Annex A

GUIDELINES ON TERMINATION OF CONTRACTS

I. PURPOSE, SCOPE, AND APPLICATION

These guidelines aim to promote fairness in the termination of procurement contracts

and to prescribe contract conditions and measures to enable government to protect its
interests. For this purpose, policies and procedures relating to the whole or partial termination
of government procurement contracts of goods, infrastructure projects, and consulting
services are herein established.

II. DEFINITION OF TERMS

1. Coercive Practice means harming or threatening to harm, directly or indirectly,

persons or their property to influence their participation in a procurement process, or
affect the execution of a contract.

2. Collusive Practice means a scheme or arrangement including practice among bidders

(prior to or after bid submission) designed to establish bid prices at artificial non-
competitive levels to prevent free and open competition.

3. Corrupt Practice means the offering, giving, receiving or soliciting of anything of

value to influence the action of a public official in the selection process or in contract
execution. It also means entering, on behalf of the Government, into any contract or
transaction manifestly and grossly disadvantageous to the same, whether or not the
public officer profits or will profit thereby; and similar acts as provided in Republic
Act 3019.

4. Fraudulent Practice means a misrepresentation of facts in order to influence a

selection process or the execution of a contract to the detriment of the Procuring
Entity.

5. Head of the Procuring Entity refers to: (i) the head of the agency or his duly
authorized official, for national government agencies; (ii) the governing board or its
duly authorized official, for government-owned and/or controlled corporations; or (iii)
the local chief executive, for local government units. Provided, that in a department,
office or agency where the procurement is decentralized, the Head of each
decentralized unit shall be considered as the Head of the Procuring Entity subject to
the limitations and authority delegated by the head of the department, office or
agency.

6. Implementing Unit refers to the unit or office having direct supervision or

administration over the implementation of the contract such as the Project
Management Office or the End-User Unit.

7. Termination in Part means the termination of a part but not all, of the work that has
not been completed and accepted under a contract.

8. Termination in Whole means the termination of all of the work that has not been
completed and accepted under a contract.

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9. Show Cause refers to a notice which the Procuring Entity is required to issue prior to
terminating a contract. The purpose of a show cause notice is to enable the contractor
to present its position why the contract should not be terminated.

10. Verified Report refers to the report submitted by the Implementing Unit to the Head
of the Procuring Entity setting forth its findings as to the existence of grounds or
causes for termination and explicitly stating its recommendation for the issuance of a
Notice to Terminate.

III. GROUNDS FOR TERMINATION OF CONTRACTS

A. Termination for Default

1. In contracts for Goods:

The Procuring Entity shall terminate a contract for default when any of the
following conditions attend its implementation:

a) Outside of force majeure, the Supplier fails to deliver or perform any or all
of the Goods within the period(s) specified in the contract, or within any
extension thereof granted by the Procuring Entity pursuant to a request
made by the Supplier prior to the delay, and such failure amounts to at
least ten percent (10%) of the contact price;

b) As a result of force majeure, the Supplier is unable to deliver or perform

any or all of the Goods, amounting to at least ten percent (10%) of the
contract price, for a period of not less than sixty (60) calendar days after
receipt of the notice from the Procuring Entity stating that the
circumstance of force majeure is deemed to have ceased; or

c) The Supplier fails to perform any other obligation under the Contract.

2. In contracts for Infrastructure Projects:

The Procuring Entity shall terminate a contract for default when any of the
following conditions attend its implementation :

a) Due to the Contractors fault and while the project is on-going, it has
incurred negative slippage of fifteen percent (15%) or more in accordance
with Presidential Decree 1870 ;

b) Due to the Contractors fault and after the contract time has expired, it has
incurred a negative slippage of ten percent (10%) or more in the
completion of the work; or

c) The Contractor:

i. abandons the contract works, refuses or fails to comply with a valid

instruction of the Procuring Entity or fails to proceed expeditiously and
without delay despite a written notice by the Procuring Entity;

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ii. does not actually have on the project site the minimum essential
equipment listed on the Bid necessary to prosecute the Works in
accordance with the approved work plan and equipment deployment
schedule as required for the project;

iii. does not execute the Works in accordance with the contract or
persistently or flagrantly neglects to carry out its obligations under the
contract;

iv. neglects or refuses to remove materials or to perform a new work that

has been rejected as defective or unsuitable; or

v. sub-lets any part of the contract works without approval by the

Procuring Entity.

