Technical Assistance Report

Project Number: 41076-02

Capacity Development Technical Assistance (CDTA)
December 2009

Republic of the Philippines: Strengthening

Transparency and Accountability in the Road
Subsector

The views expressed herein are those of the consultant and do not necessarily represent those of ADB’s
members, Board of Directors, Management, or staff, and may be preliminary in nature.
 CURRENCY EQUIVALENTS
(as of 31 October 2009)

Currency Unit – peso (P)

P1.00 = $0.0212
$1.00 = P47.14

ABBREVIATIONS

ABC – approved budget for contract

ADB – Asian Development Bank
BAC – bids and awards committee
COA – Commission on Audit
CSO – civil society organization
DBM – Department of Budget and Management
DPWH – Department of Public Works and Highways

TECHNICAL ASSISTANCE CLASSIFICATION

Type – Capacity development technical assistance (CDTA)

Targeting classification – General intervention
Sectors (subsector) – Transport, and information and communication technology (road
transport), public sector management
Themes (subthemes) – Governance (anticorruption, public administration, civil society
participation); capacity development (institutional development);
economic growth (promoting economic efficiency and enabling
business environment)
Location impact – National (high)

NOTE

In this report, "$" refers to US dollars.

Vice-President C. Lawrence Greenwood, Jr., Operations 2

Director General A. Thapan, Southeast Asia Department (SERD)
Director J. Lynch, Transport and Urban Development Division, SERD

Team leader J. Miller, Principal Transport Specialist, SERD

Team members C. Buentjen, Senior Governance and Capacity Development Specialist, SERD
N. Farrofo, Operations Officer, SERD
S. Zaidansyah, Counsel, Office of the General Counsel

In preparing any country program or strategy, financing any project, or by making any
designation of or reference to a particular territory or geographic area in this document, the
Asian Development Bank does not intend to make any judgments as to the legal or other
status of any territory or area.
.
 I. INTRODUCTION

1. The Government of the Philippines has requested capacity development technical

assistance (TA) to strengthen transparency and accountability in the road subsector. During
2009, Asian Development Bank (ADB) missions met with the Department of Public Works and
Highways (DPWH) to discuss the TA and reach an agreement on its impact, outcome, outputs,
implementation arrangements, cost, financing arrangements, and terms of reference. The
design and monitoring framework is in Appendix 1.1

II. ISSUES

2. Governance has been recognized as a constraint to sustained economic growth and

poverty reduction in the Philippines. The Medium-Term Philippine Development Plan 2004–
2010 attributes the limited effectiveness of public management to the influence of vested
interests and a system of patronage throughout government. The Public Expenditure and
Financial Accountability report2 identifies weaknesses in various aspects of the Philippine public
financial management system, specifically in budget execution and financial management
reporting. The system is fragmented, and oversight agencies include the Commission on Audit
(COA), Department of Budget and Management (DBM), and Department of Finance. Important
reforms have been introduced to reduce governance risks. According to the country
procurement assessment report,3 since the passage of the Government Procurement Reform
Act, 4 the public procurement system has become more efficient, and many loopholes for
corruption opportunities have been closed. The promotion of electronic procurement through the
Philippine government electronic procurement system (PhilGEPS) has vastly improved
transparency and efficiency.5 However, despite these reforms, the quality of governance in the
Philippines deteriorated gradually during the past decade. According to a World Bank report,6
the control of corruption indicator ranks the Philippines lowest among countries in the region;
and the country’s ratings for all indicators, except rule of law and development effectiveness,
have deteriorated since 1998. Opportunities for civil society organizations to engage with the
bureaucracy through formally established mechanisms remain limited.

