Non-Payment of 10% Retention Fee

I would like to seek legal advice from your good Office regarding my problem. I was a member - adhoc of BAC in principal-led project of DepEd. We signed the acceptance for the early release of retention but upon my verification I found out and informed everyone thru writings that the project was not in accordance with the plans and specifications with less than 10% deficiency. With this finding, may I know if we are still in possession not to release the 10% retention money to the constructor. In a worst scenario that might lead to court trial, what will be my liabilities. May I know also what will be the best thing I can do related to this matter. Thank you and god speed.

marvilsim wrote:I would like to seek legal advice from your good Office regarding my problem. I was a member - adhoc of BAC in principal-led project of DepEd. We signed the acceptance for the early release of retention but upon my verification I found out and informed everyone thru writings that the project was not in accordance with the plans and specifications with less than 10% deficiency. With this finding, may I know if we are still in possession not to release the 10% retention money to the constructor. In a worst scenario that might lead to court trial, what will be my liabilities. May I know also what will be the best thing I can do related to this matter. Thank you and god speed.

From the information you gave, there was already the issuance of Certificate of Acceptance, and necessarily the retention money should already be released. Your info, however, raised some questions that need to be clarified first.

1. Why did you accept if the project was not in accordance with the plans and specifications?
2. What do you mean by "less than 10% deficiency"?
3. Is the retention money still in possession of the school and not yet returned to the supplier?

RDV @ GPPPI

The deficiency which is less than 10% pertains to undersized constructed structure that deviate with the original plans. The 10% retention money in terms of performance bond (Bank guarantee) was still in the possession of the BAC. Likewise, no retention fee was also released to the constructor.

I admit that there was a neglect on my part by signing the acceptance due to my believe and trust to the implementor and not examined thoroughly the structure and specifications of the whole project. At this point, may I seek your advice and your help of what to do in this matter.

Thank you again.

marvilsim wrote:The deficiency which is less than 10% pertains to undersized constructed structure that deviate with the original plans. The 10% retention money in terms of performance bond (Bank guarantee) was still in the possession of the BAC. Likewise, no retention fee was also released to the constructor.

I admit that there was a neglect on my part by signing the acceptance due to my believe and trust to the implementor and not examined thoroughly the structure and specifications of the whole project. At this point, may I seek your advice and your help of what to do in this matter.

Thank you again.

Hi marvilism. If i may butt in. Just so we put things in perspective, the retention money which is retained for every progress billing is different from the performance security that the LCRB will post as a requirement in the signing of the contract. Although both are released after the final acceptance which could happen not later than the one-year defects liability period. You mentioned a performance bond as retention money so im a bit confused. it would be good to note the distinction. section 39.5 of the revised IRR identified instances when the performance security maybe released after the issuance of the certificate of acceptance. your case will fall under item a) as you obviously has a claim against the the contract awardee. Kindly check the validity period of the bank guarantee stated in the document. if still valid you may claim reimbursement for repair works charged to the bank guarantee. It could a bit different with the retention money since section 6.2 of annex E of the revised IRR does not mention the same conditions stated in 39.5 of the IRR. thus it might well be that you can no longer calim from the retention money once you have already sighed the certificate of acceptance.

If all these fails it would seem to me that you can still invoke the warranty security under section 62 as the circumstances can be that described under 62.2.3.1.a) of the IRR. Hoping i have been of help

marvilsim wrote:I would like to seek legal advice from your good Office regarding my problem. I was a member - adhoc of BAC in principal-led project of DepEd. We signed the acceptance for the early release of retention but upon my verification I found out and informed everyone thru writings that the project was not in accordance with the plans and specifications with less than 10% deficiency. With this finding, may I know if we are still in possession not to release the 10% retention money to the constructor. In a worst scenario that might lead to court trial, what will be my liabilities. May I know also what will be the best thing I can do related to this matter. Thank you and god speed.

The law require only the posting of a performance bond and not withhold a retention fee
anymore. If it will lead to regular court, you may be Administratively liable for not following the law. And if the contract has not yet awarded you can declare failure of bidding under Section 41 (b).

Niwram wrote:

marvilsim wrote:I would like to seek legal advice from your good Office regarding my problem. I was a member - adhoc of BAC in principal-led project of DepEd. We signed the acceptance for the early release of retention but upon my verification I found out and informed everyone thru writings that the project was not in accordance with the plans and specifications with less than 10% deficiency. With this finding, may I know if we are still in possession not to release the 10% retention money to the constructor. In a worst scenario that might lead to court trial, what will be my liabilities. May I know also what will be the best thing I can do related to this matter. Thank you and god speed.

