Procurement reform in the Philippines: the impact of elite capture and informal bureaucracy

International Journal of Public Sector ManagementProcurement reform in the Philippines: the impact of elite capture and informal bureaucracyDavid Seth Jones

Article information:To cite this document:David Seth Jones, (2013),"Procurement reform in the Philippines: the impact of elite capture and informal bureaucracy",International Journal of Public Sector Management, Vol. 26 Iss 5 pp. 375 - 400Permanent link to this document:http://dx.doi.org/10.1108/IJPSM-05-2013-0068

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http://dx.doi.org/10.1108/IJPSM-05-2013-0068

Procurement reform in thePhilippines: the impact of elite

capture and informal bureaucracyDavid Seth Jones

Faculty of Business, Economics and Policy Studies, University of Brunei,Gadong, Brunei

Abstract

Purpose – The purpose of the paper is to examine features and impact of recent reforms introducedby the Philippines government to deal with the longstanding shortcomings in its procurement system.

Design/methodology/approach – The research for the paper is based on reports by internationalorganizations, official documents of the Philippines government, surveys by international anddomestic organizations, interviews with relevant officials and media reports.

Findings – The findings show that the reforms have focused on fostering competition, increasingtransparency, standardizing procedures, enhancing end-product quality and contractor reliability,ensuring proper planning and budgeting, combatting corruption, and strengthening accountability.These reforms were intended to create a procurement system more in line with international bestpractices. However the paper shows that the impact has been less than promised. This is due tolimitations of certain provisions of the reforms and weaknesses in both implementation and in theaccountability of the procuring entities. A key factor in undermining the reforms is widespreadcorruption, which continues to affect many aspects of the procurement system. The article identifiestwo important and related reasons for such failings: elite capture of the government and bureaucracyby a powerful network of business leaders from well-established landed families, who have close linkswith the political establishment; and second, a long-established culture of informal influence in thePhilippine state bureaucracy (what may be termed the informal bureaucracy), which has been used tomaximum effect by the elite network of business leaders. As a result, this network has been able toinfluence the reforms to serve its own interests and ensure its continued dominance of the procurementmarket.

Originality/value – The value of the paper is to show how administrative reforms, no matter howwell formulated they are, may be readily undermined in the process of implementation by elite groupsable to influence government bureaucracy through an informal culture.

Keywords Philippines, Government policy, Public procurement, Corruption, Public administration,Reform, Elite capture, Informal bureaucracy, Implementation, Public sector reform

Paper type Research paper

IntroductionOne year after the overthrow of President Marcos in 1986, a new constitution in thePhilippines was adopted. After nearly 15 years of autocratic rule, this laid thefoundation for a new democratic political order. Under the more open andrepresentative system of government, attention was focused on the low standards ofgovernance that had hitherto characterised policy making and public administration inthe Philippines. The features were waste, inefficiency, and lack of transparency,widespread corruption, low levels of capacity, and the absence of accountability. Publicprocurement was as much affected as other sectors of public administration, resulting

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Vol. 26 No. 5, 2013pp. 375-400

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DOI 10.1108/IJPSM-05-2013-0068

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in poorly resourced public services and an under-developed infrastructure (WorldBank, 2008, p. 8).

A wide range of measures have been implemented to remedy these shortcomings.Among them have been reforms to improve the system of public procurement, thecentrepiece of which have been the Government Procurement Reform Act of 2003(GPRA) and its Implementing Rules and Regulations (IRRs) of 2005, revised in 2009.The intention was to create a system of procurement in line with internationalstandards (World Bank, 2008, pp. 8-9). Priority was given to fostering competition,increasing transparency, standardizing procedures, combatting corruption, andstrengthening accountability. Equally important objectives were enhancingend-product quality and contractor reliability, and ensuring proper planning andbudgeting in the procurement process. While the reforms on paper have created aprocurement system more in line with international best practices, they have beenundone by limitations of certain of their provisions serious failings in theirimplementation, and a lack of proper accountability. At the heart of weakimplementation and limited accountability has been continuing widespreadcorruption in day-to-day procurement practices, and shortcomings of both watchdogand enforcement bodies and also bid challenge mechanisms.

The article will first elaborate an analytical framework, and then describe thesystem of government and administration in the Philippines. After this, it will examinethe organisation, process and methods of public procurement in the Philippines asstipulated in the procurement laws and regulations and in the procurement manuals.The article will then consider the reforms to improve the system of procurement,focusing on the GPRA and its IRRs, as well as other measures to combat procurementcorruption. This is followed by an examination of how the impact of the reforms hasbeen undermined by limitations of certain of their provisions, weaknesses inimplementation (including pervasive corruption), and failings in the system ofprocurement accountability. In conclusion, the paper will explain the limited impact ofthe reforms in terms of two key ideas highlighted in the analytical framework: a) thecontrol exercised over procurement policy and its implementation by a powerfulnetwork of business leaders and influential families closely connected to the politicalestablishment (what may be termed as elite capture); b) a long established culture ofinformal influence in the Philippine state bureaucracy which has been used tomaximum effect by elite groups.

The article will draw on a range of sources. These include the reports and data ofthe Philippine government agencies, those of various international organisations,findings of survey organisations, relevant statutes and regulations, the procurementmanuals and the bidding documents of the Government Procurement Policy Board ofthe Philippines and interviews with Philippine public procurement officials, as well asacademic studies of corruption in the Philippines.

Analytical frameworkThe analysis in the latter part of the article which focuses on the limited impact of theprocurement reforms in the Philippines is shaped by the concept of elite capture andthe related concept of informal influence in the bureaucracy or the informalbureaucracy.

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The concept of elite capture has been long explored in the literature of sociology andpolitical science, two notable examples being the seminal studies of Bottomore (1993)and Wright Mills (1956). It essentially refers to the way elite groups dominate politicallife, shape policy agendas even in democratic societies, and influence day to dayadministration. Such groups may include members of powerful business networks,prominent figures in the legal profession, top managers of state institutions, seniorofficers in the military establishment, and in traditional societies, large landowningfamilies. Their influence stems from being members of or having close links with thepolitical class of government ministers, elected politicians, party bosses, provincial andlocal government leaders and senior bureaucrats (those links being often based onpersonal, family and business connections).

Derived from the concept of elite capture is the notion of state capture which hasbeen expounded by the World Bank. This refers to “the efforts of firms to shape thelaws, policies, and regulations of the state to their own advantage by providing illicitprivate gains to public officials” (Hellman et al., 2001). In other words, state capture is aform of elite capture by businesses to influence the formation of policy and the draftingof laws and regulations (Hellman et al., 2000).

Elite capture can go further and entail day to day decisions in policyimplementation. An example is regulatory capture, in which businesses andfinancial institutions affect how regulations are applied to ensure their interests aresafeguarded (Adams et al., 2007). The influence over policy implementation may beexercised through direct interference or indirectly through powerful intermediaries inthe political establishment.

Also affected by elite capture are watchdog and enforcement bodies with responsibilityto ensure government agencies are accountable for their performance. Such bodies maylikewise be subject to interference by elite groups in their efforts to expose and deal withshortcomings in government agencies As Klitgaard (1998) has pointed out, this weakens inparticular efforts to combat corruption, which is further compounded by the absence of adetermination of political leaders to support those efforts (pp. 500-5).

The other concept shaping the discussion is the informal bureaucracy. Two aspectsof the informal bureaucracy are relevant to this study. One is the extent to whichofficials in public agencies respond to ambiguities in rules and regulations bydeveloping their own criteria in making decisions and their own unwritten practices.The other is the willingness of officials, especially in the bureaucracies of developingcountries, to make decisions and follow procedures deviating from policy statements,laws and regulations, and to develop informal networks with elite groups. Such groupsmay thereby exercise influence over policy making and implementation (Woods andShlapentokh, 2009, pp. 538-45).

There is of course a connection between elite capture, the use of the informalbureaucracy, and corruption. Michael Johnston has examined this connection,identifying various types of elite control. One type of elite control he identifies is the“oligarch and clan” control, in which business elites and top officials, with powerfulpersonal and family connections, take advantage of “a setting of rapidly expandingpolitical and economic opportunities and weak institutions” to engage in corruption.This type of elite control exploiting informal bureaucracy and weak institutions, isreflected, according to Johnston, in the Philippines ( Johnston, 2005, pp. 3, 44-6, 8, 120-4,136-44; Johnston, 2010, pp. 7-13, 40-1).


