CONTENTS

Acknowledgments 2

Acronyms 3

Introduction 4

Overview of Corruption and

Procurement Reform in the Philippines 7

Conceptual Framework 13

Philippine Procurement
Reform Deconstructed 25

Evaluation of Procurement
Reform in the Philippines 32

Conclusion and Recommendation 42

References 46

Appendices

A. Compliance and Performance Indicators 50

B. List of Laws Related to Graft and Corruption 55
C. Case Notes on the Comelec-MegaPacific Case 57

List of Tables

1.1 Comparison of Governance Estimates of Selected Countries 8

1.2 Areas of Public Sector Corruption 9
1.3 Summary Statistics of Foreign and Development
Partner-Assisted Governance Projects 12
2.4 Objectives, purposes and discourses of public participation 20
3.5 Conditions for Alternative Methods of Procurement 26
3.6 Period of Action on Procurement Activities 27
4.7 Average Calendar Days from Advertisement to Contract Award 37
4.8 Top regular NGOs invited as observers by the 5 pilot agencies 39

List of Figures

2.1 Framework of Analysis 21

2.2 PA-Participation theoretical framework 22

List of Boxes

4.1 Commission on Elections and Megapacific Consortium Case 33

4.2 National Broadband Network project 35

1
ACKNOWLEDGMENT

I came here in the UK with a specific mission: to find new ways to fight corruption in my
country. The journey had been rough and tough – what I would describe as 'near-death
experience.' Just two weeks in the program and I was already undone. I started
questioning the very foundation of my 'functional' existence. Unfortunately for me, I was
very much intertwined with a development discourse that a critique of it felt like a
personal attack. I almost “died” in the process. As luck would have it, I had too much
love for my country. It became the source of renewed energy and passion. With my
rebirth came a fresh perspective to life itself, not only to the fight against corruption.

This paper is now testimony of a resolve to renegotiate spaces in the fight against
corruption in the Philippines. It is also testimony to a personal goal of reconstructing my
imagination.

In this, I thank the British Council and the Foreign Commonwealth Office for giving me
the opportunity to experience education and culture in the U.K. Staying away from the
murky political scenes of Manila had been good for my health – physical, emotional, and
mental.

I thank the School of Development Studies of the University of East Anglia, specifically
my professors - Tony Pereira, Vasudha Chhotray, Rhys Jenkins, Colette Harris, Paula
Kantor, Steve Russel You have touched my life and traces of you will remain in me. I
thank my supervisor, Tony, for the time, patience, comments, and support.

I thank my parents, Eduardo and Herminia, who have come here in the UK to give me
love, support and inspiration; My sister Lahneen and her husband Dodot for the extra
space, extra allowance and extra food; The beautiful kids - Rain, Skye and Summer – for
the much needed distraction. You have all added colour to my writing.

I thank friends who have encouraged me to continue on at times when loneliness

overtook me. I thank the Transparency and Accountability Network (TAN) for sharing
data needed in this paper; For making me feel that home is just close by with emails and
updates about our little but growing anti-corruption community.

I thank the Supreme Being who has showered me with everyday miracles.

2
ACRONYMS

ABC Approved Budget for the Contract

ADB Asian Development Bank
BAC Bids and Awards Committee
BLI Baseline Indicators
COA Commission on Audit
COFILCO Confederation of Filipino Consulting Organisations
COMELEC Commission on Elections
CPAR Country Procurement Assessment Report
CSO Civil society organisation
FAP Foreign-assisted projects
GDP Gross domestic product
GOP Government of the Philippines
GPPB Government Procurement Policy Board
GPPB-TSO Government Procurement Policy Board – Technical Support
Office
GPRA Government Procurement Reform Act
IAEB Invitation to Apply for Eligibility and to Bid
IRR Implementing Rules and Regulations
MPC MegaPacific Consortium
NACAP National Constructors Association of the Philippines, Inc.
NBN National Broadband Network
NEDA National Economic and Development Authority
NGO Non-government organisation
NPM New Public Management
OECD Organisation for Economic Cooperation and Development
OECD DAC Organisation for Economic Cooperation and Development -
Development Assistance Committee
OMB Office of the Ombudsman
PA Principal-agent
PAGC Presidential Anti-Graft Commission
PCA Philippine Constructors Association, Inc.
PCCI Philippine Chamber of Commerce and Industry
PDF Philippine Development Forum
PICE Philippine Institute of Civil Engineers
PICPA Philippine Institute of Certified Public Accountants
PTG Procurement Transparency Group
PWI Procurement Watch, Inc.
SEC Securities and Exchange Commission
SWS Social Weather Stations
TAN Transparency and Accountability Network
UN United Nations
USAID U.S. Agency for International Development
WB World Bank

3
INTRODUCTION

The Organisation for Economic Cooperation and Development (OECD) estimates that in
1998, the ratio of all government procurement (consumption and investment
expenditure) of OECD member countries is19.96 per cent of their gross domestic
product (GDP). This is equivalent to USD 4,733 billion. As for non-member countries, it
is 14.48 per cent of the GDP or USD 816 billion.

Total government procurement worldwide is estimated to be roughly

equivalent to 82.3% of world merchandise and commercial services
exports in 1998. (McCrudden 2007: 14)

Clearly, public procurement is a huge market and consequently impacts on economic

development . In a largely neoliberalism-dictated policy environment, it is no surprise
that public procurement is an area of governance of interest to international agencies. In
February 17, 1995, a United Nations resolution (U.N. Resolution A/Res/49/54) was
signed stating the need to harmonize public procurement for international trade
purposes. It reiterates the fact that public procurement enjoys a large share of public
expenditure of most states1. Not only is public procurement directly impacting on
economic development but also historically in countries like the United States, United
Kingdom, Canada, and Australia, policies that regulated public procurement were used
by governments as instruments to achieve social development goals such as job
creation, establishing fair labour conditions and creating equal opportunities for
disadvantaged groups. (McCrudden 2007) Public procurement, therefore, is an area of
governance in which development interventions are introduced and by this, it cannot be
ignored in the study of development. But just as it is where development can be born, it
could also be where a specific type of development can be undone. In the end,
procurement is just an instrument. For what and for whom it is designed are questions
that will have to be answered by reading between the lines to understand the type of
development it promotes.

In 2000, the World Bank (WB) reported that an estimated 20% of public procurement in
the Philippines is lost to corruption. (WB, 2000) The first Country Procurement
1 See http://www.uncitral.org/

4
Assessment Report (CPAR)2 mission sent to the Philippines noted problems about the
country's procurement system as being fragmented with overlapping laws, rules and
regulations governing procurement thus making it inefficient and vulnerable to corruption
and other abuses. In 2003, the Philippine legislature enacted the Government
Procurement Reform Act (GPRA) to improve and reform public procurement. The GPRA
is now the overarching policy on procurement governed by principles of transparency,
accountability, equity, efficiency, economy, competitiveness, equal opportunity, and
effectiveness. (“BLI Assessment”, 2006). The GPRA is the promise for better public
service delivery through more transparent and accountable procurement - a promise of
good governance.

But what kind of promise does the GPRA really offer? This research will analyse
procurement reform in the Philippines and why it has limited prospects. At the core of the
analyses are theories on participation and principal-agent (PA) relations and their
interlink and synergetic effect on procurement reform. Procurement reform in the
Philippines is mainly characterised as one that changes PA relations towards a stricter
arrangement where agents have very minimal discretionary authority. It also introduces
an institutional arrangement where civil society organisations (CSOs) are involved as
external 'monitors'. This innovation contributes to PA theory with CSOs as 'counterpart
agents', strengthening PA relations. The innovation is one that is favored in the purview
of democratic governance. This paper will show however that participation under the
reform is laid out in fairly strict terms. This is a weakness in the system, which reveals
the frailty of the PA model and by extension, the feebleness of accountability offered by
the reform framework. The PA model is not free of problems. Its weakness is revealed in
the complexity of political relationships between principal and agent and also in the
multiple and overlapping nodes of principal-agent roles in the public sphere. Specific
cases are presented illustrating the breakdown of the PA model in Philippine
procurement. This paper suggests the expansion of participation mechanisms to
strengthen PA relations and consequently, accountability. With participation,
procurement reform becomes more than just a process-oriented activity but a venue

2 The Country Procurement Assessment Report (CPAR) is a joint review by the World Bank, Asian
Development Bank, and the Government of the Philippines of the progress of procurement reforms. It
was initiated in 2002. The first CPAR report was presented in 2003. (Thornton, 2006)

5
where development gets deliberated and decided by the people.

This paper proceeds in the following manner: Chapter one discusses an overview of
corruption and procurement reform in the Philippines. Chapter two defines relevant
concepts, such as good governance, corruption, principal-agent relations, accountability,
and participation from which the author's framework of analysis will be drawn. Linkages
between these concepts will be explored and how these relate specifically to
procurement reform. This chapter also sets the parameters of the research study.
Chapter three lays out the salient features of procurement reform in the Philippines and
how PA and participation theories are applied therein. Chapter four is an assessment of
the procurement reform framework in the country. And finally Chapter five is conclusion
and recommendation. Most of the data used in this study have been on the institutional
infrastructure of procurement reform in the Philippines. This mainly includes the omnibus
code on procurement and its implementing rules and regulations (IRR). Empirical data
on Philippine public procurement (2006) gathered by the Transparency and
Accountability Network3 (TAN) in 2007 for its project4 was also used to validate issues
raised in this research. The analyses are drawn mainly from theoretical understandings
(on PA relations and participation), specific case studies of procurement-related
corruption, and relevant empirical data.

3 TAN is a coalition of civil society organisations from different sectors (academe, private sector, NGOs,
quasi-government) engaged in anti-corruption activities. It was formally constituted in 2001. The author
was project coordinator (now on-study leave) of TAN from 2005-2007.
4 The project was funded by World Bank, Philippines through the Presidential Anti-Graft Commission
(PAGC) and the Government Procurement Policy Board – Technical Support Office (GPPB-TSO). The
project's main objective was to validate the results of the Baseline Indicators assessment through a pilot-
test of the Compliance/Performance Indicators (see Appendix A) applied in the Philippine context. The
pilot-test included a sample of procurements made in 2006 by the Department of National Defense,
Department of Education, Department of Health, Department of Public Works and Highways, Bases
Conversion and Development Authority and the local government of Quezon City. (TAN, 2008) The
author was project leader from May to August 2007.

