Rebuttal to Peter Wallace column on Government contracts
The article that caught my attention was published Christmas Day. The headline read:
Is this factually accurate? That the National Government does not honor contracts? Wallace cited nine cases that he claims represent the whole character of government: one that cannot be trusted to honor contracts. He did not attempt to identify the contracts that the government HAS executed in full compliance over six years, which I would imagine to number in the thousands. He did report in the last article that the Philippines ranks 124th out of 189 economies at enforcing contracts. The report was done by the World Bank-IFC Doing Business survey.
Now this ranking was not acquired solely during the Aquino Administration. It is a systemic problem that is built into laws and the way courts and agencies work. But Wallace does not consider this. Rather, in his final article, he laid the blame squarely on Mr. Aquino.
Well, I would expect this kind of “blame game” from a political opponent. This generalization from a few specifics to a whole administration . . . or, in this case . . . to one man . . . is a common way for political opponents to score points.
But Wallace is supposed to be impartial, and a sophisticated thinker. And the idea that the President himself should resolve every contractual dispute? I dunno. What’s a cabinet for?
If you actually examine the Doing Business survey, you find that the Philippines has only been rated for two years on contracts and support data is very sparse. Furthermore, the actual rating on contract fulfillment for 2016 is 140 (not 124 as Wallace cites), and the overall rating is 103 (Wallace reports 95). I wanted to do a trend line to see if things are improving, as they are on most other global comparisons, but that is not possible. The data aren’t there.
Clearly, Wallace is shading the game here by putting so much emphasis on a report that lacks depth and seasoning.
If the claim is true . . . that the Aquino Administration does not honor contracts . . . we can agree there is an unfortunate trend here. But if it is not true, doesn’t his claim demean government? If this were a claim made against a private corporation or private individual, do you think the private corporation or individual would take issue? Maybe even haul Mr. Wallace and the Inquirer to court for defamation?Is there something about the Executive Branch that makes it look like a clown punching bag for disgruntled columnists and malcontents to swing at? That people somehow feel empowered to assail and flay away? Columnists. Newspapers. Citizens. Leftists. Political opponents. The bitter and the crabs.
If the problem is systemic, in laws and court and agency processes, would it not be better to find the real culprits and argue for real solutions?
This demand that the President be held personally responsible for every ill in the Philippines is rather strange to me. It’s much like what we saw in the Mamasapano hearings, with Poe and Escudero at the helm.
I can’t prove political bias, but I can for sure identify other reasons motivating Wallace to write a critical series:
- He is a frustrated driver stuck on the streets of Manila and he is losing it.
- He is an advocate for business; that is, he is naturally on “the other side” of any conflict that involves government.
I cite as evidence his remarks in the column “A year gone by” that ran on December 24:
“Whatever, the year is over and what do we have to show for it? . . . Top of the list for me is traffic. I’m thoroughly fed up with a government that can’t keep traffic moving. And can’t because it just refuses to do the simple things that could greatly help.”
And we have further evidence in what he says in describing his consulting company, the Wallace Business Forum:
“Australian PETER WALLACE came to the Philippines in 1975 to build a factory for an American MNC in the maintenance industry, and then subsequently led 2 other multinationals before founding his own company in 1982 – The Wallace Business Forum. The company has since grown to service more than 130 multinational corporations and aid agencies, dealing with successive Philippine governments on foreign investment and policies affecting business.”
So we can see that Peter Wallace is not an unbiased commentator. First, he is very angry toward government. Second, he is an advocate for business.
In the Christmas Day article, Peter Wallace identified nine examples as proof of his allegation that Government unreasonably cancels or violates contracts. Then he elaborated about what a terrible indictment this is, that a government would so easily break its word. These nine cases say to him, and he says to Filipinos who are voting in 2016, that:
You cannot trust this government
Well, let’s look at the cases and judge for ourselves.
