COA: Cebu City’s P383M garbage collection deal ‘irregular’

·6 min read

SOME Cebu City officials may face a disallowance for the payment of P81 million to two contractors for the hauling of the city’s garbage, which state auditors said was an “irregular” deal.

The Commission on Audit (COA) questioned the P383.5 million contract between the Cebu City Government and Docast Construction and JJ & J Construction and General Supply for the collection of garbage in 2021.

In its audit report, state auditors said they found several indications of irregularities in the joint venture agreement between the City and the two firms, prompting Mayor Michael Rama to follow up with the National Bureau of Investigation (NBI) 7 his request to investigate the firms for alleged plunder and their involvement in the city’s garbage management.

“I want to talk to NBI on Monday as it has been a while since I heard from them concerning my request for investigation,” Rama told SunStar Cebu Saturday, July 23, 2022.

State auditors said they spotted several irregularities in the transaction, pointing out that the firms started hauling garbage even though the city’s Bids and Awards Committee (BAC) had yet to conduct post qualification.

Docast and JJ & J also failed to secure a BAC declaration that they are qualified to provide the garbage hauling service.

State auditors recommended to the City to direct the BAC to submit lacking documents and to explain why they recommended to award the contract to the two firms despite “glaring grounds” that would disqualify them as contractors.

Requirements not met

State auditors said they deemed other deficiencies in the City’s deal with the two firms as indications of irregularity.

First, they found that Docast and JJ & J’s ownership and structure did not meet the City’s requirement, and were therefore ineligible to provide the service.

The City required the potential bidder, whether joint venture or a joint venture corporation, to have a collective authorized capital stock of not less than the approved budget for the contract of the project.

Though Docast and JJ & J were able to form a joint venture on January 21, 2021, they both do not have authorized capital stocks that could qualify them as a corporation.

“These conditions would have already disqualified the contractors/ joint venture during the bid evaluation under the non-discretionary “pass/fail” criteria on January 28, 2021 pursuant to the 2016 Revised Implementing Rules and Regulations (IRR) of Republic Act No. 9184 (Government Procurement Law),” state auditors added.

Not hauling

According to the City’s invitation to bid and other documents gathered by COA, the City had required interested bidders to have a primary purpose in logistics, trucking, collection and/or hauling services.

But auditors found that both firms’ primary business appeared to be focused on construction and general supply rather than on logistics or hauling services, which was not in accordance with the City’s Terms of Reference (TOR).

State auditors confirmed this after securing the two firms’ business registration that was certified by the Department of Trade of Industry (DTI).

Auditors, though, were able to secure the business permits of the two firms issued by the Lapu-Lapu City Government, which showed that Docast was engaged in hauling services and the supply of construction materials, while JJ & J was engaged as a general contractor.

“But for purposes of determining the kind of business it is authorized to engage in, it is understood that the one appearing in the document issued by the SEC or in the DTI, as the case may be, is controlling because it is this document that gives birth to the legal personality of a juridical person,” state auditors added.

COA also learned that the two firms were engaged in several government construction projects, which further proves that they were not qualified as hauler or in the trucking business, as required by City Hall.

State auditors also found that the two firms didn’t meet the requirements of the City in terms of the location of their motor pool.

According to the City’s TOR, the bidder must possess “a property of not less than one hectare in land area that is suitable as a motor pool. The property should be within the territorial jurisdiction of Cebu City and must be located in an area with light to moderate habitation at the time of bidding.”

But according to a site inspection report of the city’s Department of Public Services (DPS) dated January 21, 2021, Docast’s motor pool is in Barangay Calawisan, Lapu-Lapu City.

No post qualification

State auditors also found that while the contract for the hauling service was finalized on March 8, 2021, the two firms reportedly started collecting and hauling garbage as early as January 29 of the same year when post-qualification activities by the BAC’s Technical Working Group had not started yet. Post-qualification began on January 31, 2021 and ended on February 9 of the same year.

State auditors found that the City’s first billing covered the services rendered from January 29, 2021 to March 6 of the same year amounting to P80.9 million.

In a random check of the trip summary of the two firms’ trucks, auditors also found that the Tare weight, or the weight of an empty vehicle, varied significantly even on the same day.

Though the City justified that the collection and disposal of garbage is a basic service that cannot be neglected, COA argued it should not be done at the expense of the law.

Due to these lapses, state auditors said a notice of disallowance may be issued for the first payment of P80.9 million to the two firms.

In a lengthy reply to COA on March 28, 2022, the former BAC chairperson for Goods and Services defended the awarding of the contract to the two firms.

According to the official, Docast is a legitimate and existing contractor of the City Government. He noted that prior to this particular procurement, Cebu City had awarded three purchase orders (PO) to Docast Construction for solid waste collection in 2020 through open and competitive bidding.

“However, in these POs, the Terms of Reference were silent as to the ownership, purpose and capitalization requirement. Hence, during the opening of bids, the BAC was not made aware of these additional requirements,” the official told the auditors.

The official said the two firms were able to qualify for the contract based on the 2016 Revised Implementing Rules and Regulations (IRR) for the Procurement of Goods as stated in RA 9184, as they were able to comply with legal documents such as DTI and Securities and Exchange Commission (SEC) registration for sole proprietorship, mayor’s business permit and tax clearance.

The official argued that while the two firms were not a corporation, a sole proprietorship was still eligible to participate in the bidding for the supply of goods under the 2016 Revised IRR.

The official said it would have been “unconscionable and inexcusable” for the BAC to disqualify Docast and award the contract to another firm that offered a higher bid.

Rejoinder

In a rejoinder, state auditors said the BAC erred in assuming that the contractor’s eligibility requirements are limited only to those requirements expressly provided under RA 9184.

They added that the BAC has no discretion or authority to brush aside certain eligibility requirements as they wish.

On the issue of bid proposal, state auditors agree that while Docast provided the lower bid compared to the competing firm, the issue is the former’s qualification.

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