Construction sector loses as much as 35% of costs to corruption — economist

THE CONSTRUCTION industry spends as much as 35% of its costs to pay corrupt officials, higher than its profit, according to a think tank.

Building companies allot 15% to 35% as “other costs of doing business,” economist Ronilo M. Balbieran told an industry conference on Wednesday, referring to corruption.

“Ask any contractor what is your net profit rate, they will all say 8% to 10%, maximum 15%,” Mr. Balbieran, vice-president at REID Foundation, said.

“And then they will all tell you ‘something is happening out there’ — and how much is that? 15% to 35%,” he added, alluding to corruption.

The foundation, a nonprofit consultancy that was commissioned to work on a 10-year industry road map released last year, studied the Philippine building sector by interviewing industry participants, he said.

The construction industry’s value chain includes 30% to 35% in raw material costs, 15% to 20% labor, 10% to 15% in equipment and 15% to 20% in project management.

It also spends 8% to 10% on administrative support, 10% to 15% on transport and logistics and 2% to 3% on design, Mr. Balbieran said.

Under the road map, the construction industry expects higher productivity through digital technologies, strong government leadership and regulations, improved quality of services and global competitiveness through increased scale and specialization.

The construction industry expects to contribute P130 trillion to the Philippine economy in the next 10 years under the road map, Mr. Balbieran said. This would fall to P43 trillion without the road map, he added.

Trade Secretary Ramon M. Lopez told reporters the industry’s action plan would help address corruption. He added that the sector could cut corruption costs using technology and new ways of doing business.

“It’s really part of the study that they did and we also hear about that because it’s there,” Mr. Lopez said.

He said computerized procurement would help cut face-to-face contacts, adding that the industry should fine-tune their bidding and procurement processes.

Open bidding would also help eradicate opportunities for corruption, Mr. Lopez said.

The Trade department commissioned the industry road map in partnership with the Construction Industry Authority of the Philippines (CIAP) and Philippine Contractors Association (PCA).

Mr. Lopez said the agency would back legislation that seeks to institutionalize the government’s infrastructure program.

There could be a law mandating infrastructure spending as a percentage of the national budget “if we want to really continuously build infrastructure,” Mr. Lopez said.

Continuous infrastructure spending after the Duterte administration’s “Build, Build, Build” program is part of the industry’s road map recommendations. — Jenina P. Ibañez