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Controversies, delays in multi-billion AFP modernization

Carmela Fonbuena

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A South Korean company accuses the defense department of favoritism

IN CHARGE: Defense Undersecretary for finance Fernando Manalo (center) with assistant secretaries Efren Fernandez and Patrick Velez. Photo by Carmela Fonbuena/Rappler

MANILA, Philippines — After accusing defense officials of “favoritism,” South Korea’s Kolon Global Corp dropped its protest against a ruling of the Department of National Defense Bids and Awards Committee (DND-BAC) disqualifying it from a P1.76-billion project to supply the Army and the Marines 44,000 sets of armor vests.

“Despite having the noblest of causes and despite the available legal remedy, the Kolon Global of Korea does not want to have any excessive entanglements with the government. They know that if they started a protest it will be a battle that will be fiercedly fought,” Kolon lawyer Noel Lazaro of Siguion-Reyna, Montecillo & Ongsiako told Rappler.

The opportunity for Kolon to file an appeal expired on Wednesday, December 4. 

It’s a relief for the DND-BAC, which is running out of time because the project is one of several items that have suffered so many delays. Funding for this is expiring within the month, and an appeal would have dragged the process further.

The armor vests are a much-awaited force protection equipment that could save lives of troops who are regularly deployed to fight communist guerrillas, Muslim rebels, and other armed groups.

Kolon’s allegations of favoritism have cast doubt on the processes of BAC, which is mandated to keep its work honest and transparent given the long history of corruption in the military and the Aquino government’s pledge to wipe it out.

The BAC also cannot afford the controversy at a time when the government is spending billions for the long overdue modernization of the Armed Forces of the Philippines.

President Benigno Aquino III allocated fresh funds of P75 billion to acquire assets that will improve the country’s minimum credible defense in the volatile West Philippines Sea (South China Sea). (READ: ‘Major issues’ with South Korea delay PH fighter jets)

Lowest bidder

Kolon is the lowest bidder, offering to supply the armor vests for a bargain of P800 million or less than half of the P1.76 approved budget for the contract. The second lowest bidder offered it for P1.2 billion. 

PLAYING FAVORITES? A member of the DND Bids and Award Committee defends the committee decision to disqualify Kolon Global Corp. Photo by Carmela Fonbuena/Rappler

BAC uses a pass-fail test requiring bidders to comply with all the specifications enumerated in the bid documents. Failure to meet one criteria means disqualification. 

BAC disqualified Kolon’s bid because the succeeding post-qualification hearing showed that it failed to meet 2 requirements. The ballistic insert – the metal plate that protects the torso from bullets – is not multi-curve and it was 5 milimeter shorter than required.

Wala pong anomalyang naganap sa bidding ng force protection (There was no anomaly in the bidding for force protection),” said Defense Undersecretary for Finance Fernando Manalo in a press conference with other defense officials to explain its side on the issue.

BAC chairman Defense Assistant Secretary Efren Fernandez described Kolon’s media offensive as a form of black propaganda to discredit BAC. “Although financial consideration is important, one must understand that the nature of the product they are buying has for its purpose the protection of the lives and limbs of soldiers,” he said in a statement.

The BAC argued that the 5-milimeter difference in terms of the length of the metal plate could spell life and death in the battlefield, because that’s also the size of a bullet of an M16 rifle.

Kolon defended its product, which it said passed the international test conducted by a a ballistics testing facility accredited by the National Institute of Justice (NIJ), a research, development, and evaluation agency of the US Department of Justice.

Kolon maintained that its ballistic insert is multi-curve and ergonomic and complies with the required length. The checkers must have measured the vest length straight from edge to edge. The curve should have been considered, it said. 

The first-time bidder found an ally in the Coalition Against Corruption (CAC), which reportedly asked Defense Secretary Voltaire Gazmin to reconsider Kolon’s bid.

Kolon was allowed to file an appeal until December 4. But Lazaro said the company was worried that the controversy would drag the government of South Korea, which endorsed Kolon’s bid. The cost of pursuing the protest is also prohibitive – a non-refundable fee of about P4 million.

In the end, the company decided against pursuing it.

Persistent delays

Delays are a common problem in the bidding of military supplies and equipment. The armor vests project is just one of several items that BAC needs to rush because the funding is expiring within the month.

The bidding for the 21 refurbished Hueys of the Philippine Air Force (PAF) is another case. (READ: Failed bidding in Air Force’s 21 Hueys)

PILOTS' CHOICE: The UH-1H is the preferred helicopter of Philippine Air Force pilots. PAF photo

After 3 failed bidding, BAC is now finalizing a negotiated bid with the joint venture company between the US-based Rice Aircraft Services Inc and the Canada-based Eagle Copter Ltd. It’s the same company that submitted the lone bid during the 3rd bidding. It failed because of some documentary deficiencies. 

It is now undergoing post-qualification hearing. 

The problem with expiring funds is a mistake of the Department of Budget and Management (DBM), said Defense Assistant Secretary for acquisition, installation, and logistics Patrick Velez. 

DBM has been issuing Fund 101, which expires within a year. Velez said the AFP modernization law instructs DBM to issue Fund 172, which does not expire. Velez said they are counting on the DBM commitment to issue new release orders for items whose funding has expired.

Lone bidders and favoritism

LONE BIDDER: In September, there was a lone bidder for the Air Force's refurbished Hueys. File photo by Carmela Fonbuena/Rappler

Velez attributed the delays to the “peculiar nature” of the equipment to be purchased.” He said the military has very specific requirements and at the same time the sources of military equipment and supplies are very limited. 

This also explains, he said, why in several cases there are lone bidders – prompting allegations of favoritis. In several cases, the pass-fail criteria results in the disqualification of all bidders and leads the BAC to consider negotiated bids. 

Worst, no bidder showed up in the recent bidding for a P2.5-billion project to acquire 8 amphibious assault vehicles for the Marines. Samsung Techwin of South Korea bought bid documents but it did not submit a bid.

“There may be a need to review the process to make sure it fits AFP requirements,” Velez told Rappler.

Limited source bidding is an alternative process that could be studied, he said. It allows BAC to limit the process to specified suppliers with the capability of producing the needed equipment or supply and then look for the best supplier among them.  

While this could improve the bidding process, Velez cautioned against giving the BAC “too much” discretion. “That’s more dangerous. Sometimes it’s best to enforce the strict pass-fail criteria,” he said.

BAC on Wednesday, December 4, conducted its first stage bid opening for 2 brand new frigates that are meant to be deployed to secure the West Philippine Sea. These frigates will be capable of submarine warfare and will be able to carry missiles.

The project is worth P19 billion, one of the biggest in the AFP’s revised modernization program. A billion eyes watching the process won’t probably be a bad idea. —

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