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Substitution of the 10% Retention Money for Infrastructure

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Substitution of the 10% Retention Money for Infrastructure

Post by riddler on Mon Mar 28, 2011 3:26 pm

i am re-posting my query since last year again. Very Happy
excerpt on the amended IRR "ANNEX E" for 10% RETENTION

6. RETENTION MONEY

6.1. Progress payments are subject to retention of ten percent (10%) referred to as the
"retention money." Such retention shall be based on the total amount due to the
contractor prior to any deduction and shall be retained from every progress payment
until fifty percent (50%) of the value of works, as determined by the procuring
entity, are completed. If, after fifty percent (50%) completion, the work is
satisfactorily done and on schedule, no additional retention shall be made; otherwise,
the ten percent (10%) retention shall be imposed.

6.2. The total "retention money" shall be due for release upon final acceptance of the
works. The contractor may, however, request the substitution of the retention
money for each progress billing with irrevocable standby letters of credit of from a
commercial bank, bank guarantees or surety bonds callable on demand, of amounts
equivalent to the retention money substituted for and acceptable to Government,
provided that the project is on schedule and is satisfactorily undertaken. Otherwise,
the ten percent (10%) retention shall be made. Said irrevocable standby letters of
credit, bank guarantees and/or surety bonds, to be posted in favor of the
Government shall be valid for a duration to be determined by the concerned
implementing office/agency or procuring entity and will answer for the purpose for
which the ten percent (10%) retention is intended, i.e., to cover uncorrected
discovered defects and third party liabilities.

excerpt from the PBD

42.Retention

42.1. The Procuring Entity shall retain from each payment due to the Contractor an amount equal to a percentage thereof using the rate as specified in SCC Clause 42.2.

42.2. Progress payments are subject to retention of ten percent (10%), unless otherwise specified in the SCC, referred to as the “retention money.” Such retention shall be based on the total amount due to the Contractor prior to any deduction and shall be retained from every progress payment until fifty percent (50%) of the value of Works, as determined by the Procuring Entity, are completed. If, after fifty percent (50%) completion, the Work is satisfactorily done and on schedule, no additional retention shall be made; otherwise, the ten percent (10%) retention shall again be imposed using the rate specified therefor.

42.3. The total “retention money” shall be due for release upon final acceptance of the Works. The Contractor may, however, request the substitution of the retention money for each progress billing with irrevocable standby letters of credit from a commercial bank, bank guarantees or surety bonds callable on demand, of amounts equivalent to the retention money substituted for and acceptable to the Procuring Entity, provided that the project is on schedule and is satisfactorily undertaken. Otherwise, the ten (10%) percent retention shall be made. Said irrevocable standby letters of credit, bank guarantees and/or surety bonds, to be posted in favor of the Government shall be valid for a duration to be determined by the concerned implementing office/agency or Procuring Entity and will answer for the purpose for which the ten (10%) percent retention is intended, i.e., to cover uncorrected discovered defects and third party liabilities.

42.4. On completion of the whole Works, the Contractor may substitute retention money with an “on demand” Bank guarantee in a form acceptable to the Procuring Entity.

i think most government agencies if not all, allows the 10% Retention Money after the (final) Completion of the Project be substituted by a SURETY BOND as Warranty security before the Issuance of a Certificate of Acceptance.. Is it contrary to Clause 42.4 of the PBD? Is the Surety Bond a form of security acceptable to the PE? Question affraid scratch scratch
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Re: Substitution of the 10% Retention Money for Infrastructure

Post by ziaragabriel on Mon Apr 04, 2011 12:15 pm

fellow on-liners,
need ur help...... what if the 1st progress billing is 58% completion, what will be the basis for 10% retention fee? the contract price of 5M or the 2.9M billing?
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Re: Substitution of the 10% Retention Money for Infrastructure

Post by RDV @ GP3i on Mon Apr 04, 2011 7:08 pm

ziaragabriel wrote:fellow on-liners,
need ur help...... what if the 1st progress billing is 58% completion, what will be the basis for 10% retention fee? the contract price of 5M or the 2.9M billing?

