13 FEBRUARY 2009

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 i    R E P O R T  —  $35M LOST TO BRIBES FOR 'CARTELS' BACKED BY DPWH EXECS, POLS


OPEN SECRET
The witnesses who spoke with the INT, including “multiple cartel participants and government officials,” described the “collusive and corrupt practices surrounding these contracts as an 'open secret' and said the bribery the cartel managed was known in the Philippines as 'standard operating procedure.'”

The report exposed the modus operandi of the cartel:

  • "The cartel was aided by officials within the Project Implementation Unit, the Philippine DPWH, which disqualified uncooperative bidders without basis before formal bids could be placed.”

  • “Cartel managers would anoint contract winners in advance of bid submission and would designate losing bidders, who were compensated to cover their costs in bidding.”

  • “Cartel managers told bribers what to bid, days before the bid submission date, down 'to the last peso.'”

  • “Cartel backers thereafter redrafted their unit bid prices to comport with cartel-mandated total bid amounts, frequently 20-30% in excess of estimates.”

  • “The prearranged bidding was made all the more evident when, to the final round of bidding in 2006, an anonymous informant provided investigators with advance notice of the correct outcome of the third round of bidding before the bid opening had occurred.”

Apart from interviewing 60 witnesses, the INT said it conducted “in-depth analysis of the three rounds of bidding” and established that “bids in all rounds showed abnormally high and unexplained unit and total costs.”

This bids analysis yielded, the INT said, the following findings:

  • “Bids bore lockstep relations to engineer's estimates (i.e., one round's bids were 31.0%, 32.0%, 33.0%, and 34.0% above the estimate).”

  • “Bids contained numerous, large calculation errors suggesting last-minute revisions pursuant to cartel instructions — one bid contained an error in excess of US$3.6 million.”

  • “Two bids on a US$26 million total contract, with widely disparate subtotals, totaled to values only US$31 apart.”

The lowest bids investigated, the report continued, “were routinely 20-30% above cost estimates, threatening the Bank's borrower with tens of millions of wasted dollars had the cartel not been exposed.”

SANCTIONS VS 7 FIRMS
The World Bank's Evaluation and Suspension Officer, who evaluated the evidence gathered by the INT, later issued in May 2008 a Notice of Sanctions Proceedings to the respondent bidders.

But on January 12, 2009, the World Bank sanctions board decided to impose penalties on only seven companies:

  • EC de Luna and Eduardo de Luna, debarred indefinitely from participating in World Bank-funded projects.

  • China Road, debarred for five years.

  • China State and China Wu Yi, debarred for four years.

  • Cavite Ideal and CM Pancho, debarred for four years.

In August 2008, the Korean firm Dongsung was separately debarred for four years, “for fraudulent and corrupt practices in relation to the NRIMP-1 case.”

According to the Bank’s sanctions board, the INT had not presented sufficient evidence that the respondents may have engaged in “fraudulent practices separate from collusion.”

In its report, however, the INT said it had “direct evidence of fraudulent or corrupt practices such as the submission of fraudulent documents or the payment of bribes derived from admissions of participants or the direct testimony of witnesses,” and “circumstantial proof of collusion detected through an analysis of the fraudulent bids the cartel submitted.”

“At a minimum, the totality of the evidence reflects that each of the bidders on the contract packages at issue had knowledge of the cartel's practices and willingly participated in the systemic fraud and corruption,” the INT said.

The “evidence accumulated in this case,” it said, “is sufficient for a determination that the respondents violated Bank procurement guidelines.”

Still, it admitted that the evidence collected “does not reveal any exculpatory factors” or “any further mitigating factors” to be considered in the case, in favor of any of the respondents.

The INT said, it determined that “among the aggravating factors to be considered are: the egregiousness of the misconduct, including multiple instances of misconduct; the degree of involvement of the respondents in the misconduct; damage caused by the respondents to the credibility of the procurement process; and harm caused to the borrowers.”

Thus, it said, “without exception, it is the INT's contention that all of the respondents...acted in a manner that permits the charge of engaging in corrupt practice to be leveled against them as a principle (sic) or, in the alternative, as a secondary party.”

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