The Philippine Bureaucracy:

Incentive structures and implications for

performance
Toby C. Monsod

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HDNDISCUSSIONPAPERSERIES
NO.4 PHDRISSUE:2008/2009
2
THE PHILIPPINE BUREAUCRACY:
Incentive structures and implications for performance
By
T. C. Monsod
1
U.P. School of Economics
Outline____________________________________________________
1. Motivation
2. Institutions and Public Sector Bureaucracies
3. Rules and practices in the Philippine Bureaucracy
4. Quality of bureaucracy and agency performance
5. Implications and concluding remarks
____________________________________________________
I. Motivation
Institutions are the incentive systems that structure human interaction [North, 2003].
They are the formal rules, informal constraints and their enforcement characteristics,
which together generate regularity in behavior and allow people to get on with everyday
business. We are interested in institutions because eight decades after the first survey on
Philippine education in 1925, and despite repeated diagnoses since, issues of access and
quality continue to persist. What can explain the inability of the public education sector
to implement reform-oriented plans and programs? Is it a matter of shortfalls in material
inputs or is there something else?
More specifically, this paper focuses on the civil service. The quality of the civil service
at national and local levels affects the quality of policy advice and development on the
one hand, and the quality of policy implementation and service delivery on the other
[GOP, 2002]. To help understand why the same fundamental issues continue to plague
our education sector therefore, we need to go beyond discussions of funding and consider
how formal and informal rules may be impinging on the behavior and performance of
agents within the Department of Education (DepEd) and other relevant organizations.
To this end, we are guided by remarks made by former Civil Service Commission Chair
Karina Constantino-David who, in her address to the General Assembly of the Human
Development Network in 2007, observed that the Philippine government bureaucracy has

1
With thanks to Blesilda Lodevico and J inky J aime, former CSC Compensation Management Project team
members, and Mitzi Legal, former HDN associate, for invaluable research assistance. Thanks also to
Emmanuel de Dios and Solita Collas-Monsod for helpful insights. All remaining errors are mine alone.
3
been unable to reach its potential as a repository of expertise and institutional memory
and an efficient implementer of policy for two reasons.
2
First, that abuses in the
appointment process and functional concentration has robbed the bureaucracy of its
capacity to think. Second, that an outdated and convoluted compensation structure has
dampened any passion to perform.
The objective of this essay is to examine the incentive structures embedded in the
Philippine bureaucracy and determine whether andhow these have affected agency
performance, particularly in the human services sector. The next section discusses
distinguishing features of public sector bureaucracies, followed by a description of the
Philippine case in the third section. The fourth section presents hypotheses, data and
results. The fifth section concludes.

II. Institutions and Public Sector Bureaucracies
As earlier mentioned, institutions are the formal rules, informal constraints and their
enforcement characteristics that reduce uncertainty in the world and allow people to get
on with everyday business. Formal rules are laws, constitutions, regulations, and the like
that have the character of being specific and being defined precisely [North, 2003]. They
enable and guide behavior by creating a cognitive and normative understanding of the
situation and coordinating behavior within it [Greif, 2006]. Informal or internalized
norms, on the other hand, are ways of doing things and in many ways are more important
than formal rules; norms and beliefs provide the motivation to follow institutionalized
rules [Greif, 2006].
What sort of formal rules, informal norms and enforcement features characterize
government bureaucracies? Government bureaucracies are often described as slow
moving, procedure-obsessive, and bloated which block rather than facilitate the day-to-
day business of citizens. In contrast, private sector organizations are usually known to be
lean, hungry, and versatile. Why is this so?
Distinguishing features of government bureaucracies
Pubic sector bureaucracies may be distinguished from private counterparts on three
fundamental counts:
3

1 Clarity of primary goals. The primary goals of public sector organizations are often
ambiguous, difficult to interpret in precise operational terms, and even more difficult
to monitor or measure. For instance, mandates can read as broadly as to promote
long-range security, to foster and promote the welfare of wage earners..., to
educate youth, to preserve and enhance culture, phrases that reasonable
people are likely to disagree on as to interpretation and, even if there was an
agreement, on how these are best operationalized and attained. In contrast, private
sector organizations, even if they do start off with ambiguously worded primary

2
Politics, Perils and Pains of Building Institutions, 28 March 2007.
3
These next two subsections draw heavily from Wilson 1989.
4
goals, are usually able to clarify operational tasks through a process of trial and error
and internal negotiation which is tested by competitive natural selection. Government
agencies do not have the luxury of such a test.
2 Supervision over factors of production. Unlike their private sector counterparts,
government bureaucracies rarely have control over revenues, productive factors, or
the definition and prioritization of specific agency tasks. Rather, control is political,
with supervision vested in external entities such as congress, the courts, politicians,
and interest groups.
To illustrate, only by exception are agencies able to retain earnings, much less devote
earnings to the private benefit of staff, thereby weakening links between money
wages and observed performance. Further, while few agencies may have financial
bottom lines (such as the Bureau of Internal Revenue), the hiring, purchasing,
contracting and budgeting of productive factors remain governed by political and not
bureaucratic rules.
4
Even the definition and prioritization of tasks may be prescribed
in laws that promulgate government programs and budgets, leaving agencies little
room to maneuver as regards strategy, programs or targets.
3 Political constraints or contextual goals. The multiplicity of principals hovering
over government agencies leads to a proliferation of contextual goals. Contextual
goals define the parameters within which primary goals can be sought and are usually
explicitly or implicitly defined and enforced by powerful interests, such as
congressional committees. For instance, budget realignments by a congressional
committee to service some local constituent interests represent contextual goals.
Contextual goals are also embedded in generic rules and procedures, such as in
procurement rules, which seek to not only level the playing field (hold hearings,
give notices) but also, at times, tilt it (buy Filipino) at the expense of efficiency.
Behavioral consequences
A bureaucracy without a capacity to think or passion to perform may be explained by the
above. For one, political supervision over factors of production creates strong incentives
for rational civil servants to worry about constraints versus tasks, rules versus outcomes,
or the top-line versus the bottom-line -- in other words, achieving conformity to the
contextual goals within which the agency is enmeshed rather than progress towards
primary goals. . Indeed, it makes more sense for civil servants to be more concerned for
adhering to processes, which are known, immediate, defined by rules and more easily
defensible, rather than achieving outcomes, which are uncertain, delayed and
controversial. The greater the cost of non-compliance, the more important the constraint.
That government managers tend to be exasperatingly risk-averse is also explicable.
Multiple constraints weaken agency boundaries and allow potential interveners greater
access. Particularly, the more the rules, the greater the power third party enforcershave

