Question & AnswerQ&A (GPPB Resolution NO. 07-2004)
Republic Act No. 9184, also known as the Government Procurement Reform Act, governs the guidelines for contract price escalation in Philippine government procurement.
Section 61 of R.A. 9184 provides that all bid prices shall be considered fixed prices and are not subject to price escalation during contract implementation except under extraordinary circumstances and upon prior approval of the Government Procurement Policy Board (GPPB).
Extraordinary circumstances refer to events or occurrences during contract implementation that give rise to price escalation as determined by the NEDA, based on provisions of the Civil Code of the Philippines, including ordinary and extraordinary fortuitous events and extraordinary inflation or deflation.
The Government Procurement Policy Board (GPPB) has the authority to approve requests for contract price escalation.
The Head of the Procuring Entity must endorse the request for price escalation to the National Economic and Development Authority (NEDA), through its Director-General.
The two stages are the First Stage: Legal Parameters, which establishes the legal basis for extraordinary circumstances, and the Second Stage: Technical Parameters, which reviews the request based on technical and statistical measures such as standard deviation and price indices.
The escalation in price must be at least two standard deviations from the mean price calculated from a ten-year historical price trend or alternatively must have increased by more than 10% from the prevailing price index at the time of bid submission.
Examples include natural disasters like typhoons, floods, earthquakes, fires, epidemics, and man-made events such as armed invasion, attacks by bandits, and governmental prohibitions that could not have been resisted by the contractor or supplier.
Any misrepresentation made by the procuring entity or the contractor/supplier during any stage of the processing of the request for price escalation shall cause the automatic denial or disapproval of the claim.
The price escalation amount is determined using a parametric formula involving a fluctuation factor (K), representing changes in labor, material, and other costs as compared to the original contract prices, with adjustments for contractor's profit and other factors outlined in Annex B.
Requests for price escalation can be made not shorter than six months from the start of contract implementation and not shorter than six months thereafter; for contracts shorter than six months, the request is made after contract completion.
The procuring entity shall deduct the overpayment amount from the retention money or warranty security before its expiration.
Price escalation will be based on the applicable price index for the period in which the work should have been accomplished but was not, and payment will only be made once the unaccomplished work is completed and with prior approval of the GPPB and the Head of the Procuring Entity.
Documents include a certification from the Head of the Procuring Entity justifying the price escalation request, description and legal/technical parameters compliance, certified contract copies, original cost estimates and bill of materials, schedules of contract implementation, the original request from contractor, ten-year historical price index data, and other required info.
Price Escalation refers to an increase in the contract price during contract implementation based on the existence of extraordinary circumstances as determined by NEDA and approved by GPPB.