Note
from the PCIJ: What follows are excerpts from the “Record of
Interviews “ with some of the witnesses who met with the
investigators of the World Bank's anti-corruption unit, Department
of Institutional Integrity (INT). on the alleged fraud and collusion
in the National Road Improvement and Management Program-1 (NRIMP-1)
projects. The interviews were separately conducted between April
2003 and November 2006 in the Philippines, Japan and South Korea.
Date of
Interview
- 28 April, 2003
Interviewee/s
- William Paterson, lead highway engineer – World Bank East
Asia and Pacific region; task team leader for the Philippine
National Road Improvement Project Phase 1(NRIMP1)
- Denis Robitaille , regional procurement adviser
Interviewers
- Mike Richards and Athene Vila-Boteler
Paterson told INT about two incidents in the NRIMP1 that
caused him to believe there was collusive bidding in the project:
He had heard from 'informal sources' that government officials
usually took 3% of the contract value in kickbacks, but learned in
the discussions on five contracts for bidding, the demands had
increased to 10%.
He said the DPWH secretary who assumed power in January 2001 had a
'much better reputation for honesty' than his predecessor but the
replacement in January 2003 was “for the worse.”
The large variation in unit prices alerted him to the possibility of
collusion in the bidding. He noted overpricing of materials like
asphalt, which was around 50% higher than it should be. The cost of
concrete that should be around P700 to P800 per cubic meter was
charged P1,100 to P1,400 per cubic meter and the cost of clearing
and grubbing was charged P290,000 per hectare when it should only be
at P40,000 per hectare.
Paterson raises the possibility that the government, through the
DPWH, is actively involved in the collusive arrangements, noting
that the bill of quantity (BOQ) is not being reviewed. The excessive
pricing of materials, he noted, still conform with the Owners
Estimate that is held by the Bureau of Construction.
Paterson found it odd that two local senators have gone to the press
to announce the result of the bid evaluation even before the results
were published. One of the bidders was rejected because it submitted
bogus documents.
According to Paterson, he has “sources” who told him that DPWH
takes 10% while senators intend to get 10 – 15% cut of the
contract price.
The projects under suspicion of collusion are all in Mindanao.
Paterson noted that the DPWH secretary, his deputy, and the project
manager that time were all from Mindanao.
Paterson described his sources to INT, including their proximity to
the events at issue, but did not identify them by name.
Date of Interview
- 17 March, 2005
Interviewee/s
- William O. Paterson, task team leader
Interviewer/s
- Merly Khouw, Athene Vila-Boteler, Christian Kammer, Annie Yau
and
Thilda Outhuok
It was suggested that there be an independent analysis by an
engineer to benchmark the prices and check against excessive price
distortions. Paterson was asked if the Philippine President's
personal interest in the project was related to the alleged
involvement of her husband as alluded to in the complaint. He said
his impression was that it was not as the timing of the government's
complaint was circumstantial to the CG meeting in Mindanao, the
location for one of the road packages in question.
EC de Luna, considered as a fairly young contractor with good
connections at DPWH, did not qualify on its own merit so it had to
tie up with China Road for the 2nd bidding for the 1.6 package.
Date of Interview
- 3 August, 2005
Interviewee
- Shingo Nakamura, vice president, Yoshida Construction Co.
Interviewers
- Tim Carrodus / David Hawkes / Michael Kramer
Nakamura filed a complaint against
Eduardo C. de Luna and Augusto Miranda, alleging that the two
defrauded Yoshida by falsely representing E.C. De Luna as having
been already awarded the contract when in fact it had not. Nakamura
said he paid de Luna and Miranda P2 million (about $40,000) in
exchange for a P592-million subcontract on a World Bank-financed
project (NRIMP-1, CW-RU 1.6) in 2003.
The business environment in the
Philippines, he said, is “very dirty,” “as Japan had been 20
to 30 years ago.” All contract awards require “undertables” or
corrupt payments. A “syndicate” organized by de Luna with
Miranda, local politicians, and other bidders selects the winning
bidder or the “champion.” The champion then pays the losing
bidders one to three percent of the contract price.
Contract prices are inflated 25 to 35
percent to cover the cost of bribes that must be paid to various
parties, including First Gentleman Mike Arroyo, certain politicians,
DPWH officials and others. As a result, contractors must cut back on
quality and safety in the construction of roads.
Nakamura first met Eduardo De Luna and
Tito Miranda in 2002 through Yoshida’s agent, “Trix”Lim.
Yoshida signed a P592-million subcontract with De Luna in Feb. 2003,
and paid the $40,000 in cash in local currency in April 2003 to
Miranda. Miranda was always asking for contributions to the DPWH
Secretary and Mike Arroyo.
Yoshida paid a total of about P10
million to a variety of people: P100,000 for Sen. Barbers, P200,000
during Christmas, etc.
E.C. de Luna was Mike Arroyo’s man.
He travelled with Mr. Arroyo, the President, and Tito Miranda to
Japan. E.C.de Luna organized a syndicate to control the award of
contracts. Miranda is involved as an intermediary for Sen. Barbers.
All the companies that participated in
the preliminary qualification process had to be a part of the
syndicate, especially the Chinese and Korean. Members of the
syndicate – bidders, politicians, DPWH officials, Lim. De Luna,
and Miranda – would congregate at the Diamond Hotel every three
days to discuss the contract awards.
Contract prices were inflated 25- to
35- percent over the actual costs to generate funds for necessary
payments which included the following:
-
1 percent to the Malacanang Presidential Palace (Nakamura said this
meant the “Cabinet”)
-
5 percent to Senators (including Sen. Barbers and Sen Rebeira (Revilla?)
and his son) 5 percent to Mike Arroyo
-
1 percent to DPWH personnel
-
1 percent to DPWH director
-
3 percent to other local officials, mayors, etc.
·
Contractors also had to make payments of P100 to P300 to government
pay clerks. Inspectors were also paid relatively small amounts. Some
of the bribe funds came from the 15-percent mobilization payment to
contractors at the outset of the contract.
Nakamura introduced Mr. Suzuka of Suzuka Construction Co. to the
Philippines after Suzuka heard that it was easy to get contracts
because of the syndicate arrangement. Mr. Washo of EIWA Construction
was also introduced.
Date of Interview
- 5 August, 2005
Interviewee
- Tomatu Suzuka -president, Suzuka Construction Co. Ltd.
