THIS IS A REPORT BY THE RIGHT TO KNOW, RIGHT NOW! COALITION WITH RESEARCH, REPORTING, AND REVIEW BY MALOU MANGAHAS, NEPO MALALUAN, EIRENE JHONE AGUILA, AND JENINA JOY CHAVEZ. IT WAS FIRST PUBLISHED ON R2KRN.ORG AND REPUBLISHED BY THE PCIJ WITH PERMISSION FROM THE ORGANIZATION.
PART 1: The Beneficial Owners & Officers of the Miru JV: Strange bedfellows
PART 2: The Miru JV Partners: No money woes for PhP18-B poll contract? | St. Timothy’s checkered record: Many projects, negative slippages
PART 3: Procurement law and the Miru JV: More to verify, validate, ascertain
PART 4: Crazy, dicey? Why? How?: Contractors snare billions for laptops, PPEs, elections
The PhP 17.99-billion contract for the automated election system in the May 2025 national and local elections should sail sans hitches, leave alone money worries.
This, the Commission on Elections (COMELEC) assured, will be taken care of by St. Timothy Construction Corporation, one of four parties to the Miru Systems Co. Ltd. Joint Venture, the “single calculated bidder” that won the contract for the lease of a Full Automation System with Transparency Audit Count or FASTrAC.
Apart from Miru Systems and St. Timothy, two other companies, Joint Venture partners Integrated Computer Systems, Inc. and Center Point Solutions and Technologies, Inc., compose what is now called the “MIRU- ICS- STCC-CPSTI Joint Venture.”
But did COMELEC put too much confidence in St. Timothy and the Miru JV?
Based on documents reviewed and interviews conducted by the R2KRN Coalition, St. Timothy or STCC seems to be an old hand in government infrastructure projects. But it may not be in a position to be mainly in charge of financing the automated election system for the 2025 polls. In fact, its net assets fall far short of the amount required by law from contractors in government ventures.
Important Documents
Under the Procurement Reform Act (Republic Act No. 9184), government procuring agencies must require bidders to submit two important financial documents: the NFCC or net financial contracting capacity and the SLCC or single largest completed contract.
The law prescribes the formula for calculating a bidder’s NFCC.
“NFCC = [(Current assets minus current liabilities) (15)] minus the value of all outstanding or uncompleted portions of the projects under ongoing contracts, including awarded contracts yet to be started, coinciding with the contract to be bid.”
It specifies as well that “the values of the domestic bidder’s current assets and current liabilities shall be based on the latest Audited Financial Statements submitted to the BIR (Bureau of Internal Revenue).”
This financial requirement was a safety clause, hence the law’s advisory for procuring entities to “verify, validate, and ascertain the bid price proposal of the bidder and, whenever applicable, the required committed Line of Credit in the amount specified and over the period stipulated in the Bidding Documents, or the bidder’s NFCC to ensure that the bidder can sustain the operating cash flow of the transaction.”
According to the law, “the computation of a prospective bidder’s NFCC must be at least equal to the ABC (authorized budget for contract) to be bid.” In the case of FASTrAC, the threshold amount is PhP 18,827,730,000.22, as COMELEC’s Invitation to Bid disclosed in December 2023.
The SLCC meanwhile is required of bidders to determine their record and capacity, financial and technical, to have implemented projects similar to the contract to be bid.
The bidder’s SLCC “must be at least fifty percent (50%) of the ABC.” This time, the threshold is half of the PhP 18-billion FASTrAC contract or PhP 9 billion. Moreover, by COMELEC’s bid notice, the bidder’s SLCC “must have been completed within fifteen (15) years prior to the deadline for the submission and receipt of bids.”
For the Miru Joint Venture, St. Timothy submitted the NFCC, and Miru Systems Co. Ltd. of Korea, the SLCC.
Below is the NFCC calculation that St. Timothy submitted to COMELEC:
For its part, Miru Systems Korea submitted this SLCC:
Verifying Numbers
On surface level, the documents seem to be in order. For a project as important as the general elections, however, the COMELEC Special Bid and Awards Committee (SBAC) and its Technical Working Group (TWF) should have gone beyond what appears to be a perfunctory review and done more checking and digging into the amounts reported.
