IMPLEMENTING RULES AND REGULATIONS FOR R.A. NO. 6957

For your information and guidance.

Adopted: 25 June 1991

(SGD.) JOSE B. DEL ROSARIO, JR.
Administrator

Implementing Rules and Regulations for R.A. No. 6957,
“An Act Authorizing the Financing, Construction, Operation
and Maintenance of Infrastructure Projects by the Private
Sector and for the Other Purposes” (Build-Operate-and-Transfer

and Build-and-Transfer Schemes)

Pursuant to Section 10 of Republic Act (R.A.) No. 6957, which
was approved on 9 July 1990, the following Implementing Rules and
Regulations (IRR) are hereby prescribed to carry out the provisions of
the said Act.^(*)

1. Definition of BOT and BT Schemes

1.1 Build-operate-and-transfer (BOT) scheme.
This is “a contractual arrangement whereby the contractor undertakes
the construction, including financing, of a given infrastructure
facility, and the operation and maintenance thereof. The contractor
operates the facility over a fixed term during which it is allowed to
charge facility users appropriate tolls, fees, rentals, and charges
sufficient to enable the contractor to recover its operating and
maintenance expenses and its investment in the project plus a reasonable
rate of return thereon. The contractor transfers the facility to the
government agency or local government unit (LGU) concerned at the end of
the fixed term which shall not exceed fifty (50) years.”

“For
the construction stage, the contractor may obtain financing from foreign
and/or domestic sources and/or engage the services of a foreign and/or
Filipino constructor.”

“The ownership structure stage, the
contractor of an infrastructure whose operation requires a public
utility franchise must be in accordance with the constitution.”

“In the case of corporate investors in the build-operate-and-transfer
corporation, the citizenship of each stockholder in the corporate
investors shall be the basis for the computation of Filipino equity in
the said corporation.”

“In the case of foreign contractors,
Filipino labor shall be employed or hired in the different phases of the
construction where Filipino skills are available.” The use of Filipino
labor shall also apply to Filipino contractors.

“The financing
of a foreign or foreign-controlled contractor from Philippine government
institutions shall not exceed twenty percent (20%) of the total cost of
the infrastructure facility or project.”

“Financing from foreign
sources shall not require a guarantee by the Government or
government-owned or controlled corporations.”

“The
build-operate-and-transfer scheme shall include a supply-and-operate
situation which is a contractual arrangement whereby the supplier of
equipment and machinery for a given infrastructure facility, if the
interest of the Government so requires, operates the facility, providing
in the process technology transfer and training to Filipino nationals.”

1.2 Build-and-transfer (BT) scheme.
This is “a contractual arrangement whereby the contractor undertakes
the construction, including financing, of a given infrastructure
facility, and its turnover after completion to the government agency or
LGU concerned which shall pay the contractor its total investment
expended on the project, plus a reasonable rate of return thereon.” The
BT scheme shall be adopted for financially viable infrastructure
projects, i.e., the project cost should be recovered from tolls, fees,
rentals and other charges on the facility users, as well as other
related income of the Agency/LGU concerned. The agency/LGU shall pay
the contractor based on an agreed amortization schedule.

“This
arrangement may be employed in the construction of any infrastructure
project, including critical facilities which, for security or strategic
reasons, must be operated directly by the Government.”

2. Authorized Contracting Government Agencies/Units
– The following Government entities are authorized to enter into
contract for BOT or BT projects under the provisions of R.A. No. 6957:

2.1 Government
infrastructure agencies, including government-owned and controlled
corporations (hereinafter referred to as Agency/ies). These include
the Department of Public Works and Highways (DPWH), Department of
Transportation and Communications, National Irrigation Administration,
Metropolitan Waterworks and Sewerage System, Local Water Utilities
Administration, Philippine National Railways, Light Rail Transit
Authority, Philippine Ports Authority, Manila International Airport
Authority, National Power Corporation, National Electrification
Administration, Philippine National Oil Company, Export Processing Zone
Authority, and Public Estates Authority, among others.

