 12,736 complaints, nearly all relating to
corruption, were received, which was slightly higher than the annual average for
2005-2008 (12,427). Over 500 ofcials were subject to administrative sanctions
(dismissed, suspended, or reprimanded) with the largest number suspended (34 per cent).
In addition, in 2009, 189 criminal corruption cases involving high ranking ofcials were
led before the Sandiganbayan, with a conviction rate of only 33.6 per cent (a lower rate
than in the previous two years). A further 1,394 corruption cases involving lower level
ofcials, were led before the regular courts but conviction rate was very low at only one
tenth of the cases led (Ofce of the Ombudsman, 2009, p. 32, 46-7, 52).
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In addition, examples of corruption, including corruption in procurement, are
frequently cited by the local and trade press. For example, it was reported that the
purchase of military helicopters worth more than US$90 million was suspended in
September 2010 due to the drafting of specications to favour a particular group of
suppliers. Members of the BAC of the Defense Department were allegedly involved
with the likelihood that they would receive substantial bribes. In 2008, the purchase of
helicopters worth US$29 million, according to press reports, was also scrapped for
similar reasons, resulting in the debarment from public tenders of the Asian Aerospace
Company, the local supplier and partner of the US-based manufacturer of the
helicopters (Francis, 2010; Agence France Presse, 2010; Net Resources International,
2010).
There is little doubt that the degree of bribery, kickbacks, cronyism, and nepotism
that still exists in the Philippines continues to create major obstacles to implementing
procurement reforms. BACs, technical working groups and senior ofcials in
procuring entities often do not adhere to their professional and ethical responsibilities,
as laid down in the reforms. Procurement specications, eligibility assessments,
contractor performance measurements, and most importantly bid evaluations and
contract awards are routinely tailored to serve the interests of rms within an elite
network of businesses connected to well-established landowning families, with the
payment of bribes and kickbacks by such rms as a further incentive. Likewise, single
sourcing or negotiated procurement may be adopted as the method of procurement to
ensure a contract is awarded to a rm within the elite network, even when the
conditions under which it is permitted to all intents and purposes do not exist. In face
of this, rms outside this network nd it difcult to compete for government contracts.
Elected politicians in Congress play an important role in inuencing lucrative
contract awards in favour of companies in which they have an ownership stake or for
which they act as intermediaries. In the latter role, they are often paid bribes or
kickbacks, with the money received used for their own personal benet, or to illicitly
fund their election campaigns. The informal leverage that politicians can exercise,
often through behind the scenes deals, further ensures that the preponderance of
government contracts go to the elite network of businesses connected to powerful
families ( Johnston, 2005, pp. 137, 140-4; Quimson, 2006, pp. 12-14).
Another corrupt practice which blunts the impact of the procurement reforms is
widespread collusion among would-be bidders to rig the tender and secure the
acceptance of a high bid price, despite it being prohibited under the reforms. According
to the Philippines country procurement assessment report of 2008 by the World Bank
(2008), there is a perception that collusion or rigging of bids is common, particularly
for big ticket contracts (p. 33). As an example, the World Bank found that in two
contracts it was sponsoring in the Philippines, all the bids were suspiciously clustered
together at a high price level. Such a pattern was repeated in three separate rounds of
bidding, resulting in the rejection of the bid offers in each case. The World Bank
concluded that the analysis of the bid data presented unmistakable evidence of
collusion (World Bank, 2008, pp. 33-4). The 2008 report, mentioned previously, also
pointed to the difculties of taking action against collusion rings in the Philippines. It
cited the example of the Panaon local government unit, which in the last few years
discovered a repeated pattern of high and often identical bid offers in its tenders, but
the companies concerned have continued to bid for contracts. Despite its best efforts
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the local government unit has been unable to obtain enough hard evidence for a
prosecution to be undertaken (World Bank, 2008, p. 34). Such collusion serves to
frustrate the objective of the GPRA to create an open and competitive procurement
system that ensures better value for money. However, its continued prevalence is not
surprising given the extent to which the businesses sector in Philippines continues to
be controlled by a small network of businesses linked to powerful families.
