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FRONTIERS 3/May 16 /12
Frontiers of Philippine Public Administration
REGULATORY POLICY-MAKING AND CONTRACT MANAGEMENT: LTFRB, PPP & BRT
Romeo B. Ocampo*
Introduction
On this 60th
birth anniversary of the U.P. National College of Public Administration, it is fitting
to talk about relatively unexplored areas of our discipline, both old and new, for our greater
edification. I refer here to a crucial phase of regulatory administration and to government
contracting with private parties, particularly in the public transportation sector. In this paper, I will
discuss rule-making in the Land Transportation Franchising and Regulatory Board (LTFRB), contract
management in the context of Public-Private Partnerships (PPPs), and the institutional challenges
of Bus Rapid Transit (BRT) systems as a radical innovation in public mass transport.**
I approach these topics from an institutionalist perspective of government processes and
structures. This was a dominant perspective of public administration and political science, though
it was discredited for being narrowly legalistic Of late, it has undergone a sort of rediscovery by
other disciplines as well as PA, and received renewed interest as neo-institutionalism in
economics, sociology, and political science (Scott 1995). As we all know, there has been a
continuing effort to promote development and change, and there has also emerged a desire tosustain whatever progress is attained. The institutional approach fits the bill (Paul 1990).
Institutions are establishment(s) of relative permanence that contribute to stability and
acceptance (legitimacy) in the wider community, though some authors would rather argue that
their hallmark is their capacity for automatic maintenance and self-restoration (Scott 1995: 8).
Institutions are supported by three pillars, according to Scott. The regulative pillar consists
of the rulemaking, monitoring, and sanctioning processes intended to constrain and regularize
behavior. The normative pillar provides the goals, values, and standards for evaluating an
-------------*Former Dean and Professor, U.P. NCPAG; Consultant, U.P. National Center for Transportation
Studies (NCTS); Vice President, STRIDE Consulting, Inc.; and President, U.P. Public Administration
Foundation (UPPAF).
**My observations are based partly on the work I have done with the NCTS and STRIDE. I
thank my colleagues in these groups, as well as those in NCPAG, for the research opportunities
they have given me.
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agents performance, while the cognitive one supplies the perceptual basis of and belief system
about the relationships between means and ends, causes and consequences. While rational action
in the regulative pillar is judged on such instrumental relationships, in the normative pillar it is
based on criterion of appropriateness. (Ibid.: 37-39). These pillars may reinforce or contradict
each other, so that traditional norms of what is proper may support or trump instrumental logic.
Regulations are probably the oldest tools of government. They include the most direct,
coercive, and sometimes very elaborate means of the conduct of conduct of people as subjects of
government. By comparison, other functions like planning are more indirect, permissive (often
merely indicative in liberal regimes), and operate more on the environment to influence human
behavior. Regulations rely primarily on the legal authority of government, while other functions
bank on the treasure, information, or other state resources (Hood 1983). Thus, regulations have a
close affinity with law, particularly administrative law as the branch for implementing more basic
statutes, policies, and plans.
With the growing recognition that law is not all there is to government, however, the
regulatory toolkit has grown (Freiberg 2010) and may combine legal and non-legal (and even non-
state) means to achieve state goals. Based on knowledge ofpeoples interests, information, and
inclination to resist or comply with rules, regulators may employ technical mandates, economic
incentives, environmental provisions, and other carrots and sticks. Recent advances in science
and technology, particularly Information and Communication Technologies (ICTs) have made it
possible for government to govern more distant people and places. But they have also made it
possible to enable people to participate more actively in government processes, including
regulatory rule-making (Coglianese 2004).
In the Philippines as elsewhere, the career of government regulation and contract
management has reflected the problems and responses that arise as the institutional framework
evolves with the growth in scale and complexity of the country. Contrary to this trend, recent
reform movements have sought to reduce the scope and size of government , enhance those of the
private/business sector and civil society, and yet reinvent government into something more
effective, transparent, and accountable to an empowered people. Privatization and deregulation
of governmental have been among the strategies used for this purpose. But these policies have
stalled, and there have been efforts to re-regulate or simply come up with better, reconfigured
regulations to deal with social problems that cannot be left to the private sector alone to solve.
The regulation of monopolies, externalities, and public goods provision call for good rules andsound systems of policy-making and administration.
Regulatory agencies exercise quasi-legislative and quasi-judicial powers delegated by the
legislative and judicial branches of government in acknowledgement of the fact that they are not
competent to make or interpret the detailed rules that are required by the increasingly complex
and specialized functions that the executive branch is called upon to perform. Congress has
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behavior of citizens or specified stakeholders. I am concerned here with more basic guidelines that
invite citizen participation in rulemaking and has both internal and external consequences.
Our system of government emulates the American system in basic respects, but not its
regulatory model. This model has developed meta-rules for rulemaking that were first enacted in
the Administrative Procedures Act (APA) of 1946, which provided for a notice-and-comment
requirement for public comment on proposed agency rules (Jacobini 1991: 25-26). This American
invention has been elaborated into a series of interagency and expert peer reviews as well as
public consultations, all designed to better inform proposed regulations and prevent arbitrariness
and abuse in rulemaking and the exercise of administrative discretion.
Our own scholars recognized the need for Congressional standards to guide administrative
quasi-legislation . but what they referred to were substantive standards (e.g. such constitutional
principles as public interest) and not the primarily procedural types of rules embodied in the
APA. (Portugal & Lim 1955: 318-319). Perhaps the contemporary requirement for new statutes
to be followed by the promulgation of Implementing Rules and Regulations (IRRs) is another
approximation of meta-rules, but I know of no general, government-wide guidelines for their
elaboration or revision.(See Villemajor-Mendoza 2006: 84-85; Revised Administrative Code of
1987: Secs. 27 & Ch. 2 )..