6
CHAPTER ONE: OVERVIEW OF CORRUPTION AND PROCUREMENT REFORM IN
THE PHILIPPINES

CORRUPTION: A BIG ISSUE IN THE PHILIPPINES

Corruption is detrimental to development. It drives away investments and dries up public

resources with reduced revenues, increased costs, and wasteful allocation of money. It
weakens public institutions with distorted policies that unduly favor individual interests
above public interest, poor public services, inefficient and ineffective bureaucracy,
creating public distrust and loss of confidence in government. It undermines the rule of
law, national security and peace and order, and threatens the welfare of the people.
(Asian Development Bank, 2005)

The Philippines is a young nation not spared from the evil workings of corruption.
Corruption has been a part of Philippine history. It incurred the most serious damage
during the dictatorship regime of Ferdinand Marcos (1965 to 1986). (Johnston, 2005) It
is still a big issue in the Philippines to this day. In more recent history (1997-8 to
2000-01), the Philippines' governance score has regressed5 (see Table 1.1) (ADB, 2005)
In a similar light, the Transparency International records worsening perceptions of
corruption in the Philippines. In 1996, the Philippines ranked 44th (out of 54), with 72 per
cent of those included in the survey performing better. In 2003, it ranked 92nd (out of
133), still remaining at the bottom 30 per cent. In 2005, the Philippines' rank worsened to
117th (out of 148), with 74 per cent others performing better. (Thornton, 2006). In Asia,
the Philippines is seen as the most corrupt economy based on a 2007 survey conducted
by Hongkong's Political and Economic Risk Consultancy. (Bonabente, 2007)

5 All components of the score (voice and accountability, political stability, government effectiveness,
regulatory quality, control of corruption) except for rule of law registered a decline in score. The rule of
law score made slight improvement but was still negative. (ADB, 2005)

7
Table 1.1: Comparison of Governance Estimates of Selected Countries

(Source: ADB, 2005: 12)

In 2001, the Office of the Ombudsman (OMB) estimated that USD48 billion had been
lost to corruption in the last 20 years, an amount that could have paid for the total debt of
the Philippines for the same period. The Commission on Audit (COA) conservatively
estimates corruption loss at P2 billion a year. (World Bank, 2001; Thornton, 2006)
Particularly in the area of procurement, leakage is estimated by Procurement Watch, Inc.
(as of 2001) at P95 billion or 68 per cent of the budget deficit. (Thornton, 2006)

Through the years, Filipinos have matured and have come to understand that corruption
seriously impairs national development. More and more Filipinos (from 54 per cent in
October 1999 to 81 per cent in December 2000) now view corruption as primarily
harmful to national development instead of primarily immoral. These understandings are
translated into public dissatisfaction6. Since the mid-90s, corruption is a second most
commonly cited reason for discontent with government (after inflation). Forty-seven
percent of Social Weather Stations' (SWS) respondents (August-October 2000
enterprise survey) think that public sector corruption is due to bad regulations and bad
implementation and 67 per cent see corruption to be prevalent in both revenue-collection
and government spending activities. (Table 1.2). The executive branch is viewed to be
the most corrupt (54 per cent), followed by the legislature (30 per cent) and the judiciary
(17 per cent) (Third Quarter 2000 SWS national survey). Fifty-three per cent of its

6 Because of recent corruption scandals that involved the President of the Philippines (ex: election-related
scandal in 2004), the President's net satisfaction rating has dropped from +26 at the beginning of her
second term in June 2004 to a -26 in 2008 (Social Weather Stations, 2008). Her cabinet also took the
brunt of the blame with a -2 satisfaction rating in 2007 (Social Weather Stations, 2007). Moreover, the
2007 mid-term elections resulted in the lowest voter turnout (75%) in 6 years partly due to public
disillusionment in government, specifically in the muddled election process. (Torres, 2007)

8
respondents (June 2000 survey) views that half the cost of road projects are lost to
corruption, while 40 per cent identify tax collection as an area where corruption is
prevalent. (WB, 2001)

Table 1.2: Areas of Public Sector Corruption (percent of respondents)

Do you think public sector corruption is...
Due more to bad regulations 1
Due more to bad implementation 45
Equally due to bad regulations and bad implementation 47
Due neither to bad regulations nor bad implementation 7
Do you think public sector corruption is...
More prevalent in government revenue-raising 3
More prevalent in government spending 27
Equally prevalent in government revenue-raising and 67
spending
Found neither in government revenue-raising nor spending 3
(Source: WB, 2001: 7) SWS Enterprise Survey, August-October 2000

In its report in 2001, the World Bank recommends that corruption can be addressed by
reducing discretion in government decision making, increasing competition,
transparency and civil society involvement in monitoring governance activities.
Government should build partnerships with civil society organizations, empower them
with a 'mandate' to monitor government performance, give them access to information,
and provide the necessary training to build on their capacities. In a donors dialogue
conducted in April 2001, donors identified among others procurement monitoring and
procurement reform as priority anticorruption strategies. (Ibid.)

The post-Marcos era was a period of reconstruction for the Philippines – governance
reforms were slowly put in place. During the same period, public sector reforms
elsewhere7 were implemented to the tune of New Public Management (NPM)8.
Government processes increasingly became service-oriented, driven by principles of
efficiency, effectiveness, and economy. In 1995-96, progressive civil servants in the

7 Such as in New Zealand, Australia, Canada, and the United Kingdom. (McCrudden, 2007)
8 New public management (NPM) incorporated the best of private sector management practices into
public service. (Thornton, 2006)

9
Philippines learned the ways of NPM through Australian government-funded visits.
Government reforms initiated then in the country had benefited from technical “best
practice” and strong local and international pressure for government to become more
transparent and accountable. Government reforms were strongly supported by external
partners9. In 1999, informal dialogues between the Government of the Philippines (GOP)
and international donors resulted in a resolve and agreement for financial and
governance reforms, including that of procurement. (Thornton, 2006)

PROCUREMENT REFORM IN THE PHILIPPINES

Procurement (pre-neoliberalism) in developed countries had more direct use for social
policy goals . The United Kingdom, post-World War II, used government contracting to
address disabled workers' needs. Similarly, the United States government (1938)
adopted a policy that it would preferably buy products produced by the blind. This
preferential policy was extended to other severely handicapped persons in 1971. In
1998, it used procurement mechanisms to improve the availability of new technology for
disabled workers. Procurement was also an instrument to secure human rights
transnationally10. Procurement then had a specific social justice cause. This all changed
in the 1980s when neoliberalism took reign of development policy. The state's role in the
economy had been reduced and limited. Procurement became primarily a method to
deliver public services and a venue for private-public partnerships to take place.

Where procurement contracts were used, as they increasingly were, as

the basis for delivering these public services, 'value for money' was
proclaimed as the basis on which contracts should be allocated.
(McCrudden, 2007: 11)

In the 1960s (but even more apparent in 1980s and 1990s), procurement reforms were
introduced in the international stage11 affecting state procurements. These reforms were
9 In 2005, ADB reports that there are 206 projects in the country funded by 12 international donor
institutions (ADB, 2005)
10 For instance, groups in North America and Europe used procurement linkages to protest against
apartheid in South Africa. Local governments of the Netherlands threatened to cancel their contract
with a specific supplier after the latter signed a contract with Chile at the height of the coup. Similar
efforts were taken with Myanmar and Northern Ireland. (McCrudden, 2007)
11 Such as the U.N. Commission on International Trade Law (A/Res/49/54, February 17, 1995),
Agreement on Government Procurement (1996), European Commission, General Agreement on Tariffs

10
primarily intended to reduce barriers to international trade, grounded on principles of
greater market access for foreign firms, non-discrimination between foreign and
domestic firms, efficient and cheaper public procurement, or good governance.
(McCrudden, 2007; Hoekman, 1998; Thornton, 2006)

Procurement reform in the Philippines is one tied to international obligations as well12.

(Thornton, 2006) It was part of a broader fiscal and governance reform initiative to
which various external donors have committed assistance (Table 1.3). It was prompted
by a WB report in 1999, prepared at the request of progressive government officials
under the Estrada administration (1998-2001). The report provided 'technical' basis for
an already evident domestic clamor for change. This immediately prompted external
funders to take interest in the governance problems of the country, particularly in
procurement. One of those earliest to respond was the U.S. Agency for International
Development (USAID) with a Technical Assistance to draft the first version of the new
procurement legislation that would provide a comprehensive and coherent framework for
public procurement. Predominantly driven by external experts, initial procurement reform
efforts did not go far for lack of ownership or local constituency. The second and third
rounds of legislative advocacy became successful because of a broad support from local
reformists, both from the executive and legislative branches and from civil society as
well. In 2003, the GPRA was passed as the overarching policy on procurement. Most of
what's been accomplished since had to do with the creation of a regulatory and
procedural framework. (Thornton, 2006; WB, 2001; Campos and Syquia, 2006)

and Trade (1994), OECD DAC Paris Declaration, Johannesburg Declaration on Procurement
12 The Philippines is signatory to the Paris Declaration on Harmonisation and Alignment and the
Johannesburg Declaration on Procurement. (Thornton, 2006)

11
Table 1.3: Summary Statistics of Foreign and Development Partner-Assisted
Governance Projects

(Source: ADB, 2005: 34)

The role of civil society organisations had been vital to the reform experience. During the
lobbying stages of the GPRA, champions in government identified the need for a
constituency in civil society to help echo calls for reform and to pressure the legislature
for positive action. The result was the creation of Procurement Watch, Inc. (PWI). PWI
immediately built on its staffs' technical knowledge on procurement reform, and actively
advocated for procurement reform with the support of partner-organisations, such as
TAN. (Ibid; Ibid; Ibid) After the passage of the GPRA, PWI along with network partners
continued their engagement with reform work through their participation in procurement
monitoring activities.

12
CHAPTER TWO: CONCEPTUAL FRAMEWORK

Good Governance. Post-1945, the period of decolonisation, development perspectives

made a deliberate turn-around, moving bias away from external intervention and towards
state sovereignty. The view was that state-building needed to be worked out through
local political processes. Fast-forward to present times, state-building becomes a sphere
dominated by international institutions with the latter's increasing involvement in this
area. At present, international institutions have greater regulatory roles, particularly in
defining the framework of 'good governance'. (Chandler, 2007; Johnston, 2007;
McCrudden, 2007) The World Bank's framework, for instance, reduces governance into
an administration and management issue. It offers a neoliberal interpretation of good
governance where the state is limited and is more efficient by being less intrusive in
economic matters. This bureaucratic model (of good governance) avoids issues of
politics and is essentially concerned with efficiency. With this, cynics believe that the
notion of 'democratic good governance' is based on a liberal-democratic polity that
ultimately supports competitive, free market economics. (Leftwich, 1993) Limiting the
political sphere, however, implies a deemphasis on political accountability. 'Good
governance' devoid of politics downplays the political process as just a product of state
policies rather than constitutive of them. It ignores the fact that

good governance or state building... has deep ideological presumptions

which purport to offer technical solutions to what in essence are political
problems. (Chandler, 2007: 75)

Corruption. Rhetorically speaking, good governance addresses the corruption problem.

