26378 Philippines COUNTRY PROCUREMENT ASSESSMENT REPORT THEWORLDBANK Country Operations and Services Unit East Asia and Pacific Region March 2003 CURRENCY EQUIVALENTS (As of May 30, 2002) Currency Unit = Philippines Peso (Php) US$1 = Php51.00 (The exchange rate of Php51.00 has been used for purposes of analysis) FISCAL YEAR Government : January 1 to December 31 World Bank : July to June 30 Regional Vice President : Jemal-ud din Kassum, EAP Country Director : Robert Vance Pulley, EACPF Sector Director : Richard A. Calkins, EAPCO Task Team Leader : Christian A. Rey, EACPF This Report, which is part of the Public Expenditures, Procurement and Financial Management Review (PEPFMR), was prepared in June 2002 by a Team led by Christian A. Rey (Task Team Leader) and composed of Cecilia Vales (Coordinator); Federico Gimenez (Consultant); Sofronio Ursal (Consultant on the Legal Framework); Jaime Galvez-Tan (Consultant on the Health Sector) Omar Costibolo (Consultant on Public Works); Benjamin Albarece (Consultant on Local Government Units), Norman Cabangal (Consultant on Education); Noel Sta. Ines (Procurement Officer); Dominic Aumentado (Procurement Officer); Rene Manuel (Procurement Officer); and Evelyn Quirante (Program Assistant). Hiroki Kobayashi represented the Asian Development Bank. Leonora Gonzales (External Relations Officer) acted as Communications Advisor. The Team collaborated closely with a core group of representatives from the Government of the Philippines in all the weekly meetings. The core consisted of the following: Teodoro Encarnacion, and Antonio Molano, Jr. (Department of Public Works and Highways); Laura Pascua and Estanislao Granados (Department of Budget and Management); Elmer Dorado (National Economic and Development Authority); Edna Formilleza (Department of Education); Carolina Herradura (Department of Health); Normando Toledo and Ellen Pascua (Department of Interior and Local Government); Arcadio Cuenco, Jr. (Commission on Audit); Edgardo Campos, Jose Luis Syquia, Jr. and Cipriano Ravanes, Jr. (Procurement Watch, Inc.). Contents Foreword --------------------------------------------------------------------------------------------------- 9 Overview--------------------------------------------------------------------------------------------------- 11 The Need for Procurement Reform------------------------------------------------------------------ 11 Key Findings of the CPAR -----------------------------------------------------------------------------13 Strengthening the Legal and Policy Framework ---------------------------------------------15 Strengthening Organization and Staffing-------------------------------------------------------15 Improving Practices and Processes -------------------------------------------------------------15 Enhancing Transparency---------------------------------------------------------------------------16 Sectoral Case Studies ----------------------------------------------------------------------------------16 Need for Overall Governance Reforms ------------------------------------------------------------16 Ingredients for Successful Reform Implementation ---------------------------------------------17 CPAR Working Group ------------------------------------------------------------------------------17 Donor Community Assistance --------------------------------------------------------------------18 Success Monitoring Indicators --------------------------------------------------------------------18 Strengthening Procurement and Project Management in Bank-Financed Projects -----18 Risk Assessment-------------------------------------------------------------------------------------19 The Public Procurement Regime -----------------------------------------------------------------21 Legal Framework -----------------------------------------------------------------------------------------21 Main Concerns ---------------------------------------------------------------------------------------21 Main Recommendations ---------------------------------------------------------------------------22 Organizational Framework-----------------------------------------------------------------------------22 Organizational Set-Up ------------------------------------------------------------------------------22 Function and Ad Hoc Staffing---------------------------------------------------------------------23 Professionalize the Procurement Function ----------------------------------------------------23 Main Recommendations ---------------------------------------------------------------------------24 Oversight and Regulatory Framework --------------------------------------------------------------24 Main Recommendations ---------------------------------------------------------------------------25 Government Procurement Processes and Practices--------------------------------------------25 Main Concerns ---------------------------------------------------------------------------------------26 Main Recommendations ---------------------------------------------------------------------------27 Decentralized Procurement Practices at the LGU Level ----------------------------------29 Overview ---------------------------------------------------------------------------------------------------29 Key Findings-----------------------------------------------------------------------------------------------29 Main Concerns ---------------------------------------------------------------------------------------29 Main Recommendations ---------------------------------------------------------------------------30 Procurement in Externally Financed Projects ------------------------------------------------31 Weak Procurement Management --------------------------------------------------------------------31 NGAs ---------------------------------------------------------------------------------------------------31 LGUs ----------------------------------------------------------------------------------------------------32 NGOs ---------------------------------------------------------------------------------------------------32 Main Recommendations ---------------------------------------------------------------------------32 4 COUNTRY PROCUREMENT ASSESSMENT REPORT Measures for Enhancing Transparency---------------------------------------------------------33 Government Anti-Corruption Institutions -----------------------------------------------------------33 Notable Anti-Corruption Programs of Government ----------------------------------------------33 World Bank ------------------------------------------------------------------------------------------------35 Civil Society -----------------------------------------------------------------------------------------------35 Tables Table 1: Status of Recommendations - CPAR 1997---------------------------------------------12 Table 2: Philippines: Magnitude of National Government Procurement Outlays --------13 Table 3: Sectoral Reform Measures -----------------------------------------------------------------17 Table 4: Partial Inventory Count of Procurement Issuances-----------------------------------21 Table 5: Disbursement Ratio --------------------------------------------------------------------------31 Table 6: The Philippines Government Electronic Procurement System --------------------34 Attachment Attachment 1 - Key Recommendations for Implementation -----------------------------------36 Attachment 2 - Draft Procurement Side Letter----------------------------------------------------39 Attachment 3 - Project Risk Assessment ----------------------------------------------------------43 Attachment 4 - Republic Act 9184 Government Procurement Reform Act ----------------44 Attachment 5 - World Bank Comments to Government Procurement Reform Act ------70 COUNTRY PROCUREMENT ASSESSMENT REPORT 5 Acronyms and Abbreviations ADB - Asian Development Bank GOP - Government of the Philippines AGILE - Acceleration Growth Investment Liberalization GPIS - Government Procurement Information System with Equity GPPB - Government Procurement Policy Board AIM - Asian Institute of Management ICB - International Competitive Bidding AO - Administrative Order INT - Department of Institutional Integrity BAC - Bids and Awards Committee IRRs - Implementing Rules and Regulations BSP - Bangko Sentral ng Pilipinas JBIC - Japan Bank for International Cooperation BOT - Build-Operate-and-Transfer LC - Letter of Credit CIAP - Construction Industry Authority of the Philippines LCE - Local Chief Executive CDF - Countryside Development Fund LGU - Local Government Unit CIDA - Canadian International Development Agency LOI - Letter of Instructions COA - Commission on Audit NBI - National Bureau of Investigation CPAR - Country Procurement Assessment Report NCB - National Competitive Bidding CPPR - Country Portfolio Performance Review NGA - National Government Agencies CSC - Civil Service Commission NGO - Non-Government Organization DBM - Department of Budget and Management NEDA - National Economic and Development Authority DepEd - Department of Education OSG - Office of the Solicitor General DILG - Department of the Interior and Local Government PCAB - Philippine Constructors Accreditation Board DOJ - Department of Justice PEAC - Pre-qualification, Evaluation and Awards Committee DOH - Department of Health PD - Presidential Decree DPWH - Department of Public Works and Highways PPB - Procurement Policy Board DTI - Department of Trade and Industry PSB - Philippines Shippers' Bureau EO - Executive Order PS - Procurement Service EPS - Electronic Procurement System PWI - Procurement Watch, Inc. GAAM - Government Accounting and Audit Manual TIP - Transparency International Philippines GEPS - Government Electronic Procurement System TTL - Task Team Leader GEF - Global Environment Facility TWG - Technical Working Group GFI - Government-Financing Institution WB - World Bank GOCC - Government-Owned and/or Controlled WBOM - World Bank Office Manila Corporation WG - Working Group 6 COUNTRY PROCUREMENT ASSESSMENT REPORT Foreword The Country Procurement Assessment Report (CPAR) The Report was submitted on June 30, 2002 to the is an analytical tool intended to assess the public pro- Government of the Philippines. It is part of an inte- curement system in the Philippines and, in the process, grated comprehensive Public Expenditures, Procure- generate a dialogue with the Government on needed re- ment and Financial Management Review (PEPFMR) forms. The CPAR is primarily designed for use by pro- conducted in accordance with the Bank's Country curement professionals in government to improve Assistance Strategy (2002-2005). The key procurement procurement practices, and civil society and the private reform recommendations, which represent the findings sector to understand better the current as of June 2002, are published in the PEPFMR. There processes and procedures in place. The assessment was are three (3) volumes in the CPAR, which cover the done from October 2001 to June 2002 when there were Findings and Recommendations in Volume 1, the de- many laws, parallel regulations, Executive Orders, Ad- tails of the review in Volume 2, and a collection of con- ministrative Orders and Implementing Rules and sultant reports in Volume 3. Only the Findings and Regulations, and as yet no omnibus procurement law. Recommendations, Volume 1, are published in this The CPAR was a joint effort of the World Bank document. Office Manila and the Government of the Philippines The CPAR provided several comprehensive recom- (GOP), and with the participation of the Asian Devel- mendations, one of which was the passage of an omni- opment Bank. The specific purpose of the CPAR was bus procurement law. Due to the strong involvement of to establish the need for procurement reform and guide the GOP in preparing the CPAR and its commitment the development of an action plan to improve the to procurement reform, the main recommendation was country's system for procuring goods, works, and fulfilled when Congress passed, in December 2002, consulting services. The following activities were the Government Procurement Reform Act (RA 9184), carried out: which was signed by President Gloria Macapagal-Ar- (a) a comprehensive analysis of the country's royo on January 19, 2003. The Implementing Rules public sector procurement system, including and Regulations (IRRs) are currently under prepara- the existing legal framework, organizational re- tion. RA 9184 is included in Attachment 4, but is not sponsibilities and control and oversight capabili- analyzed explicitly in this CPAR since the main diag- ties, present procedures and practices, and how nostic work was carried out prior to the promulgation well these work in practice; of this Act. It is important to note that many key rec- (b) an assessment of the institutional, organizational ommendations of the CPAR were incorporated into the and other risks associated with the procurement final version of RA 9184. This constitutes a major process, including identification of procurement reform during the Arroyo administration that should practices unacceptable for use in Bank-financed yield significant public benefits, including budgetary projects; savings and reduction in losses due to corruption that (c) development of a prioritized action plan to bring should ensue from a more transparent, accountable about institutional improvements, and and efficient procurement process. (d) an assessment of the competitiveness and performance of local private industry with regard to participation in public procurement, and the ad- Robert Vance Pulley equacy of commercial practices that relate to Country Director, Philippines public procurement. World Bank Office Manila March 2003 COUNTRY PROCUREMENT ASSESSMENT REPORT 7 Overview 1.1 Recognizing that sound public procurement is rently being used for all Bank loans to the Philippines. an essential part of good governance, the Government Even if the findings of the 1997 review (Table 1) were of the Philippines (GOP) and the World Bank (WB) discussed in detail with GOP officials, the exercise was have agreed to conduct and pro- essentially conducted by the duce a country procurement Bank with no GOP ownership. assessment report (CPAR). This The Bank relies on the will summarize the findings and 1.3 The current CPAR started Representations and assurances agreed action plans to address in October 2001 and was con- issues during the Bank's fiscal in the "side letter" for entering ducted by the World Bank year 2002. The CPAR has been into a Loan Agreement with Office Manila (WBOM) work- recognized by the GOP as an im- the Philippines, and these ing closely with the GOP desig- portant tool to pursue its objec- representations and assurances nated team. The joint working tive of reforming the public form an integral part of the group has assumed both co- procurement system. Key find- Loan Agreement.1 responsibility and co-leadership ings and recommendations (At- of the project with the participa- tachment 1) of the CPAR have tion of the Asian Development been included in the Bank's proposed Country Assis- Bank (ADB). Since October, the working group or tance Strategy 2003 to 2005 for the Philippines. CPAR team has met weekly to analyze, discuss and endorse the consultants' main findings. Mainly, the 1.2 A first joint assessment was conducted in work has focused on: (i) Public Procurement Regime; 1994, followed by another in 1997. Because many (ii) Public Procurement in Practice; (iii) Procurement differences between procurement policies of the Bank in Externally Financed Projects; and (iv) Initiatives in and of the Government were noted, the 1997 CPAR Enhancing Transparency. It was agreed that the health, included the "side letter" (Attachment 2) which is cur- education and public works sectors would be the focus of the CPAR. The performance of the Local Government Units (LGUs) was also assessed. Finally, The need for serious procurement reform the team assessed risks arising from the Bank's is urgent. From fiscal year 1997 to 2001, involvement. annual outlays for procurement of goods, works and services by national agencies averaged more than Php113 Billion (Table 2). The Need for Procurement Reform This excludes procurement by LGUs and Government Owned and/or Controlled 1.4 From the overall CPAR perspective, the need Corporations (GOCCs) placed at around for serious procurement reform is urgent. From Php50 Billion a year and for Build Operate fiscal year 1997 to 2001, annual outlays for procure- Transfer Transfer (BOT) projects with ment of goods, works and services by national private sector participation, estimated agencies averaged more than Php113 billion. Public at about Php372 Billion in 2001. Sector Infrastructure Outlays for 2000 and 2001 indi- cate that an average of Php 15 billion of the total bud- 1The "side letter" was first used in 1997 to specify the loan procurement conditions between the GOP and the Bank. 8 COUNTRY PROCUREMENT ASSESSMENT REPORT Table 1: Status of Recommendations - CPAR 1997 The 1997 CPAR raised important issues and recommendations recognized by the Bank and the GOP as warranting attention. A situation assessment for each of these issues revealed that, with the exception of the price negotiation practice of the Procurement Service, all concerns were being addressed. Here is the status summary. Areas of Concern Status as of February 15, 2002 0.3 (a) Cumbersome internal procurement processes. The situation persists and continues to be recognized at high government levels. Executive Order (EO) 40 attempts to clarify some issues to simplify the processes. 0.3 (b) Vacillation of project implementers faced with This should no longer be an issue for the central conflicting Bank and local rules and possible legal government but is still a problem at the LGU level. consequences. 0.3 (c) Lack of familiarity of LGUs with Bank procurement Somewhat improved with training but much remains guidelines and rationale. to be done. 0.5 (a) Through seminars, workshops and appraisal This is continuously being done. missions, the Bank should emphasize the waivers . mandating the use of Bank procedures for National Competitive Bidding (NCB) procurement. Recommendations 0.5 (b) Maritime shipping restrictions. Task Team This is continuously being done. Leaders (TTLs) should discuss at appraisal. 0.5 (c) Discourage pre-qualification, encourage This is now the new norm in the GOP. post-qualification. 0.5 (d) Update the `side letter.' Done. 0.6 (a) Use procurement agents in LGU projects. This is being done. 0.6 (b) Use of Department of Budget and Management's This was tried in several projects. (DBM) Procurement Service (PS) as the procurement Unable to verify if advertisements and invitations indeed agent in Bank-financed projects--only when the PS stipulated no-negotiation. agrees that advertisements and invitations will state that there will be no price negotiation. 0.6 (b) Use of DBM's PS Bank should try to convince Unsuccessful. There is a 30% increase in the number DBM to stop the practice of negotiating prices with of agencies using the PS, from 1,200 to 2,186. the winning bidder. The practice is true of modes other than public bidding. 0.6 (c) Procurement Code. Ongoing. 0.6 (c) Update the procurement rules of Commission In progress. on Audit's (COA) Government Accounting and Audit Manual (GAAM). COUNTRY PROCUREMENT ASSESSMENT REPORT 9 Table2: Philippines-MagnitudeofNationalGovernmentProcurementOutlays Expense Class 1997 1998 1999 2000 2001 Supplies and Materials 15.750 15.587 17.012 20.295 16.879 Library Books and Materials 0.034 0.158 0.094 0.225 0.071 Other Services 15.096 17.232 15.430 18.676 19.322 Gasoline, Oil and Lubricants 1.883 1.766 2.099 2.593 2.622 Land and Land Improvements Outlay 43.621 68.337 50.406 63.497 59.985 Buildings and Structures Outlay 17.533 12.579 10.175 11.431 6.570 Furniture, Fixtures, Equipment & Books Outlay 11.275 6.307 9.23 5.723 3.642 Information Technology (IT) Equipment Outlay 0.010 0.226 0.799 0.716 0.932 TOTAL 105.202 122.192 105.245 123.156 110.023 Source: Tables B.1 and B.14, Budget of Expenditures and Source of Financing, Fys 1999, 2000, 2001, 2002 and 2003 get involved procurement by national agencies, LGUs were cut by 33 to 94 percent, similarly translating into and government owned and controlled corporations a substantial savings. However, the possibility of (Table 2). This excludes procurement by LGUs and reforms being blocked by vested interests is a major Government Owned and/or Controlled Corporations concern. (GOCCs) placed at around Php 50 Billion a year and for Build-Operate-Transfer (BOT) projects with pri- vate sector participation, estimated at about Php372 Key Findings of the CPAR Billion in 20012. 1.6 From the overall findings of the CPAR, the 1.5 The potential for public procurement sys- procurement reform, and tem in the Philippines is the budgetary savings re- From the overall findings dysfunctional. It is charac- alizable from more trans- of the CPAR, the public procurement terized by multiple laws, parent and accountable system in the Philippines is dysfunctional. rules and regulations procurement, is high. The It is characterized by multiple laws, rules whichwhileadheringtothe experience of textbook and regulations, which do however adhere principles of competition and drugs procurement to the principles of competition and and transparency, are inef- under World Bank- ficient and prone to abuse. transparency, but it is inefficient, and prone financed projects demon- It also contributes to low- strated that adoption of to abuse3. It also contributes to lowering ering public funds' value more transparent procure- public funds' value for money. for money. The following ment processes and Inter- are the key reasons why the national Competitive system, despite consider- Bidding (ICB) practices reduced unit prices of text- able efforts in the past, does not books by about 40 percent--this translated into a sav- function well. ings of about Php1.2 billion for the Department of l Proliferation of outdated and fragmented laws and Education. In the case of DOH, unit prices of TB Drugs the multiplicity of uncoordinated executive issu- 2Presentation by Dr. Edgardo Jose L. Campos Jr., in the PWI Press Briefing, October 5, 2001. 3Addressed by the omnibus procurement law signed by President Arroyo on January 10, 2003. 