Two of them are not really presented as contract violations, but management failures. He cited LTO failures to issue license plates and driver’s licenses in a timely way. His opinion on the LTO classifies as a certifiable rant. Well, if we wanted to cite any government failure or mistake as a failed “contract”, we could have a heyday itemizing mistakes, for they are legion and involve a legion of humans doing what humans do best, especially if computer sophistication is poor and people have been hiring friends, family and favorites for decades . . . rather than skilled managers. They botch the administration of services. We could list rotting emergency supplies, roads funded but not built, Manila traffic jams, 44 SAF troopers dead in a raid, or any number of problems.
But those matters really have nothing to do with contracts or the bad faith that Peter Wallace lays on President Aquino in his article. They may entail negligence or human error or administrative logjams, but if THAT is the accusation, we must also figure out why the Philippines is growing well, crooks are being marched to jail, and the nation is rising on every global index known to mankind. That is, we must look at both achievements and failings and figure out why the achievements are so abundant.
If we assign blame where deserved, great. That’s constructive. But let’s assign credit, too, where earned. That’s fair.
So I’ll set the two LTO bunglings aside, for they are not really appropriate for the assessment of government’s faith in dealing with legal contracts. I suspect they were just quickly added by Wallace at the end of his list as padding to make his case seem more substantial.
That gives us seven cases to look at. I will first cite what Peter Wallace said about each case in his Christmas Day article, then I will report what I discovered in a review of reports on the cases. We will see that there is another side of the story or a deeper context in each case that Peter Wallace cites.
Wallace #1: Metro Rail Transit 3 (MRT 3); the Department of Transportation and Communications canceled a successful, working contract and gave it to an unknown, untested newcomer for supposedly potential cash savings that would now actually entail a huge cost.
There was a “working MRT 3 contract” with TESP (subsidiary of Mistubishi/Sumitomo) approaching expiration in 2010. It was not a “successful contract” in the eyes of DOTC. The agency wanted a different service firm but had trouble finding a replacement company. When the contract expired, it went through a series of six month extensions until 2012. Rails and equipment continued to deteriorate. As the final extension was running out in 2012, DOTC entered into a non-bid “emergency” contract for service to be provided by PH Trams-CB&T, a new company with no track record or proven capacity to perform.
The new company would only provide labor for service, while DOTC would source all equipment and replacement parts. The contract was worth S1.15 million per month to the labor service provider.
It would be discovered later that PH Trams-CB&T was founded by Arturo Soriano, uncle of the wife of Al Vitangcol, the former general manager of MRT-3. In July of 2015, Al Vitangcol and five other people were indicted by the Ombudsman for irregularities surrounding the bidding of the service contract. (In another case, Inekon Group, a Czech builder of train coaches, in 2014 accused Vitangcol of having asked for a $30 million payment for Inekon to be awarded a $3.8 billion contract for the construction of cars.)
So were the heads of DOTC, Secretaries Roxas and Abaya, responsible for the breakdown in getting the MRT 3 service contract renewed? Abaya, who signed the contract, was not indicted by the Ombudsman.
It is so easy for those of us without knowledge or responsibility to judge. But if we go back to March, 2012, we see that Mar Roxas was very concerned about the poor work being done by the maintenance firm. He was concerned about safety of riders.
“These are the weaknesses of the old contract, which were negotiated 10 to 15 years ago. So we are now suffering because of the weaknesses of the contract which we can only correct when the new contact is bided (sic) out this year.” Mar Roxas, March 2012
Secretary Roxas left DOTC in August, before the bidding was carried out. Secretary Abaya appears to have left the initiative to Vitangcol and he “took it into his own hands”, so to speak.
Vitangcol has said he was not aware that his wife’s uncle was still with PH Trams-CB&T, and he claims selective justice was employed by the Ombudsman to charge him but not Secretary Abaya. Political opponents of the Aquino Administration have criticized both Roxas and Abaya, and Senator Poe has proposed to hold investigations into why Abaya was not indicted.
By way of background, DOTC attempted to obtain bids for a permanent maintenance contract in Sept. of 2014 and Jan. 2015 but both efforts failed for lack of participation. Maintenance is now divided into seven sub-components, each with rolling six-month contracts pending appointment of a permanent service company.