The law require only the posting of a performance bond and not withhold a retention fee
anymore. If it will lead to regular court, you may be Administratively liable for not following the law. And if the contract has not yet awarded you can declare failure of bidding under Section 41 (b).

From what i know there is no such thing as a performance bond - only a performance security which comes in different forms to include a bank guarantee. As to retention, this is covered under 6.2 of the contract implementation guidelines for infra (annex E of the revised IRR). under 6.2 the contractor may request for a substitution of the retention money with a bank guarantee among other forms.

As to the signing of the certificate of acceptance in good faith, it may not necessarily mean administrative liability. I assume it was in good faith as there was probably no way for the inspectors to know that the materials used were of inferior quality - unless these same inspectors also did the construction supervision (im not sure if its allowed) or has received a report of such findings. besides section 39.5 is clear that the PE may withhold the rease of the Performance Security - even after the issuance of the Certificate of Acceptance if it has pening claims files against the contract awardee. this is perhaps the reason why there is a defects liability period of one year from project completion since not all defects can be detected right away.

ok, you are correct that there no such term in the IRR. However in practice what was required is performance security and to comply with the requirement the bidder will issue a performance bond. performance security is the requirements wherein performance bond is the form.

Niwram wrote:ok, you are correct that there no such term in the IRR. However in practice what was required is performance security and to comply with the requirement the bidder will issue a performance bond. performance security is the requirements wherein performance bond is the form.

wala rin kasing performance bond eh. Sa section 39 there is a table of the forms of performance security. meron doon surity bond - di kaya iyon?

Opo tama po un those are the forms of performance bond. sa handbook po kasi Appendix 6 nabanggit ang performance bond.. With that I rest my case.

Niwram wrote:Opo tama po un those are the forms of performance bond. sa handbook po kasi Appendix 6 nabanggit ang performance bond.. With that I rest my case.

Actually marami gumagamit nyan by habit yata like ang bid security tinatawag na bid bond dahil iyon na daw nakasanayan.

]Marvilism wrote
I would like to seek legal advice from your good Office regarding my problem. I was a member - adhoc of BAC in principal-led project of DepEd. We signed the acceptance for the early release of retention but upon my verification I found out and informed everyone thru writings that the project was not in accordance with the plans and specifications with less than 10% deficiency. With this finding, may I know if we are still in possession not to release the 10% retention money to the constructor. In a worst scenario that might lead to court trial, what will be my liabilities. May I know also what will be the best thing I can do related to this matter. Thank you and god speed.

Hello Marvilism:
It is good to hear one from DepEd, but may I be clarified of the following:

1. Did you sign the Certificate of Acceptance as a member of the BAC/ BAC Vice Chair? Remember that under the Principal-Led School Building Program it is only the Principal/School Head who is authorize to sign the Cert. of Acceptance. In no way is the BAC allowed to dip its finger in the implementation of the project; inspection, acceptance, as this is the responsibility of the HOPE; in your case, the Principal.

2. If you really signed the Cert. of Acceptance, did you not require forthe following documents?
a) Punchlist of Corrective Works/Inspection Report which should have
been signed by the Division Office Representative and the DepEd
Project engineer, and jointly inspected and signed by the Contrac-
tors representaive and the Principal?
b) Certificate of Completion that is jointly signed by the Project Engineer
PTCA President, the Principal, the Division Office Representative and
the PFSED Representative.
c) Certificate of Post-Technical Inspection which is signed by the Principal
and the Schools Division Superintendent.

These are the Documents that should have been required by you before the Certificate of Acceptance is signed. You please refer to the Operations Manual which was issued by the Central Office.
You mentioned also in your secondposting that the retention money was not released, so final payment has not been made. If that is the case, you talk with the HOPE and inform him/her that the Cert. that you have signed is void and that it should not be honored by the Accounting Office. Inform also the contractor through the Principal in writing of the punch listed items and require him to immediately effect corrective measures. As to your fear of any liability, sleep peacefully, as I hope, payment has not been made yet.

marvilsim wrote:I would like to seek legal advice from your good Office regarding my problem. I was a member - adhoc of BAC in principal-led project of DepEd. We signed the acceptance for the early release of retention but upon my verification I found out and informed everyone thru writings that the project was not in accordance with the plans and specifications with less than 10% deficiency. With this finding, may I know if we are still in possession not to release the 10% retention money to the constructor. In a worst scenario that might lead to court trial, what will be my liabilities. May I know also what will be the best thing I can do related to this matter. Thank you and god speed.

