Requesting Entity: Pasig River Rehabilitation Commission (PPRC)
Issues Concern: Government Policy on Fraudulent/Forged Bank Guarantees (Performance Security and Warranty for Defect Liability)
What would be the proper course of action that may be taken by PRRC against the erring awardee who submitted a fraudulent warranty security?
During project implementation, x x x the procuring entity has the following legal remedies under R.A. 9184 and its IRR:
a. Terminate the contract for drawing up or using forged documents. (GPPB Resolution No 18-2004 approving the Guidelines on Termination of Contracts); and
b. Initiate blacklisting proceeding against the contractor under any of the following grounds: (i) failure to fully and faithfully comply with its contractual obligation without valid cause; or (ii) failure to comply with the written lawful instruction of the procuring entity or its representative(s) pursuant to the implementation of the contract. (GPPB Resolution No 9-2004 approving the Uniform Guidelines for Blacklisting).
After a project has been completed and the contractor was found to have submitted a fraudulent warranty security, the procuring entity shall have the same legal options described above if it has not fully paid the contractor. However, if the procuring entity has fully paid up or complied with its contractual commitments, then it may only initiate blacklisting proceeding against the contractor since there is no more contract to terminate.
In the event that the procuring entity exercised the first option and terminated the contract, it continues to be legally bound to pay the cost of completed works pursuant to the principle of quantum meruit. Following Section 3, number 45 of the General Conditions of the Contract under the Philippine Bidding Documents (PBD's), the procuring entity should determine and pay the value of the work done and the materials ordered less advance payments made up to the date of the contract termination and less the percentage to apply to the value of the work not completed, as indicated in the Special Conditions of the Contract. However, should total amount due the procuring entity exceed any payment due the contract awardee, the difference shall be considered as debt payable to the procuring entity.