10 COUNTRY PROCUREMENT ASSESSMENT REPORT ances. At times they are inconsistent with one an- medium-sized contracts at the LGU level. other. They constitute a source of confusion, vac- l Surety law does not provide security for contracts illation in decision making, slow procurement callable on demand. Bank guarantees and irrevo- action, difficulty in enforcement and vulnerability cable letters of credit are prohibitive in cost and to corruption. difficult to obtain from commercial banks. l Absence of a single agency with a mandate for: l Allowing unsolicited proposals does not promote (a) formulating procurement policy, rules and pro- transparency in the privatization process. cedures, (b) ensuring that these issuances are dis- Inadequate mechanism for encouraging legitimate seminated to and understood by implementing l complaints and lack of efficient administrative agencies, (c) monitoring and evaluating compli- procedures for handling them. ance, (d) providing tools to attain efficiency, accountability and economy, and (e) increasing capacity building opportunities, increasing capac- 1.7 The above key issues mean that despite the ity building opportunities and a higher level of GOP's efforts to streamline the process (as mentioned professionalism in the procurement function. below), waste continues in the use of public resources. More so, the ongoing decentralization of government functions to LGUs poses an even greater risk. l Inadequate dissemination and updating of procure- ment rules and regulations. The lack of parallel training programs for consistent and efficient 1.8 The opportunities for procurement reform are implementation. enhanced under the new Administration of President l Serious weakness in the capacity of members of Gloria Macapagal-Arroyo. Her State of the Nation Bids and Awards Committees (BACs) as well as Address last July 2001 underscored the urgent need those of Technical Working Groups (TWGs). for good governance. Last October, when Congress l Treatment of Annual Procurement Plans as mere failed to pass an omnibus procurement law, she showed compliance with budgetary requirements. They are resolution by streamlining procurement via an EO 40. not viewed as tools for efficient implementation, monitoring and evaluation. l Allowing the practice of negotiation with the low- est calculated or evaluated bidder to meet budget- President Gloria Macapagal-Arroyo ary ceiling requirements. underscored the urgent need for l Serious delays in registration and licensing of good governance, and streamlined contractors and suppliers. procurement through an Executive Order, l Political interference in the bidding process when which consolidated rules and regulations. funding comes from congressional insertions The President has set as a top priority the and countryside development funds (CDF) of passage of the omnibus law on politicians. procurement, and the CPAR has helped to l Procrastination by bidding committee members identify specific reform measures for due to risk averseness when evaluating compli- strengthening the legal and policy cated or controversial procurements. This often framework, strengthening organization results in re-bidding as an exit strategy. and staffing, improving practices and l Serious weaknesses in monitoring and enforcing processes, and enhancing transparency. procurement rules and regulations. l Insufficient advertisement for small and COUNTRY PROCUREMENT ASSESSMENT REPORT 11 It consolidated various rules and regulations on pro- have reviewed the law on arbitration aiming to align curement. And now that the new Congress is in ses- it with international practice. sion, she has submitted as top priority the need to pass the omnibus law on procurement. Strengthening Organization and Staffing 1.9 By June 2003, DBM and NEDA would have es- The 2002 CPAR exercise is therefore timely. l tablished the Government Procurement Policy Backed by the GOP's strong ownership of the exer- Board (GPPB) as the procurement oversight en- cise, the CPAR working group identified the follow- tity. It would be empowered to: (a) regulate pro- ing specific reform measures. curement processes, (b) formulate policy, rules and regulations, (c) monitor and evaluate compliance Strengthening the Legal and Policy Framework by implementing agencies, (d) promote the use of l By the end of the year, Congress would have passed state-of-the-art tools to attain efficiency, economy the new procurement law covering all and accountability in the procurement process, and entities of government, including LGUs, with (e) maintain capacity building by improving the provisions for sanctions against violators4. professionalism of the procurement function within the civil service5. l Sixty days after the approval of the new Procure- ment Law, DBM would have prepared the omni- l By June 2003, DBM will have finished the study bus law's implementing rules and regulations. for spinning off its Procurement Service (PS) into a separate corporate entity. It will provide efficient l By end of 2003, the COA would have updated the Government Accounting and Audit Manual service to agencies for the delivery of commonly (GAAM) in particular the portion related to used supplies. It will not compete with the private procurement rules and procedures. sector in the process. By the end of 2003, the Civil Service Commis- l By June 2003, the Construction Industry l Authority of the Philippines (CIAP) would have sion (CSC) in collaboration with DBM and all issued a directive allowing foreign contractor to concerned agencies, would have finished the study bid without a Philippine License. (They will be on how to professionalize the procurement required to secure one prior to award.) function in the civil service, to make the function independent of political influences. l By middle of next year, DBM would issue a directive replacing surety bonds as a form of l By June 2004, the DBM and the CSC would have security with Bank guarantees, letters of credit developed a sustainable procurement training or other forms. program with the cooperation of reputable institutes of learning. Attendance will be a require- l By middle of 2003, under of the leadership of the National Economic Development Authority ment for current and future members of bidding (NEDA), the Build-Operate-and-Transfer (BOT) committees, TWGs and other staff involved in law and its "unsolicited proposal" rule would have procurement. been reviewed. A course of action would have been recommended to ensure fairness and trans- Improving Practices and Processes parency in the privatization process. l By the end of 2004, to enforce the regulation on transparency, compliance to mandated processing l By June 2003, the Construction Industry Author- ity of the Philippines (CIAP) and the Department lead times and the procurement plan, COA would of Public Works and Highways (DPWH) would have included review of procurement as an audit 4Passed by Congress in December 2002. 5The GPPB was established in January 2003. 12 COUNTRY PROCUREMENT ASSESSMENT REPORT step. An appropriate training program for auditors Enhancing Transparency on procurement audit would have been l By June 2003, DBM and the PS would have developed. pushed for 60% implementation by all agencies of the government electronic procurement system. l By middle of 2003, CIAP, in coordination with NEDA and DPWH, would have finished the study l By December 2004, the computerized registry on registration and licensing of contractors, would have been used by all projects, as assured together with an action plan for implementation. by the DPWH. l By June 2003, Procurement Watch International l By June 2003, as ensured by DBM, the Imple- menting Rules and Regulations (IRR) of the new (PWI) would have developed guidelines and train- Procurement Law would prohibit negotiation of ing manuals for civil society organizations for price and contract amounts for goods and projects monitoring public procurement. after bid opening. l PWI and Transparency International Philippines (TIP) have on-going programs to encourage and l By the end of 2002, the Department of the Inte- monitor civil society's participation in rior and Local Government (DILG) and DBM procurement at all levels. would have developed a framework and guidelines The IRR of the new Procurement Law will for Congressional insertions and the Countryside l incorporate a complaint mechanism aimed Development Fund (CDF) to prevent the improper at encouraging legitimate complaints and an effi- use of these funds6. cient procedures for handling them. l By June 2003, price monitoring will be included as an important function of the Government Pro- curement Policy Board (GPPB) as assured by Sectoral Case Studies DBM. l By June 2003, the CSC would have finished the 1.10 The case studies conducted on four study on how to provide support to members sectors, namely, Health, Education, Public Works and of bidding committees and TWGs to prevent LGUs have likewise produced a number of reform harassment. measures specific to each sector (Table 3). Members l By December 2003, the Bangko Sentral ng of the working group representing each sector will Pilipinas (BSP) together with the WB would monitor the implementation progress. Regular reports have reviewed the operations of domestic letters to the working group will be made. of credit. This aims to reduce transaction costs and thus promote the use of the instrument to expedite the payment process. Need for Overall Governance Reforms l By June 2003, the Department of Trade and Industry (DTI), together with the Philippine Ship- 1.11 The above-mentioned measures will help pers' Bureau (PSB) would have completed the make the Philippines' public procurement system study on the financial impact of the Flag Vessel economic, efficient, transparent and more predictable. Law. By December 2003, they would have revised Yet, they will not be enough to completely deter the policy of waivers for non-Philippine flag corrupt and collusive practices. The most efficiently vessels for the shipment of goods from Korea and designed system will be prey to abuse if it is not man- Japan. aged by a Government with firm political will. Re- forms will therefore be needed in other areas such as 6The framework and guidelines for Congressional insertions developed in December 2002. COUNTRY PROCUREMENT ASSESSMENT REPORT 13 Table 3: Sectoral Reform Measures Streamline the policy on textbook content evaluation DepEd Done Training, empowerment, and professionalism of the bid committee members DOH June 30, 2002 Streamline the procedure for contract review by the Legal Services Division DOH June 30, 2002 Review the staffing of the Procurement and Logistics Service DOH June 30, 2002 Conduct a study on the price of pharmaceuticals DOH Sept. 30, 2002 Revise Section 1-A, Rule IV of the IRR of Republic Act 8047 and General Policy DepEd Dec. 31, 2002 No. 5 of the National Book Policy to relax its requirements on the importation of raw materials for textbooks Standard estimated cost per classroom, for budgetary purposes, should not be a DepEd Dec. 31, 2002 limitation to the resulting bid price Develop an effective procurement planning and inventory monitoring system at the DepEd Dec. 31, 2002 Regional, Division, District and School Levels Strengthen the Department of Education's (DepEd) procurement capacity DepEd Dec. 31, 2002 Establish a National Drug Price Monitoring System DOH Dec. 31, 2002 Strengthen the Bureau of Food and Drugs' capacity to shorten the registration process DOH June 30, 2003 Develop a mechanism to monitor and evaluate the performance of the suppliers, DOH/ June 30, 2003 constructors, and consultants DepEd Review and implement Department of Health (DOH) reforms in terms of DOH Dec. 21, 2003 decentralizing procurement Develop a mechanism to ensure wider participation and competition DPWH Dec. 31, 2003 Streamline the cash allocation and approval process to avoid delay DOH/ Dec. 31, 2003 DepEd Provide/strengthen quality assurance mechanisms for design and supervision DPWH June 30, 2004 Amend the law to allow textbooks of foreign authors to compete for use as DepEd Dec. 31, 2004 Science, Math and English textbooks in the Philippines public financial management, accounting and internal sustained. It is thus essential to continue the CPAR control, auditing, judicial systems and the civil service. Working Group (WG), possibly transforming it to a All these are currently the focus of the Government's "Procurement Technical Support Group (TSG)" until efforts to fight corruption. the GPPB oversight organization becomes fully opera- tional. This is necessary to ensure that the dialogue for reform implementation continues, and that the moni- Ingredients for Successful Reform toring of agreed actions is carried out. The Bank must Implementation be able to provide funding and staff support for the continuous operation of the Group. In addition, the CPAR Working Group members of the Group must be exposed to the experi- 1.12 The Government's firm commitment must be ences of other countries that underwent procurement 14 COUNTRY PROCUREMENT ASSESSMENT REPORT reform. They can adopt the les- as to identify solutions in case sons learned from those experi- Firm political will is needed to make of difficulties. These indicators ences. Participation in the Philippines' public procurement shall cover the following top- procurement reform workshops system economic, efficient, transparent ics: (a) interest of international and related training exercises competitors measured by the are essential. and more predictable. Complementary reforms will also be needed in public number of international bidders in a particular competition financial management, accounting and DonorCommunityAssistance group or thresholds; (b) profi- internal control, auditing, judicial 1.13 The CPAR identified ciency of procurement staff to systems and the civil service. the technical assistance for the be trained annually; (c) number agreed reform measures taking of rebidding being called; and into consideration the stated (d) processing times for the deadlines. In this instance, the donor community must procurement processes. be tapped to provide the needed resources to carry out the reform measures. A meeting with the donor com- munity should be organized by the CPAR WB (or the Strengthening Procurement and Project GPPB Technical Support Group, if already in exist- Management in Bank-Financed Projects ence) for this purpose. 1.17 ThecurrentportfolioofBank-financedprojects 1.14 It is worth noting the recent donor interven- in the Philippines has 25 operations with a tions on procurement such as: (a) Study on Moderniza- net commitment of US$1.4 billion and an undisbursed tion of Procurement; and (b) the Report on Streamlining balance of US$0.9 billion. The size of the portfolio, in Procurement for Project Implementation Efficiency terms of number of operations, will likely remain stable conducted by NEDA through the funding of ADB. in the next three years. Total disbursement in Fiscal Year 2001 was US$125 million under investment 1.15 Technical assistance through the Institutional projects, for a ratio of 11.9 percent. This is below the Development Fund grant of the World Bank has been regional standard of 18 percent. The generic implemen- accepted internally in the Bank. It will support the tation issues facing the Philippine portfolio are weak following reform measures: project and procurement management, slow replenish- · Passage of the Omnibus Procurement Law ment of funds, limited monitoring capability and un- · Preparation of the IRRs even capacity of Local Government Units (LGUs) to · Establishment and operation of the procurement undertake procurement.. oversight board · Development of the national training program 1.18 Sincethe1997CountryPortfolioPerformance · Professionalization of the procurement function Review (CPPR), the Government and the Bank recog- in the civil service nized that procurement was the major portfolio issue. · Corporatization of the PS Measures were instituted to improve procurement, such as (a) strict enforcement of lead times; (b) close moni- toring of procurement activities by implementing agen- Success Monitoring Indicators cies with supervision from oversight agencies; and (c) 1.16 Finally,theCPARWorkingGroupshallestab- focused training of procurement staff. lish appropriate monitoring indicators to measure the These measures were seriously implemented, so im- progress, success or failure of the Action Plan, as well provements followed in the ensuing year. However, COUNTRY PROCUREMENT ASSESSMENT REPORT 15 since 1999, the portfolio 1.20 As regards inves- based on disbursement Since the 1997 Country Portfolio Performance tigating allegations of performance was weaken- Review (CPPR), the Government and the Bank fraud and corruption, the ing again. recognized that weaknesses in procurement were Bank will rely on its In- a major portfolio issue. Measures were instituted tegrity and Investigation 1.19 The identified to improve procurement, such as (a) strict Unit (INTIU) and apply measures to address the enforcement of lead times; (b) close monitoring sanctions where called weakening portfolio per- of procurement activities by implementing for. INTIU visited the formance are: Philippines twice last · Joint portfolio re agencies with supervision from oversight year. views with the ADB agencies; and (c) focused training of and the Japan Bank for procurement staff. These measures were Risk Assessment International Coopera- seriously implemented, so improvements followed 1.21 The CPAR as- tion (JBIC) in the ensuing year. However, since 1999, the sessed the procurement · Regular project review portfolio based on disbursement performance risk as average (Attach- and visits by the World was weakening again. ment 3). The Philippines' Bank Office Manila Public Procurement Sys- (WBOM) portfolio tem, through its various team laws, rules and regulations, adheres to the principles of · Close monitoring of the status of implementation competition, fairness and transparency. However, there and procurement plans in every supervision mis- are serious weakness in the implementation of the sys- sion tem which led to: (a) cumbersome procurement pro- · Conduct of ex-post reviews on a regular basis, pref- cesses and unnecessary delays; (b) inadequate capacity erably jointly with the statement of expenditures re- of implementing agencies; (c) ineffective oversight; (d) views high incidence of re-bidding; and (e) lack of account- · As agreed in the October 2001 meeting with the ability. Association of Project Directors (Club of 29), the monitoringofperformancethroughtheProcurement 1.22 In terms of translating the risk on Bank- Benchmark and Disbursement Target system financed projects to actual implementation, the CPAR (PBDT)7 proposes the following thresholds: Amount of Threshold per Contract for Procurement Methods and Prior Reviews Item Category Infrastructure Sector (per contract) Other Sectors (per contract) ICB Works Over $2,000,000 Over $500,000 Goods Over $500,000 Over $200,000 NCB Works Over $200,000 to $2,000,000 Over $50,000 to $500,000 Goods Over $100,000 to $500,000 $20,000 to $200,000 Prior Review Works More than $2,000,000 More than $500,000 Goods More than $500,000 More than $200,000 Consultant Services-Firm More than $100,000 More than $100,000 Consultant More than $50,000 More than $50,000 Services - Individual National Not more than $200,000 Not more than $200,000 Consultant shortlisting 7The PBDT System was replaced by the Procurement/Selection Planning and Monitoring System (PSPMS) in December 2002. 16 COUNTRY PROCUREMENT ASSESSMENT REPORT The Public Procurement Regime Legal Framework curement is viewed from the identification of the item to be procured up to completion of the works or deliv- 2.1 The Philippines is a democratic and republi- ery of goods. can state which, under the 1986 Constitution, adopts the centralized presidential form. The powers of gov- Main Concerns ernment are exercised by three independent and 2.4 Public sector procurement is characterized by co-equal branches, namely: the Executive Branch outdated and fragmented laws and a proliferation which enforces the laws headed by an elected President of uncoordinated executive issuances. They prescribe a for a term of six years; the Legislative Branch which variety of procurement procedures and requirements promulgates the laws and is vested in a bicameral Con- which at times are not consistent with one another. gress consisting of the Senate Hence, there is an urgent need and a House of Representa- to review and revise the pro- Public Procurement is governed tives; and the Judicial Branch curement laws and EOs. New which settles disputes involv- by a separate body of laws and legislative measures will em- ing rights of contending parties regulations, consisting of more than body the best procurement under the law, and is vested in 40 legislative enactments, Executive Orders reform ideas suitable to Phil- the Supreme Court, an appel- (EOs) and administrative orders (AOs) ippine conditions. late court, and various other presidential decrees (PDs) and issuances special and lower courts. from government agencies.1 2.5 The multiplicity of EOs, ImplementingRulesandRegu- 2.2 The Philippine legal lations (IRRs) and other system is basically civil law, with a written Constitu- agency issuances result in overlapping and uncoordi- tion and a body of legislated statutes as the principal nated directives. They create ambiguity and uncertainty sources of law. Common law influence, however, is in some procurement procedures (Table 4). It is there- traceable in some commercial and procedural laws de- fore important to review the propriety and acceptabil- rived from American legal institutions. Also, the ity of the proposed rules against standard international Shari'ah legal system is actually recognized and en- practice. As of May 2002, there are three versions of forced in the Philippine Autonomous Region in Mus- the proposed law pending in the Senate and one con- lim Mindanao. solidated version in the House of Representatives. 2.3 Public Procurement is governed by a separate 2.6 Furthermore, most EOs and IRRs are promul- body of laws and regulations, consisting of more than gated to fill gaps left by the absence of a comprehen- 40 legislature enactments, Executive Orders (EOs) and administrative orders (AOs), presidential decrees (PDs) and issuances from government agencies. The primary Table4:PartialInventoryCountofProcurement Issuances responsibility for the implementation and execution of Implementing Rules and Regulations 7 procurement laws and regulations rests with the heads Executive Orders 14 of agencies or offices and the evaluation and award Memorandum Circulars 3 processes are handled by ad hoc Bids and Awards Com- Other Administrative Issuances 17 mittees(BACs)ineachagencyoroffice.Generally,pro- Partial Total 41 1Republic Act No. 9184, Government Procurement Reform Act (Attachment 4), consolidated all laws into one by January 2003. The World Bank's comments on the Act are in Attachment 5. COUNTRY PROCUREMENT ASSESSMENT REPORT 17 sive procurement law. They are normally limited to pro- fort to consolidate all the documents, but it does not viding implementing details of an existing law, not to have the power of law. Therefore, the CPAR team rec- substitute it. They do not cite the laws authorizing their ommends that an omnibus law on public procurement promulgation, although administrative issuances nor- be passed by Congress and promulgated and executed. mally require a legal or statutory basis for their valid- It will consolidate, organize and/or cancel the existing ity. And they do not indicate in their repealing clauses documents, and give a real legal basis to public pro- the specific provisions of previous EOs and IRRs, curement. The IRRs have to be prepared accordingly. which are amended, modified, or repealed. This makes the enforceability of some previously imposed provi- 2.10 Aside from the recommendation for the pas- sions uncertain. sage of the new procurement law, it is important to em- phasize the propriety and acceptability of the rules, 2.7 The Commission taking into consideration on Audit (COA) at times i n t e r n a t i o n a l disseminates procurement Republic Act No. 9184 practice, that are in- laws and executive issu- or the Government Procurement Reform Act cluded in the different ances for compliance by was signed into law by President Gloria versions of the draft field auditors. However, as Procurement Bill pend- the executive issuances Macapagal-Arroyo on January 10, 2003. ing in both houses of are changed, they are not The Act is designed to "fight graft and corruption, Congress. As major always accompanied by improve operational efficiency, bolster weaknesses had been corresponding changes in transparency in bidding procedures and identified in the draft leg- the COA rules. Controver- encourage competition," said the President islation, it is therefore in- sies arise about which rule in signing the new law2. cumbent upon the to follow. Bank, through this CPAR, to communicate 2.8 Some martial law to the Government the era policies and practices need to be re-examined. The recommended improvements prior to the approval of role of DBM as procurer of commonly-used supplies the bill by Congress. for the entire bureaucracy under Letter Of Instructions (LOI) 755 (1978) and regularized in EO 359 (1989) needs to be subjected to the scrutiny of the regular leg- Organizational Framework islative process. The practice of allowing downward price negotiation after public bidding and/or after con- Organizational Set-Up tract award should be probed. 