2.2 Local Government Units (LGUs)

3. Eligible Infrastructure Projects
– Infrastructure projects which are financially viable and meet the
other provisions of these IRR may be undertaken through BOT or BT
schemes under R.A. No. 6957, including but not limited to the
construction, which includes engineering, rehabilitation, improvement,
expansion, and modernization, supply of equipment and machineries,
operation and maintenance of the following:

In the case of highway projects, the concerned Agencies/LGUs
shall, prior to the call for bids for their implementation, secure from
the DPWH, its clearance, on a non-objection basis, of their plans for
BOT and BT projects in order to avoid undue proliferation and unwieldy
operation of the same (e.g., a series of toll road stations along
a given route separately managed by numerous private operators which
would greatly hamper the flow of traffic and inconvenience the public).

4. Inclusion of Proposed BOT and BT Projects in Agency/LGU Infrastructure Programs

4.1 In accordance with Section 4 of R.A. No. 6957, the concerned
Agencies/LGUs “shall include in their infrastructure programs those
priority projects that may be financed, constructed, operated and
maintained by the private sector” through the BOT or BT schemes “under
the provisions of this Act.”

4.2 The Agency/LGU shall “give
wide publicity to all such projects. In the case of a national agency,
once every six (6) months, it shall publish the list of such projects in
at least two (2) newspaper of general national circulation. In the
case of an LGU, the publication must be made in at least one (1)
newspaper of local/national general circulation.” The agency/LGU must
also give written “official notification to the contractors registered
with them,” including the concerned chapters of the Philippine
Constructors Association, the National Confederation of Constructors
Associations of the Philippines and the Philippine Chamber of Commerce
and Industry, of the list of such projects at least once every six (6)
months.

5. Approval of Proposed BOT and BT Projects

5.1 The head of the concerned Agency shall, in accordance with
Section 4 of R.A. No. 6957, see to it that “the lists of all such
national projects (proposed for BOT or BT schemes) must be part of the
medium-term infrastructure programs of the agencies concerned and must
be duly approved by Congress” prior to the call for bids for their
implementation. For this purpose, the Agency shall submit such list to
Congress as the need for a BOT or BT projects arises, but preferable
once every six (6) months.

5.2 “Local projects (traditionally)
funded and implemented by the local government units concerned,” are to
be “submitted to the local development councils for approval or
confirmation.” This means that the concerned Municipal Mayor shall
submit municipal-level projects (e.g., market) to the Municipal
Development Council, the City Mayor shall submit city-level projects (e.g., waterworks) to the City Development Council, and the Provincial Governor shall submit province-level projects (e.g.,
provincial expressways) to the Provincial Development Council for
appropriate action. Then the projects are transmitted to the respective
local sanggunians for approval prior to the call for bids for their
implementation. For this purpose, the LGU shall submit the list to the
Local Development Council concerned as the need for BOT or BT arises,
but preferably once every six (6) months.

6. Minimum Standards and Basic Parameters
– The Agency/LGU shall lay down the minimum design and performance
standards and specifications, as well as economic parameters, which
shall be observed by the bidder/contractor in preparing its bid and, if
successful, in building and operating the facility. These shall also be
used by the Agency/LGU in comparatively evaluating the bids and in
supervising and monitoring the project construction and operation.

6.1 Minimum output standards and Specifications. The
contractor shall build and operate the subject infrastructure facility
which shall comply with the minimum design and performance standards and
specifications prescribed by the Agency/LGU. These standards and
specifications shall refer more to the desired quantity and quality of
the outputs of the facility, i.e., goods and services to be produced, than to the inputs of funds and resources to produce the outputs.

(Example – Toll Expressway Project: Provide a fully
access-controlled expressway between points A and B, with a design speed
of 100 kph and at least Service Level “B” within 29 years, per AASHTO
specifications; entries/exits at points C, D, and E; drainage for
100-year frequency floods; etc.)

6.2 Economic parameters. To provide a uniform basis for
the preparation by the contractors of their bids and the comparison by
the tendering Agency/LGU of the bids on a “present value” basis, the
Agency/LGU shall prescribe the following economic parameters:

1. Inflation and discounting rates
2. Foreign exchange rates
3. Maximum period of project construction
4. Fixed term for project operation and collection of tolls / fees / rentals / charges, in the case of BOT projects.
5. Formulae and price indices to be used in adjustment of tolls /
   fees / rentals / charges, in the case of BOT projects f. Minimum
   period of repayment, in the case of BT projects

6.3 Facilities to be provided by the government. The
Agency/LGU shall indicate the facilities associated with the subject
project which are to be provided by the government. The cost of the
same may be partly or wholly be financed and/or shouldered by the
contractor as part of its bid and cost-recovery scheme. These
facilities may include, but not limited to the following:

1. Right-of-way
2. Part of the structure, e.g., carriageway and stations for a rail transit project

7. Prequalification, Bids, and Awards Committee – The head
of the concerned Agency/LGU shall create a Pre-qualification, Bids, and
Awards Committee (PBAC) for the BOT or BT projects to be bid. The PBAC
shall have the following minimum composition:

1. At least a second ranking officer of the Agency/LGU …………………..….……………………… Chairman
2. A legal officer ………………………………………………………………………………………………………. Member-Secretary
3. A technical officer knowledgeable on the project ………………….…………………………………. Member
4. A financial/management officer ………………………………………………………………………………….. Member
5. Two representatives to be nominated by facility users and/or contracting sector ……..Observers

8. Advertisement – In accordance with the provisions of
Section 5 of R.A. No. 6957, the concerned Agency/LGU shall, upon
approval by the Congress/Local Sanggunian of a proposed BOT or BT
project, “cause to be published, once every week for three (3)
consecutive weeks, in at least two (2) newspaper of general circulation
and in at least one (1) local newspaper which is circulated in the
region, province, city or municipality in which the project is to be
constructed, a notice inviting all duly prequalified infrastructure
contractors to participate in the bidding for the projects so approved.”

9. Bidding Documents
– The Agency/LGU shall prepare the Bidding Documents for the project to
guide the prospective bidder in preparing and submitting its
prequalification application and bid proposal.

These documents shall consist of the following:

10. Prequalification of Contractors – The criteria for prequalification of contractors shall include the following:

10.1 Legal requirements. The BOT/BT contractor-applicant must meet the following requirements:

10.2 Experience or track record. The contractor-applicant must possess adequate experience in terms of the following:

1. Firm experience – By itself or through the member-firms
   in case of a joint venture, the contractor must have successfully
   undertaken a project(s) similar or related to the subject infrastructure
   to be bid and whose the aggregate capital (construction) cost of which
   is, in present value, at least equal t fifty percent (50%) of the
   estimated cost of the subject project. In the case of major national
   projects (costing at least P300 million) this experience must include
   all phases of a BOT/BT scheme, including financing, engineering,
   construction, operation and maintenance. The member firms of a
   joint venture may individually specialize on any or several phases of a
   BOT/BT scheme. A joint venture contractor firm shall be evaluated based
   on the individual or collective experience of the corresponding member
   firms or of the joint venture itself.

2. Key personnel experience – The key personnel of the
   contractor (e.g., managers, chief engineers, et al) must have sufficient
   experience in the relevant aspects of schemes similar or related to the
   subject project as, specified by the Agency/LGU.

10.3 Capability. – The contractor must meet the following requirements:

The concerned Agency/LGU shall adopt a quantitative rating system
for the above technical and managerial and financial criteria, taking
into account the nature and scale of the project.

10.4 Period of preparation of prequalification documents.
The Agency/LGU concerned shall allow prospective contractors at least
thirty (30) days from the last date of advertisement of the Invitation
to Prequalify to prepare their respective prequalification documents.

For major projects costing at least P300 million, the period of
preparation shall at least be forty-five (45) days from the last date of
advertisement of the Invitation to Prequalify.

The deadline, last day for submission of prequalification documents must be clearly stated in the Invitation to Prequalify.

11. Content of the Bid –
The bid of each prequalified contractor for a BOT project shall usually
include (a) the feasibility study, including preliminary engineering
design, of the project, (b) the proposed schedule of tolls, fees,
rentals, and other charges to be imposed, (c) the bid bond, and (d)
other supporting documents.

As an alternative, the Agency/LGU may
conduct the feasibility study and, in some cases, even the detailed
engineering design, and call for proposals based on such feasibility
study / detailed engineering design. In this case, the bid of each
prequalified contractor shall cover only items (b), (c), and (d) above.

However, the bidder is solely responsible for the validity and
soundness, including the assumptions, projections, analyses, and
outputs, as well as the input data used. Acceptance by the Agency/LGU
concerned of the proposal does not diminish this responsibility; neither
does it transfer any part of this responsibility to the Agency/LGU.

11.1 Feasibility study, including preliminary engineering design.
The bidder shall prepare and submit a feasibility study, includes
preliminary engineering design, for the subject project, which shall
conform to the minimum design, and performance standards and
specifications and economic parameters set by the Agency/LGU (Section 6
of these IRR).

