Philippines Country Profile

Public Procurement and Contracting

Business Corruption

Companies operating in the Philippines should be aware that the privatisation of government-owned or government-controlled companies is plagued by irregular and corrupt bidding practices. Transparency in public procurement and contracting has improved somewhat with the passing of the Procurement Law in 2003. Nevertheless, companies should note that a lack of transparency still prevails in the public procurement process, and according to the Bertelsmann Foundation 2008, more than 30% of the budget allocated to government projects is lost due to corruption. For example, senators allocate central resources to their own districts, thus reducing the transparency of the procurement process, and taking development funds which could have gone to better use elsewhere. Companies are recommended to make use of a specialised public procurement due diligence tool in order to mitigate the corruption risks associated with public procurement in the Philippines.

Companies should be aware that in accordance with Philippine law, government procurement contracts still favour Filipino-controlled companies and thus local suppliers, which places the foreign companies at a disadvantage.

For more information on public procurement, see 'Public Anti-Corruption Initiatives' in the Initiatives section.

Political Corruption

According to the World Bank Working Paper 2006, the process of awarding government contracts for infrastructure and other such projects has been an important source of extra income for politicians and government officials. Selling contracts has also been a source for financial funding for political parties, because companies have either directly bribed politicians or donated cash to parties and campaigns in order to secure good relations and thus be given priority for government contracts. In general, public procurement lacks transparency in the bidding process, leading to overpricing of projects and substandard work. A corruption scandal in connection with an Internet broadband network project between the Philippine government and the Chinese company ZTE allegedly resulted in overpricing by 100%.

According to Pulse Asia 2009 and the SWS Surveys of Enterprises on Corruption 2006-2007, the departments of Public Works, Health, Education and National Defence are all engaged in public procurement, but these departments are all known for being very corrupt.

For more information on public procurement, see 'Public Anti-Corruption Initiatives' in the Initiatives section.

Frequency

World Economic Forum: The Global Competitiveness Report 2009-2010:
- Business leaders give the diversion of public funds to companies, individuals, or groups due to corruption a score of 2.3 on a 7-point scale (1 being 'very common' and 7 'never occurs').

- Business leaders give the favouritism of government officials towards well-connected companies and individuals when deciding upon policies and contracts a score of 2.1 on a 7-point scale (1 being 'always show favouritism' and 7 'never show favouritism').

Transparency International: Global Corruption Barometer 2009:
- 92% of the households surveyed reported to have paid a bribe to a public official before issuing a license.

SWS: Business Survey on Corruption 2007:
- 50% of business leaders surveyed said almost all the companies in their line of business give bribes to win government contracts.

- 50% of business leaders surveyed said one-fifth of the companies in their line of business give bribes to win private sector contracts.