Notice of Entering Into a Compact With the Republic of the Philippines, 61197-61216 [2010-24820]

Agencies

• Millennium Challenge Corporation

[Federal Register Volume 75, Number 191 (Monday, October 4, 2010)]
[Notices]
[Pages 61197-61216]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: 2010-24820]


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MILLENNIUM CHALLENGE CORPORATION

[MCC FR 10-11]


Notice of Entering Into a Compact With the Republic of the 
Philippines

AGENCY: Millennium Challenge Corporation.

ACTION: Notice.

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SUMMARY: In accordance with Section 610(b)(2) of the Millennium 
Challenge Act of 2003 (Pub. L. 108-199, Division D), the Millennium 
Challenge Corporation (MCC) is publishing a summary and the complete 
text of the Millennium Challenge Compact between the United States of 
America, acting through the Millennium Challenge Corporation, and the 
Republic of the Philippines. Representatives of the United States 
Government and the Republic of the Philippines executed the Compact 
documents on September 23, 2010.

    Dated: September 29, 2010.
Melvin F. Williams, Jr.,
VP/General Counsel and Corporate Secretary, Millennium Challenge 
Corporation.

Summary of Millennium Challenge Compact With the Republic of the 
Philippines

    The five-year Millennium Challenge Compact with the Republic of the 
Philippines (``Compact'') will provide up to $433,910,000 million to 
reduce poverty and accelerate economic growth. The Compact is intended 
to support: (i) Reforms and investments to modernize the Bureau of 
Internal Revenue to increase fiscal space for public investment and to 
reduce opportunities for corruption in tax administration; (ii) 
expansion and improvement of a community-driven development project, 
Kalahi-CIDSS; and (iii) rehabilitation of a secondary national road in 
Samar province.

Revenue Administration Reform Project ($54.3 million)

    The Revenue Administration Reform Project addresses two problems: 
(i) the need to raise tax revenues and (ii) the need to reduce tax 
evasion and revenue agent-related corruption. A key constraint to 
economic growth in the Philippines is the lack of fiscal space for 
growth-enhancing investments in public goods such as infrastructure and 
social services (e.g., education and health). This project will focus 
on the Bureau of Internal Revenue within the Department of Finance to 
increase the efficiency and sustainability of revenue collection 
through a redesign and computerization of business processes, thereby 
helping to relieve some pressure on the Government of the Republic of 
the Philippines' (``GRP's'') fiscal position. This project will narrow 
the gap between potential and actual collections by reducing the 
discretion of individual revenue (i.e., tax and customs) collection 
officers, and help improve the predictability and impartiality with 
which revenue laws and regulations are enforced. Some of these 
activities are extensions of the Philippines' threshold program 
activities that concluded in May 2009. The project is expected to reach 
the entire Philippine population and has an economic rate of return of 
40 percent.

Kalahi-CIDSS Community Development Project ($120.0 million)

    The Kalahi-CIDSS Project will improve welfare in rural areas by 
targeting communities where poverty incidence exceeds the national 
average for small-scale, community-driven development projects. The 
project does this through the direct provision of infrastructure and 
services associated with community-selected and managed sub-projects, 
strengthened community participation in development and governance 
activities at the village and municipal level, and improved 
responsiveness of local government to community needs. The project will 
build on and support the application of the participatory planning, 
implementation, and evaluation methodology developed by GRP's 
Department of Social Welfare and Development (DSWD) in collaboration 
with the World Bank.
    Grants for the community sub-projects are provided directly to the 
local communities, which are responsible for sub-project selection, the 
procurement of goods and services for their sub-project, and, in most 
cases, the operations and maintenance of the physical assets. DSWD will 
implement the project, overseen by a National Steering Committee that 
includes representatives from government departments and NGOs, and in 
collaboration with local governments.
    Typical sub-projects will include small-scale transportation 
infrastructure such as village access roads and bridges, school 
buildings, health clinics, drinking water systems, pre-and post-harvest 
facilities, and other economic assets. The project is expected to 
benefit over five million beneficiaries over the next 20 years and has 
an estimated economic rate of return of 13 percent.

Secondary National Roads Development Project ($214.4 million)

    The Secondary National Roads Development Project is designed to 
reduce transportation costs through the rehabilitation of an existing 
222 kilometer road segment. By bringing about savings in vehicle 
operating cost and time for both passengers and goods, and by reducing 
road maintenance costs, the investment will facilitate increased 
commerce in and between the provinces of Samar and Eastern Samar,

[[Page 61198]]

and ultimately contribute to the Compact's objective of increasing 
incomes.
    This project will incorporate enhanced safety measures in the final 
road designs, including: (i) Paved shoulders intended to improve 
conditions for vehicles and provide space for pedestrians; (ii) 
construction of sidewalks and curbs where pedestrian activity is 
higher, such as near schools and other public facilities; (iii) 
improved gateway treatments to indicate where lower speeds are 
required, typically in more developed communities and urban areas; and 
(iv) increased use of road narrowing, median islands, and traffic humps 
to slow traffic speeds. The project is expected to reach 290,000 
beneficiaries and has an economic rate of return of 14 percent.

Administration

    The Compact also includes program management and oversight costs 
estimated at $36.91 million over a five-year time frame, including the 
costs of administration, management, auditing, and fiscal and 
procurement agent services. In addition, the cost of monitoring and 
evaluation of the Compact is budgeted at approximately $8.26 million.

Millennium Challenge Compact

Between the United States of America Acting Through the Millennium 
Challenge Corporation and the Republic of the Philippines

Table of Contents

Article 1. Goal and Objectives
    Section 1.1 Compact Goal
    Section 1.2 Program Objective
    Section 1.3 Project Objectives
Article 2. Funding and Resources
    Section 2.1 Program Funding
    Section 2.2 Compact Implementation Funding
    Section 2.3 MCC Funding
    Section 2.4 Disbursement
    Section 2.5 Interest
    Section 2.6 Government Resources; Budget
    Section 2.7 Limitations of the Use of MCC Funding
    Section 2.8 Taxes and Contributions
Article 3. Implementation
    Section 3.1 Program Implementation Agreement
    Section 3.2 Government Responsibilities
    Section 3.3 Policy Performance
    Section 3.4 Government Assurances
    Section 3.5 Implementation Letters
    Section 3.6 Procurement
    Section 3.7 Records; Accounting; Covered Providers; Access
    Section 3.8 Audits; Reviews
Article 4. Communications
    Section 4.1 Communications
    Section 4.2 Representatives
Article 5. Termination; Suspension; Refunds
    Section 5.1 Termination; Suspension
    Section 5.2 Refunds; Violation
    Section 5.3 Survival
Article 6. Compact Annexes; Amendments; Governing Law
    Section 6.1 Annexes
    Section 6.2 Amendments
    Section 6.3 Inconsistencies
    Section 6.4 Governing Law
    Section 6.5 Additional Instruments
    Section 6.6 References to MCC Web site
    Section 6.7 References to Laws, Regulations, Policies, and 
Guidelines
    Section 6.8 MCC Status
    Section 6.9 Counterparts; Electronic Delivery
Article 7. Entry Into Force
    Section 7.1 Conditions Precedent to Entry Into Force
    Section 7.2 Date of Entry Into Force
    Section 7.3 Compact Term
    Section 7.4 Provisional Application
Article 8. Additional Government Covenants
    Section 8.1 Project Covenants
Annex I: Program Description
Annex II: Multi-Year Financial Plan Summary
Annex III: Description of the Monitoring and Evaluation Plan
Annex IV: Conditions to Disbursement of Compact Implementation 
Funding
Annex V: Definitions