The feasibility study of the bidder must be
undertaken according to accepted standards and must conclusively
demonstrate the feasibility / viability of the project in the following
terms before it is approved for implementation:

1. Marketability – The need for the project outputs
   (goods/services) must be clearly defined and justified. This should be
   done through evaluation and projection of the market conditions,
   including the magnitudes of supply and demands (e.g., traffic volumes for expressways) and pricing (e.g., tolls) over the project operational life.

2. Technical soundness (Preliminary engineering design) –
   the basic engineering design of the project should conform to the
   minimum design and performance standards and specifications (outputs)
   set by the Agency/LGU (Section 6). The engineering surveys, plans, and
   estimates should be undertaken within at least +/- 20% of the final
   quantities. The construction methods and schedules should also be
   presented and shown to the doable. Should the contractor be awarded the
   contract, its submitted preliminary engineering design shall be the
   basis of the detailed engineering to be done as part of the contract.

3. Economic feasibility – The benefits to the national
   economy of the project must be properly defined and quantified to the
   fullest extent possible (e.g., savings in transport costs and travel
   time). The project should yield an economic internal rate of return
   which is at least equal to the social discount rate, currently 15%. It
   should conform with established and accepted criteria set by the
   Investment Coordination Committee of the NEDA Board.

4. Financial viability – The sources of financing of the
   contractor for the construction and operation phases of the project
   should be defined. Letters of commitment from the financing
   institutions to the effect that they, shall extend the specified
   financing to the contractor if and when awarded the contract shall be
   submitted. The project should give a financial internal rate of return
   which is at least equal to the effective cost of capital corresponding
   to the financing packages proposed. The proposed user tolls / fees /
   rentals / charges and the period of cost recovery must be realistic and
   affordable.

5. Operational feasibility – The proposed organization,
   methods, and procedures for operating and maintaining the completed
   facility must be well defined, conform to the minimum performance
   standards, and be shown to be workable, and where feasible provide for
   the transfer of technology used in every phase of the project.

6. Environmental Standards – The proposed project design
   and the technology to be used in the project must be in accordance with
   the environmental standards set forth by the Agency/LGU concerned and
   acceptable to the Department of Environment and Natural Resources
   (DENR). Any negative or adverse effects on the environment as a
   consequence of the projects as proposed by the private contractor must
   be properly identified and corrective measures be indicated by the
   contractor. Appropriate clearances from the DENR, while not required
   during the bidding, shall henceforth be required of the winning
   contractor for each stage of the project, from design and engineering,
   to construction and the pre-operating stage, whenever applicable. The
   contractor assumes full responsibility for the assessment of the
   environmental impact of the project as proposed.

Alternatively as mentioned earlier, the Agency/LGU may conduct the
feasibility study, and the bidder may use the study as its own, subject
to its validation of its contents, including the data, assumptions,
analyses, and outputs thereof, and/or modifying the same to its
satisfaction. In this case, the responsibility for the validation and
integrity of the feasibility study shall still be lodged with the
bidder.

11.2 For BOT project. Proposed Tolls / Fees /
Rentals / Charges: The bid shall indicate the amounts in present
values, schedules, and fixed terms of the tolls / fees / rentals charges
to be imposed on the users of the facility over the specified fixed
term for project operation.

11.3 For BT project. Proposed
Payments: The bud shall indicate the amounts in present values,
schedules and attendant terms and conditions of the payments to be made
by the Agency/LGU to the contractor.

11.4 Bid Bond. The
bidder shall submit a bid bond in an amount not less than two percent
(2.0%), one-and-one-half percent (1.5%), and one percent (1%) of the
estimated present value of the construction cost, i.e., less than
P5 Billion P5 to 10 Billion and greater then P10 Billion, respectively.
The bond shall be in the form of cash, or certified check, manager’s
check, letter of credit, or bank draft/guarantee issued by a reputable
bank, or surety bond issued by an entity duly registered and recognized
by the Office of the Insurance Commissioner and acceptable to the
Agency/LGU, or may combination thereof. The purpose of the bid bond is
to guarantee that the bidder, if awarded the contract, shall within the
period specified in the Instructions to Bidders, enter into a contract
with the Agency/LGU for the project. Bid bonds shall be valid for a
reasonable period as specified in the Instructions to Bidders, but in no
case later than one hundred twenty (120) days from the opening of bids.

