DOJ OPINION NO. 020, s. 2003
March 20, 2003

Secretary Roberto M. Pagdanganan
Department of Agrarian Reform
DAR Central Office, DAR Compound
Elliptical Road, Diliman, Quezon City

S i r :

        Reference is made to your request for clarification of this Department's Opinion No. 105, Series of 2002 relative to the evaluation of the financial proposal of the first-ranked bidder in the procurement of consultancy services for the Japan Bank for International Cooperation (JBIC)-assisted Mindanao Sustainable Settlement Area Development (MINSSAD) Project.    IAETDc

        In Opinion No. 105, Series of 2002, we opined that —

". . . it would be legally inappropriate to continue or proceed with the negotiations with the first-ranked firm considering that its financial bid indicates an amount higher than the bid ceiling. Based on the provisions of the JBIC Guidelines and the pertinent provisions of E.O. No. 40 and its IRR, there is no other recourse but to disqualify outright the said first-ranked firm since its financial proposal exceeds the bid ceiling as approved by DAR."

        In rendering the aforesaid opinion, this Department relied on the representations of the DAR in its letter dated 25 October 2002 which specifically cited and quoted the pertinent provisions of: (1) Loan Agreement No. PH-P222 for the MINSSAD; (2) JBIC Guidelines for the Employment of Consultants; and (3) Executive Order No. 40, s. 2001 and its Implementing Rules and Regulations.

        Quoted hereunder are pertinent portions of the said DAR letter, viz:

"The Loan Agreement states that the employment of consultants to be financed out of the proceeds of the loan shall be in accordance with the JBIC Guidelines dated October 1999. The JBIC Guidelines state that the selection of the consultant shall be the responsibility of the GOP (DAR) and that after evaluation of the technical proposals, the financial proposal of the first-ranked firm shall be evaluated, and negotiations shall follow.

Under Section 3.2 of the IRR of E.O. No. 40, Series of 2001 1, for consulting services funded from foreign loans and credits, conditions in the loan agreements with the foreign governments or funding institutions shall be in full conformity with the said IRR. The IRR of E.O. 40 also provides the amount indicated in the financial envelope shall be made as the basis for negotiations and the total contract amount shall not exceed the amount indicated in the envelope and the approved budget for the contract as stated in the Invitation to Apply for Eligibility and to Bid. Section 25 of the same IRR states that the approved budget for the contract under bidding shall be the upper limit or ceiling for acceptable bids, and all bids, as evaluated and calculated in accordance with the IRR, which are higher than the approved budget for the contract under bidding, shall automatically be disqualified.

From the foregoing, there appears to be a substantive disparity in the provisions of the JBIC Guidelines and E.O. No. 40 in the instance or event that the financial bid submitted by the first-ranked firm is higher than the approved budget for the contract. It must be confirmed whether it is legally appropriate to continue or proceed with the first-ranked firm (as JBIC Guidelines suggest) despite the fact that its financial bid indicates an amount higher than the bid ceiling, or proceed to outright disqualify the said first-ranked firm (pursuant to E.O. No. 40) since the bid ceiling is exceeded."

        In the aforesaid DAR letter, the specific issue raised was the applicability to this situation of the pertinent provisions of Executive Order No. 40 and its Implementing Rules and Regulations. The following considerations were specifically cited:

"1.        Although the said E.O. No. 40 was promulgated only on 8 October 2001, after the execution of the Loan Agreement PH-P222, it is indisputably already in effect now, and must accordingly govern transactions leading to the procurement or execution of a proposed contract for consulting services for MINSSAD.

2.         E.O. 40 explicitly declares that conditions in the loan agreements for procurement of consulting services shall be in full conformity with the implementing rules and regulations of the said Executive Order No. 40.

3.         Even assuming for the sake of argument that the procurement process contained in the Loan Agreement and the JBIC Guidelines should be observed in this instance, the JBIC Guidelines itself explicitly declare that the selection of a consultant shall be the responsibility of the Borrower-Agency. This clearly imposes a duty of the Borrower-Agency to ensure that the selection process under its law, i.e. Executive Order No. 109, Series of 2002 2 , Executive Order No. 40, Series of 2002, and their implementing rules and regulations, are followed. As Department of Justice (DOJ) Opinion No. 75, series of 2002 issued by the Honorable Secretary Hernando B. Perez dated 9 September 2002 stated:

xxx                    xxx                    xxx

"While under the JBIC Guidelines, the shortlist of consultants shall be approved by the JBIC, it does not mean that the procedure for short-listing of consultants under E.O. No. 40 and its IRR shall not be observed. Under the JBIC Guidelines, the selection of the consultant for a project financed out of ODA loans shall be the responsibility of the Borrower-agency. This clearly imposes a duty upon the Borrower-agency to see to it that the selection process under its law, if there be any, is followed.

xxx                    xxx                    xxx"

        In your instant request for clarification of this Department's aforesaid Opinion No. 105, Series of 2002, you point out, inter alia, the following:

1.         Opinion No. 75, s. 2002 has been superseded by Opinion No. 101, s. 2002.

        The conditions obtaining in the BCDA contract for consulting services which is the subject matter of Opinion No. 101, s. 2002 are similar to the proposed MINSSAD contract for consulting services which is the subject matter of Opinion No. 105, s. 2002, to wit:

1)                                   both are pursuant to a valid, binding and legal agreement executed between the Government of the Philippines (GOP) and the JBIC;

2)                                   both partake of the nature of an international agreement which were duly executed prior to Executive Order No. 40, s. 2001, and whose legal basis include the Foreign Borrowings Law (R.A. 4860, as amended), the Official Development Assistance Act (R.A. 8182, as amended) and the 1987 Constitution;

3)                                   both are funded by the JBIC, an international funding institution;

4)                                   both agreements provide that the JBIC Guidelines on Procurement of Consultancy Services shall be followed in the procurement of consulting services for the project;

5)                                   all the bids have been evaluated and calculated using the JBIC Guidelines and not E.O. No. 40; and

6)                                   both have religiously followed the JBIC Guidelines in undertaking all the activities for the procurement of consulting services and have consulted and obtained JBIC concurrence on these matters.

2.         In a letter dated 11 November 2002, the JBIC expressed its position that:

1)                                   there is no provision in the JBIC Consultant Guidelines stating that proposals should be rejected on the basis that such proposals exceed the approved budget of the Executing Agency;

2)                                   that the guidelines require quality-based and not cost-based selection; and

3)                                   that the selection process applied by the DAR on the procurement of consulting services has been in accordance with the loan agreement and that the provisions of the loan agreement shall prevail over the procurement guidelines of the Borrower.    DcaCSE

3.         In a letter dated 14 January 2003, the National Economic and Development Authority (NEDA), as the policy-governing and oversight agency which prepared and issued the I.R.R. of E.O. No. 40, clarified that for procurement financed wholly or partly from Official Development Assistance (ODA) funds from international financing institutions (IFIs) as well as from bilateral and other sources, the corresponding loan/grant agreements governing said funds as negotiated and agreed upon by and between the Government and concerned IFI shall be observed.

        Based on the new information given in paragraphs 2 and 3, above, we express the view that the JBIC Guidelines for the Employment of Consultants as interpreted and applied by the JBIC in its aforesaid letter dated 11 November 2002, should govern in this case. It should be noted that although consultancy services are expressly excluded from the coverage of the JBIC Guidelines for Procurement under JBIC ODA Loans 3 , nonetheless, as represented by JBIC Chief Representative Mitsuru Taruki in his letter dated 11 November 2002 to then DAR Secretary Braganza:

". . . Section 5.06 (e) of the Guidelines for Procurement under JBIC ODA Loans dated October 1999 states that 'any procedure under which bids above or below a predetermined bid value assessment are automatically disqualified is not permitted.' Although such provision is not explicitly stated in the Guidelines for Employment of Consultants under JBIC ODA Loans, the Bank nonetheless applies the same principle on the procurement of consulting services." (Emphasis ours.)

        Pursuant to Section 1.2 of the Implementing Rules and Regulations of E.O. No. 40, procurements financed wholly or partly from ODA funds from International Financing Institutions (IFIs), as well as from bilateral and other sources shall be governed by the corresponding loan/grant agreement between the Government and the concerned IFI. This was clarified by no less than the NEDA in its aforementioned letter dated 14 January 2003 (see par. 3, supra).

        In this connection, we wish to inform that when this Department's Opinion No. 105, Series of 2002, was issued, the JBIC and NEDA letters abovementioned were not considered since it was only through the instant DAR's request for clarification that we have been made aware of these two letters. The JBIC and NEDA letters express in no uncertain terms the respective positions of the JBIC, which is the funding agency, and the NEDA, which prepared and issued the Implementing Rules and Regulations of E.O. No. 40, on the applicability of the JBIC Guidelines in this case. We have no reason to dispute or disregard their positions which, we believe, are consistent with law.

        Incidentally, regarding the alleged inconsistency of Opinion No. 105, Series of 2002 with previous DOJ opinions, suffice it to state that we do not find any inconsistency at all since the opinions mentioned treat of different issues and situations and thus govern differently.

Very truly yours,

(SGD.) SIMEON A. DATUMANONG

Secretary

Footnotes

  1.       Consolidating Procurement Rules and Procedures for all National Government Agencies Government-Owned or Controlled Corporations and Government Financial Institutions, and Requiring the Use of the Government Electronics Procurement System.

  2.       Streamlining the Rules and Procedures on the Review and Approval of All Contracts of Departments, Bureaus, Offices, and Agencies of the Government, Including Government-Owned or Controlled Corporations and Their Subsidiaries.

  3.       (b) These Guidelines set forth the general rules to be followed by Borrowers of the BANK in carrying out the procurement of goods and services for a development project which is financed in whole or in part by ODA Loans of the BANK. (The term "the Borrower" as used in these Guidelines also refers to the Executing Agency of the project and the term "services" as used in these Guidelines excludes consulting services.) [Emphasis ours.]