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Elite capture through the informal bureaucracy is further guaranteed by the lowstatus of officials with management and operational responsibilities. Such officials findit difficult to resist the direct or indirect interference of members of powerful elitegroups, partly out of natural deference, especially in a traditionally ascriptive culture.Equally important is the concern that resisting elite demands will harm their careerprospects, while acceptance will enhance them. This is coupled with the knowledgethat acceptance will also result in personal gain through bribery and kickbacks. Inconsequence, officials have a commitment to and a stake in preserving the status quo.This, Kelman has observed in his study of procurement reform, leads front-lineofficials to erect a wall of resistance so as to ensure such reform does not lead togenuine change. In his view, only when dissatisfaction with the status quo growsamong front-line officials do the prospects for genuine change in government agenciesincrease (Kelman, 2005, pp. 5-9, 20-5, 39-54).

The problems encountered in the reforms of the procurement system in thePhilippines will be considered as reflecting elite capture based on “oligarchic and clan”control by powerful business groups and influential landowning families, whoseinfluence is facilitated by the prevalence of the informal bureaucracy.

System of government and administration in the PhilippinesThe 1987 Constitution established a democratic form of government in the Philippinesbased on the presidential-congressional model in the US. It functions on the basis ofchecks and balances between three co-equal and separate branches of government: theexecutive, legislature and judiciary. At the head of the executive is the President, who isalso Head of State, supported by the vice-president, and a cabinet appointed by thePresident comprising mainly political heads of the executive departments, known assecretaries. The President and vice-president are each elected in separate elections, whichare themselves separate from elections to the legislature. Each incumbent serves a singlefixed term of six years. The legislature comprises the bi-cameral Congress, consisting ofa 24 seat Senate (upper house) and a House of Representatives (lower house), with 240seats. Senators serve six year terms while representatives three year terms.

There are four main types of institution in the state bureaucracy of the Philippines.At the core are 17 executive departments directly under the control of the executive,and various constitutional and specialist commissions (both commonly referred to asnational government agencies). In addition, currently 78 government-owned orcontrolled corporations exist, many of which provide basic services and engage inbusiness-related activities. Some of them are stock corporations in which thegovernment through its holding companies owns all or the majority of the shares.Others are non-stock corporations. All are governed by a board of directors, andthough raising their own revenue, most continue to rely on government subsidies. Atthe local level, public services are delivered and certain types of infrastructure projectundertaken by local government units. These are organised into three tiers: provinces(plus the autonomous region of Mindanao) at the highest level, which are divided intocities and municipalities, each of which is sub-divided into barangays (local councils).Under the civil service decree, all of these organisations are counted as part of the civilservice, including somewhat surprisingly government-owned or controlledcorporations and local government units (De Leon, 2002; Brillantes, 2009,pp. 186-206; Government of the Philippines, 2010).

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The size of the state bureaucracy is not excessive by international comparison. Thepayroll at the end of 2010 totalled 2,948,000 ( just 9.2 per cent of the workingpopulation) including those working in government-owned or controlled corporations,local government units, the police force and teaching service. Of this number, 1,771,000are engaged in “public administration, defense and social security” (Bureau of Laborand Employment Statistics, 2011). Total government expenditure was a modest 18.4per cent of GDP at the outturn of 2009, increasing from just over 17 per cent in theprevious four years (ADB, 2010, p. 262). Only three of the nine countries of SoutheastAsia have a lower aggregate of public expenditure relative to GDP. The deficit of 5.3per cent of GDP recorded in 2002 had been gradually brought down, reaching 0.9 percent in 2008, before increasing to 3.9 per cent at the outturn of 2009 (ADB, 2010, p. 259).Despite the recent record of fiscal restraint and sound finance, subsidies togovernment-owned or controlled corporations, and general waste and inefficiencycontinue to be a drain on the public purse.

The system of procurementOrganization of procurementThe system of public procurement in the Philippines is based on a conventional twotier structure. At one level, operational responsibility for procurements is delegated tothe line agencies (national government agencies, government-owned or controlledcorporations and local government units), which in performing this role, are known asprocuring entities. In each procuring entity, practical management of the procurementis undertaken and the recommendation of the contract award is made by the bids andawards committee (BAC) (Government of the Philippines, 2009; GovernmentProcurement Policy Board, 2009a, pp. 12-13; Government Procurement Policy Board,2009b, pp. 14-127). The BAC is supported by a technical working group, consisting ofsuitably qualified personnel with technical, financial and legal expertise in the arearelevant to procurement. Its role is to help the BAC in those aspects of procurementwhich require such expertise, including drafting specifications, evaluating bids anddrawing up contracts (Government of the Philippines, 2009; Government ProcurementPolicy Board, 2009a, pp. 18-19).

Over and above the procuring entities is an umbrella body, the GovernmentProcurement Policy Board. It is responsible for the formulation of procurement policy,and recommending amendments of the GPRA, as well as drafting and amending theIRR’s. Also part of its brief is to draft and amend the procurement manuals andbidding documents. While not involved in day-to-day purchasing, the Board exercisessupervision over procuring entities to ensure they comply with the GPRA and itsIRR’s, and other laws relating to procurement. Another part of its remit is to build upexpertise in procurement by organising and conducting training courses through itstechnical support office, that cover the legal, financial and technical aspects of theprocurement process (Congress of the Philippines, 2003; Government of thePhilippines, 2009).

The importance of the Government Procurement Policy Board is reflected in the factthat its membership largely consists of the secretaries of key executive departments. Itis chaired by the secretary of the Department of Budget and Management, with thesecretary of the National Economic and Development Authority designated asvice-chairman. Other positions on the Board are occupied by secretaries from a range


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of departments, as well as a representative from the private sector appointed by thePresident on the recommendation of the Board. Representatives from the Commissionon Audit, other public bodies and private companies may be invited to serve asresource persons (Government of the Philippines, 2009).

Methods and processes of procurementAll the normal methods of procurement of goods, consultancy services and publicworks (infrastructure projects) may be used by procuring entities in the Philippines.Under the GPRA and its IRR’s, the main method for higher value bids is the opentender, in which all interested and eligible suppliers and contractors may participate.At the outset, the specifications detailing the features of the goods, services and worksto be acquired are drafted by the BAC of the procuring entity together with aconfirmation of the approved budget for the contract. The tender is then advertised,and companies may respond by forwarding to the procuring entity an expression ofinterest.

In the procurement of goods, companies who have expressed an interest are invitedto submit together both an application for eligibility to bid and their bid proposal. Inconjunction with this, one or more pre-bid conferences attended by would-be bidders,may be conducted in order to clarify important details, as discussed in the following.The bids submitted must consist of three envelopes to be handed in at the same time:one containing the application for eligibility to bid, a second containing the technicalproposal of the bid and the third the financial proposal (price offer). The eligibilityscreening focuses on, among other things, the track record of the company, its financialstanding, any commitment it may have to on-going contracts, and its fulfillment ofnationality requirements. If any company fails to meet eligibility requirements, its bidproposals cannot then be considered and its bid is rescinded. In the case of tenders forinfrastructure projects and consultancy services, companies who have expressed aninterest apply for eligibility to bid prior to the pre-bid conference and before theysubmit their bid proposals. Those companies declared eligible are then required tosubmit only two envelopes: one containing the technical and the other the financialproposal (Government of the Philippines, 2009; Government Procurement PolicyBoard, 2009a, pp. 45-7).

After this, the evaluation of the bid proposals is undertaken by the BAC. The firststep is to conduct a preliminary evaluation of the proposals to check if all necessarydocuments and information have been submitted. A bidder will be disqualified if anyof the required documents is missing or does not contain the information required.Once this is done, a detailed evaluation of both sets of proposals is carried out(Government of the Philippines, 2009; Government Procurement Policy Board, 2009a,pp. 45-7).

In tenders for goods and infrastructure projects, the technical proposals are firstevaluated to determine if they meet the specifications of the procurement. For thosethat do (referred to as “responsive bids”), the corresponding financial proposals areconsidered. The bid offering the lowest price, known as “the lowest calculated bid”, isprovisionally selected. In tenders for consultancy services, after determining those bidswhich meet the specifications, the “highest rated bid” is identified within a rankingbased either on quality of the technical proposals only, or on both the quality of thetechnical proposals and price or fee offered, as will be discussed in the following

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(Government of the Philippines, 2009; Government Procurement Policy Board, 2009b,pp. 57-8; Government Procurement Policy Board, 2009c, pp. 53-4; GovernmentProcurement Policy Board, 2009d, pp. 58-9).