-
Masaki Suzuka – manager
Interviewers
- Tim Carrodus, David Hawkes and Michael Kramer
Suzuka's Philippine office ceased to have business involvement in
the Philippines after it had “various issues” three years before
the interview. Tomatu Suzuka cited the foreign exchange issues and
damage to reputation among the issues his firm withdrew from the
Philippines in November 2002.
He said he met with Senator Barbers and Mike Arroyo and “first
discussed bribes” but had a “rough approach.” He said he
“learned that money was important to do business in the
Philippines, which was a “fundamental difference in the way of
thinking.”
A certain Mr. Lim, Suzuka's agent, said Suzuka would have to pay to
get a contract, and that dollars would settle problems with the
World Bank. He mentioned 2 – 3% to obtain credit or financial
support.
Suzuka said he met Lim four years ago (2001) at Diamond hotel. There
were policemen and government officials present when they discussed
payments. A certain Tito Miranda was also with Lim's group. Suzuka
said he met Sen. Barbers separately. He said he thought Tito was a
secretary of Barbers. Tito asked Suzuka to pay for Barbers' trip to
Japan, but that he refused. He said local contacts introduced him to
Barbers.
He identified one Trix Lim as the person he was dealing with in the
Philippines.
Suzuka even recalled a meeting with Barbers on an island in the
Philippines while President Arroyo was delivering a speech and
welcomed the Japanese companies. He said he had no contact with
President Arroyo.
Suzuka said it was made clear to him that there would be no business
in the Philippines without paying money. Money would have to be paid
as high up as the president, senior government officials and
politicians in order to do any further business in the country. To
win a contract, it would also be necessary to pay the head of the
bureau (PMO?) and politicians several million yen.
Suzuka said he knew that the President's husband handles her
business, as what he had heard from local companies and the
consultant who prepared the documents for the bidding. However, he
said he had no specific information or any direct evidence of any
money being paid to somebody specifically.
When shown the bid documents for the contract, Suzuka said his
signatures were forged.
Date of Interview
- 8 August, 2008
Interviewee
- Kyung Hwan Ko – trade service department, Shinhan Bank
Interviewers
- Athene Vila-Boteles and David Hawkes (in Seoul, Korea)
Ko told the INT that the bid guarantees submitted by Dongsung
Construction Co. Ltd. were forged. The document was signed by one
Byung Jin Kim, a regular officer of the bank, not a general manager.
In addition, Ko said a signature by Shinhan staff on a document
would not be in Korean characters, but in English. The letter head
of the document was also not correct and that the bank guarantees it
issues do not have the guaranteed sum printed on the side. He said
the bank does not have a business relationship with Dongsung, which
had been bankrupt.
Date of Interview
- 8 August, 2005
Interviewee
- Young Min Noh – general manager, marketing division -Shingsung
Engineering and Construction Co.
Interviewers
- Tim Carrodus and Michael Kramer
Noh said he was not familiar with details of the company's
operations in the Philippines, having worked in the last six years
in the Middle East. His company received two World Bank contracts in
the Philippines.
Date of Interview
- 9 August, 2005
Interviewee
- Choong-Jo Oh, general manager- overseas civil project team, Daewoo
E&C
Interviewers
- Tim Carrodus and Michael Kramer (at Daewoo head office in Seoul)
Oh said he has heard about problems in the Philippines such as bid
rigging but has no personal knowledge about it. He said
infrastructure projects are simple and the Chinese companies are
very aggressive. Korean companies cannot compete in open tender
because of their wage rates and longer depreciation schedule –
Korean companies have 10 years compared to Chinese firms' four
years.
Date of Interview
- 9 August, 2005
Interviewee
- M. G. Kwon - overseas business department/ senior vice
president,
Hanjin Heavy Industries &
Construction Co. Ltd.
- Hyun Woo Ko, overseas business team manager
- B.D. Park, senior vice president -international finance
Interviewers
- Tim Carrodus and Michael Kramer (in Seoul, Korea)
Kwon and Ko both said they have never heard of Suzuka Construction.
The Philippine road construction market is difficult for Korean
companies. The Chinese companies are 'quite aggressive' while the
local companies have political connections.
Date of Interview
- 15 August, 2005
Interviewee
- Min Young Lee - general manager, Dongsung Construction Co. Ltd,
Manila
- Angelico “Bong” Teraga - office engineer/project coordinator
Interviewers
- David Hawkes and Athene Vila-Boteler
Dongsung Construction was one of the losing bidders in the second
round of bidding for contracts 1.4B and 1.6 of NRIMP-1
INT found Dongsung's bid security was forged. Teraga and Lee
acknowledged having prepared the bid documents for both contracts,
but said the Shinhan Bank bid securities came from the head office
in Korea.
Date of Interview
- 17 August, 2005
Interviewee
- Oscar Mercado, vice president – marketing and engineering,
EEI Corp.
- Ferdy M. del Prado, group manager – marketing and proposal
Interviewers
- W. Michael Kramer and David Hawkes
EEI does not usually take part in DPWH controlled projects because
of the bad reputation of DPWH and because of the perceived system of
collusion governing awards. EEI took over from Philrock, Inc.'s
contracts with DPWH. It participated in the 1.4B and 1.6 contracts
in joint venture with Hanjin.
Date of Interview
- 18 August, 2005
Interviewee
- Manuel M. Bonoan, undersecretary - DPWH
- (Raul) Asis, assistant secretary
Interviewers
- Tim Carrodus and Athene Vila-Boteler (at 17th floor,
Shangri-la Hotel, Manila)
Undersecretary Bonoan acknowledged the existence of a major problem
in the bidding for WB-funded road projects. He said, “We know they
are doing it. We know that they are talking to each other, we can
see the pattern, but we don't know how to document it.”
He said collusion has been talked about a lot, but DPWH have
problems documenting it. The interference of politicians, he said,
is “where the problem begins.” He told the INT, “We know
all these things; everybody demands money from the contracts so the
contractors have to recoup by increasing prices.”
Date of Interview
- 18 August, 2005
Interviewee
- Engr. Lambert Lee, president, Cavite Ideal
Interviewers
- W. Michael Kramer and David Hawkes
Gist
- Lee denied the existence of a syndicate and the rigging of bids.
