CONTENTS Acknowledgments Acronyms Introduction Overview of Corruption and Procurement Reform in the Philippines Conceptual Framework Philippine Procurement

Reform Deconstructed Evaluation of Procurement Reform in the Philippines Conclusion and Recommendation References
Appendices A. Compliance and Performance Indicators B. List of Laws Related to Graft and Corruption C. Case Notes on the Comelec-MegaPacific Case List of Tables 1.1 1.2 1.3 2.4 3.5 3.6 4.7 4.8 Comparison of Governance Estimates of Selected Countries Areas of Public Sector Corruption Summary Statistics of Foreign and Development Partner-Assisted Governance Projects Objectives, purposes and discourses of public participation Conditions for Alternative Methods of Procurement Period of Action on Procurement Activities Average Calendar Days from Advertisement to Contract Award Top regular NGOs invited as observers by the 5 pilot agencies 8 9 12 20 26 27 37 39 50 55 57

2 3 4 7 13 25 32 42 46

List of Figures 2.1 2.2 Framework of Analysis PA-Participation theoretical framework 21 22

List of Boxes 4.1 4.2 Commission on Elections and Megapacific Consortium Case National Broadband Network project 33 35

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ACKNOWLEDGMENT I came here in the UK with a specific mission: to find new ways to fight corruption in my country. The journey had been rough and tough – what I would describe as 'near-death experience.' Just two weeks in the program and I was already undone. I started questioning the very foundation of my 'functional' existence. Unfortunately for me, I was very much intertwined with a development discourse that a critique of it felt like a personal attack. I almost “died” in the process. As luck would have it, I had too much love for my country. It became the source of renewed energy and passion. With my rebirth came a fresh perspective to life itself, not only to the fight against corruption. This paper is now testimony of a resolve to renegotiate spaces in the fight against corruption in the Philippines. It is also testimony to a personal goal of reconstructing my imagination. In this, I thank the British Council and the Foreign Commonwealth Office for giving me the opportunity to experience education and culture in the U.K. Staying away from the murky political scenes of Manila had been good for my health – physical, emotional, and mental. I thank the School of Development Studies of the University of East Anglia, specifically my professors - Tony Pereira, Vasudha Chhotray, Rhys Jenkins, Colette Harris, Paula Kantor, Steve Russel You have touched my life and traces of you will remain in me. I thank my supervisor, Tony, for the time, patience, comments, and support. I thank my parents, Eduardo and Herminia, who have come here in the UK to give me love, support and inspiration; My sister Lahneen and her husband Dodot for the extra space, extra allowance and extra food; The beautiful kids - Rain, Skye and Summer – for the much needed distraction. You have all added colour to my writing. I thank friends who have encouraged me to continue on at times when loneliness overtook me. I thank the Transparency and Accountability Network (TAN) for sharing data needed in this paper; For making me feel that home is just close by with emails and updates about our little but growing anti-corruption community. I thank the Supreme Being who has showered me with everyday miracles.

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ACRONYMS ABC ADB BAC BLI COA COFILCO COMELEC CPAR CSO FAP GDP GOP GPPB GPPB-TSO GPRA IAEB IRR MPC NACAP NBN NEDA NGO NPM OECD OECD DAC OMB PA PAGC PCA PCCI PDF PICE PICPA PTG PWI SEC SWS TAN UN USAID WB Approved Budget for the Contract Asian Development Bank Bids and Awards Committee Baseline Indicators Commission on Audit Confederation of Filipino Consulting Organisations Commission on Elections Country Procurement Assessment Report Civil society organisation Foreign-assisted projects Gross domestic product Government of the Philippines Government Procurement Policy Board Government Procurement Policy Board – Technical Support Office Government Procurement Reform Act Invitation to Apply for Eligibility and to Bid Implementing Rules and Regulations MegaPacific Consortium National Constructors Association of the Philippines, Inc. National Broadband Network National Economic and Development Authority Non-government organisation New Public Management Organisation for Economic Cooperation and Development Organisation for Economic Cooperation and Development Development Assistance Committee Office of the Ombudsman Principal-agent Presidential Anti-Graft Commission Philippine Constructors Association, Inc. Philippine Chamber of Commerce and Industry Philippine Development Forum Philippine Institute of Civil Engineers Philippine Institute of Certified Public Accountants Procurement Transparency Group Procurement Watch, Inc. Securities and Exchange Commission Social Weather Stations Transparency and Accountability Network United Nations U.S. Agency for International Development World Bank

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INTRODUCTION The Organisation for Economic Cooperation and Development (OECD) estimates that in 1998, the ratio of all government procurement (consumption and investment expenditure) of OECD member countries is19.96 per cent of their gross domestic product (GDP). This is equivalent to USD 4,733 billion. As for non-member countries, it is 14.48 per cent of the GDP or USD 816 billion. Total government procurement worldwide is estimated to be roughly equivalent to 82.3% of world merchandise and commercial services exports in 1998. (McCrudden 2007: 14) Clearly, public procurement is a huge market and consequently impacts on economic development . In a largely neoliberalism-dictated policy environment, it is no surprise that public procurement is an area of governance of interest to international agencies. In February 17, 1995, a United Nations resolution (U.N. Resolution A/Res/49/54) was signed stating the need to harmonize public procurement for international trade purposes. It reiterates the fact that public procurement enjoys a large share of public expenditure of most states1. Not only is public procurement directly impacting on economic development but also historically in countries like the United States, United Kingdom, Canada, and Australia, policies that regulated public procurement were used by governments as instruments to achieve social development goals such as job creation, establishing fair labour conditions and creating equal opportunities for disadvantaged groups. (McCrudden 2007) Public procurement, therefore, is an area of governance in which development interventions are introduced and by this, it cannot be ignored in the study of development. But just as it is where development can be born, it could also be where a specific type of development can be undone. In the end, procurement is just an instrument. For what and for whom it is designed are questions that will have to be answered by reading between the lines to understand the type of development it promotes. In 2000, the World Bank (WB) reported that an estimated 20% of public procurement in the Philippines is lost to corruption. (WB, 2000) The first Country Procurement
1 See http://www.uncitral.org/

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Assessment Report (CPAR)2 mission sent to the Philippines noted problems about the country's procurement system as being fragmented with overlapping laws, rules and regulations governing procurement thus making it inefficient and vulnerable to corruption and other abuses. In 2003, the Philippine legislature enacted the Government Procurement Reform Act (GPRA) to improve and reform public procurement. The GPRA is now the overarching policy on procurement governed by principles of transparency, accountability, equity, efficiency, economy, competitiveness, equal opportunity, and effectiveness. (“BLI Assessment”, 2006). The GPRA is the promise for better public service delivery through more transparent and accountable procurement - a promise of good governance. But what kind of promise does the GPRA really offer? This research will analyse procurement reform in the Philippines and why it has limited prospects. At the core of the analyses are theories on participation and principal-agent (PA) relations and their interlink and synergetic effect on procurement reform. Procurement reform in the Philippines is mainly characterised as one that changes PA relations towards a stricter arrangement where agents have very minimal discretionary authority. It also introduces an institutional arrangement where civil society organisations (CSOs) are involved as external 'monitors'. This innovation contributes to PA theory with CSOs as 'counterpart agents', strengthening PA relations. The innovation is one that is favored in the purview of democratic governance. This paper will show however that participation under the reform is laid out in fairly strict terms. This is a weakness in the system, which reveals the frailty of the PA model and by extension, the feebleness of accountability offered by the reform framework. The PA model is not free of problems. Its weakness is revealed in the complexity of political relationships between principal and agent and also in the multiple and overlapping nodes of principal-agent roles in the public sphere. Specific cases are presented illustrating the breakdown of the PA model in Philippine procurement. This paper suggests the expansion of participation mechanisms to strengthen PA relations and consequently, accountability. With participation, procurement reform becomes more than just a process-oriented activity but a venue
2 The Country Procurement Assessment Report (CPAR) is a joint review by the World Bank, Asian Development Bank, and the Government of the Philippines of the progress of procurement reforms. It was initiated in 2002. The first CPAR report was presented in 2003. (Thornton, 2006)

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where development gets deliberated and decided by the people. This paper proceeds in the following manner: Chapter one discusses an overview of corruption and procurement reform in the Philippines. Chapter two defines relevant concepts, such as good governance, corruption, principal-agent relations, accountability, and participation from which the author's framework of analysis will be drawn. Linkages between these concepts will be explored and how these relate specifically to procurement reform. This chapter also sets the parameters of the research study. Chapter three lays out the salient features of procurement reform in the Philippines and how PA and participation theories are applied therein. Chapter four is an assessment of the procurement reform framework in the country. And finally Chapter five is conclusion and recommendation. Most of the data used in this study have been on the institutional infrastructure of procurement reform in the Philippines. This mainly includes the omnibus code on procurement and its implementing rules and regulations (IRR). Empirical data on Philippine public procurement (2006) gathered by the Transparency and Accountability Network3 (TAN) in 2007 for its project4 was also used to validate issues raised in this research. The analyses are drawn mainly from theoretical understandings (on PA relations and participation), specific case studies of procurement-related corruption, and relevant empirical data.

3 TAN is a coalition of civil society organisations from different sectors (academe, private sector, NGOs, quasi-government) engaged in anti-corruption activities. It was formally constituted in 2001. The author was project coordinator (now on-study leave) of TAN from 2005-2007. 4 The project was funded by World Bank, Philippines through the Presidential Anti-Graft Commission (PAGC) and the Government Procurement Policy Board – Technical Support Office (GPPB-TSO). The project's main objective was to validate the results of the Baseline Indicators assessment through a pilottest of the Compliance/Performance Indicators (see Appendix A) applied in the Philippine context. The pilot-test included a sample of procurements made in 2006 by the Department of National Defense, Department of Education, Department of Health, Department of Public Works and Highways, Bases Conversion and Development Authority and the local government of Quezon City. (TAN, 2008) The author was project leader from May to August 2007.

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CHAPTER ONE: OVERVIEW OF CORRUPTION AND PROCUREMENT REFORM IN THE PHILIPPINES CORRUPTION: A BIG ISSUE IN THE PHILIPPINES Corruption is detrimental to development. It drives away investments and dries up public resources with reduced revenues, increased costs, and wasteful allocation of money. It weakens public institutions with distorted policies that unduly favor individual interests above public interest, poor public services, inefficient and ineffective bureaucracy, creating public distrust and loss of confidence in government. It undermines the rule of law, national security and peace and order, and threatens the welfare of the people. (Asian Development Bank, 2005) The Philippines is a young nation not spared from the evil workings of corruption. Corruption has been a part of Philippine history. It incurred the most serious damage during the dictatorship regime of Ferdinand Marcos (1965 to 1986). (Johnston, 2005) It is still a big issue in the Philippines to this day. In more recent history (1997-8 to 2000-01), the Philippines' governance score has regressed5 (see Table 1.1) (ADB, 2005) In a similar light, the Transparency International records worsening perceptions of corruption in the Philippines. In 1996, the Philippines ranked 44th (out of 54), with 72 per cent of those included in the survey performing better. In 2003, it ranked 92nd (out of 133), still remaining at the bottom 30 per cent. In 2005, the Philippines' rank worsened to 117th (out of 148), with 74 per cent others performing better. (Thornton, 2006). In Asia, the Philippines is seen as the most corrupt economy based on a 2007 survey conducted by Hongkong's Political and Economic Risk Consultancy. (Bonabente, 2007)

5 All components of the score (voice and accountability, political stability, government effectiveness, regulatory quality, control of corruption) except for rule of law registered a decline in score. The rule of law score made slight improvement but was still negative. (ADB, 2005)

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Table 1.1: Comparison of Governance Estimates of Selected Countries

(Source: ADB, 2005: 12)

