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SPECIAL REPORT: PROGRAM SETBACKS
AFP modernization drive sputters


By Yvonne T. Chua, Luz Rimban
Inquirer
Last updated 03:22am (Mla time) 01/08/2007


(First of three parts)

SOMEWHERE in Central Luzon—In the foothills of the Sierra Madre mountains, Army soldiers are on a mission to “achieve strategic defeat of the communist terrorist movement” in three years, just as their Commander in Chief has ordered.

But the soldiers wish they had helicopters and fixed-wing aircraft to conduct air strikes, thermal-imaging weapons and night-vision goggles to locate the enemy in mountainous terrain even at night, bulletproof vests and helmets to protect soldiers’ “fatal body parts,” and secure, lightweight all-weather radios for quick contact with army base.

That’s all in their dreams. In their makeshift base, the soldiers do have a solitary Simba tank, as well as a few handheld radios. But they are basically going to war with only re-barreled or repaired M-16 rifles for firepower, a few night-vision goggles for increased visibility, and for communications, mostly personal cell phones loaded with prepaid unlimited text.

Apart from that, “we rely on God’s will, our training and common sense to protect us,” says one Army commander. Yet the soldiers continue to believe “we will win this war” against the Communist Party of the Philippines and the New People’s Army, which are waging Asia’s longest-running insurgency.

By now, the Armed Forces of the Philippines should have been a modern, professional force capable of dealing with both external threats and internal security concerns. In December 1996, Congress approved Joint Resolution No. 28 in which both the Senate and House of Representatives gave their blessings to Republic Act No. 7898, known as the AFP Modernization Act.

The law envisioned a professionalized armed force, as well as “the acquisition and upgrading of appropriate technology and equipment” to bring the AFP into the 21st century.

Magnet for graft

Ten years and more than P11 billion later, there has been very little actual acquisition of new equipment for the AFP. Government auditors and budget officials have found that there are weak controls over funds of the AFP, whether for modernization or not, such as those intended for peacekeeping forces or “Balikatan” exercises.

Procurement officials likewise say the AFP has shown a disregard for procurement processes provided by law. As a result, the multibillion-peso AFP budget, its modernization fund included, has been a magnet for graft and corruption.

What has instead happened is that the modernization program, whose core component is capability, materiel and technology development, has turned into one of repair and refurbishment, with a huge chunk of the funds being spent on regular items like office supplies.

“I cannot consider that AFP modernization,” said Sen. Rodolfo Biazon, a retired AFP chief of staff who coauthored the AFP modernization law in the Senate.

In its present state, Biazon said, the AFP “is not capable of addressing the insurgency threats” from the CPP-NPA and the Moro secessionists.

Still in Square One

The government practically acknowledges that the AFP Modernization Program (AFPMP) is still where it was 10 years ago—in square one. Last year, the Department of National Defense rolled off an 18-year plan called the Capability Upgrade Program (CUP), which takes over the equipment procurement functions of the AFPMP.

Under the CUP, the AFP will get P5 billion yearly, apart from its regular budget appropriations, for the next six years.

Defense and AFP officials acknowledge that the early years of the AFPMP were difficult ones. The program was intended to span 15 years, with a budget of P50 billion for the first five years—or P10 billion a year—over and above what the AFP would receive from the General Appropriations. The funds for modernization are supposed to come from the AFP’s share of proceeds from the lease and sale of former military camps and the income from the government arsenal.

But during President Fidel V. Ramos’ term, no funds were made available for the AFP modernization. It was only in 2000, under the administration of President Joseph Estrada, that the modernization started receiving income from the sale of Fort Bonifacio. And only in 2002 did Congress allocate funds for the AFPMP.

As of 2005, the total amount of money that had gone into the program stood at P11.8 billion, the bulk of which came from the lease of military property, disposal of AFP assets and congressional allocations.

At the time the AFP Modernization Law was passed, the AFP’s principal function was “to uphold the sovereignty and preserve the patrimony of the Republic of the Philippines.” The law had a different enemy in mind—external forces threatening Philippine territory, including the disputed Spratly Islands. The task of fighting the communist insurgency and other internal threats was the responsibility of the then newly created Philippine National Police.

