Business Corruption

According to the Bertelsmann Foundation 2010, a large part of government projects are greatly affected by corruption, both in terms of bribery and red tape. Transparency International's Global Corruption Report 2009 reports that corruption and collusion are rampant when foreign contractors and investors enter the Philippine market, and because there is no regulation on caps on bids, there is an increased risk of collusion and bid-rigging. Companies should be aware that gifts are often expected in order to secure a government contract, as stated by a large number of the surveyed companies in the World Bank & IFC Enterprise Surveys 2009.

Furthermore, companies should also take note that government procurement contracts still favour Filipino-controlled companies and, thus, local suppliers, which places the foreign companies at a disadvantage, as reported by the US Department of State 2011. 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.

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

Political Corruption

According to the World Bank Managing the Politics of Reform 2006 working paper, 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.

According to the Transparency International's Global Corruption Report 2009 and a 2008 article from International Herald Tribune, another corruption scandal that broke out in 2007-2008 and implicated the former President Arroyo, concerned the USD 329.5 million national broadband project won by a Chinese state-owned company, ZTE. The scandal involved Benjamin Abalos, the former election commissioner, who had allegedly offered a PHP 200 million bribe to Romulo Neri, the former economic planning secretary, in order to hasten the approval of the deal. A businessman who lost the bid has accused the husband of former President Arroyo of putting pressure on him to withdraw his bid. As a result of the scandal, Arroyo cancelled the project.

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

Frequency

World Economic Forum: The Global Competitiveness Report 2010-2011:
- Business executives give the diversion of public funds to companies, individuals, or groups due to corruption a score of 2 on a 7-point scale (1 'very common' and 7 'never occurs').

- Business executives give the favouritism of government officials towards well-connected companies and individuals when deciding upon policies and contracts a score of 2.2 on a 7-point scale (1 'always show favouritism' and 7 'never show favouritism').

The World Bank & IFC: Enterprise Surveys 2009:
- 58.6% of the companies surveyed expect to give gifts in order to secure a government contract.

- The average value of a gift expected to secure a government contract is approximately 16.4% of the value of the contract.

Social Weather Stations: 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.