When Numbers Hide the Truth: NFCC, Capitalization, and the Flood Control Controversy

 Dr. Rodolfo John Ortiz Teope, MBA, MPS, PhD, EdD.

At present, most people know me as a political analyst and public safety expert, but my journey began in the academe as a professor of Accounting and Business Management after finishing my 1st Masterate Degree in Business Administration with Latin Honors. That foundation has never left me. In fact, as I watched the Senate Blue Ribbon Hearing today, I felt my knowledge of financial accounting and business administration awaken once more, stirred by the very line of questioning raised by the senators

When I was still teaching business administration, I would always remind my students that in the world of corporate finance, figures are not always what they seem. Numbers can impress, intimidate, or even deceive if not properly examined. One example I often emphasized is capitalization. Capitalization, the declared or paid-up capital of a company, is usually perceived as its backbone. But I always told my classes: capitalization is not the sole capacity of a company to work on a project. Beyond that figure on paper, what truly matters are the financial statements and the Net Financial Contracting Capacity (NFCC).

Now as I show my other of me as a non-practicing financial analyst, I have had the privilege—and sometimes the burden—of looking beyond those surface numbers. I have seen companies with modest capitalization but stable and honest financial statements. They may look small on paper, but they are healthy in practice. On the other hand, I have seen firms with lofty capitalization, only to find that their financial statements reveal nothing but debt and obligations. This is why regulators insist on using NFCC as a key measure (Department of Budget and Management [DBM], 2016).

The NFCC, for those unfamiliar, is a formula mandated by Republic Act No. 9184 or the Government Procurement Reform Act. It is designed to ensure that contractors undertaking government projects have the financial breathing room to fulfill them (Republic Act No. 9184, 2003). It considers current assets, liabilities, outstanding obligations, and the value of existing projects. In theory, it protects the government from awarding contracts to firms that are already financially weak.

But here lies the irony—and perhaps the tragedy—in our system. The recent flood control controversies, now laid bare by President Marcos himself, revealed that billions of pesos’ worth of projects ended up in the hands of only 15 contractors, some of which are not even large corporations but mere single proprietorships (Marcos, 2025). These entities, with very low capitalization, somehow managed to bag contracts worth hundreds of millions, even billions. The question is: how?

The answer lies in the very safeguard meant to protect us: the NFCC. By formula, a contractor may appear to have a “healthy” NFCC, especially if liabilities are structured favorably or assets are declared optimistically. A single proprietorship with less than ₱5 million in capitalization could still show an NFCC running into hundreds of millions because the law does not rely solely on capitalization. The result? Firms with very little corporate backbone are entrusted with projects far beyond their real-world capacity (Commission on Audit [COA], 2023).

When I heard the President disclose that 20 percent of the ₱545 billion budget for flood control projects went to only 15 contractors—five of whom had projects across the entire country—I could not help but think back to those lectures in my classroom. Numbers are not always as they appear. If NFCC becomes a loophole rather than a safeguard, then we end up with this scenario: contractors with paper capacity but no real capacity cornering projects far beyond what they can manage (DPWH, 2025).

And what is the consequence? Projects that are either delayed, substandard, or overpriced. Flood control projects that should protect communities instead become avenues for flooding corruption. The rain pours, rivers swell, and homes are washed away—not by the typhoon alone, but by a system that trusted paper numbers over real financial capacity.

This is where the distinction I always stressed to my students becomes painfully clear. Capitalization is not enough, true. But neither is NFCC if it is treated as a mere formula without context. Financial statements must be studied with discernment—not only for compliance but for substance. A company’s liquidity, its operational track record, its manpower, and its equipment—these matter just as much as the numbers written on balance sheets.

It troubles me deeply that small proprietorships, with limited capitalization, could dominate multi-million peso flood control projects, while local contractors, who could have been tapped by LGUs for better accountability and faster coordination, were sidelined. As an educator, I cannot help but think of my students who believed in systems, in formulas, in laws that were supposed to be safeguards. As a financial analyst, I see the dangers of relying on incomplete pictures of financial health. And as a Filipino and a public safety advocate, I feel the frustration of knowing that these cracks in our procurement system translate into literal cracks in our dikes and flood structures.

Perhaps this is where reforms must come in. Capitalization should not be ignored, nor should it be the sole measure. NFCC should not be scrapped, but recalibrated to reflect not only numbers but real capacity. A single proprietorship may pass the NFCC formula, but does it have the manpower, the equipment, and the operational breadth to carry out flood control projects nationwide? These are questions that cannot be answered by formulas alone—they require audits, investigations, and accountability.

I go back to a principle I often told my students: finance is not just about numbers—it is about truth. When numbers hide the truth, corruption finds its home. The flood control controversies are not merely about overpricing or favoritism—they are about a failure to see beyond the numbers, a failure to demand truth in the figures that should safeguard our nation’s resources. Until we learn this, the floods will not stop—neither in our rivers nor in our governance.

References

Commission on Audit (COA). (2023). Annual audit report on the Department of Public Works and Highways. COA.

Department of Budget and Management (DBM). (2016). Government procurement policy board guidelines on the computation of the net financial contracting capacity. DBM Publications.

Department of Public Works and Highways (DPWH). (2025, July). Preliminary audit report on flood control projects. DPWH Press Release.

Marcos, F. R. Jr. (2025, August 18). Remarks on flood control projects audit. Office of the President, Malacañang.

Republic Act No. 9184. (2003). Government Procurement Reform Act. Official Gazette of the Republic of the Philippines.

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 *About the author:

Dr. Rodolfo “John” Ortiz Teope is a distinguished Filipino academic, public intellectual, and advocate for civic education and public safety, whose work spans local academies and international security circles. With a career rooted in teaching, research, policy, and public engagement, he bridges theory and practice by making meaningful contributions to academic discourse, civic education, and public policy. Dr. Teope is widely respected for his critical scholarship in education, management, economics, doctrine development, and public safety; his grassroots involvement in government and non-government organizations; his influential media presence promoting democratic values and civic consciousness; and his ethical leadership grounded in Filipino nationalism and public service. As a true public intellectual, he exemplifies how research, advocacy, governance, and education can work together in pursuit of the nation’s moral and civic mission.