For why one could not be when this same process primarily exists to supposedly promote the best terms and values for the tendering party through a fair and transparent competition.

In this country, the problem is more pronounced and subsisting in the cases of public infrastructure and public-private partnerships. While everyone seems to believe that the problem lies on corruption—which it does substantially—it would be a mistake to overlook the contribution of other major causes for bidding failure as well.

It can be argued, in fact, that corruption happens because of the presence of these other causes and factors. They become the avenue and the tools of unscrupulous rent-seeking party to corrupt the process.

One major factor for bidding failure is the vagueness of the terms of reference. And the ambiguity includes, among others, the unrealistic costing (e.g., overpricing/underpricing of unit costs), valuation (e.g., changing values and parameters in appraisals that results in undervaluation of assets being disposed or procured) , projections (e.g., highly optimistic assumptions) and timelines (e.g., unrealistic completion period).

This vagueness can be attributed to either malice (a deliberate intent for the bid to fail to have an excuse for negotiation) or sheer lack of skill and inexperience of the people involved to have a fuller understanding of the complexities of the technical issues and legal framework of the project.

Collusion is the reason when the bidding is made to fail deliberately. Here, we can observe the interplay of contractors/suppliers, brokers/middlemen, consultants and influential officials.

Once the process commences, all these players go to work in a network that expands horizontally and vertically, within organizations and among individuals, within all sectors—private, public and even in civil society. Hence, there is a direct correlation between the expanses of the network needed to secure the project with the cost of the project itself.

It has become public knowledge that, sometimes, this exponential increase in the project cost in works involving public infrastructure or undervaluation in the case of privatization and disposition of government assets is the effect of having to spread too much “rewards” to these players.

But even when the terms of reference are very clear and have been clarified in conferences prior to the submission of proposals, failures in bidding continue to exist.

It is surprising to see bidders who have been in the industry for so many years and who have implemented many projects in the past, fail even at the early stage of eligibility checks because of a very lame reason that they failed to attach a document as simple as a tax return in their eligibility documents.

It is all the more surprising that an unheard of bidder would eventually beat everyone in the process. Thus, it would be wrong to simply assume and even accuse a government agency for being dysfunctional in its bidding process.

When a bidder fails to submit eligibility documents, a checklist of which it has been earlier provided, the dysfunction rests with it and not the tendering organization.

True, the government bidding process is not insulated from corruption. It has to be admitted that it is plagued by it. But a question has to be asked: What role does the private sector play in its promotion or prevention? The answer lies not only in the government but in all of us.

In a not-so-distant past, the series of these pyramiding scams included among its victims even the seemingly reputable and respectable educated members of the society. There are even professionals and generals who had fallen victims to this. This seems surprising for these respected members of the society to engage in but, in the end, the system can be summed up as greed feeding upon someone else’s insatiable greed. Somehow, the adverse effect of this financial scam has been localized for some time, affecting a fairly significant number of people but not enough to shake or destroy a country’s financial system.

Unfortunately, greed has a way of spreading like a contagion as well.
Reason: Somehow, investment bankers have mastered the sophisticated way of selling worthless bonds with the promise of higher yields. And this scheme was replicated a number of times, within countries and beyond them, until we get to the point where the global financial system is now.

The collapse of the global financial system gives an international face to greed. How to moderate such greed becomes the greatest challenge of the present capitalist structure.

While there is a call for stronger regulation, the failure of the rating agencies that are supposed to provide accurate and truthful information on the worth of these financial instruments may be an argument against it. There is no assurance that a regulator may not be afflicted with a temptation to please regulated entities for a pound of flesh.

With the way the global financial leaders are reacting by bailing out banks with pampered executives whose greed brought us all to this stage of despair, I came to believe in the “theory of un-punishable impunity” such that the greater the damage your misconduct is, the better the chances that you can get away with it or, at most, you only get a slap in the wrist. Simply because they do not have a better choice. If you have doubts on this theory, trace the history of our most famous criminals in the country.

With or without their consent, taxpayers suddenly found themselves owners of these banks and insurance companies. But it seems that AIG executives have to rub it in by vacationing and ostentatiously pampering themselves with luxurious accommodations in a rich resort somewhere in California. Indeed, they must be saying that borrowing billions of dollars is such a stress and they needed to relax. Hence, taxpayers and shareholders must treat them to such a vacation. Clearly, no lesson was learned in the past few weeks by these so-called financial wizards. If there is, then it is the way they are giving the phrase “moral hazard” a synonym for greed and callousness or—to use a popular phrase for corporations now—corporate social irresponsibility.

Perhaps, the most glaring flaw (aside from greed) that brought this financial mess is the lack of real value creation in its foundation. Investment bankers simply preyed on each other’s appetite for higher returns and upon the borrower’s lust for nicer houses without the capacity to pay.