The quasi-judicial function of Philippine regulatory agencies has been emphasized to the
neglect of their quasi-legislative role, although in practice they do issue or amend rules. On the
other hand, the concern that emerged in the U.S. was the effort of some reformers to judicialize
what was characterized as the informal rulemaking in the APA process). It was informal
in the sense that it represented departures from the legal strictures of the courts (Jacobini 1991:41-43; Woll 1963: 25-27, 186-187)**, and the American Bar Association wanted to restore the
judicial model (Heady 1959: 92-94; see Rakoff 2000 for subsequent developments).
Another Philippine deviation from the American regulatory system was from its reputation
as being an independent fourth branch. In the Philippines, regulatory agencies have had no
standard form of relationships with regular departments, no set institutional model (Carino
2006: 7) but some have been integral units of the departments, which may be the primary
regulatory authority in their policy jurisdictions. Historically, though, these may have evolved
from more independent origins (Portugal & Lim 1955.: 319-322)
-----------------
*Professors Portugal and Lim mentioned consultative practices of rulemaking in the Office of
the Insurance Commissioner and the Court of Tax Appeals, but did not say whether they were
regular practices (Ibid.: 329; Portugal 1958: 165).
**(See next page).
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The Department of Transportation and Communications (DOTC) is the primary policy-making,
planning, regulatory, and administrative authority for the sector, while the LTFRB and themotor
vehicle registration agency, the Land Transportation Office (LTO), have been subordinate units
subject to the DOTCs policy directions. The LTFRBs and LTOs antecedents go back to the start of
the 20th century. Their evolution was marked by the creation of a Public Service Commission
(PSC) by legislation that defined public transportation as a public utility for the first time (Regala
1933: 469) and placed all modes of transport under the PSC. After nearly five decades, in 1972,
the government replaced the PSC with more specialized boards, organized a separate
Department of Public Works, Transportation and Communications, and transferred transport
regulation to it from the Department of Justice (DOJ).
The LTFRB and LTO were organized in the later 1980s, as a single agency performing
both franchising and registration, then, after two years, they were reorganized as separate units
as before under the Ministry (later Department) of Transportation and Communications. The
DOTC provides guidelines and directives (Department Orders or DOs) to the LTFRB and LTO,
which translate them into their specific regulations (Memorandum Circulars in the LTFRB and
issuances of variable names in the LTO) and case decisions or orders. While the main job of LTFRB
is franchising public utility vehicles (PUVs), the single-headed LTO inspects and registers both
public and private motor vehicles and issues licenses to drivers.
The LTFRB is headed by a three-man Board representing law, engineering, and (as chairman)
business, management or other professions (See Chart 1, appended). The old PSC had been
dominated by judges and lawyers. The Boards main task is to promulgate regulations (MCs), grant
and renew franchises and special permits for the operation of buses, jeepneys, taxis, and other
public utility vehicles (PUVs). It also adjudicates cases and issues decisions and orders regardingpassenger fares and freight rates, PUV routes, and conflicts among operators, passengers, and
other stakeholders. In order to guide Board hearings and other quasi-judicial proceedings, it has a
set of Rules of Practice and Procedure for cases brought before the Board, first adopted in the
1930s, then again in 1988, and last revised in 2011 (LTFRB Sept. 1, 2011). No comparable guide for
LTFRB rulemaking has been made, though this is a continuing policy-making task of considerable
consequence.
-------------
*Jacobini describes formal rulemaking as rulemaking on the record and involves a hearing
with opportunity for cross examination and many of the other accoutrements of a court case;indeed it is substantially the same in form as an agency adjudicative proceeding. Informal rule-
making consists of procedural, interpretive, and legislative rules which are formulated according to
the four steps prescribed by the APA: (1) notice by publication of a proposed rule in the Federal
Register, (2) submission of comments by interested parties, (3) agency formulation and publication
of the rule, and (4) further comment (proposed change, acceptance, modification, or negation) by
interested parties. (Jacobini 1991: 41-43).
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A critical challenge is to strike a balance between the interests of PUV passengers and
operators with the public interest as the principal criterion. The LTFRBs franchising and other
functions are expected to produce and maintain that balance through its control of the entry,
operation, and exit of PUVs in the public transport system. To qualify for a franchise (Certificate of
Public Convenience or CPC), an applicant operator must show financial capacity to run a viable
PUV service that fills a public need. This used to be easily justified by an endorsement from a
local government official and a presumption of need favoring the applicant, despite the
requirement of a hearing and oppositor. A more quantitative way of establishing need for
additional PUVs and routes was devised in the 1980s through a Route Measure Capacity (RMC)
survey and formula. A CPC may be granted if justified by the RMC numbers generated by this
method.
A Road Transport Planning Division (RTPD) in the DOTC provided planning support for
maintaining the public route network with the RMC method. It used to conduct the required
surveys directly in selected localities and later assisted the LTFRB through an RMC Secretariat set
up by the Board. But the initiative for the surveys eventually shifted to PUV operators, so that the
further development of the route network became incremental rather than systemic (PCI
Philippines & UP PLANADES 2007: 12-3). Besides, the RMC numbers generated became suspect
and were not consistently used. To begin with, it was uncertain whether they were a strict
prerequisite or just a guide for granting CPCs.
