While Congress hounds SC, local gov’ts off the hook

(First of two parts)

Kit General Merchandise has been a consistent bidder for office supplies for the city government of Caloocan. Yet it is a fictitious company, and all of its documents are false, as are those of 15 companies included in Caloocan’s list of accredited suppliers for the years 2000 and 2001.

The Cainta, Rizal municipal government, meanwhile, lost more than P135 million in 13 irregular deals and projects it undertook during the same years. In Makati City, the furniture purchased by the city government in 2000 and 2001 was found to be excessive in quantity and overpriced by more than P110 million.

Makati’s 2001 procurement program also lists an allotment of P152,910 for 1,699 pieces of the lowly Mongol pencil. That’s P90 for each one.

These are just a few examples of how local government funds are being wasted. Yet even as Congress continues to assert its power to examine disbursements from the Supreme Court’s Judicial Development Fund, both chambers have not demanded a similar scrutiny of the way local governments have been spending public money.

This despite a general acknowledgment that the procurement process in local governments is flawed and prone to corruption, and that the anomalies are bleeding public coffers dry, depriving the poor of basic services, such as health and education.

Most of the examples above come from a series of special audit reports of the Commission on Audit (COA), which also prepared the report now being used by legislators to impeach Chief Justice Hilario Davide Jr. But while that document seems to have Congress in thrall, the COA reports on several local governments are barely getting any attention.

Last year, the COA formed a special task force to conduct audits of selected infrastructure projects and supplies and equipment purchases made by six cities — Caloocan, Makati, Manila, Marikina, Pasig and Valenzuela — and one town, Cainta.

Even though the audits were limited only to selected transactions in 2000 and 2001, the task force still found an overwhelming number of anomalies and violations of the law that resulted in the government losing hundreds of millions each year.

A subsequent investigation by the PCIJ in recent months has found that although systemic inefficiency is partly to blame for such lapses, the bigger fault lies in corrupt officials who based their decisions not on the needs of their constituents but on their share of the profits.

Rampant overpricing of goods and services has therefore bloated local budgets. In addition, local government contracts are marked by rigged biddings, ghost deliveries and awards to nonexistent companies.

Various contractors, former local government officials, auditors, academics, and NGO workers interviewed for this report say that pay-offs in procurements by local governments–whether they involve supplies or services–could easily range from 10 to more than 40 percent of the contract price. There is no standard percentage, as the "SOP" (or payoff) often depends on how much the corrupt officials involved want out of contracts or transactions.

According to Jose Edgardo Campos, a World Bank governance expert, bribes at national and local levels translated to anywhere from P45 billion to P220 billion of the total procurement budget in 2001 alone. The World Bank says that even a mere P21 billion "could have been used to fund the (Department of Health) twice over, or build more than 16,000 school buildings, or construct about 3,000 kilometers of concrete farm-to-market roads."

Waiver

Josefina de la Cruz (not her real name) would probably be content with just a few more incubators at the Ospital ng Makati (Osmak). The public hospital has five incubators at present, of which only three were working as of the third week of October.

Last week, De la Cruz was keeping watch over her daughter who was about to give birth at Osmak. The baby, however, was going to be a month premature and needed to have an incubator on standby. But all working incubators were in use at the time, so De la Cruz was made to sign a waver freeing Osmak doctors of liability in case anything happened to the infant while waiting for an available machine.

If the Makati City government had been more careful about its expenses, the baby would not have had to wait. In 2000 and 2001, a COA special task force found that the city lost nearly P62 million on overpriced equipment and hospital beds for Osmak.

These include eight dry heat sterilizers, which cost the city more than P10 million. The task force found the bigger sterilizers cost only P16,000 each while the smaller ones have a going price of P13,500 per. In other words, Makati overpaid the supplier by almost P10.3 million.

The spending binge is not over. This year, Makati set aside P88 million for the purchase of medical equipment for a second Ospital ng Makati, even if that hospital, located in another district of the city, has just begun construction.

In 2000, the city also bought 188 beds for the old Osmak, paying Apollo Medical Equipment and Supplies P36.4 million for these. According to the COA, however, the beds cost only a total of P2.4 million, based on the import documents it obtained from the Bureau of Customs. "Even if a 100 percent profit is included," the task force writes in its report, "the price difference of P31,076,242.72… constitutes a material loss on the part of the government."

When these findings were presented to Makati officials at a conference with COA, Vice Mayor Ernesto Mercado said, "I told and warned Mr. Apollo Carreon that if he will not be able to explain the circumstances, we will sue him." COA records show that during that meeting, Mercado acknowledged the correctness of the audit report and insisted the city had been victimized by the supplier

"We will just ask for consideration from the team because we have no technical expertise in the determination of the specifications of medical equipment, " the COA records show Mercado as saying.

A year later, however, the vice mayor said in a written reply to a list of queries, "For the record, I did not agree that the findings are correct. But we agreed to look into some of COA’s observations on procedure and in fact we had asked for COA’s assistance so we can tighten our procurement processes some more."

