NPM 040-2008

Requesting Entity: VTJ Trading

Issues Concern: Warranty Security for the Procurement of Goods



Whether or not the ten percent (10%) retention money may be dispensed with in the delivery of livestock which are given away without restrictions considering that any casualty thereof is no longer the liability of the suppliers inasmuch as the same is already beyond their control.

Please be advised that the framers of R.A. 9184 and its IRR-A perceived the wisdom in including an innovative provision that will provide for guarantee and immediate indemnity in case the goods or the construction works procured are found to be defective or of substandard quality, in order to protect the proprietary interest of the Government. Thus, R.A. 9184 and its IRR-A contain special provisions on warranty in the procurement of goods and infrastructure projects which grant an upfront or forward patent and latent defects. x x x

By virtue of the aforesaid provision (Section 62.1, IRR-A), procuring entities are mandated to retain a part of the contract price, or require a bank guarantee from its suppliers, manufacturers or distributors in the procurement of goods. This provision is generic in application and provides for no exception such that even procurement of goods in small amounts and quantity including those acquired through the alternative methods of procurement are subject to this requirement. However, in exceptional cases and upon prior approval of the procuring entity, the winning supplier may replace the same with a special bank guarantee in the same amount.

Further, please take note that a partial release or reduction of the warranty may be allowed in the case of partial deliveries. In this case, the warranty for goods delivered ahead will lapse earlier than the succeeding deliveries. This will have the effect of having partial releases of the retention money or special bank guarantee to coincide with the lapse of the warranty provision for each delivered lot. However, the warranty must be in the form of retention fee equivalent to ten percent (10%) of every payment.