Later in the afternoon, he called Athena Vila-Boteler of the INT to
request for a second meeting and said the idea of the existence of a
syndicate insulted him deeply.
Date of Interview
- 19 August 2005
Interviewee
- Fu Yu Cheng, president- China State (Phils) Construction and
Engineering Co.
Interviewers
- Tim Carrodus and Michael Kramer
Fu, who had spent eight years in the Philippines, told INT that it
was difficult to do business in the country, particularly in public
projects. He noted that China State had withdrawn from Packages 1.4B
and 1.6, but refused to explain why. He said no one gave him a price
to bid as a losing bidder; neither was China State paid to lose a
bid.
Date of Interview
- 1 November, 2006
Interviewee
- S.J. Kim, general manager-civil department
Heunghwa Industry Co. Ltd.
Interviewers
- Tim Carrodus and Edil Dushenaliyev (in Seoul, Korea)
Heunghwa submitted bids for the 1.4B and 1.6 contract packages, but
was found ineligible to bid. The INT found that unusual, given the
size of the company and its capacity to bid for large-value
contracts. The DPWH cited the company's lack of experience in
construction projects.
Date of Interview
- 1 November, 2006
Interviewee
- Kuk Jung-Soo -deputy general manager, Keangham Enterprises Ltd.
Interviewers
- Tim Carrodus and Edil Dushenaliyev (in Seoul)
After INT explained its findings of collusion in biddings, Kuk said
that the business environment in the Philippines is difficult and
that Keangham intend to withdraw from the country. The company is
unprofitable, he said.
One of the biggest problems, according to Kuk, is that the length of
the roads put up for
bidding is too short to be commercially feasible for the company.
The scope of the road construction
could be initially 100 kilometers and the value of the contract
could be up to $60 million, but when the company
buys bidding documents, the length of the proposed road becomes just
20 kilometers.
The company most likely withdrew from the bidding not because of
collusion, but because of lack of profitability. Kuk, however, did
not rule out that the firm could have withdrawn
because of corruption.
Date of Interview
- 2 November, 2006
Interviewee
- Young-Myung Noh – general manager, marketing division –
Shinsung Engineering & Construction Co., Ltd.
Interviewers
- Tim Carrodus and Edil Dushenaliyev (in Seoul, Korea)
Noh mentioned that the company's former branch manager in the
Philippines had left the Philippines under difficult circumstances
but he refused to provide the manager's contact information. He said
he was not aware of the details of his company's bids in the
Philippines, but had been told of collusion where companies were
told to put in a bid even if they were going to lose. He said his
company reluctantly participates in such tenders because it did not
want to be blacklisted informally from future bidding by the DPWH.
INT wanted to find out why Shinsung withdrew from the second round
of bidding for package 1.4B and discuss the contract it won for the
rehabilitation of the Buug-Kabasalan section of the
Zamboanga-Pagadian road. The company had been implicated in
collusion on both projects.
Date of Interview
- 2 November, 2006
Interviewee
- O.Y. Kwon - general manager, overseas civil team-Daelim Industrial
Co. Ltd.
- Hun-Tak Kim- general manager , overseas civil engineering
department
Interviewers
- Tim Carrodus and Edil Dushenaliyev (at the company's office in
Seoul)
Kwon and Lim told the INT that Daelim never took part in a collusive
scheme and that the company was involved only in plant building and
operations projects in the Philippines. They said there are many
powerful people around the President of the Philippines who
determine the outcome of bidding on road contracts. Because of that,
Daelim does not participate in road tenders. Daelim withdrew from
the first round of bidding for the 1.4B project because they could
not accept a proposal from a powerful man. However, he did not know
the name of that person whose supposed agent contacted the company's
representative at his hotel in Manila and offered his services to
win a package, in exchange for an unsolicited bribe of an
unreasonable amount. Kim said he did not know the powerful people
behind the road projects, but assumed they could be retired
generals.
Date of Interview
- 2 November, 2006
Interviewee
- Pan-Seop Lim -team manager, Daewoo E&C
- Eun-Yong Chang - assistant manager, overseas sales and
marketing team
Interviewers
- Tim Carrodus and Edil Dushenaliyev (at Daewoo's head office in
Seoul)
Lim said he had little knowledge of the details of the allegations
of collusion in the bidding of the Philippine road projects. He
expressed surprise about bidding pre-arrangement and high level
political interference in the WB-financed project. INT said
Daewoo could be implicated and that the meeting was an opportunity
for them to cooperate by responding to its findings of collusion.
Lim said he was not involved in the bidding preparation and that he
was not the right person to be asked why the company did not
participate on a contract. Lim said the company's involvement
in the alleged collusion was insulting and that he was not prepared
to hear that.
Date of Interview
- 3 November, 2006
Interviewee
- Hyun-Woo Ko – manager, Hanjin Heavy Industries
- Nack-Young - deputy manager, overseas business marketing team
Interviewers
- Tim Carrodus and Edil Dushenaliyev (in Seoul, Korea)
Hanjin placed bids for two packages, one in joint venture with EEI.
Both packages were re-bid three times, and the analysis of the bids
had shown collusion in the process, with senior level government
officials allegedly involved in pre-arranged procurement.
Ko said the competition was very strong in the Philippines and that
he was not aware of any cartel operating in the country.
Date of Interview - 3 November,
2006
Interviewee
- Jeong-Sam Kim – team manager, overseas operation team
– Sammi Construction Co., Ltd
- Jae-Yong Heo – department manager, civil engineering team
Interviewers
- Tim Carrodus and Edil Dushenaliyev (in Busan, Korea)
INT indicated that Sammi could be implicated in collusion in the
third round of bidding for contract packages under NRIMP 1 project
in the Philippines. Sammi bid for 1.6A and 1.6B contract
packages, but was unsuccessful.
Kim told the INT that he heard from the Manila branch office that
corruption was a very serious issue in the country, but he said the
company never paid a bribe. The company did not win a single
contract although it pre-qualified for four packages under the NRMP
1. He said Chinese companies were acting aggressively in the
Philippines, driving the costs extremely low and squeezing out their
competitors. For this reason, only a few Korean companies compete
with the Chinese on the same tender.
While saying that the company prepared its bid independently of
other bidders, Kim admitted to INT that his company had to
participate in a collusive scheme out of a concern of being
blacklisted and denied future work from DPWH.