2.11 The overall procurement function is vested to: (a) the head of each national agency or instrumentality; Main Recommendations (b) the governing board for government owned or con- 2.9 The main issue is the proliferation of EOs, trolled corporations (GOCC); and (c) the elected head AOs, and IRRs, which do not supersede each other or of each LGU. Normally, the size and capacity of the do not repeal the existing/previous rules. The prepara- procurement organization would depend on the volume tion of Executive Order (EO) 40 was a tremendous ef- of procurement work that each agency must accom- 2The CPAR was completed in June 2002 and contained many joint recommendations by the GOP and the Bank which were included in the new law. 18 COUNTRY PROCUREMENT ASSESSMENT REPORT plish. Regulations, such as PD 1594, EO 262, and the ships. However, for organizational control to be effec- recently issued EO 40, mandate the creation in each tive, the set-up requires a cadre of officials and manag- agency of bid and selection committees. Some of their ers that are qualified to perform procurement functions. members work on an ad hoc basis. These are: (a) the In most agencies, proficient procurement staff are lack- Bid and Award Committee (BAC) for procurement of ing. Consequently, non-procurement proficient staff are works and goods and (b) the Pre-qualification Evalua- often designated, and this sometimes derails the pro- tion and Awards Committee (PEAC) for the selection cess of decision making. Worse, the proficient staff hesi- of consultant services. These committees are assisted tate and sometimes refuse to be designated as members by secretariats to handle the administrative function in of the committees. After all, the function is an added the bidding process. EO 40 mandates the creation of a burden to their original jobs, and they are given no in- permanent Procurement Secretariat with fixed respon- centives. In the Department of HEalth (DOH), some sibility. This is in the interest of efficiency. The Techni- members of the Committee have experienced harass- cal Working Group (TWG) assists the committees in ment from losing bidders. It is often perceived that those the technical evaluation of bids. Further, EO 40 pro- who want to become members of these procurement vides that the contract approving authority must not be units have personal hidden agenda. involved in the bid evaluation process. Professionalize the Procurement Function Function and Ad Hoc Staffing 2.14 The 1997 CPAR had strongly recommended 2.12 The BAC and PEAC determine the eligibility capacity building for implementing agencies to carry of prospective bidders or consultants, receive and open out their procurement work. In support of this bids or proposals, conduct the evaluation of bids or recommendation, the Bank utilized resources from the offers, undertake pre-qualification and post-qualifica- Strategic Compact to conduct a series of training work- tion proceedings, and recommend the award of con- shops for procurement staff in all sectors. In 1998, the tracts. The scope of the BAC and PEAC activities Bank established a self-sustaining training program spans the pre-procurement conference up to the rec- with the Asian Institute of Management (AIM), ommendation of the award. It is chaired by at least a which was selected competitively among institutes of third-ranking official of the agency with at least four higher learning. The curriculum covers procurement voting members, namely: the agency's Legal Officer management within the larger context of project man- as Secretary, a technical member, and representatives agement. Five courses have been delivered and the from Finance and from the end-user. Representatives training is being offered in two regional courses per from non-governmental organizations (NGOs) and the year. AIM is now considering the possibility of estab- COA are required as observers. lishing a graduate degree program with a specializa- tion in procurement management at the masters level. 2.13 Large agencies like the DepEd have a pool of Other lending institutions, such as ADB, JBIC and officers from which the Secretary can designate mem- other bilateral donors, conduct their own training for bers of the Committee for each specific procurement staff implementing their projects. package. Others, like the DPWH and DOH, designate membership for one year from among its senior and 2.15 As mentioned, honest and proficient staff middle managers. Although EO 40 instructed a perma- would not want to remain in procurement for a long nent set-up, the BAC and PEAC Secretariat, in most time. Sometimes rocurement can be a hazardous job. agencies, are still ad-hoc and their members are desig- Training alone is insufficient for a civil servant to pur- nated together with the Committees. The same is true sue a career in procurement. It is therefore necessary for the TWG. The ad hoc staffing provides a built-in that the position and title on procurement be institu- check to the system, due to the rotation of member- tionalized within the civil service, not only at the na- COUNTRY PROCUREMENT ASSESSMENT REPORT 19 influences. The CPAR team's recommendation is to pro- The CPAR team's fessionalize the procurement function and establish a recommendation is to professionalize national training program to strengthen the capacity the procurement function and establish a of civil servants involved in procurement at the national training program to strengthen national and LGU levels. the capacity of civil servants involved in procurement at the national and LGU levels. Oversight and Regulatory Framework tional agencylevel but also at the LGU level. Moreover, 2.18 There is no single central public agency the qualification requirement for such career positions exclusively tasked with regulating and overseeing should be integrated into the educational stream, procurement. However, certain agencies and ad hoc whether at the college or graduate level. The CPAR bodies exist with varying oversight responsibilities. recommends that a study be conducted along the objec- · Procurement Policy Board (PPB)4. This com- tives mentioned. Discussions with the Civil Service prises the Secretaries of DBM (as chair), Depart- Commission (CSC) revealed support for such a study. ment of Finance (DOF), Department of Trade and Industry (DTI), DOH, the Department of National 2.16 Theneedtobuildcapacityinprocurementwas Defense, Department of Public Works and High- recognized a long time ago but the determination to ways (DPWH) and Department of Education build sustainable capacity is wanting. Due to fiscal (DepEd), and a representative from the Institute of constraints, the budget for training amounts to Nine Certified Public Accountants. The body promul- Hundred Pesos (Php900.00) per training course per gates rules for the operations of the Procurement employee. This is unrealistic as the regular procure- Service (PS) and other agencies, and conducts ment management training course offered by AIM evaluations of the centralized system for the pro- costs US$2,000.00. Except for the classes of AIM, curement of goods. there is no regular procurement training course that · CommitteeonInfrastructureofNationalEconomic caters to the needs of agencies. The technical assistance DevelopmentAuthority(NEDA).4 Thisbodymoni- component in foreign-assisted projects is tapped by tors, among others, the processing time used in the agencies to provide the funding for institutional bidding process by government agencies in works strengthening, including procurement training. In the and services contracts. It also promulgates rules absence of such funding, however it will be important and regulations to amend the existing ones for pro- to formulate a strategy for sustainable capacity build- curement of works and consulting services. ing in procurement, along the lines of professionalizing · Disciplinary Committee. This is an inter-agency the function and establishing a national training pro- committee created pursuant to AO 129. This is gram. under the Office of the President, and it imposes sanctions for government officials' non- Main Recommendations observance of established deadlines for bidding and 2.17 The main issue is the absence of a real profes- awarding of works and consulting services con- sion of procurement specialists in the civil service and tracts. This committee last convened in 1998. the ad hoc nomination of the BAC members. Hence, · Philippine Licensing Board for Contractors. there is a strong need to ensure that these persons are This Government agency issues, suspends and re- procurement certified and independent of political vokes contractors' licenses. 4PPB and NEDA Infracom handling procurement were dissolved by the creation of GPPB under RA 9184. 20 COUNTRY PROCUREMENT ASSESSMENT REPORT · Construction Industry Arbitration Commission. ducted to define the detailed functions to be covered. In This body rules on disputes arising from, or con- addition, to expedite the operation of the single over- nected with, contracts entered into by parties in- sight entity, the CPAR recommends that the CPAR volved in construction, including those involving Working Group, under the DBM, acts in the interim as the government. facilitator and support group to the current Procure- · Department of Budget and Management-Pro- ment Policy Board (PPB). In the meantime, the CPAR curement Service (DBM-PS). This operates a WG should define the role, organization and staffing of government-wide procurement system from which the oversight entity so that it could be involved in the all National Government Agencies (NGAs), state preparation of the IRRs. colleges, and govern- ment corporations are 2.20 The CPAR team rec- requiredtoprocuretheir The CPAR team ognizes the importance and commonly-used sup- recommends that an Oversight Entity5 professionalism of the Pro- plies, materials, and be established by law to: (i) oversee the curement Service. To ensure equipment needs. The procurement function; (ii) ensure quality independence and account- PS also monitors their and regulate the status and training of ability, the CPAR recom- prices. the procurement staff; (iii) maintain a mends a study to propose the · Systems and Proce- neededstepstowardsthecon- dures Bureau of the public procurement website to disseminate version of the PS into an in- DBM. This body devel- agency procurement requirements and dependent and corporatized ops standards and activities; and (iv) monitor prices via an entity. s p e c i f i c a t i o n s electronic billboard which publishes for commonly-used up-to-date market prices of commonly-used supplies, materials and commodities. Government equipment, in coordina- Procurement tion with DTI and Processes and DOST. It designs an integrated supply man- Practices agement system for government and conducts stud- ies to improve the purchasing system. 2.21 In general, laws and administrative issuances mandate the transparency of procurement proceedings. Main Recommendations Competitive public bidding requires the public adver- 2.19 Given the number of entities involved in the tisement of requests for bid quotations through general oversight of procurement, the CPAR team recommends newspapers, through the posting of notices in conspicu- that an Oversight Entity be established by law to: (i) ous public places, and lately through government oversee the procurement function; (ii) ensure quality websites. Thus, invitations to bid are required to be ad- and regulate the status and training of the procurement vertised publicly at least twice within two weeks with staff; (iii) maintain a public procurement website to dis- at least seven days between publications in two news- seminate agency procurement requirements and activi- papers of general circulation. The Official Gazette is ties; and (iv) monitor prices via an electronic billboard published weekly and is available to anyone. Public bid which publishes up-to-date market prices of commonly- opening is undertaken by the BAC, which includes used commodities. It was agreed that a study on the membership from the private sector and the COA. It is scope of work of the oversight committee will be con- required to follow the prescribed procedure for evalu- ating bids. Biddings are conducted via the two-enve- 5Single oversight entity established under RA9184. COUNTRY PROCUREMENT ASSESSMENT REPORT 21 lope system, where one contains the eligibility/techni- procurement in the different departments should cal requirements, and the other has the bidding docu- monitor the procurement process in accordance ments. The bid opening is public, and may be attended with the stated leadtime. by bidders or their representatives. l Registration and Licensing of Contractors. It is a practice to require foreign contractors to be reg- Main Concerns istered and licensed in the Philippines prior to the l Transparency. Even with all the legal documents bidding. The contractor has to embark on a long in place, it is recognized that the transparency of process and establish offices in the country before public procurement is not sufficient. There are still getting the license. too many influences jeopardizing the procurement l Negotiation of Contract Price. The review high- process. A high rate of re-bidding and price nego- lighted price negotiation as one of the key entry tiations before award often result in this situation. points for possible corruption. The bidding docu- Re-bidding is becoming a natural tool when the re- ments do not allow the reduction of quantities along sult of the bidding is not in line with expectations, pre-agreed percentages. Hence, some parties ne- or the lowest bidder is not qualified. The strategy gotiate with the lowest bidder to stay within the for the first case is evident. For the approved budget. The CPAR group recommends second, political pressures from the disqualified the introduction in the new law (or bidder intimidate BAC members. Re-bidding in the IRRs) a proviso to allow departments to sometines becomes an exit strategy. reduce quantities of the lowest calculated respon- l Complaint Mechanism. The IRRs of EO 40 sive bidder. That will let the departments reduce prescribed an appeal procedure that mandates that the contract amount when needed. "bidders who are not in favor of the BAC's deci- l Congressional Initiative and Countryside sion may appeal to the Head of Agency within Development Fund (CDF). This provision seven days from the issuance of such decision." may allow more funds to be channeled at the dis- The complainant has to file a non-refundable fee trict level for investments to support the popula- of Php50,000 for contracts amounting to Php10 tion. However, the actual procurement practice is million and Php100,000 for larger contracts. The not transparent as some sponsoring congressman rationale for the fee is to discourage irresponsible are purported to pre-determine the winning con- protests from going beyond the agency head. The tractors. This jeopardizes the credibility of the pro- procedure could have the effect of discouraging cess and compromises the integrity of BAC legitimate protests. members. l Lead Time. Lengthy processes characterize l Price Monitoring. Some entities such as the public procurement, and bids get to be extended PS, COA, DOH and DTI are maintaining a price on a regular basis. AO 129 stipulates a maximum list of commonly used supplies. Price monitoring time per activity and this should be enforced by the should be part of a normal and efficient procure- heads of agencies and the BACs. It should be moni- ment function in each department and office. How- tored through procurement audits. ever, there is a need for an oversight entity to l Procurement Plans. Procurement plans are supervise, monitor and process the prices from all developed for budget purposes but their implemen- departments. In essence, this will result in the moni- tation is not monitored due to insufficient toring of public procurement expenses of the Gov- procurement staff. Further, there is no specific link ernment. between budget formulation, planning of activities l Support to BACs. Members of these committees, and procurement execution. Persons in charge of who are nominated on an ad hoc basis, do not have 22 COUNTRY PROCUREMENT ASSESSMENT REPORT the necessary training required of professional staff. l Pre-Shipment Inspection. The Government no They do not receive the needed support in case of longer engages in automatic pre-shipment inspec- external harassment. tion. Public and private sector inspectors are left to their own arrangements. The result is that, in many l Bonds, Bank Guarantees, Letter of Credits (LCs). It is common to use surety bonds as bid cases, the pre-shipment inspection is and performance security. Unfortunately, these neglected or inspection is done only upon surety bonds are not really callable on demand and arrival in Philippine ports. This increases the bur- are very difficult to garnish. The practice demon- den or risk of the importer. When inspection is done strates that a surety bond is not an irrevocable guar- at the destination port, it increases the cost of rem- antee. Most foreign-assisted projects require bank edy because goods have to be shipped back to the guarantees or an irrevocable letter of credit as the manufacturer for repair or replacement. form of bid and performance securities. However, l International Arbitration. According to the Con- on the other hand, bank guarantees and irrevocable struction Industry Association of the Philippines LCs are not easily accessible to bidders, suppliers (CIAP) and the Philippine Constructors Accredi- and contractors since Banks in the country are ask- tation Board (PCAB), the Settlement of Disputes ing for the full amount of guaranty to protect them- provision, which culminates in an international selves. In this instance, it would be practical to court, is not binding. The local party to the con- study and develop alternative means to make the tract, if he/she so desires, may insist on having the system flexible but ensure that the objectives in im- final step of the process heard in a Philippine Court. posing bid and performance securities areattained. l Goods from Korea and Japan. PD 1466 Main Recommendations requires that imported goods should be transported l Enforce the regulation on transparency through by Philippine vessels. Since Philippine vessels go procurement audits. only to Japan and Korea, suppliers from these two countries are at a disadvantage compared to the l Develop a complaint mechanism, which will other countries of the region, which can choose encourage legitimate complaints from bidders and any vessel available. One can transport goods on promote transparency in the process. another vessel only if the fare on Philippine ves- l Conduct a study on the registration and licensing sels is more than 10% higher than the rest. A of contractors. Design and implement an Action waiver must be secured from the Philippine Ship- Plan to streamline these processes. pers' Bureau (PSB) before a non-Philippine l Enforce processing lead-time through the applica- vessel can be used. The CPAR WG finds this rule tion of sanctions and monitor the process through monopolistic, expensive and contrary to the rules procurement audits. of open competition. l Strictly implement the procurement plan and de- l Monopolistic Practices. In general, one of the velop and implement a training program for COA common procurement trends in the Philippines is auditors on procurement audit. the tendency to protect the local market from l Prohibit the negotiation of price and contract outside competition. That is, competitors are amounts after bids are opened and favor reduction dissuaded by cumbersome administrative pro- in quantities or introduce alternate solutions in the cesses: licensing of foreign contractors, mandatory bidding documents. transport on Philippine vessels, restricted access to foreign textbooks, difficult access to the cheapest l Develop a framework and guidelines for Congres- drugs from foreign countries, etc. sional insertions and the CDF. Prepare terms of reference for a study. COUNTRY PROCUREMENT ASSESSMENT REPORT 23 l Include price monitoring as an important function institutions. An alternative is, in lieu of bid of the Oversight Board. security for small value contracts, establishing penalties in the new law and its IRRs, such as sus- l The CSC or the Office of Solicitor General should provide support to members of BACs/PEACs pensions for bidders who do not sign the contract. subjected to harassment. For performance securities, the Bank could help in designing one which could be issued by non-bank- l Discourage all forms of securities that cannot be ing institutions. garnished immediately. On bid security, the Bank Provide the same waiver for goods from Korea and could help in designing "on demand" satisfactory l Japan as other countries in the region following the securities, which could be issued by non-banking Philippine Flag Vessel Law. 24 COUNTRY PROCUREMENT ASSESSMENT REPORT Decentralized Procurement Practices at the LGU Level Overview mittee responsible for bid evaluation. He/she approves the contract. The influence of the LCE in the 3.1 The need for procurement reform at the sub- bidding is so far reaching that effectively whoever he/ national or Local Government she prefers can win the contract if the LCE decides to Unit (LGU) level cannot be operate in such a way. overemphasized. At the core of development is the realization The need for procurement reform 3.4 Limited Capacity. of the objectives of the Local at the sub-national or LGU level cannot Past