Also undermining the implementation of the reforms has been limited progress in
achieving a fully transparent system of procurement. Certainly the adoption of E
procurement through PhilGEPS, disclosure of bid outcomes, and other measures to
enhance transparency have been noticeable developments. But PhilGEPS has not been
fully availed of by procuring entities. Although most national government agencies
and local government units have now registered with PhilGEPS, a substantial minority
of government-owned or controlled corporations have not. Nor do even registered
agencies always post bid notices and contract awards on its web-site (Philippine Public
Procurement Service, 2010; Padre-Isip, 2010). The World Banks 2008 report found
from pilot surveys that the requirement to publish contract awards as well has still to
be fully complied with. Moreover, the same report noted that bid notices sometimes
provide insufcient information and instructions to prospective suppliers about the
items being procured, or insufcient online access to the bid documents (World Bank,
2008, p. 28; ADB, 2009, p. 2). An equal concern has been the failure of civil society
organisations to attend as observers BAC meetings on a regular basis, which further
undermines another key reform to enhance transparency, as will be discussed in the
following. The failure to fully observe the obligations of transparency laid down in the
reforms has enabled the continuation of the practice of behind the scenes deals to
facilitate bribery and crony transactions outside of the public spotlight.
All in all the corrupt practices mentioned previously coupled with limited
transparency have prevented the achievement of the central objective of the reforms to
create a procurement system that matches international standards based on open
competition and equal access, impartial evaluations, transparent procedures, and high
end product quality.
The question of accountability: weaknesses of the monitoring,
enforcement and bid challenge mechanisms
The implementation failings referred to previously can in part be attributed to the
limited accountability of procuring entities. This to a signicant extent is due to the
lack of effective monitoring and enforcement by watchdog institutions responsible for
overseeing the procurement process (Quah, 2003a, pp. 99-100; Quah, 2003b, pp. 244-5).
This failure has occurred in spite of the reforms to create and strengthen such
institutions, referred to previously. The World Bank procurement report of 2008, and a
Transparency International report of 2006 expressed serious misgivings about the
performance of the Commission on Audit, the Ombudsman and the Sandiganbayan
(anti-graft court). They revealed that the Commission on Audit failed to nally
determine that anomalies had occurred in the majority of procurement-related cases it
investigated (Quimson, 2006, pp. 23-4; World Bank, 2008, pp. 41-2). Of the cases that
were forwarded to the Ofce of the Ombudsman for further investigation and
prosecution, according to the World Bank report, a large number had not been acted
on, and those that had been take a very long time to bring to court. The report
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concluded that the low enforcement capacity of the Ombudsmans special prosecution
ofce and that of the courts is a major concern (World Bank, 2008, pp. 41-2). This is
supported by the low conviction rates in cases led before the Sandiganbayan, as
mentioned previously. Believed to have protected corrupt ofcials under former
President Gloria Arroyo, and to avoid impeachment proceedings by the Senate, the
Ombudsman Merceditas Gutierrez stepped down in April 2011 (Yap, 2011; Burgos,
2011). A similar lack of effectiveness has characterised the other key anti-corruption
body, the Presidential Anti-Graft Commission (PAGC) until it was abolished. Of
alleged corruption cases, 1,500 were investigated by it from 2001 to mid-2007, but in
only 10 per cent of them was punitive action taken (dismissal, suspension and
reprimand) (Quimson, 2006, pp. 29-30; Presidential Anti-Graft Commission, 2007a,
pp. 4-5; Presidential Anti-Graft Commission, 2007b, pp. 5-6).
It should be noted that the work of the watchdog and enforcement bodies is
handicapped by the absence of regular and accurate reports from procuring entities on
the procedures followed in each procurement, and the outcomes achieved. Procuring
entities either ignore requirements to compile and submit such reports, often due to a
failure to institute formal arrangements to systematically gather information on their
procurement programs and to compile and keep detailed records of each procurement.
In consequence the scrutiny of procuring entities is weakened (World Bank, 2008,
pp. 37-8; Ofce of the Ombudsman, 2009, p. 34).
In addition, the existence of a range of bodies with watchdog and enforcement
functions with respect to procurement may be counter-productive. The problem is that
they have overlapping functions, with the lines of demarcation between them not
precisely drawn. The upshot may be that when a matter arises requiring monitoring,
investigation and prosecution, no agency accepts responsibility, or the opposite, two or
more do so, resulting in conicting decisions and outcomes, or even worse the
obstruction of one agency by another as a result of institutional rivalry. Further
problems are additional bureaucratic procedures and the limited pool of personnel with
the skills of monitoring, investigation and prosecution, which are spread thinly among
several agencies, so reducing the effectiveness of each agency. The desire to streamline
government agencies with overlapping functions was cited as a reason for the abolition
of PAGC, referred to previously (Sisante, 2010).