Corruption is generally defined by the World Bank as the abuse of public office for
private gain. (World Bank, 2000) A closer look at corruption reveals a basic contradiction
between two 'cultures' that interface in governance – the culture of the market and of
democracy. While the market's main currency is profit, democracy's is accountability.
Corruption results from this tensioned interface between the public domain and the
market economy. (Rose-Ackerman, 1978) The public servant is torn between two
interests – personal gain and accountability to the public. The public and private
domains, centrally important to understandings about corruption, are blurred because of
conflicting cultural norms. (Andvig and Fjeldstal, 2000) This is further complicated by

13
economic liberalisation and privatisation policies, which by just the stroke of a pen,
redefine and revise the boundaries of public-private spheres. In this, arriving at a
common definition of corruption proves to be difficult and debatable, especially as it
centers on the question “who gets to decide?” Concepts such as abuse, public, private,
and benefit are contentious and very much embedded in the socio-cultural environment
of a society. Private-public spheres are porous and tentative; Benefits can be obtained
far into the future, invisible, and spread among various stakeholders. And by what
standards does one measure abusive behaviour – laws or norms and culture? Clearly,
social understandings of these concepts are shaped through consensus-building. The
literature suggests that standards of fair play and limitations to political and economic
influence are reached through political and democratic processes of negotiation
involving civil society. Just as corruption is deeply embedded in society, reforms
addressing corruption should also be society-linked. Procedural reforms should be
consistent with cultural values and social understandings of fairness. Efforts to mobilize
civil society should take into consideration patterns of identity, social divisions, level of
public trust, traditions of reciprocity, status systems, among others which help map out
the interests and energies of society as part of the reform process. Chan (2005), for
instance, notes the reason why Hongkong succeeded in its fight against corruption is
that there was strong social backing. Anti-corruption efforts were linked with the local
language, social relationships and traditional values. (Johnston, 2007)

Even in the complexity of corruption, it is helpful to explore its three main definitions. The
World Bank definition is a transmutation of Waterbury's (1973): “the abuse of public
power and influence for private ends” (Senior, 2006: 20) Another variant is that of Nye
(1967) -

Corruption is behaviour which deviates from the formal duties of a public

role because of private-regarding (personal, close family, private clique)
pecuniary or status gains, or violates rules against the exercise of certain
types of private-regarding influence. (Ibid)

A third variant frames corruption in terms of principal-agent relations, that of Alam

(1989):

14
 Corruption... may be defined as (1) the sacrifice of the principal's interest
for the agent's, or (2) the violation of norms defining the agent's
behaviour. (Ibid: 21)

Principal-Agent Relations. Most economic analyses on corruption adopt principal-

agent theory as their famework. Under the PA model, the principal determines the task
of the agent and the agent performs the task according to the principal's interest.
Corruption in this view is seen as an incentives problem. The aberration in the behaviour
of the agent from the dictates of the principal has to do with an impaired incentives
structure - there are few incentives (and/or sanctions) for the agent to act according to
the interest of the principal. Within the PA framework, therefore, the solution is to create
an incentives structure that discourages the agent to stray away from his/her mandate
(as determined by the principal). (Lambsdorff, 2007; Rose-Ackerman, 1978; Flinders,
2007)

This model theoretically limits the discretion of the agent, provides

transparency of roles and facilitates accountability by clarifying exactly
who is responsible for what... (Flinders, 2007: 244)

A common problem in PA relations is information-asymmetry where because of

developed expertise in the task , the agent holds more information than the principal that
he/she can use to advance his/her interests at the expense of the principal's. To address
this, the PA model suggests a powerful outside monitor ('counterpart agents') that will
provide the principal with information on the agent's performance. Monitoring will reduce
corruption and improve the agent's service-delivery. (Rauch and Evans, 2000; Flinders,
2007) The PA model is not sufficient, however, to capture the complexity of the
corruption phenomenon. Most PA critiques would note how the model downplays the
importance of political will. Reforms using this model rely so much on the principal's
integrity and support. (Andvig and Fjeldstal, 2000) The model is sometimes naïve in that

it assumes away the problem... because the political will to engage in

vigorous monitoring and implement appropriate strategies is lacking, or
worse yet the principal is himself corrupt. (Rauch and Evans, 2000: 51)

One other important note to make about this model is that it is derived from private
sector practices and perhaps inappropriately applied to the public sector. In the public

15
sector, it is not always possible to clearly distinguish between principal and agent.
Moreover principal-agent roles so often change depending on the context of the function.

[W]ithout clear separation of roles and responsibilities the increased

transparency and accountability promised by the model is lost. (Flinders,
2007: 244-45)

Also, in reality, principals interfere with the agent's work because of the political
sensitivity of the function and yet principals can conveniently hide behind the agent's
contract to distance themselves from the consequences of their action. The separation
of powers between policy-making and service delivery in the public sector further makes
it difficult to identify causes of failure – whether failure is attributable to policy or
operational factors. (Ibid.)

The adoption of the PA model underscores managerial and economic accountability

rather than democratic and political accountability.

The principal/agent (PA) model was developed in the context of new

institutional economics and is of pivotal relevance to the current
accountability arrangements in central government. PA theory advances
a specific form of organisational structure which prioritises a contractual
relationship over traditional hierarchical Weberian top-down relationships.
(Ibid: 244)

Managerialism based on the new public management school of thought changed the
direction of accountability flows, with emphasis on direct and downward accountability to
the public. Codes of accountability within the state transformed relationships into
contracts, citizens into consumers, and accountability into audit.

[T]he structure of the state has been reconfigured via the imposition of a
range of private sector derived processes and practices, most notably
privatisation, contracting-out and agencification. Public administration
has... been supplanted by 'new public management'. (Ibid: 233)

These changes in the accountability model (the shift to PA model) have also affected
relationships and expectations.

16
Accountability.

The concept of accountability is often used as a benchmark against which

systems of government can be judged. Accountable government is
deemed to be good government and carries with it connotations of
advanced democracy. Governments which can be characterised as
unaccountable are likely to prove fertile ground for the cultivation of
authoritarianism, totalitarianism and every type of abuse of power. (Pyper
cited in Flinders, 2007: 9)

In this, it is important to define accountability. Accountability includes the following

elements:

• control of abuse, corruption and misuse of public power;

• assurance that public resources are being used in accordance
with publicly stated aims and that public service values
(impartiality, equality, etc.) are being adhered to;
• improvement of efficiency and effectiveness of public policies;
• the enhancement of the legitimacy of government. (Ibid)

With the rise of neoliberalism in the 1980s, accountability took a backseat. States cared
more about value for money and efficiency; accountability came as a secondary
concern. Contractual relationships became in vogue partly due to concerns about
governments becoming overloaded and also in keeping with a commitment to market
forces. Again, this was the time when “governance” is preferred over “government.” The
rise of managerialism13 was a response to the position that traditional mechanisms of
political accountability were not working any longer. (McCrudden, 2007; Flinders, 2007)
All praise for managerialism, William Waldegrave testifies:

[i]t has... made more transparent the links in the accountability chain
which were pretty obscure before... contracts also make explicit the
performance and standards that are expected. (Waldegrave cited in
Flinders, 2007: 238)

A different opinion, however, says that managerialism has only strengthened low level
13 Operationally, managerialism meant: 1) reduced bureaucratic rules and hierarchies, 2) ensure budgetary
transparency and identify costs of inputs and outputs, 3) use of a network of contracts, rather than fiduciary
relationships, 4) disaggregate organisations and their functions, introduce purchaser/provider distinctions,
5) increase provider competition, and 6) increase consumer power through enhanced scope for exit and
redress. ( Flinders, 2007: 234-35)

17
accountability, which buffers for high level accountability. Stewart argues

[t]he real fallacy is... to assume that providing responsive services can
meet the requirements of public accountability. Accountability to the
customer can never replace the need for public accountability, because
the nature of the service is not determined by the customer alone. The
issue of public accountability is where accountability lies for that policy
framework. (Stewart cited in Ibid: 242)

Managerialism, in effect, has increased internal accountability (within-the-state

accountability) but weakened external accountability (accountability to the public). Audit
mechanisms (as a PA solution to information-asymmetry) does not also make for
responsible governments. “The fact that an audit takes place does not equal
accountability itself. Audit mechanisms produce information which will be used by those
to whom an account is owed. Therefore audit is a means of improving or increasing the
effectiveness of the accountability relationship.” (Ibid: 250).

Participation. Good governance also connotes participatory governance. Public

participation is regarded as a key element to improving governance, specifically in
addressing the 'democratic deficit'. (Barnes, et. Al, 2007) Participation is strongly linked
with rights of citizenship and democratic governance. It is argued that states should
create opportunities for people to participate and establish themselves as citizens. It is
believed that more effective forms of participation will build on a stronger democracy and
will lead to the achievement of pro-poor developmental outcomes. In this, citizens are
seen as “partners” with the state in the policy-making process – from the identification of
problems to finding solutions. (Potter, 2000; Gaventa, 2004) Even in confronting
corruption, Johnston stresses the need to mobilize citizens. (Johnston, 2005: 21)

Sadly, however, public participation rates are falling in democracies worldwide. In

southern hemisphere countries, corruption is cited as one of the reasons why there is
that disconnect between governments and citizens. The state is seen as distant,
unaccountable, corrupt, and not responsive to the needs of the poor. While Ostrom
(2000) blames the centralizing tendencies of some governments, making their citizens
'passive observers', Klein (2000) and Monbiot (2000) point at the state's subjugated role

18
to global capitalism, which reduces citizenship to consumership. (Barnes, et.al, 2007;
Gaventa, 2004)

The promise of participation, it seems, is not easy to attain. Even as it is, participation
has different shades. Critiques of participation warn about the rhetorics surrounding it.
Mosse, for instance, informs us that participation has the tendency to create fake notions
of community cohesion. (Biggs and Smith, 1998) Particular forms of participation could
also create the effect of exclusion. In this, various determinants of participation should
be examined – rules, norms, perceptions, endowments, and attributes. Participation
could also be a disempowering instrument for those excluded and even for those
included. It could be an instrument to discipline the participants leading them to political
cooption, rather than empowerment. Participation is also sometimes used to transfer
project costs to the beneficiaries. It is important to scrutinize how participation is defined
in various public policies, how it is used and in favor of what ideological position.
Gaventa (2004) dares us to ask for whom is participation made to work and with what
social justice outcomes? (Agrawal, 2001; Cooke and Kothari, 2001; Gaventa, 2004)
Even in defining which public 'public participation' caters to is worth looking at.

[P]ublic policy discourses construct notions of the public and engage with
a diversity of publics in a plural polity. (Barnes, et. al, 2007: 2)

Empowerment is concomitant to participation. Most development work however have

reduced participation to a mere project method rather than a political method for
empowerment. Hickey and Mohan stress the need for participation to be founded on a
strong 'empowerment' philosophy so that it cannot be coopted within a disempowering
agenda (Hickey and Mohan, 2005) “Governance” as a foundation for participation in
anticorruption work, for instance, in the viewpoint of Przeworski (1995) is limited.
Reducing the states' role to “governance” will make it difficult for the state to mobilize
participants in public life and make reform less risky to ordinary citizens. (Johnston,
2005) There are four discourses that provide home to participation and offer explanation
on the distinctive features surrounding its occurrence in governance: 1) empowered
public discourse, 2) consuming public discourse, 3) stakeholder public discourse, and 4)
responsible public discourse. The empowered public discourse is focused on

19
disadvantaged groups or communities and by this, participation is examined in view of
institutionalized discrimination/neglect. In this, structures are regarded more seriously in
their roles of empowering/disempowering disadvantaged publics. The consuming public
discourse is focused on the experiences of individuals in their use of public services.
This is a dominant discourse in the reforms instituted by the World Bank in the southern
hemisphere (e.g. economic liberalisation policies). Public sector reforms implemented
under this discourse's influence open up public services to market practices (e.g.
Competitive tendering). The stakeholder public discourse stress that the public has a
stake in good governance as users, indirect beneficiaries, and taxpayers. Stakeholding

enables us to recognise a diversity of legitimate entitlements to

representation within the public as well as the private sphere. (Rustin,
1997:80 cited in Barnes, et.al, 2007:15)

The responsible public discourse has the idea that individuals/groups owe duty to others
and the state in their conduct. This discourse shares with the communitarian movement
an orientation of strengthening cohesion of society.