experiences, in particu- Government Code, decentral- be overemphasized. At the core of lar for Bank-financed izing, inter alia, the powers for development is the realization of the projects, have shown that the LGUs to handle various objectives of the Local Government Code, capacity in most LGUs for social, environmental, and in- procurement management is decentralizing, inter alia, the powers frastructure development for- very limited. This is due to for the LGUs to handle various social, merly vested to the national the absence of professional environmental, and infrastructure agencies. Thus, LGUs' pro- staff tasked to perform pro- development formerly vested to the jected procurement outlays at curement functions. Nor- Php51Billion in 2002 in- national agencies. mally, this is done by the creased by 89% from the pre- Treasurer or the Secretary vious level in 2001. Moreover, the WB's portfolio is (or worse, clerical staff) in the municipality or prov- shifting its focus towards the LGUs, with the number ince. In some cases where there are procurement staff, of projects directly or indirectly involving the LGUs they are not well versed in procurement. comprising more than 50 percent. As a consequence, a substantial part of public procurement will be managed 3.5 Non-Implementation of Approved at the sub-national level. The CPAR therefore has given Procurement Plans. Procurement plans the appropriate focus on LGU procurement. are prepared by the LGUs to comply with budgetary requirements. However, once approved, most LGUs do not make use of the plan as an implementation tool. Key Findings Sometimes, LGUs do not follow the plan and procure different items. Main Concerns 3.6 National Plans not Conforming to LGU 3.2 Fragmented Regulation. Procurement rules Investment Plans. In some instances, the LGU's are fragmented and there is no specific regulation for investment plans are not considered in the planning ex- the procurement of public works. ercises of some national agencies. Hence, the concerned LGUs are unaware of the projects being implemented 3.3 Lack of Check and Balance. The Local Chief by the national agencies. Worse, some projects dupli- Executive (LCE), such as the Mayor or cate what the LGUs have planned for the same year. Governor, is involved as Chairman of the bidding com- This is often true in projects funded by the CDF and the COUNTRY PROCUREMENT ASSESSMENT REPORT 25 Congressional insertions in the national 3.10 ByDecember2002, therulethattheLCEshall budget. not chair the BAC will be incorporated in the said law and its IRRs, as assured by the same bodies.1 3.7 Delays in Processing Payments to Contrac- tors and Suppliers. As provided in the COA rules, 3.11 By June 2003, the DBM will issue a circular public bidding must be conducted for contracts esti- that will mandate strict implementation of the mated to cost at least Php150,000.00. This amount was Annual Procurement Plan. estimated more than 10 years ago and is no longer real- istic. The consequence is that at the same time, money 3.12 By June 2003, the DILG will issue a circular and effort is consumed for both large and small pro- enjoining all agencies to consult LGUs during the curement deals. Also, there are too many steps in the preparation of national plans for LGUs. payment process in most LGUs, so payment is delayed beyond the 30-day normal span. 3.13 By December 2003, the CSC and DILG will finish the study on professionalizing the procurement 3.8 Lack of Systematic Record Keeping. function and will start the implementation of the Most LGUs do not have well-ordered procurement research. Also, the LGUs will be included in the filing systems. One cause of this is the absence of staff national training program for procurement. members who focus on procurement. No one is accountable to ensure that the files are complete and 3.14 By December 2002, the DBM and the GPPB organized. will insure that the rationalization of procurement methods for LGUs are incorporated in the IRR of the Main Recommendations procurement law. Also, by June 2003, COA will have 3.9 By December 2002, LGU procurement will finished updating the GAAM. be adequately covered in the proposed Procurement Bill and its IRRs, as assured by the DILG and the 3.15 DPWH or the PPB ensures that all provinces League of Cities and Municipalities.1 and cities will have effective procurement record keep- ing systems by December 2003. DILG ensures that all municipalities will also have the same system by December 2004. 1The GPRA covered LGU procurement where Local Chief Executives are prohibited from chairing the Bids and Awards Committee. 26 COUNTRY PROCUREMENT ASSESSMENT REPORT Procurement in Externally Financed Projects It is necessary to take Weak Procurement Management strong measures to improve portfolio and procurement performance. The 4.1 Since the 1997 CPPR, the Government and the consequences of slow procurement are: Bank recognized that procurement was a major portfo- (i) delays in project implementation; lio issue. Both agreed on measures to improve project (ii) increased costs in commitment fees; procurement such as: (a) strict enforcement of mile- and (iii) delays in delivering project stones and lead times in procurement; (b) close moni- benefits to the poor. toring of procurement activities by the implementing agencies with supervision from oversight agencies; and showed marked improvement again and the same pace (c) focused training of project staff. These measures of improvement is expected for FY03 (Table 5). gradually resulted in an increase in disbursement for the years 1997 and 1998. However, since 1999 the 4.2 It is revealing that projects with able manage- portfoliobasedondisbursementperformanceweakened ment, such as the Social Fund (SZOPAD) and Agrar- again. In FY02 (July 2001-June 2002), however gross ianReformCommunitiesDevelopmentProjectwerenot disbursement of projects that the World Bank supports affected by the performance downturn. On the other hand, projects with poor perfor- Table5: DisbursementRatio mance were mostly those 1/ Philippines Disbursement Ratio1/ implemented by LGUs with very limited capacity for project management. It is 30% therefore necessary to take strong measures to improve 25% 24% portfolio and procurement performance. The conse- 20% (Target FY03) quences of slow procurement 21% 17% 17% 17% are: (i) delays in project 15% 15% implementation;(ii)increased costs in commitment fees; 12% 10% and (iii) delays in delivering project benefits to the poor. 5% NGAs 4.3 Procurement proce- 0% 97 98 99 00 01 02 03 dures in projects financed by Fiscal Year2/ international institutions fol- low the procedures agreed 1/Actual disbursement over funds available at the beginning of the year. 2/Bank's fiscal year--July 1 to June 30. upon in the loan or grant COUNTRY PROCUREMENT ASSESSMENT REPORT 27 agreement. In the case of the WB and the ADB, the rience, therefore, the CPAR WG is recommending for loan agreements identify the method to be used for the future projects that: (i) the capacity of NGOs be as- procurement of different components of the project. The sessed carefully (particularly the past- guidelines issued by the lending institutions are fol- experience in managing projects, the financial man- lowed. To control the process, the lending institutions agement systems and past audits and the procurement provide no objection or clearances to bid documents or capacity and capability); and (ii) conflict of interest requests for proposals, evaluations and recommenda- within NGOs networks (between national boards and tions for award. members or leaders of regional NGOs who are part of the network) be looked into. The implementation 4.4 Procurement remains slow, resulting in a poor manual of the project shall clarify responsibilities and disbursement performance ratio of merely 17% in FY impose rules avoiding conflicts of interests in con- 2000 and 12% in FY 2001. These were attributed to sultancies and decisions of recruitment of host NGOs. factors such as: limited capacity of implementing agencies, poor procurement planning, poor technical Main Recommendations specifications, or interference from higher officials. In 4.7 During project pre-appraisal, the Procurement general, the implementation of projects is slow due to member of the Project Task Team must conduct the "de facto" absence of procurement planning. Dis- procurement capacity assessment of implementing bursements could be expedited by grouping the pur- agencies to determine actions to be taken to attain good chases, which follow the same rules of procurement. project and procurement management, particularly Another key issue is the frequency of re-bidding. This those involving the LGUs and the NGOs. is due to the insufficient precision of the documents distributed the first time to the bidders. 4.8 The implementing agency should present LGUs doable procurement plans and provide the structure for monitoring, reporting and updating the plans. 4.5 For want of projects, LGUs tend to jump at the first opportunity to access foreign-assisted projects, 4.9 Prior to project appraisal, there should be an notably those of the WB and the ADB. There is a need agreement as to the procurement organization that will to fully explain the nature of these projects, the poli- manage the project and Terms of References for the cies, the processes involved and all aspects of the loan, key staff in that organization, including the training especially financial feasibility. LGUs have to be edu- program for them. cated on the intricacies of the project. LGUs that have experienced WB's procedures are generally comfort- 4.10 The implementing agencies must ensure able with its prescribed system--clear, comprehensive that the technical specifications are complete and and consistent. However, some LCEs feel indisposed to biddable to prevent re-bidding. The Operations or some WB-assisted projects as the stringent rules Implementation Manual should indicate clearly the prevent them from making unilateral decisions. responsibilities and accountabilities for preparing and finalizing the technical specifications for major pro- NGOs curements. 4.6 NGOs are involved in many WB-financed projects at different levels: the majority are involved as 4.11 Budgetary allocations, the usage of which are consultant firms in implementing one or several con- controlled by politicians, can be used as counterpart tracts within a project. Overall project management and funds for procurement financed by the Bank when particularly procurement and financial management, is the procurement process strictly follows the Loan considered a weak area for NGOs. Based on this expe- Agreement. 28 COUNTRY PROCUREMENT ASSESSMENT REPORT Measures for Enhancing Transparency Government Anti-Corruption 27, and if the offense was committed in Institutions connection with his/her office. · National Bureau of Investigation (NBI) - an of- 5.1 As early as 1930 the Revised Penal Code fice under the DOJ, conducts fact-finding investi- already punished a wide spectrum of crimes commit- gations of graft cases and entrapment operations, ted by public officers, including bribery, corruption, including those against public officials and dereliction of duty, fraud against the public treasury, employees. misappropriation of public funds, infidelity in the · Presidential Anti-Graft Commission (PAGC) - custody of documents and usurpation of powers. Sub- created through EO 12 (Series of 2001) to investi- sequently, various other anti-corruption laws were gate administrative complaints against presidential passed, notably the Anti-Graft and Corrupt Practices appointees in the executive department charged Act; the Code of Conduct and Ethical Standards for with graft and corruption. Public Officials and Employees; the Ombudsman Act of 1989; the Witness Protection Program Law; the Plunder Law; and the latest, the Anti-Money Launder- Notable Anti-Corruption Programs of ing Law. To enforce the foregoing laws there are a host Government of government anti-graft bodies: · Office of the Ombudsman - a constitutional office mandated by law to act on complaints filed against · Government Electronic Procurement Sys- governmentofficersoremployees,andenforcetheir tem (GEPS) - was established under EO 40 to administrative, civil and criminal liability. enhance transparency, accountability, equity, effi- ciency and economy in government procurement. · Sandiganbayan - a special anti-graft court It serves as the single and centralized portal for created by the Constitution with exclusive jurisdic- the procurement of goods, supplies, materials and tion over violations of the Anti-Graft and related services, civil works and consulting ser- Corrupt Practices Act (RA 3019). It also has vices. Further, EO 40 mandates that all govern- jurisdiction over offenses of public officials and ment agencies and entities should post their employees connected with their office. advertisement in the centralized portal or EPS · Civil Service Commission (CSC) - a constitutional website. Likewise, the winning bid should also be office that serves as the central personnel agency posted. (Table 6). of the government. It is mandated to adopt mea- · Inter-Agency Coordinating Council - a sures to promote efficiency, integrity, and public voluntary alliance of government agencies man- accountability in the civil service. dated by the Constitution and laws to promote and · Commission on Audit (COA) - a quasi-judicial maintain accountability, integrity and efficiency in constitutional office mandated to audit the revenues public service. It is composed of the Office of the and expenditures of Government, and to promul- Ombudsman, CSC, COA, DOJ, NBI and the Presi- gate audit rules. dential Commission Against Graft and Corruption · Department of Justice (DOJ) - conducts prelimi- (now known as the National Anti-Corruption Com- nary investigations on criminal complaints against mission). The objective of the Council is to foster public officials if they rank lower than Salary Grade closer cooperation, share information, and pool re- COUNTRY PROCUREMENT ASSESSMENT REPORT 29 Table 6 The Philippines Government Electronic Procurement System 1. On November 22, 2000 the Procurement Service money in advertising costs. The total cost of the EPS of the DBM, with help from CIDA, launched an pilot program has been estimated at about US$400,000, internet-based pilot electronic procurement system (EPS) shared equally between DBM and CIDA. Within six months composed of a Public Tender Board, Electronic Catalog, after going live, the EPS had 86 agencies and 62 suppliers and Supplier Registry. The system improved access to registered, and 71 bid notices posted on the EPS. (As of government opportunities, saved cost, and enhanced the October 10, 2002, there are 1,797 agencies, 2,377 efficiency and transparency of government procurement. suppliers registered and 9,214 bid notices posted). 2. The DBM oversees government expenditures through Eventually all government procurement notices are the release of budgetary allotments for different govern- envisaged to be posted on the EPS. Suppliers are able ment agencies and departments, while its Procurement to access government bid opportunities 24 hours a day Service (PS) handles the purchase of goods and services 7 days a week. for over 1,800 client agencies and monitors prices of 5. While the system has great potential for improving goods and services. Transparency in government the transparency and efficiency of procurement, the GOP procurement is a systemic problem in the Philippines, and had noted the implementation challenges early and is added to this are inefficiency, poor service delivery and taking steps to address them. For example, even with high low sales volumes resulting from manual and paper-driven interest and support for the EPS, its initial implementation procurement processes. A 1999 study conducted by the was relatively slow. The reasons were numerous-- PS with CIDA assistance showed that a pilot EPS could agencies did not have the same resources or capacity for improve transparency, efficiency and value for money in supporting the EPS, only about 25 percent of agencies government procurement. trained in the EPS were ready for internet access, only 3. The system went live on December 1, 2000, and about 8 percent of Filipinos were using the internet in 1999, is now being marketed by the DBM to other agencies. The there was resistance to change from employees who EPS advertises bids electronically. Bids are received in thought the EPS would lead to a loss of jobs, and this was hard copy and evaluated by hand. The evaluation and also a time of larger political uncertainty and turbulence in award results are then posted electronically. the Philippines (the pilot testing ran into the presidential impeachment trial, the EDSA II people power revolution, 4. The EPS is supported by several EOs and AOs. and the assumption of office by a new government). EO 40 of October 2001 and Republic Act No. 8792, Second, a key lesson learnt has been that the technology dated June 14, 2000, recognize and encourage the use being used must consider the users' level of knowledge of electronic commerce in general and of electronic and skill, access to the necessary infrastructure/equipment procurement in particular. Section 27 of the E-Commerce and services, and needs and expectations. Third, Law (R.A. 8792) also mandates that by mid-2002, leadership has to come from the highest levels of the Agencies/GOCC/GFIs shall "transact government government, and be sustained. Fourth, the agencies using business and/or perform governmental functions using the EPS must have intimate knowledge of their target electronic data messages or electronic documents...", market and know how to segment it--each segment will leaving room for the selective application of electronic require a different marketing strategy and will have different procurement, depending upon the degree of sophistication service level expectations. Customers will start using a new of the existing systems, as well as their applicability to system continuously only if it adds and continues to add specific types of procurement and specific procurement value through its content and quality of information, and if processes. The implementing rules and regulations of EO the system and its support services meet or exceed their 262 state that "bid requirements should be placed in two service level expectations. Third, in order that technical consecutive issues of two newspapers of general and logistical support can be provided on a timely basis, circulation and posted in the EPS and the website of implementation and maintenance of the electronic the concerned agency." The previous practice was procurement service is being bid out to the private sector. to advertise the bids in three major newspapers-- advertising on the EPS has saved the government Source: DBM Case Study on the EPS 30 COUNTRY PROCUREMENT ASSESSMENT REPORT sources for the more effective prevention, investi- lingual capabilities is available to the public all over gation, and prosecution of venalities in the world. Hotline users can choose to remain anony- government. mous. Cases that require further investigation are sent · National Anti-Corruption Plan - an ambitious to the appropriate unit for investigation. anti-corruption program proposed by the Develop- ment Academy of the Philippines; the Government's executive training center. Its vision Civil Society is a clean government and a corruption-intolerant society. To attain this, the plan seeks to streamline 5.3 The Philippines has been prominent in involv- government transactions; enforce anti-corruption ing civil society in the public procurement process to policies and laws; promote integrity in the civil ser- enhance accountability and transparency. This has hap- vice; mobilize citizens pened at both national and local against corruption and de- levels. tect and prosecute corrupt The Philippines has officials and employees. been prominent in involving 5.4 Procurement Watch, In- · Government Purchases civil society in the public corporated (PWI) is a non-profit, Information System - a procurement process to enhance non-partisan, civil society orga- COA-initiated electronic accountability and transparency. nization (CSO) created by a price monitoring in forma- This has happened at both national group of concerned individuals tion system to assist govern- and local levels. from government, academe, the ment agencies in identifying legal profession and the private suppliers offering the best sector, brought together by the market price of commonly challenge of reducing graft and bought goods. With the use of computers, the sys- corruption in government procurement through re- tem collects prices of goods purchased by member search, partnerships, training, and advocacy. Estab- agencies that undertook actual public biddings. It lished on February 15, 2001 with support from the then transmits these data to the Government Pro- ASEM Trust Fund managed by the World Bank, PWI curement Information System (GPIS) Center. promotes transparency and accountability and assists in streamlining procedures in government procurement of goods, supplies, materials, services and infrastruc- World Bank ture projects. 