In 2001, the Office of the Ombudsman (OMB) estimated that USD48 billion had been lost to corruption in the last 20 years, an amount that could have paid for the total debt of the Philippines for the same period. The Commission on Audit (COA) conservatively estimates corruption loss at P2 billion a year. (World Bank, 2001; Thornton, 2006) Particularly in the area of procurement, leakage is estimated by Procurement Watch, Inc. (as of 2001) at P95 billion or 68 per cent of the budget deficit. (Thornton, 2006) Through the years, Filipinos have matured and have come to understand that corruption seriously impairs national development. More and more Filipinos (from 54 per cent in October 1999 to 81 per cent in December 2000) now view corruption as primarily harmful to national development instead of primarily immoral. These understandings are translated into public dissatisfaction6. Since the mid-90s, corruption is a second most commonly cited reason for discontent with government (after inflation). Forty-seven percent of Social Weather Stations' (SWS) respondents (August-October 2000 enterprise survey) think that public sector corruption is due to bad regulations and bad implementation and 67 per cent see corruption to be prevalent in both revenue-collection and government spending activities. (Table 1.2). The executive branch is viewed to be the most corrupt (54 per cent), followed by the legislature (30 per cent) and the judiciary (17 per cent) (Third Quarter 2000 SWS national survey). Fifty-three per cent of its
6 Because of recent corruption scandals that involved the President of the Philippines (ex: election-related scandal in 2004), the President's net satisfaction rating has dropped from +26 at the beginning of her second term in June 2004 to a -26 in 2008 (Social Weather Stations, 2008). Her cabinet also took the brunt of the blame with a -2 satisfaction rating in 2007 (Social Weather Stations, 2007). Moreover, the 2007 mid-term elections resulted in the lowest voter turnout (75%) in 6 years partly due to public disillusionment in government, specifically in the muddled election process. (Torres, 2007)

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respondents (June 2000 survey) views that half the cost of road projects are lost to corruption, while 40 per cent identify tax collection as an area where corruption is prevalent. (WB, 2001) Table 1.2: Areas of Public Sector Corruption (percent of respondents)
Do you think public sector corruption is... Due more to bad regulations Due more to bad implementation Equally due to bad regulations and bad implementation Due neither to bad regulations nor bad implementation Do you think public sector corruption is... More prevalent in government revenue-raising More prevalent in government spending Equally prevalent in government revenue-raising and spending 3 27 67 1 45 47 7

Found neither in government revenue-raising nor spending 3 (Source: WB, 2001: 7) SWS Enterprise Survey, August-October 2000

In its report in 2001, the World Bank recommends that corruption can be addressed by reducing discretion in government decision making, increasing competition, transparency and civil society involvement in monitoring governance activities. Government should build partnerships with civil society organizations, empower them with a 'mandate' to monitor government performance, give them access to information, and provide the necessary training to build on their capacities. In a donors dialogue conducted in April 2001, donors identified among others procurement monitoring and procurement reform as priority anticorruption strategies. (Ibid.) The post-Marcos era was a period of reconstruction for the Philippines – governance reforms were slowly put in place. During the same period, public sector reforms elsewhere7 were implemented to the tune of New Public Management (NPM)8. Government processes increasingly became service-oriented, driven by principles of efficiency, effectiveness, and economy. In 1995-96, progressive civil servants in the

7 Such as in New Zealand, Australia, Canada, and the United Kingdom. (McCrudden, 2007)
8 New public management (NPM) incorporated the best of private sector management practices into public service. (Thornton, 2006)

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Philippines learned the ways of NPM through Australian government-funded visits. Government reforms initiated then in the country had benefited from technical “best practice” and strong local and international pressure for government to become more transparent and accountable. Government reforms were strongly supported by external partners9. In 1999, informal dialogues between the Government of the Philippines (GOP) and international donors resulted in a resolve and agreement for financial and governance reforms, including that of procurement. (Thornton, 2006) PROCUREMENT REFORM IN THE PHILIPPINES Procurement (pre-neoliberalism) in developed countries had more direct use for social policy goals . The United Kingdom, post-World War II, used government contracting to address disabled workers' needs. Similarly, the United States government (1938) adopted a policy that it would preferably buy products produced by the blind. This preferential policy was extended to other severely handicapped persons in 1971. In 1998, it used procurement mechanisms to improve the availability of new technology for disabled workers. Procurement was also an instrument to secure human rights transnationally10. Procurement then had a specific social justice cause. This all changed in the 1980s when neoliberalism took reign of development policy. The state's role in the economy had been reduced and limited. Procurement became primarily a method to deliver public services and a venue for private-public partnerships to take place. Where procurement contracts were used, as they increasingly were, as the basis for delivering these public services, 'value for money' was proclaimed as the basis on which contracts should be allocated. (McCrudden, 2007: 11) In the 1960s (but even more apparent in 1980s and 1990s), procurement reforms were introduced in the international stage11 affecting state procurements. These reforms were
9 In 2005, ADB reports that there are 206 projects in the country funded by 12 international donor institutions (ADB, 2005) 10 For instance, groups in North America and Europe used procurement linkages to protest against apartheid in South Africa. Local governments of the Netherlands threatened to cancel their contract with a specific supplier after the latter signed a contract with Chile at the height of the coup. Similar efforts were taken with Myanmar and Northern Ireland. (McCrudden, 2007) 11 Such as the U.N. Commission on International Trade Law (A/Res/49/54, February 17, 1995), Agreement on Government Procurement (1996), European Commission, General Agreement on Tariffs

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primarily intended to reduce barriers to international trade, grounded on principles of greater market access for foreign firms, non-discrimination between foreign and domestic firms, efficient and cheaper public procurement, or good governance. (McCrudden, 2007; Hoekman, 1998; Thornton, 2006) Procurement reform in the Philippines is one tied to international obligations as well12. (Thornton, 2006) It was part of a broader fiscal and governance reform initiative to which various external donors have committed assistance (Table 1.3). It was prompted by a WB report in 1999, prepared at the request of progressive government officials under the Estrada administration (1998-2001). The report provided 'technical' basis for an already evident domestic clamor for change. This immediately prompted external funders to take interest in the governance problems of the country, particularly in procurement. One of those earliest to respond was the U.S. Agency for International Development (USAID) with a Technical Assistance to draft the first version of the new procurement legislation that would provide a comprehensive and coherent framework for public procurement. Predominantly driven by external experts, initial procurement reform efforts did not go far for lack of ownership or local constituency. The second and third rounds of legislative advocacy became successful because of a broad support from local reformists, both from the executive and legislative branches and from civil society as well. In 2003, the GPRA was passed as the overarching policy on procurement. Most of what's been accomplished since had to do with the creation of a regulatory and procedural framework. (Thornton, 2006; WB, 2001; Campos and Syquia, 2006)

and Trade (1994), OECD DAC Paris Declaration, Johannesburg Declaration on Procurement 12 The Philippines is signatory to the Paris Declaration on Harmonisation and Alignment and the Johannesburg Declaration on Procurement. (Thornton, 2006)

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Table 1.3: Summary Statistics of Foreign and Development Partner-Assisted Governance Projects

(Source: ADB, 2005: 34)

The role of civil society organisations had been vital to the reform experience. During the lobbying stages of the GPRA, champions in government identified the need for a constituency in civil society to help echo calls for reform and to pressure the legislature for positive action. The result was the creation of Procurement Watch, Inc. (PWI). PWI immediately built on its staffs' technical knowledge on procurement reform, and actively advocated for procurement reform with the support of partner-organisations, such as TAN. (Ibid; Ibid; Ibid) After the passage of the GPRA, PWI along with network partners continued their engagement with reform work through their participation in procurement monitoring activities.

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CHAPTER TWO: CONCEPTUAL FRAMEWORK Good Governance. Post-1945, the period of decolonisation, development perspectives made a deliberate turn-around, moving bias away from external intervention and towards state sovereignty. The view was that state-building needed to be worked out through local political processes. Fast-forward to present times, state-building becomes a sphere dominated by international institutions with the latter's increasing involvement in this area. At present, international institutions have greater regulatory roles, particularly in defining the framework of 'good governance'. (Chandler, 2007; Johnston, 2007; McCrudden, 2007) The World Bank's framework, for instance, reduces governance into an administration and management issue. It offers a neoliberal interpretation of good governance where the state is limited and is more efficient by being less intrusive in economic matters. This bureaucratic model (of good governance) avoids issues of politics and is essentially concerned with efficiency. With this, cynics believe that the notion of 'democratic good governance' is based on a liberal-democratic polity that ultimately supports competitive, free market economics. (Leftwich, 1993) Limiting the political sphere, however, implies a deemphasis on political accountability. 'Good governance' devoid of politics downplays the political process as just a product of state policies rather than constitutive of them. It ignores the fact that good governance or state building... has deep ideological presumptions which purport to offer technical solutions to what in essence are political problems. (Chandler, 2007: 75) Corruption. Rhetorically speaking, good governance addresses the corruption problem. Corruption is generally defined by the World Bank as the abuse of public office for private gain. (World Bank, 2000) A closer look at corruption reveals a basic contradiction between two 'cultures' that interface in governance – the culture of the market and of democracy. While the market's main currency is profit, democracy's is accountability. Corruption results from this tensioned interface between the public domain and the market economy. (Rose-Ackerman, 1978) The public servant is torn between two interests – personal gain and accountability to the public. The public and private domains, centrally important to understandings about corruption, are blurred because of conflicting cultural norms. (Andvig and Fjeldstal, 2000) This is further complicated by

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economic liberalisation and privatisation policies, which by just the stroke of a pen, redefine and revise the boundaries of public-private spheres. In this, arriving at a common definition of corruption proves to be difficult and debatable, especially as it centers on the question “who gets to decide?” Concepts such as abuse, public, private, and benefit are contentious and very much embedded in the socio-cultural environment of a society. Private-public spheres are porous and tentative; Benefits can be obtained far into the future, invisible, and spread among various stakeholders. And by what standards does one measure abusive behaviour – laws or norms and culture? Clearly, social understandings of these concepts are shaped through consensus-building. The literature suggests that standards of fair play and limitations to political and economic influence are reached through political and democratic processes of negotiation involving civil society. Just as corruption is deeply embedded in society, reforms addressing corruption should also be society-linked. Procedural reforms should be consistent with cultural values and social understandings of fairness. Efforts to mobilize civil society should take into consideration patterns of identity, social divisions, level of public trust, traditions of reciprocity, status systems, among others which help map out the interests and energies of society as part of the reform process. Chan (2005), for instance, notes the reason why Hongkong succeeded in its fight against corruption is that there was strong social backing. Anti-corruption efforts were linked with the local language, social relationships and traditional values. (Johnston, 2007) Even in the complexity of corruption, it is helpful to explore its three main definitions. The World Bank definition is a transmutation of Waterbury's (1973): “the abuse of public power and influence for private ends” (Senior, 2006: 20) Another variant is that of Nye (1967) Corruption is behaviour which deviates from the formal duties of a public role because of private-regarding (personal, close family, private clique) pecuniary or status gains, or violates rules against the exercise of certain types of private-regarding influence. (Ibid) A third variant frames corruption in terms of principal-agent relations, that of Alam (1989):

