A contractor cannot demand recovery of retention money and performance security when they were properly forfeited by the government for the claimant’s failure to complete a project.
This was the ruling of the Commission on Audit (COA) denying the petition that LSD Construction and Supplies filed against the provincial government of Ifugao for the return of P14.67 million it put up as retention money and performance security for a road project in 2017.
Records showed LSD Construction won the contract for the Improvement of Pula-Cawayan-Camandag Farm to Market Road with Bridge: Package I-Road Component after its offer of P186.93 million was declared the lowest calculated responsive bid by the Bids and Awards Committee (BAC) of Ifugao Province.
Work on the road project began on November 1, 2017 but was terminated on September 3, 2019 despite being unfinished due to various violations by the contractor.
Among the issues the provincial government listed were expiration of the project term, LSD failed to comply with the conditions given for the continuation of the project, negative slippage in excess of 15 percent, and absence of an approved variation order.
It added that at the time of contract termination, LSD had only done 28.49 percent of the pro-ject and had received P44.6 million in total payments.
However, on December 9, 2020, the contractor requested the release of its ten percent reten-tion money and cash/performance bond on the ground that the contract was “mutually termi-nated.”
Unable to get a favorable response from the provincial government, it filed a Petition for Money Claim with the COA on October 6, 2022 arguing that the local government “had no legal or fac-tual basis to deduct the 10 percent retention money” from the payments it had already made.
It added that the mutual termination of the contract entitles it to a full refund of the perfor-mance security it posted since it supposedly superseded the contested unilateral termination made by the province.
The COA en banc declared the petition unmeritorious, noting that based on the provisions of the Government Procurement Reform Law (RA 9184), the province of Ifugao did the correct thing when it forfeited the retention money.
“The performance security and the retention money [were] posted and retained to guarantee faithful performance of the winning bidder of its obligations under the contract. Likewise, it provides that the performance security shall be forfeited in the event the winning bidder is in default of any of its obligations under the contract,” the commission said.
Regardless of whether the mutual termination was true or not, the COA said it would have no binding effect for being void because it would run counter to the provisions of the Civil Code of the Philippines.