On the completion of the evaluation, the chosen bidder is subject to apost-qualification check to confirm the validity, authenticity and accuracy of alldocuments and particulars submitted. If everything is in order, the bid is declared “thelowest calculated responsive bid”, or the “highest rated responsive bid” (for aconsultancy contract). The bidder is then duly recommended to be awarded thecontract by the BAC (Government of the Philippines, 2009; Government ProcurementPolicy Board, 2009b, pp. 57-8; Government Procurement Policy Board, 2009c, pp. 53-4;Government Procurement Policy Board, 2009d, pp. 58-9),

In the case of technically complex procurements such as a large IT or infrastructureproject, the open tender may entail a two-stage bidding process. Specifications areinitially broadly defined and a first round of bidding is conducted. Those bids that bestmeet the specifications are short-listed. Following negotiations with the short-listedbidders, the specifications are revised and expanded. A second round of bidding is thenconducted based on the more detailed specifications, in which the short-listed bidderssubmit revised proposals. The two-stage bidding process allows bids which areinadequate to be weeded out in the first round and also enables the procuring entity toredraft specifications in light of the initial proposals and further information (usuallyfrom negotiations) provided by short-listed bidders (Government of the Philippines,2009; Government Procurement Policy Board, 2009a, p. 95).

Alternatives to open bidding may be adopted in certain situations defined in theIRR’s, and involve less or no competition. These include limited source tendering(sometimes called selective tendering), in which only pre-selected suppliers are invitedto bid, and shopping, applicable to low value and routine purchases, in which three ormore pre-selected suppliers are invited to submit price quotations. The maximumthreshold for shopping is normally Philippine Peso (PhP) 500,000 (US$11,500), but canbe below this in smaller local government units. In addition, single source procurementmay be undertaken. The main one is negotiated procurement in which the procuringentity, instead of adopting a tender, pre-selects one company who is awarded thecontract after negotiation. Single sourcing can also be applied to simple and low valuepurchases, being referred to as direct contracting (Government of the Philippines, 2009;Government Procurement Policy Board, 2009b, pp. 81-96; Government ProcurementPolicy Board, 2009c, pp. 73-7; Government Procurement Policy Board, 2009d, pp. 81-7).

Reforms of public procurementIn response to the long standing failings in public procurement in the Philippines,reforms have been implemented in recent years. These are contained within the GPRA,the IRRs and procurement instruction manuals, as well as in measures to improve theaccountability of the state bureaucracy and to combat corruption. These reforms willbe discussed in the following.

Creating a more competitive system of procurementOver the years, many of shortcomings in public procurement in the Philippines weredue to the lack of a genuinely open and competitive system of procurement. A centralaim of the GPRA and the IRR’s is to establish this, so as to ensure value for money and


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fairness based on equal access. Both the GPRA and the IRR’s stipulate opencompetitive bidding as the standard method of public procurement, while the IRR’sstate also that BAC’s “shall evaluate all bids on an equal footing to ensure fair andcompetitive bid comparison” (Congress of the Philippines, 2003; Government of thePhilippines, 2009).

Further enhancing competition are the restrictions and prohibitions placed on thevarious means that could be used by procuring entities to avoid competitive bidding.Of particular importance are the restrictions imposed on less competitive methods ofprocurement mentioned previously – limited source tendering, shopping, directcontracting, and negotiated procurement, as well as repeat orders, and adjacent orcontiguous projects (an additional project similar to and extending an on-goingproject). The range of situations in which these are permissible is narrowly and clearlydefined, and entail circumstances in which it is obviously sensible and justified toavoid competitive tendering. For example, the conditions in which negotiatedprocurement is permitted, as stipulated in the IRR’s, are two failed rounds of bidding,emergency cases, projects requiring “highly technical consultants”, contiguouscontracts, purchases involving NGO and community participation, and small valuepurchases. Competition is enhanced too by the strict prohibition on the splitting ofcontracts under the GPRA and its IRRs. Splitting involves dividing the quantity of abulk item to be purchased into several smaller quantities. The value of the procurementof each quantity is thus reduced to the extent that a less a competitive form ofprocurement is permissible such as shopping or direct contracting (GovernmentProcurement Policy Board, 2009b, pp. 59, 65, 94).

Enhancing procurement planning and budgetingAnother reform under the GPRA was to establish a mandatory framework ofprocurement planning and budgeting. Hitherto, government agencies often did notdraw up detailed yearly procurement plans, since there was no legal obligation to dothis. Those doing so, did not then always adhere to them. Without proper planning,there was little way of determining whether the procurements were compatible withthe policy priorities of the procuring entity and how much of its capital and currentbudgets to earmark for them. A consequence of the latter was that approvedprocurements were not undertaken or projects were abandoned or delayed for lack ofsufficient funds (World Bank, 2003, pp. 22-8; Government of the Philippines, 2009;Government Procurement Policy Board, 2009a, pp. 31-42).

As the first stage in the planning process, according to the GPRA and its IRR’s,end-user units of a procuring entity draft a list of requested procurements for thefollowing financial year, including a statement of the need for each procurement. Theyprovide details in each case of the type and extent of the goods, services and publicworks to be procured, the procurement method to be adopted, time schedules of theprocurement and contract implementation, and the estimated contract value. The list,known as the project procurement management plan, is then submitted to the budgetoffice of the procuring entity for its evaluation. If approved, it is vetted by the head ofthe procuring entity, following which, subject to any amendment, it is consolidatedwith the plans of the other end user units to form the annual procurement plan of theprocuring entity. Once the budget for the procuring entity has been finalized, as part ofthe national budget, and approved by the Congress, the end-user units will be asked to

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adjust their project procurement management plans in light of the funding allocated totheir programs and activities. The annual procurement plan of the procuring entity isthen accordingly amended and submitted to the BAC for its final evaluation andapproval (Government of the Philippines, 2009; Government Procurement PolicyBoard, 2009a, pp. 31-42).

Creating greater transparency and standardization in procurementDown the years, public procurement in the Philippines has been characterised by a lackof transparency. While the laws and regulations governing procurement prior to theGPRA emphasised transparency, they were often ignored or sidestepped. Althoughprocurements were generally advertised and bid awards published, the procurementprocess itself was characterised by behind the scenes deals to ensure that a contractwas awarded to a particular company, even in open tenders. Alternatively re-biddingwas permitted without any explicit justification, so as to allow a favoured company tore-submit a price or proposals to ensure that it secured the contract (World Bank, 2003,p. 22). Making matters worse was the fragmentation of the procurement system. TheWorld Bank noted in its assessment report of 2003 that there existed a “proliferation ofoutdated and fragmented laws and [a] multiplicity of uncoordinated executiveissuances”. It further commented that “at times they are inconsistent with one another”and “constitute a source of confusion” (World Bank, 2003, pp. 10-11).

The GPRA has sought to address both these issues, and included transparency andstandardisation among it guiding principles. A number of measures were stipulated toenhance transparency. One was to allow outside observers from the Commission onAudit and civil society to attend meetings of BAC’s, and be given access to all relevantdocuments. This is provided for in section 13 which states:

To enhance the transparency of the process, the BAC (bids and awards committee) shall, in allstages of the procurement process, invite, in addition to the representative of the Commissionon Audit, at least two observers to sit in its proceedings, one from a duly recognized privategroup in a sector or discipline relevant to the procurement at hand, and the other from anon-government organization: provided, however, that they do not have any direct or indirectinterest in the contract to be bid out (Congress of the Philippines, 2003).

The private group mentioned previously may include for goods, a relevant chamber ofcommerce, for infrastructure projects one of the recognized associations in theconstruction and engineering sector, and for consulting services a professionalassociation such as the Philippine Institute of Certified Public Accountants and theConfederation of Filipino Consulting Organizations (Government of the Philippines,2009). A key civil society organization that has been involved as an observer isProcurement Watch Inc, whose task is to expose corruption and waste in procurement(Kristina and Pimentel, 2005, pp. 42-4).