Millennium Challenge Compact

Preamble

    This Millennium Challenge Compact (this ``Compact'') is between the 
United States of America, acting through the Millennium Challenge 
Corporation, a United States government corporation (``MCC''), and the 
Republic of the Philippines (``the Philippines''), acting through its 
government (the ``Government''), represented by its Department of 
Finance.
    MCC and the Government are individually referred to in this Compact 
as a ``Party'' and together, as the ``Parties.'' Capitalized terms used 
in this Compact will have the meanings specified in Annex V hereto.
    Recalling that the Government consulted with the private sector and 
civil society of the Philippines to determine the priorities for the 
use of Millennium Challenge Account assistance and developed and 
submitted to MCC a proposal for such assistance to achieve lasting 
economic growth and poverty reduction; and
    Recognizing that MCC wishes to help the Philippines implement a 
program to achieve the goal and objectives described herein (the 
``Program'').
    The Parties agree as follows:

Article 1. Goal and Objectives

Section 1.1 Compact Goal

    The goal of this Compact is to reduce poverty through economic 
growth in the Philippines (the ``Compact Goal'').

Section 1.2 Program Objective

    The objective of the Program is to: (a) Increase the incomes of 
Filipinos through the benefits of community-driven sub-projects; (b) 
obtain time savings and lower transportation costs for road users in 
Program areas; and (c) increase investment and government expenditure 
due to an increase in tax revenue and a reduction in corruption (as 
further described in Annex I, the ``Program Objective'').

Section 1.3 Project Objectives

    The objectives of the Projects (as further described in Annex I) 
(each a ``Project Objective'' and collectively, the ``Project 
Objectives'') are as follows:
    (a) The objectives of the KALAHI-CIDSS Project (as defined in Annex 
I) are to: (i) Improve the responsiveness of local governments to 
community needs; (ii) encourage communities to engage in development 
activities; and (iii) deliver benefits to barangay residents through 
individual sub-projects.
    (b) The objectives of the Secondary National Roads Development 
Project (as defined in Annex I) are to: (i) save time; and (ii) lower 
vehicle operating costs for those Filipinos living near the roads.
    (c) The objectives of the Revenue Administration Reform Project (as 
defined in Annex I) are to: (i) increase tax revenues over time; and 
(ii) support the Department of Finance's initiatives to detect and 
deter corruption within its revenue agencies.

Article 2. Funding and Resources

Section 2.1 Program Funding

    Upon entry into force of this Compact, MCC will grant to the 
Government, under the terms of this Compact, an amount not to exceed 
Four Hundred Eight Million Eight Hundred Fifty Thousand United States 
Dollars (U.S. $408,850,000) to support the Program (``Program 
Funding''). The allocation of Program Funding is generally described in 
Annex II to this Compact.

Section 2.2 Compact Implementation Funding

    (a) Upon signature of this Compact, MCC hereby grants to the 
Government, under the terms of this Compact, in addition to the Program 
Funding described in Section 2.1, an amount not to exceed Twenty-Five 
Million Sixty Thousand United States Dollars (U.S. $25,060,000) 
(``Compact Implementation Funding'') under Section 609(g) of the 
Millennium Challenge Act of 2003, as amended (the ``MCA Act''), for use 
by the Government as agreed by the Parties, which may include use for 
the following purposes:

[[Page 61199]]

    (i) Project management activities for the KALAHI-CIDSS Project;
    (ii) Procurement and establishment of a project management company 
for the Secondary National Roads Development Project; and
    (iii) Technical assistance for advisory services for the Revenue 
Administration Reform Project.
    The allocation of Compact Implementation Funding is generally 
described in Annex II to this Compact.
    (b) In accordance with Section 7.4 of this Compact, this Section 
2.2 and other provisions of this Compact necessary to make use of 
Compact Implementation Funding for the purposes set forth herein, will 
be effective, for purposes of Compact Implementation Funding only, as 
of the date this Compact is signed by MCC and the Government.
    (c) Each Disbursement of Compact Implementation Funding is subject 
to satisfaction of the conditions to such Disbursement as set forth in 
Annex IV.
    (d) If, after the first anniversary of this Compact entering into 
force, MCC determines that the full amount of Compact Implementation 
Funding under Section 2.2(a) of this Compact exceeds the amount which 
reasonably can be utilized for the purposes and uses set forth in 
Section 2.2(a) of this Compact, MCC, by written notice to the 
Government, may withdraw the excess amount, thereby reducing the amount 
of the Compact Implementation Funding as set forth in Section 2.2(a) 
(such excess, the ``Excess CIF Amount''). In such event, the amount of 
Compact Implementation Funding granted to the Government under Section 
2.2(a) will be reduced by the Excess CIF Amount, and MCC will have no 
further obligations with respect to such Excess CIF Amount.
    (e) MCC, at its option by written notice to the Government, may 
elect to grant to the Government an amount equal to all or a portion of 
such Excess CIF Amount as an increase in the Program Funding, and such 
additional Program Funding will be subject to the terms and conditions 
of this Compact and any relevant supplemental agreement applicable to 
Program Funding.

Section 2.3 MCC Funding

    Program Funding and Compact Implementation Funding are collectively 
referred to in this Compact as ``MCC Funding.''

Section 2.4 Disbursement

    In accordance with this Compact and the Program Implementation 
Agreement, MCC will disburse MCC Funding for expenditures incurred in 
furtherance of the Program (each instance, a ``Disbursement''). Subject 
to the satisfaction of all applicable conditions, the proceeds of such 
Disbursements will be made available to the Government, at MCC's sole 
election, by (a) deposit to one or more bank accounts established by 
the Government through MCA-Philippines and acceptable to MCC (each, a 
``Permitted Account'') or (b) direct payment to the relevant provider 
of goods, works or services for the implementation of the Program. MCC 
Funding may be expended only to fund Program expenditures as provided 
in this Compact and the Program Implementation Agreement.

Section 2.5 Interest

    Except as otherwise agreed by MCC, the Government will transfer to 
MCC any interest or other earnings that accrue on MCC Funding (whether 
by directing such payments to a bank account outside the Philippines 
that MCC may from time to time indicate or as otherwise directed by 
MCC).

