QuestionsQuestions (GPPB Resolution NO. 07-2004)
Bid prices are considered fixed and therefore not subject to price escalation during contract implementation, except under extraordinary circumstances upon prior approval of the Government Procurement Policy Board (GPPB).
Price Escalation is an increase in contract price during contract implementation based on the existence of “extraordinary circumstances” as determined by NEDA and upon prior approval of the GPPB.
They are events/occurrences during contract implementation that give rise to price escalation and are determined by NEDA in accordance with the Civil Code provisions enumerated in Section 4 of the Guidelines.
Article 1174 (ordinary fortuitous events, with requisites), Article 1250 (extraordinary inflation or deflation), and Article 1680 (extraordinary fortuitous events).
The cause must be independent of the will of the parties; event unforeseeable or unavoidable; event makes fulfillment difficult but not impossible and within contemplation rules; contractor/supplier free from participation in or aggravation of injury; allowance for price escalation is stipulated by the parties or required by the nature of the obligation.
It refers to unusual/unbeyond common fluctuation decreases/increases in purchasing power not reasonably foreseen and beyond contemplation of the parties, computed using the two (2) standard deviation rule in Section 5.2.b.
They apply to all procuring entities (branches, constitutional commissions, agencies, GOCCs/GFIs, SUCs, and LGUs) for contracts for procurement of goods and infrastructure projects, subject to extraordinary circumstances under Section 61 of R.A. 9184.
The Head of the Procuring Entity must endorse the request to NEDA through its Director-General, with documents including certification of justification under R.A. 9184/IRR/Guidelines; identification of legal/technical parameters complied with; certified original contract and contract price; cost estimates/BOM for affected items; implementation schedule (original/revised); original contractor request; original cost documentation; ten-year historical price indices data and sources; and other requirements.
First Stage (Legal Parameters): establishes the legal basis for extraordinary circumstances strictly under Section 4. Second Stage (Technical Parameters): validates price escalation using the standard deviation rule or the 10% increase rule and appropriate indices/formulas.
The escalation in price must be at least two (2) standard deviations from the mean calculated based on a ten (10)-year historical trend.
The applicable price index must register an increase of more than ten percent (10%), based on the prevailing price index at the time of bid submission.
WPI is used first, followed by CPI, and lastly PPI—depending on availability and applicability.
K represents the increase/decrease of the unit price due to price fluctuation and is computed through a parametric formula. The escalated price P is then computed using K’s value relative to thresholds (e.g., if K > 1.10, P = Po (K − 0.10); if 0.90 < K < 1.10, P = Po; if K < 0.90, P = Po (K + 0.10)).
Requests must be made only for cost items already incurred; no escalation is granted for unincurred items included in a request. Also, requests must be not shorter than six (6) months from the start of contract implementation, and then not shorter than six (6) months thereafter. If contract duration is shorter than six (6) months, the request is made after completion.
Any misrepresentation by the procuring entity or the contractor/supplier in any stage causes automatic denial/disapproval of the claim.
The GPPB must approve the claim; the Head of the Procuring Entity cannot pay any contract price escalation until after GPPB approval.
Upon completion, the procuring entity must calculate the amount of escalation supposedly due, considering downward movement during the entire implementation period; if overpayment results, the amount must be deducted from retention money (in infrastructure) or warranty security (in goods) on or before its expiration.
Price escalation for the portion that should have been accomplished but was not is based on the applicable price index for the period in which it should have been accomplished. Payment of the computed amount is withheld until the unaccomplished portion is completed and upon prior GPPB approval and approval of the Head of the procuring entity.