More questions raised about Cebu City’s P2.7-B Covid-19 spending

Overpriced sardines and politicized aid? Investigation by the City Council found irregularities in the city’s Covid-19 spending

By Caecent No-ot Magsumbol and Mary Ruth Malinao

For the Philippine Center for Investigative Journalism

Many questions are being raised over Cebu City’s spending for Covid-19 response in 2020 that were not covered by the annual report of the Commission on Audit (COA).

An investigation by the City Council looked deeper into the nagging controversies that angered residents during the first year of the pandemic – the allegedly overpriced cans of sardines that were distributed as relief to different barangay (villages) and the construction of a multi-million-peso quarantine facility.

The City Council, the legislative body of city governments in the Philippines, is composed of the vice mayor, who sits as presiding officer, elected councilors, and representatives of barangay chairpersons, the youth, and other relevant sectors.

The sleuthing came mostly from opposition councilors, and was thus dismissed by allies of Cebu City Mayor Edgardo Labella as politicking months ahead of the election campaign.

But the critics made the same allegation of electioneering against Labella, who they said politicized Covid-19 aid in the city when relief assistance was distributed by the Mayor’s Information Liaison Officers (MILOs) instead of the barangay chairpersons.

City Hall had a Covid-19 relief budget of P2.7 billion in 2020, including nearly P186 million from the national government. More than P2 billion came from supplemental budgets hastily approved by the city council.

“We are asking the Executive Department to give us a summary because this involves a huge amount of money,” said the president of the Association of Barangay Councils, Franklin Ong, an ex-officio councilor.

The investigation into the city’s Covid-19 spending has split members of the City Council. But Vice Mayor Mike Rama, Labella’s running mate in the previous elections, supported the calls for transparency.

The expenses should be laid out clearly before the filing of candidacies in October 2021, Rama earlier said.

Labella’s friend supplied ‘overpriced’ sardines

The minority floor leader, Councilor Nestor Archival, said the City Council’s investigation saved the city millions of pesos last year, when they pointed out violations of the prize freeze ordered by the Department of Trade and Industry.

Two sardines suppliers – Prince Warehouse Club and the La Nueva supermarket chain – lowered prices for the 155-gram can of sardines from P22 to P17 after the overpricing was flagged.

Purchase orders reviewed for this report showed that La Nueva cut its total price for 1.2 million cans of sardines delivered in March 2020 to P20.4 million from P26.4 million. The city saved P6.4 million, although the company claimed the price was adjusted even before the controversy.

Prince Warehouse Club also reduced the contract cost to P10.8 million from P20 million.

Further sleuthing by the councilors led to an Ad Hoc Committee investigation, which uncovered that a close associate of Mayor Edgardo Labella was the third supplier of the overpriced sardines.

Benjamin Sun is listed as one of the incorporators of Markabi Distributor Philippines, a company involved in the wholesale of household goods and retail of household appliances, articles, and equipment. He appeared with the mayor in photos uploaded to the city’s social media account.

Markabi turned out to be the city’s biggest supplier of relief items and other merchandise, based on purchase orders reviewed for this report. It won several contracts amounting to more than P241 million.

Apart from sardines and other canned goods, the company supplied the city government rice, bedsheets, water tanks, face masks, a washing machine, a refrigerator, and a sofa set.

Sun said his friendship with Labella had nothing to do with the contracts, which he said went through proper bidding process.

“Walay labot among pagka-amigo. Apil mis bidding. Ug kinsa toy makadaug sa bidding, mao toy mu-supply (Our being friends has nothing to do with this. We joined the bidding. Whoever wins the bidding, will be the one to supply the goods),” Sun told PCIJ in a phone interview.

Councilor Raymond Alvin Garcia, the majority floor leader, defended the city government amid allegations that it favored certain suppliers.

“How can we have favored bidders? The city was in a hurry since it is an emergency so whoever can provide the supply at the fastest and quickest time, that will be the one picked by the city. Of course we also have to take into consideration other aspects, but what’s important is really, to deliver it to the public,” said Garcia.

Cebu City became a major battleground in the country’s fight against Covid-19 last year, prompting the national government to send key officials of the Inter-Agency Task Force for the Management of Emerging Infectious Diseases to curb the city’s growing number of cases and help prevent the healthcare system from getting overwhelmed.

Environment Secretary Roy Cimatu was tasked to oversee the situation in the city with retired major general Melquiades Feliciano as IATF Visayas implementer.

COA flags overpricing

The City Council began looking into the city’s relief spending in late 2020. City Hall officials responded by referring to the regular COA audit when explanations were sought about particular contracts.

