Clear, present threat

“The premature payments effectively shortened the duration of maintenance services up to October 2024 only, instead of up to December 2025, to the disadvantage of the government.

Former Land Transportation Office executives were not exaggerating when they described German firm Dermalog’s failure to fulfill its commitments under the Land Transportation Management System or LTMS contract with the government as a threat to national security.

Documents filed with the Ombudsman, in a 2022 Dermalog graft complaint, revealed that Dermalog “interfered in and controlled the LTO’s printing system of driver’s license cards.”

Moreover, the Commission on Audit, or CoA, in a 2022 report on the Department of Transportation, said Dermalog, in undertaking the Road Transportation Infrastructure Information Technology Project, which is a P3.19 billion component of the LTMS, has withheld key components of the project.

“The source code of the software and other applications relative to the LTMS was not turned over by the Dermalog joint venture to the LTO due to a contrary interpretation of the former on the terms of the contract and its relevant supporting documents,” according to CoA.

State auditors added that “payment to Dermalog Identification System GMBH for maintenance of core applications for the period from October 2019 to October 2020 was made notwithstanding that the 1st acceptance of core applications was only made in December 2020.”

In effect, the premature payments “effectively shortened the duration of maintenance services up to October 2024 only, instead of up to December 2025, to the disadvantage of the government.”

The report also indicated that “payment to Dermalog Joint Venture for maintenance of core applications and data center aggregating to P13,042,145.54 was considered erroneous due to a mistake in the classification or categorization of items claimed and paid under maintenance of core applications instead of data center; and unnecessary payment of electrical fees.

CoA also found in examining the contract that of the 39 issues and concerns, 33 were of high severity and one was of critical severity.

CoA said the severe concern relates to the “erroneous/incomplete configurations which, if left uncorrected, will be crucial to the overall functionality of core applications.”

“Meanwhile, out of the 33 issues of high severity, 15 pertained to the Drivers’ Licensing System, or DLS, and 13 to Motor Vehicle Inspection and Registration System, or MVIS.”

Contrary to claims that the LTMS is functional despite Dermalog’s shortcomings, the CoA said the deficiencies greatly impact the LTO digital system.

Considering that the LTO is the third biggest revenue earner for the government, the failures of Dermalog should be classified as sabotage.

CoA explained that open issues, concerns, and items for enhancement were affecting the utilization of the new information technology, or IT system, and hence, “should be immediately and sufficiently addressed by the management.”

State auditors warned if the deficiencies persist “and continue to cause non or limited utilization of the new IT system, the project will certainly be considered a waste of government funds, and hence the disbursements thereon, which as at audit date already consist of full payment for all core applications and two years maintenance, may be considered as disallowable.”

Prolonging the LTMS problems that have plagued the company for four years appears beneficial to Dermalog due to the continuing fees it collects while ownership is not fully transferred to the government.

CoA’s review of LTO payments to Dermalog showed that as of 31 December 2022, P385.6 million were paid for the maintenance of core applications, data center, and generator set.

A total of P330.14 million was paid on 9 February 2022. By then, the audit team issued a memo dated 14 January containing an observation that the billing was premature.

Despite the adverse finding, it is stupefying that some LTO and DoTr still shield Dermalog, with one saying that no advance payments were made in defiance of the CoA findings.

The sole solution should be for Dermalog to fully deliver and transfer ownership of the LTMS to the government, nothing less.

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