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Corruption... may be defined as (1) the sacrifice of the principal's interest for the agent's, or (2) the violation of norms defining the agent's behaviour. (Ibid: 21) Principal-Agent Relations. Most economic analyses on corruption adopt principalagent theory as their famework. Under the PA model, the principal determines the task of the agent and the agent performs the task according to the principal's interest. Corruption in this view is seen as an incentives problem. The aberration in the behaviour of the agent from the dictates of the principal has to do with an impaired incentives structure - there are few incentives (and/or sanctions) for the agent to act according to the interest of the principal. Within the PA framework, therefore, the solution is to create an incentives structure that discourages the agent to stray away from his/her mandate (as determined by the principal). (Lambsdorff, 2007; Rose-Ackerman, 1978; Flinders, 2007) This model theoretically limits the discretion of the agent, provides transparency of roles and facilitates accountability by clarifying exactly who is responsible for what... (Flinders, 2007: 244) A common problem in PA relations is information-asymmetry where because of developed expertise in the task , the agent holds more information than the principal that he/she can use to advance his/her interests at the expense of the principal's. To address this, the PA model suggests a powerful outside monitor ('counterpart agents') that will provide the principal with information on the agent's performance. Monitoring will reduce corruption and improve the agent's service-delivery. (Rauch and Evans, 2000; Flinders, 2007) The PA model is not sufficient, however, to capture the complexity of the corruption phenomenon. Most PA critiques would note how the model downplays the importance of political will. Reforms using this model rely so much on the principal's integrity and support. (Andvig and Fjeldstal, 2000) The model is sometimes naïve in that it assumes away the problem... because the political will to engage in vigorous monitoring and implement appropriate strategies is lacking, or worse yet the principal is himself corrupt. (Rauch and Evans, 2000: 51) One other important note to make about this model is that it is derived from private sector practices and perhaps inappropriately applied to the public sector. In the public

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sector, it is not always possible to clearly distinguish between principal and agent. Moreover principal-agent roles so often change depending on the context of the function. [W]ithout clear separation of roles and responsibilities the increased transparency and accountability promised by the model is lost. (Flinders, 2007: 244-45) Also, in reality, principals interfere with the agent's work because of the political sensitivity of the function and yet principals can conveniently hide behind the agent's contract to distance themselves from the consequences of their action. The separation of powers between policy-making and service delivery in the public sector further makes it difficult to identify causes of failure – whether failure is attributable to policy or operational factors. (Ibid.) The adoption of the PA model underscores managerial and economic accountability rather than democratic and political accountability. The principal/agent (PA) model was developed in the context of new institutional economics and is of pivotal relevance to the current accountability arrangements in central government. PA theory advances a specific form of organisational structure which prioritises a contractual relationship over traditional hierarchical Weberian top-down relationships. (Ibid: 244) Managerialism based on the new public management school of thought changed the direction of accountability flows, with emphasis on direct and downward accountability to the public. Codes of accountability within the state transformed relationships into contracts, citizens into consumers, and accountability into audit. [T]he structure of the state has been reconfigured via the imposition of a range of private sector derived processes and practices, most notably privatisation, contracting-out and agencification. Public administration has... been supplanted by 'new public management'. (Ibid: 233) These changes in the accountability model (the shift to PA model) have also affected relationships and expectations.

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Accountability. The concept of accountability is often used as a benchmark against which systems of government can be judged. Accountable government is deemed to be good government and carries with it connotations of advanced democracy. Governments which can be characterised as unaccountable are likely to prove fertile ground for the cultivation of authoritarianism, totalitarianism and every type of abuse of power. (Pyper cited in Flinders, 2007: 9) In this, it is important to define accountability. Accountability includes the following elements:
• •

• •

control of abuse, corruption and misuse of public power; assurance that public resources are being used in accordance with publicly stated aims and that public service values (impartiality, equality, etc.) are being adhered to; improvement of efficiency and effectiveness of public policies; the enhancement of the legitimacy of government. (Ibid)

With the rise of neoliberalism in the 1980s, accountability took a backseat. States cared more about value for money and efficiency; accountability came as a secondary concern. Contractual relationships became in vogue partly due to concerns about governments becoming overloaded and also in keeping with a commitment to market forces. Again, this was the time when “governance” is preferred over “government.” The rise of managerialism13 was a response to the position that traditional mechanisms of political accountability were not working any longer. (McCrudden, 2007; Flinders, 2007) All praise for managerialism, William Waldegrave testifies: [i]t has... made more transparent the links in the accountability chain which were pretty obscure before... contracts also make explicit the performance and standards that are expected. (Waldegrave cited in Flinders, 2007: 238) A different opinion, however, says that managerialism has only strengthened low level

13 Operationally, managerialism meant: 1) reduced bureaucratic rules and hierarchies, 2) ensure budgetary
transparency and identify costs of inputs and outputs, 3) use of a network of contracts, rather than fiduciary relationships, 4) disaggregate organisations and their functions, introduce purchaser/provider distinctions, 5) increase provider competition, and 6) increase consumer power through enhanced scope for exit and redress. ( Flinders, 2007: 234-35)

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accountability, which buffers for high level accountability. Stewart argues [t]he real fallacy is... to assume that providing responsive services can meet the requirements of public accountability. Accountability to the customer can never replace the need for public accountability, because the nature of the service is not determined by the customer alone. The issue of public accountability is where accountability lies for that policy framework. (Stewart cited in Ibid: 242) Managerialism, in effect, has increased internal accountability (within-the-state accountability) but weakened external accountability (accountability to the public). Audit mechanisms (as a PA solution to information-asymmetry) does not also make for responsible governments. “The fact that an audit takes place does not equal accountability itself. Audit mechanisms produce information which will be used by those to whom an account is owed. Therefore audit is a means of improving or increasing the effectiveness of the accountability relationship.” (Ibid: 250). Participation. Good governance also connotes participatory governance. Public participation is regarded as a key element to improving governance, specifically in addressing the 'democratic deficit'. (Barnes, et. Al, 2007) Participation is strongly linked with rights of citizenship and democratic governance. It is argued that states should create opportunities for people to participate and establish themselves as citizens. It is believed that more effective forms of participation will build on a stronger democracy and will lead to the achievement of pro-poor developmental outcomes. In this, citizens are seen as “partners” with the state in the policy-making process – from the identification of problems to finding solutions. (Potter, 2000; Gaventa, 2004) Even in confronting corruption, Johnston stresses the need to mobilize citizens. (Johnston, 2005: 21) Sadly, however, public participation rates are falling in democracies worldwide. In southern hemisphere countries, corruption is cited as one of the reasons why there is that disconnect between governments and citizens. The state is seen as distant, unaccountable, corrupt, and not responsive to the needs of the poor. While Ostrom (2000) blames the centralizing tendencies of some governments, making their citizens 'passive observers', Klein (2000) and Monbiot (2000) point at the state's subjugated role

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to global capitalism, which reduces citizenship to consumership. (Barnes, et.al, 2007; Gaventa, 2004) The promise of participation, it seems, is not easy to attain. Even as it is, participation has different shades. Critiques of participation warn about the rhetorics surrounding it. Mosse, for instance, informs us that participation has the tendency to create fake notions of community cohesion. (Biggs and Smith, 1998) Particular forms of participation could also create the effect of exclusion. In this, various determinants of participation should be examined – rules, norms, perceptions, endowments, and attributes. Participation could also be a disempowering instrument for those excluded and even for those included. It could be an instrument to discipline the participants leading them to political cooption, rather than empowerment. Participation is also sometimes used to transfer project costs to the beneficiaries. It is important to scrutinize how participation is defined in various public policies, how it is used and in favor of what ideological position. Gaventa (2004) dares us to ask for whom is participation made to work and with what social justice outcomes? (Agrawal, 2001; Cooke and Kothari, 2001; Gaventa, 2004) Even in defining which public 'public participation' caters to is worth looking at. [P]ublic policy discourses construct notions of the public and engage with a diversity of publics in a plural polity. (Barnes, et. al, 2007: 2) Empowerment is concomitant to participation. Most development work however have reduced participation to a mere project method rather than a political method for empowerment. Hickey and Mohan stress the need for participation to be founded on a strong 'empowerment' philosophy so that it cannot be coopted within a disempowering agenda (Hickey and Mohan, 2005) “Governance” as a foundation for participation in anticorruption work, for instance, in the viewpoint of Przeworski (1995) is limited. Reducing the states' role to “governance” will make it difficult for the state to mobilize participants in public life and make reform less risky to ordinary citizens. (Johnston, 2005) There are four discourses that provide home to participation and offer explanation on the distinctive features surrounding its occurrence in governance: 1) empowered public discourse, 2) consuming public discourse, 3) stakeholder public discourse, and 4) responsible public discourse. The empowered public discourse is focused on

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disadvantaged groups or communities and by this, participation is examined in view of institutionalized discrimination/neglect. In this, structures are regarded more seriously in their roles of empowering/disempowering disadvantaged publics. The consuming public discourse is focused on the experiences of individuals in their use of public services. This is a dominant discourse in the reforms instituted by the World Bank in the southern hemisphere (e.g. economic liberalisation policies). Public sector reforms implemented under this discourse's influence open up public services to market practices (e.g. Competitive tendering). The stakeholder public discourse stress that the public has a stake in good governance as users, indirect beneficiaries, and taxpayers. Stakeholding enables us to recognise a diversity of legitimate entitlements to representation within the public as well as the private sphere. (Rustin, 1997:80 cited in Barnes, et.al, 2007:15) The responsible public discourse has the idea that individuals/groups owe duty to others and the state in their conduct. This discourse shares with the communitarian movement an orientation of strengthening cohesion of society. Underlying assumptions about the publics constituted in each discourse suggest different approaches to achieving specific government objectives. Barnes, et.al. (2007) provide a summary below of the different ways at which the four public discourses are used in government work: Table 2.4: Objectives, purposes and discourses of public participation
Government objective Improved services Public participation purposes Improving the responsiveness of public services and outcomes for service users both collectively and individually Dominant official discourse (s) Consumer/stakeholder publics

Enabling services to be designed and delivered Empowered public by community organisations and/or 'local people'

Improved outcomes

Reducing social exclusion Achieving social order and social cohesion Improving health and reducing health inequalities

Empowered public Responsible public Empowered public

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Democratic renewal: Institutional

Improving the quality and legitimacy of decisions in government, health services, local government and other public bodies

Stakeholder public

Removing or reducing the 'democratic deficit Stakeholder/ responsible evidenced by low turnout in parliamentary, local publics [and European] elections Democratic renewal: Individual/ community Generating 'positive freedom', civic virtues, mutuality and trust Building community capacity and empowerment Building individual skills and capacity (Source: Barnes, et.al, 2007: 23) Stakeholder/responsible publics Empowered public Empowered/ responsible publics

This paper uses the above concepts to inform the framework of analysis used to assess procurement reform in the Philippines. Procurement reform in the Philippines is anchored on an anti-corruption and good governance policy commitment by the government. In this it promises to enhance accountability mechanisms by tightening discretionary powers of the public procurement officers. It also does this by including heavy sanctions when there are aberrations in the behaviour of the procurement officers. Additionally, it creates space for public participation, inviting civil society organisations to monitor the procurement process. These policies will be examined and deconstructed against what they purport to offer and what they can actually offer based on theories on principal-agent relations and participation. Below is a summary-diagram of how procurement reform in the Philippines will be appreciated: Figure 2.1. Framework of Analysis
Principal-Agent Model

???
Potential/ Limitations:
- Accountability - PA Effectiveness

Procurement Reform:
- law, rules and regulations - policies

Participation framework

???

