COA: Undue haste, other red flags in Makati building

MANILA, Philippines–An initial Commission on Audit (COA) investigation found that the Makati City government implemented the P2.3-billion Makati City Hall Building II project with “undue haste” because it was done without construction plans.

The COA also found a P105-million difference between the approved budget for the contract of the building’s phase one and its approximate cost stated in the architectural and engineering contract.

These were among the red flags found in the COA’s preliminary report on the parking cum office building being investigated by the Senate for alleged overpricing.

Other red flags were the following:

— “Improper” negotiated procurement for the contract of architectural and engineering services;

— Very small variance between the contract for the budget and the bids of contractor Hilmarc’s Construction Corp.;

— Unnecessary expenditures for mobilization of construction equipment; and

— The building, built in five phases, was already habitable and ready for use by phase three.

Basis for special audit

The findings from the initial evaluation of the Makati parking and office building would be used as basis for the COA’s special audit, to be led by the office of special audits headed by Alexander Juliano.

“I’d like to emphasize that my office wants to conduct the special audit with utmost independence and objectivity, and we will not take sides,” Juliano said.

Reluctant

Juliano was reluctant to publicly disclose the findings, and stressed that these were preliminary and COA had yet to get the comment of the Makati City government.

The initial evaluation was made to determine if there was a basis for a special audit and COA Chair Grace Pulido-Tan has since issued the order for this, he said.

But Sen. Aquilino Pimentel III, chair of the blue ribbon subcommittee investigating the overprice allegations, declined the COA’s request for confidentiality on the ground of public interest.

“We feel the overwhelming public interest in this issue,” said Pimentel.

Sen. Alan Peter Cayetano said keeping the report under wraps would engender more public suspicion. Juliano’s disclosure of the initial findings was upon the order of the Senate subcommittee, so the COA official should not be liable for preliminary disclosure, he said.

In his report, Juliano noted that Makati City had shelled out P2.367 billion for the Makati City Hall II, including P11.974 million for preliminary services and P75.614 million for the building management system.

First red flag

 

The first red flag he found was in the implementation of the project’s phase one, originally costing P386.998 million, because it was done even without construction plans.

He noted that only one month passed between the Nov. 8, 2007, approval of the ordinance setting aside funds for the project and the publication of the invitation to bid for it on Dec. 6, 2007.

“While the swiftness of the action taken by the city government may be considered efficiency, the same could be also considered a red flag because this project with such a huge budget will surely require careful conceptualization and planning,” he said.

Under the procurement law, Makati was required to conduct detailed engineering, which includes a survey, investigation of the site, soils and foundation, and construction materials, and the preparation of design plans, technical specifications, quantity and cost estimates, program of work and proposed construction schedule.

No completed plans

 

The contract was awarded to Hilmarc’s on Jan. 11, 2008, but Juliano said that during this time, there were no completed plans yet because Mana Architecture and Interior Design Co., which handled the architectural and engineering services for the building, had not completed the contract document services.

As of March 21, 2008, contract document services were only 20 percent completed, as seen in Mana’s first billing.

Contract document services refer to development and preparation of working drawings, including architectural, structural, plumbing, and other mechanical engineering works, and the preparation of specifications describing the types and quality of materials and finish, and the manner of construction.

Juliano also took note of the “substantial” P105.349-million difference between the P387.846-million approved budget for the contract (ABC) for phase one of the project and the P282.496 million approximate cost of the project stated in the contract of architectural and engineering services and in various documents approved by the mayor.

He further pointed out that the opening of bids for infrastructure projects above P200 million must be conducted within 60 to 90 days after the issuance of bidding documents. In this case, there were only 22 days between the first day of publication of the invitation to apply for eligibility and bid, and the opening of bids on Dec. 28, 2007.

Last working day

 

Juliano said this could be the reason for the participation of only three bidders for phase one of the parking building. The bidding was also held on the last working day of the year, in time for the holiday season.

“Apparently, the city did not get the widest participation of prospective bidders and was unable to obtain the best possible price for the government as envisioned by the Government Procurement Reform Act,” he said.

Juliano also said the variance between the approved budget for the contract for phases one to five and the bids of Hilmarc’s was too minimal.

For each of the phases, the variance was less than one-fourth of one percent of the ABC.

He said this usually gets the auditors’ attention because in open bidding, there was usually a big variance between the budget and the bids.

Unusual

He also found it unusual that after phase one where there were three bidders, there were no other bidders for the next phases except for Hilmarc’s, considering that a public bidding was conducted.

One of the three bidders, JBros Construction Corp., has denied participating in the project.

Juliano also said the difference between COA’s evaluated cost and the ABC for phases one to four of the building, which amounted to P126.098 million, was significant.

“The materiality of the variance deserves a deeper analysis and evaluation,” he said.

Negotiated contract

 

Another red flag was the negotiated contract resorted to by the bids and awards committee for the contract of architectural and engineering services awarded to Mana. Juliano pointed out that during that time, the conditions that allowed officials to resort to this mode of procurement were not present.

Negotiated procurements are only allowed when there are two failed biddings, emergency cases, take over of contracts, and highly technical consultants and defense cooperation agreements.

Juliano also found out that when Makati began the procurement for phase three of the parking building by publishing the invitation to bid on Nov. 27, 2009, there was no valid approved budget for the contract.

This was because the ordinance setting aside funds for this was enacted only on Sept. 14, 2010.

Already habitable

Echoing an initial observation of the COA chair, Juliano said the Makati building was already habitable and ready for use upon the completion of phase three in 2011, yet two more phases were added.

“Thus it is highly questionable why the city had to disburse an aggregate amount of P793,740,601.96 for phases four and five,” he said.

He also said that since only one contractor completed the five phases for the parking building, Makati City may have incurred unnecessary costs for mobilization and demobilization for phases two to five amounting to P14.49 million.

Mobilization and demobilization pertain to the moving of equipment from one job site to another.

Mana architecture official Carlo Mateo said the plans for the Makati City Hall Building II that his firm submitted had an estimated cost of P45,000 to P55,000 per square meter, with an expected variance.

Mateo initially told senators that the plans the firm submitted had no estimated costs, but he eventually gave the figures after repeated questioning from Cayetano, who said he found it “incredible” that the firm could provide no estimate for its design.

Mateo said he was just being cautious in giving the cost per square meter.

Three times higher

 

As for the figures Mateo gave, Cayetano said that this was still three times higher than the estimate provided by the Davis, Langdon and Seah (DLS) construction cost handbook.

Based on the DLS estimates for 2007, the cost of a parking building was P12,000 to P18,000 per sqm, while an office building would have cost P18,000 to P25,000 per sqm, he said.

He further said that even using 35,000 sqm as the size of the parking building and computing the cost based on the value of P50,000 per sqm, the cost of the parking building would be about P1.8 billion, still lower than the actual amount spent for it.

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