11.5 Other supporting documents. The bidder shall submit such other relevant documents as may be required by the Agency/LGU to support its bid.

11.6 Period of preparation of bids. The
prequalified bidder shall be allowed sufficient time to prepare their
bids depending upon the nature and scale of the project. However,
preparation period should not be less than sixty (60) days nor more than
one hundred-eighty (180) days from the date of first day of issuance of
bid documents to duly prequalified bidders up to the deadline for
submission of bids.

The Invitation to Bid must clearly indicate
the date of the last day of the submission of bids including the time
and place of submission.

12. Bidding Procedure

12.1 Prebid conference. A
prebid conference shall be conducted by the concerned Agency/LGU at
least thirty (30) days before the deadline for submission of bids. This
will clarify the scope of work, bidding documents, bid evaluation
procedures, contract terms and conditions, and any other matter that the
agency or prospective bidder may raise. The salient results of the
prebid conference shall be embodied in bid bulletins to be issued to the
bidders. For major national projects (P300 million and above) the
Prebid Conference maybe conducted ninety (90) to one hundred-twenty
(120) days before the submission of bids.

12.2 Receipt and opening of bids. The PBAC shall receive and open the bids publicly at the designated time and place.

12.3 Evaluation of bids.
The PBAC shall evaluate the bids received as to compliance with the
requirements and as to their prices, using the preset evaluation
criteria stated in Section 13 below.

12.4 Award.
The PBAC shall recommend to the agency head, for approval, the award of
the contract to the lowest evaluated complying bid, based on the said
evaluation criteria.

12.5 Declaration of failure of bidding. When no complying bids are received, the bidding shall be declared a failure.

13. Bid Evaluation Criteria

13.1 Two stage evaluation.
The evaluation of the bids will be in two stages, the first is the
evaluation of the Feasibility Study, including Preliminary Engineering
Design, following the criteria under Section 13.2 below.

The second stage is the evaluation of the bid amounts, following the criteria under Sections 13.3 and 13.4 below.

Only those which hurdle the first stage of evaluation (Feasibility
Study) will qualify for the second stage evaluation. The second
envelope containing the bid amounts shall be returned unopened to each
bidder which does not hurdle the first stage.

13.2 Evaluation of feasibility study.
The Agency/LGU shall evaluate the submitted feasibility study,
including preliminary engineering design, of each bidder to determine if
it meets the following hurdle requirements:

1. The submitted feasibility study must conform to the minimum
   design and performance standards and specifications and economic
   parameters specified in Section 6.

2. The feasibility study must conclusively show the
   feasibility/viability of the project in terms of market-ability,
   technical soundness (preliminary engineering design), economic
   feasibility, financial viability, operational feasibility, and
   environmental impact, in accordance with the guidelines in Section 11
   above.

13.3 Evaluation of bid amounts for BOT project. “In the
case of a build operate-and-transfer arrangement, the contract shall be
awarded to the lowest complying bidder based on the present value of its
proposed tools, fees, rentals, and other charges over a fixed term for
the facility to be constructed, operated, and maintained according to
the prescribed minimum design and performance standards, plans, and
specifications.” To arrive at the present value, the discounting rates
and foreign exchange rates prescribed under the economic parameters
(Section 6.2 of this IRR) which are part of the Instructions to Bidders
shall be used.

“The government infrastructure agency or local
government unit shall approve the fairness and equity of the tolls,
fees, rentals and charges, except in the case of tolls for national
highways, roads, bridges and public thoroughfares which shall be
approved by the Toll Regulatory Board.” In determining the fairness and
equity of the tolls / fees / rentals / charges, the Agency/LGU shall
see to it that these shall not exceed the amounts needed to recover (a)
the capital cost, with a reasonable rate of return, and (b) the
operation, and maintenance costs, over the project construction and
operation life.

To consider peculiarities of specific projects,
the Agency/LGU may include in the bid documents additional evaluation
criteria whose aggregate weight shall not exceed that of the basic
criteria (present value of proposed tolls, fees, rentals and other
charges) specified in R.A. 6957, as mentioned in the proceeding
paragraph.

