Dermalog seeks multi-million peso maintenance contract

Dermalog seeks multi-million peso maintenance contract renewal anew despite LTMS outage, contract breaches, and data security risks.

Almost three years after the issuance of the certificate of project completion, the Philippine government remains hostage to a German company by paying millions of pesos from taxpayers’ money through what was described as a “never-ending maintenance contract extension” of a digitalization project that can already be done by IT experts of the Land Transportation Office (LTO) for free.

And on Oct. 20, the German firm Dermalog is seeking another contract extension worth P24.8 million for the maintenance of the Land Transportation Management System (LTMS), the digital platform of the LTO, that covers a five-month period until March 11, 2025.

In a letter to Department of Transportation Secretary Jaime J. Bautista, Dermalog founder and Chief Executive Officer Gunther Mull offered a total of P24,852,424.73 payment for the maintenance of the LTMS, describing the contract extension as an urgent matter.

“We wish to draw your kind attention to the very urgent matter that the maintenance contract for the LTO / LTMS Data Center is running out now. In order to be able to keep maintaining the data center of LTO and ensure the continuous operation of the LTMS system, we urgently request for an extension of the above maintenance contract within this week in order to be able to support the data center further,” the letter addressed to Bautista read.

“We are looking forward to a new maintenance contract during this week, so that we will be able to continue maintaining the data center and to keep the hardware for the LTMS running,” it added.

The introduction of the LTMS was an offshoot of the Joint Venture Agreement (JVA) between the national government and Dermalog and its local partners in 2018 as part of the Road Transportation IT Infrastructure Project amounting to around P3.2 billion.

During the Dermalog’s compliance period to deliver the items, the German repeatedly failed to deliver the items stipulated in the contract several times. This failure to comply on time was repeatedly flagged by the Commission on Audit (COA) several times.

But Dermalog was able to circumvent the stipulations in the contract through contract extensions that were interestingly approved by the past administration, despite what COA described in its report as illegal and grossly disadvantageous to the Philippine government.

Nationwide glitch

On October 30, the Land Transportation Office (LTO) lost another millions of pesos in revenue after a whole-day nationwide glitch in the LTMS.

The LTO has been suffering from the unreliable system of the LTMS operation, as manifested by the pockets of technical glitches since its inception in 2019, that affected not only the revenues of the LTO but also the time, energy, money, and patience of millions of its clients who would be forced to go home after scheduling a leave of absence for driver’s license and motor vehicle registration transactions as a result.

But it was the October 30 nationwide outage that gave the public a glimpse of the severe operational setbacks of the flaws and unreliability of the LTMS.

The outage, attributed to an intentional fiber cut affecting the Data Center’s internet line, has brought renewed scrutiny upon Dermalog Joint Venture (JV), the contractor responsible for maintaining and securing the system.

Lawmakers have been calling out the national government for its inaction on these operational headaches brought by the inability of the Dermalog to fix these glitches, citing the audit findings of the Commission on Audit (COA), which repeatedly flagged the multiple violations of the contract of the German firm.

According to a 2023 Commission on Audit (COA) report, Dermalog JV failed to provide the required three redundant internet connections, opting instead for a single connection.

This lack of redundancy left the LTMS vulnerable to service disruptions, such as the recent fiber cut, which brought LTO transactions to a halt and resulted in considerable revenue losses.

Further complicating matters, Dermalog JV’s maintenance contract expired on October 10, 2024. The contract required Dermalog to transfer full operational control of the Data Center to LTO personnel, including comprehensive training, 12 months prior to contract expiration.

Records, however, indicated that the LTO made more than ten letters of demand requesting for the turnover, all of which went unaddressed by Dermalog JV. This prevented the LTO from assuming independent control over its critical Data Center infrastructure.

Meanwhile, an ongoing Ombudsman case has revealed that Dermalog JV retains remote access to sensitive LTO databases containing personal information on millions of Filipinos, raising grave national security concerns.

Under the terms of the contract, control over this data should reside exclusively with the LTO. Legal and data privacy experts argue that Dermalog JV’s continued remote access, particularly after contract expiration, poses a serious risk to national data sovereignty and public trust.

Further fueling these concerns are Dermalog JV’s alleged contractual issues in other projects. Reports link the contractor to alleged irregularities and mismanagement in Haiti’s National ID project, a controversy that escalated with serious governance failures and security lapses involving top officials.

The LTO’s recent revenue losses and operational breakdowns are being attributed directly to Dermalog JV’s contract breaches in providing the three redundant internet lines and refusal to comply with turnover obligations.

The contractor’s failures have not only disrupted LTO’s capacity to serve the public but have also jeopardized the security of millions of Filipinos’ sensitive information.