Section 2.6 Government Resources; Budget

    (a) The Government will provide all funds and other resources, and 
will take all actions, that are necessary to carry out the Government's 
responsibilities and obligations under this Compact.
    (b) The Government will provide suitable and adequate office space 
for MCA-Philippines, the Fiscal Agent, the Procurement Agent, and the 
MCC resident country mission.
    (c) The Government will ensure that all MCC Funding it receives or 
is projected to receive in each of its fiscal years is fully accounted 
for in its annual budget on a multi-year basis.
    (d) The Government will not reduce the normal and expected 
resources that it would otherwise receive or budget from sources other 
than MCC for the activities contemplated under this Compact and the 
Program.
    (e) Unless the Government discloses otherwise to MCC in writing, 
MCC Funding will be in addition to the resources that the Government 
would otherwise receive or budget for the activities contemplated under 
this Compact and the Program.
    (f) Without limitation of its obligations under Section 2.6(a) 
above, the Government shall: (i) Contribute funding to MCA-Philippines 
as described in Section 16 of the Establishment Decree and in 
compliance with Section 2.13 of the Program Implementation Agreement; 
and (ii) fund all costs in excess of those budgeted for the Program, as 
set forth in Annex II (as such may be modified in accordance with the 
terms thereof), in order to ensure the full and complete implementation 
of the Program.

Section 2.7 Limitations on the Use of MCC Funding

    The Government will ensure that MCC Funding (or any refunds or 
reimbursements of MCC Funding paid by the Government in accordance with 
this Compact that MCC permits to be used in connection with the 
Program) will not be used for any purpose that would violate United 
States law or policy, as specified in this Compact or as further 
notified to the Government in writing or by posting from time to time 
on the MCC Web site at www.mcc.gov (the ``MCC Web site''), including, 
but not limited to, the following purposes:
    (a) For assistance to, or training of, the military, police, 
militia, national guard or other quasi-military organization or unit;
    (b) For any activity that is likely to cause a substantial loss of 
United States jobs or a substantial displacement of United States 
production;
    (c) To undertake, fund or otherwise support any activity that is 
likely to cause a significant environmental, health, or safety hazard, 
as further described in MCC's environmental and social guidelines 
posted from time to time on the MCC Web site or otherwise made 
available to the Government by MCC (the ``MCC Environmental 
Guidelines''); or
    (d) To pay for the performance of abortions as a method of family 
planning or to motivate or coerce any person to practice abortions, to 
pay for the performance of involuntary sterilizations as a method of 
family planning or to coerce or provide any financial incentive to any 
person to undergo sterilizations or to pay for any biomedical research 
which relates, in whole or in part, to methods of, or the performance 
of, abortions or involuntary sterilization as a means of family 
planning.

Section 2.8 Taxes and Contributions

    The Government will ensure that no MCC Funding will be used for the 
payment of any existing or future taxes, customs duties, social 
security and other employment-related contributions, or other similar 
charges of the Government or any other governmental entity (national or 
sub-national, including of provinces, cities, municipalities, 
barangays, and other local governmental entities) in the Philippines 
(``Taxes and Contributions''), in accordance with

[[Page 61200]]

Section 2.4 of the Program Implementation Agreement.

Article 3. Implementation

Section 3.1 Program Implementation Agreement

    Prior to entry into force of this Compact, the Government and MCC 
will enter into an agreement relating to, among other matters, 
implementation arrangements, fiscal accountability, and the 
disbursement and use of MCC Funding (the ``Program Implementation 
Agreement'' or ``PIA''). The Government will implement the Program in 
accordance with the Compact and the PIA.

Section 3.2 Government Responsibilities

    (a) The Government has principal responsibility for overseeing and 
managing the implementation of the Program.
    (b) The Government hereby designates MCA-Philippines, an entity 
established through the issuance of Executive Order No. 849 of the 
Government (as amended, the ``Establishment Decree''), as the 
accountable entity to implement the Program and to exercise and perform 
the Government's rights and responsibilities with respect to the 
oversight, management, and implementation of the Program, including, 
without limitation, managing the implementation of Projects and their 
Activities, allocating resources, and managing procurements. Such 
entity will be referred to herein as Millennium Challenge Account-
Philippines (``MCA-Philippines''), and has the authority to bind the 
Government with regard to all Program Activities. The Establishment 
Decree will remain in form and substance satisfactory to MCC. For the 
avoidance of doubt, the designation of MCA-Philippines as set forth in 
this Section 3.2(b) will not relieve the Government of any of its 
obligations or responsibilities as set forth hereunder, under any 
related agreement (including, upon execution thereof, the PIA), or 
under the Program Guidelines, for which the Government remains fully 
responsible. MCC hereby acknowledges and consents to the designation in 
this Section 3.2(b).
    (c) The Government will ensure that no law or regulation in the 
Philippines now or hereinafter in effect makes or will make unlawful or 
otherwise prevent or hinder the performance of any of the Government's 
obligations under this Compact, the PIA, or any other related agreement 
or any transaction contemplated hereby or thereby.
    (d) The Government will ensure that any assets or services funded 
in whole or in part (directly or indirectly) by MCC Funding are used 
solely in furtherance of this Compact and the Program unless otherwise 
agreed by MCC in writing.
    (e) The Government will take all necessary or appropriate steps to 
achieve the Program Objective and the Project Objectives during the 
Compact Term.
    (f) The Government will fully comply with the Program Guidelines, 
as applicable, in its implementation of the Program.

Section 3.3 Policy Performance

    In addition to undertaking the specific policy, legal, and 
regulatory reform commitments identified in Annex I (if any), the 
Government will seek to maintain and to improve its level of 
performance under the policy criteria identified in Section 607 of the 
MCA Act, and the selection criteria and methodology used by MCC.

Section 3.4 Government Assurances

    The Government assures MCC that, as of the date this Compact is 
signed by the Government, the information provided to MCC by or on 
behalf of the Government in the course of reaching agreement with MCC 
on this Compact is true, correct and complete in all material respects.

Section 3.5 Implementation Letters

    From time to time, MCC may provide guidance to the Government in 
writing on any matters relating to this Compact, MCC Funding, or 
implementation of the Program (each, an ``Implementation Letter''). The 
Government will apply such guidance in implementing the Program. 
Without limiting the foregoing, either Party may, through its Principal 
Representative or any Additional Representative, as the case may be, 
initiate discussions that may result in a jointly agreed-upon 
Implementation Letter to confirm and record their mutual understanding 
on aspects related to the implementation of this Compact, the PIA, or 
other related agreements.