13.4 Evaluation of bid amounts for BT project.
“In the case of a build-and-transfer arrangement, the contract shall be
awarded to the lowest complying bidder based on the present value of
its proposed schedule of amortization payments for the facility to be
constructed according to the minimum design and performance standards,
plans and specifications.” For this purpose, the discounting rates and
foreign exchange rates prescribed under the economic parameters (Section
6.2 of these IRR) which are part of the Instructions to Bidders shall
be used. In case a Filipino contractor and a foreign contractor submit
bids whose present values are the same, the former “shall be given
preference,” i.e., shall be recommended for award.

To
consider peculiarities of specific projects, the Agency/LGU may include
in the bid documents additional evaluation criteria whose aggregate
weight shall not exceed that of the basic criteria (present value of the
proposed schedule of amortization) specified in R.A. 6975 as mentioned
in the preceeding paragraph.

13.5 Rejection of bids. The
Agency/LGU reserves the right to reject any or all bids, waive any
defect therein and accept the offer most advantageous to the government.

13.6 Period of evaluation.
The Agency/LGU concerned shall complete its evaluation of all bid
proposals/tenders within a reasonable period depending upon the nature
and scale of the project and on the number of proposals/tenders
submitted.

For major projects costing at least P300 million, the
period of evaluation should not exceed one hundred-twenty (120) days
from the date of submission of bids. For projects costing below P300
million, the evaluation period should not exceed sixty (60) days.
Within these indicative period the Agency/LGU concerned shall be decide
on the award or rejection of bids.

14. Negotiated Contract
– The Agency/LGU concerned may resort to direct negotiation with the
lone complying bidder if any of the following circumstances arise from
steps to conduct public bidding for the BOT or BT project:

1. If, after advertisement pursuant to Section 8 of these IRR,
   only one contractor applies for prequalification and it meets the
   prequalification requirements pursuant to Section 10 of these IRR, after
   which it is required to submit a bid/proposal which is subsequently
   found by the Agency/LGU to be complying.

2. If after advertisement, more than one contractor applied for
   prequalification but only one meets the prequalification requirements,
   after which it submits a bid/proposal which is found by the Agency/LGU
   to be complying.

3. If after prequalification of more than one contractor, only one submits a bid which is found by the Agency/LGU to be complying.
4. If, after prequalification, more than one contractor submit bids but only one is found by the Agency/LGU to be complying.

15. Performance Bonds and Contract Approval – The
concerned agency/LGU shall require such performance bonds and/or other
guarantees as may be needed to ensure compliance with stipulated
performance milestones.

The contract shall be subject to the
approval of the head of the Agency/LGU or higher authorities, depending
upon the contract cost, within two (2) weeks upon receipt thereof.

16. Repayment Scheme –
In accordance with Section 6 of R.A. No. 6957, “the contractor shall be
entitled to a reasonable return on its investment and operating and
maintenance costs in accordance with its bid proposal as accepted by the
concerned infrastructure agency or local government unit and
incorporated in the contract’s terms and conditions.”

The right
of foreign BOT contractor/investor to convert its peso earnings into
foreign currency and to remit the same to its foreign country is
governed by existing monetary rules and regulations. The agency/LGU
concerned shall therefore include as part of the bid documents pertinent
monetary rules and regulations that may be applicable to said right of
foreign BOT contractor/investor. This will serve as a guide to
prospective contractors. However, the prospective contractor on its own
is encouraged to confer with the Philippine monetary authorities as to
the financial implications of said rules and regulations.

16.1 For BOT project. “In
the case of build-operate-and-transfer arrangement, this repayment
scheme is to be effected by authorizing the contractor to charge and
collect reasonable tolls, fees, rentals, and charges for the use of the
project facility not exceeding those proposed in the bid and
incorporated in the contract.”

“The government agency or local
government unit concerned shall approve the fairness and equity of the
tolls, fees, rentals and charges except in the case of tolls for
national highways, roads, bridges and public thoroughfares which shall
be approved by the Toll Regulatory Board.”

However, fees and
charges mandated by law to be remitted to the National Treasury, shall
be collected by the agency/LGU in accordance with the provisions of the
said law.

16.2 For BT project. “In the case of a
build-and-transfer arrangement, the repayment is to be effected through
amortization payments by the government infrastructure agency or local
government unit concerned to the contractor according to the scheme
proposed in the bid and incorporated in the contract.”

