(UPDATE 2) Poll automation in peril as winning firms squabble

Posted at 06/29/09 5:46 PM

MANILA - The marriage of convenience between the two companies that won the bid to automate next year’s elections has fallen apart

After barely surviving over a month of screening and evaluation by the Commission on Elections (Comelec) for the right to automate the May 10, 2010 polls, Dutch-Venezuelan Smartmatic and Filipino partner Total Information Management Corp. (TIM) is on the verge of break-up, putting the automated elections in peril.

TIM president Jose Mari Antunez told the Comelec en banc Monday that the firm is pulling out from its joint venture with Smartmatic due to irreconcilable differences.

These differences revolve around issues on who has control over the consortium’s finances and who has the final decision over the technical aspects of the P7.2 billion project.

These differences were the reasons why the two partners have not yet finalized a proof of their legal personality: their joint venture incorporation papers with the Securities and Exchange Commission (SEC). Comelec chairman Jose Melo said the incorporation papers of the winning bidder was a requirement for the contract signing set for next week.

“We are going to ask Smartmatic/TIM to submit its joint venture incorporation papers by Friday (July 3). If they are not able to come up with their SEC registration, we may call off the whole thing because it will be too late,” Melo told ABS-CBN News Channel (ANC) on Monday afternoon.

He ruled out the possiblity of having another bidding for the project. “We cannot call for a second bidding. We are running out of time.”

Corporate squabble

Sources and documents obtained by abs-cbnnews.com/Newsbreak show that TIM had raised two key issues in its joint venture partnership with Smartmatic.

First, TIM questioned why the joint venture’s Chairman of the Board, who would have encompassing power over financial matters, should be from Smartmatic.

Based on the proposed SEC registration papers for the joint venture, the board chairman of the joint venture would come from the ranks of Smartmatic. A source close to TIM told abs-cbnnews.com/Newsbreak that Smartmatic insisted that the board chairman should be nominated by Smartmatic.

The proposed SEC registration papers said the board chairman is also empowered with the authority to sign checks on his or her own in cases of disagreements between the two partners.

Second, TIM was concerned why Smartmatic would be assuming total control of all the technical aspects in the automation.

In the proposed contract of lease with the Comelec, it states that Smartmatic, “as the provider with the greater track record in automated elections, shall be in charge of the technical aspects in the counting and canvassing software and hardware, including transmission configuration and system integration.”

A source close to TIM said that this provision on the technical aspects exposes the automation to possible manipulation. “TIM does not want to be involved in election cheating,” the source said, explaining TIM’s reservation.

TIM is trusted by local banking players. It provides data recovery and retrieval, and offsite data storage services to most local banks. It once lost an earlier Comelec bidding to the controversial consortium of Mega Pacific, which won the P1.3 billion contract to purchase automated counting machines. (Supreme Court declared the Mega Pacific deal as void in 2004)

Prior to his meeting with the en banc, TIM president Jose Mari Antunez, in a phone interview with abs-cbnnews.com/Newsbreak, confirmed that Smartmatic and TIM, “just like any husband and wife, have their differences.” Asked if TIM is pulling out of the joint venture, Antunez was vague. “It may or may not happen.” He would not elaborate on the issues saying: “These are serious concerns.”

But during his meeting with the poll en banc, Antunez raised questions on TIM’s partnership with Smartmatic. The Comelec refused to take part in it.

Comelec Commissioner Nicodemo Ferrer told abs-cbnnews.com/Newbreak that Comelec told Antunez, "‘We have nothing to do with your problem with Smartmatic. Whatever your internal squabble is, you have to incorporate. The ball is in your court.’”

In an interview over ANC on Monday, Comelec chairman Melo confirmed the partners’ squabble. “I think the trouble between Smartmatic and TIM, and this is just a guess, is [about] control of the corporation. TIM will be 60 percent while Smartmatic will be 40 percent, but it could be possible that most of the financing would be coming from the minority, the 40 percent,” said Melo.

60:40 joint venture

Smartmatic spokesman Cesar Flores, in a separate interview, confirmed with abs-cbnnews.com/Newsbreak that TIM raised such issues that could explain why TIM is stalling in signing the SEC registration.

On the issue of the chairmanship, Flores said Smartmatic, as the minority group in the joint venture, would want to protect its interest. Under Philippine laws, the joint venture should be 60:40 percent, in favor of the Filipino partner.

Flores said the chairman is only empowered to break a tie in case of deadlock in financial matters. He said also there is nothing wrong with the chairman being appointed from the minority group as such is allowed by the SEC.

As for Smartmatic having total control in the technical aspect, Flores said this was provided for in the request for proposal or RFP forwarded by Comelec. In the RFP, Flores said the company with the best track record in implementing automate polls should have control in the technical aspect.

Flores said Smartmatic chose TIM as its local partner since it had a track record.

In an earlier interview, Flores was mum about its problems with TIM, saying it was simply a problem of TIM not signing yet the SEC registration papers. “We are still in the process, Smartmatic has signed all the documents and we are waiting for our partners to do their part so we can move,” Flores said.

On June 3, Smartmatic/TIM offer was declared as the lowest calculated bid, submitted a P7.2 billion as its price offer.

Under the automation project, they are supposed to provide will be providing more than 80,000 precinct count optical scan (PCOS) machines for the country’s first-ever automated elections in 2010.

Criminal liability

“If you are going to put your private interests above that of the national interest, which is the election, that's it. I don't want anybody monkeying around with the Comelec,” said Melo of his talks with TIM.

As it is, the Comelec chief noted that the negotiation has already been delayed as it was stated under the rules that the contract should have been signed seven days after the notice of award was given to the winning bidders.

“The notice of award was awarded on June 10, and up to now there is no contract yet,” he said.

The poll chief warned Smartmatic and TIM that they could be held criminally liable for failure to comply with the requirements preparatory to the final award of the contract.

Commissioner Nicodemo Ferrer, in a separate interview, said officials of the consortium could face imprisonment of six years to 15 years under Section 65 of RA 9184 or the Government Procurement Act.

Partner with Comelec?

With the break up of the joint venture, Melo ruled out the possibility of having another bidding for the project. “We cannot call for a second bidding. We are running out of time,” he told ANC.

Melo said an option is partial automation. “We will have to conduct second bidding. If we have the time we might have a central count, the same thing we used in the Autonomous Region in Muslim Mindanao election.”

In his interview with ANC's Tony Velasquez and Pia Hontiveros, Melo also raised the possibility of Smartmatic entering into a partnership with the Comelec for the 2010 automation project.

“We are going to explore now Smartmatic doing it alone in a sort of partnership with the Comelec. They say that something like that was done with the Department of Foreign Affairs with regard to the passport machines,” said Melo.

Melo said many people will be disappointed if poll automation is not implemented since this was one of the electoral reforms promised by the Arroyo administration.

If it does not take place, Melo said the COMELEC would have to go back to the "discredited" manual poll system, which has been in place since the end of World War 2.

In an ANC interview on Monday, Smartmatic’s Flores said his firm is still committed to the project, and that it has already signed the draft incorporation papers. He also expressed hope that TIM would not back out.

In a statement, Flores said, “At Smartmatic, we are prepared and committed to the automation of the 2010 elections. We have the necessary experience and the best technology, and we have the knowledge and the people.”