NPM 120-2004

Requesting Entity: Office of the Municipal Mayor of Taft, Eastern Samar

Issues Concern: Validity of Procurement Using Loan Proceeds



Clarification on the validity of the loan agreement entered into by the Municipality of Taft with the Philippine National Bank (PNB) for the procurement of a backhoe loader, a fire truck, and a dump truck.

Section 297 of Republic Act 7160 grants Local Government Units (LGUs) authority to contract loans, credits, and other forms of indebtedness with any government or domestic private bank and other lending institutions; and provides further that the proceeds from such transaction shall accrue directly to the LGU concerned. As such, the loan proceeds from the loan agreement executed by the Municipality of Taft and the PNB will be considered part of the public funds once it has been released to the former.

Considering that the loan proceeds have become part of the public funds, the procurement of equipments using the said loan proceeds should conform with the existing procurement rules and regulations provided by law, particularly Republic Act 9184 (R.A. 9184) and its Implementing Rules and Regulations Part A (IRR-A).

Hence, the validity of the procurement of equipments using the loan agreement is hinged on the municipality’s conformance with the provisions of R.A. 9184 and its IRR-A, where it mandates that in the absence of any circumstance warranting resort to alternative methods of procurement allowed under Rule XVI of R.A. 9184 and its IRR-A, all stages of the competitive bidding process should be complied with; namely, advertisement, pre-bid conference, eligibility screening of prospective bidder, receipt and opening of bids, evaluation of bids, post-qualification, and award of contract.

Based on the foregoing, it is mandatory upon the Municipality of Taft, through its Bids and Awards Committee, to conduct public bidding for the procurement of the equipments mentioned in the loan agreement; otherwise, the Commission on Audit (COA) may disallow the procurement.