Philippine Defense Procurement: Issues and Prospects

VAdm. Emilio Marayag Jr., Vicky Viray, Mendoza, and Capt. Tomas Baino of the Maritime League meet up with Commodore Jande Francisco (NSSC, PN) at the Cavite Naval Shipyard in Fort San Felipe.

The defense of the Philippines from both internal and external threats is the principal business of the Armed Forces of the Philippines (AFP). To enable the AFP to fully perform its mandate, it should possess affordable war fighting capabilities that can also be used for operations other than war (OOTW) like counter-terrorism, humanitarian assistance and disaster relief, search and rescue, peacekeeping and to certain extent maritime law enforcement. Thus, defense procurement policy must include three basic considerations in buying major defense equipment and weapons systems: war fighting capability, operational flexibility, and value for money.

War fighting consideration involves selecting defense equipment that allows the AFP units to detect, move, communicate, shoot, pursue, withdraw, and prevail in a battle space. Operational flexibility permits the use of a particular war fighting equipment in other roles and missions to sustain one’s advantage in battle or to undertake OOTW. Value for money, on the other hand, calls for optimizing the benefit and features of selected defense equipment with the given budget.

As former colony of United States, the Philippines used to receive “hand-me-down” defense equipment and the defense decision makers conveniently depended on the American supply train to sustain those equipment. Previous attempts to develop self-reliant defense posture that was decreed in 1974 miserably failed to a level that none of the major equipment acquisition was ever awarded to a local company. The abrogation of the RP-US Military Bases Agreement in 1992 and the enactment of the AFP Modernization Law in 1995 brought about unparalleled opportunity to harness domestic industries’ contribution to national defense. This opportunity is extended by another 15 years with the passage of the Revised AFP Modernization Program.

This article reviews the existing defense procurement laws, identifies some procurement issues and presents prospects for local defense equipment manufacturers, particularly shipbuilding.

Defense Procurement Laws

There are basically four laws that directly deal with procurement of defense equipment and weapons systems: RA 9184 (2002), RA 7898 (1995), RA 10349 (2012), and PD 415 (1974). The Implementing Guidelines, Rules and Regulations for RA 9184 and RA 10349 are detailed instructions to procurement officials in purchasing goods and services, including major defense articles.

The Government Procurement Reform Act (RA 9184) came out in 2002 with its revised implementing rules and regulations (IRR) issued in 2009. This legislative fiat mandates five governing principles in government procurement: transparency, competitiveness, streamlined process, accountability, and public monitoring. It highlights competitive bidding as the general mode of procurement, and assigns the responsibilities of procuring officials from head of agency to its bids and award committee. It also enumerated the offenses that deviate from the normal procurement transactions, and set penalties for public officers who commit such offenses. Likewise, the law created the Government Policy and Procurement Board (GPPB) to “protect national interest in all matters affecting public procurement.” GPPB’s functions include setting procurement standards, formulating/amending IRRs, and conducting annual reviews on the law’s effectiveness.

Central to the procurement process is the Bids and Awards Committee (BAC) that ensures that the procured items are delivered within specified timeframe to the end-users in accordance with defined quality and quantity and right price. The BAC prepares all documentary requirements for the procurement and sees to it that the head of the procurement agency receives all the necessary information before he makes the procurement decision. The BAC also serves as a link to the GPPB legal division, and contacts the invited observers during the bidding sessions.

RA 9184 covers all procurement undertaken by various agencies and instrumentalities, and opens to the public nearly everything for monitoring. This “general public participation,” instead of congressional oversight, compromises the confidential nature of certain goods and services lined up for procurement. Thus, crafting new rules and regulations to govern the purchase of major and highly classified defense articles will enhance national security.