“When we approved the supplemental budget for Covid, we emphasized to them (city government) that we will still need this rundown … They said, ‘Just trust us, trust the system,’ and that there’s COA to check this,” Archival said.

June Maratas, head of the city’s Department of General Services and chairman of the Bids and Awards Committee, said they were transparent with the city’s procurement processes. “Every procurement that we had, we always submitted a copy to COA. We forward all those that we purchased for their scrutiny,” Maratas said.

In July 2021, the COA released its report on Cebu City’s finances and flagged a number of transactions.

COA found that Cebu City bought 20,000 pieces of KN95 masks amounting to P4.38 million or P219 apiece, in excess of the maximum retail price set under the Department of Health Memorandum No. 2020-0144-A dated April 14,2020, thus “incurring excessive expenses of P1,340,000.00.”

“Also, there were no proofs showing that there was market scanning done by the City in compliance with a GPPB Circular No. 01-2020,” the report added.

The city government told auditors the price was reasonable considering that it procured the masks on credit plus delivery cost.

COA said various documentary requirements and procedures were not followed in the emergency procurement of 1,670 boxes of rapid antibody test kits totaling P42.6 million, contrary to Circular 01-2020 of the Government Procurement Policy Board (GPPB).

The circular sought to hasten the procurement of highly needed supplies, materials, equipment, utilities, telecommunications, and other critical services authorized under Republic Act (RA) 11469 or the “Bayanihan to Heal as One Act.”

The city government spent more for rapid antibody test kits than the gold standard of Covid-19 testing, the RT-PCR or reverse transcription-polymerase chain reaction test kits. Excluding P18 million paid for a PCR machine package, Cebu City spent P29.24 million on RT-PCR test kits and P42.58 million on antibody test kits.

City officials said the rapid antibody test kits were used for massive testing in barangays for surveillance purposes.

COA took the city government to task for buying well-milled rice from three suppliers – Best Buy Mart Inc., Simon Industrial Products Trading Corp., and Sellchem Global Trading Inc. – all registered retailers or wholesalers of nonessential items.

“Several purchases of rice for COVID-19 relief operations totaling P67,376,600 were awarded to unqualified suppliers, contrary to Section 3.3 of Government Procurement Policy Board Circular No. 01-2020 dated April 6, 2020, thus negotiation of the most advantageous price may not have been achieved, prejudicing the interest of the government,” the COA report stated.

The city government however argued that procurement rules did not specify the type of business permit to be submitted by the bidders, only that the bidder must have a business permit issued by the city or municipality where the principal place of business of the bidder was located, to show that it was legitimate.

Suppliers came from as far as Quezon City and Pampanga in Luzon, and Iloilo and Bacolod in the Visayas.

Maratas admitted there was no rice shortage in Cebu Province when the pandemic broke out last year.

But Cebu-based suppliers asked for cash on delivery, which is not allowed by procurement rules, he said.

“After you deliver, you still need to process for payment so that is why we cannot award it to those suppliers,” Maratas said in an interview.

City Administrator Floro Casas Jr. said in a separate interview there was no rule that limited procurement to within Cebu City or any specific area.

COA also questioned the grant of a Special Risk Allowance (SRA) totaling P1.5 million to recipients who were not considered public health workers under Budget Circular 2020-2 of the Department of Budget and Management, calling it an “irregular disbursement of government funds.”

It said Cebu City officials who approved the payment should be held liable and required to refund the amount.

City Hall pointed out that under the Magna Carta of Public Health Workers or RA 7305, administrative and support personnel regardless of their employment status should also be covered by the allowance. Moreover, the recipients were all assigned to city health facilities, it said in comments submitted to COA.

COA responded that the budget circular was “specific on the conditions on the grant and did not simply state that all personnel assigned in hospitals and healthcare facilities are qualified for the grant of SRA.”

“Hence, contrary to the application of the City of the Circular, not all personnel assigned in the hospitals and healthcare facilities should be given the COVID-19 SRA,” the COA report stated.

Politicized aid?

The presence of the Mayor’s Information and Liaison Officers (MILO) prompted complaints in some barangays, as distribution allegedly prioritized Labella’s supporters.

“Sad to say, there are a lot of rice distributions that did not pass through the barangay. They course through it to their representatives (MILO) and that causes the problem. So many complaints. Supposedly, in our meeting with the Mayor during the pandemic, we agreed to give the relief goods to the barangays. When we talk about barangays, it has to be the barangay captains (chairpersons), but it didn’t happen so we cannot get the full accounting of the distribution of goods,” said Ong.