Underlying assumptions about the publics constituted in each discourse suggest

different approaches to achieving specific government objectives. Barnes, et.al. (2007)
provide a summary below of the different ways at which the four public discourses are
used in government work:

Table 2.4: Objectives, purposes and discourses of public participation

Government objective Public participation purposes Dominant official
discourse (s)
Improved services Improving the responsiveness of public Consumer/stakeholder
services and outcomes for service users both publics
collectively and individually
Enabling services to be designed and delivered Empowered public
by community organisations and/or 'local
people'
Improved outcomes Reducing social exclusion Empowered public
Achieving social order and social cohesion Responsible public
Improving health and reducing health Empowered public
inequalities

20
Democratic renewal: Improving the quality and legitimacy of Stakeholder public
Institutional decisions in government, health services, local
government and other public bodies
Removing or reducing the 'democratic deficit Stakeholder/ responsible
evidenced by low turnout in parliamentary, local publics
[and European] elections
Democratic renewal: Generating 'positive freedom', civic virtues, Stakeholder/responsible
Individual/ community mutuality and trust publics
Building community capacity and Empowered public
empowerment
Building individual skills and capacity Empowered/ responsible
publics
(Source: Barnes, et.al, 2007: 23)

This paper uses the above concepts to inform the framework of analysis used to assess
procurement reform in the Philippines. Procurement reform in the Philippines is
anchored on an anti-corruption and good governance policy commitment by the
government. In this it promises to enhance accountability mechanisms by tightening
discretionary powers of the public procurement officers. It also does this by including
heavy sanctions when there are aberrations in the behaviour of the procurement officers.
Additionally, it creates space for public participation, inviting civil society organisations to
monitor the procurement process. These policies will be examined and deconstructed
against what they purport to offer and what they can actually offer based on theories on
principal-agent relations and participation. Below is a summary-diagram of how
procurement reform in the Philippines will be appreciated:

Figure 2.1. Framework of Analysis

Principal-Agent

Model ???

Procurement Reform: Potential/ Limitations:

- law, rules and regulations - Accountability
- policies - PA Effectiveness

Participation 2006 procurement

data
framework ???
21
The analysis will focus on describing the PA model and participation framework adopted
by the Philippines in its procurement reform strategy, as can be drawn from the texts of
the law and regulations and the prevailing practice based on empirical data gathered by
the Transparency and Accountability Network and select case studies.

Conceptually, this paper submits that the PA model as contemplated in the GPRA will
only be effective with the empowered participation of CSOs as counterpart agents. PA
and participation theories put together and applied to procurement reform is described in
the diagram below:

Figure 2.2. PA-Participation Theoretical Framework

Governance sphere

Formal government sphere

Principal-Agent

Accountability
Procurement
Reform Managerial Political
Package acctability acctability

Counterpart agents:
COA; OMB;
PAGC

civil society
organisations

COA = Commission on Audit, OMB = Office of the Ombudsman, PAGC =

Presidential Anti-Graft Commission

22
This explains that the PA model even with the governmental oversight mechanisms in
place has limited reach. The counterpart agents in the entities of COA, OMB, PAGC, etc.
only oversee the agent/(s). The public participation component contributes to the PA
model with a potentially wider oversight reach. The empowered/stakeholder public
discourse would suggest that CSOs as counterpart agents not only oversee the
principal-agent characters, but also the government counterpart agents, and even the
reform package itself. This tells us that with CSOs as empowered counterpart agents, a
greater sense of accountability (managerial and political accountability) can be achieved.

In this, it is key to understand the 'participation' framework that procurement reform in

the Philippines adopts. The PA model and participation framework together inform the
level of accountability that the reform tries to achieve. From this, we can assess only
how far procurement reform in the Philippines is willing to take us.

Research Objectives. This paper seeks to contribute to the discussions on

procurement reform in developing countries, with particular focus on the Philippines.
Procurement reform in the Philippines is founded on principles similar to those found in
international procurement systems. Assessment of the reform, however, draws on very
peculiar issues pertinent to the Philippines only but indicative of the weaknesses of the
system. By raising these issues, this paper hopes to inject some new perspective on
how to move forward with procurement reform in the country, especially while still at the
early stages of implementation. It attempts to get the attention of Philippine government
agencies, procurement practitioners, CSOs, and international funding agencies shaping
the procurement reform and good governance discourse.

Research Questions and Scope and Limitations. This paper is focused on assessing
salient features (pertaining to principal-agent relations and participation) of the Philippine
procurement law. Accountability will also be assessed in close appreciation of the PA
model. The ensuing discussion and assessment will limit itself to the parameters set
forth in the conceptual framework above. It attempts to answer the following questions:

1. How is principal-agent theory applied in the GPRA?

2. What are its weaknesses?

23
 3. What is the participation framework used?
4. What are the limitations of the participation framework adopted?
5. Why does procurement reform in the Philippines have limited prospects?

By answering these questions, this paper will be able to demonstrate how and why
procurement reform in the Philippines is limited in its current configuration and what
changes could be made to address the inadequacies of the reform.

24
CHAPTER 3: PHILIPPINE PROCUREMENT REFORM DECONSTRUCTED

Principal-Agent Features in Philippine Procurement Reform

The PA relations explored here is that between the procurement officers14 as agents;
and the government, which includes the head of the procuring entity, and the public as
principals. The procurement officers as agents are restricted to perform their duties and
functions in accordance with the GPRA, 'assumed' to be in keeping with government and
public interests.

Limited Discretion. Limited discretionary powers of procurement officers is one of the

often showcased positive features of the new procurement law – a classic application of
principal-agent theory. The GPRA and its IRR set forth very clear limitations to the
decision making powers of procurement officers, making it almost a very mechanical
function. At the onset, for instance, the default method of procurement is competitive
bidding15. Only in very specific instances specified in the GPRA are alternative methods16
allowed. Strict guidelines on how to conduct alternative methods are also defined in the
law. (Table 3.5) The procurement procedures have also been standardized, assigning
prescriptive periods at every stage of the process, which leaves the procurement officers
little room for 'manipulation'. (Table 3.6) The same procedure adopts a pass-fail
criteria17. If a participant bidder fails to comply with just one criterion, it is automatically
prevented to proceed to the next stage of the process18. Winning a project is usually
based on the amount of the bid and/or the rating – the winner shall be the lowest
calculated responsive bid (goods and civil works) or the highest rated responsive bid
(consulting services)19.

14 Members of the Bids and Awards Committee (BAC), BAC Secretariat, Technical Working Group,
Project Management Office, and others who have access to information regarding the project to be
procured.
15 Section 10, Article IV, GPRA (GPPB-TSO, 2006)
16 The alternative modes of procurement are: limited source bidding, direct contracting, repeat order,
shopping, and negotiated procurement. (Sections 48-54, Article XVI, GPRA)(Ibid.)
17 Section 30, Article IX, GPRA (Ibid)
18 Ex: Failure to submit any one of the required documents for eligibility makes a bidder ineligible. The
bidder's technical and financial proposals will no longer be opened. (Ibid)
19 The rate given to a bidder for consulting services is based on a criteria that has been published and
made available to all prospective bidders during the invitation to bid stage. (Ibid)

25
Table 3.5: Conditions for Alternative Methods of Procurement
Method
Limited source bidding – involves direct invitation
to bid by the procuring entity from a set of pre-
selected suppliers or consultants with known
experience and proven capability relative to the
requirements of a particular contract
Direct contracting – does not require elaborate
bidding documents because the supplier is
simply asked to submit a price quotation or a
pro-forma invoice together with the conditions of
sale, which offer may be accepted immediately
or after some negotiations
Repeat order – direct procurement of Goods
from the previous winning bidder, whenever
there is a need to replenish Goods procured
under a contract previously awarded through
competitive bidding
Shopping – procuring entity simply requests for
submission of price quotations for readily
available off-the-shelf Goods or ordinary/regular
equipment to be procured directly from suppliers
of known qualification
Negotiated procurement – procuring entity
directly negotiates a contract with a technically,
legally and financially capable supplier,
contractor or consultant
Conditions that should present
Procurement of highly specialized types of Goods and Consulting
Services which are known to be obtainable only from a limited
number of sources; or
Procurement 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
Procurement of Goods of proprietary nature, which can be obtained
only from proprietary source, I.e. When patents, trade secrets and
copyrights prohibit others from manufacturing the same item;
When the procurement of ciritical 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 of his contract; or
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.
When provided for in the Annual Procurement Plan and subject
contractor must have passed the post-qualification process
The unit price must be equal to or lower than that provided in the
original contract;
The repeat order does not result in splitting of requisitions or
purchase orders;
Except in special circumstances, the repeat order shall be availed of
only within 6 months from the date of the Notice to Proceed arising
from the original contract; and
The repeat order shall not exceed 25% of the quantity of each item of
the original contract.
When there is unforeseen contingency requiring immediate
purchase: Provided, however, that the amount shall not exceed
P50,000; or
Procurement of ordinary or regular office supplies and equipment not
available in the Procurement Service involving an amount not
exceeding P250,000: Provided, however, that the procurement does
not result in splitting of contracts: Provided, further, that at least 3
price quotations from bona fide suppliers shall be obtained
In cases of 2 failed biddings
In case of imminent danger to life or property during a state of
calamity, or when time is of the essence arising from natural or man-
made calamities or other causes where immediate action is
necessary to prevent damage to or loss of life or property, or to
restore vital public services, infrastructure facilities and other public
utilities;
26
 Table 3.6: Period of Action on Procurement Activities
Maximum Periods
Stage Activities Deadline Goods Civil Works Consulting
Services
For ABC For ABC
costing 50M costing above
and below 50M
1 Advertisement/Posting of IAEB

2 Letter of Intent Within 7cd from the n/a 7cd 7cd 7cd
last day of posting
3 Eligibility Check for civil works Refer to 3cd 3cd 20cd
and consulting services/ Short stage 6
listing for consulting services

30cd 36cd 50cd

4 Issuance and availability of Available for at least
bidding documents 7cd from the date of
60cd
issuance
5 Pre-bid Conference 12cd before the 1cd 1cd 1cd 1cd
deadline of
submission of bids
Request for clarification 10cd before deadline
of submission of bids
Supplemental/ Bid Bulletin 7cd before deadline of
submission of bids
6 Submission and Opening of Bids 1cd (includes 1cd 1cd 1cd
eligibility
check)
7 Bid Evaluaton 7cd 5cd 7cd 21cd + 2cd
for approval
of ranking
8 Notification for Negotiation 3cd
9 Negotiation 10cd
10 Post-qualification 7cd 7cd 7cd 7cd
11 Approval of Resolution/ Issuance 7cd 4cd 7cd 7cd
of Notice of Award
12 Contract Preparation and Signing 10cd 10cd 10cd 10cd

27
13 Approval of Contract by Higher 15cd 5cd 15cd 15cd
Authority
14 Issuance of Notice to Proceed 3cd 2cd 3cd 3cd
Total Maximum Periods 80cd 70cd 100cd 139cd
(Source: GPPB-TSO, August 2006: 118-119)
ABC = approved budget for the contract, cd= calendar days, IAEB = invitation to apply for
eligibility and to bid

Transparency. Transparency is an important component of an effective PA model.

Transparency contributes to restricting the behavior of agents within the bounds of
his/her mandate. Particularly with the GPRA, all calls for bid must be published.
Invitations to bid are standardized20, which include information on the criteria that will be
used for eligibility check, short listing, bid evaluation and post-qualification. This binds
the procurement officers to render their decisions according to a pre-committed criteria,
as published. They also have to stick with the other commitments (i.e. schedule of
activities) set in the advertisement, unless amended which should be accompanied by a
corresponding advertisement. The law also incorporates a 'disclosure of relations' policy,
which prohibits any bidder from participating in a bid with an agency, where the bidder
would have “third civil degree of consangunity relations” with the agency's procurement
officers21. The disclosure policy restricts 'agents' from having transactions with close
family relations, as defined, which may cloud the agent's decisions. Another
transparency measure is the requirement of inviting external observers to all stages of
the procurement process (discussed in the next section).