In the case of St. Timothy’s NFCC, two crucial numbers could have been verified further: One, its declared liabilities of only PhP 9,466,108 and the other, the PhP 2,509,308,634.28, which it said was the combined “value of all outstanding or uncompleted portions of the projects under ongoing contracts, including awarded contracts yet to be started, coinciding with the contract to be bid.”
By end-2022, St. Timothy’s latest audited financial statements showed that its net cash flows from operating activities was slightly over PhP 220 million, its cash the beginning of 2022 only PhP 480.4 million, and its cash in bank by end-2022, PhP 719.4 million.
The company’s latest FS reported that in the same year, it had trade receivables of PhP104.38 million, “advances to projects” of PhP 255.32 million, “cost in excess over billing” of PhP 400.01 million, and non-trade receivables of PhP 36.6 million.
“Advances to project,” according to the FS, “pertain to amounts contributed to joint venture companies which are also engaged in construction business.”
Risks and Debt
Under its “Financial Risk Management” section, St. Timothy’s FS said that it “transacts only with the Philippine government, thus credit risk is remote. Nevertheless, the Company’s exposure to credit risk is continuously monitored.”
Its “liquidity risk” is another matter, however. The FS noted that this “arises when the company encounters difficulty in meeting the obligations associated with its financial liabilities that are settled by delivering cash or another financial asset.” To manage liquidity risk, St. Timothy said that it intends to “ensure, as far as possible, that it will always have sufficient liquidity to meet the liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the company’s reputation.”
What seems problematic is St. Timothy’s “capital risk” concern, even as it supposedly seeks to maintain “a strong credit rating and healthy capital ratios.”
By 2022, or before the FASTrAC project came along, the company said that it is “not subject to externally imposed capital requirements.” Its FS disclosed total debt of PhP 1.255 billion, minus cash of only PhP 719.4 million, or net debt of PhP 535.29 million.
Factoring in its equity of PhP 2.357 billion St. Timothy said its net debt to equity ratio is .23:1.
By another formula, dividing its total liabilities by its total equity, St. Timothy could have a significant yet still manageable debt to equity
ratio of .53:1 – indicating that possibly half its total equity could be tied down to debt.
An indicator of a company’s stability or financial leverage, debt to equity ratio “measures the level of debt the company takes on to finance its operations, against its equity or level of capital that is available.”
“Shareholders’ equity represents the
company’s net worth – that is, the amount shareholders would receive if the company’s total assets were liquidated and all of its debts repaid,” according to the British Business Bank, an economic development bank wholly owned by the United Kingdom’s Department of Trade.
“The resulting figure shows how much the company relies on debt. A higher ratio suggests that it is more dependent on funding from outside the business, and therefore potentially less stable if it were to encounter problems with trading or other factors relating to how it operates,” the advisory said.
Checking for Slippage
St. Timothy gave COMELEC a list of several dozen projects across the Philippines that it said it secured from the Department of Public Works and Highways (DPWH) between 2018 and 2023.
These involve flood control and drainage systems; various work on riverbeds, slopes, and seawalls; construction of schools and multi-purpose buildings; and repair, rehabilitation, construction of roads and pavements, among others.
The COMELEC staff requested from the relevant engineering districts verification of the projects’ Notice of Award and Notice to Proceed that St. Timothy had submitted.
COMELEC’s form for “Verification of Ongoing and Awarded Contracts” asked the concerned DPWH engineering districts to answer “yes” or “no” to these questions:
Whether “the listed project/s exist/s and our agency has not encountered any problems with the delivery of the provider/bidder;
Problem: Negative slippage of at least fifteen percent (15%) in any one project due to the fault of the bidder;
- Problem: Negative slippage of at least ten percent (10%) in each of two more contracts due to the fault of the bidder;
- Problem: Failure of the contractor to commence repair works on ongoing contracts within seven (7) calendar days and to complete them within thirty (30) calendar days after receipt of the notice of defects and deficiencies; and
- Problem: Substandard quality of work as per contract plans and specifications, or unsatisfactory performance of the contractor’s obligations as per contract terms and conditions, at the time of inspection.