3. In contracts for Consulting Services:

The Procuring Entity shall terminate a contract for default when any of the
following conditions attend its implementation:

a) Outside of force majeure, the Consultant fails to deliver or perform the

Outputs and Deliverables within the period(s) specified in the contract, or
within any extension thereof granted by the Procuring Entity pursuant to a
request made by the Consultant prior to the delay;

b) As a result of force majeure, the Consultant is unable to deliver or perform

a material portion of the Outputs and Deliverables for a period of not less
than sixty (60) calendar days after the Consultants receipt of the notice
from the Procuring Entity stating that the circumstance of force majeure is
deemed to have ceased; or

c) The Consultant fails to perform any other obligation under the contract.

B. Termination for Convenience

The Procuring Entity may terminate the Contract, in whole or in part, at any time for
its convenience. The Head of the Procuring Entity may terminate a contract for the
convenience of the Government if he has determined the existence of conditions that
make Project Implementation economically, financially or technically impractical
and/or unnecessary, such as, but not limited to, fortuitous event(s) or changes in law
and national government policies.

C. Termination for Insolvency

The Procuring Entity shall terminate the contract if the

Supplier/Contractor/Consultant is declared bankrupt or insolvent as determined with
finality by a court of competent jurisdiction. In this event, termination will be without
compensation to the Supplier/Contractor/Consultant, provided that such termination
will not prejudice or affect any right of action or remedy which has accrued or will
accrue thereafter to the Procuring Entity and/or the Supplier/Contractor/Consultant.

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D. Termination for Unlawful Acts

The Procuring Entity may terminate the contract in case it is determined prima facie
that the Supplier/Contractor/Consultant has engaged, before or during the
implementation of the contract, in unlawful deeds and behaviors relative to contract
acquisition and implementation. Unlawful acts include, but are not limited to, the
following:

a) Corrupt, fraudulent, collusive and coercive practices;

b) Drawing up or using forged documents;

c) Using adulterated materials, means or methods, or engaging in production

contrary to rules of science or the trade; and

d) Any other act analogous to the foregoing.

E. Termination by Contractor/Consultant

1. In contracts for Infrastructure Projects:

The Contractor may terminate its contract with the Procuring Entity if the works
are completely stopped for a continuous period of at least sixty (60) calendar days
through no fault of its own, due to any of the following reasons:

a) Failure of the Procuring Entity to deliver, within a reasonable time,

supplies, materials, right-of-way, or other items it is obligated to furnish
under the terms of the contract; or

b) The prosecution of the work is disrupted by the adverse peace and order
situation, as certified by the Armed Forces of the Philippines Provincial
Commander and approved by the Secretary of National Defense.

2. In contracts for Consulting Services:

The Consultant may terminate its agreement with the Procuring Entity if the latter
is in material breach of its obligations pursuant to the contract and has not
remedied the same within sixty (60) calendar days following its receipt of the
Consultants notice specifying such breach.

IV. PROCEDURES FOR TERMINATION OF CONTRACTS

1. Verification. Upon receipt of a written report of acts or causes which may

constitute ground(s) for termination as aforementioned, or upon its own initiative, the
Implementing Unit shall, within a period of seven (7) calendar days, verify the
existence of such ground(s) and cause the execution of a Verified Report, with all
relevant evidence attached.

