NPM 101-2004

Requesting Entity: Bureau of Fisheries and Aquatic Resources - Regional Fisheries Office VI

Issues Concern: Warranty Security for Infrastructure Projects



Whether or not the winning bidder in an infrastructure project for permanent structure is required to post a warranty security for a period of fifteen (15) years.

Based on the above-quoted provisions (Sections 62.2 and 62.2.2(a), IRR-A, R.A. 9184), it is mandatory for a contractor to post a warranty security in any or a combination of the prescribed forms for a period of fifteen (15) years from the final acceptance by the procuring entity for the permanent structure it has constructed. The warranty security shall only be returned to the contractor after the lapse of the warranty period.

However, for practicality, it is suggested that a warranty security be posted in full for the first year and renewable every year thereafter, subject to depreciation after the first year on a straight line basis. Thus, a project with a fifteen-year required warranty security will have a full amount of the warranty for its first year; 14/15 of the full amount for the second year; 13/15 of the full amount for the third year; 12/15 for the fourth year; and so on. Following this formula, a permanent structure amounting to P100 million, with a warranty security in the form of a bank guarantee will amount to P10 million for the first year; P9,333,333.00 for the second year; P8,666,666.00 for the third year; P8 million for the fourth year; and so on.