SPECIAL REPORT
NBN deal revisited: Lessons from failed Comelec project
By Erwin Oliva
INQUIRER.net
First Posted 16:56:00 09/19/2008
Filed Under: Technology (general), NBN deal, Graft & Corruption
Read Part 1, Part 2, Part 3, Part 4, Part 5
(Conclusion)
MANILA, Philippines -- Issues on irregularities in the procurement process and lack of technical know-how to help draft better terms of references in sophisticated projects like the NBN project brings to mind the scrapped P1.3 billion Commission on Elections modernization project.
On January 13, 2004, the Supreme Court scrapped the P1.3 billion modernization after the High Court found that the poll body and its officials were found in violation of its own bidding processes and the procurement law.
The project involved buying thousands of automated counting machines for the counting and canvassing of national and local elections in 2004. The poll automation project was divided into three phases. The first phase dealt with development of a voter's registration and validation system, the second with automated vote counting and canvassing, and the third with electronic transmission and consolidation of results.
The High Court found that the poll body had violated its own bidding process and rules by awarding the contract to an unqualified bidder named Mega Pacific Consortium instead of Mega Pacific e-Solutions. The consortium did not participate in the bid.
Comelec had signed a contract with Mega Pacific eSolutions, a company that failed the eligibility requirements for participation in the bidding because it was only 11 days old at the time it made a bid. It was only incorporated on February 27, 2003.
Comelec’s request for proposals required bidders to have at least three years of audited financial statements.
Comelec also violated its bidding rules when it awarded the contract despite knowing that the automated counting machines of both bidders failed in a technical evaluation conducted by the Department of Science and Technology (DoST).
The Ombudsman was later directed to conduct an investigation to find out if the poll body officials, the Bid and Awards Committee (BAC) members and private individuals were criminally liable for the botched deal.
The Solicitor General, on the other hand, was tasked to recover the taxpayer’s money paid to Mega Pacific for the purchase of over 1,000 automated counting machines.
On June 28, 2006, the Ombudsman announced that there were criminal and administrative liabilities against members of the Comelec BAC and officers of the Mega Pacific eSolutions Inc.
However, on October 2, 2006, the Ombudsman reversed its earlier decision and absolved the Comelec officials, BAC members and the private individuals of any liabilities.
The Ombudsman also decided to set aside impeachment proceedings against Comelec commissioner Resurreccion Borra who was in charge of the P1.3-billion project.
Mockery of law
Augusto Lagman, a member of the Information Technology Foundation of the Philippines (ITFP) which filed the petition to cancel the poll automation contract before the Supreme Court, described the Ombudsman’s reversal of decision a “a mockery of the law.”
A vocal critic of the Comelec’s automation projects, Lagman was later slapped with two P10-million libel cases by Mega Pacific. One of the libel cases filed was dismissed, while the other case filed in Mandaluyong City, hometown of former Comelec chairman Abalos Sr., remained.
A motion was filed in 2006 with the High Court not to accept the decision of the Ombudsman to absolve the Comelec officials, BAC members and private individuals, according to Lagman.
In a press statement posted on the Senate’s website on January 26, 2006, Senator Aquilino Pimentel Jr. said the chances of recovering more than P1 billion spent on purchasing the machines “have dimmed after officers and incorporators of MegaPacific dissolved the company and closed down its office in Metro Manila.”
Manuel Alcuaz, a member of the ITFP who was part of the petition to stop the poll automation project has written numerous newspaper columns about the flawed bid even before the High Court decided to void the P1.3 billion contract with Mega Pacific eSolutions.
In a Philippine Daily Inquirer column, Alcuaz who is an information technology veteran of 40 years, said anomalous bids are “cooked up by officials or managers who have influence over a procurement decision in order to gain something for them or to favor friends and relations.”
Under Republic Act 8436, Comelec was required to use a machine that uses optical scanning technology (similar to what is used to scan documents) or a mark-sense reader to detect markings in a secure and paper-based ballot.
People vote by shading or marking boxes next to names of candidates printed on a special ballot. Each ballot is fed onto counting machines. The machines’ software detects or counts the shaded boxes.
There were two glaring mandatory requirements in the request for proposal for the purchase of the automated counting machines.
One mandatory requirement noted in the bid for automated counting machines is that it “should have been used in at least one political exercise with at least 20 million voters.” This requirement was later underscored in Comelec Resolution 5929 issued on February 11, 2003, the Supreme Court said.
Another mandatory requirement required that the automated counting machines “must have an accuracy rating of 99.9995 percent or better.”
Alcuaz explained that the accuracy rate means that the machines will only produce one error out of 200,000 marks.
