Press Release
July 3, 2009


Opposition Sen. Chiz Escudero yesterday called for a stricter, more stringent review and approval system of the payment of cost overruns in official development assistance (ODA) projects after "over the budget payments" amounted to P14.25 billion in 2008.

"We should bear in mind that these loans are not gifts and the Filipino taxpayers will eventually pay these with interests. It is immoral to spend what little money our government coffers have on cost overruns when these ODA-funded projects should have gone beyond their respective costs," Escudero said.

The National Economic and Development Authority (NEDA) had earlier reported that nine ODA-funded projects incurred cost overruns totaling P14.25 billion last year. These projects were implemented by the North Luzon Railway Corp. (NLRC), Department of Public Works and Highways (DPWH), National Irrigation Administration (NIA), Philippine National Railways (PNR), Land Bank of the Philippines (LBP) and Development Bank of the Philippines (DBP).

A cost overrun has been defined as additional costs over and above the approved project cost, said Escudero, who formerly chaired the Joint Congressional Oversight Committee on ODA.

He said the review and approval system of the government should be stringent when it comes to granting requests for cost overruns, especially at a time when the procurement system of the government is under scrutiny after the World Bank this year exposed a bid-rigging cartel among local and foreign firms.

Escudero said the government should not be "paying the price of two projects for one," saying abuses in pegging "contract price escalations" should be curbed and loopholes in the rules must be plugged.

He also said cost overruns can be avoided if prequalification standards are stringent, weeding out poor performing and unqualified contractors from the very beginning.

Escudero noted that cost overruns also result in what he described as "abuse of discretion by regulators," citing as examples the acceptance of bids higher than the "approved budget of contact" or "approved agency estimate."

"Instead of these two serving as unbreakable ceilings, what happens is they are reduced into mere suggested contract prices, which can be exceeded anytime for no rhyme or reason?" he said. Escudero fears that the P14.25-billion cost overruns may just be "the tip of the iceberg," as it does not include cost overruns incurred by locally-funded projects.

He said the usual reasons for requesting cost adjustment were: increases in the prices of labor and materials; design and project scope changes; foreign exchange "movement;' increases in consulting services; and "administrative cost."

"These reasons should be strictly reviewed by the government. If necessary, an iron-clad prohibition on price escalations should be incorporated in the contract to avoid cost overruns," Escudero said.

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