After the award of the contract, the observers individually or jointly are required tosubmit a report to both the head of the procuring entity and to the Public ProcurementPolicy Board. These contain their feedback on the meetings attended and thedocuments examined, pointing out any irregularities that may have been committed. Itis reasoned that with outside observers the procurement process can be independentlyassessed to determine if due procedures have been followed, the method ofprocurement adopted is in accordance with the conditions laid down in the GPRA andits IRR’s, and the awards made are in favour of “the lowest calculated responsive bid”


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for goods and infrastructure projects or “highest-rated responsive bid” for consultingservices (Kristina and Pimentel, 2005, p. 43; Congress of the Philippines, 2003;Government of the Philippines, 2009).

Also in the interests of transparency, the GPRA mandated the disclosure of theapproved budget for the contract in the tender notice, with the stipulation that any bidsabove that would be discarded. This is intended as well to forestall collusion resultingin awards at abnormally high prices. The ceiling is now specified in all tender notices,though the World Bank and the Asian Development Bank have expressed misgivingson the grounds that normal price competition may be distorted by such disclosure(World Bank, 2008, pp. 10, 28, 34-5).

Another aspect of the procurement process introduced by the GPRA which haspromoted transparency are pre-bid conferences. Under this arrangement, the BAC ofthe procuring entity meets the prospective bidders, before bids are submitted. Thepurpose of the meeting is to explain eligibility requirements, clarify specifications,answer queries and where necessary to arrange on-site visits for infrastructureprojects. Pre-bid conferences are useful in the case of technically complexprocurements and reduces confusion and uncertainty on the part of bidders whenthey submit their bid proposals. For contracts with an approved budget of PhP1million (US$22,900) or more, at least one pre-bid conference is mandatory. Under thatamount, any pre-bid conference is at the discretion of the procuring entity (ADB andOECD, 2006a, pp. 4, 8; Government of the Philippines, 2009).

The most significant step to enhance transparency was the creation of acomprehensive E procurement system, known as PhilGEPS, set up in 2007. Theexpressed aim is that it becomes “the primary source of information” for procurement,and creates “a more efficient, convenient, transparent, and open procurement process”(Philippine Public Procurement Service, 2010). PhilGEPS publishes procurement laws,regulations and bidding procedures, and announces procurement opportunities, knownas bid notice abstracts, with a facility for downloading bid documents. Bid noticeabstracts contain information on the type of goods, services and infrastructure projectto be procured, the approved budget ceiling for the contract, any pre-bid conference,and the method of procurement to be adopted (shopping, open bidding etc.). The on-lineportal too discloses the name of the company awarded a contract, the reason for theaward, and the contract sum. A further provision is an E catalogue for purchasing lowvalue items (Philippine Public Procurement Service, 2010). However, there is no facilityyet for submitting on-line quotations and bids, although this, together with electronicpayment of suppliers and contractors, are part of the plan to expand the role of the Eprocurement system over the next two years (World Bank, 2008, pp. 9-10, 16, 18-19, 40).

Also facilitating greater transparency in the Philippines has been thestandardisation of procurement procedures, through the use of procurementmanuals to be used by all agencies, model contracts, and uniform bid documents.The bid documents sent to the would-be bidder must comprise or state the approvedbudget for the contract, invitations to apply for eligibility and to bid, eligibility criteria,detailed technical or functional specifications, bid evaluation criteria, information ofpost-qualification, conditions of contract, instructions for submitting a bid, and date,time and place of both the pre-bid conference, and the submission and opening of bids.Included too are standard bid submission forms to be completed or signed by thebidder and returned to the procuring entity, including forms stating price offered,

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detailing the technical proposal, and indicating delivery time or completion schedule(Government Procurement Policy Board, 2009e, pp. 1-35). This contrasts with thepreviously fragmented and opaque procedures, instructions, and document formatswhich varied from one procuring entity to another (ADB and OECD, 2006b, pp. 4, 6-7;World Bank, 2008, pp. 6, 10, 16, 51-55). Standardisation has been achieved in part byaligning the procurement rules, procedures, manuals, and bidding documents withthose of the World Bank and ADB (World Bank, 2008, pp. 51-5).

Promoting quality and reliabilityIn response to long standing concerns about the quality of the end product andreliability of suppliers and contractors, measures to improve both were incorporatedinto the GPRA and its IRRs. Reliability refers to the likelihood of suppliers andcontractors finishing a project or completing it on schedule.

With respect to quality, the main priority has been to upgrade the standard ofconsultancy services for infrastructure projects. To ensure a high caliber of technical ordesign proposals, either of two methods of evaluation are used in consultancy tenders.One is called the quality-based evaluation procedure. The consultants submit atechnical or design proposal and fee offer in separate envelopes. The technical ordesign proposal of each submission is numerically rated and after a ranking is done,the highest rated bid is identified. The fee offer of that bid is then considered, and thefirm in question is then asked to negotiate a final fee which cannot exceed either theapproved budget for the contract or the fee offered (Government Procurement PolicyBoard, 2009a, pp. 58-60). The second method of evaluation is the quality-costevaluation procedure. Again the consultants submit two separate envelopes for thetechnical or design proposal, and the fee offer. Separate numerical ratings are given forthe technical or design proposal and the fee proposal. The fee proposal rating iscalculated based on the lowest bid scoring method, so that the maximum rating isgiven to the lowest bid (100 points) with the scores of the other bids being inverselyproportional to it. The overall rating of each bid is then calculated with a weightage of60 to 85 per cent accorded to the rating of the technical or design proposal and aweightage of 15 to 40 per cent given to the rating of the fee proposal (GovernmentProcurement Policy Board, 2009d, pp. 58-61; Government of the Philippines, 2009).

The evaluation of the technical or design proposal must take into account the “planof approach and methodology” with the emphasis on “the clarity, feasibility,innovativeness and comprehensiveness” together with “the quality of interpretation ofproject problems, risks, and suggested solutions” (Government of the Philippines,2009). Also included in the evaluation is the caliber of personnel assigned to the projectwith respect to their experience, qualifications, education and training, as well as theoverall experience of the firm and its “quality of performance” in similar previousprojects (Government of the Philippines, 2009).

To determine if a company is reliable and equal to the task of undertaking andcompleting a project, certain requirements have been incorporated into the eligibilityscreening. To be eligible, the company must prove it has the financial means toundertake the project. For this purpose, it must have completed in a recent period(specified in the bidding documents) a similar contract worth at least half of theapproved budget for the contract under tender, or two or more similar contracts whichtogether are equal to this amount (of which one contract must be 50 per cent of this


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amount). In addition, the company must have a cash facility in or a credit linecertificate from an approved bank equal to 10 per cent of the approved budget for thecontract, or a net financial contracting capacity (NFCC) at least equal to the approvedbudget. The NFCC is a multiple of its current net worth discounted by the value of theincomplete portion of its on-going projects. The multiple ranges from 10 for contractsof less than one year to 20 for contracts extending over two years or more. To furtherensure reliability, the company must declare contracts either on-going or in theimmediate future to which it is committed. This is intended to address the concern thatsuppliers and contractors often are unable to complete a project or may finish it behindschedule as a result of such commitments (Government of the Philippines, 2009;Government Procurement Policy Board, 2009c, pp. 31-4).

To further attain high standards in public infrastructure projects, contractors areevaluated under the Constructors Performance Evaluation System (CPES). Ratings aregiven for standards of workmanship, the quality of materials used, the progress madeif an on-going project, and the timeliness of completion. Also rated are regard forenvironmental health and safety and the use of resources in site management. Twooverall ratings out of 1.0 are given, each being an aggregate of the individual weightedratings: one is given during the project and the other at the end. A score below .75 ispoor, and between .75 and .82 unsatisfactory. A score between .82 and .89 issatisfactory and from .89 to .96 very satisfactory, with any score above that rated asoutstanding. The individual and aggregate ratings are taken into account in eligibilityscreening and in bid evaluation in a subsequent project. As well, they facilitate qualitycontrol during the project, and help to determine whether the certificate of completionshould be issued at the end (Construction Industry Authority of the Philippines andPhilippine Domestic Construction Board, 2009, pp. 1-5; Government ProcurementPolicy Board, 2009c, pp. 82-3).