The 10% retention money will be based on the billing amount and not on the total contract price.
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In case of conflict, the law should prevail and not the PBD

Post by SDNHA on Wed Jul 27, 2011 2:54 pm

The conflict is apparent..i believe that the GPPB should harmonize this inconsistency between the contents of the PBD and the provision of the IRR on the matter. Meanwhile, the IRR should prevail over the clauses in the GCC of the PBD, in case of conflict. This is so because the IRR is suppose to implement the principal law (R.A. 9184). The PBD cannot expand what the law (R.A. 9184 and its IRR) requires. Cool

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Re: Substitution of the 10% Retention Money for Infrastructure

Post by Engineer in Blue Jeans on Tue Nov 08, 2011 10:57 am

[quote]42.2. Progress payments are subject to retention of ten percent (10%), unless otherwise specified in the SCC, referred to as the “retention money.” Such retention shall be based on the total amount due to the Contractor prior to any deduction and shall be retained from every progress payment until fifty percent (50%) of the value of Works, as determined by the Procuring Entity, are completed. If, after fifty percent (50%) completion, the Work is satisfactorily done and on schedule, no additional retention shall be made; otherwise, the ten percent (10%) retention shall again be imposed using the rate specified therefor.


Kaya po ba karaniwang above 50% na ang mga 1st billing ngayon to avoid this provision?

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Re: Substitution of the 10% Retention Money for Infrastructure

Post by RDV @ GP3i on Tue Nov 08, 2011 2:19 pm

[quote="Engineer in Blue Jeans"]
42.2. Progress payments are subject to retention of ten percent (10%), unless otherwise specified in the SCC, referred to as the “retention money.” Such retention shall be based on the total amount due to the Contractor prior to any deduction and shall be retained from every progress payment until fifty percent (50%) of the value of Works, as determined by the Procuring Entity, are completed. If, after fifty percent (50%) completion, the Work is satisfactorily done and on schedule, no additional retention shall be made; otherwise, the ten percent (10%) retention shall again be imposed using the rate specified therefor.


Kaya po ba karaniwang above 50% na ang mga 1st billing ngayon to avoid this provision?

I don't think that if the initial billing is already more than 50% it is already free of the 10% retention money required for every progress billing. The provision in Annex E of the IRR that you quoted is quite clear that "no additional retention shall be made" if after more than 50% completion and work is satisfactorily done. If no retention has yet been made and it is already more than 50%, then the procuring entity has still to withhold the retention money.
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Re: Substitution of the 10% Retention Money for Infrastructure

Post by engrjhez® on Wed Nov 09, 2011 6:20 am

Engineer in Blue Jeans wrote:42.2. Progress payments are subject to retention of ten percent (10%), unless otherwise specified in the SCC, referred to as the “retention money.” Such retention shall be based on the total amount due to the Contractor prior to any deduction and shall be retained from every progress payment until fifty percent (50%) of the value of Works, as determined by the Procuring Entity, are completed. If, after fifty percent (50%) completion, the Work is satisfactorily done and on schedule, no additional retention shall be made; otherwise, the ten percent (10%) retention shall again be imposed using the rate specified therefor.


Kaya po ba karaniwang above 50% na ang mga 1st billing ngayon to avoid this provision?

RDV @ GP3i wrote:I don't think that if the initial billing is already more than 50% it is already free of the 10% retention money required for every progress billing. The provision in Annex E of the IRR that you quoted is quite clear that "no additional retention shall be made" if after more than 50% completion and work is satisfactorily done. If no retention has yet been made and it is already more than 50%, then the procuring entity has still to withhold the retention money.

In addition, and to expound it even more, what if bidders chose not to avail of progress billings: is their first and final billing subject to 10% retention? My answer is YES. In fact, retention money is withheld until the final acceptance (1 year after completion). Although, there is an option to replace retention money by any other forms permitted in the IRR. Smile
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Re: Substitution of the 10% Retention Money for Infrastructure

Post by riddler on Wed Nov 09, 2011 1:01 pm

engrjhez® wrote:

In addition, and to expound it even more, what if bidders chose not to avail of progress billings: is their first and final billing subject to 10% retention? My answer is YES. In fact, retention money is withheld until the final acceptance (1 year after completion). Although, there is an option to replace retention money by any other forms permitted in the IRR. Smile[/color]

Smile And the only option under the revised 4th Edition of the PBD is:

42.4. On completion of the whole Works, the Contractor may substitute retention money with an “on demand” Bank guarantee in a form acceptable to the Procuring Entity. Very Happy
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Re: Substitution of the 10% Retention Money for Infrastructure

Post by Recks1925 on Fri Dec 16, 2011 5:49 pm

For infra, I usually witheld 10% on every progress payments, until final payment.. The 10% retention money that accumulated will serve as warranty unless replaced by other acceptable instrument.