One significant law that provides incentives to local defense industries, including shipbuilders, and preserves the confidentiality of defense equipment is Presidential Decree Nr 415, “Authorizing the Secretary of National Defense to Enter Into Contracts to Implement Projects Under the Self-Reliant Defense Programs and for Other Purposes.” The objectives of this mid-70s law were to achieve self-reliant defense posture and, at the same time, generate employment opportunities, stimulate industrial and commercial activities, and conserve dollar reserves. During those times the Defense Department procured from sources other than the U.S. military major equipment, with or without public bidding. In the early 1980s, the navy used SRDP funds to construct two Aguinaldo-class 145-foot gunboats and two 32-foot coast guard cutters while the air force built a light aircraft called “Layang.” Defense contractors also availed of incentives under the Investment Incentives Act of 1967 (RA 5186). This law allowed some local defense industries to grow by engaging in the manufacture and fabrication of small caliber weapons and ammunitions in the 1970s but none of those defense companies ventured into big-ticket equipment manufacture to develop a robust self-reliant defense posture (SRDP). The program failed to gain support from succeeding political leaders, e.g., the Army’s Infantry Fighting Vehicles and Air Force’s basic pilot trainer projects in the late 1980s did not consider the local defense contractors participation by way of joint venture arrangement or in-country manufacture.

The security landscape in the 1990s changed drastically after the Cold War. The American forces left their bases in 1992 when Philippine Senate did not ratify the proposed Treaty of Cooperation, Amity and Friendship that would have replaced the 1947 Military Bases Agreement. The bipolar security orientation became multi-polar. Old animosities among the nation states resurfaced and non-state players emerged. The security environment has become volatile, uncertain, complex and ambiguous. The departure of US troops also created “security vacuum” in Southeast Asia and other parts of the Asia-Pacific region. This may have emboldened China to occupy Mischief Reef, a known Filipino fishing refuge in the Spratlys, and convert it into a naval detachment in 1995. The Chinese seizure apparently hastened the approval of the AFP Modernization Act (RA 7898) of February 1995. In December 1996, Congress came up with Joint Resolution Nr 28 (JR 28) approving the AFP Capability Development Projects to implement RA 7898.

Republic Act Nr 7898 aimed to modernize the AFP to “effectively and fully perform its constitutional mandate to uphold the sovereignty and preserve the patrimony” of the country. It listed five modernization program components, namely: (1) force restructuring and organizational development, (2) capability, materiel and technology development, (3) bases/support system development, (4) human resource development, and (5) doctrines development. Since the operational focus shifted from internal to external the bulk of financial requirements was funneled to capability, materiel, and technology component. According to this law, the AFP will receive 50 billion pesos for the first five years starting 1996 for its capability development program. Unfortunately, the government financial managers did not fund the program so there was not a single delivery of major defense equipment five years after the passage of the law. Fortunately, the AFP continued to receive minor defense articles from the US under the Foreign Military Financing Program to shore up its inventory.

The same law directed the defense department (DND) and the AFP to strengthen their procurement system that involves two sequential yet separate steps: equipment acquisition and contract negotiations. These steps both require the approval of the defense secretary. The armed services (Army, Navy, Air Force, and selected GHQ units) initiate equipment acquisition that should pass through the AFP Weapons Systems Board while the AFP General Headquarters (GHQ) undertakes contract negotiations. One significant provision of this law insofar as acquisition is concerned is that “no major equipment or weapons systems shall be purchased if the same are not being used by the armed forces in the country of origin or used by the armed forces of at least two countries.” For defense purchasing practitioners, this refers to the “proven design” concept.

With too many defense items listed in the program the AFP did not have enough manpower and competence for large-scale procurement. Further the failure to wipe out the local insurgency by the national police from 1992 up to 1998 led Congress to transfer back to AFP the counter-insurgency duties. The re-assumption of the responsibility for internal security operations (ISO) adversely affected the modernization program. The planned force structure on which defense equipment procurement was based bloated instead of shrinking. Decision makers prioritized the funding for AFP ISO equipment and related projects and constantly revised the programmed items set forth by JR 28. This resulted to delayed deliveries of external-defense equipment.

In July 2012, Congress passed the Revised AFP Modernization Law (RA 10349). The new law extends the program life by another fifteen years and allocates 75 billion pesos for the first five years. It also highlights AFP transformation to a multi-capable force to confront both internal and external threats and established a congressional oversight committee to monitor and oversee the program. However, it retained the “proven design” concept of the old law.