But a review of the facts shows this was not a matter of bad faith in honoring contracts. No contract was cancelled or violated. Indeed, Secretary Roxas found his hands were tied by the contract that was in place. He ABIDED BY the contract, even though the Philippines suffered under it. (Note to self: did Wallace have anything to do with the negotiation of the original contract with TESP?)
- Roxas wants MRT3’s next contractor to deploy more trains; Inquirer
- On the MRT-3 disaster and dubious contracts; Manila Bulletin
- Vitangcol on MRT mess: Why single me out?; Philstar
- Sec. Abaya vows transparency regarding MRT-3 attempted extortion; gov.ph
- New MRT-3 maintenance providers to start on July 5; gov.ph
Wallace #2: Manila Waterworks and Sewerage System (MWSS) violating its agreements with Maynilad and Manila Water, putting at risk a hugely successful turnover of a public utility.
Water service is a huge rats nest of conflicting interests, including political parties, the Legislature, Executive, overlapping regulatory agencies, and the water companies themselves. A whole book has been written about the issues and forces at work.
The Supreme Court has been asked by Abakada party-list to negate MWSS’s 2014 extension of concession contracts with Maynilad and Manila Water, and I think this is the Wallace argument, too.
It is worth noting that MWSS previously won an arbitration hearing against Manila Water about rates for revenue-sharing. Contentious issues often end up in the courts. President Aquino does not control this. The laws and regulations do. It is worth noting that no one ascribed “bad faith” to Manila Water, the loser in the case, for seeking a judgment in the courts. Taking a matter to courts is not “bad faith”. Losing a case does not mean “bad faith”.
To be frank, I’ve read Peter Wallace’s December 27 article on the matter (see “Resources”, below), and I’m still confused by the case. It is clear, however, that Peter Wallace takes on the role of plaintiff attorney against MWSS. He argues that the basis for MWSS’s position, a prior Meralco ruling, is wrongly applied. This is a legal argument and has nothing to do with good or bad faith by the National Government. It is not bad faith to have a position that Peter Wallace does not agree with. (Does Wallace have vested interests in this arena, I wonder.)
- Gov’t amends water contracts; Inquirer (Peter Wallace column)
- SC asked to void MWSS concession deal with Manila Water, Maynilad; Philstar
- House Resolution #16, Sixteenth Congress; gov.ph
- Manila Water loses rate arbitration case; told to slash charges; Philstar
- Regulating Water and Sanitation for the Poor; Google books
Wallace #3: Fight between the Bases Conversion and Development Authority (BCDA) and its lessee, Camp John Hay Development Corp. (CJHDC). Because of its actions, the BCDA is foregoing an estimated P5.2 billion worth of potential lease revenue in a deal that would have given Baguio City 25 percent of this amount.
Peter Wallace again seems to be taking sides on this as a business/legal issue. BCDA exercised its rights under established agreements. There was no negligence involved, and no violation of contracts. The dispute has already passed before arbitration hearings and the Baguio Regional Trial Court. BCDA’S rights were confirmed and the judgment amount was finalized. I’m not exactly sure why Peter Wallace holds that he knows better than the BCDA what their business values and risks are, or why he holds he is a better judge of matters than the arbitration panel and court.
Peter Wallace indicates the problem started when: “The BCDA did not disclose an existing case filed by the John Hay Alternative People’s Coalition against the BCDA, JHMC and the BCDA chair, Victor Lim, in 1994.”
My experience with due diligence is that the onus of discovery rests on the separate parties, and so one is inclined to ask, okay, did the CJHDC even ask about litigation during its discovery inquiries?
But whatever the legalistic details, we can observe from the government’s comment on the matter (see “Resources“) that Peter Wallace presents only the CJHDC side. (Does he have clients among the tenants of Camp John Hay??)
Again, having a position that Wallace disagrees with is not, of itself, “bad faith”.
- John Hay biz group asks evicted CJHDevco to respect court decision; JHMC
- Camp John Hay Issue; BCDA
- Gov’t reneged on deal with John Hay developer; Inquirer (Peter Wallace column)
- Palace: BCDA-Camp John Hay dispute now in court; Inquirer
Wallace #4: Court ordering Philippine International Air Terminals Co. Inc. be paid—and the government ignoring the order.