My concern is the performance security.. it is stated that it is only due for release upon issuance of Certificate of Final Acceptance, meaning the said security serves as warranty, is it still necessary to witheld 10% to serve as warranty even if we already have perf security intended for the same purpose?
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Re: Substitution of the 10% Retention Money for Infrastructure

Post by RDV @ GP3i on Sat Dec 17, 2011 11:35 am

Recks1925 wrote:For infra, I usually witheld 10% on every progress payments, until final payment.. The 10% retention money that accumulated will serve as warranty unless replaced by other acceptable instrument.
You are even allowed to withold 10% for every progress payment until 50% of the works is completed and stop witholding the retention money is the work is satisfactorily done and on schedule. Meaning, upon final payment, you may have actually withheld only a total of 5% of the contract amount. However, the retention money will only be due for release also upon issuance of Certificate of Acceptance, or one (1) year after completion, unless replaced by other acceptable instrument.

Recks1925 wrote:My concern is the performance security.. it is stated that it is only due for release upon issuance of Certificate of Final Acceptance, meaning the said security serves as warranty, is it still necessary to witheld 10% to serve as warranty even if we already have perf security intended for the same purpose?
Yes, performance security is separate from the retention money, although both serve as warranty. Both are also separate from Warranty security that the contractor has to post after issuance of the Certificate of acceptance.
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Re: Substitution of the 10% Retention Money for Infrastructure

Post by Recks1925 on Sat Dec 17, 2011 12:36 pm

Sir, thanks for the reply.

You mean there will be three (3) warranties? 1. Performance Security 2. Retention MOney or Equivalent 3. Another one to be submitted upon project completion

Is that quite too many, considering that we can only utilize one intrument on claim if ever there will be?

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Re: Substitution of the 10% Retention Money for Infrastructure

Post by RDV @ GP3i on Sat Dec 17, 2011 6:47 pm

Recks1925 wrote:Sir, thanks for the reply.

You mean there will be three (3) warranties? 1. Performance Security 2. Retention MOney or Equivalent 3. Another one to be submitted upon project completion

Is that quite too many, considering that we can only utilize one intrument on claim if ever there will be?


Recks1925 wrote:Sir, thanks for the reply.

You mean there will be three (3) warranties? 1. Performance Security 2. Retention MOney or Equivalent 3. Another one to be submitted upon project completion

Is that quite too many, considering that we can only utilize one intrument on claim if ever there will be?


Yes, three.

The Performance Security is posted upon contract signing and to be returned only upon issuance of the Certificate of Acceptance. The purpose of Performance Security is as a guarantee that the winning contractor will perform his end of the contract. It also serves as a warranty against the use of inferior materials.

The retention money is collected during progress payment and serves as a warranty
against hidden or patent defects. It is likewise retuned by the procuring entity upon
issuance of Certificate of Acceptance, unless sooner replaced by an acceptable form of
security (surety bond or irrevocable letter of credit).

The warranty security is posted when the Certificate of Acceptance is issued and shall be valid for one year, thereafter it shall be returned by the procuring entity. It serves as a warranty against structural defects or structural failures.
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Re: Substitution of the 10% Retention Money for Infrastructure

Post by riddler on Mon Dec 19, 2011 10:02 am

RDV @ GP3i wrote:

Yes, three.

The Performance Security is posted upon contract signing and to be returned only upon issuance of the Certificate of Acceptance. The purpose of Performance Security is as a guarantee that the winning contractor will perform his end of the contract. It also serves as a warranty against the use of inferior materials.

Very Happy RDV, 'thought Performance Security may only be released by the PE upon issuance of a Certificate of Completion. Very Happy

RDV @ GP3i wrote:
The retention money is collected during progress payment and serves as a warranty
against hidden or patent defects. It is likewise retuned by the procuring entity upon
issuance of Certificate of Acceptance, unless sooner replaced by an acceptable form of
security (surety bond or irrevocable letter of credit).

which maybe contrary to the 4th Edition of the PBD. (we discussed this matter before RDV, di pa ba na harmonize ito sa IRR?) Very Happy

42.4. On completion of the whole Works, the Contractor may substitute retention money with an “on demand” Bank guarantee in a form acceptable to the Procuring Entity. Very Happy
RDV @ GP3i wrote:
The warranty security is posted when the Certificate of Acceptance is issued and shall be valid for one year, thereafter it shall be returned by the procuring entity. It serves as a warranty against structural defects or structural failures.