In a letter dated March 11, 2002, Makati Mayor Jejomar Binay also wrote to the COA task force overall supervisor, "As sufficiently explained by Apollo Medical Supplies in its comment, the subject transactions were aboveboard and made in accordance with the existing rules and regulations." The mayor denied as well the COA’s allegation that Apollo had falsified documents.

But someone in the Makati City Hall apparently believed in the COA’s report enough to go to court. Just two months after Binay sent his letter to the task force, it received another missive, this time from City Administrator Nicanor Santiago, who wrote that Makati had already a criminal complaint for estafa and falsification of public and private documents against Apollo, as well as against the NPK Medical Trading, supplier of a variety of medical equipment (including an endoscopic video worth nearly P6 million, but for which the Makati government paid almost P13 million).

Mercado also confirmed that "the city has filed charges against the suppliers. The case is pending in the (Makati) regional trial court. These suppliers are no longer doing business with the city government."

The PCIJ tried to reach Apollo Carreon at the address listed in the business registry of the Makati City Hall, but he no longer held office there. A check with the Department of Trade and Industry yielded no trace of the supplier.

Some suppliers and contractors assert that "favored" companies sometimes turn out to have "dummy fronts," the real owners being local officials. But even if they aren’t, such "chosen" firms are hard to compete with, say the suppliers. One contractor says he does not even dare bidding lower, fearing he may antagonize the firm’s patron-official. Instead, he says, he simply plays along and participates in the bids, even if the winners are already predetermined. The contractor says "losing" bidders do not go home empty-handed, anyway, and get to divide three percent of the bid price among themselves.

He says, "They will find a way to knock (a perceived rival of the favored company) out of the game." Another contractor adds that the one who wins will later find all kinds of obstacles in his way, including difficulties in obtaining the required clearances and permits.

One contractor recounts having to pay off several people in the hope that one of these would turn out to be "the real thing." He says simply, "You give to all, you never know." Oftentimes, he says, contractors must outdo each other in terms of the amount of the SOP they can five to the highest local official involved.

"If I were undertaking a P10-million project for some (local government)," says the contractor, "P3.5 million of that would automatically go to the decision makers."

Chances are, too, that the contractor’s hypothetical P10 million is actually several times the real cost of the project. Makati’s procurement program for 2000, for example, shows soft brooms pegged at P100 each. In 2001, the city wanted to buy 2,285 pieces for a total of P228,500. A box of Verbatim diskettes, which retails for P137.25 at National Bookstore, had a P350-price tag. Makati was purchasing 32 boxes for a total of P11,200.

In 2003, the Office of the Mayor of Makati was allotted P4 million for "gasoline, oil, and lubricants." At the same time, P200,000 was set aside for the same items for the vice mayor.

Makati also has a budget of P3.3 million for magazine subscriptions for the current year.

The problem, however, goes beyond rigged biddings, bribes, and inflated prices. Sometimes, the projects are not needed at all. At times, the supplies or equipment purchased are never delivered, or are never used.

Build It Again

An anecdote told by the owner of a triple-A construction firm (the highest classification for construction companies) is telling of the prevailing attitude. According to the Metro Manila-based contractor, a provincial mayor once asked him what kind of project would be nice for his town. The contractor recalls suggesting concrete roads, pointing out that "these last long." The mayor’s reply: "Huwag ‘yon. Gusto ko ‘yung masisira din para magagawa natin uli (Not that. I want something that won’t last so we can build it again)."

Thus, in 2001, Caloocan paid P850,000 for dental chairs that were never delivered. In Cainta, a scanner worth around P500,000 was purchased for P1.4 million; it had yet to be used when the COA team paid a visit to the municipal hall last year. Then again, this is the same municipality that bought real estate for P25 million, which the COA said was P8.6 million more than the land’s real value. Intended as the site for a multilevel housing project, the multimillion-peso lot has since been turned into a garbage dump.

In 1997, Cainta also took out a P60-million loan from the Philippine National Bank to buy an asphalt batching plant. The business venture has since been written off as a failure. The collateral was the municipality’s potential earnings from revenues, including realty taxes and its share of the Internal Revenue Allocation (IRA).

The town was unable to pay the monthly amortization for two years. In an August 2001 letter to Rizal Gov. Rebecca Ynares, concerned citizens of Cainta exclaimed, "What is so alarming is the fact that the Internal Revenue Allotment of our municipality has been used to paying (sic) the obligation with PNB. These funds are supposed to benefit the tax-paying constituents of Cainta! No wonder the conditions of our roads are very bad."

Mayor Nicanor Felix wrote Ynares to say that "global rescission (sic) and business reversals, nationally, regionally, and locally" had affected the plant’s operations. That it "went red," he added, "was of no fault of the (local government), but of the private plant."

The matter reached the Ombudsman when Provincial Board Member Arturo Sicat filed a case and asked for the suspension of Felix and four other officials in view of the COA findings.

In September, however, Deputy Ombudsman for Luzon Victor Fernandez denied the motion, saying there was no need for a preventive suspension. "The documents are already removed from being suppressed or destroyed by the respondents," said the Fernandez decision. "Accordingly, the concurrence of the conditions that would warrant the preventive suspension are not present."

Sicat says he filed two other complaints against the same officials and again asked that they be suspended. But he fears that is not likely to be heard either.

(To be continued)