A story bigger than Pharmally

We studied COVID-19 government contracts worth P20 billion. We found more red flags and systemic risks that the Commission on Audit (CoA) and the Senate should investigate.

In the time of a pandemic, the national government needs a resilient procurement system to enable the timely delivery of public services and prevent corrupt and fraudulent behavior.

In this article, we discuss findings from our research, “Strengthening Procurement in the Time of a Pandemic: Evidence from the Philippines.” I co-authored this paper with Laurence Go, John Michael Lava, James Russell Ramos, Reinabelle Reyes, Ella Rosales, and Jose Rueda IV, with the help of more than 60 volunteers and contributors at the Citizens’ Budget Tracker and WeSolve Foundation. The study was funded by Hivos Southeast Asia’s Open Up Contracting Program. The full study can be read via http://wesolve.ph/research/strengthening-procurement. For transparent and accountable research, we published our full data set and code via http://bit.ly/phlcovidcontracts.

Our team looked at a sample of P20 billion contracts, nearly 60% of the P36 billion publicly available COVID-19 government contracts as of Aug. 3, 2020. Our study spans 2,832 items from 581 contracts, purchase orders, notices of award, and annual procurement plans published on the Government Procurement Policy Board website, the official repository of procurement documents for the Bayanihan to Heal as One Act.

Because our analysis covers only limited publicly available documents, our team cannot conclude fraud or corruption. But our analysis can identify red flags in transactions, suppliers, and procuring entities.

We find that the story is much bigger than Pharmally Pharmaceutical, the contractor being investigated by the Senate for its lack of financial capacity to deliver billions of pesos of medical goods.

The Senate and the CoA should look beyond Pharmally and investigate these five red flags and risks in our procurement system, so we can make better use of taxpayer funds in future purchases:

First, we estimated that taxpayers could have saved P319 to P550 million if items had been bought at typical prices.

Of our sample worth P20 billion from March to August 2020, we were able to analyze only P5.4 billion worth of goods from priority goods that had comparable market prices. From this set of transactions, we found items bought for up to 66 times the typical or median market prices, and up to 52 times the typical or median prices of comparable government contracts. Here are some examples:

• Surgical masks bought at P1,400 per piece versus P21 median price per piece.

• RT-PCR test kits bought at P344,000 per kit versus P285,914 median price per kit.

• N95 masks bought at P641 versus P150 median price per unit.

• Blood pressure monitors bought at P9,000 versus P1,360 median price per unit.

• Cooking oil bought at P988 per liter versus P50 median price per liter.

While quality, import costs, or other factors may account for some of the differences that we document in our analysis, we believe that identifying these items will help concerned authorities prioritize their limited time and resources. These transactions, which we flag in our dataset, warrant a second look from authorities to ensure that the procurement of these items was judicious.

Second, we found that many contracts were not specified properly. Sixty-six percent of goods representing P13.3 billion did not have sufficient descriptions or specifications to enable price or quality comparisons.

Procuring entities should properly specify contracts to prevent price gouging and to ensure our taxes are spent well. To illustrate, we cannot compare prices involving a contract for a “mask,” an “N95 mask,” and a “personal protective equipment set.” General descriptions make procurement opaque; procurement watchers from civil society also cannot make prices, quality, and delivery comparisons of these contracts.

We quantified 15 different types of risks from the 581 contracts we studied. Most contracts had missing basic information, inconsistent amounts, broken web links, or unclear data or signature in the uploaded documents. Some transactions had significant typographical or mathematical errors and differences in amounts across the documents they uploaded. But we also did find examples of good documentation from agencies like the Bangko Sentral ng Pilipinas and the Department of Agriculture.

Third, market concentration affects how prices are negotiated. The buying power of procuring entities and the selling power of suppliers affect how price and quality are negotiated during negotiated procurement.

From the demand side, the top 10 procuring entities accounted for P18 billion or 88% of total sample value as of Aug. 3, 2020. The Department of Budget and Management Procurement Service (DBM-PS) accounted for P14 billion or 70% of our total sample value. We would therefore expect procuring entities to do their due diligence in selecting suppliers and researching market prices.

From the supply side, the top 10 of 435 suppliers represented 66% of our P20 billion sample value as of Aug. 3, 2020. Pharmally Pharmaceutical topped this list. There were three suppliers in our sample with foreign addresses which had high-value transactions worth at least P300 million as of Aug. 3, 2020. These suppliers with foreign addresses represented more than a tenth of the value of emergency procurement as of Aug. 3, 2020.

Fourth, three suspended suppliers were able to participate in negotiated procurement. Some procuring entities entered into contracts with suspended suppliers. More than P700 million of government money was exposed to these contracts, though these contracts are already in the process of cancellation. According to the government’s “consolidated blacklisting report,” accessed September 2020:

1. Company A “did not fulfill delivery of suppliers for drugs and medicines” with a city and had been sanctioned with a two-year blacklisting. But it was able to initiate a P700+ million contract that has since been in the process of cancelation by the DBM.

2. Company B was sanctioned with a one-year suspension for failing to complete more than three-fifths of the contract with a national government agency. But it was able to enter into a P1-million coronavirus-related contract.

3. Company C was sanctioned with a one-year suspension because a previous contract was terminated when it “defaulted” on a P100+ million contract with a national government agency. But it was able to enter into a small contract of less than P1 million.

As of Dec. 18, 2020, these three companies had served their full period of suspension. While Company A’s COVID-19-related contract has since been in the process of cancelation and companies B and C are a small proportion of the total value, these three cases point to risk of exposure of government to future suspended suppliers, if the supplier information is not integrated into the emergency procurement database.

Fifth, many transactions had inconsistent or missing dates or times across their uploaded documents. There were some transactions that were approved on a weekend. More than 10% of the contracts had dates of awards that were inconsistent with their other supporting documents. The proper order of approvals is needed to ensure people follow the proper process.

These are systemic risks that are critical for the Joint Congressional Oversight Committee in the House and Senate and the CoA to investigate.

 

Kenneth Isaiah Ibasco Abante is the coordinator of the Citizens’ Budget Tracker and a member of the Right to Know, Right Now! Coalition, in which Action for Economic Reforms is a convener.