5.2 The Bank is active in looking into procure- 5.5 Active procurement monitoring, public fora, ment performance and transparency in the Philippines. roundtable discussions, workshops, technical assistance As part of its fiduciary responsibility, the Bank has em- to government, research, publications and barked on a systematic expost-review exercise to have media releases comprise some of PWI's activities. By all of the 25 ongoing projects reviewed at least once exposing inefficiencies in public procurement policies during the fiscal year. An external audit of procure- and procedures, and presenting alternatives based on ment in Bank-financed projects is scheduled for FY03. well-grounded research, PWI believes it can push for At the central level, the Department of Institutional In- reforms that enhance competitive public bidding and tegrity (INT) was created with a mandate to investigate lessen the possibility of corruption. any allegations of fraud and corruption reported to the Bank. A hotline (10511-1-800-831-043) with multi- COUNTRY PROCUREMENT ASSESSMENT REPORT 31 Attachment 1 - Key Recommendations for Implementation Area of Concern Recommended Action(s) Responsible Agency Timeline Public Procurement in LGUs Public lEnsure that LGU procurement is adequately DILG December 2002 Procurement covered in proposed Procurement Bill League of Cities lLGUs' concerns/views to be represented in the formulation of IRR once the Bill is enacted lLCEs should not chair the BACs DBM December 2002 lMake the implementation of Annual Procurement DBM-Circular June 2003 Plan by LGUs mandatory lPreparation of national plans should benefit from DILG June 2003 prior consultations with LGUs · part of CDF and CIF lProfessionalize the procurement function and build December 2003 LGU-level procurement capacity · Develop a Study CSC · Implementation DILG lRationalize method of procurement and expedite DBM/GPPB 60 days from payment to contractors and suppliers (to be dealt approval of with in the IRR) New Proc. Law · Update the GAAM COA December 2003 · Develop and implement training program on COA June 2003 procurement audit. lDevelop a good record keeping system for: · Provincial/cities (pilot phase) DPWH December2003 · Municipalities (full implementation) DILG December2004 Public Procurement in NGAs Strengthening lPassage and promulgation of an omnibus Law on Public DBM Legal and Procurement Policy Framework · Expected date of passage of the Law December 2002 · Prepare implementing rules and regulations (IRRs) 60 days from after enactment of the Law passage of law lUpdate GAAM COA December 2003 · Develop a training program for auditors lForeign contractors should be allowed to bid without DPWH/CIAP June 2003 PCAB license but will need to present the license prior to award lReplace surety bond with Bank DBM June 2003 guarantee/Letters of Credit/other forms (IRRs) lReview the BOT Law and "unsolicited proposals" rule NEDA June 2003 lReview the law on arbitration to align it with international CIAP/DPWH June 2003 practice 32 COUNTRY PROCUREMENT ASSESSMENT REPORT Responsible Area of Concern Recommended Action(s) Agency Timeline Public Procurement in NGAs Strengthen lEstablish the GPPB DBM/NEDA June 2003 Organization Conduct a study on the scope of work of the and Staffing GPPB lEstablish a national training program DBM/CSC June 2004 lProfessionalize the procurement function December 2003 · Develop a Study CSC · Implementation (NGA) DBM/All Agencies lStudy to corporatize PS as independent entity DBM-PS June 2003 Improve lEnforce the regulation on transparency through COA December 2004 Procurement procurement audit Practices and · Develop and implement a training program for COA Processes auditors on procurement audit lStudy on registration and licensing of contractors; design NEDA/DPWH/ June 2003 and implement an action plan to streamline processes for CIAP-PDCB registration and licensing of contractors · NEDA to communicate the on-going issue and the study lEnforce processing lead -time through application of COA June 2004 sanctions and monitoring through procurement audit (AO 129) · Develop and implement a training program for COA auditors on procurement audit lStrictly implement procurement plan; Develop and IAs/COA June 2004 implement a training program for COA auditors on procurement audit lIRRS of the law should prohibit negotiation of price and DBM June 2003 contract amount (goods and works) after bid opening (IRR) lDevelop a framework and guidelines for Congressional DILG/DBM/ December 2002 insertions and Countryside Development Fund Leagues · TOR prepared and submitted by DILG lPrice monitoring to be included as an important function DBM June 2003 of Oversight Board (IRR) lCivil Service Commission (CSC) or OSG to provide support CSC June 2003 to members of BAC/PEAC subjected to harassment · CSC agrees to make a study lDevelop on demand satisfactory securities to be issued WB December 2003 by non-banking institutions; Impose penalties in lieu of bid security for small contracts lProvide the waiver for goods from Korea and Japan as DTI/PSB December 2003 other countries per Philippine Flag Vessel Law lStudy on the financial impact of the Flag Vessel Law DTI June 2003 Planning/Bidding/ l Revise Section 1-A, Rule IV of IRRs of RA 8047 and DepEd December 2003 Advertisement General Policy No. 5 of the National Book Policy to relax its requirements on importation of raw materials for textbooks lAmendment of the law to allow textbooks of foreign DepEd December 2004 authors to compete locally for Science, Math and English textbooks COUNTRY PROCUREMENT ASSESSMENT REPORT 33 Area of Concern Responsible Recommended Action(s) Agency Timeline Public Procurement lReview and implement DOH reforms in terms of DOH December 2003 decentralization of procurement lDevelop a mechanism to ensure wider participation DOH/SEMP2 December 2003 and competition Evaluation of lAdopt the standard pass or fail criteria for all procurement DPWH/ADB June 2003 Bid Awards except prequalification of ADB-funded projects which will also be scheduled to adopt pass or fail criteria in 2002 lStandard estimated cost per classroom, for budgetary DPWH June 2003 purposes, should not be a limitation to the resulting bid price lStreamline the policy on textbook content evaluation DepEd Done lStrengthen BFAD's capacity to shorten the registration DOH June 2003 process lTraining and empowerment of the bid committee DOH/SEMP2/ December 2003 members (professionalization) All agencies lStreamline the procedure for contract review by Legal DOH/SEMP2 December 2003 Services Division Delivery, Inspection, lProvide/strengthen quality assurance mechanism for DPWH June 2004 Payment design and supervision lStreamline the cash allocation process and approval DOH/SEMP2 December 2003 process to avoid delay Monitoring lDevelop an effective procurement planning and inventory DepEd June 2003 monitoring system at the Regional, Division, District and School Levels lDevelop a mechanism to monitor and evaluate the DOH/SEMP2 June 2003 performance of the suppliers, constructors/consultants Sectoral Issues lStrengthen DepEd's procurement capacity DepEd June 2003 lReview the staffing of the Procurement and Logistics Service DOH/SEMP2 December 2002 lEstablish a National Drug Price Monitoring System DOH/SEMP2 June 2003 lConduct a study on price pharmaceuticals DOH/SEMP2 December 2003 Enhance lPush for 60% implementation by all agencies of Gov't. DBM/PS December 2003 Transparency Electronic Procurement System (GEPS) rule lUse of computerized registry by all projects following DPWH December 2004 progress of computerization lEncourage and monitor civil society's participation in PWI/TIP On-going procurement at all levels lDevelop guidelines and training for NGOs and civil society December 2002 Attachment 2 - Procurement Side Letter* Date International Bank for Reconstruction and Development 1818 H. Street, N.W. Washington, D.C. 20433 United States of America Re: Loan No. ____________ (_______________________________________) Representations and Assurances on Procurement__ Dear Sirs and Madams: I am writing on behalf of Republic of the Philippines (the Philippines) in respect of the Loan Agreement, of even date herewith, entered into between the International Bank for Reconstruction and Development (the Bank) and the Philippines in respect of the above-captioned Project (the Project), and am pleased to provide the Bank the following representations and assurances: 1. The Philippines represents that the conflict existing between: (a) the Philippines procurement procedures; and (b) the Bank's "Guidelines for Procurement under IBRD Loans and IDA Credits" published by the Bank in January 1995 and revised in January and August 1996, September 1997, and January 1999 together with the Bank's "Guidelines for the Selection and Employment of Consultants by World Bank Borrowers" published by the Bank in January 1997 and revised in September 1997, January 1999 and May 2002 (together the "Bank's Guidelines") is eliminated through the promulgation of Execu- tive Order No. 40 (EO 40) by the Philippines President on October 8, 2001. EO 40 covers the procure- ment process from the pre-procurement conference up to award of contract and, therefore, amends: (a) the Implementing Rules and Regulations of Presidential Decree No.1594 relating to procurement of works; (b) Executive Order No. 262, series of 2002, and its Implementing Rules and Regulations relating to procurement of goods; and (c) the Guidelines for the Procurement of Consulting Services for Government Projects implementing Executive Order No. 164, series of 1987, among others. The second paragraph of EO 40 regarding applicability, in relevant part, provides: "...Nothing in this Order and its implementing rules and regulations shall negate any existing and future commitments with respect to the bidding and award of contracts financed partly or wholly with funds from international financing institutions, as well as from bilateral and other similar foreign sources." In any event, the Philippines understands and agrees that, with respect to the Project, the Bank's Guidelines are and will continue to be recognized and given full force and effect. 2. The Philippines further confirms that Section 11 of Republic Act No. 8182 of June 1996, which: (a) provides for preferential treatment for Filipino consultants, suppliers and manufacturers; and (b) prohibits feasibility and design consultants from participating in any subsequent phase of project implementation, does not modify the applicability of Section 4 of Republic Act No. 4860 (the Foreign Borrowing Act). This is expressly provided in Section 6.2, second paragraph of the Implementing Rules and Regulations of Republic Act No. 8182 stating, in respect to the first paragraph thereof pertaining to Filipino preference/association by foreign firms with local firms/practitioners, that "The foregoing paragraph shall be without prejudice to existing laws including but not limited to RA 4860 (Foreign Borrowings Act),..." Moreover, Section 4 of Republic Act No. 4860, as amended, states in relevant part: *To be updated after passage of the law and publication of IRRs. "In the contracting of any loan, credit or indebtedness under this Act, the President of the Philippines may, when necessary, agree to modify the application of any law granting preferences, or imposing restrictions on, international competitive bidding ..." Said Section 4 remains in full force and effect. Thus the Bank's Guidelines relating to the employment of consultants will be fully applicable in the above noted Project. 3. The Philippines specifically assures you that the National Competitive Bidding procedures (NCB) of the Philippines will apply, except that, unless otherwise agreed by the Bank in writing, the following procedures will apply to procurement of all goods and works contracts to be financed by the Bank under the Project: a. NCB bidding opportunities, including those which are invited by local government units, shall be advertised in national newspapers of general circulation, with sufficient time for bidders to prepare offers, which shall not be less than 30 days, unless a different time is specifically agreed upon by the Bank. Posting should also be done in the Government Electronic Procurement System Website. b. Foreign suppliers and contractors from eligible countries will be allowed to participate, if interested, without first being required to associate or enter into joint ventures with local firms. However, joint venture will be encouraged. c. Except for major or complex works, as defined in the Loan Agreement, where prequalification is required, prequalification of contractors shall only be undertaken upon prior Bank approval. d. Eligibility screening may be carried out prior to bidding with prior concurrence of the Bank. e. If any bidder is denied access to the bidding process for reasons unrelated to its financial and technical qualifications to perform the contract, prior concurrence of the Bank shall be sought. f. A ceiling can be applied with specific agreement by the Bank in advance bidding. The Approved Budget Estimate may be disclosed in the advertisement or in the bidding documents. g. The Bank's domestic or regional preferences will not be applied in the evaluation of bids, and other preferences in effect in the Philippines will not be used, except with the prior concurrence of the Bank. h. Price negotiation shall not be allowed. However, in case of budget limitation, adjustment in quantities of goods or scope of work may be agreed upon, subject to the concurrence of the Bank. i. Bid opening shall be open to those who wish to attend, and the deadline for submission of bids should be the same as that for bid opening. j. Suppliers and contractors will not be required to purchase only local goods or supplies or to hire local labor, except unskilled labor. k. Explicit bid evaluation criteria will be set forth in the bid documents. l. Modifications exceeding 15% of the contract amount and material changes in the conditions during implementation require prior Bank concurrence. m. For foreign suppliers and contractors, prior registration (such as BFAD registration for drugs, agency accreditation, etc.) licensing (such as PCAB license, etc.) and/or other government authorization (such as Mayor's permit, etc.) will not be a requirement for purposes of partici- pating in bidding competitions. Such registration, licensing and/or other government authorization may, however, be required from the selected bidder as condition to signing the contract. 36 COUNTRY PROCUREMENT ASSESSMENT REPORT n. Bid and performance securities shall be specified in the bidding documents, which may be in the form of certified check, letter of credit, or bank guarantee from a reputable bank. o. To obtain the best market prices available, open competitive bidding shall be maximized. For this purpose, restrictive importation permits from private association, as well as protective preferences for Philippine Flag vessels, shall not be required. p. Within 72 hours from bid opening, but prior to bid evaluation, a copy of the certified minutes of bid opening shall be submitted to the Bank, which shall contain the following: (a) names of bidders provided with bid documents; (b) original amount (unevaluated) of the bid of each bidder as read; (c) date, time and place of bid opening; (d) summary of bid proceedings; and (e) names of bidders' representatives and other persons present. q. Two-envelope system procedures will not be used unless there is prior clearance from the Bank. 4. The Philippines also assures you that, unless otherwise agreed by the Bank in writing, the following procedures will be adhered to in respect of the procurement of consultants' services to be financed by the Bank under the Project: a. Mandatory joint venture or association with Philippine consulting firms will only be required if: (i) there is a sufficient number of capable domestic firms available to allow reasonable freedom of choice for the invited foreign firms; (ii) the desirable contribution by either firm will not be constrained by any prescribed manner or extent or participation; and (iii) association with specified named firms selected by the borrower will not be required. b. Qualified consulting firms, which come to the attention of the agency requiring services, will also be eligible for the shortlist. c. When circumstances warrant and with the Bank's prior "no objection", consulting firms may be asked to continue working on a project beyond the phase for which their services were originally contracted. d. Price adjustments in consultant's contracts will remain in effect; there will be no ceiling on price adjustments under Bank financed contracts. e. The Bank's standard Forms of Contract for Consultants' Services for Complex Time-Based Assignments and for Lump Sum Remuneration shall be used for contracts financed by the Bank. f. The "Percentage of Construction Cost Method" will not be used to determine the compensation of Bank-financed consultancy services. The Philippines understands that the Bank relies on the representations and assurances contained herein for entering into the Loan Agreement in respect of the Project. It further agrees that, unless otherwise agreed between the Philippines and the Bank in writing, these representations and assurances form an integral part of the said Loan Agreement. Very truly yours, REPUBLIC OF THE PHILIPPINES By ______________________ Authorized Representative COUNTRY PROCUREMENT ASSESSMENT REPORT 37 N/A N/A $50,000 $50,000 $50,000 $50,000 $50,000 $50,000 $50,000 $50,000 $50,000 $50,000 $50,000 $50,000 $50,000 $50,000 Individual $100,000 $50,000 $50,000 $50,000 $50,000 $100,000 $50,000 $50,000 $50,000 Firm N/A N/A $100,000 $100,000 $200,000 $100,000 $100,000 $100,000 $200,000 $100,000 $100,000 $100,000 $100,000 $100,000 $100,000 $100,000 $200,000 $100,000 $200,000 $100,000 $100,000 $100,000 $100,000 $100,000 $100,000 LGU first & each ICB Threshold N/A N/A for Goods $200,000 $1million $50,000 $200,000 $5million $5million $1million $1million $50,000 $50,000 $100,000 $50,000 $500,000 $1million $100,000 All $200,000 $1million $100,000 $50,000 contracts $2million All $1million contract Review Prior more, contracts to of or PMP 2002) 3of LGU estimated $500,000 first March Amount $50,000 each of and (As orks for Assessment contract than W contracts contracts $200,000 $5million $1million $200,000 $5million $5million $5million $5million $50,000 contracts first $100,000 $100,000 $300,000 $300,000 $500,000 $5million $300,000 $5million $100,000 $2million less all All All & contract contracts Risk And cost first LTPBMC Assessment $75,000 contracts 3 all 3-Project First ICB, Risk All Project Risk Low Average High Average Low Low Low Average High Average Average Average High Low Low High Assessment Average/High Average/High Average Average Average Average Average Average Average Attachment A fice Bank Bank Social Bank Bank Of Marikina Land NPC DOH DAR NIA DA DENR SBMA DENR of Agency DepEd MWSS DPWH DBP/DILG Land DBP/DILG Land Land DOF-MDFO Fund DOF/MDFO DPWH/MMDA DENR/NIP Land Implementing Szopad Grants City DSWD/DepEd/DOH DepEd/DSWD/DBM Protocol (GEF) Protocol) Areas Development APL-2 Management (LOGOFIND) Management (GEF) & Fund/Montreal (Montreal Motherhood Protected Name (HD) Management & Sanitation-APL1 Trust Sanitation Safe Management II Transport Reinforcement & Education Communities Development Resources & & Substance Fund Development II III (Infra) ater ater Development Sewerage Development Priority Development & Improvement Urban Grid of Project (GEF) Development Based W W Freeport Development sHealth Rural Reform Social Rural Road Environment Elementary Child Expenditure Second Depletion Development(RD) TRIP Finance Finance Resources AD Administration Urban Urban Districts Bay Finance Manila 38 COUNTRYThird PROCUREMENT ARural omen' ater ater Human W Early Social Rural Rural SSESSMENT Agrarian W Community RSZOPEPORTMindanao Land Infrastructure LGU LGU W Subic Manila LGU National Metro Energy Transmission Global Conservation Mindanao Ozone MMUR Attachment 4 - Republic Act 9184 Government Procurement Reform Act ARTICLE I GENERAL PROVISIONS SECTION 1. Short Title. - This Act shall be known as the "Government Procurement Reform Act." SEC. 2. Declaration of Policy. - It is the declared policy of the State to promote the ideals of good governance in all its branches, departments, agencies, subdivisions, and instrumentalities, including government-owned and/or controlled corporations, and local government units. SEC. 3. Governing Principles on Government Procurement. - All procurement of the national government, its departments, bureaus, offices and agencies, including state universities and colleges, government-owned and/or controlled corporations, government financial institutions and local government units, shall, in all cases, be governed by these principles: a) Transparency in the procurement process and in the implementation of procurement contracts. b) Competitiveness by extending equal opportunity to enable private contracting parties who are eligible and qualified to participate in public bidding. c) Streamlined procurement process that will uniformly apply to all government procurement. The procurement process shall be simple and made adaptable to advances in modern technology in order to ensure an effective and efficient method. d) System of accountability where both the public officials directly or indirectly involved in the procurement process as well as in the implementation of procurement contracts and the private parties that deal with government are, when warranted by circumstances, investigated and held liable for their actions relative thereto. e) Public monitoring of the procurement process and the implementation of awarded contracts with the end in view of guaranteeing that these contracts are awarded pursuant to the provisions of this Act and its implementing rules and regulations, and that all these contracts are performed strictly according to specifications. SEC. 4. Scope and Application. - This Act shall apply to the Procurement of Infrastructure Projects, Goods, and Consulting Services, regardless of source of funds, whether local or foreign, by all branches and instrumentalities of government, its departments, offices and agencies, including government-owned and/or -controlled corporations and local government units, subject to the provisions of Commonwealth Act No. 138. Any treaty or international or executive agreement affecting the subject matter of this Act to which the Philippine government is a signatory shall be observed. COUNTRY PROCUREMENT ASSESSMENT REPORT 39 SEC. 5. Definition of Terms. - For purposes of this Act, the following terms or words and phrases shall mean or be understood as follows: (a) Approved Budget for the Contract (ABC) - refers to the budget for the contract duly approved by the Head of the Procuring Entity, as provided for in the General Appropriations Act and/or continuing appropriations, in the case of National Government Agencies; the Corporate Budget for the contract approved by the governing Boards, pursuant to E.O. No. 518, series of 1979, in the case of Government-Owned and/or Controlled Corporations, Government Financial Institutions and State Universities and Colleges; and the Budget for the contract approved by the respective Sanggunian, in the case of Local Government Units. (b) BAC - refers to the Bids and Awards Committee established in accordance with Article V of this Act. (c) Bidding Documents - refer to documents issued by the Procuring Entity as the basis for Bids, furnishing all information necessary for a prospective bidder to prepare a bid for the Goods, Infrastructure Projects, and Consulting Services to be provided. (d) Bid - refers to a signed offer or proposal submitted by a supplier, manufacturer, distributor, contractor or consultant in response to the Bidding Documents. (e) Competitive Bidding - refers to a method of procurement which is open to participation by any interested party and which consists of the following processes: advertisement, pre-bid conference, eligibility screening of prospective bidders, receipt and opening of bids, evaluation of bids, post-qualification, and award of contract, the specific requirements and mechanics of which shall be defined in the IRR to be promulgated under this Act. (f) Consulting Services - refer to services for Infrastructure Projects and other types of projects or activities of the Government requiring adequate external technical and professional expertise that are beyond the capability and/or capacity of the government to undertake such as, but not limited to: (i) advisory and review services; (ii) pre-investment or feasibility studies; (iii) design; (iv) construction supervision; (v) management and related services; and (vi) other technical services or special studies. (g) G-EPS - refers to the Government Electronic Procurement System as provided in Section 8 of this Act. 40 COUNTRY PROCUREMENT ASSESSMENT REPORT (h) Goods - refer to all items, supplies, materials and general support services, except consulting services and