Date of Interview
- 7 November, 2006
Interviewee
- Yu-Tae Kim – director/authorized representative, Manila branch
office-Sammi Construction Co., Ltd
Interviewers
- Terry Matthews, Tim Carrodus and Edil Dushenaliyev
Kim told the INT that he heard from third parties about
“unordinary” bidding on the NRIMP packages. He denied that his
company was told to put in a losing bid. When told of possible
consequences Sammi may face in case of non-cooperation, Kim started
to show signs of anxiety and stayed nervous through the rest of the
interview, according to INT. Sammi had the highest bid for both the
1.6A and 1.6B packages. INT said the proposed winner was known
one week before the opining of bids. Kim explained its bids were
very high because it incurred huge expenses to establish its Manila
office but it had to participate in the bidding so as to stay
visible in the DPWH radar and not be excluded from future biddings.
Date of Interview
- 7 November, 2006
Interviewees
- Xie Wen Peng, general manager, China Wu Yi Co. Ltd.
- Wu Yi Bao -deputy general manager
Interviewers
- Tim Carrodus and Edil Dushenaliyev
Xie said nobody called or exerted pressure on the company and that
it was usual among Chinese companies to call and ask each other
whether they are going to but. However, they never shared their bid
price with others. He denied paying money to secure the contract.
But he sometimes gave Christmas presents and invite project
officials over lunch or dinner. He said he could not complain about
the business environment in the Philippines and noted it is no
different than in other countries.
Date of Interview
- 8 November, 2006
Interviewee
- Suh Seung Wong – general manager, Sinsung Engineering &
Construction Co. Ltd.
Interviewers
- Terry Mathews, Tim Carrodus and Edil Dushenaliyev
Wong said he had been in the Philippines for 15 years and found it
very difficult to do business in the country. He said some
corruption exists, but that he had no evidence to corroborate it. He
said he encountered corruption only with the traffic police. He said
Shinsung withdrew from the second round of bidding for the 1.4B
package because the head office in Korea failed to provide a bid
security on time and that the project would overlap with other
projects of the company.
Date of Interview
- 8 November, 2006
Interviewee
- Kim Won-Ho - general manager-Manila branch office, Daewoo
E&C
Interviewers
- Terry Matthews, Tim Carrodus and Edil Dushenaliyev (in Manila)
Kim recalled that a local politician made him attend a hearing in
Congress involving Daewoo's subcontractor on the Halsema project in
Benguet. He said the politician probably wanted to get a portion of
the contract to be assigned to a local subcontractor in the area. He
said it is a practice in the country for local contractors and
government officials to ask to be included in the contract with
international companies. Kim said Daewoo could have been
disqualified in the 2005 pre-qualification bid for the 1.4A and 1.4C
contract because of the INT's suspicion that it did not want to be
part of the collusive scheme on the two packages.
He said local politicians have a vested interest in having large
value contracts sliced into smaller package for re-election
purposes, and that some, but not all, of the politicians may extract
money from smaller contractors to fund their re-election campaigns.
Asked what he knew about EC de Luna Construction, Kim said a person
he refused to name told him that EC de Luna could be involved in
bidding pre-arrangements and that the Bank's investigation was
triggered by a congressman who wrote a letter to the DPWH.
Date of Interview
- 8 November, 2006
Interviewee
- Li Peng, general manager-China Geo-Engineering (Phil) Corp.
Interviewers
-Terry Matthews and Tim Carrodus
Li talked about payment of revolutionary tax to NPA rebels. “The
NPA demand a revolutionary tax in order that you can work and
protect your machinery and workers. If you have a contract in their
areas you have to negotiate. A fee is fixed. If you disagree, then
you are summoned by a NPA liaison officer t a meeting, blindfolded
and taken to a mountain area and there you meet the NPA people who
tell you what the fees or revolutionary taxes are. If you don't
accept you get a bullet in a letter, then a bullet.”
Li also said there were instances when he had to talk to the mayor,
governor and congressman to do work in their areas, to be allowed to
use the roads. “If you do not cooperate with these politicians,
they arrange for your contract to be terminated and rebid and so
on.” He said he had to pay “protection fees or commissions” to
do work in the project sites.
“Japanese, Korean and Chinese all bid low, then transfer the risk
by selling the contract on for a management fee, they do not do the
work they win the contract by diving low and then sell to local
contractor or a stranger. There are some Chinese companies, no
qualifications bid very low and sell to Korean and Chinese. The one
who does the work gives fee –maybe 8% of contract price. The
project suffers and the contractor who buys has a loss.”
Li said he “paid some money,” 10 percent of contract price, to
Sen. Barbers and Tito Miranda who promised to help him. He said he
had also talked to Congressman Pichay and asked him if he could
assist in getting the contract.
The protection fees or commissions are booked as consultant's fee,
legal expenses or even donations.
Date of Interview
- 8 November, 2006 and 15 November, 2006
Interviewee
- Noelito D. Policarpio, R.D. Policarpio & Co., Inc.
[Philippines]
Interviewers
- Terry Matthews, Tim Carrodus, and Tom McCarthy (11/08/06)
- Tim Carrodus, Tom McCarthy, and Edil Dushenaliyev (11/15/06)
·
R.D. Policarpio & Co., Inc. (Policarpio Co.) participated in the
NRIMP project in the following packages: 1.4A, 1.4C and 1.4B (third
round).
·
The involvement of politicians in the awarding of contracts had
increased, said Policarpio. In many instances, politicians organize
biddings and contractors work together to set how bidding process
will turn out.
·
Contractors obtained the price of the contract by paying bribes to
individuals of the implementing agencies. All the bidders would then
coordinate which contractor would win the bid. This is referred to
as the “standard operating procedure” or “S.O.P.”
·
Now, however, politicians heavily influence the S.O.P. by supporting
particular contractors. A politician’s support is obtained through
a sort of an auction where the contractor willing to pay the highest
price gets the necessary political support. This system favors the
rich, foreign contractors who can outbid local firms.
·
Policarpio stated that the contractors have had to take part in the
corrupt scheme in bidding on all projects in the Philippines that
are funded by the World Bank, JBIC, and ADB, as well as locally
funded projects.
·
National Road Improvement and Management Project:
-
Packages 1.4A and 1.4C
-
Policarpio explained that the government rejected the application
because it could not supply the proper quantity/quality of cement.
