Proof of overprice is in ZTE contract (2)

GOTCHA By Jarius Bondoc
Wednesday, February 20, 2008

Admin spokesmen babble the $330-million ZTE deal is clean. But proof of fraud is in the very DOTC-ZTE contract. Last Monday a telecom expert (Gotcha, 18 Feb. 2008) showed at least $35-million overprice in the Equipment side, specifically in provision, installation, testing and commissioning of WiMax units. This time a NEDA insider shows plainly the overpricing in Services. Their identities shall remain confidential for now. Edited to fit this space, excerpts:

NEDA guidelines provide that the upper cost-ceilings of Services should not exceed 16 percent of the direct cost. In the ZTE contract, this direct cost is the Equipment cost. Table 1 below shows the total cost items in the DOTC-ZTE contract.

The NEDA Board on Oct. 7, 1998 approved the implementing rules and regulations on the procurement of consulting services for government projects. These were disseminated on Oct. 26, and took effect on Nov. 5, 1998.

Section 6.8 pertains to “Cost of Consultancy as a Percentage of Construction Cost,” to wit:

6.8.1 — This method may be used to determine the compensation of Consultant for services where the principal responsibility is the detailed design or construction supervision of facilities to be constructed.

6.8.5 — The percentage fee shall consider the type, complexity, location, and magnitude of construction cost of the project and shall not exceed the following percentages of construction cost:

a. feasibility studies — three percent (3%),

b. detailed engineering design — six percent (6%),

c. detailed architectural and engineering design — eight percent (8%), and

d. construction supervision — ten percent (10%).

In the ZTE deal, detailed engineering design of six percent and construction supervision of ten percent should thus not exceed the total of 16 percent.

The ZTE contract includes Services (see Tables 1 and 2 below) for its preparation installation, and supervision of a National Broadband Network. If the ZTE Equipment cost of $194 million would be assumed (still subject to unit price analysis), then the upper ceiling cost (16 percent) for ZTE Services should only be around $31.04 million.

The ZTE total cost of Services of $135 million exceeds the NEDA cost ceiling by 335 percent (that is, $135 - $31.04 = $104 / $31.04 = 335%).

The ZTE design and installation cost alone is $118 million, or 61 percent of Equipment cost.

Managed services and training comprise $16.82 million, or an added 8.6 percent of Equipment cost.

Unit cost breakdown of Engineering, Managed and Training Services — totaling $135 million as shown in Table 2 — represent 41 percent of the entire ZTE contract.

Table 1: Structure of ZTE pay items
Item	Cost ($)	%age to Total Contract Cost
1. Equipment	194,051,628	59
2. Services (See breakdown in Table 2 below)	135,429,662	41 (* 70 as percent of Equipment cost)
Total Contract	329,481,290	100
Table 2: Cost breakdown of services
Type of Service	Cost ($)	% to Total Contract Cost
1. Engineering	118,605,650	35.8 (**61.1 as percent of Equipment cost)
2. Managed	14,875,507	4.5
3. Training	1,948,505	0.6
Total Services	135,429,662	41.0

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E-mail: jariusbondoc@workmail.com