The LTFRB and other agencies have been unable to keep a lid on the total number of PUVs,which seemed necessary in Metro Manila where vehicular congestion and an oversupply of
vehicles had long been a serious problem. Though it may be ascribed to wider secular growth
trends, their inability stemmed partly from the deregulation policy of the first Aquino
Administration in the early 1990s and the liberalization measures taken by the DOTC and LTFRB in
the following decade . In the mid-2000s, the DOTC gave the LTFRB a free hand to issue rules and
amend existing departmental policies (DOTC DO 2005-10). Taking advantage of this delegation,
which the chair had requested, the Board more than doubled its output of MCs, from 22 in the
year 2000 to 80 in 2006. This levelled off to 33 in 2010, at which point a new Secretary revoked
the delegation order as inconsistent with the DOTCs mandate as the primary regulatory authority
in the transportation sector.
-----------------
*The martial law regime tried to wean the PSC away from its legalistic tradition by
transferring it in 1972 from the DOJ to the new Department of Transportation and Communication
(Bautista 1979: 302-303). But the role of lawyers has remained strong in the LTFRB, at least as
hearing officers.
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The legislative exuberance of the Board at this juncture may be credited to its responsiveness
to changing circumstances, including technological changes. But rudderless in terms of formal or
informal rulemaking guidelines, the LTFRBs rulemaking process was at times haphazard. MCs
were frequently amended, and in some cases retrieved almost as soon as they were issued due to
egregious errors. One MC prescribed a minimum of 6 years for the age of taxi substitutes (MC
2005-02), when what was intended for a maximum (MC 2005-07). As DOTC internal auditors
noted, the process was capricious, bereft of stakeholder consultations, and Board decisions were
made not en banc as required by its charter (IAO/DOTC 2010).* As a result, major policies and
programs were poorly administered, failed, fell short of their goals, or exceeded their limits.
A moratorium on new CPC applications, started in 2000 , for example, was frequently lifted
to authorize thousands of PUVs in Metro Manila and other regions. After being reaffirmed in 2003,
it was lifted several times in 2006 to liberalize the entry of various kinds of PUVs. In 2007, it was
lifted for 10,000+ units of express vans that, despite their point-to-point routes, operated like
taxis; in 2000, for 5,000 taxis in Mega Manila; and at another point, 5,000 more taxis for
returning OFWs wishing to become operators. The auditors also noted that far more CPCs for UV
units (3,637) were once issued than the number authorized (500). The 10,000+ vans were
authorized with RMC numbers of dubious provenance. Despite the consultations, research
inquiries, and evaluation cited by the enabling MCs, no supporting surveys had apparently been
done: uniform numbers were presented for seven of the 13 regions, while they were constant for
the others. (MCs 2007-007, -014 to -027).
The LTFRB has developed an elaborate set of procedures for entry into the PUV system.Applications for new CPC or for renewal, and other major kinds of authorization sought, require a
public hearing by hearing officers (who must be lawyers) and an adversarial process before action
is taken by the Board. Minor permissions do not require a public hearing but must still undergo
processing through at least three of the LTFRBs five staff divisions. Exit facilities include age limits
for CPC validity and vehicle life, dropping of vehicles, and abandonment of CPCs.
But the PUV business seems sufficiently lucrative for most operators to want to stay in the
system, and they can through several ways : extension of CPC validity and vehicle age limit,
--------------
*Any two members can make a decision for the Board under present law, though the chair is
the influentialprimus inter pares. In its antecedent bodies, Board decision-making was sometimes
legally individualistic, sometimes mandatorily collective (Regala 1933: 470).
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conversion between classes of service, and substitution of new for dropped units. The LTFRB also
allows the sale and transfer of franchises, appropriation of expired or abandoned CPCs, and the
legalization ofcolorum units. It has a Flexibility Rule that allows out-of-line operations that are
otherwise deemed illegal if done without LTFRBs blessing. Subterfuges have been devised by de
facto cooperators e.g. the kabitsystem whereby a non-CPC-holder can piggyback his units on the
franchise of a CPC-holder. Colorum PUVs (those operating with expired, fake, or without CPCs, or
operating outside their authorized routes or areas without LTFRBs permission) have proved a
tough nut to crack and are a substantial addition to oversupply and congestion. The PUJ colorum
legalization program also served as a cover for accepting new applications (AIO/DOTC 2010: 5-6).
Without minimizing the benefits that its more sensible regulations might have produced,
negative aspects of LTFRBs administrative procedures at staff level should be pointed out. These
include the documentary, verification, and confirmation requirements for applicants that seem to
superfluous. Copies of receipts and certifications from the LTO or BIR are often asked of
applicants but that probably the LTFRB employees should and can ascertain for themselves.
(However, poor records-keeping was another problem uncovered by the DOTC auditors.). The
same goes for the verification of petitions and applications, and verification and confirmation of
franchise validity. Moreover, these requirements often entail the payment of fees and fines at
many points. These could be very substantial, particularly for the conversion of PUVs from one
class to another class of service and for the legalization of colorum units:
P5,000 for PUJ, P7,000 taxi, P15,000 bus Late-filing fees for extension of CPC validity
P20,000Appropriation Fee for acquiring an abandoned or expired CPC
P30,000Compromise Conversion Fee for conversion to AUV/Van Express class
P100,000Amnesty Fee for Conversion from tourist or shuttle illegtal operation toregular bus service
P100,000Amnesty Fee forExtension of Route of provincial buses to metro cities
The foregoing are per-unit charges, and amount to great sums if an application is for an entire
fleet of PUVs. When asked in the mid-2000s whether they were not exorbitant, a chairlady replied
that the LTFRB imposed them on the basis of what the market would bear. Some operators seem
to be willing victims; yet, at one point, some applicants who had already paid the initial
installments of the amnesty fees did not return to pick up their approved LTFRB decisions or
orders, and it had to take steps to find them.