Website Check
But only a few engineering districts responded to the COMELEC form – some in writing, others by phone. This led the COMELEC staff to verify a majority of the projects only by contract number from the DPWH website, which left out very important details on their status.
Still, on the DPWH website, at least about a dozen projects awarded to St. Timothy from 2018 to 2021 were marked to be still “ongoing” and might have been delayed well beyond end of project duration, per contract.
This implies a good number of these projects had been overly delayed, and penalties should have been imposed on St. Timothy, according to DPWH administrative orders. If such penalties were accounted for, St. Timothy’s liabilities, current and contingent, would have been bigger than what it enrolled in its latest audited FS.
R2KRN requested and received from DPWH relevant reports to confirm the status of STCC projects, as well as the registration of STCC and its affiliates. These reports included the “Physical Status Reports” for FY 2022, FY 2023, and FY 2024 of St. Timothy’s contracts that ran into over a hundred pages.
The files came from the DPWH Procurement Service, DPWH Bureau of Quality and Safety, DPWH Bureau of Construction-Project Monitoring Division, and the DPWH FOI Desk.
DPWH consolidated the data from the “Contract Profiles generated from the Project and Contract Management Application (PCMA) as of April 30, 2024.”
The “Contract Profiles” document was introduced with this caveat, however: “The slippages indicated therein are not conclusive but subject to verification from the Implementing Office.”
When or whether DPWH implementing offices, or even STCC, do fully and truly report contract slippages are matters shrouded in secrecy, too. Doing so will put them both in real jeopardy, according to contractors.
Two DPWH issuances are relevant here:
DPWH Department Order No. 44 s. 2012 on “Standardization of Construction Duration of DPWH Projects.” This order was issued “to ensure timely and efficient completion of DPWH projects.” It prescribed “standard construction durations… for various categories of projects/works, depending on cost.”
According to DO No. 44, “these durations shall be the maximum allowable for the corresponding categories of projects/works” but “shorter durations shall be adopted whenever possible.”
Annex A of this order spells out these mandatory project durations for various construction projects:
DPWH Department Order No. 193 s. 2016 on “Administrative Action on Contracts with Negative Slippage.” It clusters contractors with negative slippages of five percent under “Early Warning Stage”; 10-percent slippages under “ICU Stage”; and 15-percent slippage or more under “Terminal Stage.”
Contract termination or takeover of the project by the administration is the fate of projects under “Terminal Stage.”
This DPWH order also imposes penalties on heads of agencies “for failure of project implementation, including the slippages incurred,” ranging from reprimand for first offense, suspension of one to 30 days for second offense, and dismissal for third offense.
Both on Penalty Row
Because the heads of agencies may also be penalized for failed or failing projects, some engineering districts have opted to cover up or paper over actual negative slippages for projects of contractors under their watch. Some contractors, in turn, hide the shortfalls in their contracts’ status, precisely to avoid getting suspended or banned.
The latest Audited Financial Statement (AFS) for the period ending Dec. 31, 2022 that St. Timothy submitted was received by the Securities and Exchange Commission (SEC) on October 16, 2023, or just two months before COMELEC issued its Invitation to Bid. It was signed by Opalyn E. Paiton as president and chairman of the board, and treasurer Jenie P. Tumalin.
Meanwhile, the General Information Sheet (GIS) that SEC received from St. Timothy on October 10, 2023, showed that Paiton’s shares in the same year totaled a significant 94 percent or PhP 975,997,000 of St. Timothy’s then paid- up capital of only PhP 1,041,997,000.
However, four months later on February 2, 2024, SEC received a new GIS document from St. Timothy that showed Miguel G. Juntura as the new company president with PhP 887,997,000 worth of shares or 85 percent of the firm’s PhP 1,041,997,000 paid-up capital.
Paiton’s name and shares in St. Timothy’s board had suddenly disappeared without any explanation, even though she had still signed off to the firm’s NFCC with COMELEC as “authorized representative” on January 3, 2024.
St. Timothy’s retained earnings, which its latest audited FS said “represents accumulated profit attributable to equity holder s of the company after deducting dividends declared” was just PhP 1,279,830,761, including PhP 351,355,022 net income, by the end of calendar year 2022.
