NPM 119-2004

Requesting Entity: Pasig River Rehabilitation Commission

Issues Concern: Price Escalation, Variation Orders and Adjustment of the Approved Budget for the Contract



1. Whether or not the thirty percent (30%) increase in the prices of steel and other structural steel products justify the grant of price escalation.

In order to ensure that the task mandated by Section 61 of R.A. 9184 shall be undertaken competently, objectively and expeditiously by the GPPB and the National Economic and Development Authority (NEDA), the GPPB, during its 6th meeting held on October 20, 2003, tasked the GPPB-Technical Support Office (GPPB-TSO) and NEDA to draft the guidelines that will govern requests for contract price escalation for the procurement of goods and infrastructure projects. Accordingly, it is imperative that requests for contract price escalation be held in abeyance until the effectivity of said guidelines.

This being the case, the propriety of granting a contract price escalation to any contractor or supplier which depends on the Guidelines for Contract Price Escalation will necessarily be determined only after its effectivity. In this connection, we wish to inform you that the during the 4th GPPB meeting held on June 10, 2004, the members of the GPPB unanimously approved the issuance of the Guidelines for Contract Price Escalation.

2. Whether or not the provisions of the IRR-A of R.A. 9184 on variation orders apply to a contract the invitation to bid for which was published after the approval of R.A. 9184 but before the approval of its IRR-A.

[R]epeal or amendment of existing laws and regulations on procurement and government contracts by R.A. 9184 has no retroactive effect in view of the transitory clause of provided under Section 77 of its IRR-A, x x x

Accordingly, notwithstanding the passage of R.A. 9184 and its IRR-A prior procurement laws, rules and regulations still govern the procurement and implementation of certain government contracts, if its invitation for bids were issued or advertised prior to the effectivity of R.A. 9184 or its IRR-A. Hence, prior to the effectivity of R.A. 9184 and its IRR-A, the implementation of infrastructure projects shall be governed by Presidential Decree 1594 (P.D. 1594) and its Implementing Rules and Regulations (IRR).

3. Whether or not the procuring entity may initiate a review of the Approved Budget for the Contract (ABC) and adjust the same to be responsive to the current market prices.

Although there appears to be no provision under R.A. 9184 and its IRR-A that prohibits a procuring entity from initiating a review of the responsiveness of its ABC for a particular procurement to the current market prices, it is nonetheless prohibited from adjusting the same accordingly from the time the invitation to bid for the procurement project has been issued or advertised until after there has been a second failure of bidding.

In the event that the ABC failed to reflect the current market prices and results in a failure of bidding for the first time, Section 35.2 of the IRR-A allows modification of the terms, conditions and specifications in the first bidding documents, but expressly provides that the ABC be maintained.

In case a second failure of bidding occurs, the procuring entity has three options to go about its procurement project, namely the following: (i) conduct a re-bidding with re-advertisement and/or posting under the same ABC, as provided in Section 35.1 of the IRR-A; (ii) enter into a negotiated procurement, as provided in Section 53 of R.A. 9184 and its IRR-A; or (iii) re-align the budget of the procuring entity to accommodate the necessary increase in the ABC of the procurement project and bid out the same under the adjusted ABC.

Based on the foregoing, it is only after occurrence of a second failure of bidding that a procuring entity may adjust its ABC for the particular procurement project. Accordingly, no procuring entity can categorically adjust its ABC regardless of a finding proving that the current ABC does not reflect the current market prices.