An investigation by the World Bank Group’s Integrity Vice Presidency (INT) found evidence of a well-organized cartel consisting of local and foreign companies, actively supported by government officials, that improperly influenced contract awards and set inflated bid prices on Philippine road projects. Witnesses consistently referred to this collusive activity as the “SOP,” or Standard Operating Procedure, and an “open secret”. 

The investigation was conducted in 2007 on the World Bank-supported National Roads  Improvement and Management Program (Phase 1).

INT report NRIMP 1

This summary was made with the help of Notebook LLM.

The report’s findings include:

Involvement of Politicians and Government Officials

  • Multiple witnesses alleged that politicians and government officials were involved in the cartel. It was reported that politicians representing the project area often selected the winning contractor. Government officials sometimes acted as “mediators” for the cartel, checking losing bids to ensure adherence to the pre-arranged pricing scheme.

Inflated Bid Prices and Kickbacks

  • The collusive activity resulted in bid prices being inflated by 20% to 30% above the Department of Public Works and Highways (DPWH)’s own cost estimate (Approved Budget for the Contract – ABC). This inflation was specifically designed to facilitate demanded bribe payments. Even the ABC itself appeared to be inflated.
  • Participating politicians and government officials demanded large percentages of the contract price as kickbacks.
  • Analysis of the bids showed total bid prices consistently exceeding the cost estimate by 20% or more across all three rounds of bidding for Contracts 1 and 2.

Manipulation of Bidding Process and Prices:

  • Abnormally high and unexplained unit prices, especially in the Earthworks component, suggested manipulation of total bid prices to meet pre-arranged amounts. For instance, Earthworks bid prices ranged from 8.5% to over 100% above the ABC in the first round, and even higher in subsequent rounds.
  • Direct mathematical relationships between some bids’ prices and the cost estimate were observed.
  • Bids from different companies often had widely disparate component prices but extremely similar total prices, indicating coordination rather than genuine competition. For example, in the third round of bidding for Contract 1, two bidders’ Earthworks prices differed by PHP 77 million, but their total prices differed by less than PHP 1,700.
  • Last-minute bid manipulation was indicated by a high number of significant computational errors in the bids (11 errors exceeding PHP 1 million out of 21 required corrections), consistent with cartel leaders dictating final bid prices shortly before submission deadlines.

Fraudulent Practices

  • Forged bid securities were submitted by at least two losing bidders, reducing their costs in submitting bids they knew would be unsuccessful.
  • One foreign contractor reported that another company submitted bids using its name without its knowledge.

Compromised Prequalification and Intimidation

  • Patterns of inconsistent bidder prequalification results suggested abuse of the process, with companies being disqualified for invalid or vague reasons such as failure to “fit the contract profile”. This indicated uncooperative bidders were forced out.
  • Companies reported that it was “dangerous to act contrary to the cartel’s wishes,” and they feared for their safety due to the impunity of corrupt officials.

Negative Impact on Honest Contractors and Project Implementation

  • Honest contractors found it “virtually impossible” to work profitably.
  • Some companies decided to no longer bid on public works projects or left the Philippines altogether because of the cartel’s influence.
  • Crucially, due to the unjustifiably high bid prices and indications of collusion after three rounds of bidding, the World Bank declined to issue “no-objection” letters, and the contracts for rehabilitation of parts of the Surigao-Davao Coastal Road, Kabankalan-Basay Road, and San Enrique-Vallehermoso Road were not awarded under the NRIMP project.

Sanctions and Debarment

  • As a result of the investigation, the World Bank debarred seven companies and one individual in January 2009, and an eighth company in August 2008, for engaging in collusive practices during the NRIMP bidding.

NOTE: PCIJ is in the process of formulating guidelines for the use of AI. This is an experiment in using AI to summarize. We checked this summary against the actual document.  If you find errors or other problems email us at stories@pcij.org