Professionalization. Professionalization of the procurement function helps build a '

shared culture' through a standard code of conduct among procurement officers. This

20 Invitation to bid shall contain the following information: a) brief description of the subject matter of the
procurement; b) a general statement of the criteria to be used by the procuring entity (for eligibility
check, shortlisting of prospective bidders, examination and evaluation of bids, and post-qualification);
c) the date, time, and place of the deadline for submission and receipt of eligibility requirements, the
pre-bid conference if any, the submission and receipt of bids, and the opening of bids; d) approved
budget of the contract to be bid; e) the source of funds; f) period of availability of the bidding
documents, and the place where these may be secured; g) contract duration; and h) such other necessary
information deemed relevant by the procuring entity. (Section 21, Article VII, GPRA)(Ibid)
21 In the case of individual or sole proprietorship, this rule refers to the bidder himself/herself. In the case
of partnerships, this rule applies to its officers and members. In the case of corporations, it applies to its
officers, directors, controlling stockholders. The procurement officers, on the other hand, include the
members of the Bid and Awards Committee (BAC), members of the Technical Working Group, the
BAC Secretariat, members of the Project Management Office, and the designers of the project, and head
of the procuring entity. (Section 47, Rule XV, IRR-A) (Ibid)

28
convergence to a common acceptable conduct for procurement officers contributes to
making the PA model work, through peer support and pressure. Professionalization22 as
conceptualized in the GPRA and its IRR, seeks to contribute to the standardization of
procurement procedures and strengthen the procurement functions towards increased
operational efficiency and effectiveness.

Incentives and Sanction. Incentives and sanctions affect the behavior of agents –
incentives encourage them to make good in their performance and sanctions discourage
them to act outside of or against their mandate. Some incentives and sanctions are
framed in legal regulations with the intent to explicitly influence behaviour.

The aim of any form of regulation is to modify behaviour of those subject

to regulation in order to generate a desired outcome. (Yeung, 1999 cited
in Flinders, 2007: 64)

The GPRA is lauded for its incorporation of administrative, civil, and even criminal
sanctions for specific violations (peculiar to the procurement function) committed by
procurement officers and bidders. This facilitates the prosecution of erring entities with
the GPRA as basis but does not preclude prosecution under other relevant laws23 (see
Appendix B). As incentives, procurement officers may be granted honoraria in addition to
the salaries they receive for their 'normal' functions subject to the guidelines of the
budget department24.

Oversight. There are several oversight mechanisms existing in the current procurement
reform structure that should ensure the proper functioning of the PA model. These are
the Bids and Awards Committee (BAC), head of the procuring entity, COA, Procurement
Transparency Group (PTG), OMB, PAGC, and external observers.

The BAC, who makes most decisions regarding procurement, is a panel of five or seven

22 Section 16, Article V, GPRA (GPPB-TSO, 2006)

23 Prosecution of corruption is difficult under the Penal Code because of the tedious process of
establishing motive and intent, which is not anymore necessary in the GPRA. The commission of the
violation is sufficient basis for prosecution under the GPRA.
24 Section 15, Article V, GPRA (GPPB-TSO, 2006)

29
members25. This structure prevents a monopoly of the power to decide and an internal
form of check and balance among the members of the Committee. The head of the
procuring entity has approval and veto powers over decisions of the BAC. He/she needs
to approve the use of alternative methods of procurement instead of competitive
bidding26. He/she also needs to approve the recommendation of the BAC for award of
contract to a BAC-determined winner27. Finally, he/she can act on a protest made by a
complainant-bidder or an unfavorable report submitted by an external observer28.

The COA, on a post-audit basis, submits annual audit reports covering irregular
procurements29. The OMB receives reports on irregular procurements and may initiate
investigation leading to the prosecution of erring procurement officers30. Similarly, the
PAGC prosecutes erring procurement officers who are Presidential appointees, which
may lead to a recommendation for dismissal31. The PTG, created in November 2007, is a
multi-sectoral oversight body, mandated to monitor big procurements32. Its powers
include submitting comments/recommendations on a questioned procurement and
referral of cases to the PAGC.

Finally, there are at least two external observers allowed to sit in procurement
proceedings and submit reports of their observations (favorable and unfavorable) for
appropriate action to the head of the procuring entity, PTG, OMB, and PAGC. The
external observers should be non-government organizations (NGOs) and/or professional
organizations33.

RULES ON PARTICIPATION

25 Section 11, Article V, GPRA (Ibid)

26 Section 48, Article XVI, GPRA (Ibid)
27 Section 37, Article XI, GPRA (Ibid)
28 Section 55, Article XVII, GPRA (Ibid)
29 Section 2(1), Article IX-D, 1987 Philippine Constitution (http://www.coa.gov.ph/Gen_Information.htm)
30 http://www.chanrobles.com/republicactno6770.htm
31 Section 4, Executive Order 12 (http://www.chanrobles.com/arroyoexecutiveorderno12.htm)
32 The PTG is mandated to monitor procurements amounting to P100 million and above. It is headed by
the Government Procurement Policy Board and the members include: Presidential Anti-Graft
Commission, National Economic and Development Authority, Department of Justice, Department of
Budget and Management, Department of Interior and Local Government, and five other NGOs involved
in training and/or reform work. (Executive Order 262) (http://www.doe.gov.ph/popup/EO%20662.pdf)
33 Section 13, Article 5, GPRA (GPPB-TSO, 2006)

30
Participation to governance work is an important feature of the GPRA with the inclusion
of civil society organizations as observers in procurement proceedings. The law provides
that the BAC should invite at least two external observers in all stages of the
procurement process34. The observers should come from a professional organisation or
from a NGO. The professional organisation should be a recognized private group in a
sector or discipline relevant to the nature of the procurement. For infrastructure projects,
these are the likes of the Philippine Constructors Association, Inc. (PCA), the National
Constructors Association of the Philippines, Inc. (NACAP), and the Philippine Institute of
Civil Engineers (PICE); For goods, members of the Philippine Chamber of Commerce
and Industry (PCCI); For consulting services, organisations like the Philippine Institute of
Civil Engineers (PICE), Philippine Institute of Certified Public Accountants (PICPA), and
Confederation of Filipino Consulting Organisations (COFILCO).

The non-government organisation, on the other hand, should be registered with the
Securities and Exchange Commission (SEC), and should meet the following criteria:

1. Knowledge, experience or expertise in procurement or in the subject matter of

the contract to be bid;
2. Absence of direct or indirect interest in the contract to be bid out; and
3. An other criteria that may be determined by the BAC
(Section 13.2, IRR-A)
(GPPB-TSO, 2006)

The observers should be informed at least two days before the date of procurement
activity to which he/she is invited. The absence of observers will not nullify the
proceedings. Invitations should be done in writing.

Observers also have responsibilities under the law. These include preparation of reports
on observations made to be submitted to the head of the procuring entity (copy furnished

34 Procurement commences from invitation to awarding of contract. It does not include pre-procurement
conference, which is the stage at which the procurement project is being planned and designed (includes
the determination of technical specifications and the criteria for evaluations).

31
the BAC Chairman), signing the abstract of bids if in their observation the bidding was
conducted according to law, and signing the post-qualification summary report to
indicate agreement to the said report. The observers should be furnished copies of the
following documents upon their request: minutes of bid proceedings, abstract of bids,
post-qualification summary report, annual procurement plan and procurement project
management plan, and copies of opened proposals. Observers may also submit their
reports to the OMB but are not prevented from submitting reports to any other body.

The aforementioned presents the determinants of participation under the procurement

reform framework: who can participate, how they may participate, and where can they
participate.
CHAPTER 4: EVALUATION OF PROCUREMENT REFORM IN THE PHILIPPINES

Progress and Problems Reported.

Procurement reform in the Philippines is already considered a success. (Thornton, 2006;

ADB, 2005; WB, 2005) Success is mostly attributed to the establishment of a legal and
procedural framework, which is considerably a major feat in itself. Also, the Philippine
procurement system is complying more and more with international standards (Thornton,
2006; Hoekman, 1998). OECD-DAC (2006 Agency Performance Indicators) notes the
Philippines' compliance rate in six key procurement areas are in the range of 49 and 79
per cent. The Baseline Indicators35 assessment in 2006 also registered an improvement
from a rate of 67.89 per cent (2004) to 68.2 per cent. (Thornton, 2006; “BLI
Assessment”, 2006) Another notable development is the immediate evidence of
procurement savings in the Department of Education due to procurement reforms. Unit
costs of chairs and desks have decreased by 22 per cent and 77 per cent, respectively,
textbook costs by 50 per cent, and classrooms by 39 per cent. (Thornton, 2006)

In the midst of all these, problems were also starting to show up. The role of CSOs in

35 The Baseline Indicators (BLI) developed by OECD-DAC is the agreed international standard for
assessing national procurement systems. Procurement systems are assessed according to four pillars: 1)
the existing legal framework that regulates procurement in the country, 2) the institutional architecture
of the system, 3) the operations of the system and competitiveness of the market; and 4) the integrity of
the procurement system. (“BLI Assessment”, 2006)

32
oversight is not optimized. While the law has laid the ground for CSO involvement, there
has not been enough participation. (Thornton, 2006) Also,

[t]here is still a high perception of corruption in procurement. It's a mystery

on whether we are making any impact in outcomes. People still see little
progress in corruption. To be honest, there is a lack of a handle on the
problem. We didn't know what the size of the problem was. We still don't.
(Procurement Watch, Inc. cited in Thornton, 2006:13)

The ADB adds that there is still no specific code of conduct for procurement.
(ADB/OECD, 2006)

Principal-Agent Model Under Fire

Recent procurement-related corruption scandals36 have undermined the country's

procurement reform achievements. These stories demonstrate how the PA approach
may not be sufficient in its entirety. The theoretical problems noted in Chapter two are
real problems in action in the Philippines. Two case studies are presented in this section
to illustrate the actual bearing of PA-problems.

Box 4.1. Commission on Elections (COMELEC) and MegaPacific Consortium (MPC)

case

The COMELEC-MPC case is about a procurement that was consummated. The

project was competitively bid out. The contract was awarded. Initial payments
were made. A complaint was submitted for action. Then after, the contract was
nullified by the Supreme Court for findings of irregularity.

In January 2003, just right after the enactment of the GPRA, Executives Order 172
was issued authorizing the release of P2.5B for the modernization of the 2004
elections. The modernization project among others included the procurement of
automated counting machines (ACM). In a competitive bidding process for the
ACM, only three bidders participated which eventually got down to two eligible
bidders – MegaPacific Consortium (MPC) and Total Information Management
(TIM). After evaluation, the project was awarded to MPC in April 15, 2003. Note,
however, that the contract was executed between COMELEC and MegaPacific e-
Solutions, Inc., a member of the consortium.

