Mother of onerous contracts

President Duterte has ordered the review of all government contracts that are onerous to the Filipino people. He should begin with the mother of onerous contracts under his own administration — the procurement protocol for the China-funded projects for his flagship “Build, build, build” program.

In exchange for putting aside the arbitral ruling on the West Philippine Sea, President Duterte secured a $9-billion loan from China to fund infrastructure projects in the Philippines. Finance Secretary Sonny Dominguez explained the procurement protocol for this multipurpose loan: “Our protocol with the Chinese for the tied financing portions is for the Chinese government to propose three qualified bidders to us from whom we will conduct the bidding.”

We know that the Communist Party of China (CPC) controls all government agencies in China. Even the People’s Liberation Army expressly owes allegiance to the CPC, not to the Chinese state or its people. The few large private companies in China dutifully follow all instructions from the CPC which have Board of Advisers, composed of CPC members, in these private companies. When the Chinese government proposes three qualified bidders to the Philippine government, it is the CPC that decides who will be the three bidders.

In the Kaliwa Dam bidding, China submitted three Chinese contractors, namely: (1) the Consortium of Guangdong Foreign Construction Company and Yuantian Engineering Company (Consortium), (2) Power Construction Corporation of China (PCCC), and (3) China Energy Engineering Corporation (CEEC). The Manila Waterworks & Sewerage System (MWSS), which conducted the bidding, limited the bidding to these three Chinese contractors.

The first bidder, the Consortium, was disqualified because it did not submit the required documents, despite the clear instruction to bidders that failure to submit the required documents would result in disqualification. One of the two members of the Consortium is a state-owned company of China, while the other, whose ownership is not clear, has undertaken many projects for the Chinese government.

The second bidder, PCCC, a state-owned company of China, was also disqualified because it submitted a bid beyond the Approved Budget for the Contract (ABC). The instruction to bidders clearly stated that “Bids received in excess of the ABC shall be automatically rejected at the bid opening.”

The third bidder, CEEC, a state-owned company of China, submitted a bid just 0.08 percent below the ABC, or a bid of P12,189,893,798.70. Thus, the MWSS issued the Notice of Award to CEEC as the winning bidder.

The Commission on Audit (COA), in its Audit Observation Memorandum of the Kaliwa Dam bidding, stated: “In summary, it can be deduced that the two bidders/contractors were included merely to comply with the ‘at least three bidders’ requirement as stated under the Procurement Law. Likewise, the procurement of the project is with the semblance of a competitive bidding when in reality, it is a negotiated contract from the inception of the bidding process.”

In short, the COA saw the “reality”—that the bidding was a sham, which of course was obvious to everyone. The CPC, which controls the three bidders, already chose from the very start CEEC as the winning bidder and instructed the other two bidders to simply disqualify themselves. The bidding was lutong macau.

Our Procurement Law requires public bidding for all government infrastructure projects. This rule is subject to narrow exceptions, like in emergency cases, not applicable to the Kaliwa Dam bidding.

In tied loans from a foreign creditor state, the most that the President can do is to limit the public bidding to companies domiciled in the creditor state. There must, however, still be public bidding among the companies of the creditor state. The Philippine government must determine whether these companies are qualified or not. The government of the creditor state cannot choose, directly or indirectly, the winning bidder.

The procurement protocol for the China-funded infrastructure projects has spawned the sham bidding of the Kaliwa Dam project, whose cost is naturally overpriced in the absence of a fair public bidding. Other China-funded projects procured under the same protocol would also be overpriced.

President Duterte should order a review of this procurement protocol to protect the interest of the Filipino people. This procurement protocol is precisely the transaction characterized under the Anti-Graft Law as “manifestly and grossly disadvantageous” to the government and the Filipino people.

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