Other sources of LTFRBs problems go beyond rulemaking and rule-application practices, but
deserve mention. The most immediate is its faulty interface with the LTO, which has traded
criticisms with it for PUVs that operate without proper inspection and registration, or have
registered with the LTO without LTFRB confirmation of the validity of their CPCs. This gap has been
bridged through an automatic interconnectivity whereby the LTO cannot register a PUV without
prior LTFRB confirmation. But this electronic solution has been muddled by an ownership battle
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within the LTOs IT service provider, whose contract is expiring and will not be renewed by the
DOTC. Moreover, the LTFRBs ability to enforce its regulations has been handicapped also by its
lack of resources and manpower for the purpose.
In Metro Manila, the LTFRB and the LTO have had tenuous if sometimes cooperative relations
with the Metro Manila Development Authority (MMDA). Charged with traffic management as well
as development planning functions, the MMDA has tried to reduce vehicular congestion wholesale
through number-coding where LTFRB has done so in relatively retail fashion. It has tried to put
order in the deployment of buses on EDSA through an Organized Bus Route (OBR) project for city
buses and initiated a move to transfer the terminals of provincial buses operating in Metro Manila
to centralized, intermodal terminals at its periphery. However, the MMDA has been declared by
the courts as lacking charter authority to implement projects, to exercise police power, and to
enact ordinances. (Supreme Court 2007). It has thus been a pro-active but legally vulnerable ally in
the regulation of traffic and transportation.
Improving Rulemaking, Generally
The LTFRB might begin formulating a set of meta-rules for rulemaking with certain basic
principles, policies, and procedures. These should include statements that regulations should
abide by such values as the public interest and the rule of law; should be clear and consistent;
prospective, predictable, and stable; fairly easy to enforce or comply with; should not unduly
burden its objects with fees and fines, sacrifice regulatory purpose for the sake of revenue-
generation; and remember that price regulation can be exclusionary for the poor. (See Salimbier
2002 & 2003)
Rules may be classified into three categories, like those of the U.S. Department of
Transportation (USDOT): legislative, non-legislative (subclasses: interpretative and policy
statements, and management (including personnel) and procedural types. Legislative rules affect
stakeholders directly, and, once promulgated, require publication in the Official Gazette and/or the
U.P. Law Centers National Administrative Register . The LTFRB and LTO, though, do not observe
such distinctions in submit copies to the NAR, even the basic one between internal and external
rules.
There should be provisions for consulting the public, other agencies, and experts on proposedrules. An international organization has outlined nine steps starting with statements about the
initiating events, the need for a rule, its formulation, review by a central office (like the U.S. Office
of Management and Budget) , notice for and review of comments, another round of preparation,
review, and publication of a final rule or a direct final rule. (IFC International n.d.)
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Two or three points need to be raised in connection with this outline.
As indicated earlier, the meta-rules above are considered part of informal rulemaking
systems that allow departures from the strictly judicial procedures of hearings, adversarial trials,
and decisions based purely on the record produced in a court of law. Informal procedures such
as pre-trial conferences and summary resolution of cases have been incorporated in the LTFRBs
Rules of Practice, and it has been urged to adopt other reforms of the informal kind in adjudication
(NLTA Bill 2008) but none as yet on rulemaking.
A related point: a gloss on the concept of policy. In PA, we usually take this term to mean a
general rule that encompasses other kinds, including statutes and regulations. But, at least in
administrative law, policy is something less in that it does not have legally binding effect. Thus, in
the USDOTs classification, policy statements merely tell the public how the agency plans to
exercise a discretionary power . (See Rakoff 2000:5 on the recourse to non-legislative guidance
documents in the U.S.). On the other hand, some legal scholars give policy a more important
role in constituting regulations and affording greater latitude in judicial reviews of administrative
regulations. Here executive policy considerations count for more, whereas in other kinds of court
cases they may be deemed irrelevant. (Woll 1963: 188-189).*
Similar weight is given to the factual basis of regulations, which may be brought to bear from
wider sources than courts may typically allow.* This brings to mind the need to strengthen the
factual and technical evidence-base of LTFRB rulemaking. This calls for some planning capacity in
the LTFRB, which does not have a planning unit or personnel, as well as sustained support from the
DOTC. However, more resources and organization-building are probably required for upgrading
and using the database for planning and regulation. ICT resources, such as commercial softwarefor estimating transport demand, are expensive. And it may be hard to completely turn back
the inductive, incremental process of route development led by private PUV operators in the light
of the Aquino Administrations commitment to PPP. (But see the section below on BRT).
Finally, we may note that American legal scholars have explored the possibilities of using ICTs
to enhance consultative processes to better inform rulemaking, increase regulatory compliance
and democratic legitimacy, and reduce costs (Coglianese 2004). For example, electronic docket
systems for rulemaking materials that citizens can access and consult have been installed at the
USDOT and other agency websites (Farina 2010: 104). Different styles of informal rulemaking (e.g.
negotiated rulemaking or Reg Neg) have also been used.
---------------
*According to Professor Woll, the relevant facts in administrative cases are drawn not only
from the adversary process in a court, but from a broad and complex area, and where in addition
a case cannot be disposed of purely on the basis of such facts: Policy, in terms of the public
interest, must be taken into account. (Woll 1963: 189).