Ong filed a resolution to compel city officials to explain the mechanism of distribution of rice and another one seeking clarification and a formal written memorandum from the mayor on the procedure of rice distribution to Covid-19 affected households, as well as to clarify who are the authorized persons for the distribution, but was ignored.

In Cebu City’s political landscape, 50 of the 80 barangay chiefs are identified with former mayor Tomas Osmeña’s group, the Bando Osmeña Pundok Kauswagan (BOPK). Labella and Rama teamed up against Osmeña, whom they both served as vice mayor, in the 2019 polls.

For Councilor Garcia, however, the distribution of relief was “very fair.” He said the MILOs only assisted the city’s Department of Social Welfare Services (DSWS) in the distribution.

“Nasayop lang guro na sila kay ang MILO, ang DSWS man gyud ang manghatag. And then maybe ang DSWS are tapping the MILOs because MILOs are really an extension of the Mayor’s Office through an executive order in the respective barangays. Tingali, in that sense, ang MILO ang nanghatag. And take note, tanan 80 barangays naay MILOs. Tanan, whether kaalyado or dili. Naa gyud na because that was formed through an executive order,” said Garcia.

(They may be wrong on MILO, because it’s the DSWS that distributes. And then maybe the DSWS are tapping the MILOs because MILOs are really an extension of the mayor’s office through an executive order in the respective barangays. Perhaps, in that sense, MILO is the one that distributes. And take note, all 80 barangays have MILOs. All, whether allies or not. It is there because they were formed by an executive order.)

Garcia admitted that not everyone received relief because of guidelines set by the city. The first wave of rice assistance distribution was for the poor and displaced as the city was not able to purchase enough supplies, he said.

For the second wave, the city purchased more supplies as Mayor Labella’s instruction was to provide relief to all.

“We make sure nga we try to give to all kay mao man na atong mandate, so regardless of political affiliation, regardless of color, regardless of religion, regardless of gender, regardless of unsa pa na diha, we always give all households relief nga that is coming from the government,” Garcia said.

(We make sure that we try to give to all since that is our mandate, so regardless of political affiliation, regardless of color, regardless of religion, regardless of gender, regardless of whatever it is, we always give all households relief that is coming from the government.)

No contract prior to construction

It was the Cebu City Quarantine Center (CCQC) that generated the biggest controversy.

Critics asked why it had to be built on a lot owned by the Cebu provincial government on Block 27 of the North Reclamation Area, which had to be swapped with a property owned by City Hall, the 93-1 lots.

Labella initially said the CCQC,  which could accommodate 200 to 300 patients, would be finished in 10 days. It took more than a month before the quarantine center opened.

Labella was able to lower the cost of the building to less than P60 million from the original cost of P100 million, supposedly due to donations of private entities whose names were not provided to the city council.

In the notice of award dated March 28, 2020, the amount indicated was P58.85 million. The amount went down further to P55.9 million in a latter report on the city’s Covid-19 expenditures.

The CCQC began operations in May 2020 but its contractor, LEDA Construction Inc., got the notice to proceed four months later, on Sept. 3, 2020. It also had no building permit as of November 2020.

Aside from the fact that no notice to proceed was issued before the start of the construction, state auditors found that there was no prior construction agreement between the city and LEDA, “casting doubt on the legality of the procurement.”

In response to the audit findings, the city government said the construction of the CCQC took place prior to the execution of a construction agreement and issuance of a notice to proceed to address the need to shelter Covid-19 patients.

The city government said it went through negotiated procurement under emergency cases, citing Section 53 (b) of Republic Act 9184 or GPPB Resolution No. 03-2020 dated March 9, 2020.

In a rejoinder, COA maintained that the city should have signed a contract with LEDA before construction to “legally bind” both parties, “so as not to prejudice the interest of the City.”

Mayor Labella, who has been in and out of City Hall due to an illness, could not be reached by the PCIJ for comment.

P1.5-B budget for 2022

Cebu City saw another surge in the second year of the pandemic as the Delta variant spread in the country. In August 2021, when cemeteries and hospitals reported getting overwhelmed, the city government reached out to national government agencies and the private sector for cadaver storage, cemetery lots, and medicines.

The city government is setting aside another P1.5 billion for the pandemic response. A bulk of the allocation (P1 billion) will go to the completion of the Cebu City Medical Center, while P143 million will go to aid for the barangays, and P280 million to disaster funds.

Members of the City Council vowed to continue scrutinizing the city’s Covid-19 spending.