Section 3.6 Procurement

    The Government will ensure that the procurement of all goods, 
works, and services by the Government, or any applicable provider 
providing goods, works, and services, to implement the Program will be 
consistent with the program procurement guidelines posted from time to 
time on the MCC Web site (the ``MCC Program Procurement Guidelines''). 
The MCC Program Procurement Guidelines include, among others, the 
following requirements:
    (a) Open, fair, and competitive procedures must be used in a 
transparent manner to solicit, award and administer contracts and to 
procure goods, works, and services;
    (b) Solicitations for goods, works, and services must be based upon 
a clear and accurate description of the goods, works, and services to 
be acquired;
    (c) Contracts must be awarded only to qualified contractors that 
have the capability and willingness to perform the contracts in 
accordance with their terms on a cost effective and timely basis;
    (d) No more than a commercially reasonable price, as determined, 
for example, by a comparison of price quotations and market prices, 
will be paid to procure goods, works, and services; and
    (e) Such procurement of goods, works, and services by the 
Government, or any applicable provider providing goods, works, and 
services, to implement the Program will not be subject to any domestic 
preference, local content, or local labor requirements.

Section 3.7 Records; Accounting; Covered Providers; Access

    (a) Government Books and Records. The Government will maintain, and 
will use its best efforts to ensure that all Covered Providers 
maintain, accounting books, records, documents, and other evidence 
relating to the Program adequate to show, to MCC's satisfaction, the 
use of all MCC Funding (``Compact Records''). In addition, the 
Government will furnish or cause to be furnished to MCC, upon its 
request, all such Compact Records.
    (b) Accounting. The Government will maintain, and will use its best 
efforts to ensure that all Covered Providers maintain, Compact Records 
in accordance with generally accepted accounting principles prevailing 
in the United States, or at the Government's option and with MCC's 
prior written approval, other accounting principles, such as those (i) 
prescribed by the International Accounting Standards Board, or (ii) 
then prevailing in the Philippines. Compact Records must be maintained 
for at least five (5) years after the end of the Compact Term or for 
such longer period, if any, required to resolve any litigation, claims 
or audit findings or any statutory requirements.
    (c) Providers and Covered Providers. Unless the Parties agree 
otherwise in writing, a ``Provider'' is (i) any entity of the 
Government that receives or uses MCC Funding or any other Program Asset 
in carrying out activities in

[[Page 61201]]

furtherance of this Compact, or (ii) any third party that receives at 
least Fifty Thousand United Stated Dollars (US$50,000) in the aggregate 
of MCC Funding (other than as salary or compensation as an employee of 
an entity of the Government) during the Compact Term. A ``Covered 
Provider'' is (1) a non-United States Provider that receives (other 
than pursuant to a direct contract or agreement with MCC) Three Hundred 
Thousand United States Dollars (US$300,000) or more of MCC Funding in 
any Government fiscal year or any other non-United States person or 
entity that receives, directly or indirectly, Three Hundred Thousand 
United States Dollars (US$300,000) or more of MCC Funding from any 
Provider in such fiscal year, or (2) any United States Provider that 
receives (other than pursuant to a direct contract or agreement with 
MCC) Five Hundred Thousand United States Dollars (US$500,000) or more 
of MCC Funding in any Government fiscal year or any other United States 
person or entity that receives, directly or indirectly, Five Hundred 
Thousand United States Dollars (US$500,000) or more of MCC Funding from 
any Provider in such fiscal year.
    (d) Access. Upon MCC's request, the Government, at all reasonable 
times, will permit, or cause to be permitted, authorized 
representatives of MCC, an authorized Inspector General, the United 
States Government Accountability Office, any auditor responsible for an 
audit contemplated herein or otherwise conducted in furtherance of this 
Compact, and any agents or representatives engaged by MCC or the 
Government to conduct any assessment, review, or evaluation of the 
Program, the opportunity to audit, review, evaluate, or inspect 
facilities and activities funded in whole or in part by MCC Funding.

Section 3.8 Audits; Reviews

    (a) Government Audits. Except as the Parties may otherwise agree in 
writing, the Government will, on at least a semi-annual basis, conduct, 
or cause to be conducted, financial audits of all Disbursements of MCC 
Funding covering the period from signing of this Compact until the 
earlier of the following December 31 or June 30 and covering each six-
month period thereafter ending December 31 and June 30, through the end 
of the Compact Term. In addition, upon MCC's request, the Government 
will ensure that such audits are conducted by an independent auditor 
approved by MCC and named on the list of local auditors approved by the 
Inspector General of MCC (the ``Inspector General'') or a United 
States-based certified public accounting firm selected in accordance 
with the ``Guidelines for Financial Audits Contracted by MCA'' (the 
``Audit Guidelines'') issued and revised from time to time by the 
Inspector General, which are posted on the MCC Web site. Audits will be 
performed in accordance with the Audit Guidelines and be subject to 
quality assurance oversight by the Inspector General. Each audit must 
be completed and the audit report delivered to MCC no later than ninety 
(90) days after the first period to be audited and no later than ninety 
(90) days after each June 30 and December 31 thereafter, or such other 
period as the Parties may otherwise agree in writing.
    (b) Audits of United States Entities. The Government will ensure 
that agreements between the Government or any Provider, on the one 
hand, and a United States nonprofit organization, on the other hand, 
that are financed with MCC Funding state that the United States 
nonprofit organization is subject to the applicable audit requirements 
contained in OMB Circular A-133, ``Audits of States, Local Governments, 
and Non Profit Organizations,'' issued by the United States Government 
Office of Management and Budget. The Government will ensure that 
agreements between the Government or any Provider, on the one hand, and 
a United States for-profit Covered Provider, on the other hand, that 
are financed with MCC Funding state that the United States for-profit 
organization is subject to audit by the applicable United States 
Government agency, unless the Government and MCC agree otherwise in 
writing.
    (c) Corrective Actions. The Government will (i) use its best 
efforts to ensure that Covered Providers take, where necessary, 
appropriate and timely corrective actions in response to audits, (ii) 
consider whether the results of a Covered Provider's audit necessitates 
adjustment of the Government's records, and (iii) require each such 
Covered Provider to permit independent auditors to have access to its 
records and financial statements as necessary.
    (d) Audit by MCC. MCC will have the right to arrange for audits of 
the Government's use of MCC Funding.
    (e) Cost of Audits, Reviews or Evaluations. MCC Funding may be used 
to fund the costs of any audits, reviews, or evaluations required under 
this Compact.