infrastructure projects, which may be needed in the transaction of public businesses or in the pursuit of any government undertaking, project or activity, whether in the nature of equipment, furniture, stationery, materials for construction, or personal property of any kind, including non-personal or contractual services such as the repair and maintenance of equipment and furniture, as well as trucking, hauling, janitorial, security, and related or analogous services, as well as procurement of materials and supplies provided by the procuring entity for such services. (i) GPPB - refers to the Government Procurement Policy Board established in accordance with Article XX of this Act. (j) Head of the Procuring Entity - refers to: (i ) the head of the agency or his duly authorized official, for national government agencies; (ii) the governing board or its duly authorized official, for government-owned and/or controlled corporations; or (iii) the local chief executive, for local government units. Provided, That in a department, office or agency where the procurement is decentralized, the Head of each decentralized unit shall be considered as the Head of the Procuring Entity subject to the limitations and authority delegated by the head of the department, office or agency. (k) Infrastructure Projects - include the construction, improvement, rehabilitation, demolition, repair, restoration or maintenance of roads and bridges, railways, airports, seaports, communication facilities, civil works components of information technology projects, irrigation, flood control and drainage, water supply, sanitation, sewerage and solid waste management systems, shore protection, energy/power and electrification facilities, national buildings, school buildings, hospital buildings and other related construction projects of the government. (l) IRR - refer to the implementing rules and regulations to be promulgated in accordance with Section 75 this Act. (m) Portal - refers to a website that aggregates a wide variety of content for the purpose of attracting a large number of users. (n) Procurement - refers to the acquisition of Goods, Consulting Services, and the contracting for Infrastructure Projects by the Procuring Entity. Procurement shall also include the lease of goods and real estate. With respect to real property, its procurement shall be governed by the provisions of Republic Act No. 8974, entitled "An Act to Facilitate the Acquisition of Right-of-Way Site or Location for National Government Infrastructure Projects and for Other Purposes", and other applicable laws, rules and regulations. COUNTRY PROCUREMENT ASSESSMENT REPORT 41 (o) Procuring Entity - refers to any branch, department, office, agency, or instrumentality of the government, including state universities and colleges, government-owned and/or -controlled corporations, government financial institutions, and local government units procuring Goods, Consulting Services and Infrastructure Projects. SEC. 6. Standardization of Procurement Process and Forms. - To systematize the procurement process, avoid confusion and ensure transparency, the procurement process, including the forms to be used, shall be standardized insofar as practicable. For this purpose, the GPPB shall pursue the development of generic procurement manuals and standard bidding forms, the use of which once issued shall be mandatory upon all Procuring Entities. ARTICLE II PROCUREMENT PLANNING SEC. 7. Procurement Planning and Budgeting Linkage. - All procurement should be within the approved budget of the Procuring Entity and should be meticulously and judiciously planned by the Procuring Entity concerned. Consistent with government fiscal discipline measures, only those considered crucial to the efficient discharge of governmental functions shall be included in the Annual Procurement Plan to be specified in the IRR. No government Procurement shall be undertaken unless it is in accordance with the approved Annual Procurement Plan of the Procuring Entity. The Annual Procurement Plan shall be approved by the Head of the Procuring Entity and must be consistent with its duly approved yearly budget. The Annual Procurement Plan shall be formulated and revised only in accordance with the guidelines set forth in the IRR. In the case of Infrastructure Projects, the Plan shall include engineering design and acquisition of right-of-way. ARTICLE III PROCUREMENT BY ELECTRONIC MEANS SEC. 8. Procurement By Electronic Means. - To promote transparency and efficiency, information and communications technology shall be utilized in the conduct of procurement procedures. Accordingly, there shall be a single portal that shall serve as the primary source of information on all government procurement. The G-EPS shall serve as the primary and definitive source of information on government procurement. Further, the GPPB is authorized to approve changes in the procurement process to adapt to improvements in modern technology, provided that such modifications are consistent with the provisions of Section 3 of this Act. 42 COUNTRY PROCUREMENT ASSESSMENT REPORT To take advantage of the significant built-in efficiencies of the G-EPS and the volume discounts inherent in bulk purchasing, all Procuring Entities shall utilize the G-EPS for the procurement of common supplies in accordance with the rules and procedures to be established by the GPPB. With regard to the procurement of non-common use items, infrastructure projects and consulting services, agencies may hire service providers to undertake their electronic procurement provided these service providers meet the minimum requirements set by the GPPB. SEC. 9. Security, Integrity and Confidentiality. - The G-EPS shall ensure the security, integrity and confidentiality of documents submitted through the system. It shall include a feature that provides for an audit trail for on-line transactions and allow the Commission on Audit to verify the security and integrity of the systems at any time. ARTICLE IV COMPETITIVE BIDDING SEC. 10. Competitive Bidding. - All Procurement shall be done through Competitive Bidding, except as provided for in Article XVI of this Act. ARTICLE V BIDS AND AWARDS COMMITTEE SEC. 11. The BAC and its Composition. - Each procuring entity shall establish a single BAC for its procurement. The BAC shall have at least five (5) members, but not more than seven (7) members. It shall be chaired by at least a third ranking permanent official of the procuring entity other than its head, and its composition shall be specified in the IRR. Alternatively, as may be deemed fit by the head of the procuring entity, there may be separate BACs where the number and complexity of the items to be procured shall so warrant. Similar BACs for decentralized and lower level offices may be formed when deemed necessary by the head of the procuring entity. The members of the BAC shall be designated by the Head of Procuring Entity. However, in no case shall the approving authority be a member of the BAC. Unless sooner removed for a cause, the members of the BAC shall have a fixed term of one (1) year reckoned from the date of appointment, renewable at the discretion of the Head of the Procuring Entity. In case of resignation, retirement, separation, transfer, re-assignment, removal, the replacement shall serve only for the unexpired term: Provided, That in case of leave or suspension, the replacement shall serve only for the duration of the leave or suspension. For justifiable causes, a member shall be suspended or removed by the Head of the Procuring Entity. SEC. 12. Functions of the BAC. - The BAC shall have the following functions: advertise and/or post the invitation to bid, conduct pre-procurement and pre-bid conferences, determine the eligibility of prospective bidders, receive bids, conduct the evaluation of bids, undertake post- qualification proceedings, recommend award of contracts to the Head of the Procuring Entity or his duly authorized representative: Provided, that in the event the Head of the Procuring Entity shall COUNTRY PROCUREMENT ASSESSMENT REPORT 43 disapprove such recommendation, such disapproval shall be based only on valid, reasonable and justifiable grounds to be expressed in writing, copy furnished the BAC; recommend the imposition of sanctions in accordance with Article XXIII, and perform such other related functions as may be necessary, including the creation of a Technical Working Group from a pool of technical, financial and/or legal experts to assist in the procurement process. In proper cases, the BAC shall also recommend to the Head of the Procuring Entity the use of Alternative Methods of Procurement as provided for in Article XVI hereof. The BAC shall be responsible for ensuring that the Procuring Entity abides by the standards set forth by this Act and the IRR, and it shall prepare a procurement monitoring report that shall be approved and submitted by the Head of the Procuring Entity to the GPPB on a semestral basis. The contents and coverage of this report shall be provided in the IRR. SEC. 13. Observers. - To enhance the transparency of the process, the BAC shall, in all stages of the procurement process, invite, in addition to the representative of the Commission on Audit, at least two (2) observers to sit in its proceedings, one (1) from a duly recognized private group in a sector or discipline relevant to the procurement at hand, and the other from a non-government organization: Provided, however, That they do not have any direct or indirect interest in the contract to be bid out. The observers should be duly registered with the Securities and Exchange Commission and should meet the criteria for observers as set forth in the IRR. SEC. 14. BAC Secretariat. - To assist the BAC in the conduct of its functions, the Head of the Procuring Entity shall create a Secretariat that will serve as the main support unit of the BAC. The Head of the Procuring Entity may also designate an existing organic office within the agency to serve as the Secretariat. SEC. 15. Honoraria of BAC Members. - The Procuring Entity may grant payment of honoraria to the BAC members in an amount not to exceed twenty five percent (25%) of their respective basic monthly salary subject to availability of funds. For this purpose, the Department of Budget and Management (DBM) shall promulgate the necessary guidelines. SEC 16. Professionalization of BAC, BAC Secretariat and Technical Working Group Members. - The GPPB shall establish a sustained training program for developing the capacity of the BACs, BAC Secretariats and Technical Working Groups of Procuring Entities, and professionalize the same. ARTICLE VI PREPARATION OF BIDDING DOCUMENTS SEC. 17. Form and Contents of Bidding Documents. - The Bidding Documents shall be prepared by the Procuring Entity following the standard forms and manuals prescribed by the GPPB. The Bidding Documents shall include the following: (a) Approved Budget for the Contract; 44 COUNTRY PROCUREMENT ASSESSMENT REPORT (b) Instructions to Bidders, including criteria for eligibility, bid evaluation and post- qualification, as well as the date, time and place of the pre-bid Conference (where applicable), submission of bids and opening of bids; (c) Terms of Reference; (d) Eligibility Requirements; (e) Plans and Technical Specifications; (f) Form of Bid, Price Form, and List of Goods or Bill of Quantities; (g) Delivery Time or Completion Schedule; (h) Form and Amount of Bid Security; (i) Form and Amount of Performance Security and Warranty; and, (j) Form of Contract, and General and Special Conditions of Contract. The Procuring Entity may require additional document requirements or specifications necessary to complete the information required for the bidders to prepare and submit their respective bids. SEC. 18. Reference to Brand Names. - Specifications for the Procurement of Goods shall be based on relevant characteristics and/or performance requirements. Reference to brand names shall not be allowed. SEC. 19. Access to Information. - In all stages of the preparation of the Bidding Documents, the Procuring Entity shall ensure equal access to information. Prior to their official release, no aspect of the Bidding Documents shall be divulged or released to any prospective bidder or person having direct or indirect interest in the project to be procured. ARTICLE VII INVITATION TO BID SEC. 20. Pre-Procurement Conference. - Prior to the issuance of the Invitation to Bid, the BAC is mandated to hold a pre-procurement conference on each and every procurement, except those contracts below a certain level or amount specified in the IRR, in which case, the holding of the same is optional. The pre-procurement conference shall assess the readiness of the procurement in terms of confirming the certification of availability of funds, as well as reviewing all relevant documents in relation to their adherence to law. This shall be attended by the BAC, the unit or officials who prepared the bidding documents and the draft Invitation to Bid, as well as consultants hired by the agency concerned and the representative of the end-user. COUNTRY PROCUREMENT ASSESSMENT REPORT 45 SEC. 21. Advertising and Contents of the Invitation to Bid. - In line with the principle of transparency and competitiveness, all Invitations to Bid for contracts under competitive bidding shall be advertised by the Procuring Entity in such manner and for such length of time as may be necessary under the circumstances, in order to ensure the widest possible dissemination thereof, such as, but not limited to, posting in the Procuring Entity's premises, in newspapers of general circulation, the G-EPS and the website of the Procuring Entity, if available. The details and mechanics of implementation shall be provided in the IRR to be promulgated under this Act. The Invitation to Bid shall contain, among others: (a) A brief description of the subject matter of the Procurement; (b) A general statement on the criteria to be used by the Procuring Entity for the eligibility check, the short listing of prospective bidders, in the case of the Procurement of Consulting Services, the examination and evaluation of Bids, and post-qualification; (c) The date, time and place of the deadline for the submission and receipt of the eligibility requirements, the pre-bid conference if any, the submission and receipt of bids, and the opening of bids; (d) The Approved Budget for the Contract to be bid; (e) The source of funds; (f) The period of availability of the Bidding Documents, and the place where these may be secured; (g) The contract duration; and, (h) Such other necessary information deemed relevant by the Procuring Entity. SEC. 22. Pre-bid Conference. - At least one pre-bid conference shall be conducted for each procurement, unless otherwise provided in the IRR. Subject to the approval of the BAC, a pre- bid conference may also be conducted upon the written request of any prospective bidder. The pre-bid conference(s) shall be held within a reasonable period before the deadline for receipt of bids to allow prospective bidders to adequately prepare their bids, which shall be specified in the IRR. ARTICLE VIII RECEIPT AND OPENING OF BIDS SEC. 23. Eligibility Requirements for the Procurement of Goods and Infrastructure Projects. - The BAC or, under special circumstances specified in the IRR, its duly designated 46 COUNTRY PROCUREMENT ASSESSMENT REPORT organic office shall determine the eligibility of prospective bidders for the procurement of Goods and Infrastructure Projects, based on the bidders' compliance with the eligibility requirements within the period set forth in the Invitation to Bid. The eligibility requirements shall provide for fair and equal access to all prospective bidders. The documents submitted in satisfaction of the eligibility requirements shall be made under oath by the prospective bidder or by his duly authorized representative certifying to the correctness of the statements made and the completeness and authenticity of the documents submitted. A prospective bidder may be allowed to submit his eligibility requirements electronically. However, said bidder shall later on certify under oath as to correctness of the statements made and the completeness and authenticity of the documents submitted. SEC. 24. Eligibility Requirements and Short Listing for Consulting Services. - The eligibility of prospective bidders for the Procurement of Consulting Services shall be determined by their compliance with the eligibility requirements prescribed for the Competitive Bidding concerned, within the period stated in the Invitation to Bid. The eligibility requirements shall provide for fair and equal access to all prospective bidders. The prospective bidder shall certify under oath as to the correctness of the statements made, and the completeness and authenticity of the documents submitted. A prospective bidder may be allowed to submit his eligibility requirements electronically. However, said bidder shall later on certify under oath as to correctness of the statements made and the completeness and authenticity of the documents submitted. The eligible prospective bidders shall then be evaluated using numerical ratings on the basis of the short listing requirements prescribed for the Competitive Bidding concerned, within the period stated in the Invitation to Bid to determine the short list of bidders who shall be allowed to submit their respective bids. SEC. 25. Submission and Receipt of Bids. - A bid shall have two (2) components, namely the technical and financial components which should be in separate sealed envelopes, and which shall be submitted simultaneously. The bids shall be received by the BAC on such date, time and place specified in the invitation to bid. The deadline for the receipt of bids shall be fixed by the BAC, giving it sufficient time to complete the bidding process and giving the prospective bidders sufficient time to study and prepare their bids. The deadline shall also consider the urgency of the procurement involved. Bids submitted after the deadline shall not be accepted. Notwithstanding the provisions of this Section and Section 26 of this Act, the GPPB may prescribe innovative procedures for the submission, receipt and opening of bids through the G-EPS. SEC. 26 Modification and Withdrawal of Bids. - A bidder may modify his bid, provided that this is done before the deadline for the receipt of bids. The modification shall be submitted in a sealed envelope duly identified as a modification of the original bid and stamped received by the BAC. COUNTRY PROCUREMENT ASSESSMENT REPORT 47 A bidder may, through a letter, withdraw his bid or express his intention not to participate in the bidding before the deadline for the receipt of bids. In such case, he shall no longer be allowed to submit another Bid for the same contract either directly or indirectly. SEC. 27. Bid Security. - All Bids shall be accompanied by a Bid security, which shall serve as a guarantee that, after receipt of the Notice of Award, the winning bidder shall enter into contract with the Procuring Entity within the stipulated time and furnish the required performance security. The specific amounts and allowable forms of the Bid security shall be prescribed in the IRR. SEC. 28. Bid Validity. - Bids and Bid securities shall be valid for such reasonable period of time indicated in the Bidding Documents. The duration for each undertaking shall take into account the time involved in the process of Bid evaluation and award of contract. SEC. 29. Bid Opening. - The BAC shall publicly open all bids at the time, date, and place specified in the bidding documents. The minutes of the bid opening shall be made available to the public upon written request and payment of a specified fee. ARTICLE IX BID EVALUATION SEC. 30. Preliminary Examination of Bids. - Prior to Bid evaluation, the BAC shall examine first the technical components of the bids using "pass/fail" criteria to determine whether all required documents are present. Only bids that are determined to contain all the bid requirements of the technical component shall be considered for opening and evaluation of their financial component. SEC. 31. Ceiling for Bid Prices. - The ABC shall be the upper limit or ceiling for the Bid prices. Bid prices that exceed this ceiling shall be disqualified outright from further participating in the bidding. There shall be no lower limit to the amount of the award. SEC. 32. Bid for the Procurement of Goods and Infrastructure Projects. - For the procurement of Goods and Infrastructure Projects, the BAC shall evaluate the financial component of the bids. The bids that passed the preliminary examination shall be ranked from lowest to highest in terms of their corresponding calculated prices. The bid with the lowest calculated price shall be referred to as the "Lowest Calculated Bid." SEC. 33. Bid Evaluation of Short Listed Bidders for Consulting Services. - For the Procurement of Consulting Services, the Bids of the short listed bidders shall be evaluated and ranked using numerical ratings in accordance with the evaluation criteria stated in the Bidding Documents, which shall include factors such as, but not limited to, experience, performance, quality of personnel, price and methodology. The Bids shall be ranked from highest to lowest in terms of their corresponding calculated ratings. The Bid with the highest calculated rating shall be the "Highest Rated Bid." After approval by the Head of the Procuring Entity of the Highest Rated Bid, the BAC shall invite the bidder concerned for negotiation and/or clarification on the following items: financial proposal submitted by the bidder, terms of reference, scope of services, methodology and 48 COUNTRY PROCUREMENT ASSESSMENT REPORT work program, personnel to be assigned to the job, services/facilities/data to be provided by the Procuring Entity concerned, and provisions of the contract. When negotiations with the first-in-rank bidder fails, the financial proposal of the second rank bidder shall be opened for negotiations: Provided, That the amount indicated in the financial envelope shall be made as the basis for negotiations and the total contract amount shall not exceed the amount indicated in the envelope and the ABC. Whenever necessary, the same process shall be repeated until the bid is awarded to the winning bidder. ARTICLE X POST-QUALIFICATION SEC. 34. Objective and Process of Post-qualification. - Post-qualification is the stage where the bidder with the Lowest Calculated Bid, in the case of Goods and Infrastructure Projects, or the Highest Rated Bid, in the case of Consulting Services, undergoes verification and validation whether he has passed all the requirements and conditions as specified in the Bidding Documents. If the bidder with the Lowest Calculated Bid or Highest Rated Bid passes all the criteria for post- qualification, his Bid shall be considered the "Lowest Calculated Responsive Bid," in the case of Goods and Infrastructure or the "Highest Rated Responsive Bid," in the case of Consulting Services. However, if a bidder fails to meet any of the requirements or conditions, he shall be "post-disqualified" and the BAC shall conduct the post-qualification on the bidder with the second