PIATCO is the Singaporean company that constructed NAIA Terminal 3. The Philippine Government terminated the contract in 2003 because of corruption and irregular practices. PIATCO sued the government before the ICC in Singapore to recover at least $565 million in damages.
The ICC, in July 2010 ruled that PIATCO and its German investor Fraport AG violated the Philippines’ Anti-Dummy Law, which requires that operation, management and control of public utilities such as airports should remain with Filipinos.
It also ordered PIATCO to pay the Philippine government over $6 million in costs of proceedings. The Singapore High Court upheld the ICC’s decision and for the Philippines to pay $5 million in administrative compensation to PIATCO.
PIATCO brought the compensation case to Philippine courts where it started in a lower court and got appealed to a higher court. In his December 29 article, Wallace criticizes the Aquino Administration for refusing to pay the 2013 Appeals Court judgment amount of $371 million and writes, rather thuggishly:
Anyone else would be sent to jail for refusing a court order. Once his immunity from suit expires on June 30, 2016, will Mr. Aquino be sent to jail for this? . . . I certainly hope not, but isn’t that the inevitable outcome in a country that lives under rule of law.
Ahhh, but why does Wallace not consider that the matter was appealed to the Supreme Court, and that is the reason the compensation payment was held up? Taking a dispute to the Supreme Court indicates bad faith? The Supreme Court ruled on September 8, 2015, that the Philippines owed PIATCO $510 million in compensation, including interest. Did Wallace miss this ruling? Or does he believe the National Government is not entitled to due process under law, “in a country that lives under the rule of law?” (Does he represent PIATCO, I’m also inclined to ask?)
What is important is that the Aquino Administration solved the rat’s nest of problems inherited on Terminal 3 and has succeeded in building it out and getting it opened. They CORRECTED faulty contracts and shoddy construction performance, and I suspect will duly pay the amount ordered.
Maybe some day some one will actually speak KINDLY about DOTC Secretary Abaya for getting the terminal opened.
- ‘Sereno’s Piatco fees excessive, illegal’; Manila Times
- Supreme Court: GR 15501-2003; Supreme Court via The LawPhil Project
- Government wins case vs Piatco at ICC; Philstar
- ‘Only P-Noy can resolve issues’; Inquirer (Peter Wallace column)
- SC orders government to pay Piatco $510-M compensation; Philstar
Wallace #5: An air navigation system was held up for 21 months for no valid reason.
This was an Arroyo project that was placed on hold by DOTC Secretary Roxas for further study. Once approved, it was delayed when the Commission on Audit disallowed the initial payment. This was May of 2011. The Commission reversed itself quickly. The project was put into operation in January of 2015.
Wallace says “there was no valid reason” to put the contract on hold. In making this statement, he becomes an advocate for Sumitomo/Thales, the company installing the system. The Aquino Government put many Arroyo projects on hold, and the reason is plain enough for the common man to understand. An experienced consultant should grasp the reason . . . if he does not have a vested interest in the outcome.
Wallace says Sumitomo/Thales has been denied payment of its claim, or even a response, for 18 months. I take note of this, but will defer judgment until hearing from an official within DOTC as to what the government’s point of view is. I don’t see Wallace as impartial on the matter.
- NAIA air traffic management system upgraded; Rappler
- 150 to 200 flights delayed daily at NAIA; ABS-CBN News
- IATA report on Manila Airport (pdf); IATA
- ‘Only P-Noy can resolve issues’; Inquirer (Peter Wallace column)
Wallace #6: There’s also the Poverty Eradication and Alleviation Certificates, or PEACe bonds, in which the Bureau of Internal Revenue (BIR) reneged on its promise that the bonds would be treated as tax-free. Fortunately, the Supreme Court recently ruled against the BIR and favored the financial institutions that invested in the bonds.
This issue originated in 2001 when the BIR declared that the bonds would be tax free. In 2011, the BIR reversed its ruling citing a technical interpretation of laws. Nine banks secured a TRO and took the matter to the courts. The Supreme Court disallowed the 2011 BIR ruling.