3. Governance issues are prevalent in the transport sector as well, due to the nature of the
civil works, which are usually capital intensive and difficult to inspect and evaluate for
reasonableness of costs; the size and structure of DPWH, which makes monitoring difficult; and
the vulnerability of the subsector's resources to vested interests. In previous years, DPWH was
identified as one of the top agencies in which corruption is perceived to be prevalent. A recent
DPWH corruption case involving the World Bank-financed Philippines National Roads
Improvement and Management Program, phase 1, further damaged DPWH's reputation and
resulted in DPWH and all major development partners placing increased emphasis on mitigating
governance risks.7 The government, including DPWH, recognizes governance as a constraint

1
The TA first appeared in the business opportunities section of ADB’s website on 14 October 2009.
2
World Bank. 2009. Public Expenditure and Financial Accountability. Manila.
3
World Bank. 2008. Philippines Country Procurement Assessment Report. Manila. A Joint Document of the
Government of the Philippines, the Asian Development Bank, and the World Bank.
4
The Government Procurement Reform Act was passed in January 2003 and provides for the modernization,
standardization, and regulation of the government’s procurement activities.
5
ADB is supporting the introduction of the PhilGEPS through ADB. 2009. Technical Assistance to the Republic of
the Philippines for Strengthening the Philippine Government Electronic Procurement System. Manila (for
$600,000).
6
World Bank. 2009. Governance Matters VIII: Governance Indicators for 1996–2008. Washington, DC.
7
The World Bank integrity vice presidency investigation uncovered collusive practices involving local and
international companies bidding on National Roads Improvement and Management Program, phase I contracts.
Seven companies and one individual were debarred for engaging in collusive practices.
2

to sustained economic growth and poverty reduction, in general, and development of the
country's road infrastructure, in particular, as demonstrated in the Medium-Term Philippine
Development Plan 2004–2010 and the country procurement assessment report. DPWH has
taken a number of steps to assess and mitigate governance risks. It adopted an integrity
development action plan in 2005, for which the code of conduct has recently been submitted.8 A
2006 integrity development review9 resulted in the adoption of an action plan; DPWH reports
progress with the action plan to the Office of the Ombudsman. 10 DPWH also prepared a
separate integrity development action plan comprising 22 predetermined steps to improve
prevention, education, deterrence, and critical partnerships.11 An integrity strengthening action
plan 12 was prepared for the World Bank's National Roads Improvement and Management
Program, phase 2, incorporating a comprehensive range of measures designed to build
institutional capacity and governance, strengthen fiduciary controls over the use of loan
proceeds, and strengthen social accountability and demand for good governance from civil
society.

4. In addition, DPWH is currently undertaking efforts to improve its organizational and

network capacity and to mitigate governance risks. These include (i) reforming procurement by
developing a computerized registry of contractors for eligibility screening and postqualification of
bidders; (ii) instituting value engineering to ensure the most cost-efficient design;
(iii) establishing a cost estimation system; (iv) establishing a database management system
connecting the central, regional, and district offices; and (v) posting procurement information on
the DPWH website. DPWH is also making significant progress in strengthening its financial
management system, which operates in a decentralized financial management environment,
and utilizes COA's electronic new government accounting system (e-NGAS) as its financial
system. DPWH has made significant progress in introducing e-NGAS, which is either
implemented or undergoing implementation in all 16 regional offices and about one third of
district offices. DPWH is also installing DBM's e-budget system in 17 offices, including all
regional offices. The accuracy and reliability of current transactions has increased substantially
in offices in which e-NGAS and e-budget are installed. However, the full benefit of the system
cannot be realized until all DPWH offices are effectively utilizing it and e-NGAS and e-budget
are fully harmonized. DPWH also strongly supports implementation of DBM's National
Guidelines on Internal Control Systems, and developed and implemented the Financial
Management Policies and Procedures Manual in 2008.

5. Civil society organizations (CSOs) are undertaking initiatives to combat corruption in the
subsector. Under the National Roads Improvement and Management Program, phase 2, the
World Bank and Australian Agency for International Development are strengthening the role of
CSOs in the transport sector, particularly Bantay Lansangan (Road Watch), to improve the
delivery of quality services in an efficient and corruption-free manner and to improve DPWH's

