Detailed engineering as a condition
- Section 2 requires that no bidding and/or award for a construction project may be made unless detailed engineering investigations, surveys, and designs have been sufficiently carried out.
- The detailed engineering work must follow standards and specifications to be established under the rules and regulations to be promulgated under Section 12.
- The detailed engineering requirement is intended to minimize quantity and cost overruns and underruns, and to reduce change orders and extra work orders.
- The requirement further applies unless the detailed engineering documents are approved by the proper minister as the case may be (Minister of Public Works, Transportation and Communications; Minister of Public Highways; or Minister of Energy).
Prequalification requirements for bidders
- Section 3 provides that a prospective contractor may be prequalified to offer a bid or tender only if it meets all specified requirements.
- Legal requirements include that the prospective contractor must:
- be licensed as a contractor for the current year under Republic Act No. 4566;
- have paid the privilege tax to practice or engage in contracting business for the current year;
- comply with Administrative Order No. 66 of the Office of the President; and
- comply with other existing pertinent laws, rules, and regulations.
- Technical requirements include that the prospective contractor must meet requirements established under Section 12 covering:
- competence and experience in managing projects similar to the subject project;
- competence and experience of the contractor’s key personnel assigned to the subject project;
- availability and commitment of equipment needed for the project.
- Financial requirements include that the prospective contractor’s net worth and liquid assets must meet requirements to be established under Section 12, with a permitted method to cover deficiency through a line of credit fully committed to the subject project by a bank or financial institution acceptable to the concerned ministry.
- Government procurement must promote maximum participation of eligible Filipino contractors in construction projects.
Competitive bidding and exceptions
- Section 4 establishes that construction projects shall generally be undertaken by contract after competitive public bidding.
- Section 4 allows administration or force account or negotiated contract only in exceptional cases, including when:
- time is of the essence; or
- there is lack of qualified bidders or contractors; or
- there is conclusive evidence that greater economy and efficiency would be achieved through the arrangement.
- Section 4 requires compliance with laws and acts on the matter and requires approvals depending on project cost:
- approval of the Minister of Public Works, Transportation and Communications, Minister of Public Highways, or Minister of Energy when the project cost is less than P1 Million; and
- approval of the President of the Philippines upon the recommendation of the Minister when the project cost is P1 Million or more.
- Section 4 requires that a bidder’s bond (amount to be established under Section 12) must accompany the bid to guarantee that the successful bidder will, within the prescribed period from receipt of the notice of award, enter into contract and furnish the required performance bond.
Award rules and required performance security
- Section 5 provides that the contract is awarded to the lowest prequalified bidder whose bid, as evaluated, complies with all terms and conditions in the call for bid and is the most advantageous to the Government.
- Section 5 requires that prior to award, the contractor must post a performance bond to guarantee faithful performance, with the bond amount to be established under the rules to be promulgated under Section 12.
- Section 5 requires that all awards and contracts executed under the Decree must be subject to approval of the appropriate minister as the case may be (Minister of Public Works, Transportation and Communications; Minister of Public Highways; or Minister of Energy).
Contract assignment and subcontract limits
- Section 6 prohibits the contractor from assigning, transferring, pledging, subcontracting, or disposing of the contract or any part of interest therein except with approval of the appropriate minister as the case may be.
- Section 6 provides that approval of a subcontract does not relieve the main contractor from any liability or obligation under the contractor’s contract with the Government.
- Section 6 further provides that subcontract approval does not create any contractual relation between the subcontractor and the Government.
Contractor responsibility for work and safety
- Section 7 requires the contractor to assume full responsibility for contract work until final acceptance by the Government.
- Section 7 provides that the contractor is responsible for any damage or destruction of works except those occasioned by force majeure.
- Section 7 requires that, except for force majeure, the contractor must be responsible for the safety, protection, security, and convenience of:
- the contractor’s personnel;
- third parties; and
- the public at large.
- Section 7 also makes the contractor fully responsible (except for force majeure) for works, equipment, installation, and similar items affected by the construction work.
Contract price adjustment and change orders
- Section 8 allows contract price adjustment for construction projects upon authorization by the appropriate minister as the case may be.
- Section 8 requires a recommendation from the National Economic and Development Authority when authorization is sought.
- Section 8 permits adjustment when, during the contract’s effectivity, the cost of labor, equipment, materials, and supplies required for construction increases or decreases due to direct acts of the Government.
- Section 8 requires that adjustments be made using appropriate formulas established under the rules and regulations to be promulgated under Section 12.
- Section 9 allows issuance of a change order or extra work order only when:
- the works are necessary for completion of the project; and
- the works remain within the general scope of the contract as bid and awarded.
- Section 9 requires that all change orders and extra work orders be approved by the appropriate minister as the case may be.
Inspection, replacement, and Government takeover
- Section 10 provides that the Government must inspect contract work while it is in progress to determine whether completed works comply with contract standards and requirements.
- Section 10 requires that inspection does not remove the contractor’s responsibility for the acceptability of finished works.
- Section 10 obligates the contractor to promptly:
- replace materials, and
- correct works, when the Government determines they fail to meet contract requirements.
- Section 11 authorizes the Government to take over the contract work when the contractor:
- abandons the work;
- unduly delays prosecution;
- becomes insolvent;
- assigns assets for the benefit of creditors;
- is adjudged bankrupt;
- assigns the contract work without written Government approval; or
- violates any condition or term of the contract.
- Section 11 authorizes the Government, after giving due notice to the contractor and its sureties, to terminate the contractor’s employment and take over the work.
Implementing rules, effect, separability, repeal
- Section 12 requires the Minister of Public Works, Transportation and Communications (lead official), the Minister of Public Highways, the Minister of Energy, and the Director-General of the National Economic and Development Authority to jointly promulgate the implementing rules and regulations for this Decree.
- Section 12 provides that once the implementing rules and regulations are approved by the President of the Philippines, they apply to all contracts for infrastructure and other construction projects of all government agencies, including:
- government-owned or controlled corporations, and
- other instrumentalities.
- Section 13 establishes a separability clause: if any provision is held unconstitutional, the remaining provisions remain valid.
- Section 14 provides a repealing clause: all acts, charters, decrees, letters of instructions, executive orders, proclamations, rules and regulations, or parts thereof in conflict are repealed or modified accordingly.
- Section 15 states that Presidential Decree No. 1594 takes effect immediately.
- The Decree is done in the City of Manila on June 11, 1978.