COA: CCMC project contract price was ‘bloated’ by P62M

CEBU CITY, Philippines — Government auditors said that the contract price of the Cebu City Medical Center (CCMC) construction project was “bloated” by P62.64 million.

From its supposed contract price of P845.12 million,  its actual cost reached P907.99 million.

The excess amount resulted “as certain work items were erroneously subjected to Overhead, Contingencies and Miscellaneous (OCM) and Profit mark-up and the use of the 12 percent VAT instead of 5 percent.,” the Commission on Audit (COA) said in its 2022 audit report.

Auditors said this was contrary to Department of Public Works and Highways (DPWH) Department Order (DO) No. 197, series of 2016 in relation to the Manual of Procedures for the Procurement of Infrastructure Projects as it also placed the government in a “disadvantageous position.”

COA urged the city government to consider their audit observations in the final computation of settlement with project contractor M.E. Sicat Construction and AVECS Corporation, after both parties mutually agree to terminate the P97.99 million contact in November 2022.

“We likewise recommended that the City Mayor direct the DEPW (Department of Engineering and Public Works) to observe the guidelines issued by the DPWH relative to the preparation of the Approved Budget for Contract (ABC) for future infrastructure projects, particularly the composition of VAT and OCM and Profit mark-up components to avoid bloated estimated cost estimates which ultimately placed the interest of the government in a disadvantage position,” auditors said in their 2022 audit report.

During the issuance of the audit report on June 22, 2023, COA said that they were still waiting for the written reply from the city government.  But during the exit conference that was held earlier, city officials who were present, have signified their willingness to observe the audit observations mentioned in the report.

CCMC Construction Project

On April 6, 2022, the city government entered into contract with the joint venture of M.E. Sicat Construction and AVECS Corporation for the CCMC construction project worth P907.99 million that was to be completed in 570 calendar days.

On April 29, 2022, the city released mobilization fee amounting to P136.19 million.

Auditors found during their review of the Approved Budget of the Contract (ABC) that some items listed in phase 4 of the construction project were subjected to OCM and profit mark-up which was contrary to the DPWH guidelines.

The total overstatement of P62,64 million in the total contract cost based on the contractor’s computation is broken down as follows: P4,605,176.31  OCM; P640,000 profit; P5,245,176.31 which represents the difference in the total cost before VAT, and the P57,397,732.75 difference on VAT.

COA said that mobilization and demobilization, provision of service vehicles, permits and clearances, civil works, establishment of a field laboratory office and living quarters, furnishing of furniture, laboratory equipment, assistance to engineers, photographs, health and safety, traffic management, environmental compliance, and communication equipment, among others, should not have been subjected to OCM.

Moreover, state auditor said that the contractor erroneously used the 12 percent rate in computing the VAT component of the project instead of just five percent as mandated by the DWPH DO.

“The overstatement of OCM and profit and erroneous VAT rate excessively bloated the contractor’s bid price by P62,642,909.06,” COA said.

A copy of the Audit Report was included in the agenda for the July 12, 2023 session of the Cebu City Council.

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TAGS: Cebu City, Cebu City Medical Center, Commission on Audit, construction, DPWH, project