It reported “Construction Income – Sales to Government” from contracts awarded through DPWH, local government units, and other government agencies at a total amount of PhP 7,148,177,831 in 2022.
Yet St. Timothy said that its “Cost of Service” for direct labor and materials and depreciation expense – PhP 6,604,916,316 — for the same year nearly wiped this out. In sum, the firm reported gross income of only PhP 543,281,515, and after tax, a net income of only PhP 351,355,022.
Funding Released: P2.7B
Given its apparently tenuous cash position, St. Timothy might be hard put providing financing for the Miru JV contract with COMELEC. The situation could become more difficult for the JV because the poll body has adopted a “progress payment” system.
That is, unless Miru and St. Timothy are precisely looking at the COMELEC for cash infusion to make FASTrAC happen.
The procurement law imposes a 60-40 equity requirement for supply of goods and services to government, in favor of Philippine entities. Under the JV, the three Philippine partners led by St. Timothy are supposed to altogether raise up to PhP 10.8 billion, and Miru, only PhP 7 billion to implement FASTrAC.
But by April 30, 2024, COMELEC had already paid the Miru JV about PhP2.7 billion or 15 percent of the PhP17.9-billion contract price as “mobilization fund,” and after its delivery on March 26 of FASTrAC’s Milestone 1 requirements. (See COMELEC Schedule of Delivery)
Also on April 30, the Miru JV had filed a claim for payment of another five percent or about PhP 900 million, for its delivery of the Milestone 2 requirements. COMELEC is still processing this second claim.
Curiously, though, according to a COMELEC official, the Milestone 1 payment was made not to the bank account of St. Timothy, which is reputed to be the big money behind FASTrAC, but to that of Center Point Solutions and Technologies Inc.
Center Point Solutions has been designated as the “place of business” of the Miru JV. It is not clear if it has also been named as the JV’s payee account holder.
Under its contract with the Miru JV, COMELEC stipulated that “no payment, partial or final, shall be made except upon a Certificate of Acceptance issued by the COMELEC Chairman or his designated authorized representative to the effect that the Goods and Services have been inspected and accepted in accordance with this Contract.”
Progress payment, the contract said, shall be made not more than thirty (30) working days after the complete submission of these documents:
- R2KRN_Part 2 – The Miru JV Partners: No money woes for PhP18-B poll contract?
- “Original invoice billing or statement of account by the PROVIDER, together with progress reports on the works, goods and services completed to date;
- “Certificate of acceptance issued by the COMELEC Chairman or his designated authorized representative within fifteen (15) working days from receipt of the invoice;
- “Complete and valid bank account information such as company account name with owner/s name, branch of account with address and account number for the first claim; and
- “Other documents as may be required by Project Requirements and/or the Schedule of Deliveries and Payment Milestones.
Long and short of it, COMELEC can only pay the MIRU JV in tranches, or after it has delivered in a series all the 13 project Milestones of FASTrAC until October 2025.
The FASTrAC contract states: “Payments shall be made per milestone after completion of inspection, test and acceptance of all deliverables indicated in Section VI- Schedule of Requirements and submission of all required documents in accordance with existing accounting and auditing rules and regulations.” – With research, reporting, and review by Malou Mangahas, Nepo Malaluan, Eirene Jhone Aguila, and Jenina Joy Chavez, Right to Know Right Now Coalition, June 2024
THIS IS A REPORT BY THE RIGHT TO KNOW, RIGHT NOW! COALITION WITH RESEARCH, REPORTING, AND REVIEW BY MALOU MANGAHAS, NEPO MALALUAN, EIRENE JHONE AGUILA, AND JENINA JOY CHAVEZ. IT WAS FIRST PUBLISHED ON R2KRN.ORG AND REPUBLISHED BY THE PCIJ WITH PERMISSION FROM THE ORGANIZATION.
PART 1: The Beneficial Owners & Officers of the Miru JV: Strange bedfellows
PART 2: The Miru JV Partners: No money woes for PhP18-B poll contract? | St. Timothy’s checkered record: Many projects, negative slippages
PART 3: Procurement law and the Miru JV: More to verify, validate, ascertain
PART 4: Crazy, dicey? Why? How?: Contractors snare billions for laptops, PPEs, elections