SUBJECT: Agency:

Supply and Delivery of Eight (8) units LPG Powered Vehicles Development Bank of the Philippines Sen. Gil J. Puyat Avenue Cor. Makati Avenue Makati City, Metro Manila Submission and Opening of Bids June 29, 2004 Toix Cerna (TAN Research and Advocacy Officer) Leslie Flores (TAN Research Associate) TOIX CERNA

Procurement Activity: Date: Observers:

Report by:

OBSERVATIONS: On June 21, TAN received an invitation from the Development Bank of the Philippines (DBP) to attend the procurement activity above-mentioned on June 29, 2004. Upon receipt, TAN sent via fax a confirmation letter dated June 22, which indicated the attendance of the above-mentioned observers to the said activity. Included also in the letter was a request for documents pertaining to the activity for purposes of background information and as evidence of regularity of previously conducted activities in relation to the bidding of the goods above-mentioned. TAN received two sets of the requested documents from DBP days before the Submission and Opening of Bids, which was just enough time for the observers to review the documents. In the review of documents, nothing out of the ordinary and regular was found by the observers. It was noted by the observers, however, that this bidding was a corrected version of an earlier advertised bid for Toyota Corolla vehicles. In the documentation, it was correctly cited by the DBP BAC Secretariat that reference to brand names is prohibited as per Government Procurement Reform Act (GPRA) provisions (Section 18). The TAN observers regretfully arrived at the bid venue 15 minutes late (10:15 a.m.) but were nonetheless warmly welcomed by the members of the DBP BAC and Secretariat. The tardiness of the observers did not cause adverse effects on the bid proceedings as there had been no issue of late submission on the part of the bidders. There was only one bidder (Toyota Pasong Tamo) that participated and whose arrival had been before the set deadline (10:00 a.m.). The proceedings are noted to have been strictly observant of the new procurement law. During the proceedings, TAN raised questions as to the characteristics of the good that is being bid out the questions more directed towards the issue of whether it is only Toyota that has the capability of providing the good that is being bid out. The BAC

members clarified that they assumed that Mitsubishi and Ford have the capacity to provide the good being bid out as two franchises of the manufacturers above-mentioned (Union Motor Mitsubishi Paco and Ford Edsa) bought bid documents. A BAC member also clarified that the technology required (LPG-powered) by DBP for the 8 vehicles is not a Toyota technology and that the conversion to an LPG-powered vehicle is separately done by another company. The BAC members also explained the rationale for procuring LPG-powered vehicles. It was mentioned that DBP has an Environmental Management System with certification from ISO and through such program, it would require them to procure environmentfriendly vehicles such as the LPG-powered. They also reiterated that they obtained the approval of the President in procuring LPG-powered vehicles. A BAC member also mentioned that the government has a policy of procuring LPG-powered vehicles. This was later on corrected by the BAC Secretariat and said that there is no written government policy to that effect but that nonetheless DBP was allowed by the government to procure the same goods by virtue of its EMS plan. TAN also noted that there was another Toyota franchise (Toyota Marikina) that bought bid documents but failed to participate in the procurement of the goods in this subject. The proceedings were concluded with Toyota Pasong Tamo as the winner after proper review of eligibility, technical and financial documents. The TAN observers, in agreement to the regularity of the proceedings that ensued then, signed on the bid abstract along with the BAC members of DBP. POST-BID OBSERVATIONS During the review of eligibility documents, TAN noted that one of the incorporators of Toyota Pasong Tamo (Mr. Arturo Macapagal) had the same surname as the BAC head (Mr. Vivencio Macapagal), which prompted the observers to research on their relationship with one another vis--vis the conflict of interest prohibition. TAN failed to establish any relationship between the two but found that Mr. Arturo Macapagal, who happens to be the Chief Executive Officer of Toyota Pasong Tamo, is a half-brother of the President and the President was the one who approved the request of the agency in its procurement of LPG-powered vehicles. TAN was furnished a copy of DBPs letter to Department of Budget and Management (DBM) Secretary Emilia Boncodin dated August 21, 2003. The letter cited previous communications between the Office of the President and DBP regarding the purchase of LPG-powered vehicles. According to the letter, the President approved DBPs request on November 2, 2002. Another letter, dated March 1, 2004 and signed by Executive Secretary Alberto Romulo, authorized DBP to purchase 8 LPG-powered vehicles. When asked of the Annual Procurement Plan, a DBP representative said that their plan is yet to be approved by the agency head. According to the representative, DBP has had no procurement plan and that this is their first time to have one as per requirement by the GPRA. TAN notes, however, that DBP has been inviting them to procurement activities related to 9 goods without the necessary guidance of an APP. Because of the fact that there was only one participant-bidder (Toyota Pasong Tamo), TAN felt the need to validate whether the other supposed participants (Union Motor and

Ford Edsa) had the capacity to manufacture LGP-powered vehicles. TAN also noted that Toyota Marikina backed out in the bidding. According to Union Motor and Ford Edsa, they dont have the capacity to manufacture such vehicle. Union Motor expressed this shortcoming in a letter that they submitted to DBP. Ford, on the other hand, admitted their lack of capacity in manufacturing LPGpowered vehicles over the phone only. Toyota Marikinas non-participation on the other hand is said to be due to their difficulty in negotiating with the converter supplier. TAN found out that the technology of converting vehicles into LPG-powered is not really Toyotas but that of a third party manufacturer. In the Philippines, there is just one licensed company that does conversion and that is Valerie Products Manufacturing, Inc. Valerie Products experience in supplying LPG-powered vehicles is very limited however in that they have only the technology for Toyota engine, specifically the Toyota Corolla model, and that they have only provided LPG-powered vehicles to Toyota Pasong Tamo (10 vehicles in 2003). CONCLUSION/ RECOMMENDATION: Given these circumstances, it cannot be exactly said that there was tailor-fitting in this bid activity as there appears to be no intentional effort on the part of DBP to favor a car manufacturer. Perhaps, there was shortcoming on the part of the Secretariat or whoever is in charge in researching and making sure that the opportunity to participate in the bid is available to more than one bidder. It is notable from the records, however, while there may be no clear intention to favor any one candidate, prior to correction, there was reference to brand names (e.g. Toyota Corolla). Also, Toyota does not really monopolize the technology of LPG-conversion as it is also a recipient of that technology. However, with Valerie Products capability limited to Toyota motor vehicles only, Toyota still has undue advantage over other car manufacturers and for this reason, competitive bidding as a mode of procurement in this specific instance may not be the best mode to apply. For this particular case, what could have been adopted is Limited Source Bidding (Section 49 of RA 9184) as an alternative method of procurement. This specific case should fall under condition A, such that Procurement of highly specialized types of goods XXX where only a few suppliers or consultants are known to be available XXX. Through limited source bidding, all Toyota franchises could be invited to participate and provided the necessary information regarding the single supplier that they will all have to deal with for better private negotiation (between the interested bid participants and the single supplier). Also, DBP has to immediately have their APP approved for immediate and effective use.