2006 procurement data

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The analysis will focus on describing the PA model and participation framework adopted by the Philippines in its procurement reform strategy, as can be drawn from the texts of the law and regulations and the prevailing practice based on empirical data gathered by the Transparency and Accountability Network and select case studies. Conceptually, this paper submits that the PA model as contemplated in the GPRA will only be effective with the empowered participation of CSOs as counterpart agents. PA and participation theories put together and applied to procurement reform is described in the diagram below: Figure 2.2. PA-Participation Theoretical Framework
Governance sphere Formal government sphere Principal-Agent

Accountability Procurement Reform Package Managerial Political acctability acctability

Counterpart agents: COA; OMB; PAGC

civil society organisations COA = Commission on Audit, OMB = Office of the Ombudsman, PAGC = Presidential Anti-Graft Commission

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This explains that the PA model even with the governmental oversight mechanisms in place has limited reach. The counterpart agents in the entities of COA, OMB, PAGC, etc. only oversee the agent/(s). The public participation component contributes to the PA model with a potentially wider oversight reach. The empowered/stakeholder public discourse would suggest that CSOs as counterpart agents not only oversee the principal-agent characters, but also the government counterpart agents, and even the reform package itself. This tells us that with CSOs as empowered counterpart agents, a greater sense of accountability (managerial and political accountability) can be achieved. In this, it is key to understand the 'participation' framework that procurement reform in the Philippines adopts. The PA model and participation framework together inform the level of accountability that the reform tries to achieve. From this, we can assess only how far procurement reform in the Philippines is willing to take us. Research Objectives. This paper seeks to contribute to the discussions on procurement reform in developing countries, with particular focus on the Philippines. Procurement reform in the Philippines is founded on principles similar to those found in international procurement systems. Assessment of the reform, however, draws on very peculiar issues pertinent to the Philippines only but indicative of the weaknesses of the system. By raising these issues, this paper hopes to inject some new perspective on how to move forward with procurement reform in the country, especially while still at the early stages of implementation. It attempts to get the attention of Philippine government agencies, procurement practitioners, CSOs, and international funding agencies shaping the procurement reform and good governance discourse. Research Questions and Scope and Limitations. This paper is focused on assessing salient features (pertaining to principal-agent relations and participation) of the Philippine procurement law. Accountability will also be assessed in close appreciation of the PA model. The ensuing discussion and assessment will limit itself to the parameters set forth in the conceptual framework above. It attempts to answer the following questions: 1. How is principal-agent theory applied in the GPRA? 2. What are its weaknesses?

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3. What is the participation framework used? 4. What are the limitations of the participation framework adopted? 5. Why does procurement reform in the Philippines have limited prospects? By answering these questions, this paper will be able to demonstrate how and why procurement reform in the Philippines is limited in its current configuration and what changes could be made to address the inadequacies of the reform.

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CHAPTER 3: PHILIPPINE PROCUREMENT REFORM DECONSTRUCTED Principal-Agent Features in Philippine Procurement Reform The PA relations explored here is that between the procurement officers14 as agents; and the government, which includes the head of the procuring entity, and the public as principals. The procurement officers as agents are restricted to perform their duties and functions in accordance with the GPRA, 'assumed' to be in keeping with government and public interests. Limited Discretion. Limited discretionary powers of procurement officers is one of the often showcased positive features of the new procurement law – a classic application of principal-agent theory. The GPRA and its IRR set forth very clear limitations to the decision making powers of procurement officers, making it almost a very mechanical function. At the onset, for instance, the default method of procurement is competitive bidding15. Only in very specific instances specified in the GPRA are alternative methods16 allowed. Strict guidelines on how to conduct alternative methods are also defined in the law. (Table 3.5) The procurement procedures have also been standardized, assigning prescriptive periods at every stage of the process, which leaves the procurement officers little room for 'manipulation'. (Table 3.6) The same procedure adopts a pass-fail criteria17. If a participant bidder fails to comply with just one criterion, it is automatically prevented to proceed to the next stage of the process18. Winning a project is usually based on the amount of the bid and/or the rating – the winner shall be the lowest calculated responsive bid (goods and civil works) or the highest rated responsive bid (consulting services)19.
14 Members of the Bids and Awards Committee (BAC), BAC Secretariat, Technical Working Group, Project Management Office, and others who have access to information regarding the project to be procured. 15 Section 10, Article IV, GPRA (GPPB-TSO, 2006) 16 The alternative modes of procurement are: limited source bidding, direct contracting, repeat order, shopping, and negotiated procurement. (Sections 48-54, Article XVI, GPRA)(Ibid.) 17 Section 30, Article IX, GPRA (Ibid) 18 Ex: Failure to submit any one of the required documents for eligibility makes a bidder ineligible. The bidder's technical and financial proposals will no longer be opened. (Ibid) 19 The rate given to a bidder for consulting services is based on a criteria that has been published and made available to all prospective bidders during the invitation to bid stage. (Ibid)

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Table 3.5: Conditions for Alternative Methods of Procurement
Method Limited source bidding – involves direct invitation to bid by the procuring entity from a set of preselected suppliers or consultants with known experience and proven capability relative to the requirements of a particular contract Conditions that should present Procurement of highly specialized types of Goods and Consulting Services which are known to be obtainable only from a limited number of sources; or 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 Procurement of Goods of proprietary nature, which can be obtained only from proprietary source, I.e. When patents, trade secrets and copyrights prohibit others from manufacturing the same item; When the procurement of ciritical 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 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. Repeat order – 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 When provided for in the Annual Procurement Plan and subject contractor must have passed the post-qualification process The unit price must be equal to or lower than that provided in the original contract; The repeat order does not result in splitting of requisitions or purchase orders; Except in special circumstances, the repeat order shall be availed of only within 6 months from the date of the Notice to Proceed arising from the original contract; and The repeat order shall not exceed 25% of the quantity of each item of the original contract. Shopping – procuring entity simply requests for submission of price quotations for readily available off-the-shelf Goods or ordinary/regular equipment to be procured directly from suppliers of known qualification When there is unforeseen contingency requiring immediate purchase: Provided, however, that the amount shall not exceed P50,000; or Procurement of ordinary or regular office supplies and equipment not available in the Procurement Service involving an amount not exceeding P250,000: Provided, however, that the procurement does not result in splitting of contracts: Provided, further, that at least 3 price quotations from bona fide suppliers shall be obtained In cases of 2 failed biddings 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 manmade 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;

Direct contracting – 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

Negotiated procurement – procuring entity directly negotiates a contract with a technically, legally and financially capable supplier, contractor or consultant

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Table 3.6: Period of Action on Procurement Activities
Maximum Periods Stage Activities Deadline Goods Civil Works For ABC costing 50M and below 1 2 3 Advertisement/Posting of IAEB Letter of Intent Eligibility Check for civil works and consulting services/ Short listing for consulting services Issuance and availability of bidding documents Pre-bid Conference Available for at least 7cd from the date of issuance 12cd before the deadline of submission of bids 10cd before deadline of submission of bids 7cd before deadline of submission of bids 1cd (includes eligibility check) 7cd 1cd 1cd 1cd 1cd Within 7cd from the last day of posting n/a Refer to stage 6 7cd 3cd 7cd 3cd 7cd 20cd For ABC costing above 50M Consulting Services

4

30cd

36cd

50cd 60cd

5

1cd

1cd

1cd

Request for clarification Supplemental/ Bid Bulletin 6 Submission and Opening of Bids

7

Bid Evaluaton

5cd

7cd

21cd + 2cd for approval of ranking 3cd 10cd

8 9 10 11 12

Notification for Negotiation Negotiation Post-qualification Approval of Resolution/ Issuance of Notice of Award Contract Preparation and Signing 7cd 7cd 10cd 7cd 4cd 10cd 7cd 7cd 10cd

7cd 7cd 10cd

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13 14

Approval of Contract by Higher Authority Issuance of Notice to Proceed

15cd 3cd 80cd

5cd 2cd 70cd

15cd 3cd 100cd

15cd 3cd 139cd

Total Maximum Periods

(Source: GPPB-TSO, August 2006: 118-119) ABC = approved budget for the contract, cd= calendar days, IAEB = invitation to apply for eligibility and to bid

Transparency. Transparency is an important component of an effective PA model. Transparency contributes to restricting the behavior of agents within the bounds of his/her mandate. Particularly with the GPRA, all calls for bid must be published. Invitations to bid are standardized20, which include information on the criteria that will be used for eligibility check, short listing, bid evaluation and post-qualification. This binds the procurement officers to render their decisions according to a pre-committed criteria, as published. They also have to stick with the other commitments (i.e. schedule of activities) set in the advertisement, unless amended which should be accompanied by a corresponding advertisement. The law also incorporates a 'disclosure of relations' policy, which prohibits any bidder from participating in a bid with an agency, where the bidder would have “third civil degree of consangunity relations” with the agency's procurement officers21. The disclosure policy restricts 'agents' from having transactions with close family relations, as defined, which may cloud the agent's decisions. Another transparency measure is the requirement of inviting external observers to all stages of the procurement process (discussed in the next section). Professionalization. Professionalization of the procurement function helps build a ' shared culture' through a standard code of conduct among procurement officers. This
20 Invitation to bid shall contain the following information: a) brief description of the subject matter of the procurement; b) a general statement of the criteria to be used by the procuring entity (for eligibility check, shortlisting of prospective bidders, examination and evaluation of bids, and post-qualification); c) the date, time, and place of the deadline for submission and receipt of eligibility requirements, the pre-bid conference if any, the submission and receipt of bids, and the opening of bids; d) approved budget of the contract to be bid; e) the source of funds; f) period of availability of the bidding documents, and the place where these may be secured; g) contract duration; and h) such other necessary information deemed relevant by the procuring entity. (Section 21, Article VII, GPRA)(Ibid) 21 In the case of individual or sole proprietorship, this rule refers to the bidder himself/herself. In the case of partnerships, this rule applies to its officers and members. In the case of corporations, it applies to its officers, directors, controlling stockholders. The procurement officers, on the other hand, include the members of the Bid and Awards Committee (BAC), members of the Technical Working Group, the BAC Secretariat, members of the Project Management Office, and the designers of the project, and head of the procuring entity. (Section 47, Rule XV, IRR-A) (Ibid)

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convergence to a common acceptable conduct for procurement officers contributes to making the PA model work, through peer support and pressure. Professionalization22 as conceptualized in the GPRA and its IRR, seeks to contribute to the standardization of procurement procedures and strengthen the procurement functions towards increased operational efficiency and effectiveness. Incentives and Sanction. Incentives and sanctions affect the behavior of agents – incentives encourage them to make good in their performance and sanctions discourage them to act outside of or against their mandate. Some incentives and sanctions are framed in legal regulations with the intent to explicitly influence behaviour. The aim of any form of regulation is to modify behaviour of those subject to regulation in order to generate a desired outcome. (Yeung, 1999 cited in Flinders, 2007: 64) The GPRA is lauded for its incorporation of administrative, civil, and even criminal sanctions for specific violations (peculiar to the procurement function) committed by procurement officers and bidders. This facilitates the prosecution of erring entities with the GPRA as basis but does not preclude prosecution under other relevant laws23 (see Appendix B). As incentives, procurement officers may be granted honoraria in addition to the salaries they receive for their 'normal' functions subject to the guidelines of the budget department24. Oversight. There are several oversight mechanisms existing in the current procurement reform structure that should ensure the proper functioning of the PA model. These are the Bids and Awards Committee (BAC), head of the procuring entity, COA, Procurement Transparency Group (PTG), OMB, PAGC, and external observers. The BAC, who makes most decisions regarding procurement, is a panel of five or seven

22 Section 16, Article V, GPRA (GPPB-TSO, 2006) 23 Prosecution of corruption is difficult under the Penal Code because of the tedious process of establishing motive and intent, which is not anymore necessary in the GPRA. The commission of the violation is sufficient basis for prosecution under the GPRA. 24 Section 15, Article V, GPRA (GPPB-TSO, 2006)