These technical requirements virtually eliminated more than 50 bidders early in the bidding process, leaving only two eligible bidders to fight for the contract: Mega Pacific e-Solutions and Total Information Management Corp.
In its ruling, the Supreme Court stressed that Mega Pacific should have been disqualified earlier because it had already failed a major eligibility requirement.
“[So] you can have an anomalous bid following the law because the [government procurement law] is defective,” Alcuaz said.
In hindsight, both Lagman and Alcuaz admitted that the ITFP could have opted to file a graft and corruption case before a regional trial court. But they went straight to the High Court to stop the project. “It was a strategic decision,” Lagman recalled, five years later.
The ITFP was part of the advisory council mandated under Republic 8436 to recommend the appropriate technology to Comelec during the 2004 elections.
But sometime in May 2003, Lagman said the ITFP wrote to Comelec, advising the poll body to declare a failure of bidding after a white paper exposed irregularities in the bidding process. In June 2003, Lagman said the Comelec wrote back, ignoring ITFP’s recommendations.
“Abalos didn’t even bother to convene the advisory council,” said Lagman who worked as technology chief of the National Citizens’ Movement for Free Elections (Namfrel).
Like the controversial National Broadband Network project, the Comelec project had tell-tale signs of a tailor-fit bid, according to Lagman.
Abalos Sr. who was still chairman of the Comelec, reportedly took Comelec commissioners to a trip in South Korea before the bidding of the P1.3 billion project after winning a golf game in Wack Wack, according to Lagman.
The project was eventually won by a South Korean supplier. Abalos had reportedly used his winnings in a contest in Wack Wack for the trip.
Lagman also pointed out that the actual pre-bid conference lasted for about 45 minutes, with bid specification made available only just a few days before the actual pre-bid conference.
Pushing ICT procurement reforms
The Oxford Business Group’s “The Report: The Philippines 2008” suggested that government should resolve two ICT issues: the controversial NBN project and the much-delayed creation of the Department of ICT. This department is supposed to set policies and oversee government activities in ICT.
“The ZTE scandal not only delayed the arrival of enhanced access to the Internet for the majority of Filipinos, but also created a rift in relations between the industry and the government,” said Oxford Business Group, a research, consulting and publishing firm based in the United Kingdom.
The Philippine Internet Commerce Society (PICS), an organization of private sector stakeholders in the IT business, PICS had declared that the NBN project useless.
In a letter indicating its official position on the NBN deal on October 24, 2007, PICS said the project was “redundant” and stressed that government should not be building or operating its own physical ICT infrastructure that is evolving. PICS added:
“Rather, government may negotiate with the private sector for better ICT services and rates, as it could for any other utility. We emphasize that the capabilities of local providers should not be overlooked. Rather government should encourage local participation in such projects in order to fuel further growth, development and capacity-building in Filipino industries.”
Former Commission on Information and Communications Technology chairman Virgilio Peña, for his part, believed the controversy over the cancelled $329 million NBN project could have been easily justified if electronic governance was in place.
He agreed that the idea of having a national broadband network was good. But the timing was off.
Now actively involved in consulting work for private consulting firm BearingPoint, Peña explained the difference between electronic governance and e-governance to prove a point.
When government uses information and communications technology (ICT) to provide the best public service, this was called e-governance. But when government implements piece-meal technology projects that automate a certain government function or process, this is e-government.
The NBN project seems to fall under the latter.
Growing broadband penetration
Building a large government broadband network seems justified because telecommunications companies have so long refused to provide services in “missionary routes,” Peña said.
Missionary routes are places where telecommunications companies are not expecting to make a lot of business. So investing millions to build an expensive telecommunications infrastructure to provide service to customers does not make business sense.
Based on the Philippine Long Distance Telephone Co.’s report, the country’s biggest telecommunications firm, the number of its broadband subscribers had doubled to 579,000 in 2007, with broadband and Internet gross revenues reaching P7.6 billion.
Its wireless broadband service, under wireless subsidiary Smart Communications, has reported subscriber base of 302,000 in 2007. At that time, Smart covered 625 cities and municipalities over the country, with 2,780 wireless broadband-enabled base stations providing high-speed internet access.
Meanwhile, PLDT’s digital subscriber line (DSL), a wired broadband service, has attracted about 264,000 subscribers in 2007.
Globe Telecom, for its part, reported about 120,000 broadband subscribers as of February 2008. The company had announced it would spend about $400 to $450 million in capital expenditures in 2008 on wired and wireless broadband technologies.