Sheena Marie D. Daño, a tax attorney writing about the case, concluded:
“While it’s true that the efforts of the BIR in sourcing the needed funds have been laudable, the BIR’s quasi-legislative powers should be exercised with utmost judicious diligence vis-à-vis its executive power in enforcing its sanctioned issuances.”
This indeed was a contract issue . . . rather complex . . .and a case the Government lost. That means there was a dispute, not that either party was negligent or dealing in bad faith. It just means that Peter Wallace disagreed with the government’s position.
- Finally, peace on the PEACe bonds front; Business World
- ‘Only P-Noy can resolve issues’; Inquirer (Peter Wallace column)
Wallace #7: VAT refunds—due to companies that were promised VAT-free transactions—that take months, even years to obtain—if ever the companies are refunded at all. No interest is paid on the overdue payment.
This matter also centered on a technical legal argument resolved by the Supreme Court in 2014. The delays were not due to negligence or bad faith by BIR, but disputes as to legal interpretations and timing of claims that were finally resolved by the Supreme Court. A bill making available P27 billion for payments due is to be attached to a legislative bill authorizing the BIR’s claim procedure.
Without question, the impacts of the delays are huge because the amounts are huge.
Bad decision? Bad faith? I’d like to hear the BIR’s position on it, because Wallace no longer is credible to me.
- New VAT refund rules in the Philippines; International Tax Review
- Non-refund P7.7-B VAT driving away potential Japanese investors; Manila Bulletin
- Vat refund facilitation bill proposed to Congress; dti.gov.ph
- SC resolves with finality rules for VAT refund claims (pdf download); MAP Insights
- ‘Only P-Noy can resolve issues’; Inquirer (Peter Wallace column)
Here’s what we discover when we look at each of the cases listed by Peter Wallace to make his claim that the Aquino Administration does not honor contracts:
- The MRT-3 service maintenance issues has nothing to do with contract violations or cancellations, but corruption and lack of bidders for an expired contract.
- Water companies: Conflict and arguments within the maze of vested interests are complex and common. Peter Wallace argues the legal matters as a plaintiff attorney would. It has nothing to do with bad faith just because he disagrees with the government’s position.
- Camp John Hay: Again, Peter Wallace takes up the argument of the plaintiffs and substitutes his judgment for that of the arbitration panel and courts who are dealing with the matter.
- PIATCO: This became a contract issue long before the Aquino Administration inherited the case. Wallace denies the Aquino Administration the right to due process (appeal to Supreme Court) and ignores the fact that the Aquino Administration solved a host of problems to get the terminal opened.
- PEACe Bonds: The BIR interpreted legal details differently than others. Doe Peter Wallace think that any legal dispute means negligence or bad faith by the government?
- VAT Refunds: This is a major legal case that involved differing interpretations of law. It took a Supreme Court ruling to resolve the dispute. It is an example of government processes, checks and balances, working.
Peter Wallace has fallen into the well-known trap . . . or intentional aim to mislead . . . by finding specific incidents that he personally judges as being of “bad faith” or reflecting “incompetence”, and attributing these traits to the entire Aquino Administration, and President Aquino. In doing so, he leaves no room for Government to interpret business issues (values and risks) differently than he would and no room for there to be legitimate legal disputes or court appeals. If there is a dispute, he ascribes bad faith or negligence to one side of the case, and one side only: the National Government.
It seems to me that his column banner should read “Peter Wallace: advocate for business interests”.
Without question, the Aquino Government DOES honor contracts. And, yes, of course there are disputes from time to time, which is why courts exist. It is normal. It does not mean bad faith. And, yes, yes, there are systemic problems with laws, courts and contract compliance that need to be understood and addressed (laying blame on President Aquino diverts us from this). And, yes, yes, yes, there are incompetencies throughout government, as there have been for decades.
The headline of his Christmas Day article is just plain malicious and the content of the series of articles appears to be either political agenda, self-serving to Peter Wallace, or negligent.
If Peter Wallace has business interests affected by any of these cases, ought he not . . . in good faith . . . explain what they are? Or state explicitly that he has none, so we don’t begin to mistrust his motives?