SPECIAL REPORT
Lozada testimony reviewed: Dysfunctional gov't procurement
By Erwin Oliva
INQUIRER.net
First Posted 16:43:00 09/15/2008
Filed Under: NBN deal, Graft & Corruption, Technology (general)
Read Part 1
(Second of six parts)
THE National Broadband Network (NBN) project was a glaring example of the existence of brokers and consultants, how much they get, and how they skirt government procurement laws.
“This is how government is buying projects. Institutionally, the procurement system of government does not really work because the procurement system is being decided by people like us. I’m not even part of it,” Rodolfo “Jun” Lozada said during his testimony in a Senate investigation, as he explained how a “dysfunctional procurement” system in the country could lead to anomalies and irregularities in multi-billion projects.
His mere involvement in the project was already irregular and suspect. Based on the account of former Socioeconomic Planning Secretary Romulo Neri, the project went through the National Economic Development Authority (NEDA) process, which involved a technical board evaluating the financial and technical viability of the project.
Department of Transportation and Communications (DoTC) Secretary Leandro Mendoza had also testified during the Senate investigation that the DoTC put together a team to evaluate the viability of the project.
Lozada was president of the Philippine Forest Corp., government-owned and –controlled corporation and a subsidiary of the Natural Resources Development Corporation of the Department of Environment and Natural Resources. Neither was he a member of the NEDA Technical Board nor the DoTC technical team. An editorial of the Philippine Daily Inquirer on Lozada’s involvement had noted the irregularities in the deal.
“Lozada’s own role in the National Broadband Network controversy is itself a symptom of dysfunction: A contract-less consultant, with no legal personality except as a de facto alter ego of the socio-economic planning secretary, is tasked to evaluate a billion-peso project and eventually to broker a solution among competing project proponents,” the editorial said.
“This is unsound practice for two fundamental reasons. Lozada, the broker, was accountable only to Romulo Neri, the director general of the National Economic Development Authority. In other words, accountability was to a personality, not to the system. And Lozada’s expertise, precisely because it was used in the service of a personality, could not be institutionalized. In other words, the practice was meant to get things done, not to do things in such a way that would strengthen institutional capacity in the process,” it added.
In the case of the NBN project, Lozada said government projects are often supplier- instead of need-driven.
“What is happening in the government is supply-driven. If someone knows a supplier in government, they can tailor fit a project that would fit that procurement. That is based on my experience. The NBN and the South Rail project were decided this way,” Lozada said during the Senate investigation.
Leo San Miguel, a technical adviser and consultant to the ZTE Corp., testified in the Senate on March 11, 2008 that he had been hired by the Chinese supplier to help a group of Filipinos led allegedly by businessman Ruben Reyes push the ZTE deal.
He and his partner retired Gen. dela Torre dealt with Reyes on the ZTE deal. While he claimed that he was not aware if there were any kickbacks or so-called “commissions” made on the ZTE deal, he confirmed his participation as a technical person asked to represent ZTE Corp., including in a presentation to the NEDA, the Central Bank of the Philippines, and the DoTC.
Neri had testified that NEDA only evaluates project proposals, and not proposals from suppliers.
San Miguel revealed during the Senate inquiry that he was promised by ZTE a “success fee” of “one-half percent based on the gross of the contract,” or about $1.5 million for a cost of $329 million. But he never signed any contract as a technical consultant to ZTE Corp.
Grilled by Senators, San Miguel admitted that commissions or kickbacks are already expected of any deal that is being pushed by a group. But during his Senate testimony, he denied knowing or hearing of any kickbacks discussed openly by the so-called “Greedy Group plus plus,” which allegedly referred to San Miguel, Abalos Sr., Ruben Reyes, and Dela Torre, Jose Miguel Arroyo, and President Macapagal-Arroyo.
During the Senate investigation, Dante Madriaga, who identified himself as a technical consultant to the ZTE Corp., had claimed that commissions were given to the “Greedy Group plus plus” and that the cost of the project was even lower than the original $262 million. The “Greedy Group plus plus” was the term Madriaga had given to President Macapagal-Arroyo, her husband, resigned poll chief Abalos Sr., Ruben Reyes, San Miguel, and Dela Torre. San Miguel later confirmed that he hired Madriaga as a technical consultant.
Kickbacks and overpricing
In focus group discussions with private, public sector and civil society hosted by the E-governance for Effective Efficiency (E3), technical experts agreed it was hard to detect kickbacks or overpricing in government technology-related projects because of the complexity and the lack of understanding by government of technology itself. E3 is a project funded by the Canadian International Development Agency (CIDA).
Presenting its initial findings in a workshop on March 5, 2008, the E3 project, which is managed by consulting firm BearingPoint, pointed out that the public sector believed that the lack of “ICT project implementation teams in some agencies” has been a bane to government agencies. The lack of technical knowledge of members of the Bids and Awards Committee, the lengthy process of contract approval, absence of accountable project managers, and the lack or absence of chief information officers in most government agencies have hampered thorough study and evaluation of highly technical and sophisticated ICT projects, the E3 project initial results showed.
The private sector, on the other hand, pointed out that implementing agencies are “accorded with too much discretion to interpret the law,” referring to the government procurement law, the E3 initial results further stated.
Aiming to address “supplier-driven” ICT projects, Commission on Information and Communications Technology commissioner Tim Diaz de Rivera had said Congress has set aside about P100 million from the annual e-government fund amounting to P1 billion for government agencies wanting to fund feasibility studies to help them prepare for terms of references leading to a request for proposal to suppliers –the first steps in government procurement process.
Among the issues raised in initial E3 project study was the “inadequate [terms of references]” in government ICT bids to help draft better request for proposals from suppliers.
DoTC Assistant Secretary Formoso III admitted during the Senate investigation that instead of government coming up with their own terms of reference for the NBN project, “we just let whoever wants to come in to propose and then examine that and compare that with our requirements,” which he simply described as a “broadband network to connect government agencies in national scope.”
The “Investigating Corruption: A Do-It-Yourself Guide” by the Philippine Center for Investigative Journalism (PCIJ) noted that “bribes and kickbacks account for a tenth to half of contracts,” a figure that governance expert Jose Edgardo Campos has estimated way back in 2001.
Lozada had claimed that the cost of the NBN project ballooned to $332 million from $132 million due to alleged kickbacks going to Abalos Sr. But the DoTC claimed that the cost increased due to the nationwide coverage of the NBN project.
According to the supply contract, ZTE was spending a total of $329,481,290. This cost covers both the supply of equipment and services. The total price for the equipment plus freight and transport insurance is $194,051,628, while the total cost of services, which includes engineering, training, and managed services, is $135,429,662.
Despite the existence of a “world-class” procurement law, as one government executive puts it, Lozada said that “all checks and balances are restrained” simply because government projects are often tailored fit for certain favored suppliers with strong political connections.
(To be continued).
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