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Procurement of Heavy Equipment

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Procurement of Heavy Equipment

Post by cuteangels on Tue Apr 01, 2014 2:41 pm

Hello to all! I just would like to share an issue on the procurement of Heavy Equipment that I encountered in one of my audited agencies.  I actually had posted this previously in the topic "letters of credit", hoping to hear any comment from the members of the forum but until now no one commented, so i decided to post the issue in a new topic.

I have here an excerpt from the ITB in the procurement of Heavy Equipment for you to give comments:

V. Payment

   "In consideration for the supply and delivery of the Heavy Equipments as provided herein, the Municipality shall pay the bidder the contract price via irrevocable letter of credit to be issued by the Municipality.  It is hereby agreed and understood that for the purpose of the supply and delivery of Heavy Equipments, it must be directly imported for the Municipality to avail itself of the exemption from import duties and local taxes provided under Section 382 of the Local Government Code of 1991.  For this purpose, the Municipal Council of the Municipality shall authorize the Municipal Mayor to apply or cause the application for the issuance of an irrevocable letter of credit in payment for the direct importation of the equipment. The end-user of the project shall coordinate with the Municipality Council for the necessary issuance of the authority.

   The bidder, on the other hand, shall provide assistance to the Municipality for the application and approval of the relevant tax exemption by the Department of Finance."

FYI: The Municipality conducted a public bidding. 3 suppliers (all local) submitted their bids, and only 1 qualified. Letter of Credit was already issued in favor of a foreign supplier, not a party to the bidding.


I am confused.  First, why the municipality still have to do the importation when the contract was already awarded to a local supplier? Second, the PE issued an LC in favor of a foreign supplier who is not a party to the bidding. Based on the discussion on letters of credit, mr. riddler commented that it is an anomalous practice, which i also think it is. Can you cite of a particular regulation that was violated making this practice anomalous?   Please help me clarify the issue. Thanks in advance.

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Re: Procurement of Heavy Equipment

Post by Jovinal on Fri Apr 11, 2014 12:30 am

Provisions in Procurement Manual

8. Taxes and Duties

A foreign supplier must be entirely responsible for all taxes, stamp duties, license fees, and
other such levies imposed up to the delivery of the goods to the Project Site as specified in
the contract.

A local supplier must also be entirely responsible for all taxes, duties, license fees, and other
related expenses, incurred until delivery of the contracted goods to the LGU.
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Re: Procurement of Heavy Equipment

Post by Jovinal on Fri Apr 11, 2014 12:47 am

Another reference Section 42. Contract Implementation and Termination

42.1. The contract implementation guidelines for the procurement of goods, supplies and materials are provided for in Annex “D” of this IRR.
42.2. The contract implementation guidelines for the procurement of infrastructure projects are provided for in Annex “E” of this IRR.
42.3. The contract implementation guidelines for the procurement of consulting services are provided for in Annex “F” of this IRR.
42.4. No incentive bonus, in whatever form or for whatever purpose, shall be allowed.

42.5. Procuring Entities may issue a letter of credit in favor of a local or foreign suppliers; Provided, that, no payment on the letter of credit shall be made until delivery and acceptance of the goods as certified to by the procuring entity in accordance with the delivery schedule provided for in the contract have been concluded; Provided further, that, the cost for the opening of letter of credit shall be for the account of the local or foreign supplier and must be stated in the Bidding Documents.
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