36 Commission on Elections and MegaPacific case (see Appendix C for case notes of Atty. Roberto Cadiz
cited in Cerna, 2006); National Broadband Network project (see http://www.gmanews.tv/nbnzte)

33
 In May 29, 2003, a bid protest was made but denied by the COMELEC Chairman
Benjamin Abalos, Sr. The issue was elevated to the Supreme Court through a
petition for certiorari, which the Supreme Court granted. The Supreme Court
declared the contract null and void and referred the case to the Office of the
Ombudsman (OMB) for further investigation and determination of liabilities of
public officials37.

The Field Investigation Office of the OMB led the investigation of the case and
arrived at a resolution that found the COMELEC Commissioners civilly, criminally,
and administratively liable (October and November 2004). Through a change of
leadership in the OMB, however, this resolution was reverted by a new panel of
investigators that absolved all respondents of the case

This is a classic tale of a 'corrupt' principal, lack of political will, and ineffective oversight.
Under the PA model, the COMELEC Commissioners are supposed to be the pristine
principal and the agency's BAC the agent. As the case tells us, however, the
Commissioners themselves are involved in the irregularity – they awarded the contract
to MPC without the BAC's recommendation for award. Assuming the award was an
honest mistake or oversight of the procedural regulations, the Commission could have
redeemed itself during the protest. Issues of irregularity were already brought to the
Commission's attention which it ignored – a showing of lack of political will. The
Commission's hasty decision to award the contract to MPC without supporting
recommendation from the BAC could also be appreciated as a 'principal interfering with
the agent', in that it preempted the agent's decision.

Let us modify the PA model: the Filipino people are the principal and COMELEC
Commissioners and its procurement officers are the agent. The model tells us that the
OMB, with its investigative and prosecutorial powers, could have been the oversight
body to take corrective action. Again, however, the OMB's actions manifest problems of
'lack of political will and ineffective oversight.' At play is a web of informal networks and
power relations that overshadow people's motives and decisions. Allegedly, the new
Ombudsman is not independent and is beholden to the President. The COMELEC
Chairman, on the other hand, has allegedly the support of the President. The COMELEC

37 The irregularities that attended the case included: 1) Awarding of the contract by the COMELEC en
banc to MPC six days before the recommendation for award was submitted by its BAC; 2) MPC is not
an eligible bidder because it failed to submit a joint venture agreement (an eligibility requirement)
establishing the consortium; and 3) Assuming MPC is an eligible bidder, the contract should have been
executed between COMELEC and MPC, not MegaPacific e-Solutions.

34
Chairman is also allegedly personally close to the incorporators of the winning bidder.
The new Ombudsman, therefore, is expected to render a decision in favor of the
COMELEC38.

The OMB is perhaps the most important oversight body against corruption39. It is an
independent body created under the Constitution. It has investigative and prosecutorial
powers that cover all government officials. In contrast, the PAGC cannot be as
independent as it wishes because it is under the Office of the President. Its decisions are
mere recommendations that require the President's approval40. The COA, on the other
hand, only has the power to investigate or conduct audit41. The PTG has
recommendatory powers only42 At present, however, the OMB's performance as
oversight body has not been impressive. Reportedly, since Merceditas Gutierrez has
become Ombudsman, the office's conviction rate has declined significantly from 77 per
cent to 14 per cent. (Rufo, 2008)

Box 4.2. National Broadband Network (NBN) project.

The NBN is a cancelled project. It was at the conceptualisation stage (which

included negotiations between governments – China and the Philippines – and
with prospective providers). This case again involved COMELEC Chairman
Benjamin Abalos, Sr., who allegedly acted as middleman between the
Government of the Philippines and the Chinese contractors.
(http://www.gmanews.tv/nbnzte)

At the project's initial stages, the National Economic and Development Authority
(NEDA) was tasked with the review of the project design, including a determination
of the project cost. At the early stages of the scandal, the main issue brought
against the project was the overpriced cost (from P5 billion increasing to
P19.8billion). It eventually led to other more serious allegations of corruption on
the domestic front. (Fabella, R. and E. De Dios, 2007;
http://www.gmanews.tv/nbnzte)

38 Ombudsman Merceditas Gutierrez was Presidential Chief Legal Counsel before she was appointed by
the President to become Ombudsman. She is personally known to the First Family – was a classmate of
the First Gentleman. (see http://www.gmanews.tv/story/62796/Ombudsman-Gutierrez-logs-a-record-of-
going-easy-on-Abalos-Comelec)
39 The OMB has primary jurisdiction over corruption-related cases.
(http://www.chanrobles.com/republicactno6770.htm)
40 http://www.chanrobles.com/arroyoexecutiveorderno12.htm
41 http://www.coa.gov.ph/Gen_Information.htm
42 http://www.doe.gov.ph/popup/EO%20662.pdf

35
 1. NEDA Secretary-General Romulo Neri revealed in a Senate inquiry that
COMELEC Chairman Abalos offered him a bribe (of P200 million) in
connection with the NBN-ZTE project
2. Rodolfo Lozada, a hired consultant by Neri, revealed that he was
instructed by Neri to try to “moderate the greed” of Abalos and party.
3. Jose de Venecia, Jr., a prospective bidder and son of the Speaker of the
House of Representatives, revealed that the First Family is also involved
and has share of the kickbacks.
4. Neri testified that he reported the bribery incident to the President. The
President advised him not to accept the money. When asked further if the
President instructed him to expedite the approval of the project, Neri
invoked 'executive privilege'.

To date, the NBN project had been cancelled. Abalos resigned as COMELEC
Chairman. Neri remains mum about the President's involvement. And not one has
been made to face the law for the alleged irregularities.

This is a lot of things that the PA model cannot capture. The interplay of informal and
formal networks and multiplicity of principals and agents are beyond the scope of the PA
model. It demonstrates the ease in how the principal can interfere with agent work and
conveniently take cover in his/her contract when the consequent action is questioned.
Based on the allegations, for instance, the President urged Neri to approve the project
even if surrounded by irregularity. Allegedly, the Presidential family stands to gain from
the project through kickbacks. Abalos in this case is neither principal nor agent – he has
no official basis to be involved in the project. His influence in government workings,
however, has extensive reach even without that cloak of 'officialness'. At least before
the project was abandoned, Abalos allegedly made things move – meetings with the
Chinese contractors and GOP officials charged with the project.

The Numbers Story Against the Promise

Going beyond the PA framework, let us examine the performance of the PA model as
applied to the GPRA using empirical and survey data. TAN in 2007 conducted the study
“Developing a Procurement Monitoring System for the Philippines,” which attempts to
gauge the performance of the Philippine procurement system in meeting its own
procurement standards. The designed tool by TAN is a localized interpretation of the
OECD-DAC's Compliance Performance Indicator, with the guidance of the GPRA as the

36
Philippine legal and regulatory framework43. TAN pilot-tested the tool in 5 government
agencies – 3 national agencies (central office only), 1 local government unit, and 1
government-owned and controlled corporation. A total of 418 procurements were
examined, representing on the average 66% of the total procurements in all 5 agencies
for 2006. Also, the study includes a perception survey of 29 respondents (procurement
managers and civil society observers) on the state of procurement. (TAN, 2008)

Loose Grip. The study showed that despite the GPRA's policy of making competitive
bidding the default method of procurement, two of the five agencies don't follow this
policy with only 28 per cent and 9 per cent of their procurements competitively bid out. A
more common method used is shopping (51 per cent and 91 per cent respectively).
While alternative method is allowed in very specific instances, these numbers are
indicative of either poor planning or just plain preference for shopping as a procurement
method. In this context, 'limited discretion' it appears is easy to reason with – shopping is
easily justified. Also, it appears that the prescriptive periods are not generally followed
(see Table 4.7). The GPRA provides in Section 38.1, Article XI, IRR

[t]he procurement process from the opening of bids up to the award of

contract shall not exceed three (3) months, or a shorter period to be
determined by the procuring entity concerned. (Ibid)

Table 4.7: Average Calendar Days from Advertisement to Contract Award

Agency GOP-funded FAP
Bases Conversion and Development 118 (3.9 mos) N/A
Authority
Department of Health 136 (4.5 mos) 111 (3.7 mos)
Department of Public Works and 119 (3.9 mos) 378 (12.6
Highways mos)
Quezon City 54 (1.8 mos) N/A
Department of Education 121 (3.9 mos) 280 (9 mos)
Source: TAN, 2008
GOP = Government of the Philippines, FAP = foreign assisted projects
N/A = not applicable, mos = months

43 See Appendix A.

37
For GOP-funded projects, four out of five agencies exceeded the prescribed period and
all three agencies have violated the same rule in bidding out foreign-assisted projects.

Hazy view. Mandatory rules on newspaper postings are very clear. Only two agencies
however have fully complied with the newspaper posting requirement. Three agencies
have on the average 10 per cent of their advertised procurements (GOP-funded) bearing
incomplete information; and 45 per cent of foreign assisted projects (FAPs) advertised
with incomplete information. While the GPRA requires invitation of CSOs at all stages of
the procurement, compliance is only at 80 per cent (pre-bid conference) and 78 per cent
(submission/opening/bid evaluation) for GOP-funded projects; and 34 per cent (pre-bid
conference) and 56 per cent (submission/opening/bid evaluation) for FAPs. (Ibid)

Professionalizating the service. As earlier noted by ADB/OECD (2006), to this date there
is no code of conduct specifically for procurement officers. The general Code of Conduct
for public officials serves as guidance for their ethical conduct. The TAN survey showed
that 70 per cent of the respondents believe that there are training and capacity building
activities that:

1) strengthen the procurement management skills of procurement

managers; 2) strengthen the procurement evaluation skills of
procurement managers; and 3) allow procurement managers to
effectively respond to queries of suppliers, contractors, and the public.
(Ibid)

Data showed that the average years of service spent by the surveyed respondents doing
procurement management work is three years; On the average, procurement managers
have received two trainings. The average waiting time to receive appropriate training
from start of work, however, exceeds one year. (Ibid)

Incentives and Sanctions: A Retreat. The OMB resolution on the COMELEC-

Megapacific case has created the effect of undermining the GPRA provision on criminal,
civil and administrative sanctions. The OMB states in its resolution,

38
 Even assuming that there was grave abuse of discretion on the part of
BAC in awarding the contract to the MPC, the same cannot be
considered criminal in nature, absent any evidence to show bad faith,
malice, or bribery. (from Cadiz' case notes cited in Cerna, 2006)

This statement creates the effect of reverting criminal prosecution under the Penal Code,
requiring evidence of malice and bad faith, and disregarding the advances made by the
new law on procurement violations.

Participation Dysfunction: No Show from the People?

The PA model left to its own devices is obviously suspect of functioning properly.
External monitoring proves to be useful especially in the context of shifting roles of
principal and agent in a quite fluid setup in the public sphere. The external monitor has
broad and wide 'mandate' to oversee the proper functioning of government systems.
CSOs as stakeholders of governance have the potential to monitor not just the principal-
agent characters but also the counterpart agents (the oversight bodies mentioned
above) and even the entire reform package. This makes participation a compelling force
behind good governance.

The GPRA does include civil society participation in its reform strategy. In close scrutiny,
however, this is participation that has parameters and rules. Participation, as
contemplated in the GPRA, is very limited. Let us examine the constraining determinants
of participation.

Selective invitation. With the GPRA's restrictive policy, it is not surprising to find that only
very few CSOs are actually engaged in procurement monitoring work. The TAN study
(2008) found that invitations by pilot-agencies (2006) were extended to almost the same
set of CSOs (see Table 4.8) According to the report, more than 1 000 CSOs nationwide
have been duly trained for procurement monitoring work but only a select few are invited
regularly. (TAN, 2008).

