TIED MONEY
In large part, the lenders’ objection to caps on bids reflects their view that the price of government projects, like everything else, should be set by free and competitive markets rather than by government bureaucrats.

In practice, however, the policy against bid caps tends to benefit big foreign construction companies that win contracts for public-works projects funded by ODA loans.

	A view from the air of the P355-million Subic-Clark-Tarlac Expressway, the Philippines’ second biggest foreign-funded project, courtesy of the Japan Bank for International Cooperation. [photo by Tonette Orejas]

PCIJ’s analysis of the CIAP-PDCB’s Constructors Performance Evaluation System Report revealed that 18 companies from Japan, Korea, Thailand, and China won 71 percent of the total value of civil-works contracts for foreign-assisted projects reviewed in the report. These foreign firms were awarded an average of P2.6 billion worth of contracts.

In contrast, 79 Philippine companies, which got the remaining 29 percent of civil-works contracts, won an average of only P240 million worth of contracts per firm.

Of the 10 biggest construction contracts for ODA-funded projects included in the report, only one was awarded to a Philippine company, Cavite Ideal International Construction & Development Corp. It won a P1.6-billion contract to build or upgrade a stretch of road linking Baguio to nearby towns in Benguet province.

The dominant role of foreign contractors in implementing ODA projects is a sore point for local contractors who feel that pre-qualification standards imposed by lenders are biased in favor of big foreign bidders.

Comments Madrasto: “When they fund an airport, they require that the contractor must have experience in putting up an airport of the same size in the last five years. But how often do you put up an airport?” Yet when the projects are awarded to foreign companies, these just turn around and subcontract the bulk of the actual work to local firms.

COST OVERRUNS
For some reason, excessive bids and cost overruns are quite common for projects funded by bilateral lenders — notably Japan, Korea, and China — that still tie up sizable portions of their foreign aid to the purchase of goods or services, including consultants, from companies based in their respective countries.

	Table 4: Bidding Outcomes Rejected by World Bank under the NRIMP Phase II * Offered winning bids ** Partial figures only as some government agencies do not report all projects 1ST BIDDING, 2003 CONTRACT PACKAGE NAME OF PROJECT APPROVED BUDGET COST (P million) BIDDER BID (P million) % VARIANCE OF ABC CP-1.4B Surigao - Davao - Coastal Road, Marihatag - Barobo & Tagbina- Hinatuan Section, Surigao del Sur 967.01 China Road China IWEC Shinsung 1,236.11 1,285.86 1,295.99 +27.83 +32.97 +34.02 CP-1.6 Rehabilitation of Kabankalan-Basay/San Enrique - Vallehermoso Road, La Castellana - Canlaon Section 917.43 China State/ECLuna (JV) Suzaka China Road 1,151.14 1,161.37 1,180.37 +25.47 +26.58 +28.66 2ND BIDDING, 2004 CP-1.4B Surigao - Davao - Coastal Road, Marihatag - Barobo & Tagbina- Hinatuan Section, Surigao del Sur 901.66 China Road Hanjin Cavite Ideal Dongsung 1,146.34 1,310.05 1,320.09 1,605.61 +27.14 +45.29 +46.41 +78.07 CP-1.6 Rehabilitation of Kabankalan-Basay/San Enrique - Vallehermoso Road, La Castellana - Canlaon Section 1,013.53 China Road/ECLuna (JV) Cavite Ideal Hanjin Daewoo Shinsung Dongsung 1,265.22 1,400.24 1,410.12 1,450.00 1,530.00 1,605.32 +24.83 +38.15 +39.13 +43.06 +50.96 +58.39 3RD BIDDING, 2006 CP-1.4B Surigao - Davao - Coastal Road, Marihatag - Barobo & Tagbina- Hinatuan Section, Surigao del Sur 1,170.59 China Geo China Road Italian Thai Cavite Ideal China Wu Yi 1,353.10 1,403.48 1,430.23 1,430.51 1,433.13 +15.59 +19.90 +22.18 +22.20 +22.43 CP-1.6A San Enrique - Vallehermoso Road, La Castellana - Canlaon Section, Negros Occidental/Oriental 682.40 China Road CM Pancho China Wu Yi Cavite Ideal 773.70 924.88 926.01 945.30 +13.38 +35.53 +35.70 +38.53 CP-1.6B Kabankalan - Basay Road, Hinobaan-Basay Section, Negros Occidental/Oriental 640.57 China Wu Yi CM Pancho China Geo Italian Thai China Road China Harbor Sammi Cons 748.55 871.34 871.55 881.33 883.45 901.10 911.20 +16.85 +36.02 +36.06 +37.58 +37.92 +40.67 +42.25

Allowing bids to exceed estimated costs makes infrastructure projects costlier for borrowers. “These cost overruns have resulted in an increase in GOP (Government of the Philippines) counterpart funding,” Datumanong had stated in his proposed department order back in 2002. “In some cases, it has caused the decrease in the scope of work of the other remaining projects in the loan package to compensate for increased cost of the projects already bid out.”

A 2007 study for JBIC by the consulting firm Virata and Associates found that 13 of 14 road projects funded by the World Bank, ADB, and JBIC cost 26 percent to 51 percent more than DPWH estimates.

Last year, the National Economic and Development Authority (NEDA) also reported that 21 projects — nearly a fifth of the 123 ongoing foreign-assisted projects it reviewed — incurred cost overruns amounting to almost P36 billion, raising the total costs for these projects by more than a third.

In nine of the 21 projects, bids in excess of the approved costs were cited as a reason for the cost escalation. Eight of these nine projects were financed by JBIC.

The JBIC also funded 18 of the 21 projects that incurred cost overruns last year, while the other three were financed by loans from China, South Korea, and the World Bank.