This, Policarpio said, was merely a pretext, used to make sure that
his company did not “play the game.” INT understood this as his
company’s exclusion from the bid collusion that would be
formalized by the bidders.
-
Pre.-qualification, according to Policarpio, is based on “who you
know” – not experience. The company had to be close to certain
government officials and politicians. If the company does not
cooperate, they can “kick you out.”
-
Package 1.6 (First Round)
-
INT asked Policarpio why his company withdrew from the bidding even
if it was pre-qualified. He said he “just didn’t have the
time.”
-
INT also asked Policarpio if the reason for his withdrawal was
because he knew that he was not going to win so he just gave up
early. Policarpio did not agree with this. But he admitted, “they
tell me how to bid.”
- The ABC’s of the
Collusive Bidding Scheme
-
The bid collusion involves an entire plutocracy, according to
Policarpio. “We will talk to each other, and decide who will get
the contract. Sometimes will (agree to) have a small contractor get
pre-qualified for strategic reasons.”
-
Policarpio knows that Tito Miranda and Boy Belleza both actively
work to manipulate bidding. He said that Eduardo de Luna is
“behind” Tito Miranda and “Mr. A” is “behind” de Luna.
Mr. A is Mr. Mike Arroyo, Policarpio said.
-
Policarpio said that de Luna takes an active role in arranging
collusive bid schemes in behalf of contractors and politicians. The
late Senator Barbers used to be active in using his influence to
participate in collusive bid schemes. These activities are now
continued by the Barbers sons. Senator Barbers initially used Tito
Miranda to arrange his schemes, but later on used de Luna.
-
Miranda realized that de Luna is very close to Mr. Arroyo, and
has now formed a partnership with de Luna in making arrangements on
collusive schemes in behalf of the Barbers sons.
-
Mr. Arroyo is very powerful and places officials in positions, and
these officials do what he wants. Policarpio also said he does not
believe that Mr. Arroyo’s wife is aware of his corrupt actions.
-
In large government projects, Policarpio said that the process is
completely fixed. Prices and winners and losers are determined
before the bidding even takes place. Foreign contractors approach
politicians and outbid the Philippine companies.
-
Policarpio explained that before, contractors would meet among
themselves but now, the decision regarding who will win the contract
is made not by contractors but by politicians through the results of
the “influence action” system.
-
Losing bidders are paid off by the winning bidder. Politicians would
then receive their S.O.P. monies from the contractor’s advance
payment, in accordance with the percentage that they have previously
negotiated on. Two politicians are usually involved: the politician
whose area is hosting or affected by the contract and the politician
who controls the implementing agency.
-
For the collusive schemes to work, Policarpio said that the
implementing agency must work with the scheme. The DPWH Secretary
exercises a very large influence on the schemes and plays a
significant role in their success.
-
All payments are paid in cash.
-
Meetings take place at the Diamond Hotel and at a hotel near the
U.S. Embassy in Manila. The last meeting Policarpio attended was two
weeks ago (check date of interview) at the Diamond Hotel to fix the
bidding for a JBIC-funded project.
-
INT asked Policarpio how he accounted for the S.O.P. payments in his
company books. He said he does not worry about accounting for the
payments because the company books are all “faked” anyway to
avoid taxes.
-
INT also asked Policarpio what would happen if he refused to
participate in the collusive bid schemes. Policarpio said if he does
participate, “they” would try to do something to eliminate his
company from bidding in future contracts.
-
Policarpio Co. prepares two bids when tending for a contract: one
that conforms with the collusive scheme and one that is a
legitimate, “commercial” bid to be submitted in case the
collusive scheme falls apart prior to bid submission. Policarpio
said he would make the decision as to which bid to actually submit
the day before the bid submission deadline.
-
The joint bid submitted by Policarpio/Pancho/Sebastian joint venture
in Package 1.4B on August 8, 2006, was part of a collusive bidding
scheme, said Policarpio. Prior to the preparation of the bid, he had
a telephone conversation with Clemente Pancho, vice-president for
Business Development of the Pancho Co. Pancho informed him that he
had received the fixing price from the “arrangers” and that he
would prepare the bid to reach the predetermined price.
-
Consequently, Policarpio understood that the bid was not going to
win and that it was not prepared to win.
-
In a follow-up interview on Nov. 15, 2006, INT asked Policarpio if
he was aware if there was a collusive bidding arrangement in the
first round of bidding of Package 1.6, where the JV prequalified but
withdrew from bidding process. “All bids are fixed,” said
Policarpio, noting that the JV in which he was bidding was a
designated loser in the scheme.
-
INT asked him why the JV withdrew from bidding. Policarpio said that
many times participants in the schemes would decide that they do not
have – or unwilling to devote – the resources and time necessary
to prepare the bid package since they know that they are going to
lose anyway. The JV withdrew because the companies did not have the
time to put together a bid at that time which they knew would be
unsuccessful.
-
Policarpio also informed INT that he did not understand why the DPWH
did not use the ABC formulated by the consultants and used instead
used the ABC formulated by its staff. He believes that the ABC’s
used in these projects are routinely unrealistic.
Date of Interview
- 9 November, 2006
Interviewee
- S.Y. Yoon - commercial and marketing manager, Hanjin
Interviewers
- Tim Carrodus and Terry Matthews (in Manila)
Yoon said Hanjin's bid was higher than that of the winning bidder
because Hanjin employs Koreans for its projects while local
companies use local labor, which is considerably cheaper. In recent
times, he said Hanjin decided not to participate in bidding for IBRD
projects because of too much competition. He said his company has
interest in water-related projects.
Date of Interview
- 9 November, 2006
Interviewees
- Xu Gian -CEO/GM, China International Water and Electric Co.
- Jiang Xiao Hua - chief engineer
Interviewers
-Tim Carrodus, Terry Matthews and Duncan Smith
Xu described the Philippines as “not so easy.” He said that when
he took over from the previous general manager in the country, he
found the company's finances “very tight,” the material prices
were higher, and prices were manipulated by local people, making it
difficult to negotiate prices.
He agreed with INT that one of
the big problems in the Philippines was the politicians. XQ
admitted going “sometimes” to meetings of contractors at the
Diamond hotel but said he preferred to keep “clean hands.”
Xu said he knew Senator Barbers and met him in 1994 but only as a
courtesy and never talked about projects. According to him, it was
necessary to “know people” and keep them “happy.” The
local contractors had to pay money to politicians.
