Commitment Fees

(Published by The Manila Times on 26 June 2019)

Red tape, defined by Webster as “official routine or procedure marked by excessive complexity which results in delay or inaction,” is a form of corruption.

(Ironically, the term “red tape” is believed to have originated from the bureaucratic protocol of the Roman Empire [early 16th century] where red-colored tapes were used to bind documents that required urgent action, in contrast to ordinary documents that were bound by ordinary strings.)

Corruption sucks (to borrow a rude modern-day slang), and corruption by red tape sucks even more. Where one leaves at least some people happy, the other leaves all people winded, angry, lost, defeated. And yet one is a crime, the other is not. Sure there is a law called Code of Conduct and Ethical Standards for Government Workers that aims among other things to cut red tape, but I don’t think anyone has been punished for one’s inability to act on requests within the prescribed period of time.

I remember there was this Emergency Shelter Assistance for Yolanda victims that they received only in 2015, or 2 years after the super typhoon hit them in 2013. Speaking of Yolanda, many of government’s housing projects in the disaster-affected areas are unfinished until today; also, occupancy rates remain low in some of the finished housing sites.    

When grafters get away with their crime, like how it happens with some of our public officials, at least some of the stolen funds are spent on local goods and services, and therefore they somehow help boost the local economy. (I say this—less from the moral perspective and more from the economist who sees consumer spending as driver of economic growth—because fruits of plunder often get stashed away in offshore banks, as alleged for example in many of the Marcos ill-gotten wealth cases). With red tape, nobody wins. Even the bureaucrats whose systems give rise to red tape are frustrated by it.

For government projects funded externally by a loan or by Official Development Assistance, or ODA (defined as loan with a grant component of at least 25 percent), the monetary cost of red tape (on top of opportunity costs resulting from the inability of the people to benefit from projects that are stuck by implementation issues) can be quantified in terms of commitment fees.

Unlike plundered money, commitment fees go right back into the vault of the lender; they are headed elsewhere and are not likely to be spent locally; they are, therefore, from the viewpoint of the taxpayer, as good as totally wasted. The disaster here is that, like spilled milk, they could have been avoided.  

A commitment fee is a penalty charged by a lender against the loan account of the borrower for delays in project implementation. The lender commits (hence the term “commitment fee”) the availability of the fund, but if this fund is not used in accordance with an agreed timetable, and therefore unable to yield interest payments for the lender, the borrower pays the penalty. The amount of commitment fees is derived from a portion of undisbursed funds (say 1-2 percent of 1 percent) that results from delays in project implementation.

Commission on Audit (COA) reports show that the national government has paid at least Php 1.3 billion pesos in commitment fees from the six-year period of 2012-2017 alone, or an annual average of Php 213 million, with the highest amount recorded at Php 316 million in 2012.

The 2017 COA report identified 7 national government agencies with the highest number of projects that lagged behind implementation schedules. These agencies are: (1) Department of Transportation (7 projects), (2) Department of Agriculture (3 projects), (3) National Irrigation Administration (2 projects), (4) Department of Social Welfare and Development (2 projects), (5) Department of Environment and Resources (1 project), (6) Department of Health (1 project), and (7) Bureau of Fisheries and Aquatic Resources (1 project).

The COA report further noted that slow and long procurement process, right of way problems and delays in release of counterpart funds, etc. were among the many causes of bottlenecks. Ironically, COA regulations have also been blamed, then and now, for causing many of the operational gridlocks in government transactions.

For something that is as pernicious as the commitment penalty, and one that has hit government financing for decades, it is surprising nobody has really made a serious effort to stop the avoidable delays from happening. One may note that the more complicated a project is (such as when it requires coordination among several agencies), the greater is the likelihood that its implementation can become problematic.

There are three possible options by which delays in government projects can be mitigated. One, a person or unit under the Office of the President can be assigned to provide a dedicated coordination work among agencies involved in ODA-funded projects. Two, shun projects with too complicated design elements. And, three, bureaucrats who fail in their tasks can be made accountable by sharing with taxpayers the burden of paying for commitment fees.     

Author: admin

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