Success fee

 Photo from www.ops.gov.ph       

      Caught  the Senate hearing at around 6:30 pm and thought it would have to wind up because the “surprise  witness”, Leo San Miguel, a radio electrical engineer  and cable TV executive  and technical consultant of ZTE,  did not testify in the way that he was “expected” to testify so i was just half-listening. Then i was startled when he casually mentioned of his success fee from the ZTE contract; that was what he called it, a “success fee” dependent on the contract pushing thru or being approved. The success  fee  was  0.5% of the contract price (or 0.5% of $329 Million) or more or less $1.3 million or P68,380,000 at  the exchange  rate in 2006;  i  texted dozens of people at 7:00pm that:     

        Technical consultants are compensated for services rendered. “Success fee” is like a fixer’s fee, not based on technical services, but on one’s contacts, influence, and signatures  one gets affixed on permits, licenses, contracts.        

       An hour after, one senator  brought up the success fee again  but could not get the “desired” answers  and just resorted to calling him  a “fixer” in the end; that alerted the witness that the line of questioning was to establish  his role as a fixer; fortunately the other senators were able to elicit substantive answers from the witness, such as admissions that:  indeed the arrangement deviated from ordinary corporate  practice; none of it was in writing, the payment to him was dependent on  whether the contract  went through or was approved or “magkatuluyan”; that his engagement was based on relationships rather than contracts; that it was his judgment call to be paid that way; that the purpose was to incentivize the work; that he was being paid for his familiarity with the local environment; that he was present in five or six meetings with Abalos, Ruben Reyes, Quirino de la Torre, Joey de Venecia, and Romy Neri; and that the success fee was to be taken from the contract price.     

          Why was i startled when i heard him casually mention success fee at 6:30 pm?

       Because the success fee involved government contracts and government funds. Apparently he has been mentioning “success fee” since this morning! 

           The ZTE deal, while based on a loan agreement,  when executed, is actually  a government infrastructure contract (broadband). It’s is not an ordinary contract between private individuals. I’m not sure whether Mr. Leo San Miguel’s “trade”, where he charges a success fee depending on whether the government infrastructure contract goes thru, is legal.

            Maybe because the term is used in other “trades”, he thought there was nothing unusual about it.  

          Some lawyers  charge a success fee; they inform their clients during the engagement  that there is a “success fee”; perfectly legal because  it involves private funds from the clients. It’s usually called a “contingency fee” in the billing, and lawyers, at least in the Philippines, are not allowed to bill an “unconscionable” contingency fee.

              Real estate brokers also collect commissions for every deal that they close; properly called a commission and perfectly legal, they involve  private funds.      

      Employment  placement  agencies and head hunters also charge a “success fee” for every person that they successfully connect to an employer abroad; also private  funds.   

          But when computer engineers, electrical engineers, technical consultants, act as middlemen and are paid on  the “success” of the contract and not on advice that they give and services  they render (drawing up designs, evaluating prices, etc.)….i don’t know if that trade is legal.

           By they way, didn’t this contract push thru? Didn’t the President cross the ocean to witness its signing while her husband lay on the brink between life and death? Wasn’t this contract consummated but just got suspended about a year later?   

            It was in cash. It’s not in any of the ITR’s.

           (Of course, 0.5% of the contract price is considered “moderated” being only P68 million. Senators were disappointed that Leo San Miguel denied directly knowing of any kickbacks or commissions.  He denied knowing of any kickbacks… except his own moderated success fee,  quite within the permissible zone.)