Furthermore, when goods, services and public works are sub-standard, the supplier,consultant or contractor can be disqualified from public bidding for one year, and ifrepeated in a subsequent contract, for two years. In the case of consultants, this appliesto producing defective designs and prescribing materials which are “inappropriate”and “sub-standard”. Contractors may be blacklisted for abandonment of project, tardyprogress in its execution, and failure to meet other contractual terms relating to thequality of materials and workmanship (Government of the Philippines, 2009;Government Procurement Policy Board, 2009a, pp. 63-72; Government ProcurementPolicy Board, 2009c, pp. 58-59).

Combatting corruption in procurementCorruption has been widespread in public procurement. All the major types ofcorruption have been pervasive including bribery, kickbacks, embezzlement, fraud,cronyism, nepotism, and collusion. Since 1987 a number of reforms have beeninstituted to combat procurement-related and other forms of corruption (Quah, 2003a,pp. 91-4; Quah, 2003b, pp. 251-2). The foundation for these reforms was actually laid asfar back as 1960 through the Anti-Graft and Corrupt Practices Act. Several key reformshave been passed in recent years to build on this legislation. One were provisionswithin the Constitution of 1987, spelling out the ethical responsibilities of publicofficials. These were followed by an Act Establishing a Code of Conduct and EthicalStandards for Public Officials and Employees, passed in 1989, which laid down in a

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more detailed form the legally binding standards of personal integrity of civil servants(Congress of the Philippines, 1989). In addition, in 1991, the Act Defining andPenalizing the Crime of Plunder was passed, intended to deter mass embezzlement.Referred to as “ill-gotten wealth of at least 75 million pesos” (US$1.72 million), suchembezzlement “shall be punished by life imprisonment with perpetual disqualificationfrom holding any public office” (Congress of the Philippines, 1991).

The proscriptions of corrupt practices were spelt out as well in the GPRA, its IRR’sand the procurement manuals. Among the forms of corruption highlighted are “undulyinfluencing or exerting undue pressure on any member of the BAC (bids and awardscommittee) or any officer or employee of the procuring entity to take a particularbidder” and “offering, giving, receiving, or soliciting of anything of value” to influencekey decisions in the procurement process (Congress of the Philippines, 2003;Government of the Philippines, 2009; Government Procurement Policy Board, 2009a,p. 63; Government Procurement Policy Board, 2009e, p. 14). This is designed to combatbribery, kickbacks and influence pedalling, involving members of BAC’s, other publicofficials (including elected politicians), and private individuals. To combat nepotism,no head of a procuring entity can reject bids as a result of “manifest preference to anybidder who is closely related to him”. A family member or a close relative is legallydefined in the Philippines as “consanguinity or affinity up to the third civil degree”.Equally important are specific provisions prohibiting collusion and bid rigging bycompanies, feigning of competition through multiple bids by one company andfraudulent practices (submitting false information to gain eligibility to bid or to win abid) (Government of the Philippines, 2009; Government Procurement Policy Board,2009a, pp. 63-7).

The GPRA, its IRR’s and the procurement manuals specify the penalties (bothjudicial and administrative) that can be levied for the main types of corruptionoffenses. As a measure of the seriousness with which such offenses were viewed by theframers of these reforms, those who have been convicted, whether public officials orprivate individuals, are liable to prison terms ranging from six to 15 years. If acompany or partnership has committed the offense, then any directors, officers, oremployees directly involved are convicted. Furthermore, the partnership or companymay incur civil liabilities, requiring it to pay liquidated damages for any resultant lossincurred by the procuring entity, and to pay compensation to its competitors in thetender (Congress of the Philippines, 2003; Government of the Philippines, 2009).

In addition, administrative penalties are levied on offending individuals andentities. Those who are public officials will be permanently or temporarily disqualifiedfrom holding office in a public agency. Businesses who have engaged in unsolicitedbribery, collusion, and fraud, as well as committing other forms of default, can bedisqualified for one year from public bidding, and then two years if the offense isrepeated. When the corrupt or defaulting practice occurs during projectimplementation, the contract can be immediately terminated (Congress of thePhilippines, 2003; Government of the Philippines, 2009; Government ProcurementPolicy Board, 2009a, pp. 63-7).

What’s more, if the president, chairman, and any shareholder owning 20 per cent ormore of the equity of a disqualified corporation (and also their family members), holdany of these positions in another company, that corporation will be likewisedisqualified from public bidding for the same period. One of the intentions is to prevent


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a firm debarred for corruption or other defaulting practices being re-registered under adifferent name and articles of association and so able to still tender for public contracts(Government Procurement Policy Board, 2009a, p. 70).

In addition to the direct prohibition of corrupt dealings, attention has been given topreventing conflicts of interest in the procurement process, which could result inofficials favouring businesses to which they or their families are connected. Under theConstitution of the Philippines, public officials (both elected and non-elected) arerequired on taking office to declare their assets, liabilities and net worth. Under theCode of Conduct and Ethical Standards referred to previously, they are obliged torelinquish any position, shareholding, or partnership stake in a business where aconflict of interest arises, and “shall not, directly or indirectly, have financial ormaterial interest in any transaction which requires the approval of their office”(Congress of the Philippines, 1989; Quimson, 2006, pp. 19, 29). This is reinforced underthe GPRA by the stipulation that no bidder can be related to the head of the procuringentity, any member of the BAC, its secretariat, and the technical working group, thehead of the project management office, or any of the project consultants. The bidderincludes the sole proprietor of a business, or any partner, director, officer, orshareholder with 20 per cent more of the ownership of a partnership or company(Congress of the Philippines, 2003; Government of the Philippines, 2009; GovernmentProcurement Policy Board, 2009e, p. 15).

Creating and strengthening watchdog and enforcement institutionsA key aspect of the reform of public procurement in the Philippines has been to makeprocuring entities more accountable by creating or strengthening watchdog andjudicial bodies, which monitor procurement practices and enforce the relevant laws andregulations. There has now arisen a significant group of institutions whose remit is toexercise oversight over the procurement process, to unearth evidence where anomalieshave occurred, and, where appropriate, to facilitate, initiate or undertake enforcementaction. The key watchdog institutions, which have been created or whose powers havebeen increased, are the Commission on Audit, the Office of the Ombudsman, theGovernment Procurement Policy Board, Sandiganbayan (anti-graft court) with theremit to try high level cases of corruption, and the Procurement Transparency Board.However, the Presidential Anti-Graft Commission was abolished in November 2010,with its functions (mainly to investigate corruption of presidential appointees)transferred to the Office of the Deputy Secretary for Legal Affairs under the Office ofthe President.

Worth noting is the revamped Office of the Ombudsman (OO), established under theOmbudsman Act of 1989, which has become the lead investigative and enforcementagency in combatting corruption and has the power not only to investigate corruptdealings but also to prosecute those who are charged, even supplanting the role of thepublic prosecutor (Quimson, 2006, pp. 26-7; Office of the Ombudsman, 2009). The workof the Ombudsman has been helped by the Procurement Transparency Board, set up in2007. Composed of a mix of senior public officials and civil society representatives, itsmandate is to oversee the management of a tender. When deviations from theprovisions of the GPRA and its IRR’s occur, it may recommend to the Ombudsman thefiling of penal, civil and administrative charges (Office of the President, 2008).

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Limitations in certain provisions of the reformsAlthough the GPRA and its IRR’s are comprehensive, certain provisions still createobstacles to the achievement of a procurement system in line with international bestpractices. The main ones are those which impose restrictions on access to theprocurement market for overseas firms, despite the commitment to competitionmentioned previously. As stated in a resolution of the Government Procurement PolicyBoard in, 2005, the GPRA “adopts as a general principle preference for Filipinonationals in the award of government contracts” in line with “the policy to promoteFilipino labor, domestic materials, and locally produced goods” (GovernmentProcurement Policy Board, 2005).

As reaffirmed in the 2009 revised IRRs (section 23) and procurement manuals, abusiness may be eligible to bid for the supply of goods and to provide consultancyservices, if 60 per cent of the ownership is in the hands of Philippine nationals, with afurther requirement that the actual delivery of consultancy service be undertaken by aPhilippine national(s). In tenders for infrastructure projects, it is mandated that, inmost cases, 75 per cent of the ownership of the company must belong to Philippinenationals (Government of the Philippines, 2009; Government Procurement PolicyBoard, 2009b, pp. 43-5; Government Procurement Policy Board, 2009c, pp. 31-3;Government Procurement Policy Board, 2009d, pp. 34-5; Government ProcurementPolicy Board, 2009e, p. 16).

