Philippine Business Today

MANILA, Philippines—The World Bank has blacklisted a South Korean construction firm for involvement in “fraudulent” and “corrupt” practices during the initial phase of a major Philippine road project the multilateral lender is financing.

The World Bank announced Friday that it was banning Dongsung Construction Co. Ltd. (Dongsung) from any World Bank-financed contract in any country for the next four years.

“Through an in-depth quantitative and qualitative analysis of the procurement process that the firm participated in as well as numerous interviews, investigators uncovered evidence of Dongsung’s involvement in widespread bid-rigging,” the World Bank said in a statement.

The Philippines’ national roads improvement and management program (NRIMP) became controversial in November last year when the World Bank deferred talks for the second phase due to signs of bid-rigging in the procurement of two road contracts as early as 2003. The World Bank provided $150 million in funding for the first phase of the project, which closed in March 2007.

Two further rounds of bidding in 2004 and 2006 revealed similar signs and were also rejected.

“Rapid action against colluding companies demonstrates that efforts to combat corruption are working and sends a strong signal across the private sector. Building more and better roads to remote areas is critical for development in the Philippines. But it is also critical to take action against corruption,” World Bank country director Bert Hofman said.

The World Bank’s internal investigations unit concluded that in the first phase of the program, a cartel of contractors had engaged in corrupt and collusive practices in three rounds of bidding, undermining competition in roads construction and inflating prices by as much as 30 percent.

But the World Bank agreed last May to proceed with the NRIMP and provide a $232-million funding for the next phase—only after tighter safeguards were put in place to prevent the recurrence of collusion and bid-rigging.

“NRIMP is now in its second phase and includes stringent anti-corruption mechanisms, such as the use of an independent procurement evaluator and independent oversight by civil society, in part because of what the (World Bank) investigation of (the road project) revealed,” Hofman said.

Dongsung, for its part, did not contest accusations brought against it during the World Bank’s administrative sanctions proceedings. Under the sanctions procedures, when a respondent like Dongsung chooses not to contest the accusations against it within 90 days, the recommended sanction will be implemented.

World Bank integrity vice president Leonard McCarthy said: “Effective development requires all of us to be vigilant in detecting fraud and corruption. Those people who bring allegations to [te investigating unit] deserve special commendation for assisting the bank in seriously addressing anticorruption.”

“For our part, (the investigating unit) will continue increasing its outreach efforts so as to contribute to an environment that encourages reporting,” he said.

Since 1999, the World Bank has banned 343 firms and individuals for their involvement in fraud and corruption in bank-financed projects across the globe.

The first phase of the NRIMP was designed to assist the Philippine government in the upgrading of the road network and was partially financed by a $150-million loan from the World Bank. It aimed not just to build roads, but also to address weaknesses in project management so that future road projects would deliver more benefit at lower cost.

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