SEVEN infrastructure projects of the Metropolitan Cebu Water District (MCWD), with a total cost of more than P235 million, have been flagged by state auditors for failing to meet the target completion within the contract period.
This failure deprived the concessionaires of the benefits that could have been derived from the immediate use of such projects, according to the Commission on Audit (COA).
Out of the seven projects, three with a total cost of P63 million were due for termination due to various issues, while four projects totaling P172.9 million were not completed within the contract period.
Of the four, two projects were completed, but with delays ranging from 45 to 964 calendar days. One project is still ongoing, incurring a delay of 48 calendar days subject to liquidated damages, while one project was suspended and delayed for 444 days.
MCWD explained that there were several reasons for the delays and uncompleted projects, including delays in the issuance of excavation permits by the concerned local government units (LGU) and the Department of Public Works and Highways (DPWH), refusal or protests from nearby residents regarding the pipe-laying projects, intervention from the traffic management office of the LGU, and bad weather conditions.
The seven projects flagged by COA in its 2022 audit report are the following:
Projects due for termination as of Dec. 31, 2022:
1. Mactan Water System Improvement program (MWSIP) Package 3 in Mactan, Lapu-Lapu City, which is now being processed by MCWD for termination
[]A P52.7 million project that started on June 21, 2013 and was supposed to be completed on March 17, 2014. As of Dec. 31, 2022, the project had a completion rate of 33.37 percent. MCWD had already paid P18.3 million for mobilization/progress billing.
2. Proposed pipeline expansion at Wilson Drive, Pasteur St., Barangay Lahug, Cebu City, which was recommended for termination due to lack of excavation permit.
[]A P4.5 million project with target starting date on Jan. 30, 2019 and target completion on May 29, 2019. As of Dec. 31, 2022, the project had zero progress rate. MCWD paid P668,717.40 for mobilization/progress billing.
3. Proposed pipeline expansion at Sitio Sto. Niño in Barangay Lamac, Liloan, Cebu, which was also recommended for termination due to lack of excavation permit.
[]A P5.9 million project with target starting date on July 11, 2019 and target completion by Nov. 14, 2019. The project has zero progress as of Dec. 31, 2022. No mobilization fund was released for the project
Projects not completed within the contract period:
1. Proposed renovation and expansion of one-storey workshop building at MCWD Compound, Nasipit, Talamban, Cebu City, which had a 45-calendar-day delay and had incurred P19,711.65 days liquidated damages as of Dec. 31, 2022.
[]A P22.9 million project whose construction started on Jan. 30, 2020 and was completed on Nov. 15, 2022. The delays were due to unavailability of permit at the height of the Covid-19 pandemic, and unavailability of materials when Typhoon Odette (Rai) hit the country.
2. Proposed pipeline expansion at C.D. Seno St. and Fe Zuellig St. in North Reclamation Area, Mandaue City, which had a 964-calendar-day delay and had incurred P1.6 million liquidated damages as of Dec. 31, 2022.
[]It was stated in the 2022 audit report that the project was 100 percent completed as of Dec. 31, but the completion date was not indicated. Based on the report, the delay of the project was due to delay in the issuance of excavation permit, availability of materials, and delay caused by the contractor.
3. Proposed transmission line along Lobregat Property in Barangay Busay to JY Square in Barangay Lahug, Cebu City, which had 48 calendar days delay as of Dec. 31, 2022.
[]A P115.4 million project with starting date of Nov. 16, 2021 and revised completion date on Nov. 13, 2022, incurring 48 calendar days of delay. The project was 44.96 completion rate as of Dec. 31, 2022. There was no amount of liquidated damages indicated in the audit report for this project. Based on the report, the delay were caused by unfavorable weather conditions and city traffic suspension orders, among others. The contractor also requested for time extension.
4. Proposed construction of pumping stations at Aviation Road in Lapu-Lapu City, which had a 444-calendar-day delay as of Dec. 31, 2022.
[]A P9.6 million project with starting date on Aug. 3, 2020 and target completion date on Oct. 13, 2021. The project had 49 percent completion rate as of Dec. 31, 2022. There was no amount of liquidated damages indicated in the audit report for this project. The project has been suspended since July 7, 2021 for failing to comply with road setback and for starting the construction works without Locational Clearance and Building Permit.