From the very limited information you have provided, the following observation I have noted
1. The function of the BAC was clearly defined in section 12.1 of the revised IRR, furthermore the BAC in my opinion is not in the position to issue/signed the Certificate of final acceptance for the project.
2. The work of the BAC will end, if the HOPE will approved of their (BAC) recommendation.
3. The release of the retention can only be made if there is a Certificate of Final acceptance issued by the PE. Excerpts from the GCC section 44 of the PBDs for infra. This can be your agency guidance.
Once the project reaches an accomplishment of ninety five (95%) of the total contract amount, the Procuring Entity may create an inspectorate team to make preliminary inspection and submit a punch-list to the Contractor in preparation for the final turnover of the project. Said punch-list will contain, among others, the remaining Works, Work deficiencies for necessary corrections, and the specific duration/time to fully complete the project considering the approved remaining contract time. This, however, shall not preclude the claim of the Procuring Entity for liquidated damages

charlie brown wrote:

Niwram wrote:Opo tama po un those are the forms of performance bond. sa handbook po kasi Appendix 6 nabanggit ang performance bond.. With that I rest my case.

Actually marami gumagamit nyan by habit yata like ang bid security tinatawag na bid bond dahil iyon na daw nakasanayan.

malamang ganun na nga po ang nangyayari..

sunriser431 wrote:

marvilsim wrote:I would like to seek legal advice from your good Office regarding my problem. I was a member - adhoc of BAC in principal-led project of DepEd. We signed the acceptance for the early release of retention but upon my verification I found out and informed everyone thru writings that the project was not in accordance with the plans and specifications with less than 10% deficiency. With this finding, may I know if we are still in possession not to release the 10% retention money to the constructor. In a worst scenario that might lead to court trial, what will be my liabilities. May I know also what will be the best thing I can do related to this matter. Thank you and god speed.

From the very limited information you have provided, the following observation I have noted
1. The function of the BAC was clearly defined in section 12.1 of the revised IRR, furthermore the BAC in my opinion is not in the position to issue/signed the Certificate of final acceptance for the project.
2. The work of the BAC will end, if the HOPE will approved of their (BAC) recommendation.
3. The release of the retention can only be made if there is a Certificate of Final acceptance issued by the PE. Excerpts from the GCC section 44 of the PBDs for infra. This can be your agency guidance.
Once the project reaches an accomplishment of ninety five (95%) of the total contract amount, the Procuring Entity may create an inspectorate team to make preliminary inspection and submit a punch-list to the Contractor in preparation for the final turnover of the project. Said punch-list will contain, among others, the remaining Works, Work deficiencies for necessary corrections, and the specific duration/time to fully complete the project considering the approved remaining contract time. This, however, shall not preclude the claim of the Procuring Entity for liquidated damages

My understanding of GCC 44 is that liquidated damages may only be claimed when after the project has reached 95%, the total remaining time duration to finally complete the project goes beyond the contract period. thus the 1/10 of 1% for every day of delay in completing the unperformed portion. In the case as presented kasi natapos yong project, accepted pa nga kaya wala ng LD. the options available as i understand it are:

1. The performance security - which covers the defects liability period (up to 1 year from completion to acceptance (62.2.2/62.2.2.2) and maybe released after signing the Acceptance but subject to claims made if there are any (39.5 of the IRR). defects liability pertains to the damage to the infrastructure on account of use of inferior materials.
2. tHE wARRANTY - which remains effective for one year from the defects liability period/final acceptance (62.2.3.4). The warranty covers for structural defects defined as major faults/flaws/deficiencies in one or more key structural elements which may lead to structural failure...or structural failures.
3. the retention money- is for uncorrected discoverd defects and third party liabilities under section 6.2 of Annex E Contract Implementation Guidelines for Infra which is due for release upon final acceptance.

There is not enough information to be certain which one is being referred to since all of these can be subtituted by a bank guarantee, surety bond, CLC etc. Hence i mentioned previously that it is important to note what is in the possession of the PE as these monies serves different purposes and it would be wise and prudent - knowing that it has already made some tactical errors - to know how to approach and resolve the issue of correcting the defects/problems that just came to thier knowledge.

additional information, excerpt from the revised IRR which is self explanatory
8.5. In no case however, shall the total sum of liquidated damages exceed ten percent (10%) of the total contract price, in which event the contract shall automatically be taken over by the procuring entity concerned or award the same to a qualified contractor through negotiation and the erring contractor's performance security shall be forfeited. The amount of the forfeited performance security shall be aside from the amount of the liquidated damages that the contractor shall pay the government under the provisions of this clause and impose other appropriate sanctions