Guidelines on Termination of Government Contracts

Legal basis, procurement framework linkage

The resolution is anchored on Republic Act No. 9184, the Government Procurement Reform Act, and its Implementing Rules and Regulations Part A (IRR-A).
R.A. No. 9184 took effect on January 26, 2003, and IRR-A took effect on October 8, 2003.
The resolution cites Section 65 of R.A. No. 9184 as the mandate for the GPPB to protect national interest in procurement and to formulate and amend procurement policies, rules, and regulations.
The guidelines establish termination policies and procedures for government procurement contracts covering goods, infrastructure projects, and consulting services.

Policy, purpose of termination guidelines

The guidelines aim to promote fairness in the termination of procurement contracts.
The guidelines prescribe contract conditions and measures enabling government to protect its interests.
The guidelines cover policies and procedures for whole or partial termination of government procurement contracts for goods, infrastructure projects, and consulting services.

Defined terms for termination rules

Coercive Practice means harming or threatening to harm persons or their property, directly or indirectly, to influence participation in a procurement process or affect contract execution.
Collusive Practice means a scheme or arrangement among bidders designed to establish bid prices at artificial non-competitive levels to prevent free and open competition.
Corrupt Practice includes offering, giving, receiving, or soliciting anything of value to influence action of a public official in selection or contract execution, and entering into contracts or transactions manifestly and grossly disadvantageous to the Government on behalf of the Government, whether or not the public officer profits, and similar acts under Republic Act No. 3019.
Fraudulent Practice means misrepresentation of facts to influence a selection process or contract execution to the Procuring Entity’s detriment.
Head of the Procuring Entity refers to: (i) the head of the agency or duly authorized official for national government agencies; (ii) the governing board or its duly authorized official for GOCCs; and (iii) the local chief executive for LGUs, with decentralized procurement units treating each decentralized unit head as Head of the Procuring Entity subject to limitations and delegated authority.
Implementing Unit means the unit or office supervising contract implementation, such as the Project Management Office or End-User Unit.
Termination in Part means termination of part of the work not completed and accepted under the contract.
Termination in Whole means termination of all work not completed and accepted under the contract.
Show Cause refers to the notice required before termination to enable the contractor to present its position why the contract should not be terminated.
Verified Report refers to the Implementing Unit’s report to the Head of the Procuring Entity setting forth findings on grounds/causes for termination and explicitly recommending issuance of a Notice to Terminate.

Grounds for terminating procurement contracts

The Procuring Entity terminates contracts for default upon specified conditions, depending on contract type.
The Procuring Entity may terminate for convenience in whole or in part at any time, if conditions make project implementation economically, financially, or technically impractical and/or unnecessary, including fortuitous events or changes in law and national government policies.
The Procuring Entity terminates for insolvency when the Supplier/Contractor/Consultant is declared bankrupt or insolvent with finality by a competent court, and termination is without compensation, without prejudice to accrued or future rights of action or remedies of the Procuring Entity and/or the Supplier/Contractor/Consultant.
The Procuring Entity may terminate for unlawful acts upon a prima facie determination that unlawful deeds and behaviors relative to contract acquisition and implementation occurred before or during contract implementation, including corrupt, fraudulent, collusive, and coercive practices; forged documents; adulterated materials or production contrary to science or trade rules; and acts analogous to these.
The Contractor/Consultant may terminate under limited conditions depending on contract type.

Termination for default — goods

For goods, the Procuring Entity terminates for default if, outside force majeure, the Supplier fails to deliver or perform any or all goods within contract periods (or any extension granted upon a Supplier request made before the delay), and the failure amounts to at least ten percent (10%) of the contract price.
For goods, the Procuring Entity terminates for default if, due to force majeure, the Supplier cannot deliver or perform any or all goods amounting to at least ten percent (10%) of the contract price for not less than sixty (60) calendar days after receipt of the Procuring Entity’s notice that the force majeure circumstance is deemed to have ceased.
For goods, the Procuring Entity terminates for default if the Supplier fails to perform any other obligation under the Contract.

Termination for default — infrastructure projects

For infrastructure projects, the Procuring Entity terminates for default if, due to the Contractor’s fault while the project is ongoing, it incurs negative slippage of fifteen percent (15%) or more in accordance with Presidential Decree 1870.
For infrastructure projects, the Procuring Entity terminates for default if, due to the Contractor’s fault after the contract time has expired, it incurs negative slippage of ten percent (10%) or more in the completion of the work.
For infrastructure projects, the Procuring Entity terminates for default if the Contractor abandons the works; refuses or fails to comply with a valid instruction; or fails to proceed expeditiously and without delay despite a written notice by the Procuring Entity.
For infrastructure projects, the Procuring Entity terminates for default if the Contractor does not actually have on the project site the minimum essential equipment listed on the Bid needed to prosecute the Works under the approved work plan and equipment deployment schedule.
For infrastructure projects, the Procuring Entity terminates for default if the Contractor does not execute the Works in accordance with the contract or persistently or flagrantly neglects to carry out contractual obligations.
For infrastructure projects, the Procuring Entity terminates for default if the Contractor neglects or refuses to remove rejected defective or unsuitable materials or to perform a new work that has been rejected as defective or unsuitable.
For infrastructure projects, the Procuring Entity terminates for default if the Contractor sub-lets any part of the contract works without Procuring Entity approval.