But the internal threats—the communist insurgency, the Abu Sayyaf and the Moro Islamic Liberation Front—proved too much for the PNP to handle. This forced a revision of the AFP’s priorities from external defense to internal security.

Unimplemented

This refocusing of priorities also resulted in several changes in the AFPMP priority projects, which were revised at least three times—in 2000, 2002 and 2004 with the drafting of the Integrated Priority Projects List. The program underwent another reinvention with the CUP.

In its annual report for 2005, the Commission on Audit found that out of 48 priority projects worth P10 billion scheduled for implementation by Dec. 31, 2005, only 24 percent had been completed. Eight projects worth P2 billion were ongoing while 26 projects totaling nearly P6 billion remained unimplemented at the time.

The COA said the AFP’s “failure to maximize the AFP modernization fund resulted in the delayed implementation” of the program … and will greatly affect its primary objective to modernize the AFP to a level where it can effectively and fully perform its mandate.”

As of the end of 2006, the program still had five ongoing projects and 20 more, worth P5 billion, still in the procurement process.

In its early years, AFP and defense officials cited a lack of funds and the cumbersome procurement process as among the reasons for the AFP’s failure to acquire equipment.

Even the Feliciano Commission, which investigated the complaints of disgruntled young officers who took part in what is now known as the Oakwood mutiny of July 2003, found out as much. “Procurement under the AFP Modernization Program is even lengthier and more complex than the ordinary AFP procurement process,” it said.

23 steps

The commission noted that it took the AFP 23 steps to procure weapons and other defense equipment—from the formulation and issuance of the Circular of Requirements or Bid Evaluation Plan (COR-BEP), to the bidding and award, and to project implementation.

The Feliciano Commission said a substantial bottleneck existed at the initial stages of this process. The COR-BEP is formulated at the headquarters of the Philippine Army, Philippine Navy or the Philippine Air Force, and then has to go to the AFP General Headquarters (AFP-GHQ) for another round of evaluation before approval is sought from the Department of National Defense. In certain cases, approval of the Office of the President must be obtained.

As a result, “not a single weapon or equipment had been acquired and upgraded” under the AFPMP from 2000 to 2002, a DND report said.

Conversion

Despite the failure to acquire new equipment during that period, the AFP was already spending the AFP Modernization Fund on items, like office supplies and catering, which have little to do with the program.

A special team from the COA found that from 2001 to 2004, certain transactions under the Modernization Fund became subject to conversion. Conversion is a long standing practice in the AFP and an issue that Oakwood mutineers raised.

The Feliciano Commission defined conversion as “the transforming of allocated funds into cash, most commonly in collusion with suppliers and some of the officers involved in the procurement process in an AFP unit.”

Converted cash, which can eat up at least 30 percent of the budget, usually ends up in the bank account of the commanding officer of the unit for whom the funds are intended, according to the commission.

The special COA team, headed by auditor Heidi Mendoza, was created in October 2004, shortly after Maj. Gen. Carlos Garcia, a former AFP comptroller, was charged with siphoning off AFP funds into his personal bank account. The team worked out of the Office of the Ombudsman.

Mendoza and her team presented their findings to top COA officials as well as to the Ombudsman for the military. But the team was not allowed to further investigate the AFP, and its findings were not acted upon. Mendoza, who later quit the COA out of disgust, declined to be interviewed for this report.

‘Office supplies’

Among the team’s findings was that as of 2003, for instance, out of the P160 million transferred to the Philippine Army from the modernization fund, 32.5 percent or P52 million went to office supplies.

In the case of the Philippine Air Force, about P24 million or 62 percent of its P39-million budget from the fund also went to office supplies.

At the AFP General Headquarters, P48.4 million went to office supplies between 2001 and 2004. “Purchases of supplies are made not to meet basic office requirements but more of a scheme to convert cash,” said the COA team.

It found that in 2001, as much as P17 million was spent on various office supplies, mostly printer ink, and all receipts were dated Dec. 28, 2001. It also found rigged bidding in the procurement of these supplies. The contracts also went to the companies whose owners were related to each other.