Reasons
Based on the 2022 COA audit report, among the reasons cited were a lack of excavation permits, DPWH permits, and site issues.
Regarding the MWSIP Package 3, COA stated that aside from the lacking DPWH permits, the project was stopped due to various modifications which resulted in significant variation orders that may go beyond the limit set by the procurement law.
The MCWD Legal Department is now reviewing the pertinent records of the project to recommend appropriate actions that need to be taken, according to COA.
MCWD has already paid an advance payment or mobilization fee amounting to P18,957,680.20, of which P8,571,814.65 pertains to mobilization fee.
COA pointed out that the advance payments/mobilization fee was not recovered by MCWD.
Section 4.3 of the revised implementing rules and regulations of Republic Act 9184 (the Government Procurement Reform Act) states that the advance payment "shall be repaid by the contractor by deducting 15 percent from his periodic progress payments, a percentage equal to the percentage of the total contract price used for the advance payment."
COA said the failure to recover the mobilization fee granted for the said canceled or terminated projects deprived the water district of the use of the said funds.
COA noted that contractors of the projects, which were not completed within the contract period, have been subjected to liquidated damages in the total amount of P1,668,917.87 due to the delays incurred, except for two projects–the proposed transmission line along Lobregat property in Barangay Busay to JY Square in Barangay Lahug, Cebu City, which had 48 calendar days delay as of Dec. 31, 2022, and the proposed construction of pumping stations at Aviation Road in Lapu-Lapu City had 444 calendar days delay as of Dec. 31.
COA highlighted the importance of imposing liquidated damages as it will not only compensate for the damages and losses resulting from the delay of completion of the project but will also make contractors "more prudent in the timely completion of government projects."
"It is a primary concern of the government that the projects be implemented and completed on time so that intended benefits will promptly redound to the public, in the case of water districts, the concessionaires," COA stated in its report.
Recommendations
COA recommended that the water district intensify its regular monitoring and supervision of its projects to ensure the immediate completion of the delayed and unimplemented projects. It should also carry out sufficient detailed engineering activities by thoroughly reviewing the program of works and evaluating the project design and estimates.
COA further advised the water district to require contractors to promptly address permit issues and clearances to minimize variation orders and time extensions.
State auditors also recommended that MCWD demand an immediate refund of mobilization fees given to contractors for the said canceled or terminated projects and undertake legal action to recoup the advance payment for the unperformed contract.
COA also reminded the water district to collect liquidated damages for delayed projects as specified in the terms and conditions of the contract and comply with the pertinent provisions of RA 9184.
MCWD's response
MCWD responded to the state auditors, assuring them that it has been monitoring its projects. Its management explained that there were several reasons beyond its control that caused delays or prevented the projects from starting. These reasons include lengthy permit issuance processes by LGUs or DPWH, which can take 90 calendar days to one year.
MCWD also mentioned cases where LGUs or DPWH did not issue excavation permits, which resulted in some projects not being able to proceed and being recommended for termination.
The water district expressed its disappointment with the delayed or non-issuance of permits, as LGUs and DPWH are supposed to be partners in providing water to their concessionaires and are expected to assist in pipe-laying projects.
MCWD cited valid grounds for time extension—protests from residents, intervention by the LGU's traffic management office, and bad weather conditions that contributed to project delays.
Despite conducting detailed engineering activities, MCWD acknowledged that variation orders still occur due to the nature of the projects. For pipe-laying projects, unforeseen obstructions are the main reasons for variation orders.
It explained that some variation orders happen because of LGU interventions, demanding the entire width of the road to be restored, even if only a small portion was affected by the pipe-laying project. Other instances required pipe rerouting, resulting in a deductive variation order due to shortened pipe-laying length.
MCWD assured the state auditors that its Contract Termination Committee is now handling the processing of termination for projects recommended for termination.
The water district stated that contractors experiencing delays without valid reasons will be imposed with liquidated damages, and MCWD emphasized its commitment to continue imposing such penalties.