Termination for default — consulting services

For consulting services, the Procuring Entity terminates for default if, outside force majeure, the Consultant fails to deliver or perform Outputs and Deliverables within the contract periods (or within any extension granted upon a Consultant request made before the delay).
For consulting services, the Procuring Entity terminates for default if, due to force majeure, the Consultant cannot deliver or perform a material portion of Outputs and Deliverables for not less than sixty (60) calendar days after receipt of the Procuring Entity’s notice that the force majeure circumstance is deemed to have ceased.
For consulting services, the Procuring Entity terminates for default if the Consultant fails to perform any other obligation under the contract.

Termination by contractor/consultant

For infrastructure projects, the Contractor may terminate if works are completely stopped for a continuous period of at least sixty (60) calendar days through no fault of the Contractor due to failure of the Procuring Entity to deliver, within a reasonable time, supplies, materials, right-of-way, or other items the Procuring Entity must furnish; or due to adverse peace and order disruption certified by the Armed Forces of the Philippines Provincial Commander and approved by the Secretary of National Defense.
For consulting services, the Consultant may terminate if the Procuring Entity is in material breach and fails to remedy the breach within sixty (60) calendar days after receipt of the Consultant’s notice specifying the breach.

Termination procedures and decision flow

The Implementing Unit must verify grounds upon receipt of a written report of acts or causes that may constitute grounds for termination, or upon its own initiative.
The Implementing Unit conducts verification and executes a Verified Report within seven (7) calendar days, attaching all relevant evidence.
The Head of the Procuring Entity terminates only by written Notice to Terminate upon recommendation by the Implementing Unit.
The Notice to Terminate must include: (a) statement that the contract is being terminated on specified grounds and the acts constituting those grounds; (b) extent of termination (whole or part); (c) an instruction to show cause why the contract should not be terminated; and (d) special instructions of the Procuring Entity if any.
The Notice to Terminate must be accompanied by a copy of the Verified Report.

Show cause and termination if no response

The Supplier/Contractor/Consultant must submit to the Head of the Procuring Entity a verified position paper within seven (7) calendar days from receipt of the Notice of Termination, stating why the contract should not be terminated.
If the Supplier/Contractor/Consultant fails to show cause after the seven (7) day period—by inaction or default—the Head of the Procuring Entity must issue an order terminating the contract.

Rescission and final decision deadline

The Procuring Entity may withdraw the Notice to Terminate at any time before receipt of the Supplier’s/Contractor’s/Consultant’s verified position paper if it is determined that certain items or works subject of the notice were completed, delivered, or performed before the Supplier’s/Contractor’s/Consultant’s receipt of the notice.
The Head of the Procuring Entity decides within a non-extendible period of ten (10) calendar days from receipt of the verified position paper whether to terminate.
Upon decision, the Head serves a written notice to the Supplier/Contractor/Consultant; unless otherwise provided, the contract is deemed terminated from receipt of the decision notice.
Termination is based only on the grounds stated in the Notice to Terminate.

Contract Termination Review Committee

The Head of the Procuring Entity may create a Contract Termination Review Committee (CTRC) to assist in discharging functions under the guidelines.
Decisions recommended by the CTRC require approval of the Head of the Procuring Entity.

Take-over, options, and contractor notice

If the Procuring Entity terminates due to default, insolvency, or for cause, it may conduct a negotiated procurement pursuant to Section 53(c) of R.A. No. 9184 and its IRR-A.
For termination for convenience in contracts for goods, the Procuring Entity must accept goods performed or ready for delivery within thirty (30) calendar days after the Supplier’s receipt of Notice to Terminate at contract terms and prices.
For goods not yet performed or ready for delivery, the Procuring Entity may elect to require delivery/performance of any portion and pay at contract terms/prices, and/or cancel the remainder and pay an agreed amount for partially completed/performed goods and for materials and parts previously procured by the Supplier.
If the Supplier suffers loss in initial performance (including purchase of raw materials for specially manufactured goods that cannot be sold in the open market), the Supplier may recover partially on a quantum meruit basis, but recovery requires the loss to be established under oath by the Supplier to the satisfaction of the Procuring Entity before recovery is made.
The Contractor/Consultant must serve written notice of its intention to terminate at least thirty (30) calendar days before intended termination.
The Contract is deemed terminated if it is not resumed in thirty (30) calendar days after the Procuring Entity receives the contractor/consultant notice of intent to terminate.

Amendments and effectivity rule

The GPPB may modify the guidelines by amending specific provisions as need arises during implementation.
Any amendment to the guidelines applies to government projects advertised for bid after the effectivity of the amendment.
The guidelines and any amendments take effect immediately after fifteen (15) days following 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 the guidelines.