“Various office supplies were purchased at the last working day of December, which rendered the transactions doubtful as each entire transaction is completed within a day. All documents attached are dated Dec. 28. It is highly questionable that while the procurement directive was dated 28 Dec. 2001, the items directed to be procured are also delivered and inspected on the same date,” said the COA team.

Huge catering bill

The auditors also found that in the case of the AFP-GHQ P17.6 million was spent on food and catering from 2001 to 2003. The COA team found the figure unusually large and documents pertaining to it questionable. There were even separate invoices that showed catering services contracted for activities happening at the same time at the same venue.

More than half the amount, or P9 million, went to only one “caterer”—Alvenru Enterprises, which is also a supplier of printer ribbons, computer forms and other office items.

On the food and catering expenses, the COA team also found that:

The agenda of the meetings for which the caterers were hired showed the same names of participants and notices of conferences, which the COA auditors said were “recycled.”

As a result of recycling, then Brig. Gen. Generoso Senga came out looking like he had presided over 22 out of 32 meetings of the bids and awards committee to discuss infantry weapons and mobility.

The list of participants did not tally with the invoice. The participants listed in some meetings numbered only 20, but the invoices showed that the food served was for 100 people.

Unreported interest earnings

The audit findings also point to weak controls in the handling of the modernization fund. In particular, the auditors took issue with the AFP’s failure to report P11.7 million in interest earnings on its P271.1-million share from proceeds of the lease agreement with Ayala Land Inc. for the modernization program.

The AFP collected the sum on Feb. 12, 2002, but held on to it for more than a year before remitting it to the Bureau of Treasury, according to the COA team. All the while, it had invested the money in a special savings deposit with Development Bank of the Philippines (DBP) that yielded P11.7 million.

“Yet (the deposit) was unrecorded and the interests accrued out of the special savings, undeclared and unrecorded (in the AFP’s books),” the COA team said.

The regular audits the COA did on the AFP in 2004 and 2005 came across the same problem. In the 2005 audit, the unrecorded interest income on the AFPMP’s 103 current and saving deposits with LandBank and DBP reached nearly P79 million.

Uncollected

Unlike other units at the AFP-GHQ, the program accounts for a tiny fraction of the P310 million in cash advances that remained unliquidated as of Dec. 31, 2005. The advances totaled a minuscule P839,309, according to the COA report for 2005.

But also unlike the rest, the program was the only unit that ran into one major problem when asked by the COA to send demand or collection letters to the accountable officers to settle their accounts.

“Demand letters were not sent to the accountable officers due to the absence of records to locate their whereabouts,” the COA report said. (To be continued)



Copyright 2007 Inquirer. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.

__________________
To sit down with these men and deal with them as the representatives of an enlightened and civilized people is to deride ones own dignity and to invite the disaster of their treachery - General Matthew Ridgway

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part 2 - SPECIAL REPORT
Favored suppliers bag AFP deals

By Yvonne T. Chua, Luz Rimban
Inquirer
Last updated 01:25am (Mla time) 01/09/2007


(Second of three parts, read part 1)

AS HE prepared to leave the Department of National Defense last November, then Defense Secretary Avelino Cruz asked concerned citizens to closely guard the P10-billion fund that will be released for the Armed Forces of the Philippines' latest modernization plan called the Capability Upgrade Program.

To be sure, reforms designed to safeguard AFP funds are already being put in place. There is the 10-point Philippine Defense Reform Program meant to improve DND and AFP operations and manpower. A defense acquisition committee and internal audit offices have been established. Representatives of the private sector, such as the Makati Business Club and the Bishops-Businessmen's Conference, have been allowed to observe bidding procedures. Measures to streamline procurement procedures throughout the AFP are being implemented.

Despite these reforms, government auditors and defense and budget officials worry that a culture of inefficiency and corruption continues to plague the AFP. A string of problematic transactions illustrates why they say reforms in the AFP are going to be an uphill battle:

In 2003, the government authorized the AFP to purchase 12,000 units of handheld very high frequency radios worth P900 million for the Philippine Army. The voice-encrypted radios are basic equipment that could spell life and death for soldiers in the field. But after three years, the DND and AFP still have not resolved whether to buy them by direct contracting or public bidding.

