The cost of contracting

By Francis Allan L. Angelo

Who builds a city’s water lines, and under what kind of contract, rarely makes the news.

This month it did, when the question reached the floor of the Iloilo City Council.

On May 13, Councilor Rex Marcus Sarabia urged Metro Pacific Iloilo Water to bring its pipe-laying work in-house and hire permanent crews rather than rely on contractors.

His reasoning was straightforward: a utility bound to Iloilo City for 25 years should treat repair, maintenance, and reliability as continuing in-house duties, not as temporary jobs handed to outsiders.

The instinct is fair, and the frustration behind it is earned.

But the framing could be sharper, and sharpening it is what would actually protect ratepayers for the long haul.

The real question is not whether MPIW’s pipe-layers are permanent or contractual.

It is whether the utility can choose its contractors well, enforce its deadlines, inspect the workmanship, and keep project costs disciplined and fair to the public.

That distinction decides the two things every Ilonggo household actually cares about: whether water reaches the tap, and what it costs to get it there.

Consider the project at the center of the dispute.

The HS Jaro Pipe Replacement Project covers nearly 10 kilometers of aging pipeline along Lopez Jaena Street and the Old Iloilo-Capiz Road, running from Ungka Terminal to Jaro Plaza through Barangays Ungka, San Isidro, and Benedicto.

Once finished, the project is built to recover roughly 10 million liters of water a day, enough to serve at least 5,000 households, by sharply cutting non-revenue water losses in the district.

It broke ground in August 2024 and is due for completion in September, and its delays are what Councilor Sarabia pointed to.

MPIW Chief Operating Officer Angelo David Berba defended the outsourcing on practical grounds.

The work is temporary, equipment-heavy, and demands specialized crews the utility does not need once the last pipe is buried.

He went further, noting the company brought in Manila-based contractors because it could not find local firms well-versed in pipe-laying, and that this expertise carried “a certain premium.”

This is not an MPIW eccentricity.

MORE Power, Iloilo’s electricity distributor, leans on contractors for the same reason, handing the supply, installation, testing, and commissioning of its power transformers for the Megaworld and General Hughes substations to specialized firms.

The logic is consistent across utilities: Keep a lean permanent staff for daily operations, and bring in specialized crews for one-time builds.

MPIW already runs on roughly 230 permanent employees doing exactly that day-to-day work.

The reason for the rest comes down to cost.

If a utility permanently hires full pipe-laying crews, welders, heavy-equipment operators, and restoration teams for every major project, those salaries, benefits, and idle-time costs would eventually weigh on rates.

That means paying not just for construction, but for a standing workforce left underused once the digging stops.

Contracting, done properly, lets the utility pay for a defined result instead: Lay this pipeline, meet this deadline, hit this standard, or face penalties.

Here is where Councilor Sarabia’s worry deserves real weight rather than dismissal.

Outsourcing is not automatically cheaper or cleaner.

MPIW’s original HS Jaro contractor was let go after the work fell short, and while that set the timeline back, it also showed a utility willing to enforce its standards rather than tolerate weak work.

Berba also pointed to global supply chain disruptions for delaying the shipment of imported pipe fittings, which is itself a reminder that not every delay is a labor problem a permanent hire could solve.

The councilor’s concern about “possible deniability of liability” is legitimate because a chain of contractors can blur the question of who answers when a project fails.

Berba’s reply, that the contractors “are our agents, they are our extension,” is the right principle, but principles are only as good as the enforcement behind them.

This is why the conversation is better aimed past the permanent-versus-contractual divide.

The World Bank has found that performance-based contracting can cut non-revenue water when payments are tied to actual results, while noting that targets must be realistic, risks must be allocated fairly, and pass-through costs must be tightly capped.

In other words, accountability lives in the contract terms, not in the employment status of the worker holding the wrench.

The stakes are not small.

MPIW has committed roughly PHP 2.6 billion in projects this year and another PHP 3 billion next year, all under a PHP 12.3 billion, 25-year concession covering Iloilo City and seven neighboring towns, and spending at that scale rewards the kind of discipline that ultimately benefits ratepayers.

So the City Council has an even more constructive path available than across-the-board regularization.

For one, MPIW and the council can keep their lines open to thresh out key issues.

Permanent payroll feels like a guarantee, but a well-written contract with real teeth can protect the public just as well, and at lower cost.