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Delays in Work Completion and Liquidated

Damages

Legal Reference:

IRR-A Section 68, Annex “E” and the Civil Code of the Philippines
Article 2226 provide the rules in relation to delivery and liquidated
damages.

What is the rule on the applicable period for the completion of


work?

The contractor must complete the work procured within the period
prescribed by the Procuring Entity as specified in the contract.

If delays are likely to be incurred, the contractor must notify the


Procuring Entity in writing, stating therein the duration and causes of
the expected delay. The Procuring Entity may grant time extensions,
at its discretion, if such extensions are meritorious, with or without
liquidated damages.

In all cases, the request for extension shall always be filed before the
expiry of the original completion date. Maximum allowable extension
shall not exceed the original construction period.

What are liquidated damages?

Liquidated damages are damages agreed upon by the parties to a


contract, to be paid in case of breach thereof. (Civil Code of the
Philippines Article 2226)

What are the grounds for the imposition of liquidated damages?


When the contractor refuses or fails to satisfactorily complete the
works under the contract within the specified contract duration, plus
any time extension duly granted, and is thus considered in default
under the contract, it will be liable for liquidated damages for the
delay. The Procuring Entity need not prove that it has incurred actual
damages to be entitled to liquidated damages from the contractor,
and the same shall not be by way of penalty. Such amount shall be
deducted from any money due or which may become due the
contractor under the contract and/or from the retention money or
other securities posted by the contractor, whichever is convenient to
the Procuring Entity.

What is the amount of Liquidated Damages that can be imposed


upon the contractor?

The following formula will be used in determining the liquidated


damages due to a Procuring Entity from a contractor:

TLD = VUUP x [ (1+ OCC)n–1 ] x K

VUUP = TCP – VCUP

Where:

TLD = Total Liquidated Damages, in Pesos

VUUP = Value of the Uncompleted and Unusable Portions of


the contract work, as of the expiry date of the contract, in Pesos

TCP = Total Contract Price, in Pesos

VCUP = Value of the Completed and Usable Portion of the


contract work, as of the expiry date of the contract, in Pesos

OCC = Prevailing Opportunity Cost of Capital for Government


projects set by NEDA, which is currently pegged at 15%

n = Total number of years that the contract work is delayed


after the expiry date of the contract
K = Adjustment factor to cover additional losses = 1 + C + (I x
n)

Where:

C = Cost of construction supervision as a percentage, not


exceeding 10%, of construction cost

I = Annual inflation rate as defined by NEDA

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