NPM 078-2012

Requesting Entity: Center for Governance - Operations Management Office Development Academy of the Philippines (DAP)

Issues Concern: Payment Tranches for Consultants



Clarification on the propriety of the payment terms for consulting contracts with proposed payment tranches as follows:
   - 15% of the total project price upon signing of the contract;
   - 65% of the total project price after the conduct of the initial presentation of the agency; and
   - 20% of the total project price upon submission of the project terminal report.

Annex "F" of the IRR provides specific conditions for the allowance of advance payment. First, this arrangement must be requested in writing by the consultant and subject to the approval of the Government if it deems such payment to be fair and reasonable. Second, advance payment should not exceed fifteen percent (15%) of the contract amount and is granted to cover mobilization cost. Third, the release of the funds is subject to the posting of an irrevocable standby letter of credit issued by an entity acceptable to the agency in an amount equal to the advance payment. Fourth, the advance payment shall be repaid by deducting from the consultant's progress payments a sum previously agreed by the consultant and the procuring entity during contract negotiation.

[U]nder the proposed scheme, specifically for the first tranche, the payment of 15% of the total contract price is automatic after the contract signing. No prior requisites must be satisfied by the consultant in order to receive the first payment for rendering consulting services nor does it specify that it is for the purpose of mobilization.

Based on the foregoing, the proposed initial 15% payment is not in accord with the provisions of Annex "F" of the IRR of RA 9184, as it constitutes an automatic or outright payment without satisfying the specific conditions prior to its issuance.

As to the balance of 85% (65% and 20%) of the total project price, the mode of payment is subject to the different disbursement schemes allowed in the Manual of Procedures for the Procurement of Consulting Services (Manual). Based on the Manual, the different types of consultancy contracts based on payment terms normally used are: lump sum contract, time-based contract, retainer and/or contingency (success) fee contract, percentage contract, and indefinite delivery contract. Based on your representation, DAP's proposed payment tranche may be considered as percentage contract since there is a direct relation to the fees paid to the consultant and the estimated or actual project completion.