Construction Companies Lose Up to 35% of Project Costs to Corrupt Politicians

The first step in solving a problem is to recognize it. And the reality is that corruption is still so rampant in the Philippine construction industry, according to a think tank’s 2020 report.

It turns out that up to 35% of the total project costs goes to pay corrupt officials, disguised as “other costs of doing business” on paper. This is the revelation of economist Ronilo M. Balbieran, also the Vice President for Operations at REID Foundation during the 4^th Philippine Construction Congress in January 6, 2020.

During his talk, Balbieran told that construction industry’s value chain comprise of raw materials tallying 30% to 35%, labor with 15% to 20%, equipment at 10% to 15%, and project management at 15% to 20%. Other costs include administrative support with 8% to 10% share, transport and logistics at 10% to 15%, and design at 2% to 3%. However, in a graph he presented, there is that black portion which claimed 15% to 35% indicated as “other costs of doing business”, or the big money that goes to corrupt officials’ pockets.

“Ask any contractor what is your net profit rate, they will all say 8% to 10%, maximum 15%,” Balbieran said. “And then they will all tell you ‘something is happening out there’ — and how much is that? 15% to 35%,” he added, referring to corruption.

The data comes from interviewing industry participants, but the economist did not disclose the names and the number of the companies asked. REID Foundation was commissioned in 2019 to do a 10-year industry roadmap, and part of it is to study the Philippine building sector.

Now that the problem has been identified, suggestions to solve this was made by the same firm, including digital technologies, strong government leadership and regulations, improved quality of services and global competitiveness through increased scale and specialization. This is as reported by Business World.

Meanwhile, on the side of the Department of Trade & Industry, the agency is looking to curb corruption by using technology and new ways of doing business including computerized procurement and open bidding. This should cut face-to-face contacts thereby eradicating opportunities according to Trade Secretary Ramon Lopez.

The 10-year roadmap highlights that the construction industry might contribute P 130 trillion to the Philippine economy.

Now imagine the amount of money that will fatten the wallets of corrupt politicians if this practice continues.