8
Department of Public Works and Highways. 2005. DPWH Anti-Corruption Program Workshop Outputs. 18–19
March 2005. Clarkfield, Pampanga.
9
European Commission and Development Academy of the Philippines. 2006. Corruption Resistance Review and
Corruption Vulnerability Assessment. Manila.
10
The integrity development review of critical government agencies is spearheaded by the Office of the Ombudsman
and has been piloted in five agencies, including DPWH. The latest report was submitted to the Office of the
Ombudsman in October 2007.
11
The action plan follows Presidential Anti-Graft Commission requirements and quarterly reporting structures. It
includes the conduct of an integrity development review as one of the measures, but does not translate the findings
of the review into an action plan. It includes institutionalization of an internal audit unit.
12
The integrity strengthening action plan builds on combined actions taken from the integrity development review and
the integrity development action plan and some additional measures resulting from internal World Bank financial
rules and procurement procedures. Many of these measures have been strengthened due to the incorporation of
lessons from the investigation of the National Roads Improvement and Management Program, phase 1 by the
World Bank’s internal investigations unit, the Department of Institutional Integrity (INT).
 3

responsiveness to the needs of road users. Bantay Lansangan is monitoring and analyzing
sources and uses of public funds, implementation and delivery, and institutional performance.

6. The initiatives to address governance in the road subsector have strengthened financial
controls and management and improved the efficiency of financial management processes and
procurement. However, much remains to be done to improve governance in the subsector.
Collusion in selection of firms and awarding of contracts continues to be a major problem. This
can be addressed by strengthening internal and external accountability mechanisms.

7. The government has requested ADB to resume an active role in supporting the roads
subsector. ADB plans to begin this re-engagement with the subsector by addressing
governance issues. The proposed TA will facilitate ADB's re-entry into the subsector by
addressing one of the subsector's core issues before new loan support is provided. The
proposed TA is expected to be followed by other ADB-financed initiatives to address
governance issues in the subsector, with future initiatives likely to focus on strengthening the
capacity of CSOs to use (i) value engineering to address overpricing by evaluating whether cost
estimates for civil works contracts are reasonable, and (ii) nondestructive techniques for
inspection and evaluation of completed civil works.

III. THE TECHNICAL ASSISTANCE

A. Impact and Outcome

8. The impact of the TA will be that economic growth and investment increase as a result of
increased efficiency in the road subsector. The outcome of the TA will be increased
transparency and accountability of road subsector budgets and investments, including those
covered under planned ADB-financed road subsector activities.

9. The TA will play a key role in mitigating corruption risks for planned ADB-financed road
subsector activities and in strengthening governance and capacity to achieve improved
transparency and accountability in the road subsector. The TA will build on the ongoing
activities of the government, CSOs, and other development partners to improve subsector
governance by combating corruption and strengthening institutional capacity. The TA will
deepen reforms in procurement, participatory auditing, and internal auditing; and will strengthen
organizational and network capacities of the DPWH internal audit service, CSOs, and COA. The
TA supports the goals and objectives of the government's Medium-Term Philippine
Development Plan 2004–2010 which are relevant to the transport sector. The TA is consistent
with ADB's long-term strategic framework 2008–2020 (Strategy 2020), under which ADB will
increase support for good governance and the building of development capacities. The TA will
support ADB's new Philippines Country Partnership Strategy, which will likely emphasize
addressing inadequate infrastructure and governance concerns, which are critical development
constraints.

B. Methodology and Key Activities

10. The outcome of the TA will be achieved through three outputs: mitigation of corruption
risks for planned ADB-financed road subsector activities, strengthened internal accountability
mechanisms, and strengthened external accountability mechanisms.

11. Output 1: Mitigation of procurement risks. Mitigation of corruption risks related to

procurement for planned ADB-financed road subsector activities will be achieved through
support for a procurement advisory team. The team will be composed of international and
4

national consultants and will participate as an observer in all stages of the procurement process
from the preprocurement conference through contract award. The advisory team will review all
procurement documents, and report its assessment on the integrity of the process and its
compliance with ADB's procurement guidelines to ADB for use in ADB's procurement review
and to the DPWH bids and awards committee. DPWH will provide the procurement advisory
team with all relevant documents and originals of all submissions received from bidders and
correspondence related to procurement under planned ADB-financed road subsector activities.
DPWH will retain full responsibility and accountability for conducting procurement of ADB-
financed activities in accordance with national laws, DPWH procurement guidelines,
harmonized national procurement procedures, and ADB's procurement guidelines. The advisory
team will provide recommendations for and assistance to DPWH to strengthen its procurement
process.

