[OPINION] How to investigate overpricing given the Pharmally issue

Overpricing is evil; it is a crime. For the same amount of money, government can buy more of similar goods or of better quality. It is also simple to prove.

In the case of face masks and face shields, these are everyday items that we the people know something about and actually use in sufficient number. These are the same items bought by the Procurement Service of the Department of Budget and Management. There is no claim that the face masks and face shields were of higher make or model. It is first a question of price.

How is price determined? It is fixed by the invitation to submit bids. Competition means that the bidder will try to give its best price to get the award. The lower the price, the better its chances to win. So far so good.

The problem arises when there is only one bidder or there is a favored bidder from among the several. It means that the assessment of the bids is not based on merit, i.e. not on competition but based on connection. Regardless of the price, the preference is for the bid of the most favored one. It makes sense to price higher to allow for kickback.

Even if the price of the favored bidder is at par or lower than the others, it does not mean that no personal benefit was derived. In the case of Pharmally Pharmaceutical Corp., it is admitted that it is way undercapitalized. Pharmally is not a manufacturer, a distributor, or a logistics provider. It has no financial capacity to meet the orders. The only way for it to do so is if it acts as a middleman or broker – someone else will finance for the transaction to push through. Pharmally merely acts as a front entity with former presidential economic adviser Michael Yang acting as the financier.

More than price, it is evident that Pharmally is a favored bidder. The red flags are: One, it was very recently incorporated in 2019. Two, it is severely undercapitalized. Three, there is no verifiable address. Four, it has no regular operations as an ongoing concern with big contracts. Five, it has no record of performance. Six, its connection with Mr. Yang and the latter’s connection in the executive department which controls procurements.

Government executives who sign off on contracts of award are generally circumspect – no one wants to be in hot water for improper acts or illegal business that can lead to criminal indictment with plunder a signature away. With Pharmally’s total of P8.7 billion in contracts, it seems that the Head of the Procuring Entity (with the acronym HOPE) of the DBM, walked into his appointment, signed the contracts, and walked out of the position.

There are the other points like the tight supply that justified the higher pricing. But these are extraneous to the contracts and peripheral to the main issue – the favored bidder and the preferred supplier versus legitimate bidders with capability and track record. The result is the distortion in pricing that leads to overpricing payola.

Investigating corruption starts from the identification of the "problematic" aspects of the bidding. It is an easy crime to establish because of the numerous documents that are required under our procurement laws and regulations. Easier because the goods in question are common, everyday items where supplies and prices can readily be checked and to be freely canvassed and bought. Easiest in time because the transactions happened one year ago and not decades back. If none of these yield results, one can always follow the money trail.

All these are not to say the executives of Pharmally are presumed guilty or that those responsible in government are not presumed innocent. The standards set by law, the expectations of the public, and the exposure in the ongoing Senate proceedings compel a narrative from them that dispels any doubt on improper conduct and convincing explanation of the facts that raise the suspicion of criminal activity.

In ordinary days, it is egregious to waste taxpayers’ money. In pandemic life, it is beyond criminal. Investigating overpriced face masks and face shields in a systematic manner can lead to answers that will correct anomalies, punish the guilty, and make justice prevail. And may the heavens forbid uncovering overpricing in the procurement of scarce, saving vaccines by those destined for hell. – Rappler.com

Geronimo L. Sy is a former Assistant Secretary of the Department of Justice. He set up the Office of Cybercrime and the Office for Competition.