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members25. This structure prevents a monopoly of the power to decide and an internal form of check and balance among the members of the Committee. The head of the procuring entity has approval and veto powers over decisions of the BAC. He/she needs to approve the use of alternative methods of procurement instead of competitive bidding26. He/she also needs to approve the recommendation of the BAC for award of contract to a BAC-determined winner27. Finally, he/she can act on a protest made by a complainant-bidder or an unfavorable report submitted by an external observer28. The COA, on a post-audit basis, submits annual audit reports covering irregular procurements29. The OMB receives reports on irregular procurements and may initiate investigation leading to the prosecution of erring procurement officers30. Similarly, the PAGC prosecutes erring procurement officers who are Presidential appointees, which may lead to a recommendation for dismissal31. The PTG, created in November 2007, is a multi-sectoral oversight body, mandated to monitor big procurements32. Its powers include submitting comments/recommendations on a questioned procurement and referral of cases to the PAGC. Finally, there are at least two external observers allowed to sit in procurement proceedings and submit reports of their observations (favorable and unfavorable) for appropriate action to the head of the procuring entity, PTG, OMB, and PAGC. The external observers should be non-government organizations (NGOs) and/or professional organizations33. RULES ON PARTICIPATION
25 26 27 28 29 30 31 32 Section 11, Article V, GPRA (Ibid) Section 48, Article XVI, GPRA (Ibid) Section 37, Article XI, GPRA (Ibid) Section 55, Article XVII, GPRA (Ibid) Section 2(1), Article IX-D, 1987 Philippine Constitution (http://www.coa.gov.ph/Gen_Information.htm) http://www.chanrobles.com/republicactno6770.htm Section 4, Executive Order 12 (http://www.chanrobles.com/arroyoexecutiveorderno12.htm) The PTG is mandated to monitor procurements amounting to P100 million and above. It is headed by the Government Procurement Policy Board and the members include: Presidential Anti-Graft Commission, National Economic and Development Authority, Department of Justice, Department of Budget and Management, Department of Interior and Local Government, and five other NGOs involved in training and/or reform work. (Executive Order 262) (http://www.doe.gov.ph/popup/EO%20662.pdf) 33 Section 13, Article 5, GPRA (GPPB-TSO, 2006)

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Participation to governance work is an important feature of the GPRA with the inclusion of civil society organizations as observers in procurement proceedings. The law provides that the BAC should invite at least two external observers in all stages of the procurement process34. The observers should come from a professional organisation or from a NGO. The professional organisation should be a recognized private group in a sector or discipline relevant to the nature of the procurement. For infrastructure projects, these are the likes of the Philippine Constructors Association, Inc. (PCA), the National Constructors Association of the Philippines, Inc. (NACAP), and the Philippine Institute of Civil Engineers (PICE); For goods, members of the Philippine Chamber of Commerce and Industry (PCCI); For consulting services, organisations like the Philippine Institute of Civil Engineers (PICE), Philippine Institute of Certified Public Accountants (PICPA), and Confederation of Filipino Consulting Organisations (COFILCO). The non-government organisation, on the other hand, should be registered with the Securities and Exchange Commission (SEC), and should meet the following criteria: 1. Knowledge, experience or expertise in procurement or in the subject matter of the contract to be bid; 2. Absence of direct or indirect interest in the contract to be bid out; and 3. An other criteria that may be determined by the BAC (Section 13.2, IRR-A) (GPPB-TSO, 2006) The observers should be informed at least two days before the date of procurement activity to which he/she is invited. The absence of observers will not nullify the proceedings. Invitations should be done in writing. Observers also have responsibilities under the law. These include preparation of reports on observations made to be submitted to the head of the procuring entity (copy furnished
34 Procurement commences from invitation to awarding of contract. It does not include pre-procurement conference, which is the stage at which the procurement project is being planned and designed (includes the determination of technical specifications and the criteria for evaluations).

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the BAC Chairman), signing the abstract of bids if in their observation the bidding was conducted according to law, and signing the post-qualification summary report to indicate agreement to the said report. The observers should be furnished copies of the following documents upon their request: minutes of bid proceedings, abstract of bids, post-qualification summary report, annual procurement plan and procurement project management plan, and copies of opened proposals. Observers may also submit their reports to the OMB but are not prevented from submitting reports to any other body. The aforementioned presents the determinants of participation under the procurement reform framework: who can participate, how they may participate, and where can they participate. CHAPTER 4: EVALUATION OF PROCUREMENT REFORM IN THE PHILIPPINES Progress and Problems Reported. Procurement reform in the Philippines is already considered a success. (Thornton, 2006; ADB, 2005; WB, 2005) Success is mostly attributed to the establishment of a legal and procedural framework, which is considerably a major feat in itself. Also, the Philippine procurement system is complying more and more with international standards (Thornton, 2006; Hoekman, 1998). OECD-DAC (2006 Agency Performance Indicators) notes the Philippines' compliance rate in six key procurement areas are in the range of 49 and 79 per cent. The Baseline Indicators35 assessment in 2006 also registered an improvement from a rate of 67.89 per cent (2004) to 68.2 per cent. (Thornton, 2006; “BLI Assessment”, 2006) Another notable development is the immediate evidence of procurement savings in the Department of Education due to procurement reforms. Unit costs of chairs and desks have decreased by 22 per cent and 77 per cent, respectively, textbook costs by 50 per cent, and classrooms by 39 per cent. (Thornton, 2006) In the midst of all these, problems were also starting to show up. The role of CSOs in
35 The Baseline Indicators (BLI) developed by OECD-DAC is the agreed international standard for assessing national procurement systems. Procurement systems are assessed according to four pillars: 1) the existing legal framework that regulates procurement in the country, 2) the institutional architecture of the system, 3) the operations of the system and competitiveness of the market; and 4) the integrity of the procurement system. (“BLI Assessment”, 2006)

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oversight is not optimized. While the law has laid the ground for CSO involvement, there has not been enough participation. (Thornton, 2006) Also, [t]here is still a high perception of corruption in procurement. It's a mystery on whether we are making any impact in outcomes. People still see little progress in corruption. To be honest, there is a lack of a handle on the problem. We didn't know what the size of the problem was. We still don't. (Procurement Watch, Inc. cited in Thornton, 2006:13) The ADB adds that there is still no specific code of conduct for procurement. (ADB/OECD, 2006)

Principal-Agent Model Under Fire Recent procurement-related corruption scandals36 have undermined the country's procurement reform achievements. These stories demonstrate how the PA approach may not be sufficient in its entirety. The theoretical problems noted in Chapter two are real problems in action in the Philippines. Two case studies are presented in this section to illustrate the actual bearing of PA-problems. Box 4.1. Commission on Elections (COMELEC) and MegaPacific Consortium (MPC) case
The COMELEC-MPC case is about a procurement that was consummated. The project was competitively bid out. The contract was awarded. Initial payments were made. A complaint was submitted for action. Then after, the contract was nullified by the Supreme Court for findings of irregularity. In January 2003, just right after the enactment of the GPRA, Executives Order 172 was issued authorizing the release of P2.5B for the modernization of the 2004 elections. The modernization project among others included the procurement of automated counting machines (ACM). In a competitive bidding process for the ACM, only three bidders participated which eventually got down to two eligible bidders – MegaPacific Consortium (MPC) and Total Information Management (TIM). After evaluation, the project was awarded to MPC in April 15, 2003. Note, however, that the contract was executed between COMELEC and MegaPacific eSolutions, Inc., a member of the consortium. 36 Commission on Elections and MegaPacific case (see Appendix C for case notes of Atty. Roberto Cadiz cited in Cerna, 2006); National Broadband Network project (see http://www.gmanews.tv/nbnzte)

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In May 29, 2003, a bid protest was made but denied by the COMELEC Chairman Benjamin Abalos, Sr. The issue was elevated to the Supreme Court through a petition for certiorari, which the Supreme Court granted. The Supreme Court declared the contract null and void and referred the case to the Office of the Ombudsman (OMB) for further investigation and determination of liabilities of public officials37. The Field Investigation Office of the OMB led the investigation of the case and arrived at a resolution that found the COMELEC Commissioners civilly, criminally, and administratively liable (October and November 2004). Through a change of leadership in the OMB, however, this resolution was reverted by a new panel of investigators that absolved all respondents of the case

This is a classic tale of a 'corrupt' principal, lack of political will, and ineffective oversight. Under the PA model, the COMELEC Commissioners are supposed to be the pristine principal and the agency's BAC the agent. As the case tells us, however, the Commissioners themselves are involved in the irregularity – they awarded the contract to MPC without the BAC's recommendation for award. Assuming the award was an honest mistake or oversight of the procedural regulations, the Commission could have redeemed itself during the protest. Issues of irregularity were already brought to the Commission's attention which it ignored – a showing of lack of political will. The Commission's hasty decision to award the contract to MPC without supporting recommendation from the BAC could also be appreciated as a 'principal interfering with the agent', in that it preempted the agent's decision. Let us modify the PA model: the Filipino people are the principal and COMELEC Commissioners and its procurement officers are the agent. The model tells us that the OMB, with its investigative and prosecutorial powers, could have been the oversight body to take corrective action. Again, however, the OMB's actions manifest problems of 'lack of political will and ineffective oversight.' At play is a web of informal networks and power relations that overshadow people's motives and decisions. Allegedly, the new Ombudsman is not independent and is beholden to the President. The COMELEC Chairman, on the other hand, has allegedly the support of the President. The COMELEC
37 The irregularities that attended the case included: 1) Awarding of the contract by the COMELEC en banc to MPC six days before the recommendation for award was submitted by its BAC; 2) MPC is not an eligible bidder because it failed to submit a joint venture agreement (an eligibility requirement) establishing the consortium; and 3) Assuming MPC is an eligible bidder, the contract should have been executed between COMELEC and MPC, not MegaPacific e-Solutions.

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Chairman is also allegedly personally close to the incorporators of the winning bidder. The new Ombudsman, therefore, is expected to render a decision in favor of the COMELEC38. The OMB is perhaps the most important oversight body against corruption39. It is an independent body created under the Constitution. It has investigative and prosecutorial powers that cover all government officials. In contrast, the PAGC cannot be as independent as it wishes because it is under the Office of the President. Its decisions are mere recommendations that require the President's approval40. The COA, on the other hand, only has the power to investigate or conduct audit41. The PTG has recommendatory powers only42 At present, however, the OMB's performance as oversight body has not been impressive. Reportedly, since Merceditas Gutierrez has become Ombudsman, the office's conviction rate has declined significantly from 77 per cent to 14 per cent. (Rufo, 2008) Box 4.2. National Broadband Network (NBN) project.
The NBN is a cancelled project. It was at the conceptualisation stage (which included negotiations between governments – China and the Philippines – and with prospective providers). This case again involved COMELEC Chairman Benjamin Abalos, Sr., who allegedly acted as middleman between the Government of the Philippines and the Chinese contractors. (http://www.gmanews.tv/nbnzte) At the project's initial stages, the National Economic and Development Authority (NEDA) was tasked with the review of the project design, including a determination of the project cost. At the early stages of the scandal, the main issue brought against the project was the overpriced cost (from P5 billion increasing to P19.8billion). It eventually led to other more serious allegations of corruption on the domestic front. (Fabella, R. and E. De Dios, 2007; http://www.gmanews.tv/nbnzte)

38 Ombudsman Merceditas Gutierrez was Presidential Chief Legal Counsel before she was appointed by the President to become Ombudsman. She is personally known to the First Family – was a classmate of the First Gentleman. (see http://www.gmanews.tv/story/62796/Ombudsman-Gutierrez-logs-a-record-ofgoing-easy-on-Abalos-Comelec) 39 The OMB has primary jurisdiction over corruption-related cases. (http://www.chanrobles.com/republicactno6770.htm) 40 http://www.chanrobles.com/arroyoexecutiveorderno12.htm 41 http://www.coa.gov.ph/Gen_Information.htm 42 http://www.doe.gov.ph/popup/EO%20662.pdf

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1. NEDA Secretary-General Romulo Neri revealed in a Senate inquiry that COMELEC Chairman Abalos offered him a bribe (of P200 million) in connection with the NBN-ZTE project 2. Rodolfo Lozada, a hired consultant by Neri, revealed that he was instructed by Neri to try to “moderate the greed” of Abalos and party. 3. Jose de Venecia, Jr., a prospective bidder and son of the Speaker of the House of Representatives, revealed that the First Family is also involved and has share of the kickbacks. 4. Neri testified that he reported the bribery incident to the President. The President advised him not to accept the money. When asked further if the President instructed him to expedite the approval of the project, Neri invoked 'executive privilege'. To date, the NBN project had been cancelled. Abalos resigned as COMELEC Chairman. Neri remains mum about the President's involvement. And not one has been made to face the law for the alleged irregularities.