4
For instance, bidding rules value fairness or even special access to political constituencies over
effectiveness [Wilson, 1989].
5
over bureaucratic processes. In the Philippine context for instance, this translates to the
increased chance of being subject to the Commission on Audit (or COA-d), to the
Ombudsman, or to Congressional hearings. The more numerous the constraints, the more
risk-averse the managers.
Multiple constraints also help explain the red tape and top-heavy/redundant management
structures prevalent in government. First, more constraints require more SOPs to reduce
the chance that any one of them is violated. Second, more constraints also require more
managers to oversee them. Thus one finds more managers performing similar tasks in
government than in the private sector.
Finally, a timid rank & file. The more contextual goals and constraints that must be
served, the more discretionary authority in an agency is pushed to the top.
How does one motivate staff in such an environment? There is no one formula except to
keep in mind that when the marginal effects of monetary incentives decrease, the relative
importance of non-monetary incentives increase. A sense of mission - fashioned from a
sense of purpose, status and solidarity is a key source of non-pecuniary incentives and
the chief way by which problems of shirking may be overcome [Wilson, 1989].
Professional reputation and/or ideology are other sources of non-pecuniary incentives.
Disincentives in turn are actions that undermine the sense of mission, which discourage
or ignore professional status, or violate ideology.
Further, the degree to which motivation is a challenge (that is, the degree to which the
above behavior is manifested) depends on the type of agency, defined according to
whether agency outputs (the work the agency does on a day-to-day basis) and outcomes
(how the world changes as a result of outputs) are more or less observable [Wilson,
1989]. In production and craft agencies where outcomes are more observable, workers
can be rewarded based on their contribution to efficiency or on the results they achieve.
When outcomes are less observable, agencies becomeprocedural (if outputs are more
observable) or, worse, coping (outputs are less observable) agencies. Effective
management is, in fact, nearly impossible in the latter, as demonstrated by public
school systems where teachers work on their own on a daily basis, education outcomes
are difficult to attribute directly to teacher input, and schools have little control over
resources.
5
In coping agencies, management tends to focus only on the most easily
measured or controlled activities, making the likelihood of conflict with staff high and the
challenge of motivation greater still.
The DepEd is a case in point. The fundamental management challenge that is the DepEd,
as described by Bautista, et. al [2008] and Luz [2008], seems to fit its nature as a
coping agency as does the relative success of certain pilot reform projects to date (such
as School-Based Management or SBM). Using the typology above, the SBM can be
viewed as an attempt to shift the Department from a coping into a craft organization
where the possibility of effective management and motivation is greater [Annex 1].

5
In contrast, private schools must survive by attracting clients and face far fewer constraints in use of
capital and labor [Wilson, 1989]
6
Of course, not all management and organizational problems can be attributed to the
nature of outputs and outcomes of agencies taken individually. Formal rules and informal
practices that apply to agencies across the board play a big part. Such rules and practices
as found in the Philippines are now discussed.

III. Rules and practices in the Philippine Bureaucracy
Size and cost of the Civil Service
As of 2004 (the last inventory available), the Philippine civil service comprised almost
1.5 million personnel (including police and uniformed men in the jail- and fire-bureaus
but excluding uniformed personnel in the military). This makes the government the single
biggest direct employer in the country. Eighty-nine percent were career personnel and 11
percent non-career (Table 1), with the Department of Education accounting for a full
third (Table 2). The fiscal implication of such a work force is reflected in the
governments wage bill, which averaged one third (33.2%) of national government
obligations from 2001 to 2007 (Figure 1).
Table 1: Dimensions of the Philippine civil service
2004
Career Non-career Total
Executive (National) 966160 50185 1016345
Executive (Local) 304951 104028 408979
Legislative 2317 3521 5838
J udiciary 25734 1197 26931
Constitutional 17004 602 17606
Total 1316166 159533 1475699
Source: CSC [2004]
Table 2: Top Employers (2004)
Department Number of personnel
Education 500,951
Interior and Local Government 149,292
State Universities/colleges 59,913
Public Works and Highways 27,270
J udiciary 26,931
Health 26,730
ARMM 25,480
Source: CSC [2004]
7
Figure 1: PS to total NG obligations (2001-07)
0
200
400
600
800
1000
1200
2
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COE
PS
Base data: NEP, various years
How the civil service corps is motivated and constrained is key to understanding the
behavior and performance of government organizations on the whole. What incentive
structures are embedded in our government bureaucracy and how are these linked to
organization performance?
Monetary Incentives
The structure of wages and other pecuniary incentives in government are prescribed by
Republic Act 6758, or the Salary Standardization Law (SSL) of 1987, as well as by J oint
Resolution No. 01, s. 1994 of the Senate and House. While the 1987 law was originally
motivated by the constitutional mandate to ensure the standardization of compensation, a
number of external inequities, internal inequities and performance-incompatible
componentsnow characterize the system.
External inequities have to do with how government salaries compare with equivalent
jobs in the private sector and other competing markets. (i.e. other governments and
multilateral/international donor agencies.) Using medium-sized private firms as a
benchmark, a compensation and benefits study by the Civil Service Commission found
that salaries for senior managers and highly technical personnel in government were 74%
below comparable jobs, and that salaries for professional and technical personnel were
about 40% below, while clerical and trade personnel were actually 20% above
benchmark. These differences are illustrated in Figures 2 to 4. Four sets of salaries are
presented to illustrate the divergences in salary schedules. The highest curve represents
average salaries in the whole private sector sample regardless of size. The yellow curve
represents salaries found in medium sized firms, a subset of the private sector sample and
the benchmark group for government. Thepink curve represents salaries in government
agencies exempt from the SSL, such as Land Bank while the dark blue curve represents
salaries in all other regular government agencies.
8
Figure 2
Comparative salary levels: higher technical, supervisory, executives (salary grades 25 and above)
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
25 26 27 28 29
SSL covered (ave
expenditure per cap)
SSL exempt (LBP)
Private: medium-sized firms
Private: whole sample
Source: CSC [2006]
Figure 3
Comparative salary levels: sub-professional, professional/technical personnel (salary grades 10 24)
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
10 12 14 16 19 22 24
SSL covered (ave
expenditure per cap)
SSL exempt (LBP)
Private: medium-sized
firms
Private: whole sample
Source: CSC [2006]
Figure 4
Comparative salary levels: clerical and trade personnel (salary grades 1 9)
0
20,000
40,000
60,000
80,000
100,000
120,000
140,000
1 2,3 4,5 6,7 8,9
SSL cover ed (ave
ex penditure per cap)
SSL exempt (LBP)
Priv ate: medium-sized
fir ms
Priv ate: whol e sample
Source: CSC [2006]
9
Which civil servants are most affected by these divergences? Salary grades 25 and above
include assistant directors, directors, district engineers, school superintendents, college
professors, prosecutors, state auditors, assistant secretaries, undersecretaries and the like,
people responsible for policy design, higher-level technical services and the day-to-day
management of government. Salary grades 10 24 cover division chiefs, public
attorneys, school principals, public health nurses, social workers, teachers, election
officers, customs examiners, engineers, agriculturists, and others who directly implement
public programs at the front line. For government to formulate quality policies and
deliver quality services, it must be able to attract and retain good people for the tasks.
The inequities described above clearly make it difficult to do so.
The superior compensation in public sector agencies such as the Land Bank illustrates the
sort of internal inequities that have crept into the current system. Although the objective
of RA 6758 was to consolidate and make coherent the proliferation of special
compensation plans that were then existing, a number of government-owned corporations
and national government agencies have since been able to secure exemptionsfrom the
SSL thru Congress, leading again to a proliferation of salary schedules.
6
Specific
occupational groups have also been able to get benefits not granted to other government
personnel thru special laws, such as public health workers thru their own Magna Carta
(RA 7305).
7
Needless to say, the resulting salary distortions have been a source of
demoralization across the bureaucracy.
Internal inequities derive not only from SSL exemptions but also from job classification
distortions, for instance, when the same job is ranked differently across agencies. This
is illustrated in Table 3 where, at lower steps of the series, budget and management
specialists employed at the DBM are graded one grade higher than economists of the
NEDA even though job qualifications and scope of work are comparable. Librarians are
graded even lower although they require a certification from theProfessional Regulatory
Commission (PRC) certification while the DBM and NEDA positions do not.
Table 3. Same job, different grade across agencies
SG Job
10 Librarian I
11 Economist I
12
13 Budget & management specialist I
14 Librarian II
15 Economist II