12. Output 2: Strengthening internal accountability mechanisms. Internal accountability

mechanisms within DPWH will be improved by strengthening internal audit capacity. This output
will build on the work conducted under the Australian Agency for International Development-
financed Philippines–Australia Economic Governance Reform Partnership's Internal Controls
and Internal Audit Capacity in DPWH project, in particular the baseline assessment of the
internal control system, internal auditing, and the action plan to implement recommendations of
the assessment. The TA will strengthen critical capacities of internal auditing by providing
advisory support and on-the job training for (i) conducting the internal audit of planned ADB-
financed activities, which will serve as on-the-job training for DPWH internal auditors; (ii)
monitoring and implementing COA audit report recommendations, and developing capacity in
conducting risk-based internal audits; and (iii) profiling corruption cases for use in the training
the participatory audit team and the Internal Audit Unit.

13. Output 3: Strengthening external accountability mechanisms. External

accountability mechanisms, and organizational and network capacities of key stakeholders,
including CSOs and COA, will be improved through support for participatory audits and
monitoring of public expenditures. The sustainability of this output will be addressed through a
requirement for the government, under planned ADB-financed road subsector activities, to
finance participatory audits following the initial financing provided under the TA. The TA will
provide support for joint COA–CSO participatory audits of procurement and construction
through community participation. A special feature will be the networking between CSOs and
oversight agencies. As a first step, an interagency agreement on mitigating governance risks in
the road subsector will be signed by oversight bodies, such as COA, DBM, DPWH, and a
selected CSO. Cooperation with oversight agencies and DPWH will ensure access of the CSO
to technical knowledge. The participatory audit team will conduct independent reviews or
random inspections during the preparation and implementation of works and services on topics
including appropriateness of design; cost estimates, specifications, and procurement of works;
quality of supervision and finished works; selection of consultants and performance of
consultant services; and contract variations and amendments. A joint audit program will be
prepared and carried out by the audit team and the CSO. DPWH will be informed in order to
avoid delays in project implementation. Reporting will be made to the joint oversight members,
financial stakeholders, and DPWH. An audit report on planned ADB-financed road subsector
activities will be produced on a biannual basis by the participatory audit team to provide
information on the status and performance of the road subsector.

14. The TA will also provide support to a CSO specializing in expenditure tracking and
budget monitoring in the road subsector. The CSO will be supported in analyzing all funds
allocated to DPWH, including from the General Appropriations Act allocation, the Road Users'
Tax, the Priority Development Assistance Fund, and official development assistance. DPWH
 5

has agreed to upload information on allocated funds on the DPWH website. The CSO will be
supported in analyzing the annual report on the utilization of the DPWH budget and funds
received from all sources, including the Road Board, which DPWH has agreed to submit to ADB.
The TA will provide operating and advisory support for the newly established participatory audit
and expenditure tracking teams; and will finance the conduct of training, studies, and
dissemination of findings in close cooperation with DPWH.

C. Cost and Financing

15. The TA cost is estimated at $1.3 million equivalent. ADB will provide $1.0 million
equivalent. The TA will be financed from ADB's Technical Assistance Special Fund (TASF–
other sources). The government will finance the balance of $0.3 million equivalent by providing
office accommodation, remuneration, and per diem for counterpart staff, and other items, mostly
in kind. The cost estimates and financing plan for the TA are shown in Appendix 2.

D. Implementation Arrangements

16. DPWH will be the executing agency for the TA and the implementing agency for outputs
2 and 3. ADB will be the implementing agency for output 1 (procurement advisory team).The
DPWH project management office will coordinate the TA activities and communicate with ADB.
Since the project management office will also be responsible for procurement activities,
coordination with ADB for activities under TA output 1 will be straightforward. Disbursements
under the TA will be done in accordance with ADB's Technical Assistance Disbursement
Handbook13. The TA will be implemented from January 2010 to March 2012.