This is a lot of things that the PA model cannot capture. The interplay of informal and formal networks and multiplicity of principals and agents are beyond the scope of the PA model. It demonstrates the ease in how the principal can interfere with agent work and conveniently take cover in his/her contract when the consequent action is questioned. Based on the allegations, for instance, the President urged Neri to approve the project even if surrounded by irregularity. Allegedly, the Presidential family stands to gain from the project through kickbacks. Abalos in this case is neither principal nor agent – he has no official basis to be involved in the project. His influence in government workings, however, has extensive reach even without that cloak of 'officialness'. At least before the project was abandoned, Abalos allegedly made things move – meetings with the Chinese contractors and GOP officials charged with the project. The Numbers Story Against the Promise Going beyond the PA framework, let us examine the performance of the PA model as applied to the GPRA using empirical and survey data. TAN in 2007 conducted the study “Developing a Procurement Monitoring System for the Philippines,” which attempts to gauge the performance of the Philippine procurement system in meeting its own procurement standards. The designed tool by TAN is a localized interpretation of the OECD-DAC's Compliance Performance Indicator, with the guidance of the GPRA as the

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Philippine legal and regulatory framework43. TAN pilot-tested the tool in 5 government agencies – 3 national agencies (central office only), 1 local government unit, and 1 government-owned and controlled corporation. A total of 418 procurements were examined, representing on the average 66% of the total procurements in all 5 agencies for 2006. Also, the study includes a perception survey of 29 respondents (procurement managers and civil society observers) on the state of procurement. (TAN, 2008) Loose Grip. The study showed that despite the GPRA's policy of making competitive bidding the default method of procurement, two of the five agencies don't follow this policy with only 28 per cent and 9 per cent of their procurements competitively bid out. A more common method used is shopping (51 per cent and 91 per cent respectively). While alternative method is allowed in very specific instances, these numbers are indicative of either poor planning or just plain preference for shopping as a procurement method. In this context, 'limited discretion' it appears is easy to reason with – shopping is easily justified. Also, it appears that the prescriptive periods are not generally followed (see Table 4.7). The GPRA provides in Section 38.1, Article XI, IRR [t]he 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. (Ibid)

Table 4.7: Average Calendar Days from Advertisement to Contract Award
Agency Bases Conversion and Development Authority Department of Health Department of Public Works and Highways Quezon City GOP-funded FAP 118 (3.9 mos) N/A 136 (4.5 mos) 111 (3.7 mos) 119 (3.9 mos) 378 (12.6 mos) 54 (1.8 mos) N/A

Department of Education 121 (3.9 mos) 280 (9 mos) Source: TAN, 2008 GOP = Government of the Philippines, FAP = foreign assisted projects N/A = not applicable, mos = months

43 See Appendix A.

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For GOP-funded projects, four out of five agencies exceeded the prescribed period and all three agencies have violated the same rule in bidding out foreign-assisted projects. Hazy view. Mandatory rules on newspaper postings are very clear. Only two agencies however have fully complied with the newspaper posting requirement. Three agencies have on the average 10 per cent of their advertised procurements (GOP-funded) bearing incomplete information; and 45 per cent of foreign assisted projects (FAPs) advertised with incomplete information. While the GPRA requires invitation of CSOs at all stages of the procurement, compliance is only at 80 per cent (pre-bid conference) and 78 per cent (submission/opening/bid evaluation) for GOP-funded projects; and 34 per cent (pre-bid conference) and 56 per cent (submission/opening/bid evaluation) for FAPs. (Ibid) Professionalizating the service. As earlier noted by ADB/OECD (2006), to this date there is no code of conduct specifically for procurement officers. The general Code of Conduct for public officials serves as guidance for their ethical conduct. The TAN survey showed that 70 per cent of the respondents believe that there are training and capacity building activities that: 1) strengthen the procurement management skills of procurement managers; 2) strengthen the procurement evaluation skills of procurement managers; and 3) allow procurement managers to effectively respond to queries of suppliers, contractors, and the public. (Ibid) Data showed that the average years of service spent by the surveyed respondents doing procurement management work is three years; On the average, procurement managers have received two trainings. The average waiting time to receive appropriate training from start of work, however, exceeds one year. (Ibid) Incentives and Sanctions: A Retreat. The OMB resolution on the COMELECMegapacific case has created the effect of undermining the GPRA provision on criminal, civil and administrative sanctions. The OMB states in its resolution,

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Even assuming that there was grave abuse of discretion on the part of BAC in awarding the contract to the MPC, the same cannot be considered criminal in nature, absent any evidence to show bad faith, malice, or bribery. (from Cadiz' case notes cited in Cerna, 2006) This statement creates the effect of reverting criminal prosecution under the Penal Code, requiring evidence of malice and bad faith, and disregarding the advances made by the new law on procurement violations. Participation Dysfunction: No Show from the People? The PA model left to its own devices is obviously suspect of functioning properly. External monitoring proves to be useful especially in the context of shifting roles of principal and agent in a quite fluid setup in the public sphere. The external monitor has broad and wide 'mandate' to oversee the proper functioning of government systems. CSOs as stakeholders of governance have the potential to monitor not just the principalagent characters but also the counterpart agents (the oversight bodies mentioned above) and even the entire reform package. This makes participation a compelling force behind good governance. The GPRA does include civil society participation in its reform strategy. In close scrutiny, however, this is participation that has parameters and rules. Participation, as contemplated in the GPRA, is very limited. Let us examine the constraining determinants of participation. Selective invitation. With the GPRA's restrictive policy, it is not surprising to find that only very few CSOs are actually engaged in procurement monitoring work. The TAN study (2008) found that invitations by pilot-agencies (2006) were extended to almost the same set of CSOs (see Table 4.8) According to the report, more than 1 000 CSOs nationwide have been duly trained for procurement monitoring work but only a select few are invited regularly. (TAN, 2008). Table 4.8. Top regular NGOs invited as observers by the 5 pilot agencies

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Top regular NGOs invited Procurement Watch, Inc. Government Watch Konsensyang Pilipino

Invitations 71 63 58

Attendance Rate (%) 8 5 0 3

Transparency and 35 Accountability Network From TAN 2008 database NGO = non-government organisation

Participation by invitation. At the onset, the 'participation by invitation' policy poses itself as a problem44. Apart from the general guidelines on who are eligible to be invited, the decision on who specifically to invite is discretionary upon the procurement officers. As it appears, only a select few have been invited among the 1 000+ 'qualified'. Surely, these select few are overwhelmed by the deluge of invitations, to which only a few they can attend considering that most of these CSOs do procurement monitoring on a voluntary basis. Are these CSOs to be faulted then for non-attendance? A study on participatory audit showed that CSOs (including those of the Philippines) face real constraints to participation such as lack of resources (manpower and financial). (Ramkumar, 2007) TAN Operations Team in 2006 for instance only had four full-time staff who did project management work45 and procurement reform advocacy work among others. During crunch time, the 'voluntary work' gets dropped. Limited access to strategic entry points. Where the demand for observers is large and the supply few, it matters to know where the key 'pressure points' are in procurement monitoring. The GPRA requires invitation of observers to all stages of procurement but this does not include the pre-procurement conference. I argue however that the preprocurement conference is where public participation matters most. The preprocurement conference defines everything that will ensue in the the procurement stages that follow – criteria for evaluation, schedule of activities, technical specifications
44 Not to mention the added discretionary power of the BAC to come up with additional criterion for qualification as it deems necessary. 45 In 2006, TAN was implementing the following projects: 1) COMELEC Watch, 2) Lifestyle Check, 3) TAN Institutionalization Phase 2, 4) Anti-Corruption Exchanges, 5) Monitoring Agency Anticorruption Commitments, 6) Tax Administration Reform, 7) Ombudsman Appointments Watch II, and 8) Supreme Court Appointments Watch.

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of the project, other additional requirements aside from prescribed in the GPRA, number of eligible bidders to be shortlisted, etc.46 Participation in this stage is critical not only because it sets the procurement according to the prescribed track of the GPRA but it is also a window for the public to deliberate 'development' issues. Will the project include requirements of employing local workers? Will it include environment-friendly technical specifications? It is important to note, however, that despite the non-requirement to invite CSOs at the pre-procurement conference, there have been invitations extended to CSOs - on the average 45 per cent of GOP-funded projects, and 63 per cent FAPs. (TAN, 2008) This does not give comfort to the fact, however, that invitations at the pre-procurement conference are discretionary upon the procurement officers. Lack of protection. Participation elicited from CSOs is not without risk. Not only is it a case of 'passing the buck'47, it is also a case of 'unloading the risk'. Corruption is a dangerous business. In the Philippines, whistleblowers receive death threats for their brave acts. The absence of a whistleblower protection law (ADB/OECD, 2006) deters courageous reporting of corruption in procurement.

46 Section 20, Rule VI, IRR-A (GPPB-TSO, 2006) 47 The government actually transfers the cost of 'audit work' to CSOs in the name of inclusive governance. (ADB, 2005; Cooke and Kothari, 2001)

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CHAPTER 5: CONCLUSION AND RECOMMENDATIONS Conclusion This paper has shown how PA and participation approaches have been adopted in the procurement reform strategy of the Philippines. The legal reform framework includes provisions on limited discretionary power, transparency, professionalization, incentives and sanction and the participation of CSOs to monitor procurement. The study found that a tightened PA relations is not enough to control corruption in procurement. Cases were presented, demonstrating the breakdown of the PA model due to the following phenomena: 1) a corrupt principal and lack of political will; 2) ineffective oversight; 3) multiple principals and agents/ overlapping PA relations; and 4) informal networks not covered by PA relations. Empirical data was also presented, showing how the implementation of procurement reform fell short of the 'promises' it offered in writing and in principle: 1. Limited discretion – Competitive bidding is not the default mode in two agencies. Prescriptive periods for the conduct of procurement activities have not been followed

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2. Transparency – Not all procurements required to make newspaper postings were advertised in newspapers. Those which have made public postings of their procurements posted incomplete information. Not all procurements extended invitations to CSOs in all stages of procurement. 3. Professionalization – There is no code of conduct for procurement officers. 4. Incentives and sanctions – Sanctions in the GPRA are difficult to impose because of ineffective oversight and lack of political will.

The study argued that to correct for the inadequacies of the PA model, broader public participation should be instituted. Participation presents a broad framework of overseeing the principals, the agents, the counterpart agents, and even the reform framework itself. Participation in this broad sense, can potentially lead reform efforts towards a more profound sense of accountability. The study, however, found that the participation framework adopted by procurement reform in the Philippines is in itself restrictive, as demonstrated by the following policies and practices: 1) Selective invitation; 2) Participation is allowed only by invitation; 3) It is discretionary upon procurement officers to invite CSOS at the preprocurement conference; and 4) There is no legal protection for whistleblowers. These make it difficult to encourage participation that could potentially be corrective for the inadequacies of the procurement reform framework in place. Procurement reform without the 'empowered' involvement of its stakeholder public is just another empty promise that finds itself lost in the complex game of politics in the country. Recommendations Based on the findings above, the following recommendations are made, in hope that

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these could facilitate the reform efforts to reach its full fruition:

1. Open invitation to qualified CSOs. Operationally, procurement officers should
make an open invitation to 'qualified' CSOs. The required qualification should be minimal such as proof of legal constitution of the organisation (SEC registration). In contrast with the requirement of the law to allow only those who have technical knowledge to monitor, the approach should be the other way around. Those showing interest to monitor a procurement proceeding should be provided the necessary training.

2. The requirement to invite CSOs should extend to the pre-procurement
conference. Moreover, for policy-level impact, a broad representation of CSOs in the Philippine Development Forum48 should be sought. A parallel CSO forum can be organised for CSOs to deliberate their position/s on various development and reform issues, which may then be negotiated for at the PDF.