6
SSL-exempt agencies as of April 2008 include the BSP, LBP, PPC, BCDA, GSIS, NPC, NTC, PSALM,
SSS, TIDC, DBP, PEZA, HGC, PTV4, PHIC, PDIC, PAGCOR, SBMA, MWSS, LWUA. ERC, SEC, IPO.
Most recently, the University of the Philippines and the Philippine National University. However they do
not have the funds to pay for higher salaries
7
The Magna Carta for Public Health Workers entitles public health workers to special benefits not granted
to other government personnel, such as Hazard Pay, Subsistence Allowance, Laundry Allowance, Remote
Assignment Allowance, Housing Allowance, and longevity pay equivalent to 5% of basic pay
10
16 Budget & management specialist II
17
18 Economist III; librarian III
19 Budget & management specialist III
20
21
22 Budget & management specialist IV; economist IV; librarian IV
23
24 Budget & management specialist V; economist V; librarian V
Base data: CSC [2006]
There also seems to be a bias against female-dominated positions, such as teachers and
nurses, in favor of male-dominated jobs, as well as against professionals in favor of
administrative or managerial personnel. On the one hand, Table 4 shows how female-
dominated positions requiring a 4-year college degree are generally pegged at SG 10
when the rules provide that a 4-college degree merits SG 11; pharmacists and physical
therapists actually require a 5-year course and on this basis should be at SG 12 along with
architects and engineers. Moreover, a number of these SG 10 positions also require a
PRC license while SG 11 male-dominated jobs do not. In the case of social workers,
which are ranked SG 11, community development officers are ranked equally even if
they are not licensed.
Table 4: Possible bias against female-dominated occupations
Female-dominated
Positions
SG Male-Dominated/Neutral Positions SG
Teacher 1* 10 Agriculturist 1 11
Nurse 1* 10 Forester 1* 11
Nutrition Officer 1* 10 Geologist 1* 11
Pharmacist 1* + 10 Police Inspector 1* 11
Physical Therapist 1* + 10 Traffic Operations Officer 1 11
Librarian 1* 10 Community Development Off. 1 11
Guidance Counselor 1 10 Currency Analyst 1 11
Records Officer 1 10 Planning Officer 1 11
Teller 1 10 Trade Specialist 1 11
Social Worker 1* 11 Architect 1 * + 12
Population Program Officer 1 11 Engineer 1 * + 12
Psychologist 1 11
Public Relations Officer 1 11
HR Mgt. Officer 1 11
Base data: CSC [1997]
Note: * requires PRC license or equivalent
+ Requires a 5-year course. All others require a 4 year course.
11
Table 5, on the other hand, illustrates how managers or administrators may rise to salary
grade 30 (as undersecretary), while professionals such as professors, prosecutors,
attorneys and SUC presidents can only go up to salary grade 29, 28 and 27 respectively.
In other words, to be at par with their manager/administrator counterparts, professors and
other technical professionals (specifically those classified as dearth positions) must
become managers themselves.
Table 5. Highest salary grade attainable: managerial vs. professional
Managerial Professional
Undersecretary (30) Scientists, Medical Specialists (30)
Assistant Secretary (29) Professor VI, Prosecutor IV (29)
Atty VI, Gov't. Corp. Atty IV,
Veterinarian (28)
SUC President (27)
Foreign Service Officer (25)
Base data: CSC [2006]
Performance among civil servants is further discouraged by the SSLs compressed salary
schedule and longevity policy. The SSL schedule contains 33 salary grades, each with 8
steps. This results in very narrow bands that overlap at the 4
th
step. Longevity in turn is
rewarded with a permanent step increment in base pay (rather than a one-time bonus).
8
These two policies combined can create a situation where a long-serving subordinate
receives a larger salary than his/her newly appointed supervisor, as Table 6 illustrates
This distortion also gives rational employees a greater incentive to stay in a position and
under-achieve or under-perform, since added responsibilities and longer hours resulting
from a promotion will likely outweigh any incremental gains in compensation from
superior performance.
Table 6. Consequences of compression of salary schedule:
Subordinate with greater salary level
Position Grade Step salary Level
HRMO IV 22 7 22,325 Subordinate
HRMO V (Division Chief) 24 1 20,828 Supervisor
Base data: CSC [2006]
Finally, civil service rules provide that a government worker has security of tenure once
hired, and can only be removed for serious administrative offenses, such as graft,
dishonesty, immorality and others, as well as for poor performance, and only after due
process. When performance monitoring and evaluation mechanisms are weak however
(and assuming graft or dishonesty are not issues), secure tenure becomes a major source
of long-term problems for the bureaucracy. This is demonstrated in the public school
system where the Magna Carta for Public School Teachers (enacted in 1966) provides all
teachers, good or bad, with security of tenure starting from the date of hiring. For a good
teacher, this is an incentive. For a poor or under-performing teacher, however, the
system is stuck with that individual for an average of over 30 years, the average tenure of