When an economy is driven by sheer consumption without the necessary entrepreneurial spirit that sustains it, then this kind of situation happens. It is the entrepreneur that creates real value in an economy. Thus, in order to bring the global economy to stability, financial bailouts must result to the resuscitation of enterprises. This financial pyramid is consumed in its foundation by greed and without the value that is supposed to hold it strong. Its eventual collapse is, therefore, not much a surprise. How we get out of this is another story.

Send your comments, suggestions and reactions to arnel_casanova@post.harvard.edu

Unknown to most nonlawyers, contracts can be verbal as well. However, it is generally presumed that whenever parties enter into contracts, particularly in most businesses, those contracts must be written. This understanding is not without reason. For at the passage of time, human memory may fail and not fully remember the terms of the agreements a person might have entered into. Hence, to avoid such confusion that may destroy an otherwise fruitful business relationship, the parties (and even the law in some forms of contracts) make it sure that everything that what they have agreed into are recorded and placed in writing for future reference.

The sanctity of contract is of paramount interest to human affairs. For this reason, even the Constitution protects it and ensure that persons or corporations, will have the legal system to run to and seek remedy or enforcement.

It must be emphasized though that before one could invoke the sanctity of contract, the very contract that he is relying on must at first be capable of being sanctified; that is, it is not illegal, immoral or against public policy. And the parties must themselves have been capable of “sanctification” when they entered into it; hence, they must have entered into it in “good faith” and have the capacity to enter into such agreement.

Entering into a contract with government

Private contracting parties when dealing with the government must therefore observe their own “sanctity.” In a profit-maximizing world full of competitors, they tend to outdo each other in so many ways. Unfortunately, there are those who achieve their ends thru “unsanctified” ways.

While all contracts are sacred, government contracts can be classified as one with an extraordinary “sacredness” (this despite the fact that it is extraordinarily transgressed in such regularity as well in some cases). This is so because government contracts do not only bind private sector interests but the entire state through the government. Not only is the public officer entering into it vested with public trust but most significantly, such contract when done to the disadvantage of the government shall burden all citizens of the state.

Relatedly, the government itself must respect the rights of private parties by observing the contract that it entered into. Hence, there is distinction between the power of the state as a sovereign which renders the state immune from suit and the power of the state as a contracting party where the state sheds such immunity for the interest of fairness and protection of the rights of the private party contracting with it. The government is not exempted from observing good faith as well – at least in a functioning democracy.

While this “unorthodox” rent-seeking ways may pay off in the short-term, the lessons learned in the so many cases such as PIATCO and PEA-AMARI show that it would eventually destroy all the parties that participated in it. Such methods cast away the mantle of contractual sanctity and the law does not provide protection for it.

Hence, it is still a good practice that everyone should observe the sanctity of contract from beginning to end. Thus, when a contract is a subject of bidding, the final contract should not be materially and substantially different from the terms of the reference of such bidding unless legally justified and done in the most transparent way. If a contract is negotiated, such negotiations must transpire and be concluded with terms that are not advantageous to the government, conducted in transparent manner, and with the involvement of all concerned, as may be provided for the rules or by law.

It is best practice to thresh out all unclear terms, obligations, representations and warranties, default provisions and all other issues prior to the signing of any contract. It is imperative to conduct legal and financial due diligence before making any commitment. Failure to do so would be tantamount to gross negligence which may expose the board and officers of the contracting parties as well as the signatories to grave legal liabilities, criminally, civilly and administratively. Such prudence and diligence in making business judgment is an indispensable part of the sanctity of contract.

But once a contract is signed, all parties must observe its terms faithfully to its very letter. Good faith is the foundation of contractual sanctity. From its preparation, execution, implementation and termination. Its presence must be enduring and continuing to the end of the agreement. To cast this aside would entail the destruction of trust and the failure of relationships which may be most difficult to attain again.

Atty. Arnel Paciano Casanova completed his Masters in Public Administration (Finance and Leadership) from Harvard University’s Kennedy School of Government as a Mason Fellow in 2007. He obtained his law degree from the UP College of Law (1998) where he likewise obtained his Diploma in Urban and Regional Planning (2000). His expertise is in the field of real property development, public-private partnerships, privatization, public infrastructure and construction, security and negotiations, corporate governance and social entrepreneurship. He is a recipient of the Philippine Legion of Honor Medal in 1997 and was selected by the Asia Society in New York as one of the Asia Young Leaders of 2007. He is currently a General Counsel and Corporate Secretary of a major government corporation and has served as Corporate Secretary of some private corporations. He lectures in Ateneo School of Governemnt as lead faculty for social entrepreneurship.