Thursday, February 19, 2009

WB suspects, accusers bag major deals

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

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

These are among the findings of an exhaustive analysis by the Philippine Center for Investigative Journalism of 27,535 awarded Public Works contracts from 2000 to 2008 that the Public Works department has posted on its website,

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

To acquire and mine the information, the Philippine Center for Investigative Journalism developed a software application that copies each of the web pages and compiles the data into comma-separated values format.

Billions of pesos

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

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

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

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

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

Emerging as the 16th-biggest contractor among those with contracts with the Public Works department, Wee Eng outranks all the debarred companies in terms of total value of its deals. The three other cooperative companies, meanwhile, beat out EC de Luna and CM Pancho.

Whistle-blowers RD Policarpio & Co., and JM Luciano Construction came in as the Public Works department’s 61st and 78th biggest contractors, respectively. The owner of the 58th biggest contractor, PL Sebastian Construction, was also interviewed but did not reveal damning information.

Bribe-takers’ cartel

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

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

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

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

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

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

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

The project was awarded by Public Works department’s Region 13 office in December 2007, or after the Department of Institutional Integrity had wound up its interviews with respondents and witnesses on the alleged collusion in the first phase of the National Roads Improvement and Management Project, or NRIMP-1.

Modus operandi

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

According to the Department of Institutional Integrity report, the cartel, through Public Works officials, can even artificially inflate approved budget for contracts to increase potential payoffs to various parties. It can also punish contractors who refuse to take part in the collusive scheme or renege on agreements by disqualifying them from taking part in future tenders.

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

Appeal motions

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

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

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

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

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

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

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

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

Suzuka’s story

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

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

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

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

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

Still, World Bank officials and Department of Institutional Integrity investigators were convinced that they were dealing not just with a group of wily contractors, but with a well-organized syndicate supported by powerful political figures and Public Works officials.

High-level support

“Evidence suggests [that] the cartel may enjoy support at the highest levels of the Government of the Philippines, including several officials of the DPWH and even reaching the husband of the President [Arroyo] herself,” the Department of Institutional Integrity later wrote in the Notice of Sanctions Proceedings.

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