8
In the private sector, longevity is usually rewarded with a lump sum or gift that does not affect base pay.
12
a public school teacher [Luz, 2008].
Incentive effects of established practices
As mentioned, the relative importance of non-monetary incentives increases as the
marginal effects of monetary incentives decrease. Non-pecuniary incentives can include a
sense of mission, professional status, ideology and the like, where a sense of mission or
solidarity is a chief source. Successfully creating a sense of mission however depends on
how well managers can define and protect the organizations core tasks and boundaries.
A number of practices have made this task difficult however, particularly in recent years.
For one, the practice of creating ad-hoc bodies and presidential consultants/advisers
(PC/PA) whose mandates overlapwith that of regular agencies or officials. These actions
effectively erode boundaries across agencies, muddling domains or jurisdictions, and
diminishing the sense of duty and professional status among agents. Fuzzy boundaries
also lend itself to a concentration of power with the appointing authority (i.e. the
functional concentration observed by Constantino-David [2007]) Ad-hoc bodies and
PC/PAs are unilaterally created by the President who may also reorganize regular
government agencies, except thosewith special charters.
To illustrate overlaps, how are authorities defined between a Presidential Adviser on
Foreign Affairs, a Special Adviser for Energy Affairs and two Presidential Assistants for
Education, and the official cabinet secretaries for these same portfolios? Or between
Presidential Advisers for Trade & Development, Infrastructure, J ob Generation, and yet
another for Food Security & J ob Creation [DBM (b), 2005 and 2008]. There is also a
Philippine Strategic Oil, Gas, Energy Resources and Power infrastructure Office, a
Minerals Development Council, and a National Organic Agriculture Board, despite
the departments of Energy, Environment and Agriculture [DBM (b), 2007]. Overlaps are
even apparent among ad-hoc bodies themselves, such as between the Presidential Anti-
Smuggling Group to Apprehend, Seize, Investigate and Prosecute Acts Involving
Smuggling, Unlawful Importation and Other Similar Violation and Providing Measures
to Curtail Smuggling and Expedite Seizure Proceedings and the Task Force on Anti-
Smuggling.
The extent to which these practices have been prevalent may be indicated by the flow of
offices and agencies in and out of the Office of the President (OP) as well as the number
of PC/PAs attached to it through the years. Overall, there has been a net decrease in the
number of agencies under the OP between 1993 and 2007 (Figure 5). This net decrease is
due to the sharp decline in the number of agencies during the period 2001-2003, a trend
that can be attributed to the work Presidential Commission on Effective Governance
(PCEG), whose mandate was to streamline the number of agencies in the Executive.
However, the PCEG was abruptly abolished in 2004, after which the number of agencies
again began to increase (Fig. 6).
13
Figure 5 Flow in number of government agencies under the Office of the President, by Administration
0
20
40
60
80
100
120
140
160
180
to 1992 1993-98 1999-2000 2001-07
start
end
created
abolished
transferred
Base data: DBM [2007a]. Computations authors own.
Figure 6 Flow in number of agencies under the Office of the President, by year
0
20
40
60
80
100
120
140
160
180
1
9
9
2
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9
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7
start
end
created
abolished
transferred
Base data: DBM [2007a]. Computation authors own.
A similar trend is observed as regards the number of PC/PAs (Figure 7). The number has
risen significantly since 2002, after a steady decline in the period 1994-1998 (the Ramos
administration), a slight spike in 1999 (Estrada administration), and a sharp decline in
2001 (Arroyo administration, part I). By the beginning of 2008 however, the number of
PC/PAs reached an all-time high of 49.
14
Figure 7 Number of Presidential advisers/consultants/assistants
(1994-2008, with 5 missing years)
33
29
27
34
15
22
39
44
37
49
0 20 40 60
1
9
9
4
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8
PA/PCs
Source: DBM [2007b]
PC/PAs enjoy title and authority without accountability, sowing confusion and
diminishing morale across the ranks. When their authorities allow them to undermine
established bureaucratic checks and balances, costs are tangible and can be quantified.
This is illustrated by the case of the NBN-ZTE broadband project where, among others,
consultants of the NEDA Secretary informally participated in the evaluation of the
project, a process reserved to the technical bodies of the Investment Coordinating
Council [Annex 2]. If the process had continued, the project cost would have been
bloated from an original US$130M to about US$329 M. While the consultants in this
case were hired by the head of agency (despite a whole technical plantilla at his
command), the same access and liberties are more than likely to be granted to consultants
appointed by the head of state.
Another issue has to do with political appointments to formal plantilla positions, to be
distinguished from Presidential consultants/advisers discussed above. This practice
undermines the constitutional notion of merit and fitness, leading to demoralization and
the destruction of initiative in the regular civil service. The moment you know that it is
not good work that is rewarded it becomes sycophancy. The moment you know that your
boss may not like it whenever you try to do something a little bit extra, you kill initiative
The bureaucracy is so timid, so tame, so domesticated, so fearful and so powerless
because of the appointment process that is so open to abuse. [Constantino-David, 2007].
The issue is not trivial. Approximately 10,000 positions (including those at the highest 3
rd
level career posts as well as highly technical posts) are subject to presidential prerogative,
including positions that are based in provinces and cities far removed from the center,
and create a wide venue for politicians to intervene in the appointment process
15
[Constantino-David, 2007].
9
The problem emanates from what is called the residual
powers of the President, which provides that when there is no stipulation in law as to
who the appointing authority is for a certain position, the power redounds to the
President. The CSC has no power, whether to veto or to protect, when the subject is a
presidential appointee; a career civil servant in a position subject to presidential
appointments is not protected by security of tenure.
Data is not available to determine the flow of political appointments through the years,
however one may gauge the extent to which this prerogative has been exercised in recent
years by the number of incumbent undersecretaries and assistant secretaries in excess of
that prescribed by law, executive order or administrative order (Table 7). Notably, as of
December 2007, out of twenty-four (24) departments, thirteen (13) had excess
undersecretaries or assistant secretaries, bringing the number of incumbents to 222 when
only 131 are prescribed. This is an excess of 81 incumbents or 62 percent. Assuming
each of them cost an average of Php 722k/year in salaries, allowances and discretionary
funds, then these excess incumbents cost government an extra Php 58 million/year.
Moreover, out of the 222 incumbents, around 56% were without CES/CESO eligibility,
and thus were technically ineligible to occupy their respective positions. The Office of
the President had the most number of excess undersecretaries and assistant secretaries at
31 (or 38 percent of the excess number), of which 89% were ineligible.
Table 7 USEC/ASEC appointeesin excess of # prescribed by EO 292/RA/EO/AO
(as of December 2007 )
Agency Total U/A Occupied Excess
Rank:
Excess
Not Eligible
(NE) % NE Rank: NE
OP 6 37 31 1 33 89% 3
DND 1 9 8 2 7 78% 5
DAR 2 9 7 3 2 22% 19
DOJ 3 8 5 4 7 88% 4
DILG 5 10 5 4 7 70% 7
DOH 3 8 5 4 2 25% 17
DFA 14 19 5 4 NA
DSWD 5 9 4 8 2 22% 19
DOT 4 7 3 9 5 71% 6
PMS 3 6 3 9 2 33% 15
HUDCC 1 4 3 9 1 25% 17
DEPED 8 9 1 13 6 67% 9
OPS 3 4 1 13 4 100% 1
DOST 6 6 0 0 0% 23
DENR 12 11 -1 6 55% 10
DTI 10 9 -1 4 44% 13
DOE 6 4 -2 4 100% 1