Table 4.8. Top regular NGOs invited as observers

by the 5 pilot agencies

39
Top regular NGOs invited Invitations Attendance
Rate (%)
Procurement Watch, Inc. 71 8
Government Watch 63 5
Konsensyang Pilipino 58 0
Transparency and 35 3
Accountability Network
From TAN 2008 database
NGO = non-government organisation

Participation by invitation. At the onset, the 'participation by invitation' policy poses itself
as a problem44. Apart from the general guidelines on who are eligible to be invited, the
decision on who specifically to invite is discretionary upon the procurement officers. As it
appears, only a select few have been invited among the 1 000+ 'qualified'. Surely, these
select few are overwhelmed by the deluge of invitations, to which only a few they can
attend considering that most of these CSOs do procurement monitoring on a voluntary
basis. Are these CSOs to be faulted then for non-attendance? A study on participatory
audit showed that CSOs (including those of the Philippines) face real constraints to
participation such as lack of resources (manpower and financial). (Ramkumar, 2007)
TAN Operations Team in 2006 for instance only had four full-time staff who did project
management work45 and procurement reform advocacy work among others. During
crunch time, the 'voluntary work' gets dropped.

Limited access to strategic entry points. Where the demand for observers is large and
the supply few, it matters to know where the key 'pressure points' are in procurement
monitoring. The GPRA requires invitation of observers to all stages of procurement but
this does not include the pre-procurement conference. I argue however that the pre-
procurement conference is where public participation matters most. The pre-
procurement conference defines everything that will ensue in the the procurement
stages that follow – criteria for evaluation, schedule of activities, technical specifications

44 Not to mention the added discretionary power of the BAC to come up with additional criterion for
qualification as it deems necessary.
45 In 2006, TAN was implementing the following projects: 1) COMELEC Watch, 2) Lifestyle Check, 3)
TAN Institutionalization Phase 2, 4) Anti-Corruption Exchanges, 5) Monitoring Agency Anticorruption
Commitments, 6) Tax Administration Reform, 7) Ombudsman Appointments Watch II, and 8) Supreme
Court Appointments Watch.

40
of the project, other additional requirements aside from prescribed in the GPRA, number
of eligible bidders to be shortlisted, etc.46 Participation in this stage is critical not only
because it sets the procurement according to the prescribed track of the GPRA but it is
also a window for the public to deliberate 'development' issues. Will the project include
requirements of employing local workers? Will it include environment-friendly technical
specifications?

It is important to note, however, that despite the non-requirement to invite CSOs at the
pre-procurement conference, there have been invitations extended to CSOs - on the
average 45 per cent of GOP-funded projects, and 63 per cent FAPs. (TAN, 2008) This
does not give comfort to the fact, however, that invitations at the pre-procurement
conference are discretionary upon the procurement officers.

Lack of protection. Participation elicited from CSOs is not without risk. Not only is it a
case of 'passing the buck'47, it is also a case of 'unloading the risk'. Corruption is a
dangerous business. In the Philippines, whistleblowers receive death threats for their
brave acts. The absence of a whistleblower protection law (ADB/OECD, 2006) deters
courageous reporting of corruption in procurement.

46 Section 20, Rule VI, IRR-A (GPPB-TSO, 2006)

47 The government actually transfers the cost of 'audit work' to CSOs in the name of inclusive governance.
(ADB, 2005; Cooke and Kothari, 2001)

41
CHAPTER 5: CONCLUSION AND RECOMMENDATIONS

Conclusion

This paper has shown how PA and participation approaches have been adopted in the
procurement reform strategy of the Philippines. The legal reform framework includes
provisions on limited discretionary power, transparency, professionalization, incentives
and sanction and the participation of CSOs to monitor procurement.

The study found that a tightened PA relations is not enough to control corruption in
procurement. Cases were presented, demonstrating the breakdown of the PA model due
to the following phenomena: 1) a corrupt principal and lack of political will; 2) ineffective
oversight; 3) multiple principals and agents/ overlapping PA relations; and 4) informal
networks not covered by PA relations. Empirical data was also presented, showing how
the implementation of procurement reform fell short of the 'promises' it offered in writing
and in principle:

1. Limited discretion – Competitive bidding is not the default mode in two agencies.
Prescriptive periods for the conduct of procurement activities have not been
followed

42
 2. Transparency – Not all procurements required to make newspaper postings were
advertised in newspapers. Those which have made public postings of their
procurements posted incomplete information. Not all procurements extended
invitations to CSOs in all stages of procurement.
3. Professionalization – There is no code of conduct for procurement officers.
4. Incentives and sanctions – Sanctions in the GPRA are difficult to impose
because of ineffective oversight and lack of political will.

The study argued that to correct for the inadequacies of the PA model, broader public
participation should be instituted. Participation presents a broad framework of
overseeing the principals, the agents, the counterpart agents, and even the reform
framework itself. Participation in this broad sense, can potentially lead reform efforts
towards a more profound sense of accountability.

The study, however, found that the participation framework adopted by procurement
reform in the Philippines is in itself restrictive, as demonstrated by the following policies
and practices:

1) Selective invitation;
2) Participation is allowed only by invitation;
3) It is discretionary upon procurement officers to invite CSOS at the pre-
procurement conference; and
4) There is no legal protection for whistleblowers.

These make it difficult to encourage participation that could potentially be corrective for
the inadequacies of the procurement reform framework in place. Procurement reform
without the 'empowered' involvement of its stakeholder public is just another empty
promise that finds itself lost in the complex game of politics in the country.

Recommendations

Based on the findings above, the following recommendations are made, in hope that

43
these could facilitate the reform efforts to reach its full fruition:

1. Open invitation to qualified CSOs. Operationally, procurement officers should

make an open invitation to 'qualified' CSOs. The required qualification should
be minimal such as proof of legal constitution of the organisation (SEC
registration). In contrast with the requirement of the law to allow only those
who have technical knowledge to monitor, the approach should be the other
way around. Those showing interest to monitor a procurement proceeding
should be provided the necessary training.

2. The requirement to invite CSOs should extend to the pre-procurement

conference. Moreover, for policy-level impact, a broad representation of
CSOs in the Philippine Development Forum48 should be sought. A parallel
CSO forum can be organised for CSOs to deliberate their position/s on
various development and reform issues, which may then be negotiated for at
the PDF.

3. Protection for CSOs. A comprehensive whistleblower protection law should

be put in place not only to protect CSO procurement observers but all other
corruption whistleblowers.

4. Empowered mandate to monitor. The passage of an access to information

law will equip the CSOs in their performance of procurement monitoring work
and other oversight activities.

5. Support to CSOs. As mentioned, CSOs face operational constraints to their

involvement in procurement monitoring work – lack of resources among
others. While some NGOs have advocated for them to be given honoraria
(from government) for monitoring work, some others fear that this will

48 The Philippine Development Forum is a policy dialogue mechanism which was set up in 2005 to
consult with various stakeholders regarding the country's development agenda. The PDF “serves as a
process for developing consensus and generating commitments among different stakeholders toward
critical actionable items of the Government's reform agenda.” (Thornton, 2006: 4)

44
 compromise their independence as monitors. In this, assistance from
international donors could be sought to initially startup a sustainable CSO
procurement monitoring strategy.

In summary, what is suggested is to establish a procurement reform environment that is

friendly to and supportive of public participation.

Finally as a reminder, it is important that we don't lose sight of the bigger discourse
battle out there. The discourse 'pre-determines' the course of reforms unless pierced
and bent – perhaps by raw and unrestricted public participation. In the current setting, I
share the frustration of D. Murali, a journalist in India: “At times, it may be frustrating to
watch how the powerful dictate ‘the discourse on transparency, accountability and
openness, leaving little space for civil society to define these concepts’49” The greater
challenge remains for us to liberate ourselves from the imagination of others and to
create our own imagined development path.

49 See http://www.thehindubusinessline.com/ew/2008/07/21/stories/2008072150050200.htm

45
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49
APPENDIX

A. COMPLIANCE AND PERFORMANCE INDICATORS (TAN, 2008)

Compliance/Performance Philippine Legal Framework CPI-Philippines

Indicator for Procurement
Indicator 1. Agency Compliance with Procurement Law
• Percentage of Section 10. All procurement Percentage of procurement
procurement shall be done through using competitive bidding as
subject to the competitive bidding, except as method of procurement vs.
legislative provided in Rule XVI of this alternative method of
framework being IRR-A procurement
assessed (in
volume and in Rule XVI (on pre-requisites or
number of conditions to warrant
contracts) carried alternative methods of
out through open procurement)
tendering.
1.2. (a) Percentage of Section 21 (Advertising and Percentage of compliance to
invitations for open tenders Contents of the Invitation to newspaper posting
publicly advertised. Bid) requirement
Average number of days
(b) Average number of days between advertisement and bid
between tender opening
advertisement
and tender opening
1. Percentage of Section 21 (Advertising and Percentage of procurement
open tender Contents of the Invitation to that missed at least one
documents that Bid) required content in the
include Invitation To Bid
provisions
limiting

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 participation for
reasons other
than
qualifications or
acceptable
exclusions

2. Percentage of Rule IX (Bid Evaluation); Rule Average number of

tenders rejected X (Post-Qualification) Prospective Bidders,
in each process Participant Bidders, and
Eligible Bidders

3. (a) Percentage of Rule IX (Bid Evaluation)

tenders including
non-quantifiable
or subjective
evaluation
1. (b) Public Procurement stakeholders’
perception opinion on confidentiality of
of confidentiality of tender tender evaluation process
evaluation process

2. Percentage of Rule VIII (Receipt and Percentage of procurement

tenders opened Opening of Bids) using competitive bidding as
publicly and method of procurement vs.
recorded alternative method of
procurement

Percentage of procurement
that invited NGO observers in
the bid opening and in other
stages of procurement

1. Percentage of Rule XVII (Protest Number of protests filed

cases resolved Mechanism) Average number of days
within the terms between filing of protest and
established in resolution of protest case
the legal
framework
Indicator 2. Agency Compliance with Implementing Rules and Documentation
1. Percentage of Rule VI (Preparation of
tenders that use Bidding Documents)
model tender
documents

6. (a) Percentage of Rule VIII, Section 23, 24

cases where (Eligibility Requirements for
prequalification the Procurement of Goods and
was used Infrastructure Projects;
appropriately as Eligibility Requirements and
prescribed in the Short Listing for Consulting
legal framework Services)

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(b) Percentage of cases that
used objective pass/fail
prequalification criteria as
opposed to subjective
qualitative ones.
7. Percentage of Rule VI (Preparation of
tenders that use Bidding Documents)
the GCC,
standard clauses
or templates as
applicable
Indicator 3. Integration of Agency Procurement System into Financial Management Systems
Percentage of payments Percentage of procurement
made late (e.g. exceeding reaching contract
the contractually specified implementation stage
payment schedule)
Average period between final
acceptance of service/good
and date of payment
(a) Percentage of major Percentage of procurement
contracts without completion paid even without final
reports acceptance information