Lowest Calculated Bid or Highest Rated Bid. If the bidder with the second Lowest Calculated Bid or Highest Rated Bid is post-disqualified, the same procedure shall be repeated until the Lowest Calculated Responsive Bid or Highest Rated Responsive Bid is finally determined. In all cases, the contract shall be awarded only to the bidder with the Lowest Calculated Responsive Bid or Highest Rated Responsive Bid. SEC. 35. Failure of Bidding. - There shall be a failure of bidding if: a) No bids are received; b) No bid qualifies as the Lowest Calculated Responsive Bid or Highest Rated Responsive Bid; or, c) Whenever the bidder with the highest rated/lowest calculated responsive bid refuses, without justifiable cause to accept the award of contract, as the case may be. Under any of the above instances, the contract shall be re-advertised and re-bid. The BAC shall observe the same process and set the new periods according to the same rules followed during the first bidding. After the second failed bidding, however, the BAC may resort to negotiated procurement as provided for in Section 53 of this Act. COUNTRY PROCUREMENT ASSESSMENT REPORT 49 SEC. 36. Single Calculated/Rated and Responsive Bid Submission. - A single calculated/rated and responsive bid shall be considered for award if it falls under any of the following circumstances: a) If after advertisement, only one prospective bidder submits a Letter of Intent and/or applies for eligibility check, and meets the eligibility requirements or criteria, after which it submits a bid, which is found to be responsive to the bidding requirements; b) If after the advertisement, more than one prospective bider applies for eligibility check, but only one bidder meets the eligibility requirements or criteria, after which it submits a bid which is found to be responsive to the bidding requirements; or c) If after the eligibility check, more than one bidder meets the eligibility requirements, but only one bidder submits a bid, and its bid is found to be responsive to the bidding requirements. In all instances, the Procuring Entity shall ensure that the ABC reflects the most advantageous prevailing price for the Government. ARTICLE XI AWARD, IMPLEMENTATION AND TERMINATION OF THE CONTRACT SEC. 37. Notice and Execution of Award. - Within a period not exceeding fifteen (15) calendar days from the determination and declaration by the BAC of the Lowest Calculated Responsive Bid or Highest Rated Responsive Bid, and the recommendation of the award, the Head of the Procuring Entity or his duly authorized representative shall approve or disapprove the said recommendation. In case of approval, the Head of the Procuring Entity or his duly authorized representative shall immediately issue the Notice of Award to the bidder with the Lowest Calculated Responsive Bid or Highest Rated Responsive Bid. Within ten (10) calendar days from receipt of the Notice of Award, the winning bidder shall formally enter into contract with the Procuring Entity. When further approval of higher authority is required, the approving authority for the contract shall be given a maximum of twenty (20) calendar days to approve or disapprove it. In the case of government owned and/or controlled corporations, the concerned board shall take action on the said recommendation within thirty (30) calendar days from receipt thereof. The Procuring Entity shall issue the Notice to Proceed to the winning bidder not later than seven (7) calendar days from the date of approval of the contract by the appropriate authority. All notices 50 COUNTRY PROCUREMENT ASSESSMENT REPORT called for by the terms of the contract shall be effective only at the time of receipt thereof by the contractor. SEC. 38. Period of Action on Procurement Activities. - The procurement process from the opening of bids up to the award of contract shall not exceed three (3) months, or a shorter period to be determined by the procuring entity concerned. Without prejudice to the provisions of the preceding section, the different procurement activities shall be completed within reasonable periods to be specified in the IRR. If no action on the contract is taken by the head of the procuring entity, or by his duly authorized representative, or by the concerned board, in the case of government owned and/or controlled corporations, within the periods specified in the preceding paragraph, the contract concerned shall be deemed approved. SEC. 39. Performance Security. - Prior to the signing of the contract, the winning bidder shall, as a measure of guarantee for the faithful performance of and compliance with his obligations under the contract prepared in accordance with the Bidding Documents, be required to post a performance security in such form and amount as specified in the Bidding Documents. SEC. 40. Failure to Enter into Contract and Post Performance Security. - If, for justifiable causes, the bidder with the Lowest Calculated Responsive Bid or Highest Rated Responsive Bid fails, refuses or is otherwise unable to enter into contract with the Procuring Entity, or if the bidder fails to post the required performance security within the period stipulated in the Bidding Documents, the BAC shall disqualify the said bidder and shall undertake post-qualification for the next-ranked Lowest Calculated Bid or Highest Rated Bid. This procedure shall be repeated until an award is made. However, if no award is possible, the contract shall be subjected to a new bidding. In the case of a failure to post the required performance security, the bid security shall be forfeited without prejudice to the imposition of sanctions prescribed under Article XXIII. SEC. 41. Reservation Clause. - The Head of the Agency reserves the right to reject any and all Bids, declare a failure of bidding, or not award the contract in the following situations: a) If there is prima facie evidence of collusion between appropriate public officers or employees of the Procuring Entity, or between the BAC and any of the bidders, or if the collusion is between or among the bidders themselves, or between a bidder and a third party, including any act which restricts, suppresses or nullifies or tends to restrict, suppress or nullify competition; b) If the BAC is found to have failed in following the prescribed bidding procedures; or c) For any justifiable and reasonable ground where the award of the contract will not redound to the benefit of the government as defined in the IRR. SEC. 42. Contract Implementation and Termination. - The rules and guidelines for the implementation and termination of contracts awarded pursuant to the provisions of this Act shall be prescribed in the IRR. The rules and guidelines shall include standard general and special conditions for contracts. COUNTRY PROCUREMENT ASSESSMENT REPORT 51 ARTICLE XII DOMESTIC AND FOREIGN PROCUREMENT SEC. 43. Procurement of Domestic and Foreign Goods. - Consistent with the country's obligations under international treaties or agreements, Goods may be obtained from domestic or foreign sources and the procurement thereof shall be open to all eligible suppliers, manufacturers and distributors. However, in the interest of availability, efficiency and timely delivery of Goods, the Procuring Entity may give preference to the purchase of domestically-produced and manufactured goods, supplies and materials that meet the specified or desired quality. ARTICLE XIII BIDDING OF PROVINCIAL PROJECTS SEC. 44. Bidding of Provincial Projects. - Priority programs and infrastructure projects funded out of the annual General Appropriations Act which are intended for implementation within the province shall be subject to the same public bidding and to the procurement processes prescribed under this Act. For purposes of this Article, Engineering District civil works projects, subject to consultation with the concerned Members of Congress, are included and subsumed in the term "provincial projects" and shall be governed by this Section and Section 45 hereof. SEC. 45. Provincial Bidders. - Within five (5) years from the effectivity of this Act, a contractor who participates in the bidding of provincial priority programs and infrastructure projects, whose principal office is within the same province, and who submits the lowest bid among the provincial bidders which is higher than the lowest bid made by a contractor with principal office outside the said province shall be granted the privilege to match the bid made by the latter: Provided, however, That the release of funds for said projects shall be published in a local newspaper with the widest circulation and the website of the DBM, the mechanisms of which shall be spelled-out in the IRR. ARTICLE XIV LEASE OF COMPUTERS, COMMUNICATIONS, INFORMATION AND OTHER EQUIPMENT SEC. 46. Lease Contracts. - Lease of construction and office equipment, including computers, communication and information technology equipment are subject to the same public bidding and to the processes prescribed under this Act. ARTICLE XV DISCLOSURE OF RELATIONS SEC. 47. Disclosure of Relations. - In addition to the proposed contents of the Invitation to Bid as mentioned under Section 21 of this Act, all bidding documents shall be accompanied by a sworn affidavit of the bidder that he or she or any officer of their corporation is not related to the Head of the Procuring Entity by consanguinity or affinity up to the third civil degree. Failure to comply with 52 COUNTRY PROCUREMENT ASSESSMENT REPORT the aforementioned provision shall be a ground for the automatic disqualification of the bid in consonance with Section 30 of this Act. ARTICLE XVI ALTERNATIVE METHODS OF PROCUREMENT SEC. 48. Alternative Methods. - Subject to the prior approval of the Head of the Procuring Entity or his duly authorized representative, and whenever justified by the conditions provided in this Act, the Procuring Entity may, in order to promote economy and efficiency, resort to any of the following alternative methods of Procurement: a) Limited Source Bidding, otherwise known as Selective Bidding - a method of Procurement that involves direct invitation to bid by the Procuring Entity from a set of pre-selected suppliers or consultants with known experience and proven capability relative to the requirements of a particular contract; b) Direct Contracting, otherwise known as Single Source Procurement - a method of Procurement that does not require elaborate Bidding Documents because the supplier is simply asked to submit a price quotation or a pro-forma invoice together with the conditions of sale, which offer may be accepted immediately or after some negotiations; c) Repeat Order - a method of Procurement that involves a direct Procurement of Goods from the previous winning bidder, whenever there is a need to replenish Goods procured under a contract previously awarded through Competitive Bidding; d) Shopping - a method of Procurement whereby the Procuring Entity simply requests for the submission of price quotations for readily available off-the-shelf Goods or ordinary/regular equipment to be procured directly from suppliers of known qualification; or e) Negotiated Procurement - a method of Procurement that may be resorted under the extraordinary circumstances provided for in Section 53 of this Act and other instances that shall be specified in the IRR, whereby the Procuring Entity directly negotiates a contract with a technically, legally and financially capable supplier, contractor or consultant. In all instances, the Procuring Entity shall ensure that the most advantageous price for the Government is obtained. SEC. 49. Limited Source Bidding. - Limited Source Bidding may be resorted to only in any of the following conditions: a) Procurement of highly specialized types of Goods and Consulting Services which are known to be obtainable only from a limited number of sources; or COUNTRY PROCUREMENT ASSESSMENT REPORT 53 b) Procurement of major plant components where it is deemed advantageous to limit the bidding to known eligible bidders in order to maintain an optimum and uniform level of quality and performance of the plant as a whole. SEC. 50. Direct Contracting. - Direct Contracting may be resorted to only in any of the following conditions: a) Procurement of Goods of proprietary nature, which can be obtained only from the proprietary source, i.e. when patents, trade secrets and copyrights prohibit others from manufacturing the same item; b) When the Procurement of critical components from a specific manufacturer, supplier or distributor is a condition precedent to hold a contractor to guarantee its project performance, in accordance with the provisions of his contract; or, c) Those sold by an exclusive dealer or manufacturer, which does not have sub-dealers selling at lower prices and for which no suitable substitute can be obtained at more advantageous terms to the Government. SEC. 51. Repeat Order. - When provided for in the Annual Procurement Plan, Repeat Order may be allowed wherein the Procuring Entity directly procures Goods from the previous winning bidder whenever there arises a need to replenish goods procured under a contract previously awarded through Competitive Bidding, subject to post-qualification process prescribed in the Bidding Documents and provided all the following conditions are present: a) The unit price must be equal to or lower than that provided in the original contract; b) The repeat order does not result in splitting of requisitions or purchase orders; c) Except in special circumstances defined in the IRR, the repeat order shall be availed of only within six (6) months from the date of the Notice to Proceed arising from the original contract; and, d) The repeat order shall not exceed twenty-five percent (25%) of the quantity of each item of the original contract. SEC. 52. Shopping. - Shopping may be resorted to under any of the following instances: a) When there is an unforeseen contingency requiring immediate purchase: Provided, however, That the amount shall not exceed Fifty Thousand Pesos (P50,000); or b) Procurement of ordinary or regular office supplies and equipment not available in the Procurement Service involving an amount not exceeding Two Hundred Fifty Thousand Pesos (P250,000): Provided, however, That the Procurement does not result in Splitting of Contracts: 54 COUNTRY PROCUREMENT ASSESSMENT REPORT Provided, further, That at least three (3) price quotations from bona fide suppliers shall be obtained. The above amounts shall be subject to a periodic review by the GPPB. For this purpose, the GPPB shall be authorized to increase or decrease the said amount in order to reflect changes in economic conditions and for other justifiable reasons. SEC. 53. Negotiated Procurement. - Negotiated Procurement shall be allowed only in the following instances: a) In cases of two failed biddings, as provided in Section 35 hereof; b) In case of imminent danger to life or property during a state of calamity, or when time is of the essence arising from natural or man-made calamities or other causes where immediate action is necessary to prevent damage to or loss of life or property, or to restore vital public services, infrastructure facilities and other public utilities; c) Take-over of contracts, which have been rescinded or terminated for causes provided for in the contract and existing laws, where immediate action is necessary to prevent damage to or loss of life or property, or to restore vital public services, infrastructure facilities and other public utilities; d) Where the subject contract is adjacent or contiguous to an on-going infrastructure project, as defined in the IRR: Provided, however, That the original contract is the result of a Competitive Bidding; the subject contract to be negotiated has similar or related scopes of work; it is within the contracting capacity of the contractor; the contractor uses the same prices or lower unit prices as in the original contract less mobilization cost; the amount involved does not exceed the amount of the ongoing project; and, the contractor has no negative slippage: Provided, further, That negotiations for the procurement are commenced before the expiry of the original contract. Whenever applicable, this principle shall also govern consultancy contracts, where the consultants have unique experience and expertise to deliver the required service; or, e) Subject to the guidelines specified in the IRR, purchases of Goods from another agency of the Government, such as the Procurement Service of the DBM, which is tasked with a centralized procurement of commonly used Goods for the government in accordance with Letters of Instruction No. 755 and Executive Order No. 359, series of 1989. SEC. 54. Terms and Conditions for the use of Alternative Methods. - The specific terms and conditions, including the limitations and restrictions, for the application of each of the alternative methods mentioned in this Article shall be specified in the IRR. COUNTRY PROCUREMENT ASSESSMENT REPORT 55 ARTICLE XVII PROTEST MECHANISM SEC. 55. Protests on Decisions of the BAC. - Decisions of the BAC in all stages of procurement may be protested to the head of the procuring entity and shall be in writing. Decisions of the BAC may be protested by filing a verified position paper and paying a non-refundable protest fee. The amount of the protest fee and the periods during which the protests may be filed and resolved shall be specified in the IRR. SEC. 56. Resolution of Protests. - The protests shall be resolved strictly on the basis of records of the BAC. Up to a certain amount to be specified in the IRR, the decisions of the Head of the Procuring Entity shall be final. SEC. 57. Non-interruption of the Bidding Process. - In no case shall any protest taken from any decision treated in this Article stay or delay the bidding process. Protests must first be resolved before any award is made. SEC. 58. Report to Regular Courts; Certiorari. - Court action may be resorted to only after the protests contemplated in this Article shall have been completed. Cases that are filed in violation of the process specified in this Article shall be dismissed for lack of jurisdiction. The regional trial court shall have jurisdiction over final decisions of the head of the procuring entity. Court actions shall be governed by Rule 65 of the 1997 Rules of Civil Procedure. This provision is without prejudice to any law conferring on the Supreme Court the sole jurisdiction to issue temporary restraining orders and injunctions relating to Infrastructure Projects of Government. ARTICLE XVIII SETTLEMENT OF DISPUTES SEC. 59. Arbitration. - Any and all disputes arising from the implementation of a contract covered by this Act shall be submitted to arbitration in the Philippines according to the provisions of Republic Act No. 876, otherwise known as the "Arbitration Law": Provided, however, That, disputes that are within the competence of the Construction Industry Arbitration Commission to resolve shall be referred thereto. The process of arbitration shall be incorporated as a provision in the contract that will be executed pursuant to the provisions of this Act: Provided, That by mutual agreement, the parties may agree in writing to resort to alternative modes of dispute resolution. SEC. 60. Appeals. - The arbitral award and any decision rendered in accordance with the foregoing Section shall be appealable by way of a petition for review to the Court of Appeals. The petition shall raise pure questions of law and shall be governed by the Rules of Court. 56 COUNTRY PROCUREMENT ASSESSMENT REPORT ARTICLE XIX CONTRACT PRICES AND WARRANTIES SEC. 61. Contract Prices. - For the given scope of work in the contract as awarded, all bid prices shall be considered as fixed prices, and therefore not subject to price escalation during contract implementation, except under extraordinary circumstances and upon prior approval of the GPPB. For purposes of this Section, "extraordinary circumstances" shall refer to events that may be determined by the National Economic and Development Authority in accordance with the Civil Code of the Philippines, and upon the recommendation of the procuring entity concerned. SEC. 62. Warranty. - (a) For the procurement of Goods, in order to assure that manufacturing defects shall be corrected by the supplier, manufacturer, or distributor, as the case may be, for a specific time after performance of the contract, a warranty shall be required from the contract awardee for such period of time as may be provided in the IRR, the obligation for which shall be covered by either retention money in the amount equivalent to a percentage of every progress payment, or a special bank guarantee equivalent to a percentage of the total contract price, to be provided in the IRR. The said amounts shall only be released after the lapse of the warranty period, provided that the Goods supplied are free from defects and all the conditions imposed under the contract have been fully met. (b) For the procurement of infrastructure projects, the contractor shall assume full responsibility for the contract work from the time project construction commenced up to a reasonable period as defined in the IRR taking into consideration the scale and coverage of the project from its final acceptance by the government and shall be held responsible for any damage or construction of works except those occasioned by force majeure. The contractor shall be fully responsible for the safety, protection, security, and convenience of his personnel, third parties, and the public at large, as well as the works, equipment, installation and the like to be affected by his construction work and shall be required to put up a warranty security in the form of cash, bank guarantee, letter of credit, Government Service Insurance System bond, or callable surety bond. The contractor shall undertake the repair works, at his own expense, of any defect or damage to the infrastructure projects on account of the use of materials of inferior quality within ninety (90) days from the time the Head of the Procuring Entity has issued an order to undertake repair. In case of failure or refusal to comply with this mandate, the government shall undertake such repair works and shall be entitled to full reimbursement of expenses incurred therein upon demand. Any contractor who fails to comply with the preceding paragraph shall suffer perpetual disqualification from participating in any public bidding and his property or properties shall be subject to attachment or garnishment proceedings to recover the costs. All payables of government in his favor shall be offset to recover the costs. COUNTRY PROCUREMENT ASSESSMENT REPORT 57 ARTICLE XX THE GOVERNMENT PROCUREMENT POLICY BOARD SEC. 63. Organization and Functions. - A Government Procurement Policy Board (GPPB) is hereby established to: (a) protect national interest in all matters affecting public Procurement, having due regard to the country's regional and international obligations; (b) formulate and amend, whenever necessary, the IRR and the corresponding standard forms for Procurement; (c) ensure that Procuring Entities regularly conduct Procurement training programs and prepare a Procurement operations manual for all offices and agencies of government; and (d) conduct an annual review of the effectiveness of this Act and recommend any amendments thereto, as may be necessary. The GPPB shall convene within fifteen (15) days from the effectivity of this Act to formulate the IRR and for other related purposes. The GPPB shall be supported by a technical support office. In addition to the powers granted under this Act, the GPPB shall absorb all the powers, functions and responsibilities of the Procurement Policy Board created under Executive Order No. 359, series of 1989. All affected functions of the Infrastructure Committee of the National Economic and Development Authority Board are hereby transferred to the GPPB. SEC. 64. Membership. - The GPPB shall be composed of the Secretary of the Department of Budget and Management, as Chairman, the Director-General of the National Economic and Development Authority, as Alternate Chairman, with the following as Members; the Secretaries of the Departments of Public Works and Highways, Finance, Trade and Industry, Health, National Defense, Education, Interior and Local Government, Science and Technology, Transportation and Communications, and Energy, or their duly authorized representatives and a representative from the private sector to be appointed by the President upon the recommendation of the GPPB. The GPPB may invite a representative from the Commission on Audit to serve as a resource person. ARTICLE XXI PENAL CLAUSE SEC. 65. Offenses and Penalties. - (a) Without prejudice to the provisions of Republic Act No. 3019, otherwise known as the "Anti-Graft and Corrupt Practices Act" and other penal laws, public officers who commit any of the following acts shall suffer the penalty of imprisonment of not less than six (6) years and one (1) day, but not more than fifteen (15) years: 1. Open any sealed Bid including but not limited to Bids that may have been submitted through the electronic system and any and all documents 58 COUNTRY PROCUREMENT ASSESSMENT REPORT required to be sealed or divulging their contents, prior to the appointed time for the public opening of Bids or other documents. 