9
Excluded from this account are appointments to the boards of various government councils and
commissions, government corporations like Pagcor, and sequestered firms like San Miguel Corp. These
directorships, most of which come with generous perks, have traditionallybeen given as rewards to
presidential cronies [Coronel, 1999].
16
DA 12 10 -2 7 70% 7
DOLE 8 6 -2 3 50% 11
DOTC 12 10 -2 5 50% 11
NEDA 8 6 -2 0 0% 23
DOF 10 7 -3 3 43% 14
DBM 10 7 -3 2 29% 16
DPWH 11 7 -4 1 14% 21
TOTAL 163 222 81 113 56%
Source: CSC
IV. Quality of bureaucracy and agency performance
Cross country studies by Kaufman et al [2002, 2005] have shown a strong causal link
from improved governance to better development outcomes, including GDP per capita,
infant mortality and literacy, using world governance indicators they developed,
consisting of rule of law, control of corruption, regulatory quality, government
effectiveness, political stability and voice and accountability. By their estimates, the
development dividend for good governance is about a 300% increase in incomes per
capita in the long run. That is, a one-standard deviation improvement in governance
raises per capita incomes nearly four-fold in the long run.
10
The same improvement
lowers infant mortality 2.5 to 4 times, and raises literacy by 15 to 25 percent [Kaufman
et. al., 2002 and Kaufman, 2005].
With evidence established of a long-term connection between governance and human
development outcomes, what of the backward link between incentive structures and
agency performance? Specifically, do incentive structures affect the quality of the
Philippine bureaucracy and is this, in turn, correlated with agency performance?
The impact of incentives on the quality of a bureaucracy should ideally be measured thru
job satisfaction surveys and flow data of personnel by type in and out of agencies;
however no such data for the Philippines is available. Quantitative measures of agency
performance are likewise difficult to come by.
11
To examine the correlation between
agency quality and performance in the Philippines therefore, we are constrained to use
two proxy variables. Specifically (i) the percentage of CES positions occupied by CES or
CESO eligibles (defined in Box below) for quality of bureaucracy, where a high
percentage is correlated with higher quality, and (ii) agency public approval ratings, a
subjective measure, for agency performance.

