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D. INFRASTRUCTURE CONTRACTS - Variation Order

2. Determine if contract provisions on the following are consistent with the specific provisions of PD 1594:

a. Issuance of Variation Orders (e.g., Change Order, Extra Work Order, Supplemental Agreement)

 A Variation Order shall be issued if there is an increase/decrease in quantities or reclassification of items usually due to change of plans, design or alignment to suit actual field conditions, or as a result of great disparity between the Pre- construction plans used for purposes of bidding and the "as staked plans" or construction drawings prepared after a joint survey by the contractor and the government after award of the contract.

It shall be issued only for additional/deletion of works necessary for the completion of the project, and should be within the limits provided under CI-I of the IRR of PD 1594 and the general scope of the project as bidded. If the aggregate amount exceeds 25% of the escalated original contract price, a separate Supplemental Agreement shall be entered into for the Variation Order.

 Applicable Laws, Rules and Regulations

Section CI- I of PD 1594 - Variation Orders - Change Order/ Extra Work Order/Supplemental Agreement

 2. A Change Order may be issued by the implementing official if the amount of the change order is within the limits of the former's authority to approve original contracts and under the following conditions:

a. Where the aggregate cost of Change Order(s) is limited to 25% of the original contract cost excluding the effects of price escalation and provided that no major pay item (i.e., pay item which represents at least 20% of total estimated cost of the contract) shall be increased by more than 100% of its original cost. Change Orders exceeding 25% of the original contract price may be covered by a Supplemental Agreement. In the case of a repeat order, the Change Order should not exceed 100% of the escalated original contract price and the same shall be covered by a Supplemental Agreement. All Change Orders beyond 100% of escalated original contract price shall be subject to public bidding except where inseparable from the original scope of the project in which case negotiation with the incumbent contractor may be allowed, subject to approval by the appropriate authorities. All Change Orders shall be subject to price adjustment in accordance with duly approved guidelines.

b. Where there is a decrease in work due to deletion of work items or sections of the project.

c. Where there is a reclassification of an existing item, like earth excavation to solid rock excavation, due to latent conditions which where not known at the time of the bidding.

d. Where there is damage to structure and/or destruction of finished work in any section of the project due to force majeure or causes beyond the control of man."

3. For a unit-price contract, quantity overruns or underruns of not more than or less than fifteen percent (15%) of the estimates per major pay item and twenty five percent (25%) per minor pay item in the Bill of Quantities need not be covered by a Change Order provided that the same is authorized by the approving authority for the contract.

4. An Extra Work Order may be issued by the implementing official after the same has been approved by the appropriate official if the amount of the Extra Work Order is within the limits of the former's authority to approve original contracts and under the following conditions:

a. Where there are additional works needed and necessary for the completion, improvement or protection of the project which were not included as items of work in the original contract.

b. Where there are subsurface or latent physical conditions at the site differing materially from those indicated in the contract beyond the limit of the Change Order.

c. Where there are unknown physical conditions at the site of an unusual nature differing materially beyond the limits of Change Order from those ordinarily encountered and generally recognized as inherent in the work or character provided for in the contract.

d. Where there are duly approved construction drawings or any instruction issued by the implementing office/agency during the term of contract which involve extra cost.

5. As an absolute rule, Change Orders or Extra Work Orders should be issued only for additional/deletion of works necessary for the completion of the projects and, therefore, should be within the limits stated above and the general scope of the projects as bid and awarded.

6. Change Orders or Extra Work Orders may be issued on a contract upon the approval of competent authorities provided that the cumulative amount of such Change Orders or Extra Work Orders does not exceed the limits of the former's authority to approve original contracts.

7. A separate Supplemental Agreement may be entered into for all Change Orders and Extra Work Orders if the aggregate amount exceeds 25% of the escalated original contract price. A Supplemental Agreement may likewise be entered into for works immediately beyond the project limits but are immediately abutting the project under the same terms and conditions as the original contract provided that it does not exceed 100% of the escalated original contract price less the cost of mobilization and provided further that funds are certified as available and subject to approval by appropriate authority.

