COA warns HGC against entering into new agreements with two housing developers

Published July 5, 2019, 5:49 PM

by AJ Siytangco

By Ben Rosario

The Home Guaranty Corporation (HGC) has been warned against entering into new joint venture agreements (JVAs) with two housing developers that were found to have breached previous agreements due to delays in the completion of two housing projects covering nearly 250 hectares of land and costing over P3.1 billion.

The Commission on Audit, in its 2018 HGC Annual Audit Report, warned that entering into new JVAs with the same developers will put the HGC at a “disadvantage” due to the previous accomplishment record of the two firms.

Home Guaranty Corporation (MANILA BULLETIN)
Home Guaranty Corporation

However, in its reaction to COA’s allegedly “sweeping” audit observation, HGC management stressed that the new JVAs were “the outcome of a deliberate exercise of prudence and sound judgment” that its Board of Directors arrived at.

The HGC said that aside from the board, composed of the Secretary of Finance, chairman of the Housing and Urban Development Coordinating Council and Director General of the National Economic Development Authority, professionals “with vast experience in government and private sector” gave the recommendation to tap the two developers for the new JVAs.

Naming the two private firms as “Developers A and B”, COA noted that the HGC’s previous experience in dealing with the two should be the bases by which the firm should have based its decision on the awarding new JVAs.

“The causes of delay interposed by Developers A and B to attain the targets in the development, completion, and marketing of the Projects with recoverable amount of P2.665 billion and P556.142 million, respectively, were contrary to Article III and Article II of the old JVAs of Developers A and B respectively, hence there is a breach of contract,” COA said.

The audit agency also blamed the two developers for “lack of due diligence that have contributed to their failure to remedy the events that caused the delay.”

“Thus, awarding the new JVAs to the same developers places HGC to disadvantage due to the aforementioned grounds,” COA warned.

The audit agency also noted that the transfer certificate of title (TCT) of HGC properties covered by the JVAs were neither registered under the name of the state-run firm nor bear the annotation of the JVAs.

COA said such oversight is considered a violation of the provisions of Presidential Decree No. 1529 or the Property Registration Decree and Article III and Article IV of the JVA which should subject the developers to penalties or cause the suspension of the agreement.

The JVAs cover a total area of 2,180,000 and 290,225.28 square meters that have a recoverable amount of P2.665 billion and P556.142 million, respectively.

State auditors said HGC had enough grounds to terminate the JVAs because both developers have failed to complete the development of the housing projects “within the specified time period.

According to COA, the two developers could not blame the HGC for the delay that was triggered by the topography of the sites of the undisclosed projects.

“Developers A and B are well aware of the type of land it is going develop,” said COA as it noted that the two projects covered an 86 hectare land with slightly rolling terrain while the other, with 44-hectare portion that “has a relatively flat to slightly rolling terrain.”

The presence of informal settlers in the areas that were covered by the housing project development also slowed down the completion of the projects, it was gathered.

“These were already existing prior o or even during the business planning and market research of the projects.   Developers A and B could not use them as an excuse for failure to complete the projects,” COA said.

The state audit agency urged the HGC to terminate the JVA should Developers A and B “fail again to comply with the provisions of the JVA.”

COA also asked the HGC to “carefully study similar contract/agreements” in the future to “avoid unnecessary losses and disadvantageous terms on the part of the HGC and delayed completion of projects.”