10
Interestingly, the reverse does not hold: higher incomes do not lead to governance improvements
[Kauffman and Kraay, 2002; Kauffman et al 2005].
11
One possible measure of performance is the percentage of actual obligations to total appropriations per
agency. However, this would not account for differences between original agency budget proposals and
what Congress eventually appropriated. Neither would it take into account the possible perverse incentive
to agencies not to use all budgeted funds since savings may be distributed to staff in the form of bonuses
at the end of the year.
17
Box 1. Definition of terms
Eligibility - refers to the result of passing a merit and fitness test which may be determined as far as
practicable by competitive examination or other tests of merit and fitness conducted by CSC and
other institutions, such as PRC, CESB, Supreme Court, etc.
Career service the entrance of employee is based on merit and fitness determined by competitive
examinations or on highly technical qualifications. Employees under this category enjoy
opportunities for advancement to higher career positions and security of tenure.
Classes of positions in the Career Service:
1
st
level clerical, trades, crafts and custodial service positions.
2
nd
level professional, technical and scientific positions
3
rd
level Covers all positions higher than chief of division (salary grade 25 and up), including
positions in the executive and managerial class, and the positions in the highly technical and
specialized class such as the foreign service, the scientific, technical, artistic and academic fields.
Non-career service entrance of employees is based on factors other than the usual test of merit
and fitness. Their tenure is limited to a period specified by law, or is conterminous or subject to the
pleasure of the appointing authority, or is project based. Eligibility requirements (i.e. thepassing a
merit and fitness test) are not prescribed for these positions although preference should be given to
eligibles. Also, appointees to casual, contractual and coterminous positionsthat are not primarily
confidential must still meet education, training and experience requirements.
Career Executive Service (CES) executive and managerial 3
rd
level positions, excluding those
specified under NEC. To be eligible to occupy said positions, one must pass a stringent set of tests
administered by the CESBor CSC.
Non-Executive Career (NEC) career positions at the 3
rd
level including scientists, professionals,
Foreign Service officers, judiciary, prosecution service and 3
rd
level positions in LGUs
Trends in quality
It is expected that the disincentives from a 20-year old compensation structure as well as
from the increasing political intervention into the bureaucracy over the last few years
would take its toll on the quality of the career service.
If greater numbers of career service personnel in the civil service corps and greater
shares of eligible people occupying 3
rd
level CES positions indicate a better quality of
bureaucracy, then trends from recent years indicate a stagnant or decreasing quality at all
levels of the corps. Decreasing qualityat the 1
st
level of the corps (clerical, trade, crafts,
custodial) is evident from Figure 8, which also shows an increasing trend at the 2nd level
(sub-professional, professional and technical). This increasing trend was likely driven by
public school teacher hires, however, which merely reflects the increasing population of
18
schoolchildren rather than an improvement in the quality of those in previously existing
positions.
Figure 8Trend in 1st and 2nd levels (1992-2004)
Number of Car eer Gov er nment Per sonnel at t he 1st and 2nd
Lev el
-
100,000
200,000
300,000
400,000
500,000
600,000
700,000
800,000
900,000
1,000,000
1992 1993 1994 1995 1996 1999 2004
1st 2nd
Base data: CSC [2004]
An overall trend of decreasing quality at the 3
rd
level is also evident in Figures 9-14.
Figure 9 shows decreasing numbers of career personnel in NEC positions, indicating that
the corps may be losing quality among highly technical positions and among executive
positions at the local government level. Further, although there are increasing numbers
of career service personnel among CES positions, Figures 10 to 14 indicate that, the share
of CESO eligibles occupying CES positions has been falling beginning around 2004.
This cuts across all types of agencies, including those in the human services sector.
12
A
decreasing share indicates that the share of political appointments (that is, of ineligible
personnel) is increasing and/or that CESO eligibles are leaving voluntarily. Note from the
numbers alone that this decreasing share cannot be attributed to a lack of supply of CESO
eligibles to fill-in CES positions.
13
As an aside, Figure 15 shows a decreasing trend in share of CESO eligibles even in
GOCCs that are SSL-exempt. In other words, the monetary incentives in these agencies
could be inviting greater political intervention in the hiring of personnel. In turn, such
interventions may be causing CESO eligibles to leave.

12
Note that the sharp decrease in 1994 is due to an expansion of the base number of CES positions and not
dueto an exodus of CESO personnel.
13
On the demand side, out of 6388 CES positions, about 40% were occupied - thus 2555 vacancies at the
end of 2007. On the supply side, there were 1109 CESOs and 3944 CSEE eligibles in the pool as of the 1
st
quarter of 2008.
19
Figure 9 Trend at 3rd level: CES vs NEC (1996, 1999, 2004)
Number of Career Government Personnel at the 3rd and NEC
levels
-
2,000
4,000
6,000
8,000
10,000
12,000
14,000
16,000
1996 1999 2004
3rd non-executive
Base data: CSC [2004]
Figure 10
% CESOs/CES Eligibl es Occupying CES Positions: all national gov ernment
agencies (Executive Branch)
0%
5%
10%
15%
20%
25%
30%
35%
40%
45%
50%
1992 1993 1994 1995 1996 1997 1998 1999 2000 2003 2004 2005 2007
NGA
Base data: CESB, various years
Figur e 11
% CESOs/CES Eligibles Occ upying CES Positions: human serv ices
sector
0%
10%
20%
30%
40%
50%
60%
70%
80%
1992 1993 1994 1995 1996 1997 1998 1999 2000 2003 2004 2005 2007
DepEd
DOH
DOLE
DSWD
Base data: CESB, various years
20
Figure 12
%CESOs/CES Eligibl es Oc cupying CES Position: selected economic
agencies
0%
10%
20%
30%
40%
50%
60%
70%
80%
1992 1993 1994 1995 1996 1997 1998 1999 2000 2003 2004 2005 2007
DAR
DA
DENR
DPWH
DTI
DOTC
Base data: CESB, various years
Figur e 13
%CESOs/CES Eligibles Occupyi ng CES Positions: ov ersi ght agecies
0%
10%
20%
30%
40%
50%
60%
70%
80%
1992 1993 1994 1995 1996 1997 1998 1999 2000 2003 2004 2005 2007
DBM
DOF
NEDA
Base data: CESB, various years
Figur e 14
% CESOs/CES Eligi bles Occupying CES Pos itions: selected defense and
general public s erv ice agencies
0%
10%
20%
30%
40%
50%
60%
70%
80%
1992 1993 1994 1995 1996 1997 1998 1999 2000 2003 2004 2005 2007
DND
DFA
DILG
DOJ
OP
OP Sec
Base data: CESB, various years
21
Figur e 15 % CESOs/CES Eligibles Occ upying CES Positions in GOCCs:
SSL exempt (excluding 4)
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
1992 1993 1994 1995 1996 1997 1998 1999 2000 2003 2004 2005 2007
Year
BSP
PDIC
DBP
GSIS
SSS
NAPOCOR
LWUA
MWSS
BCDA
PEZA
TIDCP
PPC
PHIC
HGC
LBP
Base data: CESB, various years
Quality and agency performance
What do these quality trends mean for agency performance? Agency performance is
gauged thru user satisfaction or approval surveys, specifically, the public approval ratings
of the DepEd, DSWD and DOH from 1999 to 2007.
14
Simple correlations between these
and the percentage of CESO occupyingCES positions for each agency yield a positive
coefficient (Figure 14). In other words, there is some evidence that, at least in the human
services sector, a better quality of bureaucracy is associated with better agency
performance as evaluated by the public.
Figure 15: Quality of Bureaucracy and Public Approval for the DepEd, DOH and DSWD
Dep ED (

=.50)
0.00
0.20
0.40
0.60
0.80
1999 2000 2001 2002 2003 2004 2005 2006 2007
% CESO occupying CES
positions
Public approval

14
Pulse Asia data, 19992007. No other civilian agency in the Executive branch had a complete (or nearly
complete) series of ratings.
22
DOH (