8. Any Variation Order (Change Order or Extra Work Order) shall be subject to the escalation formula used to adjust the original contract price less the cost of mobilization.

b. Advance Payment

 An advance payment equivalent to 15% of the total contract price may be made upon the submission to and acceptance by the Government of an irrevocable standby letter of credit of equivalent value from a commercial bank or a guarantee payment bond as provided under CI 4 of the IRR of PD 1594.

It shall be repaid by the contractor by deducting 20% from his periodic progress payments as provided under the said IRR.

Applicable Laws, Rules and Regulations

Section CI 4 of IRR of PD 1594 - Advance Payment

1.  The Government shall, upon a written request of the contractor which shall be submitted as a contract document, make an advance payment to the contractor in an amount equal to fifteen percent (15%) of the total contract price, to be made in lump sum or at the most two installments according to a schedule specified in the Instructions to Bidders and other relevant Tender Documents.

 2.  The advance payment shall be made only upon the submission to and acceptance by the Government of an irrevocable standby letter of credit of equivalent value from a commercial bank or a guarantee payment bond, callable on demand, issued by a surety or insurance company duly licensed by the office of the Insurance Commissioner and confirmed by the implementing agency.

 3.  The advance payment shall be repaid by the contractor by deducting 20% from his periodic progress payments, with the first repayment to be made when the contract value of the work executed and materials delivered shall equal or have exceeded twenty percent (20%) of the contract price and further refunds shall be done thereafter at monthly intervals. The first work accomplishment equivalent to 20% of the contract price shall not be subject to the 20% deduction.

4.  The contractor may reduce his standby letter of credit or guarantee instrument by the amounts refunded by the Monthly Certificates in the advance payment.

c. Progress Payment

Progress payment may be allowed for an accomplishment of at least P1.0 million or once a month. Deductions may be made for third partly liabilities and uncorrected discovered project defects.

 Applicable Laws, Rules and Regulations

Section CI 5 of IRR of PD 1594 - Progress Payment

1.  Once a month or for an accomplishment of at least P=1.0 million, the contractor may submit a request for payment for work accomplished. Such request for payment shall be verified and certified by the Government project engineer. Except as otherwise stipulated in the Instructions to Bidders, materials and equipment delivered on the site but not completely put in place shall not be included for payment.

 2.  The government shall have the right to deduct from the contractor's progress billing such amount as may be necessary to cover third party liabilities, as well as uncorrected discovered defects in the project.

d.  Retention Money

 A retention equivalent to 10% of progress payment shall be made until 50% of the value of the work is completed. The retention money shall be due for release upon final acceptance of the works.

 Applicable Laws, Rules and Regulations

Section CI 6 of IRR of PD 1594 - Retention Money

 1. Progress payments are subject to retention of ten percent (10%) referred to as the "retention money". Such retention shall be based on the total amount due to the contractor prior to any deduction and shall be retained from every progress payment until fifty percent (50%) of the value of works, as determined by the Government, are completed. If, after fifty percent (50%) completion, the work is satisfactorily done and on schedule, no additional retention shall be made; otherwise, the ten percent (10%) retention shall be imposed.

 2. The total "retention money" shall be due for release upon final acceptance of the works. The contractor may however request for the substitution of the retention money for each progress billing with surety bonds callable on demand of amounts equivalent to the retention money substituted for and acceptable to government, provided that the project is on schedule and is satisfactorily undertaken. Otherwise the ten percent (10%) retention shall be made. Said surety bonds, to be posted in favor of government shall be valid for a duration to be determined by the concerned government implementing agency and will answer for the purpose for which the ten percent (10%) retention is intended, i.e., to cover uncorrected discovered defects and third party liabilities.