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However, there are pitfalls in such open systems. Agencies have sometimes received hardly
any comment on proposed rules; at other times, they are deluged by a lot of useless comments. A
device that skips public comment, called direct final rule making, was adopted for proposed rules
deemed non-controversial, but has often been resorted to precisely for proposals that are
expected to be controversial. This practice has been called rulemaking without rules (Kolber
2008) the problem we started with.
Contract Management: PPP
Here we propose to highlight important aspects of contract management in view of the
commitment to PPP by the President and DOTC. No specific case study is presented in this section,
though the one on BRT may be considered a case of PPP-style contracting out as well as regulation.
Contracting between government and private entities has been a major trend that has had its
second or third waves. The Philippine government has always had the option of doing public
works by administration or by contracting out, and the latter has been bolstered by the adoption
of Build-Operate-Transfer or BOT scheme and its variants. PPP projects, however, are supposed
to be typically bigger (than, say, road-building projects that can be segmented into smaller
contracts), longer-term, more complex, and more risky. Moreover, while privatization tends to
shift responsibility to private parties, with PPP government shares the risks and costs with private
partners but retains ultimate responsibility for project outcomes (Phang 2007: 3; Wang 2009: 781-
782).
In assuming this residual responsibility, government should keep in mind at least three
points: First, while PPP appears to be a putative settlement of the issue as to which is a more
efficient producer of public services or more vigilant guardian of the public interest, there remains
a basic conflict or tension between their goals (private profit vs. public welfare). Secondly, PPPs
provide an alternative to unrestricted bureaucratic growth through traditional general
employment contracts, but entail transaction costs as the major burden of government in writing
andmaintaining the integrity of contracts of various sorts with private parties. Transaction costs
in PPPs are likely to be high because almost all infrastructure projects present relatively complex
contracting situations especially if they are large and involve technological innovations (Vining &
Boardman 2008: 151-154). Thirdly, PPPs abroad have not had a very encouraging experience,producing contradictory results regarding their effectiveness. (Hodge & Greve 2007; Hodge
2004).
If government agencies are not pro-active in project planning, aggressive private companies
may take the lead. The Philippines had a boom in PPP infrastructure projects from 1992 to 1999,
but they then declined and most had been initiated through unsolicited proposals rather than
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government-sought PPP financing projects (World Bank 2009: 47). A first issue then is whether
the government should accept unsolicited proposals from the private sector. Reformers have
discouraged this as pre-empting the governments initiative to plan projects that assert the
primacy of the public interest. A safeguard here is the Swiss Challenge to open an unsolicited
proposal to competing proposals and to deny compensation to proponents for project and contract
preparation. However, in practice, the Philippine government has remained open to unsolicited
proposals, and it may be hard to rule them out in view of the greater financial and organizational
capacities of big companies to plan large-scale development projects.
Of the stages in contract formulation, the most crucial is probably the analysis and allocation
of the risks involved in PPP projects. Several classifications of risks have been advanced but the key
issue is which risks to assign to government, which to private parties, and on what cost basis.
Government agencies usually assume the burden of political and regulatory risks presented by
the vagaries and dangers of party or leadership turnover in government or unforeseen shocks in
the regulatory system. Difficult problems in project implementation, such as right-of-way
acquisition for road or rail construction, may also be assumed by government. Private parties
usually assume the production and other risks and costs of operational, management, financial,
and market contingencies (input price changes, organizational deficiencies, shortfalls in consumer
demand). (World Bank 2009: 78-79).
Risk- and cost-sharing decisions could be controversial. Consumer resistance to toll increases
on a privately-managed toll road could become a political as well as commercial problem. No
contract can be sufficiently complete to anticipate all future contingencies. Moreover, a
contract may allow for future amendments that can allow government to improve a project but can
also be an avenue for shirking obligations (Hodge 2004). Contract renegotiation and changes canbloat the transaction costs that figure so prominently in contracting-out and PPPs (Vining &
Boardman 2008). They also provide opportunities for corruption. Private partners may wiggle out
of their obligations, while a PPP contract is still in force, and shift a burden back to government.
An infrastructure developer may thus opt out of railway management but hold on to its
commercial land development portions because it is profitable for it to do so. Or, a private
developer may be primarily a construction company that likes to build infrastructure but is averse
to staying on to operate and manage a transit service (Flyvbjerg el al. 2003: 99).
---------------
*The World Bank classifies the private risks as demand, commercial, performance, andfinancial. (World Bank 2009: 78-79). Other authors have used different risk classifications (e.g.
Mishra 2010). Evaluating the French system for contracting out urban transit, Roy and Yvrande-
Billion reduce the risks to two basic types, production and revenue risks, and three cost-sharing
schemes in which private contractor assumes both, or only the production risk, or where the
government assumes both risks and the private manager is risk-free. (Roy & Yvrande-Billon
2007: 3-4).
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Private investors fear political risks most. This fear appears to have been raised with the
present Administrations PPP program (Palabrica 8/12/11). Its announced commitment has been
followed a year later by troubling news of its abrogation of existing contracts begun under the
previous Administration and tainted with its corruption scandals. Contracts that are
disadvantageous to the government and the public deserve to be reviewed and rejected.
Nonetheless, this action is likely to scare investors who place great stock in credible
commitments. (Rosario, 7/11/11; Palabrica, 8/12/11). Fears of instability and unreliability may
have been worsened by President Aquinos vaunted appointment of contract breakers in the
leadership of the DOTC in 2011. Even before, the DOTC had been busily reviewing previous
contracts. After Secretary Mar Roxas took over the DOTC, he announced that a rail project already
contracted with the Japanese government had been reconfigured on a hybrid PPP scheme that
would rely more on government and ODA as well as private funds (Calica 9/2/11; PDI 9/30/11).