=.69)
0.00
0.20
0.40
0.60
0.80
1999 2000 2001 2002 2003 2004 2005 2006 2007
DSWD (

=.37)
0.00
0.20
0.40
0.60
0.80
1999 2000 2001 2002 2003 2004 2005 2006 2007
V. Implications
This essay set out to help illuminate why eight decades after the first of many surveys and
diagnoses on Philippine education, the same issues of access, quality, and relevance
continue to persist. What could explain the inability of the education sector to get its act
together? Is it a matter of shortfalls in material inputs or is there something else?
The essay zeroed in on the civil service in its capacity as repository of expertise and
institutional memory and implementer of policy and defined institutions as the incentive
systems that structure human interaction - the formal rules, informal constraints and
enforcement characteristics, which together generate regularity in behavior and allow
people to get on with everyday business. Have incentives embedded in the Philippine
civil service been impinging on the performance of agencies such as the Department of
Education?
It was observed that incentives, both monetary and non-monetary have affected the
quality of the bureaucracy in the Philippines, especially over the last several years.
External and internal distortions now weigh down the 20-year-old government
compensation system. The increasing number of ad-hoc bodies, presidential
23
consultants/advisers and political appointees is also a source of demoralization. The
latter, which pertains to non-monetary disincentives, is far more critical in government
than in the private sector because the link between money wages and agent performance
in government is, by definition, relatively weak.
On the whole, trends in the profile of personnel across all levels of the corps indicate a
deteriorating quality, especially at the 3
rd
level comprising executive and policy/highly
technical personnel. This seems to be accompanied by an increased vulnerability to rent
seeking. Positive correlations observed between shares of CESO eligible people
occupying executive posts in human services agencies and corresponding agency public
approval ratings, also provide some evidence that better bureaucracy quality is associated
with better agency performance in the Philippines.
What does this imply? If country shortcomings in human development are to be
addressed, then institutions (incentives) impinging on the civil service and on the
performance of the bureaucracy need to be reformed or, at the very least, contained.
Three proposals are worth considering.
The first is to strengthen 3
rd
party enforcement as regards personnel hiring in order to
reduce or check ineligible, political appointments. This would require clarifying the
extent of the Presidential prerogative identifying which positions are subject to it and
which should be based solely on merit and fitness - as well as clarifying the role of the
CSC in enforcing the same. Provisions to this effect are currently proposed under House
Bill No. 3956 or Senate Bill No. 270 which seek to establish a Career Executive System.
Third party enforcement as regards the creation of new agencies which is currently the
jurisdiction of the DBM and Congress also needs to be clarified and strengthened.
Second is the reform of monetary incentives, which is long overdue. The framework of
the current SSL is more than 20 years old and there lessons in the field of human resource
management should be integrated in order to better link government compensation to
agent contribution. The proposed Government Classification and Compensation Act
designed by the CSC in 2006 tries to innovate in this regard.
Third is an official policy of transparency as regards the role and authorities of
presidential consultants/advisers. While any president is entitled to his or her advisers,
the question is who they are, what their terms of reference are, and whether and how they
are held accountable to entities other than the president. Currently, regular Cabinet
officials undergo a Congressional confirmation process in order to officially assume
office. They are also subject to public scrutiny not to mention administrative laws that
(theoretically) help ensure that power is not abused. Presidential consultants/advisers -
who are considered cabinet-level positions however undergo no such confirmation
process, yet enjoy a great deal of authority.
24
References
Banzon-Bautista, C, A. Bernardo, D. Ocampo [2008]. When reform does not transform:
a review of institutional reforms in the Department Of Education (1990-2008). 12 J une.
Background paper for the 2008/2009 Human Development Report.
Constantino-David, K. [2007]. Politics, Perils and Pains of Building Institutions.
Keynote address to the HDN General Assembly. March..
Greif, A. [2006]. Institutions and the Path to the Modern Economy, Lessons from
Medieval Trade. Cambridge University Press.
GOP, ADB and World Bank [2002]. Improving Government performance: Discipline,
Efficiency and Equity in Managing Public Resources. Report No. 24256-PH, 28 J une
2002.
Kaufmann, D. [2005]. Governance Empirics. Background for Presentation at State
Department, 19 April 2002, and Governance Empirics: Some methods, findings and
implications, presentation at the 4th Session of the Committee of Experts on Public
Administration of the United Nations ECOSOC. 5 April.
Kaufmann, D. and A. Kraay [2002]. Growth Without Governance World Bank Policy
Research Working Paper 2928. November. The World Bank
Kaufman, D., A. Kraay, and M. Mastruzzi [2005]. Governance Matters IV: Governance
Indicators for 1996-2004. The World Bank. May.
Luz, M. [2008]. Governance of the Education Sector. 4 October. Background paper for
the 2008 Human Development Report
North, Douglas. [2003]. The Role of Institutions in Economic Development. Discussion
Paper Series No. 2003.2. United Nations Economic Commission for Europe.
Wilson, J ames Q. Bureaucracy. New York, Basic Books, 1989.
Government documents
Career Executive Service Board . Occupancy Reports for the years 1992 2000, 2003-
2005, and 2007.
Civil Service Commission [2006]. Various background documents for the Government
Classification and Compensation Act (based on Compensation and Benefits Study
undertaken from 2002-2006).
_____ [2004]. Inventory of Government Personnel.
25
_____ [1997]. Qualification Standards Manual.
Department of Budget and Management [2007a]. Actions Taken on Agencies Under the
Office of the President (as of November 30, 2007).
_____ [2007b]. Directory of Government Officials 1994, 1997-1999, 2001-2004, 2008.
NEDA [undated]. ICC Approval Process.
26
Annex 1. Types of public agencies and DepEd as coping agency
Wilson [1989] discusses four types of government agencies depending on the extent to
which outputs and outcomes are observable and a different mix of incentives may be
required to motivate staff depending on type of agency (Figure 1). Outputs are defined as
the work the agency does on a day-to-day basis while outcomes are the results of the
agency work, that is, how (if at all) the world changes because of the outputs. Outcomes
may be hard to observe because of the difficulty in gathering information (with and
without scenarios), because they appear after long delays, and because of difficulties in
attribution.
For instance, the output of postal workers (letters sorted, delivered) is relatively easy to
observe while the output of a physicist (developing a theory) or forester (usually
performed out of view of manager) is not. Outcomes of BIR agents are relatively easy to
observe while outcomes from police work (changes in level of security, safety and order)
are not.
Annex Figure 1: Typology of government agencies
