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DBM Unfazed?
By Michael Alan Hamlin
April 28, 2003
Department of Budget & Management
(DBM) assistant secretary Eduardo P. Opida is unfazed that rights
to an e-procurement solution the government intends to purchase
for P250 million are in dispute. "According to the contract's
provisions, the government will be held free by the contracting
partners from any individual claims made against any of them,"
he said. As usual, Opida misses the point.
The dispute, you'll recall, involves
an e-procurement solution offered to government by a consortium
of companies led by Hong Kong-based EWETC. EWETC says it developed
the technology in the Philippines using Filipino engineers. However,
Veronex, Inc., which is presently headquartered in Canada, claims
it funded the development of the EWETC solution to the tune of US$8
million, paid for EWETC's Filipino engineers to be trained in the
U.S., and paid other sums to EWETC's president, Thomas J. Price,
first as an employee, and later as a joint venture partner. Price
was formerly president and COO of Veronex. The claims are made by
David Hite, chairman and CEO of Veronex.
In the interest of full disclosure,
some of my clients participated in the bidding for the government's
e-procurement system, and lost.
So what does Opida miss, or ignore,
as the case may be? For starters, as in all legal disputes, claimants
will follow the money. According to public documents on file with
the SEC, three of the companies in the consortium EWETC leads -
ABC Consulting, Infomediary, and EWETC itself - have negative net
working capital as calculated by DBM's Net Financial Contracting
Capacity formula. Thanks to Right Computer Systems, net working
capital for the consortium as a whole is around P150 million, which
incidentally, is less than that required by DBM for qualified bidders
for the project in the first place.
But the principal point is that if
the EWETC consortium - which calls itself iTBF - is awarded the
contract, EWETC will suddenly become an attractive target for Veronex,
which may try to recover its investment. Despite his claim, there
is good reason that should be a concern to Opida, and the government.
A judgment in Veronex's favor, as anyone who has been involved in
cross-border legal disputes knows, can be fairly easily implemented
in the Philippines and even more easily in Hong Kong, where EWETC
is registered.
Although Opida argues that the EWETC
consortium is contractually obligated to indemnify government against
any claims, that's going to be cold comfort if EWETC is left without
an e-procurement technology or the financial wherewithal to provide
one to the government, as a result. While that outcome may be far
from certain at this point, dismissing the prospect is incredibly
irresponsible.
If DBM goes ahead with its contract
with the EWETC consortium, it will be knowingly contracting for
intellectual property whose ownership is under vigorous - some say
convincing - dispute. I don't know of any organization that would
enter a contract under such circumstances, especially one as strategically
important as the government's e-procurement initiative.
But there are even better business
reasons for caution. Although DBM claims it did a full due diligence
with respect to EWETC and the technology it is offering, in fact
the solution appears to have never been sold previously, and EWETC's
rather crude website offers no reference sites, no client list,
and no testimonials, typical features for any legitimate firm with
a legitimate technology and real clients.
In fact, as I've previously noted,
Price himself has publicly claimed that EWETC developed its e-procurement
solution over a two year period on spec for the Philippine government,
despite the fact that there was no guarantee that the government
would purchase the solution. For a startup with a shaky balance
sheet, that's a pretty gutsy move. And it confirms that this is
an untested solution, and that the Philippine government appears
to be the only taker for EWETC's technology.
So let's see. We don't know if EWETC
owns the technology it's trying to sell, and second, we don't know
if it works. Does that leave you unfazed?
(Michael Alan Hamlin is the managing
director of consultancy TeamAsia and the author of three books on
Asian economies and companies. His latest book is Marketing Asian
Places, of which he is a co-author (Wiley, 2001), and he is currently
at work on High Visibility: The Making and Marketing of Asian Professionals
into Celebrities. Write him at mahamlin@teamasia.com.).
Copyright © 2003 Michael Alan
Hamlin. All Rights Reserved.
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