To concretize the intent of the law, the DND issued the Revised AFP Modernization Implementing Guidelines, Rules and Regulations (IGRR) in April 2013. The IGRR reechoes the basic law’s provisions, sets objectives and identifies core security concerns. It also devotes substantial space for procurement procedures. Most importantly the IGRR recognizes the SRDP program and provides an incentive to local industries, to wit: “Article 3.10.4. Local manufacturers shall be exempt from the requirement on the purchase of major equipment and weapons systems only when used by the armed forces in the country of origin or used by the armed forces of at least two countries.”

Procurement Issues

Several issues surfaced with the above procurement laws, rules and regulations. The first issue is the capacity of the DND/AFP to embark on a massive procurement undertaking. In general, the two main actors in purchasing defense equipment are the buyer and the supplier. The complexity of the government procurement requires highly competent workforce of the purchasing agency to determine the technical specifications of the offered equipment to suit the end-users’ operational requirements. The buyer must also assure compliance by the supplier as to its production and financial capability to deliver the right equipment in the right time and in the right place based on the right price. It must ensure that all procurement actions are in conformity with the rules set by accountability watchdogs.

In 1996, a research paper entitled “Defense Procurement in the Philippines” recommended the creation of a defense-level organization to cater to the expected influx of procurement activities. It cited three components to address the procurement challenge posed by RA7898: clear-cut procurement policy; responsive organizational structure; and a highly trained and competent acquisition workforce. The policy shall consider war fighting capability, operational flexibility, and value for money. In many instances the procurement actions were “supplier driven” that manifest one or a combination of these factors: lack of competence of the workforce, complacency, higher ups directive and absence of procurement strategy. The DND/AFP structure was not designed to absorb massive procurement duties.

The 2003 Joint Defense Assessment found that for every battlefront soldier there were only 3 support personnel, for a 1:3 ratio, far from an ideal of 1:5-8. This obvious lack of manpower hindered an efficient acquisition system. Department-level procurement-reviewing staff easily spotted the deficiencies but did not have a viable solution to offer as they themselves were undermanned. Likewise, while there was a frenzied training activity for project teams to learn the basics of project management their members did not have the motivation to stay on with the acquisition workforce because their military career development would be affected. Thus, until DND/AFP introduces amendments to the AFP personnel career development regulations, particularly Standing Operating Procedure Nr 10 (Officer Promotion System), only few will join the acquisition workforce to the detriment of the program. In addition, the defense department must create a defense procurement bureau with the existing defense acquisition office as nucleus not only to craft acquisition strategy but also provide expertise in technical evaluation, in cooperation with the Department of Science and Technology. Acquiring identified capabilities by an organization that has long depended on a foreign ally would require longer time than anticipated.

The second issue is the restricting provision on “proven design” that dampens interest of local companies to compete with foreign manufacturers, and is exacerbated by absence of major equipment manufacturing standards and rules. As earlier pointed out, the SRDP Program has not been supported since the mid-1980s. It would be unwise for a domestic company to invest substantial resources to manufacture major defense equipment without expressed support from the government. Even the 1994 Marine Policy failed to convince the local industry to invest in building ships for the Philippine Navy. While partnering with foreign companies is permitted, local counterparts lacked the resources to pursue huge defense equipment acquisition projects. In sum, the AFP modernization that started in 1995 practically disenfranchised local companies because they neither built major equipment solely for AFP nor sold their product to two foreign armed forces.

Assuming that local shipbuilders can manufacture naval ships, there are no established ship construction rules or standards by which to determine their seaworthiness and combat survivability. Captain Tomas Baino’s article, with Captain Winston Arpon, entitled “Warship Design and Construction Parameters” (Maritime Review, May 2016), elucidates the sophisticated nature of building naval ships. While there are many classification societies in the Philippines, none possesses a manual on naval ship construction rules. Yet, most maritime nations (U.S., U.K. and Japan) have only one classification society. It is also ironic that the world’s fourth shipbuilder in terms of tonnage has not produced its own warship and only 35 naval architects join the maritime community yearly.