The BIR is an example of a production agency. Its outcome is to maximize taxes
collected per employee and the activities of clerks and auditors and the amount of taxes
collected as a result of those activities can be measured. Production agency orkers can be
evaluated on the basis of their contributions to efficiency.
Craft agencies include investigative, research or engineering agencies. Although outputs
are less observable, outcomes are more so making them goal-oriented rather than means-
oriented. Craft agencies are likely to rely heavily on the ethos and sense of duty of staff to
motivate and control behavior and can be procedurally self-regulating. Managers can
evaluate and reward staff on the basis of results they achieve.
Outcomes more observable
Outcomes less observable
Outputs more observable
Outputs less observable
Production Organization
Procedural Organization
Craft Organization
Coping Organization
27
Management becomes means-oriented in procedural organizations (juvenile detention
centers, barangay health centers). Basically, since activities of staff can be watched
(while results appear after long delay), it will be watched all the time. Consequently,
morale is likely to suffer and work biased by surveillance.
Finally effective management is almost impossible in coping agencies, where both
outputs and outcomes are less observable. Public school systems, local police forces, and
diplomatic corps are examples. In public school systems, teachers work on their own
away from the sight of managers on a daily basis, education outcomes are long delayed
and difficult to attribute, and resourcesare rarely under schools control. Management
has a strong incentive to focus effort on the most easily measured and controlled
activities of staff (e.g. lesson plans, attendance records, forms completed) and there is
likely to be a high degree of conflict between managers and teachers. The same may not
hold for private schools since they must survive by attracting clients and they face far
fewer constraints in the use of capital and labor.
DepED as a coping agency
The DepEd is an illustrative case. The focus on inputs at the expense of outcomes, or on
standard operating procedures rather than standards can be precisely explained by the
fact that education outcomes require a long-term time horizon, both in terms of planning
and implementation, while the demands are immediate and can be strident [Luz, 2008].
Congressional requests and pressure raised by annual budgeting forces the
bureaucracy to look at the input-side rather than outputs (much less outcomes). In
three years of defending budgets before Congress [from 2002 to 2005] not once
have the interpellation by congressmen been on education outcomes. Every year,
the attempt by the Department to present school outcomes was cut short by
requests of legislators to answer questions on school needs in their own districts.
[Luz, 2008, p. 16.]
The choice of which processes matter? is likewise influenced by the nature of outputs
and outcomes. Processes include curriculum design, in-classroom teaching, testing,
guidance and counseling, student extra-curricular programs, and the like, and the
methodology or delivery mechanisms reflect differing interpretation of standards and
policy [Luz, 2008].
In curriculum design, for example, should the Department of Education prescribe
a platform of desired learning competencies expected of all children or minimum
learning competencies based on what the average student can achieve? For
DepED, the debate is often shaped by the pressures of growing enrolments that
are straining the system, as a whole, and leading to overcrowding of schools, in
particular. In the effort to meet the growing demand for education services (more
from population pressure than from actual household appreciation), DepED tends
28
towards a one size fits all rule as the most efficient way to try to address need
all over thecountry. This has tended towards the minimum learning
competencies mode. [Luz, 2008, p.8]
A culture of obeisance [Bautista, et. al, 2008] or of no memo, no action is also
described. Despite, the Basic Education Act of 2001, which provides for school-based
management and principal empowerment, DepED and the public school system is still
very much a top-down bureaucracy [Luz, 2008]. In Luzs account [2008, p19]:
Instructions flow from the central office to all schools through the time-worn
DepED Memo, a written set of instructions that may be as important as the
announcement of a new direction, policy or program (e.g. on the new Basic
Education Curriculum) to the mundane (e.g. dress code of teachers) to the purely
informational (e.g. announcement of declared holidays) to the reiteration of past
and current policies and practices still in effect (e.g. reminders of existing rules on
school fees and the manner and timing of these collections). In a given year, as
many as 400 DepED Memos may be issued by the central office either by the
secretary of education or one of the undersecretaries, in the name of the
secretary.
The DepED bureaucracy lives (and dies) by the DepED Memo and this is so
ingrained in the system that administrators and school heads will wait for these
rather than act on their own. A common joke: A principal will wait for a DepED
Memo on principal empowerment before he will act on an issue.
From coping to craft agency
Luz outlines a way forward based on school based management (SBM) and community
involvement. Using Wilsons framework, making the shift to school-based management
(SBM) can be viewed as moving the DepEd and the public school systemcloser to being
a craft agency where the possibility of motivation and effective management is greater.
J ust as craft agencies rely heavily on the ethos and sense of duty of staff, the intention of
SBM is to enable and empower all schools with their communities to manage their own
affairs for improved delivery of education services in a sustainable manner With SBM
the ownership of schools and of education outcomes are given primarily to those at the
frontline, primarily principals together with teachers and local communities.
The visible effect or impact of empowered principals to effect or observe outputs and
outcomes was demonstrated by the relative success of SBM experiments, as described in
Bautista et.al. [2008]. For instance, under the J BIC/WB-supported Third Elementary
Education Project (TEEP), schools learned how to focus on education outcomes. Among
the improvements observed: higher participation and promotion rates, lower dropout
rates, narrower gaps in completion rates, more TEEP schools (by proportion) placed
among the countrys top 1% schools in terms of the National Achievement Test (NAT),
TEEP schools with a larger share of schools at the 75% mastery level and 60% near-
mastery level (NAT).
29
Annex 2: The ICC Process
Consultants and advisers hired represent a parallel process of project evaluation,
indicated by [1], effectively undermining the ICC process. While this parallel process
may not affect the quality of the official project evaluation report produced in [2], what
could is the signal that the project is policy, that is, it is already pre-approved [3].
Source of base figure: NEDA [undated]
[3] approved
[2] PER
Project Proposal
Submission Requirements
(FS, endorsements by
concerned agencies)
ICC Secretariat
Project Evaluation
ICC-Technical Board (TB) Review)
ICC- Cabinet Committee (CC) Review
NEDA Board confirmation of ICC approval
The Proposed project is endorsed for
funding and implementation
Projects deferred for
endorsement/approval are
remanded to the ICC Secretariat
for review
[1]
Brokers,
consultants,
advisers
Proponent Agency