Last year, the Army asked the Department of Budget and Management Procurement Service to purchase, through public bidding, some 1,400 sets of tires for trucks worth more than P12 million. After the notice of award was issued to the winning bidder, the Army blocked the awarding of the contract. The purchase remains stalled.

Since 2000, the Army has refused to honor a P201-million contract to repair 30 Scorpion tanks that would have given soldiers added firepower in the field. The budget, meanwhile, for the repair is dwindling, with millions of pesos having gone to storage fees for spare parts and to bank charges.

"If the AFP can't resolve these problems, how much more the bigger contracts under the AFP Modernization Program (AFPMP)?" asked an official involved in AFP procurement contracts.

Indeed, officials in the defense and budget departments fear that scarce government resources may go to waste because of bad procurement practices that remain uncorrected in the AFP.

A study done in 2006 by the Government Procurement Policy Board (GPPB) found "a high level of noncompliance" by the AFP with Republic Act No. 9184, the Government Procurement Reform Act. The law is intended to streamline government purchases and prevent corruption that has arisen out of procurements.

"There is no integrated or comprehensive strategy to implement procurement reforms in line with RA No. 9184 in the AFP," said the GPPB report.

Splitting purchase orders

The GPPB assessment noted deviations from procurement procedures in the AFP, and the military's preference for shopping, using cash advance, and direct contracting over public bidding, as well as for splitting purchase orders. These problems are likewise documented in annual audits done on the Army, Navy and Air Force by the Commission on Audit.

The GPPB's attention was also drawn to the creation of multiple bids and awards committees under the various service commands and the lack of a pool of competent and trained personnel for assignment to the AFP bids and awards committee.

Officials also point to other problems. One is that military officers lack the financial, management and technical expertise required to handle multibillion-peso transactions which, some say, arose partly from the AFP's decades of dependence on the United States for the bulk of its defense spending on materiel until the American bases in the Philippines were closed in 1992.

To make matters worse, a hierarchical organization, like the AFP, with its bonds of brotherhood and code of silence, discourages transparency and scrutiny of misdeeds, according to those interviewed for this report.

And while the AFP top brass wrangle over knotty contracts, equipment on which the lives of ordinary soldiers depend remains lacking in the field.

Handheld radios

The minimum requirement for Army units is tactical communication, including simple handheld radios, which allow secure contact between units. The AFP's total requirement for handheld radios is 14,002 units.

In November 2003, the AFP was allowed to purchase 12,046 VHF/FM radios worth P930.8 million under the AFP Modernization Program's Re-Prioritized Projects Lists for 2000 and 2002. This was supposed to supplement the 1,946 already purchased from Harris Corp., an American firm.

The AFP, under then Chief of Staff Gen. Narciso Abaya, recommended that the radios be bought, again from Harris Corp., this time through direct contracting for interoperability and security reasons. Abaya's proposal was approved by then Defense Secretary Eduardo Ermita, endorsed by then Justice Secretary Simeon Datumanong and then Director General Romulo Neri of the National Economic and Development Authority.

The negotiations were completed and a contract ironed out nearly a year later in October 2004. A new set of officials led by then Presidential Legal Counsel Avelino Cruz moved into the DND and decided to refer the contract to the GPPB. The GPPB recommended the renegotiation of the contract in keeping with RA No. 9184.

In April 2005, Abaya signed an amended contract with Harris and sent this to Cruz who, in turn, sent it to the GPPB for review. By this time, President Macapagal-Arroyo had issued an order requiring government contracts of at least P500 million to be submitted to the GPPB to determine whether they are exempt from public bidding.

The GPPB declared that the radios were best procured through public bidding. It also ruled that without Cruz's approval and certification that the contract was exempt from public bidding, it had to be bid out.

For direct contracting

The AFP, now under Gen. Hermogenes Esperon Jr., stands firm on direct contracting as the mode to procure the radios. The DND's defense acquisition committee and its bids and awards committee, meanwhile, had recommended to Cruz shortly before he quit his post the purchase of the units through negotiated procurement.

The fate of the contract lies with Ms Arroyo, concurrently the defense secretary. As head of the procuring agency, her approval is needed for the contract to move.