This apparent retreat, however, seems to have been ignored by President Aquino. Although
criticized for being slow on PPP implementation and for underspending last year, he has
recently earned bragging rights for a 6.4% GDP increase due mostly to government spending.
Contract administrators must be prepared to operate in an agile fashion in such a volatile
political environment. But they have to have firm organizational and professional bases to operate
from. The creation of a Philippine PPP Center has probably given the program a needed
foundation for central planning, management, and regulation.* While positions and units for
contract management may already exist in some departments, however, organizational
development for the function may have lagged behind at lower levels. This is suggested by the
past experience of the Department of National Defense (DND), whose billion-peso modernization
program (started in 1995) should have induced the formation of a strong procurement contracting
system but as of 2000 had not. A DND Circular stipulated procedures for buying weapons andequipment and contract signing, but barely touched on the process of contract execution and
administration, and not even a position of Contracting Officer had been created for the program.
(Montanez 2001: 1).
We need empirical as well as theoretical and technical studies to assess more accurately
the progress and problems of contract management at different levels of government. As for
training and curricular development, cursory Web surfing suggests that some in-service training
courses on the subject have been on offer, and lists of topics and references abound (Garson
2006). But these may need to be digested and reconfigured in PA terms.
-------------
*At a recent meeting, we learned that a major thrust of the Center is to help agencies build
capacity for project development, an effort that would be extended to local governments.
However, we also learned that national transport agencies still lacked the technical capability and
databases needed to assess the validity of private project proposals and resolve competing claims.
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Institutional Challenges of Bus Rapid Transit (BRT) Systems
BRTs approximate the advantages of urban railways with less of their large construction,
operating, and management costs and poor financial performance. BRT buses run on dedicated
road lanes along a predetermined route network, are given priority at signalized intersections, and
have well-designed bus stations that allow easy passenger boarding. Fare is collected before
boarding rather than on board. Pairs of big, clean buses in the BRT fleet may be linked
(articulated) and their station stops and headways (waiting times) are precisely synchronized, so
that they can travel faster but more safely and reliably. Great emphasis is given by BRT designers
on the branding the BRT system with corporate names and markings on the buses, stations, and
busway intended to attract patronage.
Related to pre-boarding fare collection is a distinctive institutional feature of BRT. Fare
collection is assigned to an agency separate from the operator of the bus fleet. The operator and
his staff are compensated, not on the basis of fare revenues collected on board, but on
performance criteria previously agreed with the BRT owner (usually a public authority) and
resulting from a competitive bidding or negotiation with private contractors. Aside from the
primary operator(s), others may be invited to bid for peripheral parts of the BRT network (the
feeder routes to the trunk line). The fare collection, compensation, and tendering systems are
intended to promote competition for the market (entire routes) but not in the market
(different bus companies competing on the same routes and thus engaging in penny wars).
BRT systems have been implemented more or less successfully in Latin America, theU.S.Europe, and Asia, and have been seriously proposed here (notably in Cebu City). At least in the
pioneering cities of Latin America, the reforms and innovations they called for have taken a great
deal of time, resources, and political will. They have had to break out ofthe vicious regulatory
cycle in which existing public transportation systems are supposedly trapped (Gomez-Ibanez &
Meyer 1993: 18-19; Gwiliam 2008: 1184-1188).* The good news is that a BRT project developer can
start small , proceed incrementally with different combinations of BRT elements, and build up to a
more comprehensive system (Niles & Jerram 2010).
What can be done depends partly on the initial conditions. The Philippine public transport
system started as private enterprises that came under government regulation and control. The
--------------
*According to this view, a public transport system may start out either as a government
monopoly or an unregulated one dominated by private operators, go through different phases over
time, and eventually return to square one with no improvements in service. (Gomez-Ibanez &
Meyer 1993: 17-19).
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Marcos regime (1972-1986) tried to consolidate the mostly private PUV operators into consortia
(bus companies) and cooperatives (jeepneys), and set up and ran its own bus company in Metro
Manila. The latter eventually folded up and, with permissiveness of deregulation policy since the
1990s, the bus consortia broke down and the PUV system was swamped by a multitude of small
and individual operators.* The current system is at best a mixed one where even the urban
railways (LRT and MRT) that have assumed a large share of mass ridership are run separately by the
DOTC and by a private corporation under contract with the government.
As shown earlier, government regulators have found it hard to ride herd on the road
transport system. Although some improvements have been made in Metro Manila circulation
(partly through the MMDAS draconian number-coding that now includes buses), congestion,
oversupply, and reckless driving behavior remain worrisome. PUVs are overcrowded at peak hours,
and underloaded or idle during lulls. PUV drivers take on and let off passengers mid-stream, still
race for fare despite a regulatory shift in the bus drivers compensation, and account for many of
the worst road accidents.
Given this kind of situation, it may be hard to get a radical project like BRT started and
sustained. Yet BRTs have been claimed to be just the sort of thing needed to get over the hump.
One of the principal reasons for BRTs recent success, BRT Planning Guide notes, has been its
ability for ending this vicious cycle tobreak the regulatory logjam (IPDP 2007: 550, 558). It is
no easy challenge, however.
BRT planning may start with the assessments of transport needs, then proceed to
determining which parts of the existing network could be marked out for a busway. This could be
Initially limited to a major corridor for operation by the primary bus operator(s), but futureexpansion with feeder branches to be served by other operators may already be envisioned.
Should the busway be exclusive or closed to other traffic, or should it run in mixed traffic (though
with priority lanes and priority at traffic signals), or perhaps in a combination of exclusive and
mixed-traffic lanes ? Even at this stage, such options could already be controversial and contested;
so could the institutional reforms needed.