Also undermining the monitoring of procurement practices and the proper
enforcement of procurement laws and regulations is corruption in the watchdog and
enforcement bodies themselves. How widespread this may be is difcult to tell but the
World Bank drew attention in recent reports to how corruption in the enforcement and
judicial process allowed politicians, bureaucrats and business leaders who had
allegedly engaged in corrupt practices relating to procurement, to escape prosecution
and conviction (World Bank, 2005, p. 15; World Bank, 2008, pp. 24, 40-1; Quah, 2003b,
p. 252). Perhaps this is the reason why so few cases that came before Sandiganbayan
resulted in conviction.
Of equal concern are possible outside inuences on the judicial process through
bribery, cronyism, and political pressure, which may hinder the prosecution and
conviction of those alleged to be involved in corruption. In the survey of businesses
conducted by the World Economic Forum, mentioned previously, and published in The
Global Competitiveness Report, 2011-2012, respondents were asked: To what extent is
the judiciary in your country independent from inuences of members of government,
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citizens, or rms? (1 heavily inuenced; 7 entirely independent). From the
responses given in the Philippines, a score of 2.8 was computed, giving it a low ranking
of 102 out of 142 (World Economic Forum, 2011, p. 395). This low ranking is supported
by Transparency Internationals assessment of corruption levels in its current country
prole of the Philippines, which points to frequent corruption in the judicial system
(Transparency International, 2011b).
The monitoring of the procurement process has been weakened too by the failure of
civil society organisations (CSOs) to make the most of the new opportunities given to
them to observe how procurement decisions are made, which was referred to
previously. It was hoped that the attendance of CSOs at BAC meetings and their
access to all relevant procurement documents would lead to the exposure of corrupt
dealings and discourage procurement ofcials and bidders from engaging in them. But
the World Bank referring to this arrangement in the 2008 procurement report stated
that its implementation is not producing the desired impact on the ground. The
report warned that its sustainability is at risk unless serious remedial measures are
introduced by the GPPB (Government Procurement Policy Board) and the CSOs
themselves, and urged a study to be undertaken on sustaining the involvement of
CSO observers in the bidding process, including contract implementation (World
Bank, 2008, p. 43). Rachelle Padre-Isip, a university-based lawyer in the Philippines,
specialising in procurement, has conrmed the fears of the World Bank, indicating that
representation of the public in the BAC (Bids and Awards Committee) is very low
because there is little incentive or support for them to do so (Padre-Isip, 2010). It is
evident that the initial enthusiasm of CSO observers to use the opportunities to observe
the proceedings of BAC meetings and highlight irregularities may have waned.
Possibly, they may have been discouraged by suspicions of behind the scenes and
unrecorded deals or by restrictions imposed by ofcials on access to crucial
information in the procurement process.
Further limiting the accountability of procuring entities is a weak bid protest
mechanism. Under the GPRA and the IRRs, a would-be bidder declared ineligible to
bid and a failed bidder can appeal to the BAC for a motion of reconsideration. If that
is rejected, an appeal can be lodged with the head of the procuring entity, whose word
is normally nal. If all else fails, the extreme option is available to take the matter to the
Ofce of the President or to the courts for a presidential or judicial review. To le a bid
challenge, the appellant must pay at least one per cent of the approved budget for the
contract (Government of the Philippines, 2009). However, as pointed out by the World
Bank in its procurement report of 2008, neither the BAC nor the head of the procuring
entity can claim to be impartial. From several pilot studies conducted after 2002, it was
found there are hardly any protests from the bidders, because of the restrictive
provisions on protests and the lack of an independent review body. For this reason the
World Bank has called for the lowering of the fees for a bid protest and the setting up of
an independent tribunal with quasi-judicial powers outside the procuring entity to
review bid challenges (World Bank, 2008, pp. 23-4, 39, 62).
Conclusion: elite capture and informal inuence
The reforms discussed in this article were intended to create a system of public
procurement in the Philippines commensurate with international standards, replacing
what had hitherto been a highly wasteful, disorganised and corrupt system. They have
Procurement
reform in the
Philippines
395
been part of a wider reform agenda to upgrade standards of governance and
administration in the Philippines following the establishment of a democratic political
system in 1987. However, the impact of the procurement reforms has been blunted by
limitations of certain provisions lack of effective implementation and weaknesses in
the accountability of procuring entities. The last two failings have been closely
associated with widespread corruption.