In the meantime, one procurement official said: "Our soldiers in the field are complaining due to lack of communication equipment ... That's why in combat operations, lagi tayo nahuhuli (we always lag behind)."

Scorpion tanks

In December 2000, the British company Alvis Logistics clinched the P201-million contract to supply spare parts and maintain the Army's 30 Combat Vehicle Reconnaissance (CVR) Tracked Scorpion tanks. Then AFP Chief of Staff Gen. Angelo Reyes approved Alvis Logistics' price list.

Funded out of the contingency fund of then President Joseph Estrada, the contract provided a 30-percent or P60-million down payment to Alvis Logistics, whose exclusive distributor in the Philippines is Bairam Enterprises. As with the supplier's previous contracts with the Army, the rest of the payment was to be released on a staggered basis, upon delivery of the spare parts and repair of the tanks.

But when Alvis Logistics delivered the first shipment worth about P40 million in April 2001, the Army, then under Maj. Gen. Efren Abu, refused to release the amount, raising allegations of overpricing and insisting that the British firm first use up the P60 million down payment. Reyes, by then the defense secretary, suspended the contract.

Bairam representative Rosario Ong later filed charges with the Ombudsman for the military in connection with the Scorpion tanks contract. News reports at the time quoted her as asking the Senate blue ribbon committee to investigate Reyes' alleged abuse of authority, and accusing him of wanting to give the contract to another supplier.

When Eduardo Ermita became defense secretary in 2003, he ordered the Army to honor its contract with Alvis Logistics. The COA, meanwhile, recommended that the supplier be partially paid on top of the down payment. The Army, however, refused to release another payment--whether full or partial--for the spare parts.

Sources familiar with the contract said the DND and Ong finally came to a settlement. Ong withdrew the case with the Ombudsman with the understanding that the contract would be implemented as originally agreed upon. Apparently, the settlement in the end fell through.

By August 2004, when Cruz became defense secretary, the GPPB, to which the issue had been raised, ruled that Alvis Logistics should first exhaust the downpayment it had gotten. Still insisting on payment per delivery, Alvis Logistics has refused to ship the rest of the spare parts and send its technicians to repair the tanks.

Letters of credit

All this time, the P141 million that remained of the contract has been sitting idle at Land Bank of the Philippines, where a letter of credit had been opened as mode of payment. It does not earn interest because, based on rules of the Bankers Association of the Philippines, "deposits against foreign and domestic letters of credit are received by banks merely as collateral security, consequently, no interest is to be allowed on said deposits."

Instead, the government has had to pay the bank several hundreds of thousands of pesos for every renewal. Earlier, it had to pay storage fees to the international airport for holding the spare parts while it argued its case with Bairam.

The Scorpion tanks contract was not awarded under the AFPMP, but the risks of letter of credit payments are not lost on the special COA team that looked into the modernization procurements. After all, most transactions entered into by the program with foreign suppliers are covered by such payments, including purchases of squad automatic weapons and the initial batch of Harris radios, refurbishing of Jacinto Class Patrol Vessels, and the procurement of a Geographical Information System.

"(The) amount of contracts funded out of modernization funds and paid through letters of credit are deposited in full in advance at the drawee bank even before the actual delivery of the subject of the contract, which usually takes as long as seven months, therefore depriving the agency of the beneficial use of the fund," the COA team said.

As the experience with the Scorpion tanks demonstrates, letters of credit can be left lying in banks earning no interest for as long as six years. A regular COA audit found last year that the Army had 11 other idle LCs with LandBank after foreign contractors failed to deliver the goods. "Considering the meager resources of the (Army), we are concerned that government funds and resources are wasted," the COA said.

Lack of expertise

Defense and budget officials attribute the procurement malpractice prevalent in the AFP not only to a lack of financial expertise but also to a lack of experience and knowledge of what items exactly they are procuring.

The DBM Procurement Service, which buys common supplies for government agencies, cites the contract to purchase 1,458 sets of tires for Army trucks. Last year, the Army asked the DBM-PS to procure the tires through public bidding for an approved budget of P8,720 each or a total of P12.7 million. Unfortunately, beyond the size and the ply, it did not indicate any other specifications.