Article 4. Communications

Section 4.1 Communications

    Any document or communication required or submitted by either Party 
to the other under this Compact must be in writing and, except as 
otherwise agreed with MCC, in English. For this purpose, the address of 
each Party is set forth below. The Government will provide to MCC any 
information that is missing from below.
    To MCC:
    Millennium Challenge Corporation, Attention: Vice President, 
Compact Operations, (in each case, with a copy to the Vice President 
and General Counsel), 875 Fifteenth Street, NW., Washington, DC 20005, 
United States of America, Facsimile: (202) 521-3700, Telephone: (202) 
521-3600, e-mail: VPOperations@mcc.gov (Vice President, Compact 
Operations), VPGeneralCounsel@mcc.gov (Vice President and General 
Counsel).
    To the Government:
    Attention: Secretary of Finance, (in each case, with a copy to the 
Undersecretary for International Finance Group), Address: 6/F, DOF 
Building, Department of Finance, Bangko Sentral ng Pilipinas Complex, 
Roxas Boulevard, Manila 1004 Philippines, Facsimile: (632) 523-9495/
(632) 523-9216, Telephone: (632) 523-9215/(632) 523-9911, e-mail: 
mcccompact@dof.gov.ph.
    To MCA-Philippines:
    Attention: Managing Director, Address: Room Nos. 602-604, 6/F EDPC 
Building, Bangko Sentral ng Pilipinas Complex, Roxas Boulevard, Manila 
1004 Philippines, Contact details on the facsimile number, telephone 
number, and e-mail address will be provided in writing to MCC by MCA-
Philippines

Section 4.2 Representatives

    For all purposes of this Compact, the Government will be 
represented by the individual holding the position of, or acting as, 
the Secretary of Finance and MCC will be represented by the individual 
holding the position of, or acting as, Vice President, Compact 
Operations (each of the foregoing, a ``Principal Representative''). 
Each Party, by written notice to the other Party, may designate one or 
more additional representatives (each, an ``Additional 
Representative'') for all purposes other than signing amendments to 
this Compact. The Government hereby irrevocably designates the Managing 
Director of MCA-Philippines as an Additional Representative. A Party 
may change its Principal Representative to a new representative that 
holds a position

[[Page 61202]]

of equal or higher rank upon written notice to the other Party.

Article 5. Termination; Suspension; Refunds

Section 5.1 Termination; Suspension

    (a) Either Party may terminate this Compact without cause in whole 
by giving the other Party thirty (30) days written notice. MCC may also 
terminate this Compact without cause in part by giving the Government 
thirty (30) days written notice.
    (b) MCC may, immediately, upon written notice to the Government, 
suspend or terminate this Compact or MCC Funding, in whole or in part, 
and any obligation related thereto, if MCC determines that any 
circumstance identified by MCC in writing to the Government as a basis 
for suspension or termination has occurred, which circumstances 
include, but are not limited, to the following:
    (i) The Government fails to comply with its obligations under this 
Compact, the PIA, or any other agreement or arrangement entered into by 
the Government in connection with this Compact or the Program;
    (ii) An event or series of events has occurred that MCC determines 
makes it probable that the Program Objective or any of the Project 
Objectives will not be achieved during the Compact Term or that the 
Government will not be able to perform its obligations under this 
Compact;
    (iii) A use of MCC Funding or continued implementation of this 
Compact or the Program violates applicable law or United States 
Government policy, whether now or hereafter in effect;
    (iv) The Government or any other person or entity receiving MCC 
Funding or using assets acquired in whole or in part with MCC Funding 
is engaged in activities that are contrary to the national security 
interests of the United States;
    (v) An act has been committed or an omission or an event has 
occurred that would render the Philippines ineligible to receive United 
States economic assistance under Part I of the Foreign Assistance Act 
of 1961, as amended (22 U.S.C. 2151 et seq.), by reason of the 
application of any provision of the Foreign Assistance Act of 1961 or 
any other provision of law;
    (vi) The Philippines is classified as a Tier 3 country in the 
United States Department of State's annual Trafficking in Persons 
Report;
    (vii) The Government has engaged in a pattern of actions 
inconsistent with the criteria used to determine the eligibility of the 
Philippines for assistance under the MCA Act; or
    (viii) The Government or another person or entity receiving MCC 
Funding or using assets acquired in whole or in part with MCC Funding 
is found to have been convicted of a narcotics offense or to have been 
engaged in drug trafficking.
    (c) All Disbursements will cease upon expiration, suspension, or 
termination of this Compact; provided, however, MCC may permit MCC 
Funding to be used, in compliance with this Compact and the PIA, to pay 
for (i) expenditures for goods, works, or services that are properly 
incurred under or in furtherance of the Program before expiration, 
suspension, or termination of this Compact, and (ii) reasonable 
expenditures (including administrative expenses) properly incurred in 
connection with the winding up of the Program within one hundred twenty 
(120) days after the expiration, suspension, or termination of this 
Compact, so long as, with respect to (i) and (ii) herein, the request 
for such expenditures is submitted within ninety (90) days after such 
expiration, suspension, or termination.
    (d) Subject to Section 5.1(c), upon the expiration, suspension, or 
termination of this Compact, (i) any amounts of MCC Funding not 
disbursed by MCC in accordance with the Compact and the PIA will be 
automatically released from any obligation in connection with this 
Compact, and (ii) any amounts of MCC Funding disbursed to the Permitted 
Account by MCC but not expended before the expiration, suspension or 
termination of this Compact, plus accrued interest thereon will be 
returned to MCC within thirty (30) days after the Government receives 
MCC's request for such return; provided, however, that if this Compact 
is suspended or terminated in part, MCC may request a refund for only 
the amount of MCC Funding allocated to the suspended or terminated 
portion. For the avoidance of doubt, interest will accrue from the date 
of the violation and will be calculated at the 10-year U.S. Treasury 
Note rate prevailing as of the close of business in Washington, DC as 
of the date of MCC's request for payment.
    (e) MCC may reinstate any suspended or terminated MCC Funding under 
this Compact if MCC determines that the Government or other relevant 
person or entity has committed to correct each condition for which MCC 
Funding was suspended or terminated.

Section 5.2 Refunds; Violation

    (a) If any MCC Funding, any interest or earnings thereon, or any 
asset acquired in whole or in part with MCC Funding is used for any 
purpose in violation of the terms of this Compact or the PIA, 
including, but not limited to, any violation of the Program Guidelines, 
then MCC may require the Government to repay to MCC in United States 
Dollars the value of the misused MCC Funding, interest, earnings, or 
asset, plus interest within thirty (30) days after the Government's 
receipt of MCC's request for repayment. For the avoidance of doubt, 
interest will accrue from the date of the violation and will be 
calculated at the 10-year U.S. Treasury Note rate prevailing as of the 
close of business in Washington, DC as of the date of MCC's request for 
payment. The Government will not use MCC Funding, proceeds thereof or 
Program Assets to make such payment.
    (b) Notwithstanding any other provision in this Compact or any 
other agreement to the contrary, MCC's right under this Section 5.2 for 
a refund will continue during the Compact Term and for a period of (i) 
five (5) years thereafter, or (ii) one (1) year after MCC receives 
actual knowledge of such violation, whichever is later.

Section 5.3 Survival

    The Government's responsibilities under Sections 2.4, 2.6, 2.7, 
2.8, 3.7, 3.8, 5.1(c), 5.1(d), 5.2, 5.3, 6.2, and 6.4 of this Compact 
will survive the expiration, suspension, or termination of this 
Compact.

Article 6. Compact Annexes; Amendments; Governing Law

Section 6.1 Annexes

    Each annex to this Compact constitutes an integral part hereof, and 
references to ``Annex'' mean an annex to this Compact unless otherwise 
expressly stated.