17. The TA will require a total input of 12 person-months of international and 24 person-
months of national consultants, in addition to input from CSOs. For the procurement advisory
team under output 1, ADB will engage an experienced international procurement specialist and
an experienced national procurement specialist for 9 person-months, each on an intermittent
basis. For strengthening internal audit (output 2), ADB will engage an experienced international
internal audit specialist for 3 person-months and a national consultant for 15 person-months on
an intermittent basis. For the participatory audit (output 3), ADB will engage a national CSO
network with expertise in procurement, budget transparency and monitoring, and monitoring civil
works. CSOs from the network will be fielded to oversee the procurement process jointly with
COA representatives, monitor funding allocations and the budget for the road subsector, and
monitor civil works being implemented under planned ADB-financed subsector activities using
nondestructive testing equipment. The national CSO network will be engaged using consultants’
qualifications selection in accordance with ADB’s Guidelines on the Use of Consultants (2007,
as amended from time to time). The outline terms of reference for consultants are in Appendix 3.

IV. THE PRESIDENT'S DECISION

18. The President, acting under the authority delegated by the Board, has approved the
provision of technical assistance not exceeding the equivalent of $1,000,000 on a grant basis to
the Government of the Philippines for Strengthening Transparency and Accountability in the
Road Subsector, and hereby reports this action to the Board.

13
ADB. 2008. Technical Assistance Disbursement Handbook. Manila.
6 Appendix 1

DESIGN AND MONITORING FRAMEWORK

Data Sources/
Design Performance Reporting Assumptions
Summary Targets/Indicators Mechanisms and Risks
Impact Assumption
Economic growth and Real GDP growth rate National Statistics Global economic recovery
investment in the increases from 5.5% in Coordination Board continues from 2010
Philippines increase as 2004-2008 to 7.0% in onwards
a result of increased 2015
efficiency in the road
subsector Total fixed capital
formation increases
from 14.8% of GDP in
2004–2008 to 18.0% in
2015

Foreign direct
investments net inflow
increases from $2.0
billion in 2004-2008 to
$3.5 billion in 2015
Outcome Assumption
Transparency and COA audit opinion of COA annual DPWH Senior DPWH officials
accountability of road DPWH improves (from report provide leadership for
subsector budgets and adverse to qualified) by improved integrity
investments are 2012
increased Continuity despite changes
DPWH sincerity rating Social Weather Station in key government positions
in transparency and report for Transparent
accountability surveys and Accountable Risks
improves from very bad Governance Project Negative public perception
in 2008 to mediocre or of DPWH integrity persists
better by 2012 despite objective
acceleration of reforms

Lack of coordination among

oversight agencies

Political activities related to

May 2010 elections cause
delays in implementation
Outputs Assumption
1. Mitigation of ADB is aware of any Reports of DPWH provides the
corruption risks for issues identified by a procurement advisor procurement advisor team
procurement under review of all team access as an observer to all
planned ADB- procurement steps of the procurement
financed activities in documents and an process from pre-
the road subsector assessment of the procurement conference
integrity of the through contract award
procurement process
2. Strengthening by December 2010 Risk
internal Internal audit resources are
accountability DPWH internal auditors Consultant assessment consumed by other audit
mechanisms have participated in 3 of outcome of training purposes, i.e., those
program audits of on the job identified by other
investments by March development partners
 Appendix 1 7

Data Sources/
Design Performance Reporting Assumptions
Summary Targets/Indicators Mechanisms and Risks
2012 Program internal audit
reports prepared by
DPWH staff on the
program

Internal and external Report prepared by the

accountability trainings IDC on the profiling of
conducted by DPWH corruption cases
are informed by profiles
of corruption cases at
the time of TA closing
3. Strengthening A cooperation Training modules Assumption
external agreement between Local Road Watch teams
accountability oversight agencies and can be mobilized
mechanisms civil society
organizations exists by Risk
30 September 2010 Reluctance of oversight
agencies to cooperate with
Participatory audit civil society agencies
report is available on a
biannual basis
describing the findings
of at least six
participatory audits of
procurement under
planned ADB-financed
road subsector
activities beginning in
December 2010.