A bidding conducted in February 2006 failed because bidders submitted incomplete documents. Another bidding was conducted in May. Because the Army did not have any other specifications, the DBM-PS did not require a testing of the items. "There was nothing to test because the Army did not specify the chemical composition, bursting strength, tensile strength, extent of elasticity, air capacity. Nobody (in the Army) knows that," said DBM-PS Executive Director Estanislao Granados.

Based on the specs the Army itself gave, the DBM-PS issued a notice of award to Prisma Gold, the lowest bidder which had complied with the specs and offered to supply each tire set for P7,232.80. But the Army opposed the awarding, claiming an overprice. One of the losing bidders, a company called Capital, had submitted to the Army a canvass of quotations that were lower than Prisma's--after the bidding. To this day, the dispute remains unresolved.

Procurement officials say that up to now, the military still has no clear-cut specifications even for simple items that fall under combat, clothing and individual equipment (CCIE) like combat shoes, which are made either of canvas or nylon, and for exactly what shade of green and camouflage are the clothing material they use for uniforms.

"The camouflage has five different colors there, including brown, green, black, khaki. If one color doesn't match, reject. Sakit ng ulo (It makes your head ache)," Granados said.

As a result, procurements for these simple items get stalled for as long as two years, as in the case of P9.8 million worth of safety boots the Navy needs. The items have still not been bid out after the Navy failed to submit the specifications to the DBM-PS.

Delayed deliveries by the DBM-PS are borne out in COA reports. By the end of 2005, it still had to deliver CCIE and other items amounting to P597.9 million to the Army; P97.7 million to the Navy; and P72 million to the Air Force.

This lack of expertise has been a hallmark of AFP procurement, according to budget and defense officials. It has caused ill-advised purchases such as the 402 Squad Automatic Weapons, which were bought without the belt-fed ammunition.

"Ano 'yan? Batuta? (What are those? Police batons)?" an exasperated defense official equipped when he learned of the incomplete purchase.

Dependent on suppliers

Because of this lack of expertise, the military tends to become dependent on suppliers who dictate what items to buy and what the specifications are, usually tailor-made to match their own product lines.

Military suppliers interviewed for this report say it is common knowledge in the DND and AFP that with each reorganization in the military, a new general brings in his own set of favored suppliers who corner procurement contracts while that official and his subordinates or Philippine Military Academy classmates remain in the service.

Usually, suppliers start developing relationships with military officials early in their careers. "Major pa lang ang mga yan, inaalagan na bilang kontak (We nurture the relationships even when they are still majors)," said one supplier.

Relationships such as these develop to the point where the supplier gets to dictate the items that the military should purchase, usually from the supplier himself or herself, in the process influencing the unit's plans and priorities.

"Of course, there is a bidding, pero pag alam mo na may anointed supplier, 'di ka na sasali (If you know the anointed supplier, you don't join anymore)," said another supplier who now no longer wants to do business with the AFP.

Send-off checks

This practice enriches the select group of suppliers while leaving out other legitimate companies. When the general retires, these suppliers also chip in to give him a fat send off paycheck, known in military circles as "pabaon," suppliers said.

But the lines between the military and its suppliers are sometimes blurred, especially when a supplier is a retired general or colonel, or the wife of either a retired or active official. Suppliers can easily point to a number of defense manufacturing firms whose representatives are former high-ranking officials of the AFP.

Former AFP comptroller Carlos Garcia is one AFP official who had many dealings with suppliers. Garcia, found guilty by court-martial of amassing ill-gotten wealth, is serving a two-year prison term.

His wife Clarita, in defending her husband's questionable wealth, had said: "My husband also receives cash for travel and expenses in Europe and Asia that are awarded contracts for military hardware. He also receives gifts and gratitude money from several Philippine companies that are awarded military contracts to build roads, bridges and military housing."

"Garcia was not an anomaly in the AFP," said a bureaucrat who has dealt with the AFP many times. "There are a thousand Garcias in the AFP, but only one got caught." (To be concluded Wednesday.)



Copyright 2007 Inquirer. All rights reserved. This material may not be published, broadcast, rewritten or redistributed.