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2. Notice to Terminate. Upon recommendation by the Implementing Unit, the

Head of the Procuring Entity shall terminate contracts only by a written notice to the
Supplier/Contractor conveying the termination of the contract. The notice shall state:

a) that the contract is being terminated for any of the ground(s) afore-mentioned,
and a statement of the acts that constitute the ground(s) constituting the same;

b) the extent of termination, whether in whole or in part;

c) an instruction to the Supplier/Contractor/Consultant to show cause as to why

the contract should not be terminated; and

d) special instructions of the Procuring Entity, if any.

The Notice to Terminate shall be accompanied by a copy of the Verified Report.

3. Show Cause. Within a period of seven (7) calendar days from receipt of the
Notice of Termination, the Supplier/Contractor/Consultant shall submit to the Head of
the Procuring Entity a verified position paper stating why the contract should not be
terminated.

If the Supplier/Contractor/Consultant fails to show cause after the lapse of the

seven (7) day period, either by inaction or by default, the Head of the Procuring Entity
shall issue an order terminating the contract.

4. Rescission of Notice of Termination. The Procuring Entity may, at anytime

before receipt of the Suppliers/Contractors/Consultants verified position paper to
withdraw the Notice to Terminate if it is determined that certain items or works
subject of the notice had been completed, delivered, or performed before the
Suppliers/Contractors/Consultants receipt of the notice.

5. Decision. Within a non-extendible period of ten (10) calendar days from receipt
of the verified position paper, the Head of the Procuring Entity shall decide whether
or not to terminate the contract. It shall serve a written notice to the
Supplier/Contractor/Consultant of its decision and, unless otherwise provided, the
Contract is deemed terminated from receipt of the Supplier/Contractor/Consultant of
the notice of decision. The termination shall only be based on the ground(s) stated in
the Notice to Terminate.

6. Contract Termination Review Committee (CTRC). The Head of the Procuring

Entity may create a committee to assist him in the discharge of his function under
these Guidelines. All decisions recommended by the CTRC shall be subject to the
approval of the Head of the Procuring Entity.

7. Take-over of Contracts. If a Procuring Entity terminates the contract due to

default, insolvency, or for cause, it may enter into a negotiated procurement pursuant
to Section 53(c) of R.A. 9184 and its IRR-A.

8. Procuring Entitys Options in Termination for Convenience in Contracts for

Goods. The goods that have been performed or are ready for delivery within thirty
(30) calendar days after the Suppliers receipt of Notice to Terminate shall be

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accepted by the Procuring Entity at the contract terms and prices. For goods not yet
performed or ready for delivery, the Procuring Entity may elect:

a) to have any portion delivered or performed and paid at the contract terms and
prices; and/or

b) to cancel the remainder and pay to the Supplier an agreed amount for partially
completed or performed goods and for materials and parts previously procured
by the Supplier .

If the Supplier suffers loss in its initial performance of the terminated contract,
such as purchase of raw materials for goods specially manufactured for the Procuring
Entity which cannot be sold in open market, it shall be allowed to recover partially
from the contract, on a quantum meruit basis. Before recovery may be made, the fact
of loss must be established under oath by the Supplier to the satisfaction of the
Procuring Entity before recovery may be made.

9. Notice by Contractor/Consultant. The Contractor/Consultant must serve a

written notice to the Procuring Entity of its intention to terminate the contract at least
thirty (30) calendar days before its intended termination. The Contract is deemed
terminated if it is not resumed in thirty (30) calendar days after the receipt of such
notice by the Procuring Entity.

V. AMENDMENTS

1. In the implementation of these Guidelines, the Government Procurement Policy

Board (GPPB) may introduce modifications hereto through the amendment of its specific
provisions as the need arises.

2. Any amendment to these Guidelines shall be applicable to government projects

advertised for bid after the effectivity of the said amendment.

VI. EFFECTIVITY

These Guidelines or any amendments thereof shall take effect immediately after
fifteen (15) days following the publication in the Official Gazette or a newspaper of
general nationwide circulation and upon filing with the University of the Philippines Law
Center of three (3) certified copies of these Guidelines.

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