Date of Interview
- 9 November, 2006
Interviewee
- Man-Tae Kim -Keangham Enterprises, Ltd. (Korea)
Interviewers
- Tom McCarthy and Edil Dushenaliyev (in Manila)
Kim explained that the company couldn’t compete in the Philippines
primarily because the market had
many Chinese firms bidding on projects so low that Keangnam cannot
get contracts. He also said it
is difficult to operate in the Philippines because the government is
not “clean.”
The company has had continuing problems in taxes, which are unclear
and too high. According to Kim,
employees in the Philippines have “a difficult attitude” and are
“always striking.”
Date of Interview
- 9 November, 2006
Interviewee
- Junshi Liu, general manager, China Harbour Engineering Co.
(ML
China)
Interviewers
- Tom McCarthy and Edil Dushenaliyev
The company merged with China Road and Bridge Corp in August 2005,
and had changed its name to China Communications Construction
Company, Ltd.
It failed to pre-qualify in six packages, pre-qualified but withdrew
from bidding in August 2006 on Package 1.6A and pre-qualified and
lost in the bidding for Package 1.6B.
Liu described the Philippine government as being “very
bureaucratic” on payments and, at time, payments were withheld
pending requests for gifts. He found it odd that the government does
not favor local contractors. Liu emphasizes the importance of having
a good relationship with the DPWH in bidding for projects. But
he denied involvement in any discussions with other contractors to
arrange bidding, or pricing. He said he had no knowledge of other
contractors working together to fix bidding or prices. However, he
said there were informal discussions between contractors prior to
submission of bids “to exchange views and lessons learned,
informally and privately.”
Date of Interview
- 10 November, 2006
Interviewee
- Pil Koo Kang - general manager-Manila, Heunghwa Industry Co. Ltd
(Korea)
Interviewers
- Tom McCarthy and Edil Dushenaliyev
Heunghwa submitted to be pre-qualified in a joint venture with EC de
Luna but was not pre-qualified for packages 1.4C, 1.4B(1st) and 1.6
(1st); and for 1.4B (2nd) and 1.6 (2nd).
Kang said his company has not bid on IBRD-financed projects because
it has no chance of winning the contracts. He said he had heard
rumors about IBRD-financed projects in the Philippines, that the
contractor has to be connected to many people to win contracts.
“We are weak, in that sense and do not know the people you need to
know to get the contracts.”
He said the contractors must have connections to government
officials, and to agents, or messengers of the government officials.
He said there are arrangements made between top government officials
and contractors to win contracts. He suggested that INT investigate
the winning bidders and talk to the losers “because they always
have something to say.”
Kang said he had heard of Tito Miranda and Boy Belleza as agents or
messengers for top government officials in arranging bidding on
contracts. He confirmed that contractors meet with agents and
messengers of government officials before the bidding in order to
fix the contract tendering process. Kang said he was told that to
get contracts, he has to form a relationship with Eduardo de Luna
who was supposedly very close to a top government official. He
described de Luna as president of a construction company who is very
active in making arrangements between government officials and
contractors on contracts. He said de Luna wins contracts with
Chinese contractors.
Kang identified the government official that de Luna was connected
to as Mike Arroyo, through de Luna's father-in-law. He admitted that
he never participated in any of these dealings and that his
knowledge were based on what Kim, his predecessor, had told him and
on rumors.
Date of Interview
- 10 November, 2006
Interviewees
- Wen Yuegang, general manager/senior engineer, China Road and
Bridge Corp.
- Xiong Shiling, deputy general manager
Interviewers
-Terry Matthews, Tim Carrodus, Duncan Smith and Edil Dushenaliyev
Yuegang said the Philippines was “not an easy place” to work,
with NPA and local armed gangs confiscating or restricting access to
equipment, and forcing them to pay money. (CRBC's equipment was
burned twice and work forced to be stopped by local armed people.
He denied being instructed by others to put
in a specific bid price and stressed that the company's policy is to
set its price at a level so that it will not make a loss. He said
his company had never been asked to join a collusive group.
Date of
interview
- 13 November, 2006
Interviewee
- Gerardo V. Pancho, president, C.M. Pancho Construction, Inc. (Phils.)
-Clemente
V. Pancho, vice president-business development; head, estimating
department
Interviewers
- Tim Carrodus, Edil Dushenaliyev and Tom McCarthy
Gerardo Pancho told the INT that the company experiences problems
when it competes against foreign contractors, which are able to
outbid his company. The Chinese companies are competing unfairly
against other companies by using the influence of local
politicians...using the names of politicians. His company does not
need any political support even if has a relative who is a
congressman (Pedro Pancho of Bulacan). He says his company
does not believe in giving money to politicians, and then getting
the money back from the project.
Date of Interview
- 15 November, 2006
Interviewee
- Panya Visetnut - operations and country manager,
Italian-Thai Development Public Co. Ltd (Thailand)
Interviewers
- Tim Carrodus and Tom McCarthy
The company failed to pre-qualify in six packages and pre-qualified
in three others but lost in the bidding.
Panya said it was difficult to do business in the Philippines as a
foreigner, and that foreigners themselves present tough competition.
He said that while his company could outbid the Japanese firms, he
could not submit bids lower than the Chinese companies who can offer
lower prices because they are subsidized by the Chinese government.
On the alleged collusion in WB-funded projects, Panya said his
company was “ignored” and was never offered a chance to
participate in the collusive bid schemes. He complained that the ABC
used by the government is unrealistically low, and does not take
into consideration special costs such as the revolutionary tax paid
to rebels groups.
Panya said Boy Belleza once offered to do 'follow up' services for
him for a fee. He denied participating in any collusive bidding
schemes or engaging in any arrangement with any other bidder or
participating in meetings to designate the winning bidder.
Date of Interview
- 17 November, 2006
Interviewee
- William (Bill) Paterson, former task team leader East Region, now
based in Hanoi, Vietnam
Interviewers
- Tim Carrodus, Edil Dushenaliyev, Duncan Smith, Thomas
McCarthy and
Richard Leonard
Paterson explained the circumstances leading up to the award of the
contracts for NRIMP1 projects.
Date of Interview
- 21 November, 2006
Interviewee
- Edward C. de Luna, EC de Luna Construction Corp.