Section 6.2 Amendments

    (a) The Parties may amend this Compact only by a written agreement 
signed by the Principal Representatives.
    (b) Without amending this Compact, the Government hereby 
acknowledges and agrees that the Parties may, through the Principal 
Representative or any Additional Representative, in writing agree to 
modify any Annex to this Compact to (i) suspend, terminate (including 
the termination of a Project Objective), or modify any project 
described in Annex I (each, a ``Project'' and collectively, the 
``Projects'') or to create a new project, (ii) change the allocations 
of funds from what is set forth in Annex II as of the date hereof, or 
(iii) add, delete, or waive any condition precedent described in Annex

[[Page 61203]]

IV, provided that any such modification, (1) is consistent in all 
material respects with the Program Objective, (2) does not cause the 
amount of Program Funding to exceed the aggregate amount specified in 
Section 2.1 of this Compact (as may be modified by operation of Section 
2.2(e) of this Compact), (3) does not cause the amount of Compact 
Implementation Funding to exceed the aggregate amount specified in 
Section 2.2(a) of this Compact, (4) does not cause the Government's 
responsibilities or contribution of resources to be less than specified 
in this Compact, (5) does not extend the Compact Term, and (6) in the 
case of a modification to change allocations of funds among Projects or 
the creation of a new Project, does not materially adversely affect any 
components under the Program Administration and Audits or Monitoring 
and Evaluation line items in Annex II.
    (c) Any modification of any Annex to this Compact signed in 
accordance with Section 6.2(b), or any modification of any other 
provision of this Compact pursuant to Section 6.2(a), will be binding 
on the Government without the need for further action by the 
Government, any further Congressional action, or satisfaction of any 
additional legal requirements of the Philippines.

Section 6.3 Inconsistencies

    In the event of any conflict or inconsistency between:
    (a) Any Annex to this Compact and any of Article 1.1 and Articles 2 
through 8, such Article 1.1 and Articles 2 through 8, as applicable, 
will prevail; or
    (b) This Compact and any other agreement between the Parties 
regarding the Program, this Compact will prevail.

Section 6.4 Governing Law

    This Compact is an international agreement and as such will be 
governed by the principles of international law.

Section 6.5 Additional Instruments

    Any reference to activities, obligations, or rights undertaken or 
existing under or in furtherance of this Compact or similar language 
will include activities, obligations, and rights undertaken by or 
existing under or in furtherance of any agreement, document, or 
instrument related to this Compact and the Program.

Section 6.6 References to MCC Web site

    Any reference in this Compact, the PIA, or any other agreement 
entered into in connection with this Compact, to a document or 
information available on, or notified by posting on, the MCC Web site 
will be deemed a reference to such document or information as updated 
or substituted on the MCC Web site from time to time.

Section 6.7 References to Laws, Regulations, Policies, and Guidelines

    Each reference in this Compact, the PIA, or any other agreement 
entered into in connection with this Compact, to a law, regulation, 
policy, guideline, or similar document (including, but not limited to, 
the Program Guidelines) will be construed as a reference to such law, 
regulation, policy, guideline, or similar document as it may, from time 
to time, be amended, revised, replaced, or extended and will include 
any law, regulation, policy, guideline, or similar document issued 
under or otherwise applicable or related to such law, regulation, 
policy, guideline, or similar document.

Section 6.8 MCC Status

    MCC is a United States government corporation acting on behalf of 
the United States government in the implementation of this Compact. MCC 
and the United States government have no liability under this Compact, 
the Program Implementation Agreement, or any related agreement, are 
immune from any action or proceeding arising under or relating to any 
of the foregoing documents, and the Government hereby waives and 
releases all claims related to any such liability. In matters arising 
under or relating to this Compact, the Program Implementation 
Agreement, or any related agreement, neither MCC nor the United States 
government will be subject to the jurisdiction of the courts of the 
Philippines or of any other jurisdiction or of any other body.

Section 6.9 Counterparts; Electronic Delivery

    (a) Counterparts. Signatures to this Compact, the Program 
Implementation Agreement, and any amendments to these agreements will 
be signed on the same page, except in the case of amendment via 
exchange of letters or diplomatic notes. Any other documents arising 
out of this Compact may be signed in one or more counterparts. Such 
counterparts when delivered and taken together will constitute a single 
document.
    (b) Electronic Delivery. A signature to this Compact, the Program 
Implementation Agreement, and any amendments to such agreements, will 
be an original signature. With respect to any other documents arising 
out of this Compact, a signature delivered by facsimile or electronic 
mail in accordance with Section 4.1 of this Compact will be deemed an 
original signature and will be binding on the Party delivering such 
signature, and the Parties hereby waive any objection to such signature 
or to the validity of the underlying document, certificate, notice, 
instrument, or agreement on the basis of the signature's legal effect, 
validity or enforceability solely because it is in facsimile or 
electronic form.

Article 7. Entry Into Force

Section 7.1 Conditions Precedent to Entry Into Force

    Before this Compact enters into force:
    (a) The PIA must have been signed by the parties thereto;
    (b) The Government must have delivered to MCC:
    (i) A legal opinion from the Secretary of Justice of the 
Philippines (or such other legal representative of the Government 
acceptable to MCC), in form and substance satisfactory to MCC; and
    (ii) Complete, certified copies of all decrees, legislation, 
regulations, or other governmental documents relating to the 
Government's domestic requirements for this Compact to enter into 
force, which MCC may post on the MCC Web site or otherwise make 
publicly available; and
    (c) MCC must determine that, after signature of this Compact, the 
Government has not engaged in a pattern of actions inconsistent with 
the eligibility criteria for MCC Funding.

Section 7.2 Date of Entry Into Force

    This Compact will enter into force on the date of the last letter 
in an exchange of letters between the Principal Representatives 
confirming that each Party has completed its domestic requirements for 
entry into force of this Compact and that the conditions precedent to 
entry into force of Section 7.1 have been met. The letter from the 
Government will contain an affirmation of the Government's commitment 
to its obligations hereunder and under the Program Implementation 
Agreement.

Section 7.3 Compact Term

    This Compact will remain in force for five (5) years after its 
entry into force, unless terminated earlier under Section 5.1 (the 
``Compact Term'').

Section 7.4 Provisional Application

    Upon signature of this Compact and until this Compact has entered 
into force in accordance with Section 7.2, the Parties will 
provisionally apply the terms of this Compact and the PIA; provided 
that, no Program Funding will be made available or disbursed before 
this Compact enters into force.