The third issue is the reversion of ISO duties to the Philippine National Police (PNP). In the original version of the AFP modernization law the AFP must transform into an external defense force. This requires alterations in force structure, doctrines, and equipage. By returning to the AFP, by virtue of RA 8551, the ISO responsibility in 1998, and restating it in the revised modernization law (RA 10349), the strategic planning approach changes from “threat-based” to “capability-based.” As for resource allocation, capability-based planning is quite expensive, prompting some foreign defense planners to articulate support for a return to threat-based planning.

Given the developing situation in South China Sea where the country’s territorial integrity and sovereignty are threatened, the AFP must prepare to address specific and immediate threats rather than confront known but non-current threats. The ISO has been in the country’s midst for too long but this internal threat has never succeeded in changing the Filipino’s way of life. A good question to ask: Had PNP continued its ISO duties in 1998 onwards would the internal threats, particularly CPP/NPA, gained more momentum and made the country less secure? The PNP assumed this duty only in 1992 (RA 6975) but Congress removed it six years later because statistics revealed the resurgence of CPP/NPA numbers strength and influence in the countryside. How could one expect the PNP to do a job that took the AFP 23 years to claim strategic victory? There must have been a “disconnect” between the national policy and operational reality. Some years later, a foreign security analyst on counter-insurgency wars who was invited to present the results of his study to the AFP joint staff in 2005 revealed that successful counter-insurgency wars waged by insurgency-affected nations were police-led.

Worth citing is the Malaysian experience. Some 10 years ago, the Malaysian Navy released a number of their officers and enlisted to form the core of their Coast Guard organization because their leaders wanted to focus on territorial defense considering the archipelagic nature of their nation. Their navy has acquired considerable surface and sub-surface assets to beef up its capability by harnessing their national shipbuilding industry and by shedding off their coast guard (internal) function. A senior Malaysian navy officer remarked that their armed forces had to concentrate on war fighting and leave law enforcement to the police and coast guard. While some nations opt to clearly delineate responsibilities among government agencies, others prefer to have overlaps. In a conflict situation where there is a dearth of resources, it would be wiser for a leader to consolidate rather than disperse forces. The interior department (DILG), with its national police at the forefront, must address internal security threats to allow the AFP to ably protect the country’s territory and national patrimony.

Prospects

More than 20 years passed when the AFP started its modernization. This period would have sufficed to professionalize the acquisition workforce and set up a responsive structure to undertake the multifarious procurement activities. The 2013 issuance of the IGRR to RA 10349 is a good start to help hasten the defense procurement process. Considering that defense equipment and weapons systems are very expensive and highly sophisticated in design compared with non-defense articles, there must be a dedicated organization under DND to review and evaluate defense items for acquisition with due regard to their war fighting capability, operational flexibility, and value for money. This outfit shall also work for the codification of defense procurement rules to ensure confidentiality and compliance to technical standards. Transparency does not mean “full disclosure” as there are “trade secrets” that only few people need to know, such as the congressional oversight members.

The provision that exempts the local defense companies from the “proven design” requirement is a welcome and comforting development. This resuscitates the SRDP program. DND must circulate this to the defense industry as well as to the maritime community. The department should also work for legislated defense equipment construction rules for air and naval assets. For maritime assets, a single classification society will certainly help the shipbuilding companies in standard compliance. As there are naval ships that do not require stringent design and construction parameters, local shipbuilders must initially focus on building transport vessels to ferry troops, equipment, and supplies. They can also do up-keeping and updating works on existing warships. As they upgrade their production capacity and level-up their technical know-how, they can start constructing combatant ships. For its part, the navy crafted its sustainment strategy that calls for active participation by local shipbuilders during peacetime and crisis. Indeed the expanse of the country’s maritime domain necessitates a strong but affordable navy to protect, preserve and defend those areas.

With the pronouncement of the new administration to open up talks with CPP/NPA and MILF, the internal threat to security is expected to wane. This will usher significant impact on strategic planning assessment and formulation by DND and DILG. It is high time that Congress completely transfers the ISO responsibility to PNP so that the AFP can concentrate on its capability development program. The AFP must buy what it needs as soon as it can so it can do what it does best: war fighting.

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