Interviewers
- Tim Carrodus and Edil Dushenaliyev
EC de Luna, in a joint venture with China State, was a proposed
winner on one of the contract packages but the World Bank did not
concur with the DPWH recommendation. De Luna said he did not
participate in the third round bidding for the contract because he
did not want to lose money again. He said he 'hates' politicians. He
has to pay them and cannot do anything about it. Some politicians,
but not all, want to get a share of contracts in certain areas of
the country. Asked of his personal experience with politicians, he
said he had to hire local subcontractors connected to politicians in
some areas. He likened politicians to the NPA rebels extorting money
from contractors. But he denied paying politicians. According to
him, politicians meddle in locally funded projects, but not on
foreign-funded projects because foreign companies fight back if
politicians tried to get a cut out of them.
De Luna denied any involvement in bid collusion. He said one of the
losing bidders told him about the alleged collusion. But he did not
mind it, thinking that losing bidders in the Philippines always
complain about winners and get involved in an intrigue. He admitted
knowing Tito Miranda, who coordinates the Philippine-Japan Highway
Loan Project of the DPWH, and that he has one contract under the
PJHL. But he said he did not know Boy Belleza, an assistant director
of Region 4A of the DPWH.
Date of Interview
- 21 November, 2006
Interviewee
- Federico S. de Vera - sales supervisor- marketing department, EEI
Corp.
- Christopher 'Peng' F. Esguerra, sales supervisor
Interviewers
- Tim Carrodus and Edil Dushenaliyev
De Vera said EEI felt it would not able to meet the
pre-qualification criteria, so it entered into a joint venture with
Hanjin. In bidding, he said the price is kept confidential before
its submission, with very few people in the company knowing about
it. Neither de Vera nor Esguerra knew about the alleged bid rigging
or the contractors' meeting at Hyatt or Diamond hotels before the
bid opening to designate the winners. Both also said they know
either Tito Miranda or Boy Belleza.
The EEI officials said there was a delay in the payment of the
P43-million locally-funded Pila-Kalayaan project because of a
politician who wanted to get subcontracting work for a local company
in his area. They said they did not know if money was given to the
politician. Esguerra said he was not aware of any politician asking
for a kickback from EEI. Inc as when a local politician expresses
interest, EEI can subcontract some work, provided the subcontractor
can meet EEI standards.
Date of Interview
- 21 November, 2006
Interviewee
- Rodolfo J. Corpus, former account of Daelim branch office in
Manila
-
R.S. Corpus & Associates
Interviewers
- Tim Carrodus and Edil Dushenaliyev
Corpus said he was not familiar with the details of Daelim's bidding
for the World Bank projects. But having worked for many years at the
Construction Development Corporation fo the Philippines (CDCP), he
told the INT that he had witnessed the corruption that attended
infrastructure projects. He said a third of the project money is
lost to corruption of government officials and politicians. He said
congressmen would immediately ask for 10 percent of the contract
amount, especially on locally-funded projects. World Bank projects
are no exemption to this. He said collusion is widely known in the
construction community and that it involves all parties, including
politicians, government officials, bidders, auditors and officials
of the Commission on Audit who get one to two percent of the
contract amount. He described DPWH officials as hatchet men or pawns
who pull the strings. Contractors who do not participate in the
collusive scheme do not get any contract at all. He likened the
system to an organized crime where winners are known before the
actual bidding could take place.
Corpus said corruption starts from the top, and is a by-product of
the political system. He mentioned that Mrs. Arroyo appoints retired
generals to top and juicy government positions to buy their loyalty,
citing the secretaries of transportation and public works among
retired generals who were appointed to plum civilian posts.
Date of Interview
- 21 November, 2006
Interviewee
- Petronilo Sebastian -P.L. Sebastian
Interviewers
- Tim Carrodus and Edil Dushenaliyev (at EDSA Shangri-la Hotel)
·
Sebastian denied submitting a pre-arranged bid for the 1.4B package
in a JV with Policarpio and C.M. Pancho and that each contractor
submitted its own bid. He did not recall making any side payments to
politicians or government officials. But the situation with the NPA,
he said, is different. He called them extortionists. He has to pay
otherwise the NPA will burn the equipment.
·
He had experienced some level of corruption but refused to speak
further. He said it involved certain government officials and added
that INT should understand his position. Contractors who do not obey
the system will be disqualified or face other sanctions. “You know
what I mean,” he said.
Date of Interview
- 22 November, 2006
Interviewees
- Xie Wen Peng - general manager, China Wu Yi Co. Ltd.
- Wu Yi Bao -deputy general manager
Interviewers
- Tim Carrodus and Edil Dushenaliyev
Xie and Wu denied being asked by politicians or government
(officials) to make illicit payments. Wu said that if they had done
so, they would have been immediately fired by their head office
management. Peng said he believed that some disgruntled losing
bidders were not happy with the results of the third round (of
bidding) and probably complained to INT. He said local contractors
always do “such kind of talk.”
Date of Interview
- 22 November, 2006
Interviewee
- Clemente V. Pancho, VP – CM Pancho Construction, Inc.
Interviewers
- Tim Carrodus and Edil Dushenaliyev
Clemente Pancho said his firm, as the lead partner in the joint
venture with Policarpio and PL Sebastian on the 1.4B package, was
responsible for the bid preparation, including site visit and cost
calculation. The joint venture was formed to meet pre-qualification
requirements that were discriminatory against local contractors and
favored foreign contractors. Pancho said neither he nor any of his
staff attended the Nov. 7, 2006 meeting of the contractors at Hyatt
Hotel supposedly to designate CM Pancho as winner in the bid for
1.4.A.1 contract. Pancho said it was unfair to implicate his
company in collusion based on INT's source and suggested that the
source file a complaint to the DPWH or the Ombudsman.
Pancho complained to INT that nobody checks the accuracy of the
papers submitted by the Chinese contractors and certified by the
Chinese embassy in Manila. He said he was not aware if the Chinese
companies made illicit payments to politicians or government
officials. The Chinese companies can afford to bid at a loss because
they are subsidized by their government.
Date of Interview
- 23 November, 2006
Interviewee
- Kim Won-Ho, general manager-Manila branch office, Daewoo E&C
Interviewers
- Tim Carrodus and Edil Dushenaliyev
Kim said Daewoo was not at any point in time under pressure from
DPWH to submit a bid out of fear of being sanctioned. He said the
company withdrew from the second round bidding for the 1.4B package
because of tougher competition from the Chinese and manpower
problems. And having heard of the INT investigation of alleged
collusion, the company did not participate anymore in the third
round bidding.