[[Page 61204]]

Article 8. Additional Government Covenants

Section 8.1 Project Covenants

    (a) KALAHI-CIDSS Project. With regard to the KALAHI-CIDSS Project, 
the Government agrees that:
    (i) Throughout the Compact Term, the Department of Social Welfare 
and Development (``DSWD'') will use the classification system approved 
by MCC to assess and classify every proposed sub-project, and provide 
the engineering design and oversight support appropriate to the 
classification of such sub-project; and
    (ii) For those municipalities that are randomly selected to be 
included in the control group, DSWD will not (1) provide KALAHI-CIDSS 
funding, or (2) provide other programs of DSWD on a systematic basis, 
in both cases for the duration of the Compact Term.
    (b) Revenue Administration Reform Project. With regard to the 
Revenue Administration Reform Project, the Government agrees to 
implement the following prior to the initial disbursement of any 
Program Funding for the Revenue Administration Reform Project:
    (i) To the full extent allowed by existing law, procedures shall be 
put in place wherein decisions of the Commissioner of Internal Revenue 
and the Commissioner of Customs in all graft-related cases shall be 
transmitted promptly to the Secretary of Finance, the head of the 
Revenue Integrity Protection Service created under Executive Order No. 
259, s. 2003, who shall then immediately forward them to the Revenue 
Integrity Protection Service to review the said cases and determine 
their compliance with existing laws and procedures. If warranted by the 
evidence on record and any additional evidence it gathers, the Revenue 
Integrity Protection Service shall file the necessary complaint(s) with 
the office of the ombudsman or other appropriate administrative body or 
agency of competent jurisdiction.
    (ii) The Revenue Integrity Protection Service shall actively 
exercise its powers pursuant to Executive Order No. 259, to ensure the 
proactive pursuit of graft-related programs, policies and procedures by 
the internal inspection units of the revenue agencies under the 
Department of Finance. These actions shall include, but may not be 
limited to, the conduct of operational audits of said units.
    (iii) The Bureau of Internal Revenue and the Bureau of Customs 
internal audit units will be reorganized directly under the Office of 
the Commissioner.
    In Witness Whereof, the undersigned, duly authorized by their 
respective governments, have signed this Compact.

    Done at New York, NY, this 23rd day of September 2010, in the 
English language only.
    For Millennium Challenge Corporation, on behalf of the United 
States of America.

Daniel W. Yohannes,
Chief Executive Officer.

    For the Republic of the Philippines.
Cesar V. Purisima,
Secretary of Finance.

Annex I Program Description

    This Annex I describes the Program that MCC Funding will support 
in the Philippines during the Compact Term.

A. Program Overview

1. Background and Consultative Process

    The Philippines was declared eligible for MCC assistance in 
March 2008. With a population of approximately 90 million 
inhabitants, the 7,107 islands of the Philippines cover a combined 
area of 115,830 square miles. Despite unprecedented growth gains 
over the past decade, accompanied by moderate inflation, the 
Philippines continues to face severe constraints to reducing 
poverty. In an effort to prioritize its development spending, the 
Government elaborated a national medium-term development plan and 
several sector strategies, and undertook an analysis of constraints 
to economic growth. Priorities were identified for increased social 
sector spending, improvements to basic infrastructure, and 
improvements to governance, and were confirmed through a number of 
national, regional, and local consultations from early 2007 through 
early 2009.
    The Program has been designed by the Government, building upon 
initiatives from numerous donors, non-governmental organizations, 
and the domestic private sector to spur growth in economically 
depressed or vulnerable regions and to provide a platform for 
continued poverty reduction efforts. The Program will enable the 
Government to increase resources available for high-priority 
expenditures and target Government initiatives toward some of the 
poorest regions and municipalities in the archipelago.

2. Program Objective

    The Program Objective is to: (a) Increase the incomes of 
Filipinos through the benefits of community-driven sub-projects; (b) 
obtain time savings and lower transportation costs for road users in 
Program areas; and (c) increase investment and government 
expenditure due to an increase in tax revenue and a reduction in 
corruption.

3. Environmental and Social Safeguards

    The Program will be implemented in compliance with the MCC 
Environmental Guidelines, MCC guidance on the integration of gender 
in program implementation, and MCC's guidance on the implementation 
of resettlement activities (or any other MCC policy comparable to 
the World Bank's Operational Policy on Involuntary Resettlement in 
effect as of July 2007) (``OP 4.12''). The Government will also 
ensure that the Projects comply with all national environmental laws 
and regulations, licenses and permits, except to the extent such 
compliance would be inconsistent with this Compact. The Government 
will: (a) Cooperate with any ongoing environmental review, or if 
necessary undertake and complete any additional environmental 
reviews required by MCC or under the laws of the Philippines; (b) 
implement to MCC's satisfaction environmental and social mitigation 
measures identified in such environmental review; and (c) fund the 
costs of environmental mitigation (including costs of resettlement) 
that exceed the MCC Funding specifically allocated for such costs in 
the budget for any Project. To maximize the positive social impacts 
of the program, the Government will take steps to address cross-
cutting social and gender-specific issues, including, but not 
limited to, combating human trafficking and HIV/AIDS, during Compact 
implementation.

B. Description of the Projects

    Set forth below is a description of each of the Projects that 
the Government will implement, or cause to be implemented, using MCC 
Funding to advance the applicable Project Objective. In addition, 
specific activities that will be undertaken within each Project 
(each, an ``Activity''), including sub-activities, are described.

1. KALAHI-CIDSS Project

    (a) Background.
    The Philippines lags significantly behind other countries in the 
region with respect to government development expenditures as a 
percentage of GDP and infrastructure investment and quality. The 
Asian Development Bank's 2007 growth diagnostic report found that 
inadequacies in infrastructure are a critical constraint to growth 
and that the availability of basic infrastructure (water, 
sanitation, roads, electricity) is regressive. While human capital 
was not found to be a critical constraint to growth, inadequate 
human capabilities are often an underlying cause of poverty. 
Provision and use of education and health services were found to 
vary across regions, particularly as a function of incomes. 
Community driven development projects are a strategy for addressing 
these constraints and providing community empowerment and poverty 
reduction. In the past, they have been used to support a wide range 
of community priority needs including provision of water supply and 
nutrition programs for women and children; building of school, day 
care and health facilities, farm to market roads, foot bridges, and 
drainage systems; and support for productive enterprises such as 
pre- and post-harvest facilities as well as community capacity 
building.
    Kapit bisig Laban sa Kahirapan (``Linking Arms Against 
Poverty'')--Comprehensive Integrated Delivery of Social Services 
(``KALAHI-CIDSS'') is a community driven development project 
implemented by DSWD of the Philippines. Through KALAHI-CIDSS, 
communities (``barangays'' or villages) are trained, together with 
their local