----------------
*in 2007, a Mega Manila Public Transport Study reported that the system consists of
about 210 public utility bus (PUB) operators maintaining close to 3,000 units plying 62 routes,excluding about 15 provincial routes, and around 48,400 units of public utility jeepney (PUJ) plying
some 600 routes. There were also about 16,000 UV Express service units. (PCI Philippines & UP
PLANADES 2007: 1-1, 12-1). By 2010, these numbers had grown to 2,281 CPC owners with 16,744
PUB units, 124,146 PUJ franchisees with 134,004 units, and 17,824 taxi owners with 22,612 units.
On average, the CPC holders in Metro Manila had 8.18 PUB units, but the PUJ and taxi owners had
only somewhat more than 1 unit each.
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Establishing the institutional structure for BRT is an intensely political process which
subjects the advice given by technical experts and management consultants ultimately to the
decisions of higher levels of government. Decisions at the strategic, tactical, and operational levels
(van de Velde 1999: 148) must be made as to the roles of policymaking, planning and regulatory
agencies, the BRT organization, and how to get existing private operators into the system. A
separate and new corporate organization to operate and manage the BRT system is usually created
by the national or local government sponsoring the project. In Colombia, the city of Bogota
created TransMilenio as the implementing agency for BRT (see Chart 2 appended) (IPDP 2007: 725).
As experience elsewhere shows, these tasks require strong political leadership, technical
knowledge, and intelligence about stakes in the present system, the interests, costs, contractual
obligations, and other matters . What role should be given to the regular agencies in charge of
road-building and transport regulation? In Bogota, the municipal department in charge of route
allocation was not given a seat in the Transmilenios board of directors because it was likely to lose
revenues from the new BRT route assignments. It was brought on board only after the BRT system
was already established. In Indonesia, Transjakarta was placed under the control of the
department of transportation, which showed great reluctance to cut parallel routes in the
Transjakarta corridor (Ibid.: 555).
Getting thousands of private operators to cooperate involved a struggle in Curitiba, Brazil,
that was marred by violence. There the consolidation process took several decades to accomplish,
while in Bogota, the transition was made all at once with the construction of the BRT system. In
order to force tens of thousands of private operators to the negotiating table, however, Bogotasmayor used carrots and sticks and also the intelligence gained from data and modelling about
route profitability. The bidding favored experienced operators but required them to form
companies and forced winners to destroy six old buses for every new bus they needed to buy.
(Ibid.: 556).
On implementation, let us quote IPDPs BRT Planning Guide to make a long story short:
Once the body of the operational design, physical design, and business plan are
complete, a political commitment will be required to move towards construction and
full implementation. The designation of an agency to oversee implementation shouldbe made well before the planning process ends. Also, many contractual agreements
will be required in order to legally release the implementation work. These contracts
will cover areas such as construction, maintenance, and operations. (Ibid.: 718).
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At the outset, contract preparation was a major job that Transmilenio attended to. This was
done in cooperation with the city government. But since the latter did not have a legal
department, it had to contract out contract preparation! (Ibid.: 726) It is unclear whether
regulation was part of its functions, but contracting probably served as its functional equivalent
or major tool as far as the private operators were concerned. The operational contracts took a
whole year to prepare before the new BRT system could be launched starting with model
contracts and then with the versions that they negotiated with. (Ibid.: 726). Maintaining the
documents, monitoring compliance, renegotiation, etc. became a continuing job for Transmilenio.
Aside from construction companies for the infrastructure and the private operators for bus
operations, one other important party to be contracted with is the fare operator. This entity
designs, installs, operates and maintains the fare collection system at the BRT stations. The fare
revenues form part of the resources used to compensate the bus operators, but may be
supplemented by tax funds and do not necessarily determine the level of compensation. Instead,
this depends on agreed levels and quality of service , with or without subsidies and guarantees
against operating cost increases or declines in patronage. BRT operators, drivers, and other
contract personnel are thus paid on the basis, not of fare box revenue, but ofother performance
standards: total mileage*, schedules, safety and comfort. The separation of fare collection from
operational management is intended to avoid competition and penny wars on the road.
BRT Projects in the Philippines
Here lies, then, a basic difference with the reform efforts attempted in the Philippines. For
example, in order to reduce PUV competition on the road, the LTFRB has issued an MC shifting thecompensation of drivers and conductors from fare-based commission to regular salary (MC 2012-
001), and other means have been applied or proposed to slow down PUVs (particularly buses), such
as speed limits and speed-limiters. Without complementary institutional changes** like those
-------------
Transmilenio shared revenue risk in a way reasonably evenly divided between the city and
the operating companies. The trunk operators were paid by the bus kilometer regardless of
demand. If the demand turned out to be lower than projected, the operators suffered the loss.
In this case, Transmilenio had the right to reduce the total kilometers to be covered, while the
operators were allowed to extend their concession from 10 years until the average kilometers perbus reaches 850,000. In practice, however, there was usually no shortfall - ridership exceeded
anticipated demand. (Hook 2005: 12).
**A leader of provincial bus operators also pointed out in an interview that the measure is
focused on the compensation of drivers and conductors (who are likely to have their current
incomes reduced by the wage standard of the measure), when the total financial viability of bus
operations should have been attended to. (Yague 6/22/12).
