2004-04-20

NPM 054-2004

Requesting Entity: EJR Engineering & Consultancy

Issues Concern: Queries on Republic Act No. 9184 and its Implementing Rules and Regulations Part A

 

Details

1. Are procuring entities legally authorized to demand a counter part insurance bond in an amount double of what it has paid as an advance payment on the project?

It is the clear from the above-quoted provision (Section 4, item 2, IRR-A Annex E) that the irrevocable standby letter of credit, bank guarantee or surety bond which a contractor must submit as a condition precedent for advance payment should be equivalent to the value of such advance payment made by the procuring entity considering that such stands as a security for the re-payment of money upfront on the contract price.

In view of the foregoing, and taking into consideration the purpose of advance payment, which is to provide financial help to contractors to expedite the completion of a particular government infrastructure project, we see no logical basis for a procuring entity to require that the security for the advance payment to a contractor concerned be double the value thereof. Evidently, this requirement is more onerous for the contractors as it adds difficulty for them in availing of the benefits advance payment will provide.


2. Can procuring entities require that the bank certification should include the statement: "that the credit line shall be release only when the Project had been completed and authorized by the procuring entity"? What is the intention of the law with regard to the credit line as required under Section 23.6 (f) of the IRR-A of R.A. 9184?

The submission of a commitment from a licensed bank to extend a credit line to the prospective bidder establishes its financial capacity to absorb the additional obligations it may incur in connection with the contract to be bid, thus, assuring the procuring entity that in case the contract has been awarded to such bidder, the bidder shall be able to comply faithfully with its contractual obligations. The commitment from a licensed bank to extend a credit line serves as a guarantee for the procuring entity since it indicates a bank's willingness to extend credit to the bidder in case the bidder is in need of any financial assistance during contract implementation so as not disrupt the completion of the project.

For this reason, the bank's commitment to extend a credit line in favor of the contractor should be existent and available until the completion of the project so that the contractor could draw cash from the credit line, if necessary as to ensure faithful and complete performance of the work as specified in the contract documents.


3. What is the rationale for the imposition of liquidated damages in government contracts?

Liquidated damages for delay incurred by the contractor in the completion of the work under a Government infrastructure contract is a regulatory imposition which has to be complied with. Such provision is read to all government contracts for the protection of the procuring entity and as an assurance that it is immediately compensated without further proof for the damages it suffers in case the contractor delays to continue the works through his fault.