[[Page 61205]]

governments, both at the barangay and the municipal level, to 
choose, design and implement sub-projects that are intended to 
address their most pressing needs. This is done through a four-year 
program, which includes one year of ``social preparation'' training 
for communities, barangays and municipalities, followed by 3 
``cycles'' of sub-project implementation. The KALAHI-CIDSS project 
to be funded by MCC (the ``KALAHI-CIDSS Project'') is an expansion 
of an initial KALAHI-CIDSS project (``KC1'') that was implemented 
between 2003 and 2010. KC1 was funded by a loan from the World Bank. 
During KC1 implementation, the World Bank and DSWD were able to 
ensure that the project incorporated lessons learned and reinforced 
elements that had been shown to work well.
    The KALAHI-CIDSS Project is particularly well suited to the 
sociopolitical environment in the Philippines. Following 
decentralization, local governments have a responsibility to provide 
basic services, yet suffer from a lack of development resources. 
This issue is compounded by the geographic distribution of poverty 
in the Philippines. Poverty in the country is correlated with rural 
isolation and distance from towns and urban centers, meaning that 
the communities that have the greatest needs for basic services are 
the ones that are most difficult to reach. Community-driven 
development offers an alternative, needs-based approach that 
provides development resources for basic services directly to the 
poorest communities, specifically targeting those in far-flung 
areas, while at the same time building the capacity of local 
government to be responsive to these needs over time. It is because 
of this contextualized approach that KC1 has already met with 
considerable success.
    (b) Project.
    The objectives of the KALAHI-CIDSS Project are to:
     Improve the responsiveness of local governments to 
community needs;
     Encourage communities to engage in development 
activities; and
     Deliver benefits to barangay residents through the 
individual sub-projects.
    In conjunction with DSWD, MCC will incorporate a number of 
enhancements to KC1 into the KALAHI-CIDSS Project, all of which are 
supported by lessons learned from KC1 and desires expressed by 
KALAHI-CIDSS Project stakeholders. These refinements include, but 
are not limited to: (i) Dedicated gender staff positions and gender-
focused activities, including the provision of ``gender incentive 
grants'' to communities; (ii) reinforced financial controls on the 
Project, including an additional set of transaction and technical 
audits; (iii) dedicated staff positions to explore private-sector 
involvement opportunities within municipalities included in the 
KALAHI-CIDSS Project; (iv) development of a set of user-friendly 
community tools to assess environmental impact and ensure the 
KALAHI-CIDSS Project's environmental sustainability; (v) a 
management information system to enable a much greater level of data 
capture at the barangay and municipal level, including a 
``geographic information system'' component; (vi) a rigorous impact 
evaluation to assess the KALAHI-CIDSS Project's impact on social 
capital and welfare measures using a rigorous random selection 
technique that allows the measurement of attribution; and (vii) 
support for a joint advisory board to oversee the impact evaluation, 
composed of members from MCC, MCA-Philippines, the World Bank, DSWD, 
the National Economic Development Authority, and local academics.
    The KALAHI-CIDSS Project will cover municipalities that have a 
poverty incidence higher than the national average and that are not 
in the Mindanao island group. The KALAHI-CIDSS Project consists of 
the following Activities:
    (i) Capacity Building and Implementation Support Activity.
    MCC Funding will be granted to DSWD to provide the staff 
salaries and trainings for the DSWD frontline workers, known as the 
area coordinating teams. These teams are made up of a standard 
staffing complement and there will be one team for each municipality 
in the KALAHI-CIDSS Project. The role of the area coordinating team 
is to carry out the ``Community Empowerment Activity Cycle.'' This 
framework follows a progression of strategies and activities as a 
gradual ``hand off'' to local government of responsibilities takes 
place over the course of three cycles. During each cycle, barangays 
hold a series of meetings that are facilitated by members of the 
area coordinating team at which barangay residents identify and 
prioritize constraints to economic activities within their 
communities and then identify and prioritize solutions to these 
constraints. Finally, the barangay selects one constraint and 
associated solution for presentation by elected community 
representatives to the ``Municipal Inter-Barangay Forum.'' At the 
municipal level, two Municipal Inter-Barangay Forums are held, the 
first to determine the criteria by which the community 
representatives will prioritize the barangay sub-projects for 
funding and the second to prioritize them according to such 
criteria. At the conclusion of each of the three cycles of sub-
project implementation, there is a transition and reporting period. 
The entire Community Empowerment Activity Cycle process is 
facilitated by the area coordinating team, with various team members 
responsible for ensuring that processes are transparent and in 
accordance with the KALAHI-CIDSS Project manuals as revised by MCC. 
This Activity also supports the existing grievance redress system.
    (ii) Grants for Community Projects Activity.
    MCC Funding will be granted to DSWD, to be used by DSWD to plan 
and implement community-chosen sub-projects in accordance with the 
KALAHI-CIDSS Project manuals approved by MCC. Specifically, the 
KALAHI-CIDSS Project provides grants for livelihood activities and 
the construction, repair and improvement/upgrading of small-scale 
rural infrastructure sub-projects identified by the community. The 
municipalities and barangays in which sub-project activities will 
occur will make cash and in-kind contributions (including partially-
paid labor and local materials) to the sub-projects equal, in each 
case, to at least 30 percent of the total sub-project costs. The 
grant allocated to the municipal local governments to fund sub-
project implementation is proportionate in size to the number of 
barangays within that municipality. Suppliers and contractors will 
be selected according to the procedures in the ``Community-Based 
Procurement System.'' This procurement system was specifically 
designed for implementing the KALAHI-CIDSS Project taking into 
account the nature of the procurements, the local market conditions 
and the local capacities. At the community level an ``Audit and 
Inventory Committee'' is responsible for auditing the financial 
records and reports of the community and conducting a regular 
inventory of all properties acquired by the community. The 
community's books and records are open at all times to all members 
of the community for inspection.
    Communities have the opportunity to select from a variety of 
sub-projects, many which involve the selection, design, and 
construction of small infrastructure sub-projects. DSWD--in 
cooperation with local governments--will build the capacity of 
communities through trainings and other methods and provide guidance 
and oversight throughout the process. In cooperation with DSWD, MCC 
will create a detailed risk profiling system for sub-projects and a 
complementary risk-based management approach to oversight that may 
affect the way that the grants are spent within the Grants for 
Community Project Activity.
    (iii) Project Management Activity.
    MCC Funding will be granted to DSWD to provide salaries and 
training for DSWD project management staff at the regional and 
national level. These funds will also be used for the office space, 
conferences, capacity building and project monitoring associated 
with the project management activity. Goods to support this activity 
will be procured by MCA-Philippines.
    (c) Beneficiaries.
    In the project catchment areas (i.e. those municipalities that 
will receive support from the KALAHI-CIDSS Project), 16 to 20 
percent of the households have a female head, while the young and 
elderly constitute a significant fraction of the expected 
beneficiaries. The Project is expected to benefit approximately 5.2 
million Filipinos 20 years after the Compact enters into force. Of 
these, 39 percent consume below the poverty line of US$2 (in 2005 
PPP US dollars) per day (compared to 28 percent of the national 
population). As for the extreme poor, 13 percent of the Project's 
beneficiaries consume below US$1.25 a day (compared to 9 percent of 
the national population). And as for the non-poor, only 26 percent 
of this Project's beneficiaries consume above US$4 a day (as oppo