Under the IRRs, foreign companies are allowed to participate in a restricted numberof situations. Their eligibility to bid may be granted “when provided for under anyTreaty or International or Executive Agreement” (including donor sponsored projects),and “when the goods sought to be procured are not available from local suppliers [. . .]or when there is a need to prevent situations that defeat competition or restrain trade”.The hiring of foreign contractors in infrastructure projects is only permitted in the firstsituation mentioned previously. Under section 43 of the revised IRR’s, even whenforeign suppliers and contractors are allowed to tender, a preferential margin is appliedin favour of domestic businesses. In this case, the lowest of the domestic bidders will beawarded the contract so long as its price is no more than 15 per cent above the lowestprice offered by the foreign bidders, and provided it is willing to match that price offer(Government of the Philippines, 2009).

It should be noted that the restrictions on foreign participation in tenders wereincluded in the revisions to the original version of the Government ProcurementReform Bill introduced during its passage in the House of Representatives (Camposand Syquia, 2006, p. 25). It is difficult to know what pressures and considerations werebrought to bear on this matter, but it could be surmised that influence may have beenexerted by those business groups in the Philippines who had hitherto dominated theprocurement market and thus sought to protect their own interests.

As mentioned previously, the GPRA lays down restrictive and well definedconditions under which procuring entities may avoid competitive tendering. However,under two of the provisions of the GPRA, limited tendering is allowed for the“procurement of highly specialized types of goods and consulting services which areknown to be obtainable only from a limited number of sources” and for the purchase “ofmajor plant components where it is deemed advantageous to limit the bidding to knowneligible bidders in order to maintain an optimum and uniform level of quality andperformance of the plant as a whole” (Congress of the Philippines, 2003). Such terms as


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“specialized”, “limited number”, “advantageous”, “optimum”, and “as a whole” are all amatter of interpretation, so giving procuring entities discretion in deciding whether toadopt limited tendering. Such ambiguity may allow powerful elite groups to undulyinfluence BAC’s on how they exercise such discretion in relation to limited tenders.

A further limitation of the GPRA and the IRRs is the provision creating but limitingthe independence of a bid challenge mechanism. This will be considered in thefollowing in the discussion on accountability in the procurement system.

Failings in the implementation of the reforms and the prevalence ofcorruptionThe impact of the procurement reforms has been further undermined by failings intheir implementation by procuring entities and by weaknesses in watchdog andenforcement bodies. As pointed out by the World Bank in its 2008 report. “muchprogress has been made in procurement reform in terms of rules and regulations butimplementation and enforcement are still weak, and the objectives of the reform havenot been fully achieved” (World Bank, 2008, p. 45).

Closely associated with weak implementation is widespread corruption (which maybe perceived as both the cause and result of weak implementation). Despite the range ofmeasures introduced to combat corruption, it is still prevalent in day-to-dayprocurement. Surveys conducted by three international organisations and onedomestic organisation continue to indicate widespread corruption in governmentadministration, including public procurement. These organisations are the WorldBank, Transparency International, World Economic Forum, and the Philippinessurvey organisation, Social Weather Stations.

The World Bank’s measure of “Control of Corruption” for 2010 gave Philippines apoint score 20.82 within the range of 22.5 to þ2.5, compared to a score of 20.31 in1996, and a global percentile rank of only 22.5 compared to 44.7 in 1996 (the lower therank the greater the extent of corruption) (World Bank, 2011a). These scores arecorroborated by references to continuing corruption in public procurement in theWorld Bank’s recent procurement assessment reports of the Philippines (World Bank,2005, p. 15; World Bank, 2008, pp. 24, 40-1). The findings by the World Bank aresupported by those of Transparency International (TI). In its Corruption PerceptionsIndex in 2011, the Philippines was ranked at 129 out of 183 countries (the higher therank the greater the corruption), and given a score of only 2.6 out of 10. In 1999, its rankwas 54 out of 99, with a score of 3.6 out of 10. Both surveys point to a discernibleincrease in corruption over the last ten years or so (Transparency International, 2011a).

These findings are consistent with the survey of conditions affecting businesscompetitiveness in 139 countries conducted by the World Economic Forum andpublished in The Global Competitiveness Report, 2011-2012. The survey sample in thePhilippines comprised 93 businesses, five of which employed over 5,000 people. Fourquestions in the survey focused on corruption and unethical conduct. One of thequestions was: “In your country, how common is the diversion of public funds tocompanies, individuals, or groups due to corruption?” (1 ¼ very common; 7 ¼ never).The average score for the Philippines was 2.3 giving it a rank of 127 out of 142 (thehigher the rank the greater the degree of corruption). In response to a second question,“How would you rate the level of public trust in the ethical standards of politicians inyour country?” (1 ¼ very low; 7 ¼ very high), the rating for the Philippines was 1.8

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giving it a rank of 128. In response to a third question, “In your country, how common isit for firms to make undocumented extra payments or bribes connected with imports andexports; public utilities; annual tax payments; awarding of public contracts and licenses;obtaining favourable judicial decisions?” (1 ¼ very common; 7 ¼ never occurs), theaverage rating was 3.0 giving the country a ranking of 119. The fourth question, “Towhat extent do government officials in your country show favouritism to well-connectedfirms and individuals when deciding on policies and contracts?” (1 ¼ always showfavouritism; 7 ¼ never show favouritism), elicited a score of 2.4 giving a ranking of 118.The responses to this question are perhaps further evidence of the ability of businessleaders connected to powerful families to affect decisions of BAC’s through informalchannels in the bureaucracy. The ratings and rankings are the worst overall among theAsian countries surveyed (World Economic Forum, 2011, pp. 392-394, 396).

Equally important are the findings of the polls conducted by Enterprise Surveyconducted under the auspices of the World Bank. In 2009 it surveyed 1,326 firms in thePhilippines, and among those who had been involved in quotations and tenders in theprevious 12 months, 58 per cent reported they were “expected to give gifts to secure agovernment contract”, although only 22 per cent identified corruption a “majorconstraint” (World Bank, 2011b). A similar finding was made by the Philippine pollingorganisation Social Weather Stations (SWS). In its most recent survey of corruptionconducted in 2008, 402 private sector managers were interviewed with 267 from smalland medium enterprises and 135 from large enterprises. On a four point scalemeasuring the extent of corruption from “a lot” to “none”, 62 per cent of the sampleindicated that there was “a lot”. Nearly 50 per cent of respondents stated that “almostall/most companies” in their line of business paid bribes to secure a public contractwhile 41 per cent declared to having “personal knowledge of public sector corruption”in their line of business in the past three months. The median amount paid as a bribewas 15 per cent of the contract value (Social Weather Stations, 2009).

The first two sources (Control of Corruption measure and Corruption PerceptionIndex) measure perceptions of corruption in general. These are a valuable but notalways precise measures of actual corruption as pointed out by a number of writers(Olken, 2006; Johnston, 2008; Donchev and Ujhelyi, 2009). One of the limitations arevariations in the understanding of corruption from one country to another. Two othersources, Enterprise Survey and SWS Survey, go beyond measuring generalperceptions and more directly assess knowledge and experience of specific forms ofcorruption among businesses. In addition, the questions in the survey conducted byWorld Economic Forum cover different aspects of corruption. All the sources areconsistent in pointing to widespread corruption.

Apart from the survey data, further evidence of corruption is provided by the Office ofthe Ombudsman. According to its 2009 report, 12,736 complaints, nearly all relating tocorruption, were received, which was slightly higher than the annual average for2005-2008 (12,427). Over 500 officials were subject to administrative sanctions(dismissed, suspended, or reprimanded) with the largest number suspended (34 per cent).In addition, in 2009, 189 criminal corruption cases involving high ranking officials werefiled before the Sandiganbayan, with a conviction rate of only 33.6 per cent (a lower ratethan in the previous two years). A further 1,394 corruption cases involving lower levelofficials, were filed before the regular courts but conviction rate was very low at only onetenth of the cases filed (Office of the Ombudsman, 2009, p. 32, 46-7, 52).


