Philippines Defense Sector Procurement

The Philippine Government is continuing efforts to implement the second tranche of its military modernization program. Under the Revised Armed Forces Modernization Program (Republic Act 10349), the plan for the program involves three five-year phases, or “horizons” spanning from 2012-2027.  The first Horizon (2013 to 2017) involved purchases of military hardware mainly for internal security challenges, though some big-ticket air and naval acquisitions were included. The second horizon (2017 to 2022) envisions shifting focus of defense acquisitions from internal security to territorial defense. 

The Philippine Government has allocated around US$5.6 billion for Horizon 2. Procurement budget for Horizon 3 (2022-2027) remains to be seen. Given the Covid pandemic, procurements are on hold, and budgets may be reallocated. However, defense spending remains a priority for the Philippines, given territorial concerns and the recent termination of the Visiting Forces Agreement with the United States. This brief will provide insight into defense procurement and will not touch in foreign military sales or excess defense articles.
 
Procurement Environment: The United States has long been the major supplier of defense equipment to the Philippines, but Italy, Spain, Germany, Israel and South Korea are strong competitors. Russia has also been emerging as a new player in the market. U.S. firms have had success in defense procurement due to the strong U.S. connections held by many Philippine officials who have attended U.S. military institutions or participated in joint exercises with U.S. forces. These officials are well positioned to make important procurement decisions, and have favored U.S. defense equipment.
 
All military procurements are conducted through competitive bidding with very few exceptions. Tenders are announced on the electronic procurement site with firms being able to purchase bid documents and bid. Common challenges cited have been that the bidding procedures are overly tedious with excessive documentary requirements.
 
Tender opportunities are developed through technical committees that determine specifications based on inventory, capability gaps, and maintenance needs. The larger defense plan starts off with many desired purchases and capabilities (some being a bit too ambitious), and U.S. firms can help refine such desires into specific tender opportunities they can compete for. This is done through finding a champion that favors one`s solution, presenting to the technical committee, and helping design the specifications. Managing expectations is also critical as the Philippine side will often already come to the tender with a strict budget in mind that often does not match with the solutions they desire. Carefully managing this type of situation without allowing the Philippine side to lose face is key.
 
Firms interested in supplying to the Philippine military need to find a local representative and conduct a capability brief to the appropriate service command. The local representative must be familiar with the procedures of the Government Procurement Reform Act (GPRA.  While foreign firms can bid directly for large defense procurement projects, a local representative is still required to monitor project development. Procurements often take 3-5 years from conception to delivery/acceptance, firms need a very proactive and patient advocate on the ground.  The local agent should also handle common procurement challenges such as delivery and payment issues, technical inspection acceptance questions, and warranties. 
 
Commercial Service Philippines works with many U.S. firms in or interested in defense opportunities in the Philippines.
For more information, contact: Commercial Specialist  Thess Sula,(Thess.Sula@trade.gov), U.S. Commercial Service Philippines.