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embodied in BRTs, however, such measures are likely to have limited influence on driver behavior
and traffic problems, like the other innovations which have been tried (including bus, jeepney, and
motorcycle lane segregation). Buses with curious names like JAM, Safeway, Lippad, and
Kellen still whizz by, as though nothing has changed.*
BRT projects have, however, been proposed here. A business group has proposed a BRT
busway from the business center of Makati City to the emerging Global City in Taguig City. The
proponents, Ayala Land Inc. and the Makati Commercial Estate Association have presented an
unsolicited BOT project to the DOTC. It seems that it has not taken off. The government, though,
has recently sought expressions of interest in a feasibility study of a BRT project for Metro Manila
(without mentioned the ALI/MACEA proposal). The project in Cebu City probably had an earlier
headstart, has received aid from the World Bank and will likely get funding for implementation.
The BRT will run on an exclusive busway along a 15 km. corridor which may later stretch into
neighboring cities and towns. It is expected to involve 190 buses, 400 drivers, and 300,000 daily
passengers. The BRT has been billed as a PPP project seeking inclusion in the Presidents agenda,
with the infrastructure to be built by the government and the service to be fully run by the private
sector. (Lato 2010).
The institutional challenges to the BRT in Cebu are formidable. According to a World Bank
project information document (PID), the provincial, metropolitan, and local entities *there] do not
have the legal authority to develop road-based public transport. Cebu City does not have a
mandate and formal framework for passenger transport. The metropolitan organization is
designed purely for planning and is not comparable to MMDA (such as it is). A major component
of the BRT plan is the operationalization of the institutional arrangements for ownership,management, and operation of the BRT and its ancillary services. Existing or new agencies are
needed for implementation, procurement, operation and regulatory oversight, requiring legal,
administrative, and procedural innovations. (World Bank 2011: 3, 7. No mention was made in the
PID of the system for fare collection.)
The key risks to the Cebu BRT project, the World Bank PID warns, are at the institutional and
implementation agency levels. These are (i) the perceived high risk of corruption in the transport
sector, (ii) weak capacity and governance, (iii) potential opposition from the informal transport
sector, people to be resettled and proponents of a light rail system for Cebu, and (iv) the lack of
clear institutional arrangements. Another important uncertainty at this stage is the uncertainty asto whether the ultimate borrower will be DoTC or Cebu City. (Ibid.: 7).
--------------
*(See next page for footnote.)
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Conclusion
Approaching its topics from an institutionalist perspective, this paper has discussed the
processes and problems of government regulation, with emphasis on rulemaking in the LTFRB; the
important task of contract management in the context of PPP; and the promise and institutional
challenges of BRT systems. We have highlighted the following points:
First, there appears to be a serious lack of basic guidelines or meta-rules for rulemaking in
the LTFRB (and probably in other regulatory agencies as well), and unbridled rulemaking has had
adverse consequences in the regulation of public road transport services. We have thus outlined a
way to fill this gap, though with caveats also derived from American experience with an open,
informal rulemaking system. More research is needed to ascertain the existence and
consequences of the quasi-legislative gap in other agencies.
Second, contract management has become a major administrative task in view of reform
efforts to downsize government but particularly in light of President Aquinos commitment to PPP.
PPP projects have not compiled a good track record abroad as well as at home, with some authors
saying that future assessments should be conducted away from policy cheerleaders. (Hodge &
Greve 2007: 545). PPP policymaking and contract management in the public interest call for
honing political and professional skills in risk analysis and allocation, dealing with unsolicited
proposals, maintaining as well as writing contracts, particularly in a volatile political environment,
and institution-building for contract professionals.
Third, BRTs have been successfully implemented elsewhere to break the regulatory cycle and
improve bus transport, and have been seriously proposed here, particularly in Cebu City. But givenproblematic starting points, BRTs pose great challenges for political leadership and institution-
building as well as for planning, regulation, and PPP-style financing. BRT projects may start small,
but the minimum scale feasible may be swamped by the hurdles on the way. They must be led by
-------------------
*The LTFRB Memorandum Circular (MC 2012-01, approved Dec. 13, 2011) requiring the shift
to a salary-based compensation system for bus drivers and conductors was to take effect fifteen
(15) days following its publication, but a TV report in the evening of June 26, 2012 said that it was
to take effect on July 1, 2012 yet. No wonder those buses were still whizzing by! In any event, my
surmise is that the bus drivers and operators are likely to resist the requirement or find some defacto way to restore the commission system; or, if they (eventually) comply, bus services are likely
to slow down considerably and many passengers will get ignored and left behind.
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brave but pragmatic champions who wont lose sight of the public interest in ensuring that they
will bring about better and yet financially viable transit services.
Although long, this paper has just skimmed over its topics. It needs to go deeper into them.
Perhaps I have not said enough about related issues or events, such as when government
regulators fail to do in a big way, such as has happened in the American and British financial
systems, where governments have had to save banks and financial institutions that had grown too
big to fail but not to bail (read Stiglitz 2010). How about institutions that have remained
entrenched and powerful so that citizens have become puny and helpless before them, when they
raise their prices, impose penalties, or inflict other injustices? Or the re-assertion of personalism
and the family in government institutions through political dynasties?
I trust that others will pursue such issues in the frontiers of PA.
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REFERENCES/BIBLIOGRAPHY
(This list includes materials not specifically referred to in the paper, but which the reader may
find useful in further investigation of the topics covered.)
Armstrong-Wright, and Sebastien Thiriez. Bus Services, Reducing Costs, Raising Standards,
World Bank Technical Paper Number 68, Urban Transport Series. Washington, D.C.:
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Awit, Jujemay G. World Bank: Bus Rapid Transit faces 4 risks, Sun Star Cebu, May 29, 2011.
Bautista, Victoria A. Negative Bureaucratic Behavior in the Regulation of Taxicab Businesses: