Our latest report has to do with procurement problems in the Philippine National Police (PNP). It cites the case of a P54-million contract to repair rifles intended for use by the PNP’s Special Action Force (SAF). The story shows that the contract was given to a company that had previously bungled a similar job: In 2001, Precision Munitions Inc. repaired police rifles that ended up misfiring and missing their targets. SAF officers protested the awarding of another contract to the company, but their protests went unheeded in a bureaucratic maze that is full of loopholes and prone to corruption.
This story examines the procurement problems at the PNP and shows how contracts with suppliers are approved even if they carry the telltale signs of fraud that have previously been pointed out in other anomalous government contracts, ranging from textbook purchases to the building of the new airport terminal by Piatco. These indicators of fraud include contracts being awarded to undercapitalized companies; awards being given on the basis of negotiations rather than open bidding; accreditation procedures biased for a favored company; and other procedural lapses.
This report records all these lapses in order to show how, despite reforms in the procurement law enacted in 2003, problems continue. Indeed, SAF officers interviewed for this report believe that the contract was given to the same supplier because of under-the-table arrangements made with police generals and officials of the Procurement Service of the Department of Budget and Management or DBM. The new procurement law gave this little-known office at the DBM supervision of the procurement undertaken by 2,000 state agencies. It signs the contracts on behalf of these agencies, and is the repository of their funds. It also serves as the final check before government money is released. These tremendous powers naturally come with tremendous temptations.
CAMP BAGONG DIWA, Bicutan, Taguig — Deep inside this police facility is a smaller camp that is home to the Philippine National Police‘s commando force. Here, men and women in camouflage uniforms and black berets roam, many of them veterans of the most dangerous missions — running after rebels in Mindanao, pacifying private armies in Abra, or facing off mutinous soldiers at the Oakwood hotel in nearby Makati.
This is the brigade headquarters of the Special Action Force (SAF), whose personnel like to think of themselves as the Doberman pack of the PNP. They talk about being fiercely loyal to the civilian government, about being primed for combat and about their capacity to withstand the harshest conditions in the most severe hardship posts. The unit has some of the PNP’s best marksmen. For this reason, they say, they take their guns seriously.
But some SAF officers were up in arms in September when they learned that the PNP was about to have some 3,700 M14 and M16 rifles repaired and refurbished. This was because the Procurement Service of the Department of Budget and Management (PS-DBM) had awarded, on the PNP’s behalf, the P54-million deal to a company the officers say had earlier bungled a similar repair job.
Many of those repaired guns, SAF officers say, were defective, with some producing “keyhole shots,” meaning they missed their targets as the bullets veered diagonally even when the guns were aimed straight.
“Papayag kaming padala kahit saan, basta gumagana ‘yung mga baril namin (It doesn’t matter where we are assigned as long as our guns work),” says one SAF officer, underlining the importance of reliable firearms.
The rifle-repair transaction displays classic signs of a fraudulent procurements deal. To begin with, the contract was awarded to an undercapitalized company, there was no open bidding for it as only one firm was accredited for the contract, there was undue haste in the approval of the deal, and there were other procedural lapses.
These telltale signs mark a host of other anomalous government contracts, ranging from textbook deals to multibillion-peso infrastructure projects like the Piatco contract to build a new international airport terminal in Manila. But the rifle-repair deal also shows that government purchases run awry not just because of officials accepting bribes, but also because of loopholes in the law, as well as in the apparently flawed agency implementing it.
Indeed, the issue here is no longer just about the guns, and whether or not they can hit their targets accurately. The SAF’s objections exposed how, in its haste to supply the PNP with much needed assault rifles, the PS-DBM set aside the regular procurement process and committed the police force to a deal the PNP can no longer back out from.
PNP chief Edgar Aglipay, himself a former SAF commander, has already asked the PS-DBM to stop the project. But even if that happens, the PNP will still have to pay the supplier because of the way the PS-DBM made the transaction on its behalf.
The PS-DBM is not just any government office. It is the agency taking the lead in reforming the procurement process and implementing the provisions of Republic Act 9184, the new law intended to minimize corruption in procurements. The law outlines the proper procedures in the award, signing and implementation of all government procurement contracts.
PS-DBM Director Estanislao Granados himself says, “There is a process we must follow, there are requirements we must comply with, because you know we cannot afford to play around with government money.” Ironically, the agency he heads itself failed to follow stipulated procedures and comply with requirements when it committed P54 million of the PNP’s money to Precision Munitions Inc. for the repair of thousands of rifles.
The PNP had actually set aside P60 million last year to buy 750 brand-new rifles. As of now, the PNP has just a little over half of the M14s and M16s it needs. The M14s are the more powerful, long-range guns used for sniper fire, while the M16s, which make up the bulk of the PNP’s long-arms arsenal, are the standard firearms needed by the SAF, mobile groups and regular policemen for patrol and assault.
After reviewing the funds, however, the PNP decided instead to repair and refurbish some 3,700 M14 and M16 rifles on loan from the AFP. According to the PNP’s Directorate for Logistics, the PNP thought it would get more out of its money if it were to have the guns repaired and refurbished.
Under RA 9184, the PNP would have had to inform the PS-DBM of its intention to have the firearms fixed. The PNP would then submit its request, containing the items it needed and the amount of money it had available. The PS-DBM would convene an Inter-Agency Bids and Awards Committee (IABAC) to invite bids for the project, evaluate them and then award the deal to a qualified supplier or contractor. A contract would then be signed, but only if there are funds available for the project.
The bids and awards committee in this case saw no need for a public bidding. Based on a list submitted by the PNP’s Directorate for Research and Development (DRD), there was only one company accredited to repair and refurbish M14 and M16 rifles: Precision Munitions Inc. It used to be known as Precision Technology Producers’ Cooperative, and for the past three years, it has handled all the PNP’s rifle repair and refurbishment needs. The DRD certified that no one else has applied for accreditation, and there are no applications currently pending.
But at least one other company has confirmed that it has a pending application for accreditation, which the DRD has not acted upon. In addition, the PNP closed the door on other companies that were licensed but not accredited. “Accreditation is not required by law,” says Atty. Norman Daanoy, of the Legal Affairs Office of the Department of National Defense, who was one of those who drafted the Implementing Rules and Regulations of RA 9184. Daanoy says it is enough that a company has a license, in the case of guns an indent license or a license to manufacture from the Firearms and Explosives Division of the PNP. Requiring accreditation, aside from a license, he explains, only adds a level of bureaucracy that makes the system vulnerable to corruption.
DRD Chief Gen. Doroteo Reyes II, however, justifies the accreditation process: “Transacting business with the PNP is a privilege. That’s why we accredit.” Reyes says this is the only way the PNP can ensure that all contracts benefit the government and the PNP.
What RA 9184 does require, though, is a scrutiny of the company’s track record and similar contracts with the government. But the PS-DBM did away with that in this case. Says Granados: “In this instance we didn’t ask for track record. We just asked for (the accreditation list). The PNP has a regulatory function, and the PNP said ito lang.”
In fairness, Precision has the capability to repair and refurbish M14s and M16s. The company is composed of former managers and employees of the now defunct Elitool Manufacturing Corporation of the Elizalde Group of Companies that later became the M16 rifle factory of the Armed Forces of the Philippines. The factory had its heyday in the early years of martial law when the Philippines was one of few countries producing M16s.
“We were the ones who produced those rifles we are repairing and refurbishing now,” says Precision Chair Edgar Lucas.
Still, the way it botched its previous job with the PNP should have raised a red flag had the PS-DBM taken a closer look at its records.
Sometime in August 2001, battalion commanders and other officials of SAF had made known their complaints about the rifles fixed by Precision under a contract signed that year between the PS-DBM and the SAF. Among the complaints contained in various memos were keyhole shots, faulty extractors, and guns that didn’t function on automatic firing mode.
Precision’s Lucas admits that during testing for a batch of rifles repaired and refurbished in 2001, there were some that didn’t work properly. “There are times na may problema ang baril eh kung minsan di nago-automatic and that’s the time that we bring it up here (to our factory) and it gets repaired. And then ibabalik mo naman dun…because these are old, old guns.”
Lucas, however, says that the SAF had complained too late. He says by the time it did so, the one-year warranty period had lapsed, although he was still willing to take in repairs.
But documents have SAF lawyer Benjamin Supnet Nadugo noting on August 16, 2001 that, “The contract is not dated. Although signed by parties and notarized, the same needs to be dated in order to determine its validity and effectivity.” Nadugo also pointed out that “the exact date of delivery is not stated,” putting to question issues about the warranty.
Yet solely because Precision was the only accredited PNP supplier for the job, no public bidding was done for the rifle-repair-and-refurbishing contract this year. Instead, on September 7, 2004, with a public bidding considered unnecessary, the PS-DBM awarded the project to Precision.
The problem was, at the time, there were still no funds available. Drafting and signing a contract was therefore out of the question. A Notice of Cash Allocation (NCA) was later received by the DBM on September 23, but that still is not what was needed for a formal contract.
What Precision got from the PS-DBM was a Memorandum of Understanding (MOU), even though there is no provision in RA 9184 and its IRR that allows or recognizes such a memorandum. Only a contract, accompanied by the DBM accountant attesting to the availability of funds, is a valid procurement agreement.
Granados says the PNP was in a hurry to have the firearms serviced, and the supplier was willing to settle for an MOU, so that he could start work on the rifles, and have something tangible to show when time came to collect. “We told him we will not be able to pay you under the MOU, kasi walang certification of funds,” Granados narrates.
The PS-DBM allowed the supplier to proceed, and promised it would eventually issue a purchase order so that Precision could be paid for whatever work it could finish. This whole process was done with the knowledge of the IABAC, a body composed of representatives from various agencies, among them the Philippine National Police, represented by SAF commanding officer Gen. Marcelino Franco.
Lucas says labels do not matter so long as funds eventually came in. “Whether we call it an MOU or a contract,” he says, “what is important is that there was a meeting of the minds on this project.”
The supplier has reason to sound confident. DBM Assistant Secretary and IABAC chairperson Eduardo Opida says that the MOU would be the supplier’s guarantee it could collect later on. Even if the PNP had not made any advance payments, Opida says the supplier was already assured of money coming his way. He says, “Kung gumalaw man siya meron siyang basehan para maningil siya. (He could start working because he already had something he could use come collection time.)”
The PS-DBM is sure that no matter what happens, the supplier will be paid. “Under the laws of the land, Precision will have to be compensated for what they have already done, for services rendered. Wala tayong excuse kasi sila mismo (PNP) ang nag-request (We have no excuse because the PNP itself made the request),” Granados says.
Granados is not that off the mark. Because the supplier had done work and had an MOU, the law says he needed to get paid. Yet had proper procedures been followed, the deal could have been stopped, since going by the chronology of events, there was still no certification of funds available at the time the MOU was signed.
But the PS-DBM seems to have forgotten the rules and procedures it helped write. And so despite PNP chief Aglipay’s request, the repaired and refurbished assault rifles will be delivered to the PNP’s doorsteps at gunpoint, figuratively speaking. And the police force will still have to pay for them.