An analysis of all funds

allocated to DPWH is
available on an annual
basis from 2010
onwards.
Activities with Milestones Inputs ('000)
ADB:
1.1 Participate as an observer in all steps of the procurement process for Consultants $504
planned ADB-financed road subsector activities during February–June Training and seminars 78
2010. CSO support 301
1.2 Review all procurement documents and prepare an assessment of the Contingency 92
integrity of the process and compliance with ADB procurement Other 25
guidelines for each of the procurement packages included in the Total $1,000
planned ADB-financed road subsector activities during February–June
2010.
1.3 Report assessment to ADB during February–June 2010. Government
1.4 Suggest possible improvements in the process to DPWH by December Office accommodation $150
2010. Counterpart staff 100
Others 50
2.1 Support the conduct of biannual internal audits of the planned ADB- Total $300
financed road subsector activities by December 2010 using it as on-the-
job training for DPWH internal auditors.
8 Appendix 1

Activities with Milestones

2.2 Support monitoring and implementation of COA audit report

recommendations within 3 months of the release of the COA report.
2.3 Develop capacities for the conduct of risk-based audit by January 2011.
2.4 Support preparation of profiles of corruption cases by January 2011.
2.5 Conduct training for the participatory audit team and the Internal Audit
Unit using the profiles of corruption cases by March 2011.

3.1. Facilitate the development of specific cooperation arrangements

between oversight agencies and selected CSOs by April 2010.
3.2. Support implementation of a participatory audit work plan, including
independent reviews or random inspections of works and services by
April 2010.
3.3. Facilitate preparation of a participatory audit report on a biannual basis
by December 2010.
3.4. Support preparation of an audit observation memorandum and conduct
of exit conference by December 2010.
3.5. Support CSO in analyzing all funds allocated to DPWH, such as the
General Appropriations Allocation, the Road Users' Tax, the Priority
Development Assistance Fund, and Official Development Assistance,
including a breakdown by district, where possible by April 2010.
3.6. Support CSO in analyzing the annual report on the utilization of its
budget and funds received from all sources, including the Road Board
by April 2010.
ADB = Asian Development ADB, COA = Commission on Audit, DPWH = Department of Public Works and Highways,
IDC = integrity development committee, TA = technical assistance.
 Appendix 2 9

COST ESTIMATES AND FINANCING PLAN

($’000)

Item Total Cost

A. Asian Development Bank Financinga
1. Consultants
A. Remuneration and per diem
I. International consultants 288.00
Ii. National consultants 168.00
B. International and local travel 24.00
C. Reports and communications 24.00
2. Training, Seminars, and Conferences
A. Facilitators 18.00
B. Training programb 60.00
3. Operational support to CSOSc 301.00
4. Miscellaneous administration and Support Costs 25.00
5. Contingencies 92.00
Subtotal (A) 1,000.00

B. Government Financingb
1. Office accommodation and transport 150.00
2. Remuneration and per diem of counterpart staff 100.00
3. Others 50.00
Subtotal (B) 300.00
Total 1,300.00
a
Financed by the Asian Development Bank's Technical Assistance Special Funding
(TASF–other sources).
b
Includes venue, meals, and materials.
c
Includes operations support to civil society organizations for office rental,
communications, per diem, and local travel.
Source: Asian Development Bank estimates.
10 Appendix 3

OUTLINE TERMS OF REFERENCE FOR CONSULTANTS

A. Procurement Advisory Team

1. The consultancy services include review of the procurement process and related legal
service functions of the Department of Public Works and Highways (DPWH) and
recommendations, based on the applicable procurement and consultant guidelines of the Asian
Development Bank (ADB), as well as good international practice, for strengthening, streamlining,
and expediting procurement. Particular assistance will be provided for project procurement
procedures and expediting project procurement as well as analyzing the integrity of the existing
procurement system at DPWH. The procurement advisory team will undertake the following
tasks for planned ADB-financed road subsector activities:

