President Benigno Aquino III has expanded the government procurement process by increasing the limit of advance payments on purchase contracts in a bid to give equal opportunities to local suppliers while making sure tax coffers stay protected in case of a bad deal.
Executive Secretary Paquito N. Ochoa Jr. said on Thursday that under Memorandum Order (MO) No. 15 signed by the Chief Executive on May 9, government agencies are now allowed to make advance payments of up to 15 percent of the contract price of goods, supplies and materials purchased locally or from abroad, provided that these transactions are secured by an irrevocable letter of credit or bank guarantee.
Ochoa said MO 15 amended a provision in the Implementing Rules and Regulations (IRR) of Republic Act (RA) 9184 or the Government Procurement Reform Act, which allows a 10 percent advance payment for goods supplied from overseas.
RA 9184 provided a specific and limited exceptions to the rule against advance payment as prescribed in Section 88 of the Presidential Decree (PD) No. 1445, or the Government Auditing Code. The Code generally prohibits advance payment for services not yet rendered or for supplies and materials not yet delivered under any government contractunless prior approval of the President is obtained.
“The purpose of the prohibition against advance payment is to protect the government from the possibility of not receiving goods, supplies and materials for which it has already paid. However, this problem is squarely addressed by the requirement of prior submission of an irrevocable letter of credit or bank guarantee from which the government may seek reimbursement when necessary and without complication,” Ochoa pointed out.
Ochoa said the presidential directive was based on the recommendation of the National Economic Development Authority (NEDA) to raise the allowable amount of advance payment to 15 percent from 10 percent of the contract amount.
He said the NEDA also proposed that the rule be expanded to include procurement of goods, regardless of their source, consistent with the Aquino Administration’s policy of giving equal opportunities to local businessmen.
“The limitation, which applies only to goods supplied from abroad, runs counter to the policy towards giving equal opportunities to local suppliers,” Ochoa said.
But in order to provide sufficient safeguards for the government, Ochoa said MO 15 included a provision authorizing advance payment only upon submission of an irrevocable letter of credit as an alternative to a bank guarantee.
This would mean that government agencies are given the “blanket authority” in the procurement of goods, supplies and materials as long as the supplier submits the prescribed security.
“Nonetheless, the proposed revision still fulfills the legislative purpose of protecting the government since the advance payment is secured by an irrevocable letter of credit or bank guarantee,” Ochoa said.
An irrevocable letter of credit ensures the beneficiary that if the required documents are presented and the terms and conditions in the contract are complied with, payment will be made. ###