3. Protection for CSOs. A comprehensive whistleblower protection law should
be put in place not only to protect CSO procurement observers but all other corruption whistleblowers.

4. Empowered mandate to monitor. The passage of an access to information
law will equip the CSOs in their performance of procurement monitoring work and other oversight activities.

5. Support to CSOs. As mentioned, CSOs face operational constraints to their
involvement in procurement monitoring work – lack of resources among others. While some NGOs have advocated for them to be given honoraria (from government) for monitoring work, some others fear that this will
48 The Philippine Development Forum is a policy dialogue mechanism which was set up in 2005 to consult with various stakeholders regarding the country's development agenda. The PDF “serves as a process for developing consensus and generating commitments among different stakeholders toward critical actionable items of the Government's reform agenda.” (Thornton, 2006: 4)

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compromise their independence as monitors. In this, assistance from international donors could be sought to initially startup a sustainable CSO procurement monitoring strategy. In summary, what is suggested is to establish a procurement reform environment that is friendly to and supportive of public participation. Finally as a reminder, it is important that we don't lose sight of the bigger discourse battle out there. The discourse 'pre-determines' the course of reforms unless pierced and bent – perhaps by raw and unrestricted public participation. In the current setting, I share the frustration of D. Murali, a journalist in India: “At times, it may be frustrating to watch how the powerful dictate ‘the discourse on transparency, accountability and openness, leaving little space for civil society to define these concepts’49” The greater challenge remains for us to liberate ourselves from the imagination of others and to create our own imagined development path.

49 See http://www.thehindubusinessline.com/ew/2008/07/21/stories/2008072150050200.htm

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REFERENCES Agrawal, B. (2001) 'Participatory exclusions, community forestry and gender: An analysis for South Asia and a conceptual framework', World Development, Vol. 29, No. 1, pp. 1623-1648. Andvig, J. and O.H. Fjeldstal. (2000) 'Research on Corruption: A Policy-Oriented Survey' Retrieved December 17, 2007 from www.icgg.org/downloads/contribution07_andvig.pdf 'APEC Government Procurement Survey. Member Country: Philippines' Retrieved June 20, 2008, from http://www.apec.org/apec/apec_groups/committee_on_trade/government_procurement/r esources/philippines.html Asian Development Bank (2005) Country Governance Report: Philippines Retrieved July 9, 2008, from www.adb.org/Documents/Reports/CGA/pga-feb-2005.pdf Asian Development Bank/Organisation for Economic Cooperation and Development (2008) 'Anti-Corruption Initiative for Asia and the Pacific' Retrieved June 21, 2008 from www.adb.org/Documents/Books/Public-Procurement-Asia-Pacific/phi.pdf Barnes, M., J. Newman, and H. Sullivan (2007) Power, Participation and Political Renewal: Case studies in public participation The Policy Press, Bristol, UK Biggs, S. D. and Smith, G. (1998) “Beyond methodologies: Coalition Building for Participatory Technology Development” World Development 20 (2): 239 - 248 'BLI Assessment of the Philippine Public Procurement System 2006'. 2006. Bonabente, C. (2007) 'RP 'most corrupt' in Asia – PERC' Retrieved December 17, 2007,

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from http://services.inquirer.net/print/print.php?article_id=54661 Campos, J. E. and J. Syquia (2006) 'Managing the Politics of Reform: Overhauling the Legal Infrastructure of Public Procurement in the Philippines' Retrieved July 9, 2008, from http://wwwwds.worldbank.org/servlet/WDSContentServer/WDSP/IB/2005/10/31/000090341_20051 031141413/Rendered/PDF/340440Man0Politic0Reform.pdf Cerna, T. (2007) 'The Nagging Issue of the Comelec Megapacific Case' in TAN Annual Report 2006, Kayumanggi Press, Quezon City, Philippines Chandler, David (2007) 'The state building dilemma – Good governance or democratic government?' in Hehir, A. and N. Robinson (eds.) State-building: Theory and Practice Routledge, New York, pp. 70-88 Cooke, B. and Kothari, U. (2001) 'The Case for Participation as Tyranny', Participation: The New Tyranny? Zed Books, London, pp. 1-15. 'Executive Order 12: Creating the Presidential Anti-Graft Commission and Providing for Its Powers, Duties and Functions and for Other Purposes' Retrieved July 12, 2008, from http://www.chanrobles.com/arroyoexecutiveorderno12.htm 'Executive Order 662: Enhancing Transparency Measures Under Republic Act 9184 and Creating the Procurement Transparency Board' Retrieved July 12, 2008, from http://www.doe.gov.ph/popup/EO%20662.pdf Fabella, R. and E. De Dios (2008) 'Lacking a backbone: the controversy over the “National Broadband Network” and Cyber-education projects' Retrieved July 19, 2008, from http://images.gmanews.tv/pdf/nbnzte/Lacking%20a%20Backbone--The %20Controversy%20over%20the%20NBN%20and%20Cyber-Education%20Projects.pdf Flinders, M. (2001) The Politics of Accountability in the Modern State, Ashgate Publishing Limited, Hampshire, UK Gaventa, J. (2004) 'Towards participatory governance: assessing the transformative possibilities' in Hickey, S. and Mohan, G. (eds), Participation: From tyranny to transformation, Zed Books, London. 'General Information About COA' Retrieved July 12, 2008, from http://www.coa.gov.ph/Gen_Information.htm GPPB-TSO (2006) Handbook on Philippine Government Procurement (Includes Amended IRR-A of R.A. 9184 and Latest GPPB Issuances) 2nd edition GPPB-TSO, Pasig City, Philippines. Hickey, S. and Mohan, G. (2005) 'Relocating participation within a radical politics of development: from practice to theory', Development and Change, Vol. 36, No. 2, pp.

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237-262. Hoekman, B. (1998) 'Using International Institutions to Improve Public Procurement' The World Bank Research Observer 13 (2): 249-269 http://www.gmanews.tv/nbnzte http://www.thehindubusinessline.com/ew/2008/07/21/stories/2008072150050200.htm http://www.uncitral.org/ Johnston, M. (2005) Syndromes of Corruption: Wealth, Power, and Democracy, Cambridge University Press, Cambridge, UK. Lambsdorff, J. (2007) 'Invisible Feet and Grabbing Hands: The Political Economy of Corruption and Welfare', in Breton, A., G. Galeotti, P. Salmon, and R. Wintrobe (eds.) The Economics of Transparency in Politics, Ashgate, Hampshire, UK. Leftwich, A. (1993) 'Governance, Democracy and Development', Third World Quarterly 14 (1993): 605-624. McCrudden, C. (2007) Buying Social Justice: Equality, Government Procurement, and Legal Change, Oxford University Press, Oxford, U.K. Potter, D. (2000) 'Democratization, ‘Good Governance’ and Development', in Allen, T. and Thomas, A. (eds.) Poverty and Development into the 21st Century, Oxford University Press, Oxford. Ramkumar, V. (2007) 'Expanding Collaboration Between Public Audit Institutions and Civil Society' Retrieved July 9, 2008, from http://www.internationalbudget.org/SAIsandCSOs.pdf Rauch, J. and P. Evans (2000) 'Bureaucratic structure and bureaucratic performance in less developed countries' Journal of Public Economics 75(2000): 49-71 'Republic Act 6770: An Act Providing for the Functional and Structural Organization of the Office of the Ombudsman and For Other Purposes' Retrieved July 12, 2008, from http://www.chanrobles.com/republicactno6770.htm Rose-Ackerman, S. (1978) Corruption: A Study in Political Economy. Academic Press, New York. Rufo, A. (2008) 'Ombudsman conviction rate dips, staff demoralized' Retrieved July 19, 2008, from http://newsbreak.com.ph/index.php? option=com_content&task=view&id=5097&Itemid=88889051 Senior, I. (2006) Corruption – The World's Big C: Cases, Causes, Consequences, Cures, The Institute of Economic Affairs, London, UK

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Social Weather Stations (2008). 'First Quarter 2008 Social Weather Stations Survey: GMA's Net Satisfaction Rating Drops Back to -26' Retrieved April 19, 2008 from http://www.sws.org.ph Social Weather Stations (2007). 'Public Satisfaction with the Cabinet has been Slightly Negative since 2005' Retrieved April 19, 2008 from http://www.sws.org.ph. Thornton, N. (2006) 'What is required to deliver external assistance through country systems?: Procurement reform in the Philippines' Retrieved July 9, 2008, from http://www.adb.org/Documents/Events/2006/Aid-Effectiveness/thematic-papers/ts2.pdf Torres, T. (2007). 'Advocacy group cites disillusionment for low voter turnout' Retrieved April 19, 2008 from http://newsinfo.inquirer.net/breakingnews/nation/view_article.php? article_id=66192 Tiongson-Mayrina, K. (2007) 'Ombudsman Gutierrez logs a record of going easy on Abalos, Comelec' Retrieved July 22, 2008, from http://www.gmanews.tv/story/62796/Ombudsman-Gutierrez-logs-a-record-of-going-easyon-Abalos-Comelec Transparency and Accountability Network (2008) 'Developing a Procurment Monitoring System for the Philippines' Unpublished manuscript. World Bank. (2000) Combating Corruption in the Philippines, World Bank, Pasig City, Philippines World Bank (2001) 'Combating Corruption in the Philippines: An Update' Retrieved July 12, 2008, from http://www1.worldbank.org/publicsector/anticorrupt/FlagshipCourse2003/PhiliCombatCor ruptUpdate.pdf

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APPENDIX A. COMPLIANCE AND PERFORMANCE INDICATORS (TAN, 2008)
Compliance/Performance Philippine Legal Framework Indicator for Procurement Indicator 1. Agency Compliance with Procurement Law • Percentage of Section 10. All procurement procurement shall be done through subject to the competitive bidding, except as legislative provided in Rule XVI of this framework being IRR-A assessed (in volume and in Rule XVI (on pre-requisites or number of conditions to warrant contracts) carried alternative methods of out through open procurement) tendering. 1.2. (a) Percentage of Section 21 (Advertising and invitations for open tenders Contents of the Invitation to publicly advertised. Bid) (b) Average number of days between tender advertisement and tender opening 1. Percentage of open tender documents that include provisions limiting CPI-Philippines Percentage of procurement using competitive bidding as method of procurement vs. alternative method of procurement

Percentage of compliance to newspaper posting requirement Average number of days between advertisement and bid opening Percentage of procurement that missed at least one required content in the Invitation To Bid

Section 21 (Advertising and Contents of the Invitation to Bid)

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participation for reasons other than qualifications or acceptable exclusions 2. Percentage of tenders rejected in each process 3. (a) Percentage of tenders including non-quantifiable or subjective evaluation 1. (b) Public perception of confidentiality of tender evaluation process 2. Percentage of tenders opened publicly and recorded Rule IX (Bid Evaluation); Rule X (Post-Qualification) Average number of Prospective Bidders, Participant Bidders, and Eligible Bidders

Rule IX (Bid Evaluation)

Procurement stakeholders’ opinion on confidentiality of tender evaluation process Rule VIII (Receipt and Opening of Bids) Percentage of procurement using competitive bidding as method of procurement vs. alternative method of procurement Percentage of procurement that invited NGO observers in the bid opening and in other stages of procurement

1. Percentage of Rule XVII (Protest Number of protests filed cases resolved Mechanism) Average number of days within the terms between filing of protest and established in resolution of protest case the legal framework Indicator 2. Agency Compliance with Implementing Rules and Documentation 1. Percentage of Rule VI (Preparation of tenders that use Bidding Documents) model tender documents 6. (a) Percentage of cases where prequalification was used appropriately as prescribed in the legal framework Rule VIII, Section 23, 24 (Eligibility Requirements for the Procurement of Goods and Infrastructure Projects; Eligibility Requirements and Short Listing for Consulting Services)