(b) Average time after

contract completion for
completion reports to be
completed
Indicator 4. Existence of Required Procurement Organizations
4.14 Percentage of those Percentage of those surveyed
surveyed that perceive that perceive procurement as
procurement as being being performed competently
performed competently and and independently
independently
4.15 Percentage of Percentage of those surveyed
those surveyed that that perceive the regulatory
perceive the function to be free of conflict
regulatory function to
be free of conflict
Indicator 5. Existence of Agency Institutional Development Capacity
5.16 Age of information
5.17 (a) Number of staff Percentage of respondents
involved in procurement in who received training on the
the central government that GPRA
receives formal training in the
year Average ratio between number
of trainings received by
(b) Average waiting time to procurement managers and
get in a formal training event number of years in
procurement management
work

Average period between start

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 of respondents’ involvement in
procurement management
work and first training on
GPRA
Indicator 6. Efficiency of Agency Procurement Operations and Practices
1.18 Average number of Rule VII to Rule XI Average number of days
days for procurement between procurement stages
cycle from tender from pre-procurement
advertisement to conference to contract signing
contract award.
1.19 Percentage of Average rate of completeness
contracts found with in ‘data-keeping’ from basic
incomplete records project data to post-award data
Indicator 7. Private Sector Participation in Agency Procurement
7.20 (a) Opinion on (a) Opinion of procurement
effectiveness of mechanisms stakeholders on effectiveness
to engage with relevant of mechanisms to engage with
organizations or agencies relevant organizations or
agencies
7.20. (b) Average number Average number of
of tenders submitted Prospective Bidders,
in each process Participant Bidders, and
Eligible Bidders
Indicator 8. Existence of Contract Administration and Dispute Resolution Provisions in Agency
Contracts
8.21 Percentage of Percentage of procurement
contracts containing reaching contract
such provisions implementation stage
evidence in contracts
surveyed that Average period between
contract contract signing and final
administration is acceptance
timely
8.22 Percentage of
contracts that include
ADR provisions
Indicator 9. Effectiveness of Control and Audit Systems
9.23 Number of
recommendations
pending after one
year
9.24 Number of qualified
opinions from
external auditors due
to critical internal
control weaknesses
and
recommendations
referring to internal
controls that remain
outstanding
9.25 Percentage of agencies

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reviewed with written internal
control procedures
Indicator 10. Efficiency of Procurement Complaints Mechanism
10.26 (a) Percentage of
complaints processed within
the time limits in the legal
framework
(b) Percentage of decisions
taken that are enforced.
10.27 Percentage of
favorable opinions
Indicator 12. Presence of Established Ethics and Anti-Corruption Measures
12.28. Percentage of cases
that result in sanctions or
penalties
12.29Percentage of
favorable opinions by the
public on the effectiveness of
the anti-corruption measures
Rule XVII (Protest Average ratio of motions for
Mechanism) reconsideration/ appeal/
protest to number of
procurement activities in a
given period (e.g. year)
Average period between filing
of motion/ appeal/ protest and
resolution of the same
Number of sanctioned bidders
Average ratio of sanctioned
bidders to participant bidders to
procurement transactions in a
given period (e.g. year)
Average score of respondents’
opinion on the effectiveness of
the anti-corruption measures in
procurement
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B. LIST OF LAWS RELATED TO GRAFT AND CORRUPTION (ADB, 2005: 19)

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C. CASE NOTES ON THE COMELEC MEGAPACIFIC CASE – courtesy of Atty.
Roberto Cadiz (Cerna, 2006)

FACTS OF THE CASE:

January 24, 2003 – E.O. 172 authorized release of P2.5 B for the modernization of the
2004 elections

January 28, 2003 – COMELEC issued Invitation to Bid for Phase II of Modernization
Program with budget of P2.5B

February 27, 2003. Incorporation of MPeSI, with authorized capital stock of 300 million
pesos (divided into 3 million shares with a par value of 100 pesos per share), fully paid
and fully subscribed. The incorporators were:

Willy Yu - 375,000 (12.5%) P37.5M

Bonnie Yu - 375,000 (12.5%) P37.5M
Enrique Tansipek - 375,000 (12.5%) P37.5M
Rosita Tansipek - 375,000 (12.5%) P37.5M
Pedro Tan - 749,999 (24.99%) P74.99M
Johnson Fong - 510,000 (17%) P51M
Bernard Fong - 240,000 (8%) P24M
Lauriano Barrios - 1 (.01%) P100

March 10, 2003 – Bidding. There were 57 bidders for the entire three-phased AES
project, but only 3 bidders for the second phase, which was for the procurement of the
ACSystem. Of the 3 bidders for Phase 2 of the project, 2 were deemed to be qualified:
Mega Pacific Consortium (MPC) and Total Information Management Corp (TIMC).

For technical evaluation, the BAC referred the bid proposals to:

A) The BAC’s own Technical Working Group

B) The Department of Science and Technology

In its Report after concluding the technical evaluation, DOST stated that both bidders
obtained failed marks in a number of key areas.

April 15, 2003 - Comelec issued En Banc Resolution No. 6074, signed by Abalos, Javier,
Tancangco, Lantion, Sadain, Borra, Tuazon, awarding contract to Mega Pacific
Consortium to supply the automated counting machines.

April 21, 2003 - BAC issued its written report and recommendation to the Commission
on Elections to award contract to MegaPacific Consortium (MPC).

May 16, 2003 - Comelec published its Resolution 6074 in the Manila Bulletin and the
Philippine Star.

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May 29, 2003 - Petitioner Information Technology Foundation of the Philippines
(Infotech), together with 9 others, wrote Letter of Protest to Chairman Abalos,
questioning the award to MPC, citing irregularities in the bidding process.
June 6, 2003 - Abalos rejected the protest, through a letter by Atty. Jaime Paz to
Infotech, saying that the award “would stand up to the strictest scrutiny."

June 30, 2003 - Comelec, through Chairman Abalos, and MegaPacific e-Solutions, Inc,
thru Willy Yu, entered into the so-called "Automated Counting and Canvassing Project
Contract."

The witnesses to the signing of the contract were Comelec Commissioner Borra and
Enrique Tansipek, one of the incorporators of MPeSI. The contract was for the supply of
equipment and services for the amount of P1, 248,949,088.00.

July 31, 2003 - Comelec, through BAC Chairman Mejos, secured from the Landbank a
Domestic Letter of Credit in favor of MPeSI, in the amount of P1,248,949,088.00

August 5, 2003 - Petition for Certiorari filed in SC questioning the contract award to
MPC. (Infotech vs. Comelec, et. al,)

January 13, 2004 - SC rendered Decision declaring as Null and Void:

A. Comelec Resolution 6074 awarding the contract to Mega Pacific Consortium (MPC)
B. 1.3B contract executed between Comelec and Mega Pacific eSolutions Inc. (MPeSI)
further it referred the case to:

a. The Office of the Ombudsman for the determination of criminal liability if any of the
public officials and conspiring private individuals, if any.
b. Office of the Solicitor General to take measures to protect the government and
vindicate public interest from ill effects from the illegal disbursements of public funds.

The SC said that the COMELEC awarded the Phase II contract (for the automation of
the counting and canvassing of ballots in the 2004 elections) in clear violation of law and
jurisprudence and in reckless disregard of its own bidding rules and procedure.

On the same date, 6 separate payments were made to the Mega Pacific e Solutions, Inc.
totaling the amount of P33,832,663.60

Bringing the total amounts paid to Mega Pacific e Solutions, Inc. to 1,050,088,535.91.

October 7, 2004 - Supplemental Complaint signed by the Field Investigation Office (FIO)
of the Office of the Ombudsman, represented by Maria Olivia Elena A. Roxas, Chief of
the Legal, Monitoring, and Prosecution Division of the FIO.

November 2004 - Filing of the Supplemental Complaint by the Field Investigation Office
against Abalos, Borra, Sadain, Tuazon and retired Commissioners Tancangco and
Lantion.

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November 30, 2005 - Marcelo resigned.

December 1, 2005 - Guttierez assumed office.

December 12, 2005 - Senate Blue Ribbon Committee Report adopted by the Senate,
finding the BAC members liable and asking the Comelec Commissioners to resign.

February 14, 2006 - SC issued a Resolution directing the Ombudsman to show cause
why it should not be held in contempt for its failure to comply with the former’s 1/13/04
Decision.

March 28, 2006 - SC issued a Resolution directing the Ombudsman, under pain of
contempt, to report on a regular basis (once every 3 months, starting 6/30/06) the steps
it has taken and the corresponding results of its action to determine the criminal liability
of the public officials involved in the contract

May 3, 2006 - SC issued Resolution ordering the Office of the Ombudsman to terminate
its Criminal Investigation before 6/30/06.

June 27, 2006 - Office of the Ombudsman filed an Urgent Manifestation with the SC
stating that "the need for further investigation forestall the final determination by 6/30/06
of the existence or non-existence of probable cause against all public officials."

June 28, 2006 - Office of the Ombudsman issued a Resolution containing factual
findings for the impeachment of Commissioner Borra, as Proj Head of Phase II of the
automation project. The Resolution said:

a) MPC was ineligible to participate in the bidding for the automation of the election
system because it failed to prove that the entities in the so-called "consortium" (ie, Mega
Pacific eSolutions, SK&K, WeSolv, Election.com, and ePLDT) actually formed an
aggrupation to be known as MPC.
b) While the BAC recommended to the COMELEC Commissioners that Phase II of the
Project be awarded to MPC, the contract was executed between MPeSI and COMELEC.

The Resolution also recommended that further fact-finding investigation be conducted

against other individuals who may have been involved in the said transaction

July 10, 2006 - Apparently unbeknownst to the public, the public respondents (members
of the COMELEC’s BAC, namely Mejos, De Guzman, Llamas, Sinocruz, Balbuena) filed
a Motion for Reconsideration of the 6/28/06 Resolution.

July 13, 2006 – August 23, 2006 - Public hearings were conducted by a Panel
constituted by Guttierez, chaired by Over-all Deputy Ombudsman Orlando Casimiro

September 4, 2006 - Graft investigator Ma. Elena Olivia Roxas, in a comment submitted
to the panel on Sept. 4, 2006, said the Ombudsman’s Field Investigation Office found
that the glaring violations in the bidding process pointed to a "well-defined" Comelec
conspiracy to favor the Mega Pacific consortium.

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Roxas said the FIO found enough evidence to recommend that Abalos, the Comelec
commissioners and MPC executives be held liable for the botched deal “criminally,
administratively and civilly.”

This was essentially a reiteration of the report prepared earlier in November of 2004.

September 27, 2006 (but released only on Oct 2, 2006) - In a 53-page "Supplemental
Resolution," the Casimiro panel reversed the earlier Resolution of 6/28/06 and absolved
all the respondents in the Mega Pacific case.

Said the panel: Even assuming that there was grave abuse of discretion on the part of
BAC in awarding the contract to the MPC, the same cannot be considered criminal in
nature, absent any evidence to show bad faith, malice, or bribery.

September 30, 2006 - Gutierrez leaves for Switzerland, reportedly to honor a personal
invitation from its ambassador. Her office said Gutierrez attended the ‘Third Informal
Seminar on the Return of Illicit Assets of Politically-Exposed Persons’ in Lausanne from
Oct. 1 to 3.

A member of her staff said Gutierrez would return home after the conference but was not
expected at the office until Monday.

A check with the Bureau of Immigration showed that Gutierrez left on a Cathay Pacific
flight for Hong Kong on Sept. 30 at 8:05 p.m.

The Ombudsman panel had until that date to submit to the Supreme Court its resolution
on the poll automation deal.

October 2, 2006 - OMB 9/27/2006 "Supplemental Resolution" released to the Public.

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