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In addition, examples of corruption, including corruption in procurement, arefrequently cited by the local and trade press. For example, it was reported that thepurchase of military helicopters worth more than US$90 million was suspended inSeptember 2010 due to the drafting of specifications to favour a particular group ofsuppliers. Members of the BAC of the Defense Department were allegedly involvedwith the likelihood that they would receive substantial bribes. In 2008, the purchase ofhelicopters worth US$29 million, according to press reports, was also scrapped forsimilar reasons, resulting in the debarment from public tenders of the Asian AerospaceCompany, the local supplier and partner of the US-based manufacturer of thehelicopters (Francis, 2010; Agence France Presse, 2010; Net Resources International,2010).

There is little doubt that the degree of bribery, kickbacks, cronyism, and nepotismthat still exists in the Philippines continues to create major obstacles to implementingprocurement reforms. BAC’s, technical working groups and senior officials inprocuring entities often do not adhere to their professional and ethical responsibilities,as laid down in the reforms. Procurement specifications, eligibility assessments,contractor performance measurements, and most importantly bid evaluations andcontract awards are routinely tailored to serve the interests of firms within an elitenetwork of businesses connected to well-established landowning families, with thepayment of bribes and kickbacks by such firms as a further incentive. Likewise, singlesourcing or negotiated procurement may be adopted as the method of procurement toensure a contract is awarded to a firm within the elite network, even when theconditions under which it is permitted to all intents and purposes do not exist. In faceof this, firms outside this network find it difficult to compete for government contracts.

Elected politicians in Congress play an important role in influencing lucrativecontract awards in favour of companies in which they have an ownership stake or forwhich they act as intermediaries. In the latter role, they are often paid bribes orkickbacks, with the money received used for their own personal benefit, or to illicitlyfund their election campaigns. The informal leverage that politicians can exercise,often through behind the scenes deals, further ensures that the preponderance ofgovernment contracts go to the elite network of businesses connected to powerfulfamilies ( Johnston, 2005, pp. 137, 140-4; Quimson, 2006, pp. 12-14).

Another corrupt practice which blunts the impact of the procurement reforms iswidespread collusion among would-be bidders to rig the tender and secure theacceptance of a high bid price, despite it being prohibited under the reforms. Accordingto the Philippines country procurement assessment report of 2008 by the World Bank(2008), “there is a perception that collusion or rigging of bids is common, particularlyfor big ticket contracts” (p. 33). As an example, the World Bank found that in twocontracts it was sponsoring in the Philippines, all the bids were suspiciously clusteredtogether at a high price level. Such a pattern was repeated in three separate rounds ofbidding, resulting in the rejection of the bid offers in each case. The World Bankconcluded that “the analysis of the bid data presented unmistakable evidence ofcollusion” (World Bank, 2008, pp. 33-4). The 2008 report, mentioned previously, alsopointed to the difficulties of taking action against collusion rings in the Philippines. Itcited the example of the Panaon local government unit, which in the last few yearsdiscovered a repeated pattern of high and often identical bid offers in its tenders, butthe companies concerned have continued to bid for contracts. Despite its best efforts

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the local government unit has been unable to obtain enough hard evidence for aprosecution to be undertaken (World Bank, 2008, p. 34). Such collusion serves tofrustrate the objective of the GPRA to create an open and competitive procurementsystem that ensures better value for money. However, its continued prevalence is notsurprising given the extent to which the businesses sector in Philippines continues tobe controlled by a small network of businesses linked to powerful families.

Also undermining the implementation of the reforms has been limited progress inachieving a fully transparent system of procurement. Certainly the adoption of Eprocurement through PhilGEPS, disclosure of bid outcomes, and other measures toenhance transparency have been noticeable developments. But PhilGEPS has not beenfully availed of by procuring entities. Although most national government agenciesand local government units have now registered with PhilGEPS, a substantial minorityof government-owned or controlled corporations have not. Nor do even registeredagencies always post bid notices and contract awards on its web-site (Philippine PublicProcurement Service, 2010; Padre-Isip, 2010). The World Bank’s 2008 report foundfrom pilot surveys that “the requirement to publish contract awards as well has still tobe fully complied with”. Moreover, the same report noted that “bid notices sometimesprovide insufficient information and instructions to prospective suppliers about theitems being procured, or insufficient online access to the bid documents” (World Bank,2008, p. 28; ADB, 2009, p. 2). An equal concern has been the failure of civil societyorganisations to attend as observers BAC meetings on a regular basis, which furtherundermines another key reform to enhance transparency, as will be discussed in thefollowing. The failure to fully observe the obligations of transparency laid down in thereforms has enabled the continuation of the practice of behind the scenes deals tofacilitate bribery and crony transactions outside of the public spotlight.

All in all the corrupt practices mentioned previously coupled with limitedtransparency have prevented the achievement of the central objective of the reforms tocreate a procurement system that matches international standards based on opencompetition and equal access, impartial evaluations, transparent procedures, and highend product quality.

The question of accountability: weaknesses of the monitoring,enforcement and bid challenge mechanismsThe implementation failings referred to previously can in part be attributed to thelimited accountability of procuring entities. This to a significant extent is due to thelack of effective monitoring and enforcement by watchdog institutions responsible foroverseeing the procurement process (Quah, 2003a, pp. 99-100; Quah, 2003b, pp. 244-5).This failure has occurred in spite of the reforms to create and strengthen suchinstitutions, referred to previously. The World Bank procurement report of 2008, and aTransparency International report of 2006 expressed serious misgivings about theperformance of the Commission on Audit, the Ombudsman and the Sandiganbayan(anti-graft court). They revealed that the Commission on Audit failed to finallydetermine that anomalies had occurred in the majority of procurement-related cases itinvestigated (Quimson, 2006, pp. 23-4; World Bank, 2008, pp. 41-2). Of the cases thatwere forwarded to the Office of the Ombudsman for further investigation andprosecution, according to the World Bank report, “a large number” had not been actedon, and those that had been “take a very long time” to bring to court. The report


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concluded that “the low enforcement capacity of the Ombudsman’s special prosecutionoffice and that of the courts is a major concern” (World Bank, 2008, pp. 41-2). This issupported by the low conviction rates in cases filed before the Sandiganbayan, asmentioned previously. Believed to have protected corrupt officials under formerPresident Gloria Arroyo, and to avoid impeachment proceedings by the Senate, theOmbudsman Merceditas Gutierrez stepped down in April 2011 (Yap, 2011; Burgos,2011). A similar lack of effectiveness has characterised the other key anti-corruptionbody, the Presidential Anti-Graft Commission (PAGC) until it was abolished. Ofalleged corruption cases, 1,500 were investigated by it from 2001 to mid-2007, but inonly 10 per cent of them was punitive action taken (dismissal, suspension andreprimand) (Quimson, 2006, pp. 29-30; Presidential Anti-Graft Commission, 2007a,pp. 4-5; Presidential Anti-Graft Commission, 2007b, pp. 5-6).

It should be noted that the work of the watchdog and enforcement bodies ishandicapped by the absence of regular and accurate reports from procuring entities onthe procedures followed in each procurement, and the outcomes achieved. Procuringentities either ignore requirements to compile and submit such reports, often due to afailure to institute formal arrangements to systematically gather information on theirprocurement programs and to compile and keep detailed records of each procurement.In consequence the scrutiny of procuring entities is weakened (World Bank, 2008,pp. 37-8; Office of the Ombudsman, 2009, p. 34).

In addition, the existence of a range of bodies with watchdog and enforcementfunctions with respect to procurement may be counter-productive. The problem is thatthey have overlapping functions, with the lines of demarcation between them notprecisely drawn. The upshot may be that when a matter arises requiring monitoring,investigation and prosecution, no agency accepts responsibility, or the opposite, two ormore do so, resulting in conflicting decisions and outcomes, or even worse theobstruction of one agency by another as a result of institutional rivalry. Furtherproblems are additional bureaucratic procedures and the limited pool of personnel withthe skills of monitoring, investigation and prosecution, which are spread thinly amongseveral agencies, so reducing the effectiveness of each agency. The desire to streamlinegovernment agencies with overlapping functions was cited as a reason for the abolitionof PAGC, referred to previously (Sisante, 2010).

Also undermining the monitoring of procurement practices and the properenforcement of procurement laws and regulations is corruption in the watchdog andenforcement bodies themselves. How widespread this may be is difficult to tell but theWorld Bank drew attention in recent reports to how corruption in the enforcement andjudicial process allowed politicians, bureaucrats and business leaders who hadallegedly engaged in corrupt practices relating to procurement, to escape prosecutionand conviction (World Bank, 2005, p. 15; World Bank, 2008, pp. 24, 40-1; Quah, 2003b,p. 252). Perhaps this is the reason why so few cases that came before Sandiganbayanresulted in conviction.