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(b) Percentage of cases that used objective pass/fail prequalification criteria as opposed to subjective qualitative ones. Rule VI (Preparation of 7. Percentage of Bidding Documents) tenders that use the GCC, standard clauses or templates as applicable Indicator 3. Integration of Agency Procurement System into Financial Management Systems Percentage of payments Percentage of procurement made late (e.g. exceeding reaching contract the contractually specified implementation stage payment schedule) Average period between final acceptance of service/good and date of payment (a) Percentage of major Percentage of procurement contracts without completion paid even without final reports acceptance information (b) Average time after contract completion for completion reports to be completed Indicator 4. Existence of Required Procurement Organizations 4.14 Percentage of those surveyed that perceive procurement as being performed competently and independently

Percentage of those surveyed that perceive procurement as being performed competently and independently

Percentage of those surveyed Percentage of that perceive the regulatory those surveyed that function to be free of conflict perceive the regulatory function to be free of conflict Indicator 5. Existence of Agency Institutional Development Capacity 5.16 Age of information 5.17 (a) Number of staff Percentage of respondents involved in procurement in who received training on the the central government that GPRA receives formal training in the year Average ratio between number of trainings received by (b) Average waiting time to procurement managers and get in a formal training event number of years in procurement management work

4.15

Average period between start

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of respondents’ involvement in procurement management work and first training on GPRA Indicator 6. Efficiency of Agency Procurement Operations and Practices Rule VII to Rule XI Average number of days 1.18 Average number of between procurement stages days for procurement from pre-procurement cycle from tender conference to contract signing advertisement to contract award. Average rate of completeness 1.19 Percentage of in ‘data-keeping’ from basic contracts found with project data to post-award data incomplete records Indicator 7. Private Sector Participation in Agency Procurement 7.20 (a) Opinion on (a) Opinion of procurement effectiveness of mechanisms stakeholders on effectiveness to engage with relevant of mechanisms to engage with organizations or agencies relevant organizations or agencies 7.20. (b) Average number Average number of of tenders submitted Prospective Bidders, in each process Participant Bidders, and Eligible Bidders Indicator 8. Existence of Contract Administration and Dispute Resolution Provisions in Agency Contracts 8.21 Percentage of Percentage of procurement contracts containing reaching contract such provisions implementation stage evidence in contracts surveyed that Average period between contract contract signing and final administration is acceptance timely 8.22 Percentage of contracts that include ADR provisions Indicator 9. Effectiveness of Control and Audit Systems 9.23 Number of recommendations pending after one year 9.24 Number of qualified opinions from external auditors due to critical internal control weaknesses and recommendations referring to internal controls that remain outstanding 9.25 Percentage of agencies

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reviewed with written internal control procedures Indicator 10. Efficiency of Procurement Complaints Mechanism 10.26 (a) Percentage of Rule XVII (Protest complaints processed within Mechanism) the time limits in the legal framework (b) Percentage of decisions taken that are enforced.

Average ratio of motions for reconsideration/ appeal/ protest to number of procurement activities in a given period (e.g. year) Average period between filing of motion/ appeal/ protest and resolution of the same

10.27 Percentage of favorable opinions Indicator 12. Presence of Established Ethics and Anti-Corruption Measures 12.28. Percentage of cases Number of sanctioned bidders that result in sanctions or penalties Average ratio of sanctioned bidders to participant bidders to procurement transactions in a given period (e.g. year) 12.29Percentage of Average score of respondents’ favorable opinions by the opinion on the effectiveness of public on the effectiveness of the anti-corruption measures in the anti-corruption measures procurement

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B. LIST OF LAWS RELATED TO GRAFT AND CORRUPTION (ADB, 2005: 19)

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56

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C. CASE NOTES ON THE COMELEC MEGAPACIFIC CASE – courtesy of Atty. Roberto Cadiz (Cerna, 2006) FACTS OF THE CASE: January 24, 2003 – E.O. 172 authorized release of P2.5 B for the modernization of the 2004 elections January 28, 2003 – COMELEC issued Invitation to Bid for Phase II of Modernization Program with budget of P2.5B February 27, 2003. Incorporation of MPeSI, with authorized capital stock of 300 million pesos (divided into 3 million shares with a par value of 100 pesos per share), fully paid and fully subscribed. The incorporators were: Willy Yu - 375,000 (12.5%) P37.5M Bonnie Yu - 375,000 (12.5%) P37.5M Enrique Tansipek - 375,000 (12.5%) P37.5M Rosita Tansipek - 375,000 (12.5%) P37.5M Pedro Tan - 749,999 (24.99%) P74.99M Johnson Fong - 510,000 (17%) P51M Bernard Fong - 240,000 (8%) P24M Lauriano Barrios - 1 (.01%) P100 March 10, 2003 – Bidding. There were 57 bidders for the entire three-phased AES project, but only 3 bidders for the second phase, which was for the procurement of the ACSystem. Of the 3 bidders for Phase 2 of the project, 2 were deemed to be qualified: Mega Pacific Consortium (MPC) and Total Information Management Corp (TIMC). For technical evaluation, the BAC referred the bid proposals to: A) The BAC’s own Technical Working Group B) The Department of Science and Technology In its Report after concluding the technical evaluation, DOST stated that both bidders obtained failed marks in a number of key areas. April 15, 2003 - Comelec issued En Banc Resolution No. 6074, signed by Abalos, Javier, Tancangco, Lantion, Sadain, Borra, Tuazon, awarding contract to Mega Pacific Consortium to supply the automated counting machines. April 21, 2003 - BAC issued its written report and recommendation to the Commission on Elections to award contract to MegaPacific Consortium (MPC). May 16, 2003 - Comelec published its Resolution 6074 in the Manila Bulletin and the Philippine Star.

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May 29, 2003 - Petitioner Information Technology Foundation of the Philippines (Infotech), together with 9 others, wrote Letter of Protest to Chairman Abalos, questioning the award to MPC, citing irregularities in the bidding process. June 6, 2003 - Abalos rejected the protest, through a letter by Atty. Jaime Paz to Infotech, saying that the award “would stand up to the strictest scrutiny." June 30, 2003 - Comelec, through Chairman Abalos, and MegaPacific e-Solutions, Inc, thru Willy Yu, entered into the so-called "Automated Counting and Canvassing Project Contract." The witnesses to the signing of the contract were Comelec Commissioner Borra and Enrique Tansipek, one of the incorporators of MPeSI. The contract was for the supply of equipment and services for the amount of P1, 248,949,088.00. July 31, 2003 - Comelec, through BAC Chairman Mejos, secured from the Landbank a Domestic Letter of Credit in favor of MPeSI, in the amount of P1,248,949,088.00 August 5, 2003 - Petition for Certiorari filed in SC questioning the contract award to MPC. (Infotech vs. Comelec, et. al,) January 13, 2004 - SC rendered Decision declaring as Null and Void: A. Comelec Resolution 6074 awarding the contract to Mega Pacific Consortium (MPC) B. 1.3B contract executed between Comelec and Mega Pacific eSolutions Inc. (MPeSI) further it referred the case to: a. The Office of the Ombudsman for the determination of criminal liability if any of the public officials and conspiring private individuals, if any. b. Office of the Solicitor General to take measures to protect the government and vindicate public interest from ill effects from the illegal disbursements of public funds. The SC said that the COMELEC awarded the Phase II contract (for the automation of the counting and canvassing of ballots in the 2004 elections) in clear violation of law and jurisprudence and in reckless disregard of its own bidding rules and procedure. On the same date, 6 separate payments were made to the Mega Pacific e Solutions, Inc. totaling the amount of P33,832,663.60 Bringing the total amounts paid to Mega Pacific e Solutions, Inc. to 1,050,088,535.91. October 7, 2004 - Supplemental Complaint signed by the Field Investigation Office (FIO) of the Office of the Ombudsman, represented by Maria Olivia Elena A. Roxas, Chief of the Legal, Monitoring, and Prosecution Division of the FIO. November 2004 - Filing of the Supplemental Complaint by the Field Investigation Office against Abalos, Borra, Sadain, Tuazon and retired Commissioners Tancangco and Lantion.

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November 30, 2005 - Marcelo resigned. December 1, 2005 - Guttierez assumed office. December 12, 2005 - Senate Blue Ribbon Committee Report adopted by the Senate, finding the BAC members liable and asking the Comelec Commissioners to resign. February 14, 2006 - SC issued a Resolution directing the Ombudsman to show cause why it should not be held in contempt for its failure to comply with the former’s 1/13/04 Decision. March 28, 2006 - SC issued a Resolution directing the Ombudsman, under pain of contempt, to report on a regular basis (once every 3 months, starting 6/30/06) the steps it has taken and the corresponding results of its action to determine the criminal liability of the public officials involved in the contract May 3, 2006 - SC issued Resolution ordering the Office of the Ombudsman to terminate its Criminal Investigation before 6/30/06. June 27, 2006 - Office of the Ombudsman filed an Urgent Manifestation with the SC stating that "the need for further investigation forestall the final determination by 6/30/06 of the existence or non-existence of probable cause against all public officials." June 28, 2006 - Office of the Ombudsman issued a Resolution containing factual findings for the impeachment of Commissioner Borra, as Proj Head of Phase II of the automation project. The Resolution said: a) MPC was ineligible to participate in the bidding for the automation of the election system because it failed to prove that the entities in the so-called "consortium" (ie, Mega Pacific eSolutions, SK&K, WeSolv, Election.com, and ePLDT) actually formed an aggrupation to be known as MPC. b) While the BAC recommended to the COMELEC Commissioners that Phase II of the Project be awarded to MPC, the contract was executed between MPeSI and COMELEC. The Resolution also recommended that further fact-finding investigation be conducted against other individuals who may have been involved in the said transaction July 10, 2006 - Apparently unbeknownst to the public, the public respondents (members of the COMELEC’s BAC, namely Mejos, De Guzman, Llamas, Sinocruz, Balbuena) filed a Motion for Reconsideration of the 6/28/06 Resolution. July 13, 2006 – August 23, 2006 - Public hearings were conducted by a Panel constituted by Guttierez, chaired by Over-all Deputy Ombudsman Orlando Casimiro September 4, 2006 - Graft investigator Ma. Elena Olivia Roxas, in a comment submitted to the panel on Sept. 4, 2006, said the Ombudsman’s Field Investigation Office found that the glaring violations in the bidding process pointed to a "well-defined" Comelec conspiracy to favor the Mega Pacific consortium.

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Roxas said the FIO found enough evidence to recommend that Abalos, the Comelec commissioners and MPC executives be held liable for the botched deal “criminally, administratively and civilly.” This was essentially a reiteration of the report prepared earlier in November of 2004. September 27, 2006 (but released only on Oct 2, 2006) - In a 53-page "Supplemental Resolution," the Casimiro panel reversed the earlier Resolution of 6/28/06 and absolved all the respondents in the Mega Pacific case. Said the panel: Even assuming that there was grave abuse of discretion on the part of BAC in awarding the contract to the MPC, the same cannot be considered criminal in nature, absent any evidence to show bad faith, malice, or bribery. September 30, 2006 - Gutierrez leaves for Switzerland, reportedly to honor a personal invitation from its ambassador. Her office said Gutierrez attended the ‘Third Informal Seminar on the Return of Illicit Assets of Politically-Exposed Persons’ in Lausanne from Oct. 1 to 3. A member of her staff said Gutierrez would return home after the conference but was not expected at the office until Monday. A check with the Bureau of Immigration showed that Gutierrez left on a Cathay Pacific flight for Hong Kong on Sept. 30 at 8:05 p.m. The Ombudsman panel had until that date to submit to the Supreme Court its resolution on the poll automation deal. October 2, 2006 - OMB 9/27/2006 "Supplemental Resolution" released to the Public.

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