• The misconception of competitive bidding


    Once again, bidding for big ticket projects is in the spotlight, this time over the upgrade of the Cebu-Mactan International Airport (MCIA).

    Two groups are in the final running, and politics are now intervening, specifically it seems in connection with the qualifications of the final contenders, one of which it is claimed lacks adequate financials.

    Republic Act No. 9184, otherwise known as the Government Procurement Reform Act, seeks to ensure transparency and fair play in the process of procurement, primarily for government procurement but also much used, given its high profile for private procurement. It is a law that establishes a mindset about bidding and contracting.

    Procurement anywhere is fraught with opportunities for corruption and foul play; deliberately skewed terms of reference, collusion among bidders or between bidders and purchasers, political influences, improper evaluation and award, and favoring certain bidders. It is almost impossible to guarantee that any public bidding process has been carried out purely on an objective basis. And this is the case no matter how many laws and implementing rules may be in place in order to attempt to ensure a “level playing field.” In the Philippines, suspicions are so easily raised and may even be manufactured as part of a bidder’s or purchaser’s procurement strategy. In a nation with so little trust, it is very easy to raise suspicions about almost anything.

    To say that if there is doubt over the fairness and competence of the administration of a particular bidding, then the courts can be the arbiter is rather to miss the point; if the procurement process itself were trusted, then the prospect of litigation to settle matters would be a very remote thing indeed.

    From the perspective of an investor rather than that of a supplier or contractor, the need to enter into a public bidding is a big turnoff. An investor puts up his capital at his own risk in order to capture a business opportunity through which he will gain a return. While no investor should be afraid of his offer being scrutinized and evaluated in a proper manner, his confidence and thus his interest in capturing an opportunity to risk his capital will be in direct proportion either to his opinion of the credibility of the bid and award process and those carrying it out, and/or his opinion of the likelihood of political intervention at some point. Even post award there are risks of awards being challenged as not having been done in conformance with the law, and such challenges may well be mounted by competing vested interests.

    To talk about mandatory public bidding for government contracts, and be able to exhibit a detailed Procurement Reform Law and its implementing rules and regulations, bid and award committees and the like with rights of litigation through the court system sounds good if only the system were perceived by those subjected to it as working as it is supposed to do. But alas, it often doesn’t and the media jumps on these cases giving them high publicity and further undermining any shred of confidence that any business person may have in the chances of any sort of objective result arising from taking part in a “bidding.”

    “How do you control the costs of public expenditure?” “Well, through competitive bidding of course.” It is the correct answer but is less than the whole picture.

    A competitive bidding process in itself is in no way a guarantee of fair play. What counts is the level of credibility attached to the administration of the process, and that can only come through an established track record of having successfully and professionally managed much competitive bidding over a longish period of time. One of the worries of those who professionally manage such processes [and I have been one of those people]either for multilateral agencies or reputable multinationals is that an award may be challenged by an unsuccessful bidder. It causes a lot of aggravation and takes time to respond to such a challenge, and even in the best and most professionally managed processes, there is always an element of subjectivity.

    Rules and procedures however prescriptive they may be and however draconian the penalties for their infringement will not guarantee an unbiased or fair outcome and consequently will not attract the level of competition that is the intention of public bidding. Why bother going to all the trouble of preparing a bid, attending meetings and answering clarifications if you feel that the result is a foregone conclusion?

    So please let’s not get too hung up on the concept of competitive bidding as being some sort of silver bullet against corrupt practices in procurement, or even as an effective mechanism for obtaining the best price. It could be, but the experience here in the Philippines combined with the Philippine way of doing business and the potential for political intervention makes for a range of “competition” which defeats the very purpose of the exercise. Unless and until competitive selection processes are truly believed to be administered fairly, professionally and honestly and to be immune from political intervention or influence, they will never serve the purpose for which they are conceived, and particularly in the case of big ticket projects they will bring about opportunities for litigation which can last for years with the result that nothing progresses.

    So laws and penalties are no substitute for trust and credibility. Competitive bidding in the Philippines is a lottery in which only those who are skilled at the Philippine way of doing business would enter with any hope at all. It would be better to utilize some of that intellectual capacity that goes into producing the ever more intrusive laws in generating more trust so that everybody is not automatically considered to be a liar and a cheat.

    Mike can be contacted at mawootton@gmail.com


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