President Aquino
streamlines gov’t procurement process
Press Release
May
12, 2011
MALACAÑANG –
President Benigno Aquino III has expanded the government procurement
process by increasing the limit of advance payments on purchase
contracts in a bid to give equal opportunities to local suppliers
while making sure tax coffers stay protected in case of a bad deal.
Executive Secretary
Paquito N. Ochoa Jr. said on Thursday that under Memorandum Order (MO)
No. 15 signed by the Chief Executive on May 9, government agencies are
now allowed to make advance payments of up to 15 percent of the
contract price of goods, supplies and materials purchased locally or
from abroad, provided that these transactions are secured by an
irrevocable letter of credit or bank guarantee.
Ochoa said MO 15
amended a provision in the Implementing Rules and Regulations (IRR) of
Republic Act (RA) 9184 or the Government Procurement Reform Act, which
allows a 10 percent advance payment for goods supplied from overseas.
RA 9184 provided a
specific and limited exceptions to the rule against advance payment as
prescribed in Section 88 of the Presidential Decree (PD) No. 1445, or
the Government Auditing Code. The Code generally prohibits advance
payment for services not yet rendered or for supplies and materials
not yet delivered under any government contract unless prior approval
of the President is obtained.
“The purpose of the
prohibition against advance payment is to protect the government from
the possibility of not receiving goods, supplies and materials for
which it has already paid. However, this problem is squarely addressed
by the requirement of prior submission of an irrevocable letter of
credit or bank guarantee from which the government may seek
reimbursement when necessary and without complication,” Ochoa pointed
out.
Ochoa said the
presidential directive was based on the recommendation of the National
Economic Development Authority (NEDA) to raise the allowable amount of
advance payment to 15 percent from 10 percent of the contract amount.
He said the NEDA also
proposed that the rule be expanded to include procurement of goods,
regardless of their source, consistent with the Aquino
Administration’s policy of giving equal opportunities to local
businessmen.
“The limitation, which
applies only to goods supplied from abroad, runs counter to the policy
towards giving equal opportunities to local suppliers,” Ochoa said.
But in order to
provide sufficient safeguards for the government, Ochoa said MO 15
included a provision authorizing advance payment only upon submission
of an irrevocable letter of credit as an alternative to a bank
guarantee.
This would mean that
government agencies are given the “blanket authority” in the
procurement of goods, supplies and materials as long as the supplier
submits the prescribed security.
“Nonetheless, the
proposed revision still fulfills the legislative purpose of protecting
the government since the advance payment is secured by an irrevocable
letter of credit or bank guarantee,” Ochoa said.
An irrevocable letter
of credit ensures the beneficiary that if the required documents are
presented and the terms and conditions in the contract are complied
with, payment will be made.