(i) Monitor implementation of the project procurement management plan and

recommend actions for expediting the performance of ADB project procurement.
Monitor performance of the advertising phase, prebid meeting, public bid opening,
evaluation of bids, clarification of bids, bid resolution process, contract award,
variation orders, and report on procurement performance indicators.
(ii) Monitor and analyze procurement processes for compliance with the applicable
procurement guidelines.
(iii) Communicate an independent technical opinion and recommendations for
improvement or corrective action on procurement processes to ADB and DPWH
management through operations memoranda and consultation meetings,
covering such items as qualification evaluation, bid evaluation, procurement
communication within DPWH, including the respective bids and awards
committee (BAC), decision-making processes, and risk management, as
appropriate.
(iv) Assist DPWH management in identifying strengths, weaknesses, and gaps in the
current DPWH procurement systems and the means to address them to achieve
impartial and professional bid evaluation by DPWH’s BACs.
(v) Review, in consultation with senior DPWH management and legal service, the
legal and administrative powers of all BACs participating in the implementation of
ADB projects under Republic Act No. 9184 or applicable laws, the DPWH
Procurement Manual, and related department orders, in regard to the detection
and handling of indicators of corrupt or fraudulent practices and excessive prices
during the bidding process, and recommend means for strengthening DPWH
practices and required legal provisions.
(vi) Conduct a due diligence review of DPWH’s legal service advice on BAC
decisions and agency decisions across the procurement–implementation process.
(vii) Review the procedures for estimating project costs and the approved budget for
contract (ABC) for all contracts financed under the planned ADB-financed road
subsector activities, based on current market prices adjusted to the specific
contract work site and mark-up factors for overhead and profit.1 Ensure that the
new cost estimation system is being incorporated effectively in the ABC process,
and advise on measures needed to validate and benchmark bid prices and unit
prices at applicable market values for use on an authorized basis for detecting

1
In accordance with ADB procurement guidelines for national competitive bidding, the ABC may be published, but it
will not state or imply that bid prices will not exceed the ABC, or that bid evaluation will in any way take into
account the ABC. The ABC, budgetary allocation, ceiling price, or similar estimates of contract value will not be
used to reject bids without prior concurrence of ADB.
 Appendix 3 11

high-priced bids. Review of the ABC process should map a typical contract
starting with the work of the office for ABC and its review by the Bureau of
Construction to see how updated unit prices for materials are applied. It would
track compliance with Department Order No. 152 (series of 1997, Guidelines on
Price Monitoring of Construction Materials, Civil Works Items, and Highway
Maintenance Activities) and Department Order No. 57 (series of 2002,
Preparation of Approved Budget for Contract).
(viii) Review the system for evaluation of contractors’ eligibility and qualifications, and
recommend enhancements for application in national competitive bidding
procedures. The procurement advisory team will work with regional and district
DPWH staff, and consult with DPWH management to advise on the means of
amending Department Order No. 144 to ensure that strict standards are applied
fairly and equally to all contractors.
(ix) Review the actual practices, note the areas of vulnerability and actual abuse, and
examine the extent to which DPWH processes and respective department orders
address such risk. Assess the implementing rules and regulations of Republic
Act No. 9184, to ensure that the strictest standards allowed under RA 9184 are
(a) reflected in DPWH department orders, and (b) being implemented.
(x) Conduct advocacy on procurement processes with senior management, and
involved directors, division and section chiefs, procurement and evaluation staff
including members of the participatory audit team (conducted intermittently
throughout the duration of the TA). This would include capacity building for
internal audit staff and participatory audit team in writing evaluation reports in
accordance with standard formats and good practice.
(xi) Liaise and network with staff working on other aid-funded programs.

B. Strengthening Internal Controls at DPWH

2. The objective of this output is to assess existing gaps in strengthening internal controls
at DPWH, and build on existing DPWH internal reforms and programs initiated by other
development partners, including the World Bank and Australian Agency for International
Development.

