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Retention Money vs Surety bond (No Final Acceptance of Work Yet)

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Retention Money vs Surety bond (No Final Acceptance of Work Yet)

Post by angelo on Wed May 20, 2009 9:17 am

Good day to all, I just want to ask for your opinion regarding one case. Our contractor is requesting for the release of retention money and got a surety bond as a substitue. The duration is already set from April 2009 to April 2010, the project is still on going and no final acceptance has been made. Is the request for the retention money valid? How about the duration of the bond? If ever the project is to be accepted only in August 2009 or any other period beyond April 2009 (Bond starting date)... I hope i could get a proper opinion and basis for our action. thanks and More Power
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Re: Retention Money vs Surety bond (No Final Acceptance of Work Yet)

Post by RDV @ GP3i on Wed May 20, 2009 11:15 am

Annex "E" of IRR-A, which is specifically covers the "Contract Implementation Guidelines for the Procurement of Infrastructure Projects", specifically Item 6 - Retention Money, has the following provisions:

"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.
"

The coverage shall be until final acceptance of the works, meaning it includes the 1-yr defects liability period from completion of the project.
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Re: Retention Money vs Surety bond (No Final Acceptance of Work Yet)

Post by angelo on Wed May 20, 2009 11:34 am

thanks sir!
pwede ba naming i-reject yung request for release of retention? these are my arguments:
First, the bond period is running (April 2009 to April 2010) kahit na wala pang final turn over ng project sa end users. So consequently, we have to wait until the final turnover to act to his request and for us to determine the period of the bond. and the second, we have specified in the bidding documents that "on completion of the whole work, the contractor may substitute retention money with an on demand guarantee in a form acceptable to the procuring entity"...
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Re: Retention Money vs Surety bond (No Final Acceptance of Work Yet)

Post by RDV @ GP3i on Wed May 20, 2009 12:38 pm

angelo wrote:thanks sir!
pwede ba naming i-reject yung request for release of retention? these are my arguments:
First, the bond period is running (April 2009 to April 2010) kahit na wala pang final turn over ng project sa end users. So consequently, we have to wait until the final turnover to act to his request and for us to determine the period of the bond. and the second, we have specified in the bidding documents that "on completion of the whole work, the contractor may substitute retention money with an on demand guarantee in a form acceptable to the procuring entity"...


Based on the quoted provision in Annex E of IRR-A, which is also included as part of the provisions in the Philippine Bidding Documents, a bidder may request for the substitution of retention money during progress payment, which means that ever prior to project completion (prior to final turn-over), provided the work is satisfactorily done and on schedule.

The provision in the bidding documents that "on completion of the whole work, the contractor may substitute retention money with an on demand guarantee in a form acceptable to the procuring entity", is if the project is completed already.

I think, if you want basis for rejecting the request for substitution, you can use any if the following reasons: First is on the basis of the performance (not satisfactorily done) or delay on schedule. Second, is the period of the the validity of the surety bond since it is supposed to cover the defects liability period, which the period April 2009 to April 2010 may not cover.
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Re: Retention Money vs Surety bond (No Final Acceptance of Work Yet)

Post by angelo on Wed May 20, 2009 1:22 pm

Is it enough reason (bonds period of coverage) for us to reject the request?
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Re: Retention Money vs Surety bond (No Final Acceptance of Work Yet)

Post by RDV @ GP3i on Wed May 20, 2009 5:14 pm

angelo wrote:Is it enough reason (bonds period of coverage) for us to reject the request?

The purpose of the "retention money" is to cover for any uncorrected discovered defects in the project, particularly from completion until final acceptance. If the coverage of the surety bond is shortened, then you will be at the disadvantaged. It was put there in the law to protect the procuring entity. For me, it could be enough reason to reject the request.
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Re: Retention Money vs Surety bond (No Final Acceptance of Work Yet)

Post by angelo on Thu May 21, 2009 4:07 pm

thank you sir! i hope you would continue sharing your ideas.
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Re: Retention Money vs Surety bond (No Final Acceptance of Work Yet)

Post by RDV @ GP3i on Thu May 21, 2009 7:07 pm

angelo wrote:thank you sir! i hope you would continue sharing your ideas.

You are welcome, angelo, and it is always my pleasure to share my ideas. Very Happy
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Re: Retention Money vs Surety bond (No Final Acceptance of Work Yet)

Post by essan on Tue Jul 06, 2010 10:10 am

Good day!
How about retention money for goods? Can the contractor request to substitute surety bond for the release of its retention money?Is there any provision in the law for goods regarding this? Thank you.
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Re: Retention Money vs Surety bond (No Final Acceptance of Work Yet)

Post by msm326 on Tue Jul 06, 2010 1:37 pm

Based on the revised IRR Surety bond for warranty is not allowed already instead bank guarantee please refer to the to section 62.1 of the Revised IRR 5th edition ( this is for goods)
msm326 Very Happy
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Re: Retention Money vs Surety bond (No Final Acceptance of Work Yet)

Post by essan on Tue Jul 06, 2010 2:24 pm

msm326 wrote:Based on the revised IRR Surety bond for warranty is not allowed already instead bank guarantee please refer to the to section 62.1 of the Revised IRR 5th edition ( this is for goods)
msm326 Very Happy

Thank you for the info.
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Re: Retention Money vs Surety bond (No Final Acceptance of Work Yet)

Post by riddler on Tue Jul 06, 2010 3:31 pm

RDV @ GPPPI wrote:Annex "E" of IRR-A, which is specifically covers the "Contract Implementation Guidelines for the Procurement of Infrastructure Projects", specifically Item 6 - Retention Money, has the following provisions:

"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.
"

The coverage shall be until final acceptance of the works, meaning it includes the 1-yr defects liability period from completion of the project.


In addition may I be clarified of the following clause in the PBD;

42. RETENTION

' X x x x x xx xx.

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 believed most PE's are not implementing the above clause too. Very Happy I reallly assumed that upon "Completion of Works" the Contractor may submit a Surety Bond to replace the Retention money, how is that RDV? Very Happy Very Happy
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Re: Retention Money vs Surety bond (No Final Acceptance of Work Yet)

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