Date of Interview
- 23 November, 2006
Interviewee
- Manolito Madrasto - chief operating officer, permanent secretariat
-- International Federation of Asian and Western Pacific
Contractors' Association
Interviewers
- Tim Carrodus and Edil Dushenaliyev
IFWAPCA is made up of builders' associations in 15-member countries.
Madrasto told the INT, “Those who don't cheat are penalized by the
ones who do.” He said any sanctions against contractors
should be made with due process and that contractors accused of any
wrongdoing should be afforded the opportunity to defend their
actions.
He said corruption in the Philippines starts with locally-funded
projects and has expanded to internationally-funded projects. He
noted that at the local level, the local politician decides
who wins. If an international contractor wins, there will be local
subcontractors suggested by the local politician. He said he is
fully aware of the collusive and corrupt system in the Philippines.
According to him, some contractors were threatened physically during
the third round of bidding for the packages CW-RU-1.4B , 1.6A and
1.6B where everybody knew who was going to win.
Madrasto estimates that 40 percent is added to the cost of a
contract to facilitate payments to the politicians.
He said EC de Luna and J.D. Legaspi are connected to the 'first
gentleman' and they brag about this relationship; RII Builders and
310 Construction are connected to former president Fidel Ramos while
J.M. Luciano Construction is connected to a congressman.
Date of Interview
- 23 November, 2006
Interviewee
- Yoon Choi -estimation manager, Hanjin
- Jong II Eum, operations manager
Interviewers
- Tim Carrodus and Edil Dushenaliyev (in Manila)
Mr. Choi explained the process the company undertakes in bidding for
contracts.
Date of Interview
- 24 November, 2006
Interviewee
-Junshi Liu, China Harbor Engineering Company
Interviewers
-Tom McCarthy and Edil Dushenaliyev
Liu said the level of political interference, especially in
the project area, was the most difficult factor in doing business in
the Philippines. He said politicians and government officials at all
levels want to benefit from contractors. In a project in Zamboanga
City, he said Chian Harbor had to hire security to protect its
staff. He said he heard from the local personnel that they had to
pay the politicians also. He said it was an accepted rule to pay the
politicians and that contractors have to play this game in the
Philippines. According to him, contractors bid very high to cover
all potential side payments in the future. There’s also a lot of
competition between the politicians in picking the winners for the
contracts.
Date of Interview
- 28 November, 2006
Interviewee
- Jonathan M. Amon -manager, J. M. Luciano Construction, Inc.
Interviewers
- Tim Carrodus and Edil Dushenaliyev
Amon said that Luciano has an ongoing WB-funded project in
joint venture (JV) with RII
Builders and 310 Construction. This contract (1.4C package) is
progressing very slowly because
of the low bid price, peace and order, and the politicians. The last
two factors were the most serious,
he said.
Amon said that the engineers of all three companies (Luciano, RII
Builders and 310 Construction)
worked collectively on the cost estimation, each providing an input
to its own part of the work. The
cost estimates were consolidated by RII. The JV presented a
“normal” bid on both
contract packages (1.4A and 1.4C) and did not factor in any
“external” factors such as the side
payment to politicians.
Amon repeated that the JV presented a normal bid for the 1.4A
package and the termination of
the contract then was “revenge” from politicians whom the JV
refused to pay. It was the politician
in the project area (Surigao), Amon said, but he refused to identify
the person. He said that the
DPWH officials were also part of the retaliation action against the
JV. Asked about filing a case
with the DPWH Ombudsman, Amon said that he (the Ombudsman) is part
of the system since he is
appointed by the President and politicians.
·
Aside from track record and experience, Amon said that one needs to
cooperate with everybody to pass pre-qualification. “You know what
I mean,” he said, referring to such “cooperation” as paying
money to the politicians and government officials. If one does not
pay, one does not get the contract.
·
Amon also described Boy Belleza (Asst. General Director of Region
4A) and Tito Miranda (President, DPWH Employees Union Association)
as decent persons who would not fix the bidding. He also does not
know anything negative about E.C. de Luna.
·
Amon refused to identify the facilitators of the collusive scheme,
adding that they are different from project to project and much
higher than the persons mentioned above. When asked if these could
be the Secretary or Undersecretary of the DPWH, Amon refused to
answer, saying that he has five children and needs to think of them.
·
If the bid prices are 20 to 30 percent above the cost estimate (ABC)
then politicians are involved in the project, according to Amon. To
do away with the interference of politicians, the ABC should be
published and no bids above the ABC should be accepted.
·
Amon also said that Chinese companies are winning all the
internationally funded tenders because they pay the local
politicians and government officials since they have the money to
make illicit payments. He knows this because he said he is in the
“system” and that everybody in the contracting community is
aware of the situation.
·
The surplus amount above the ABC goes to the politicians through the
foreign banks of international contractors.
·
Amon noted that foreign contractors rarely partner with local firms
but if they do so, they do it for “political insurance.” Foreign
contractors need no JVs because they have their own resources and
sufficient capacity.
·
Amon denied attending any pre-arrangement meetings at the Diamond or
Hyatt Hotels, but said such meetings could take place after the
pre-qualification to finalize the list of winners.
·
The current Secretary of the DPWH is a retired general and has been
in the position for two years. He said that contractors try not to
“mess” with him in order to avoid any harm.
·
Amon stated that Luciano currently has two active projects
(hospitals) financed by Land Bank. The company recently finished a
P800-million JBIC-financed project in the peaceful part of Mindanao.
·
Amon said they had to pay the NPA both in kind (computers, cellphone,
medicine, rice and other goods) and in cash on the 1.4A and 1.4C
contract packages, among others. If the company would not pay, its
equipment could be burned or destroyed. He admitted that RII
Builders paid P1 million to the NPA. He also noted that the local
politicians and rebel groups have a mutual respect for each other
and do not step into each other’s turfs.
·
Amon told INT that the winner of the 1.4A.1 contract package, C.M.
Pancho, was predetermined. He advised INT to look at the result of
the bidding in order too see a pattern. He also said that the
bidders knew about the outcome and therefore intentionally put in
losing bids .
--Compiled by Tita Valderama and Karol Ilagan, PCIJ 2009
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