3. The consultants will have the following responsibilities:

(i) Conduct an internal control assessment of DPWH, looking into specific control
weaknesses and systems breakdown at the agency in coordination with the
internal audit unit.
(ii) Review the status of the strengthening internal audit project implemented by the
Philippines–Australia Partnership for Economic Governance Reforms for
consistency in implementation. Identify gaps and activities that need to be
continued.
(iii) Draft a memorandum of agreement to be signed by oversight agencies in
improving supervision of accountability mechanisms. Circulate draft for review
and inputs among different oversight agencies (para. 3, item iv).
(iv) Coordinate with oversight agencies such as the Commission on Audit (COA),
Office of the Ombudsman, and Department of Budget and Management; and
facilitate the conduct of a workshop that will include the signing of the
memorandum of agreement.
(v) In coordination with the external auditor (DPWH resident COA auditors), assess
status of implementation of prior years' audit recommendations.
12 Appendix 3

(vi) Prepare a report on the status of implementation of COA audit recommendations

including an assessment of the compliance of DPWH in the submission of
contracts for review by the external auditor (COA). Incorporate a copy of the
result of COA's contract review and evaluation.
(vii) Facilitate the conduct of profiling of corruption cases at DPWH with the
assistance of the integrity development committee.
(viii) Facilitate capacity building sessions for internal audit staff including
representatives of civil society organizations (CSOs) using the report on profiling
of cases.
(ix) Coordinate with the Internal Audit Unit of DPWH and conduct an internal audit of
selected DPWH operations and transactions.
(x) Prepare and submit to ADB a copy of the internal audit report on selected areas
of DPWH operations.

C. Strengthening External Accountability Mechanisms

4. The objective of this output is to provide support to a CSO in operating the participatory
audit team. The TA will provide funding support to the secretariat for the participatory audit team,
through the CSO to be selected, and technical support in its start-up operations as well as in
implementing its core functions.

5. The consultants will have the following responsibilities:

(i) Prepare the project design for the conduct of the participatory audit. The project
design should include the following:
(a) Prepare work and budget plans for all activities under the participatory
audit strategic and action plan.
(b) Prepare the audit plan and program, including detailed audit procedures
for conduct of inspection and assessment of value for money of work
accomplished by the contractors. The audit plan should include a detailed
budget of projected expenses that the audit may entail including the
necessary staffing requirements—a mixture of COA auditors and
volunteers from the CSO. The number of the teams to be deployed
including the number of staff per team should be determined jointly by
COA and the selected CSO in consultation with ADB and DPWH staff.
The plan should include the delineation of responsibilities between and
among COA auditors and the CSO to be chosen, including detailed tasks
for the audit supervisor, audit team leader, and audit team members.
(c) Prepare audit planning, execution, and reporting timeline; to be prepared
jointly by COA and the selected CSO in consultation with ADB and
DPWH officials. This document should contain the specific targets for the
conduct of audit planning and fieldwork (which includes inspection).
Report writing will include the conduct of an exit conference (where
details of the report will be discussed with DPWH management). The
participatory audit report will be submitted to ADB.
(d) Design a participatory audit report in consultation with COA-assigned staff
or team of auditors.

(ii) The selected CSO and COA representatives (referred to as the participatory
audit team) are expected to meet and jointly perform an audit of project
implementation with emphasis on inspection of accomplishments and evaluation
 Appendix 3 13

of progress payments using the audit program prepared, and applying generally
accepted audit standards.

(iii) The participatory audit team will conduct among others a comprehensive
analysis of financing sources allocated to the road subsector and report on the
uses of such fund releases. This includes the following detailed tasks:
(a) Analyze the General Appropriations Act and track appropriations and
funding support intended for the road subsector.
(b) Identify all sources of funds intended for the road subsector. Prepare a
report on all sources of funds available and publish the sources in the
agency website.
(c) Track the releases of the funds, taking into consideration delays incurred
and causes of such delays, and identify the conduits and recipients of the
fund releases.
(d) Analyze budget execution of the agency, taking into consideration the
allotments made available to the agency and actual allotments obligated
by the end of the year.

(iv) Prepare an analysis of the road subsector budget, identifying all sources of funds
and providing the public with better information as to the funds being made
available. Include a comparison of the allotments released and obligated by the
agency with emphasis on the amount of unobligated allotments and the reasons
as well as the consequences.

(v) Provide learning opportunities to CSOs and internal audit staff on a regular basis
to strengthen their understanding of financing of road investments and
maintenance as well as project implementation.