Purpose of Guidelines
- To prescribe rules and procedures for approval of price escalation requests by the GPPB.
- To ensure competent, objective, and expeditious handling of these requests by the GPPB and NEDA.
- To establish legal and technical parameters for objectively determining extraordinary circumstances under the Civil Code of the Philippines.
Definitions of Key Terms
- Price Escalation: Increase in contract price due to extraordinary circumstances, approved by NEDA and GPPB.
- Extraordinary Circumstances: Events during contract implementation giving rise to price escalation, determined per Civil Code.
- Extraordinary Inflation/Deflation: Significant and unforeseeable changes in currency purchasing power beyond normal fluctuations.
- Fortuitous Event: Unforeseeable or inevitable occurrences (natural or human-made) without contractor negligence.
- WPI, CPI, PPI: Wholesale Price Index, Consumer Price Index, and Producer Price Index used as price indicators.
Legal Foundation for Extraordinary Circumstances
- Refers to Articles 1174 (ordinary fortuitous events), 1250 (extraordinary inflation/deflation), and 1680 (extraordinary fortuitous events) of the Civil Code.
- Enumerates examples such as typhoons, floods, fires, war, epidemics, and unusual natural disasters.
- Sets requisites for these events including unpredictability, independence from parties’ will, and contractor's non-participation.
Review and Approval Process
- Procuring entity endorses request with comprehensive documents (certifications, contract copies, cost estimates, historical price indices).
- Two-stage review by NEDA:
- First Stage: Legal evaluation of extraordinary circumstance basis.
- Second Stage: Technical review involving statistical analysis, such as checking if price changes exceed two standard deviations or a 10% increase.
- Applicable price indices depend on availability: WPI preferred, followed by CPI and PPI for goods.
- Infrastructure projects use a parametric formula with coefficient K factoring labor, materials, equipment indices.
Computation and Amount of Price Escalation
- For goods, escalation granted only above thresholds from statistical tests.
- For civil works, formula provided relating escalated price, original price, and fluctuation factor K determines payment.
Period and Conditions of Request
- Requests can be made only for costs already incurred.
- Minimum interval of six months between requests; for contracts shorter than six months, request after completion.
- Misrepresentations cause automatic denial.
- Approval requires GPPB action, attended by procuring entity representatives.
Authority to Approve and Effect of Approval
- No payment of escalation before GPPB approval.
- After contract completion, recalculations account for price decreases; overpayments are deducted from retention or warranty security.
Additional Conditions
- Price escalation on delayed work is based on price indices of the period it should have been accomplished.
- No escalation granted for work during periods covered by advance payments or material-paid advance.
Amendments and Effectivity
- GPPB may amend guidelines or issue addenda without full amendment.
- Guidelines take effect after publication and filing with the University of the Philippines Law Center.
Annex A: Price Indices for Commodity Groups
- Lists appropriate WPI, CPI, and PPI commodity groups for computing price escalations.
Annex B: Parametric Formula for Infrastructure Projects
- Provides detailed formula for fluctuation factor K factoring specific labor, material, and equipment price indices.
- Includes a comprehensive list of fluctuation factors tailored to various construction items and processes.
- Specifies official data sources for all indices used in computations.
- Allows use of the nearest related price index in absence of a specific index.