2. Delaying, without justifiable cause, the screening for eligibility, opening of bids, evaluation and post evaluation of bids, and awarding of contracts beyond the prescribed periods of action provided for in the IRR. 3. Unduly influencing or exerting undue pressure on any member of the BAC or any officer or employee of the procuring entity to take a particular action which favors, or tends to favor a particular bidder. 4. Splitting of contracts which exceed procedural purchase limits and competitive bidding. 5. When the head of the agency abuses the exercise of his power to reject any and all bids as mentioned under Section 41 of this Act with manifest preference to any bidder who is closely related to him in accordance with Section 47 of this Act. When any of the foregoing acts is done in collusion with private individuals, the private individuals shall likewise be liable for the offense. In addition, the public officer involved shall also suffer the penalty of temporary disqualification from public office, while the private individual shall be permanently disqualified from transacting business with the Government. (b) Private individuals who commit any of the following acts, including any public officer, who conspires with them, shall suffer the penalty of imprisonment of not less than six (6) years and one (1) day but not more than fifteen (15) years: 1. When two or more bidders agree and submit different Bids as if they were bona fide, when they knew that one or more of them was so much higher than the other that it could not be honestly accepted and that the contract will surely be awarded to the pre-arranged lowest Bid. 2. When a bidder maliciously submits different Bids through two or more persons, corporations, partnerships or any other business entity in which he has interest to create the appearance of competition that does not in fact exist so as to be adjudged as the winning bidder. 3. When two or more bidders enter into an agreement which call upon one to refrain from bidding for Procurement contracts, or which call for withdrawal of Bids already submitted, or which are otherwise intended to secure an undue advantage to any one of them. COUNTRY PROCUREMENT ASSESSMENT REPORT 59 4. When a bidder, by himself or in connivance with others, employ schemes which tend to restrain the natural rivalry of the parties or operates to stifle or suppress competition and thus produce a result disadvantageous to the public. In addition, the persons involved shall also suffer the penalty of temporary or perpetual disqualification from public office and be permanently disqualified from transacting business with the Government. (c) Private individuals who commit any of the following acts, and any public officer conspiring with them, shall suffer the penalty of imprisonment of not less than six (6) years and one (1) day but not more than fifteen (15) years: 1. Submit eligibility requirements of whatever kind and nature that contain false information or falsified documents calculated to influence the outcome of the eligibility screening process or conceal such information in the eligibility requirements when the information will lead to a declaration of ineligibility from participating in public bidding. 2. Submit Bidding Documents of whatever kind and nature that contain false information or falsified documents or conceal such information in the Bidding Documents, in order to influence the outcome of the public bidding. 3. Participate in a public bidding using the name of another or allow another to use one's name for the purpose of participating in a public bidding. 4. Withdraw a Bid, after it shall have qualified as the Lowest Calculated Bid/ Highest Rated Bid, or refuse to accept an award, without just cause or for the purpose of forcing the Procuring Entity to award the contract to another bidder. This shall include the non-submission within the prescribed time, or delaying the submission of requirements such as, but not limited to, performance security, preparatory to the final award of the contract. (d) When the bidder is a juridical entity, criminal liability and the accessory penalties shall be imposed on its directors, officers or employees who actually commit any of the foregoing acts. SEC. 66. Jurisdiction. - Jurisdiction over the offenses defined under this Article shall belong to the appropriate courts, according to laws existing at the time of the commission of the offenses. ARTICLE XXII CIVIL LIABILITY SEC. 67. Civil Liability in Case of Conviction. - Without prejudice to administrative sanctions that may be imposed in proper cases, a conviction under this Act or Republic Act 60 COUNTRY PROCUREMENT ASSESSMENT REPORT No. 3019 shall carry with it civil liability, which may either consist of restitution for the damage done or the forfeiture in favor of the government of any unwarranted benefit derived from the act or acts in question or both, at the discretion of the courts. SEC. 68. Liquidated Damages. - All contracts executed in accordance with this Act shall contain a provision on liquidated damages which shall be payable in case of breach thereof. The amount thereof shall be specified in the IRR. ARTICLE XXIII ADMINISTRATIVE SANCTIONS SEC. 69. Imposition of Administrative Penalties. - (a) In addition to the provisions of Articles XXI and XXII of this Act, the Head of the Procuring Entity, subject to the authority delegated to the BAC, if any, shall impose on bidders or prospective bidders, the administrative penalty of suspension for one (1) year for the first offense, and suspension of two (2) years for the second offense from participating in the public bidding process, for the following violations: 1. Submission of eligibility requirements containing false information or falsified documents. 2. Submission of Bids that contain false information or falsified documents, or the concealment of such information in the Bids in order to influence the outcome of eligibility screening or any other stage of the public bidding. 3. Allowing the use of one's name, or using the name of another for purposes of public bidding. 4. Withdrawal of a Bid, or refusal to accept an award, or enter into contract with the Government without justifiable cause, after he had been adjudged as having submitted the Lowest Calculated Responsive Bid or Highest Rated Responsive Bid. 5. Refusal or failure to post the required performance security within the prescribed time. 6. Termination of the contract due to the default of the bidder. Refusal to clarify or validate in writing its Bid during post-qualification within a period of seven (7) calendar days from receipt of the request for clarification. Any documented unsolicited attempt by a bidder to unduly influence the outcome of the bidding in his favor. All other acts that tend to defeat the purpose of the Competitive Bidding. COUNTRY PROCUREMENT ASSESSMENT REPORT 61 (b) In addition to the penalty of suspension, the Bid security or the performance security posted by the concerned bidder or prospective bidder shall also be forfeited. (c) The Head of the Procuring Entity may delegate to the BAC the authority to impose the aforementioned administrative penalties. SEC. 70. Preventive Suspension. - The head of the procuring entity may preventively suspend any member of the Technical Working Group or the Secretariat, or the BAC if there are strong reasons or prima facie evidence showing that the officials or employees concerned are guilty of the charges filed against them under Articles XXI and XXII of this Act or for dishonesty as defined by the Civil Service Laws. In all cases, procedural and substantive due process as mandated by the Constitution and Civil Service Laws, rules and regulations, shall be strictly observed. SEC. 71. Lifting of Suspension and Removal of Administrative Disabilities. Lifting of preventive suspension pending administrative investigation, as well as removal of administrative penalties and disabilities shall be in accordance with the provisions of Sections 52 and 53, Chapter 6 (Civil Service Commission), Book V of Executive Order No. 292, the Administrative Code of 1987 ARTICLE XXIV LEGAL ASSISTANCE AND INDEMNIFICATION OF BAC MEMBERS SEC. 72. Private Legal Assistance. All the members of the BAC are hereby authorized to engage the services of private lawyers or extend counsel immediately upon receipt of Court Notice that a civil or criminal action, suit or proceeding is filed against them. The lawyer's fee shall be part of the indemnification package for the BAC members, subject to the provisions of Section 73 hereof. SEC. 73. Indemnification of BAC Members. - The GPPB shall establish an equitable indemnification package for public officials providing services in the BAC, which may be in the form of free legal assistance, liability insurance, and other forms of protection and indemnification for all costs and expenses reasonably incurred by such persons in connection with any civil or criminal action, suit or proceeding to which they may be, or have been made, a party by reason of the performance of their functions or duties, unless they are finally adjudged in such action or proceeding to be liable for gross negligence or misconduct or grave abuse of discretion. In the event of a settlement or compromise, indemnification shall be confined only on matters covered by the settlement, as to which the Procuring Entity had been advised by counsel that the public officials to be indemnified have not committed gross negligence or misconduct in the performance of their functions and duties. The members of the BAC and the BAC Secretariat shall also be entitled to medical assistance for injuries incurred in the performance of their functions. 62 COUNTRY PROCUREMENT ASSESSMENT REPORT ARTICLE XXV FINAL PROVISIONS SEC. 74. Oversight Committee. - There is hereby created a Joint Congressional Oversight Committee to oversee the implementation of this Act for a period not exceeding five (5) years from the effectivity of this Act. The Committee shall be composed of the Chairman of the Senate Committee on Constitutional Amendments and Revision of Laws and two members thereof appointed by the Senate President, and the Chairman of the House Committee on Appropriations, and two members thereof to be appointed by the Speaker of the House of Representatives. SEC. 75. Implementing Rules and Regulations and Standard Forms. - Within sixty (60) days from the promulgation of this Act, the necessary rules and regulations for the proper implementation of its provisions shall be formulated by the GPPB, jointly with the members of the Oversight Committee created under Section 74 hereof. The said rules and regulations shall be approved by the President of the Philippines. For a period not later than thirty (30) days upon the approval of the implementing rules and regulations, the standard forms for Procurement shall be formulated and approved. SEC. 76. Repealing Clause. - This law repeals Executive Order No. 40, series of 2001, entitled "Consolidating Procurement Rules and Procedures for All National Government Agencies, Government-Owned-or-Controlled Corporations and/or Government Financial Institutions, and Requiring the Use of the Government Electronic Procurement System"; Executive Order No. 262, Series of 2000, entitled "Amending Executive Order No. 302, series of 1996, entitled "Providing Polices, Guidelines, Rules and Regulations for the Procurement of Goods/ Supplies by the National Government" and Section Three (3) of Executive order No. 201, series of 2000, entitled "Providing Additional Policies and Guidelines in the Procurement of Goods/Supplies by the National Government"; Executive Order No. 302, series of 1996, entitled "Providing Policies, Guidelines, Rules and Regulations for the Procurement of Goods/ Supplies by the National Government" and Presidential Decree No. 1594 dated June 11, 1978, entitled `Prescribing Policies, Guidelines, Rules and Regulations for Government Infrastructure Contracts." This law amends Title Six, Book Two of Republic Act No. 7160, otherwise known as the `Local Government Code of 1991"; the relevant provisions of Executive Order No. 164, Series of 1987, entitled "Providing Additional Guidelines in the Processing and Approval of Contracts of the National Government"; and the relevant provisions of Republic Act No. 7898 dated February 23, 1995, entitled "An Act Providing for the Modernization of the Armed Forces of the Philippines and for Other Purposes." Any other law, presidential decree or issuance, executive order, letter of instruction, administrative order, proclamation, charter, rule or regulation and/or parts thereof contrary to or inconsistent with the provisions of this Act is hereby repealed, modified or amended accordingly. SEC. 77. Separability Clause. - If any provision of this Act is declared invalid or unconstitutional, the other provisions not affected thereby shall remain valid and subsisting. COUNTRY PROCUREMENT ASSESSMENT REPORT 63 SEC. 78. Effectivity Clause. - This Act shall take effect fifteen (15) days following its publication in the Official Gazette or in two (2) newspapers of general circulation. Approved: FRANKLIN M. DRILON JOSE DE VENECIA JR. President of the Senate Speaker of the House of Representatives This Act which is a consolidation of House Bill No. 4809 and Senate Bill No. 2248 was finally passed by the House of Representatives and the Senate on December 18, 2002. OSCAR G. YABES ROBERTO P. NAZARENO Secretary of the Senate Secretary General House of Representatives Approved: GLORIA MACAPAGAL-ARROYO President of the Philippines Attachment 5 - World Bank Comments to the Government Procurement Reform Act (RA 9184) General 1. The law provides for a protest review mechanism to be conducted by the procuring entity, who, as such, will become judge and party. The Law is silent on any award which could be granted. Any protest should be referred to an independent entity who would be entitled to receive protests, challenge a procurement decision and suspend a contract award. All decisions of such independent entity should be final. 2. The law provides for a two envelopes system that deprives from the benefits expected from public bid opening. Furthermore, the two envelopes are not opened simultaneously during the public bid opening which is a greater area of concern. 3. The evaluation criteria appears to be based on a point system ranking; it should be on monetarily quantifiable elements in order to be more transparent. Specific Comments Section 11 - The BAC and its composition. We are of the view that there might be too many members and their roles could be more detailed. Section 12: Functions of the BAC. Neither the BAC, nor the Head of the Entity, should recommend the imposition of sanctions in accordance with Article XXIII. The entity responsible for the imposing sanctions should be independent and exercise its duties at a central level. Note that the structure of the first paragraph of Section 12 is comfusing and could lead to interpretation issues. Section 15 - Honoraria of BAC Members. It would be better to leave the percentage of the honoraria out of the legislation. Section 17: Form and Contents of Bidding Documents. a. The approved budget should not be part of the Bidding Documents. (Note that the estimated budget should not be part of such documents either.) b. The qualification requirements should be added after or before paragraph d). c. The criteria for bid evaluation should be a separate paragraph. Such paragraph should mention that they are quantified in monetary terms. The use of points should be avoided except for consulting services. The use of such non-discriminatory bid evaluation criteria allows to indisputably identify the lowest evaluated responsive bid. Quantifying bid evaluation criteria in monetary terms is the only method that leads to transparent evaluation and that allows bidders to submit an effective protest to the awarding authority. Section 21 - Advertising The approved budget should not be part of the Invitation to Bid. Section 23 and 24 - Eligibility Requirements. The qualification requirements are not defined. No distinction is made between eligibility and qualification requirements. Section 55 - Submission and Receipt of Bids. It is recommended that bids be submitted in one envelope and that the price be read at the opening of bids. The use of a two-envelope system deprives the process from the benefits expected from public bid opening. Section 27 - Bid Security. Bid security should not be requested for smaller contracts. Section 29 - Bid Opening. This Section should mention that the Bids will be opened immediately after the deadline for submission of bids. The Minutes of the opening meeting should be made available to the bidders free of charge. Section 30 - Preliminary Examination of Bids. See above comment on Section 25. Bids should be submitted in one envelope. Section 31 - Ceiling for Bid Prices. As mentioned above in our comments on Section 17 and 21, the Bid price should not be publicized and as such, no bidder should be disqualify if its price exceeds the approved budget. This Section should be removed. Section 32 - Bid for the Procurement of Goods and Infrastructure Projects. The first sentence should read: "For the procurement of Goods and Infrastructure Projects, the BAC shall evaluate the financial component of the bids strictly in accordance with the evaluation criteria set forth in the Bidding Documents, and no others." Section 33 - Bid Evaluation on Short Listed Bidders for Consulting Services. This Section should mention that there will be no negotiations on unit rates. Section 34 - Objectives and Process of Post-Qualification. The law does not state the principle clearly and the words "verification and validation" could be open to discussion. It would be clearer to state that the BAC will ensure that the Lowest Calculated Bidder (or Highest Rated Bidder, as the case may be) meets all the qualifications set out in the Bidding Documents. Section 35 - Failure of Bidding. The process to be followed if there is a failure of bidding or if no bid qualifies should be to review the causes justifying the rejection and considering making revisions to the conditions of the contract, design and specifications, scope of the contract or a combination of these before inviting new bids. Section 40 - Failure to Enter into Contract and Post Performance Security. This Section should be revisited. The bid security should be cash[ed] in all cases. Section 43 - Procurement of Domestic Preference and Foreign Goods. The conditions and the nature of the preference which could be granted should be explained in detail. Section 44 and 45 - Bidding of Provincial Projects and Provincial Bidders. The preference provided at the provincial level is unduly restrictive and would be counterproductive since the process would not be fair and equitable to all bidders. Section 48 - Alternative Methods (of Procurement). Some of the alternative methods should be removed. See explanation further. Section 49 - Limited Source Bidding: Paragraph a): This paragraph should read: "Procurement of highly specialized types of Goods and Consulting Services which are known to be obtainable only from a limited number of sources in which case all of these sources must be invited to bid, or" Paragraph b): Limited bidding should not be permissible for the case mentioned in subparagraph b). The grounds which such procurement would be opened to limited source bidding are unclear. Section 53 - Negotiated Procurement. This type of procurement should be avoided. Subsections b), c) and d) could be taken care of under Direct Contracting. Concerning paragraph a) we refer you to our comment on Section 35. Section 55 and 56 - Protest on Decisions of the BAC and Resolution of Protests. All the decisions of such entity should be binding on the [parties]. It would be preferable to have an independent entity, other than the head of the procuring entity, decide on protests. Furthermore, the applicable rules on the protest process should be more detailed in the IRR. Section 60 - Appeals. Arbitration should be final and binding. Section 62 - Warranty. The sanction provided for in the last paragraph seems harsh. Section 63 - Organization and Functions. The GRP should also audit the procurement operations of procurement entities. Article XXI - Penal Clause (Sections 65 and 66). Would be better addressed in the Penal Code. Sections 70, 71, 72 and 73 Would be better dealt [with] in the Legislation governing the conduct of Public Ser- vants. Section 75 - Implementing Rules and Regulations and Standard Forms. 60 days is too short. Other Comments It would have proved useful to have the following addressed in the law: a. Provision for equitable price adjustment when the contract time for completion extends beyond the period of time for which the private contracting party can control its cost forecast. b. Provision for bidders to update their contract price on the day of contract signing since they are not responsible for the delays encountered by the government contract- ing party and, therefore, should not be subject to the consequences of that delay.