Very Happy methinks na Certificate of Completion muna before the Certificate of Warranty shall be posted.. anyway the IRR has identified different kinds of warranties which the contractor maybe liable. (3,5 to 15 years sa Infra.) Very Happy
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Re: Substitution of the 10% Retention Money for Infrastructure

Post by engrjhez® on Mon Dec 19, 2011 11:59 am

May I share my view and understanding.

First I see no conflict between the IRR ad PBDs as cited. Let me identify some points:

  1. For Infra, retention money is mandatory and it must apply to all without any exception;
  2. Retention money is over and above Performance Security which can only be replaced upon posting of Warranty Security;
  3. During progress billing, retention money may be substituted with irrevocable standby letters of credit of from a commercial bank, bank guarantees or surety bonds callable on demand, of amounts equivalent to the retention money substituted for and acceptable to Government, provided that the project is on schedule and is satisfactorily undertaken;
  4. For 1st billing exceeding 50%, retention money for the billing statement will apply subject to existing accounting and auditing rules;
  5. For 2nd billing exceeding 50% retention money for the billing statement may not apply if the project is "in schedule" and is not delayed;
  6. For final billing, the remaining balance that will constitute 10% of the entire payment will still apply as retention money;
  7. In the case of final billing where works are already completed, the Contractor may substitute retention money with an “on demand” Bank guarantee in a form acceptable to the Procuring Entity, thereby just limiting the option for replacement but retention money still applies until final acceptance.
  8. Upon issuance of Certificate of Final Acceptance, the retention money can now be released (1 year after completion) and will now be replaced by Warranty Security in accordance with Sec.62. Note that this Warranty Security also replaces Performance Security which is also in effect during the defects liability period.
I hope I have made the outline clear. Smile
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Re: Substitution of the 10% Retention Money for Infrastructure

Post by RDV @ GP3i on Mon Dec 19, 2011 2:52 pm

riddler wrote:
RDV @ GP3i wrote:

Yes, three.

The Performance Security is posted upon contract signing and to be returned only upon issuance of the Certificate of Acceptance. The purpose of Performance Security is as a guarantee that the winning contractor will perform his end of the contract. It also serves as a warranty against the use of inferior materials.

Very Happy RDV, 'thought Performance Security may only be released by the PE upon issuance of a Certificate of Completion. Very Happy

Sec. 39.5 of IRR: The performance security may be released by the procuring entity after the issuance of the Certificate of Acceptance, ..."

riddler wrote:
RDV @ GP3i wrote:
The retention money is collected during progress payment and serves as a warranty
against hidden or patent defects. It is likewise retuned by the procuring entity upon
issuance of Certificate of Acceptance, unless sooner replaced by an acceptable form of
security (surety bond or irrevocable letter of credit).

which maybe contrary to the 4th Edition of the PBD. (we discussed this matter before RDV, di pa ba na harmonize ito sa IRR?) Very Happy

42.4. On completion of the whole Works, the Contractor may substitute retention money with an “on demand” Bank guarantee in a form acceptable to the Procuring Entity. Very Happy

Engrjhez has sufficiently explained the requirement of retention money, when it is collected and when it should be returned or replaced.

riddler wrote:
RDV @ GP3i wrote:
The warranty security is posted when the Certificate of Acceptance is issued and shall be valid for one year, thereafter it shall be returned by the procuring entity. It serves as a warranty against structural defects or structural failures.


Very Happy methinks na Certificate of Completion muna before the Certificate of Warranty shall be posted.. anyway the IRR has identified different kinds of warranties which the contractor maybe liable. (3,5 to 15 years sa Infra.) Very Happy

There is no such thing as 'Certificate of Warranty'. It is correct that a Certificate of Completion has to be issued first by the procuring entity and thereafter, after the lapse of the one-year defects liability period, the Certificate of Acceptance.

When the Cert. of Acceptance is issued, the Performance Security, as well as the retention money, may already be returned provided that there are no claims filed against the contractor or no claims for labor and materials against the contractor. At the same time the contractor shall likewise post a Warranty Security which shall be valid for one year after the issuance of the Certificate of Acceptance.
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