Of equal concern are possible outside influences on the judicial process throughbribery, cronyism, and political pressure, which may hinder the prosecution andconviction of those alleged to be involved in corruption. In the survey of businessesconducted by the World Economic Forum, mentioned previously, and published in TheGlobal Competitiveness Report, 2011-2012, respondents were asked: “To what extent isthe judiciary in your country independent from influences of members of government,

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citizens, or firms?” (1 ¼ heavily influenced; 7 ¼ entirely independent). From theresponses given in the Philippines, a score of 2.8 was computed, giving it a low rankingof 102 out of 142 (World Economic Forum, 2011, p. 395). This low ranking is supportedby Transparency International’s assessment of corruption levels in its current countryprofile of the Philippines, which points to frequent corruption in the judicial system(Transparency International, 2011b).

The monitoring of the procurement process has been weakened too by the failure ofcivil society organisations (CSOs) to make the most of the new opportunities given tothem to observe how procurement decisions are made, which was referred topreviously. It was hoped that the attendance of CSO’s at BAC meetings and theiraccess to all relevant procurement documents would lead to the exposure of corruptdealings and discourage procurement officials and bidders from engaging in them. Butthe World Bank referring to this arrangement in the 2008 procurement report statedthat “its implementation is not producing the desired impact on the ground”. Thereport warned that “its sustainability is at risk unless serious remedial measures areintroduced by the GPPB (Government Procurement Policy Board) and the CSO’sthemselves”, and urged “a study to be undertaken on sustaining the involvement ofCSO observers in the bidding process, including contract implementation” (WorldBank, 2008, p. 43). Rachelle Padre-Isip, a university-based lawyer in the Philippines,specialising in procurement, has confirmed the fears of the World Bank, indicating that‘representation of the public in the BAC (Bids and Awards Committee) is very lowbecause there is little incentive or support for them to do so’ (Padre-Isip, 2010). It isevident that the initial enthusiasm of CSO observers to use the opportunities to observethe proceedings of BAC meetings and highlight irregularities may have waned.Possibly, they may have been discouraged by suspicions of behind the scenes andunrecorded deals or by restrictions imposed by officials on access to crucialinformation in the procurement process.

Further limiting the accountability of procuring entities is a weak bid protestmechanism. Under the GPRA and the IRR’s, a would-be bidder declared ineligible tobid and a failed bidder can appeal to the BAC for a “motion of reconsideration”. If thatis rejected, an appeal can be lodged with the head of the procuring entity, whose wordis normally final. If all else fails, the extreme option is available to take the matter to theOffice of the President or to the courts for a presidential or judicial review. To file a bidchallenge, the appellant must pay at least one per cent of the approved budget for thecontract (Government of the Philippines, 2009). However, as pointed out by the WorldBank in its procurement report of 2008, neither the BAC nor the head of the procuringentity can claim to be impartial. From several pilot studies conducted after 2002, it wasfound “there are hardly any protests from the bidders, because of the restrictiveprovisions on protests and the lack of an independent review body”. For this reason theWorld Bank has called for the lowering of the fees for a bid protest and the setting up ofan independent tribunal with quasi-judicial powers outside the procuring entity toreview bid challenges (World Bank, 2008, pp. 23-4, 39, 62).

Conclusion: elite capture and informal influenceThe reforms discussed in this article were intended to create a system of publicprocurement in the Philippines commensurate with international standards, replacingwhat had hitherto been a highly wasteful, disorganised and corrupt system. They have


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been part of a wider reform agenda to upgrade standards of governance andadministration in the Philippines following the establishment of a democratic politicalsystem in 1987. However, the impact of the procurement reforms has been blunted bylimitations of certain provisions lack of effective implementation and weaknesses inthe accountability of procuring entities. The last two failings have been closelyassociated with widespread corruption.

The limited impact of the reforms may be explained by two features of governmentand administration in the Philippines highlighted in the analytical framework: elitecapture and the informal bureaucracy. Elite capture is reflected in the way the networkof business leaders from well-established landowning families in the Philippines areable to influence the making of policy and the day to day operations of governmentagencies to suit their interests. This has been made possible by their membership of orclose connections to the political establishment of congressmen, ministers and otherPresidential appointees, top bureaucrats, governors, and mayors. They have also beenable to exploit the informal character of the bureaucracy to ensure that ambiguousrules are interpreted, and legal impediments and official procedures are circumvented,with the intention of obtaining decisions in their favour’. The influence of the businesselite and powerful families over the government and the bureaucracy has beenhighlighted by Kang, Johnston and other authors (Kang, 2002, pp. 8-9, 63-4, 74-84,175-80; Johnston, 2005, pp. 136-44; Johnston, 2010, pp. 7-16, 40-1; Timberman, 1991,pp. 14-20; Franco, 2001, pp. 292-8). The importance of powerful family connections haslead Johnston to describe the domination of the business elite of government andadministration as “oligarch and clan” control.

Within the context of procurement, elite capture has meant that the network ofbusiness leaders continue to influence the registration of suppliers, the method ofprocurement, the drafting of specifications, tender evaluation criteria, the award ofcontracts, and the post-qualification process to ensure that the lion’s share of lucrativecontracts go to their companies. According to Campos and Syquia (2006) in their 2006World Bank paper on the political influences shaping the GPRA, such “vestedinterests” are “highly motivated and often tightly knit” in seeking to frustrateprocurement reform (p. 31).

Often the elite influence over the government and bureaucracy in general, as Johnstonhas pointed out, and procurement in particular involves corrupt practices, in the form ofcrony and nepotistic deals, bribery and kickbacks, and collusion. Such corrupt practiceshave proliferated due in part to the ability of the business leaders to stifle investigationsand prosecution proceedings. This reflects how far watchdog and enforcement bodiesthemselves have also been subject to elite capture, so undermining the system ofaccountability (Johnston, 2005, pp. 41, 136-44; Johnston, 2010, pp. 7-16, 40-1).

It may also be argued that procurement officials in the BAC’s and technical workinggroups have themselves been party to elite capture. As a result of deference to businessleaders from powerful families or their political associates, a fear of the consequencesfor resisting their demands in terms of career prospects, and a desire forself-enrichment through bribes and kicks back, procurement officials bend topressure in favouring companies in the elite network. For similar reasons, even seniorofficials in watchdog and enforcement bodies may be reluctant to expose anomalies inthe procurement process or take action against those involved. Illustrating suchinfluence, Transparency International in its report on the Philippines in 2006 cited

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evidence of officials in the Commission on Audit, who, when exposing corruption, aresubject to harassment or are re-assigned to other tasks. They are further demoralizedby the fact that most of their findings result in no action. One official was quoted asdescribing his colleagues in the Commission as “small people waging a war againstpolitical giants” (Quimson, 2006, pp. 23-4).

To redress elite capture, a significant change in the culture of the Philippinegovernment and civil service is required, whereby compliance to formal laws andregulations takes precedence over the informal influences exerted by the elite businessnetwork linked to powerful families. This in turn depends on the loosening of the holdof elite families with business connections on the political and economic life of thecountry, and a weakening of the ascriptive culture which foments deference to suchfamilies not least among officials in procuring entities and watchdog and enforcementbodies.

Also required is an increased role of civil society groups, and a commitment at thehighest reaches of government to stamp out corruption and ensure effectiveimplementation that goes beyond simple formal pronouncements. This includesprotecting the independence of watchdog bodies. Campos and Syquia (2006),identifying the conditions for effective procurement reform in their World Bank paper,referred to the need for a “a core group of dedicated individuals” at the highest levels ofthe Philippine government supported by “well-organised allies in civil society and thebusiness community” (p. 31). The chances of such conditions and changes occurring inthe foreseeable future, to reduce informal influences and elite capture, however,remains far from certain.

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About the authorDavid Seth Jones is a member of the Faculty of Business, Economics and Policy Studies,University of Brunei. He was previously Associate Professor in the Department of PoliticalScience, National University of Singapore and also an Adjunct Professor at SingaporeManagement University. His research specialisms are public management reform, publicprocurement and land policy, in which he has published widely. David Seth Jones can becontacted at: [email protected] or [email protected]

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