The limited impact of the reforms may be explained by two features of government
and administration in the Philippines highlighted in the analytical framework: elite
capture and the informal bureaucracy. Elite capture is reected in the way the network
of business leaders from well-established landowning families in the Philippines are
able to inuence the making of policy and the day to day operations of government
agencies to suit their interests. This has been made possible by their membership of or
close connections to the political establishment of congressmen, ministers and other
Presidential appointees, top bureaucrats, governors, and mayors. They have also been
able to exploit the informal character of the bureaucracy to ensure that ambiguous
rules are interpreted, and legal impediments and ofcial procedures are circumvented,
with the intention of obtaining decisions in their favour. The inuence of the business
elite and powerful families over the government and the bureaucracy has been
highlighted by Kang, Johnston and other authors (Kang, 2002, pp. 8-9, 63-4, 74-84,
175-80; Johnston, 2005, pp. 136-44; Johnston, 2010, pp. 7-16, 40-1; Timberman, 1991,
pp. 14-20; Franco, 2001, pp. 292-8). The importance of powerful family connections has
lead Johnston to describe the domination of the business elite of government and
administration as oligarch and clan control.
Within the context of procurement, elite capture has meant that the network of
business leaders continue to inuence the registration of suppliers, the method of
procurement, the drafting of specications, tender evaluation criteria, the award of
contracts, and the post-qualication process to ensure that the lions share of lucrative
contracts go to their companies. According to Campos and Syquia (2006) in their 2006
World Bank paper on the political inuences shaping the GPRA, such vested
interests are highly motivated and often tightly knit in seeking to frustrate
procurement reform (p. 31).
Often the elite inuence over the government and bureaucracy in general, as Johnston
has pointed out, and procurement in particular involves corrupt practices, in the form of
crony and nepotistic deals, bribery and kickbacks, and collusion. Such corrupt practices
have proliferated due in part to the ability of the business leaders to stie investigations
and prosecution proceedings. This reects how far watchdog and enforcement bodies
themselves have also been subject to elite capture, so undermining the system of
accountability ( Johnston, 2005, pp. 41, 136-44; Johnston, 2010, pp. 7-16, 40-1).
It may also be argued that procurement ofcials in the BACs and technical working
groups have themselves been party to elite capture. As a result of deference to business
leaders from powerful families or their political associates, a fear of the consequences
for resisting their demands in terms of career prospects, and a desire for
self-enrichment through bribes and kicks back, procurement ofcials bend to
pressure in favouring companies in the elite network. For similar reasons, even senior
ofcials in watchdog and enforcement bodies may be reluctant to expose anomalies in
the procurement process or take action against those involved. Illustrating such
inuence, Transparency International in its report on the Philippines in 2006 cited
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evidence of ofcials in the Commission on Audit, who, when exposing corruption, are
subject to harassment or are re-assigned to other tasks. They are further demoralized
by the fact that most of their ndings result in no action. One ofcial was quoted as
describing his colleagues in the Commission as small people waging a war against
political giants (Quimson, 2006, pp. 23-4).
To redress elite capture, a signicant change in the culture of the Philippine
government and civil service is required, whereby compliance to formal laws and
regulations takes precedence over the informal inuences exerted by the elite business
network linked to powerful families. This in turn depends on the loosening of the hold
of elite families with business connections on the political and economic life of the
country, and a weakening of the ascriptive culture which foments deference to such
families not least among ofcials in procuring entities and watchdog and enforcement
bodies.
Also required is an increased role of civil society groups, and a commitment at the
highest reaches of government to stamp out corruption and ensure effective
implementation that goes beyond simple formal pronouncements. This includes
protecting the independence of watchdog bodies. Campos and Syquia (2006),
identifying the conditions for effective procurement reform in their World Bank paper,
referred to the need for a a core group of dedicated individuals at the highest levels of
the Philippine government supported by well-organised allies in civil society and the
business community (p. 31). The chances of such conditions and changes occurring in
the foreseeable future, to reduce informal inuences and elite capture, however,
remains far from certain.
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About the author
David Seth Jones is a member of the Faculty of Business, Economics and Policy Studies,
University of Brunei. He was previously Associate Professor in the Department of Political
Science, National University of Singapore and also an Adjunct Professor at Singapore
Management University. His research specialisms are public management reform, public
procurement and land policy, in which he has published widely. David Seth Jones can be
contacted at: dsjones1x@gmail.com or david.jones@ubd.edu.bn
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