(Editor's Note: The figures from the local telecommunications companies have already increased at this time. These figures were based on earlier reports gathered early this year).
According to the Internet World Stats, the Philippines has about 14 million Internet users, or about 16 percent of a population of 87 million. However, it did not say how many of these users have access to a broadband Internet service.
A report by Hot Telecoms indicated that the penetration rate (measured in terms of number of subscribers against the total population) for broadband services in the Philippines remained low, with the country lagging behind most Asian countries.
The report also noted that the Philippines had a penetration rate of 0.8% at the end of September 2007, representing 28.3% of all Internet connections.
But the number of broadband subscribers in the Philippines is expected to hit 3.2 million at the end of 2011, according to the Hot Telecoms report.
Amid this broadband service situation in the country, Peña argued that Internet broadband services are not needed in most of these remote and rural areas.
It was already difficult for government to justify the $329 million investment if there was no critical mass of online government services. Rather than building an expensive broadband network, government should focus on developing content, he said.
The need for a government broadband network becomes evident when more online government services are available.
When Peña was working under the Department of Transportation and Communications (DoTC) and later with the CICT, he was pushing the idea of creating “community e-centers.” These centers were meant to jumpstart private sector investment in remote areas. The idea was to create a community center where Internet and other telecommunications services would become available.
Years have passed, and the project has yet to take off. Peña left CICT on March 30, 2006.
Hoping to encourage more private sector and government partnerships in government projects, Peña has led a project that aims to jumpstart an initiative called “Public Private Partnerships” (P3) under the E-governance for Effective and Efficiency (E3), funded by the Canadian International Development Agency (CIDA).
The P3 project is engaged in several activities including a study that will look into possible changes to existing government policies and laws in government procurement, including the Build-Operate-Transfer (BoT) law.
The study will also identify best practices in government procurement, especially those dealing with outsourcing. Outsourcing involves getting third-party groups to do most of the work and later maintenance of a government IT system. Funding comes from government or foreign sources.
The results of P3 study will eventually become part of a set of recommendations to the National Competitive Council (NCC), a public-private group led by the Department of Trade and Industry.
A copy of the Competitive Agenda of the NCC presented on March 22, 2007 indicated that among the seven priority projects identified under the “Efficient Public and Private Sector Management” is pushing e-governance in all government offices.
With the study, Peña hopes to identify best practices in e-governance, and apply them in pilot agencies. The best practices hope to highlight government procurement practices in ICT.
New anti-corruption body
Meanwhile, in response to allegations of corruption in mega deals like the NBN, President Macapagal-Arroyo has signed an executive order 662-A on November 15, 2007 creating a new anti-corruption body called Procurement Transparency Group.
The executive order indicates that a group aims to enhance “transparency measures” under the current government procurement law through stronger government and civil society partnership in monitoring government projects.
The members of the Procurement Transparency Group are the Presidential Anti-Graft Commission, the National Economic and Development Authority, the Department of Justice, the Department of Budget and Management, the Department of Interior and Local Government, and five civil society or non-government organizations.
The group’s task, among others, is to “evaluate, comment on, record and monitor procurement activities” in government.
Speaking during an Economic Briefing and a meeting of the Manila Overseas Press Club-Foreign Correspondence Association of the Philippines on February 15, 2008, Macapagal-Arroyo said that her administration is taking steps to address the ZTE issue and corruption in general in government.
“We take the ZTE issue very seriously. I moved quickly to cancel the project as soon as I could after proper consultation with the government of China, our biggest export market. We want to fight corruption,” she had said.
She stressed that her administration will not also tolerate corruption.
“There is no room in the development of our country when so much remains to be done to invest in the nation. It is a sad fact that the Philippines has a legacy of political corruption. While that legacy will not be erased overnight, we have made tremendous strides. We have made anti-corruption one of the key areas of focus for reform in the remainder of our term,” she said, as she introduced the Anti-Red Tape Task Force headed by Trade and Industry Secretary and a Procurement Transparency Group headed by the Department of Budget Secretary.
“Last week I reminded them to link up with the business sector, academe and the Church to implement reforms in government procurement systems. In fact as early as last year, Andaya already had representatives of the Makati Business Club and the clergy in Procurement Transparency Group,” the President had said.
GPPB-TSO Executive Director Alvarez stressed that government procurement reform is not only the job of government/
The Philippine Internet Commerce Society believed both the private sector and government leaders should take lead in “addressing government ICT requirements in order to further national development in a fair, clear and transparent manner that is consistent with public interest.”
PICS argued that the creation of a Department of Information Technology and Communications would likely “streamline the government's review and procurement process for information and communications technologies.”
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