16.3 or land reclamation or industrial estate.
“In the case of a land reclamation or the building of industrial
estates, the repayment scheme may consist of a portion or percentage of
the reclaimed land or industrial estate built, subject to the
constitutional requirement with respect to the ownership of lands.”

17. Contract Terms and Conditions

17.1 Obligations and authorities of BOT contractor

1. Franchise – “The winning contractor shall be
   automatically granted by the infrastructure agency or local government
   unit the franchise to operate and maintain the facility, including the
   collection of tolls, fees, rentals, and charges in accordance with
   Section 6 hereof (i.e., R.A. No. 6957).”

2. Financing – The contractor shall provide the funds needed
   for the construction of the infrastructure facility “from foreign
   and/or domestic sources,” provided that the financing of a foreign or
   foreign-controlled contractor from Philippine government financing
   institutions shall not exceed twenty (20%) percent of the total cost of
   the infrastructure facility or project,” which is the total estimated
   capital expenditure of the contractor on the project; and “that
   financing form foreign sources shall not require a guarantee by the
   Government or by government-owned or controlled corporations,” while
   financing from domestic sources shall not require a guarantee by the
   National Government. Financing for operating costs may be sourced from
   local financing institutions provided that such shall not require a
   guarantee by the national government.

3. Detailed engineering design – The contractor shall
   prepare the detailed engineering designs and plans based on the
   preliminary engineering design submitted as part of its bid and in
   conformance with the minimum design and performance standards and
   specifications (Section 6 of these IRR) set by the Agency/LGU. The
   contractor shall submit the detailed engineering designs and plans to
   the Agency/LGU for approval prior to actual construction. This
   notwithstanding, the contractor shall be solely responsible for the
   integrity of its detailed engineering designs and plans. The approval
   thereof by the Agency/LGU does not diminish this responsibility, nor
   does it transfer any part of such responsibility to the Agency/LGU.

4. Construction – The contractor shall build the facility
   in accordance with the minimum design and performance standards and
   specifications (Section 6 of these IRR) prescribed by the Agency/LGU and
   with the detailed plans prepared by the contractor and approved by the
   Agency/LGU. For this construction stage, the contractor may engage the
   services of a foreign and/or Filipino constructor,” which shall be duly
   prequalified per Section 10 of these IRR.

5. Operation – The contractor shall operate the facility in
   order to provide the desired outputs (goods/services) in accordance
   with the prescribed minimum design and performance standards and
   specifications (Section 6 of these IRR) and the approved detailed
   engineering designs and plans.

6. Maintenance – “During the lifetime of the franchise, the
   contractor shall undertake the necessary maintenance and repair of the
   facility in accordance with the (minimum design and performance)
   standards (Section 6 of these IRR) prescribed in the bidding documents
   and in the contract,” in order to ensure that the facility operates at
   the desired level of service.

7. Tolls / Fees / Rentals / Charges – The contractor shall
   be entitled to collect tolls / fees / rentals / charges on the users of
   the facility, following the amounts, schedules, and fixed term as
   proposed in its bid, subject to the approval of the Agency/LGU/Toll
   Regulatory Board, as the case may be. Fees and charges mandated by law
   to be collected by the Agency/LGU, however, shall be remitted in
   accordance with the provision of the said law.

8. Revenue sharing – The Agency/LGU may share in the
   revenue from the operation of the contractor in the form of either a
   fixed fee or a certain percentage of the gross revenue, provided that
   the same is indicated, provided that the same is indicated in the
   bidding documents and included in the contract.

17.2 Obligations and authorities of the agency/LGU

1. Grant of franchise – The Agency/LGU shall “automatically
   grant” the winning contractor “the franchise to operate and maintain
   the facility, including the collection of tolls, fees, rentals, and
   charges in accordance with Section 6 hereof (i.e., R.A. No. 6957).”

2. Approval of detailed engineering design – The Agency/LGU
   shall review the detailed engineering designs and plans prepared by the
   contractor and, if satisfied with its compliance with the prescribed
   standards and specifications (Section 6 of these IRR), shall approve the
   same. Such approval does not reduce the responsibility of the
   contractor over the integrity of the designs and plans, nor does it
   shift to the Agency/LGU any part of that responsibility.

3. Approval of Tolls / Fees / Rentals / Charges – “The
   government infrastructure agency or local government unit concerned
   shall approve the fairness and equity of the tolls, fees, rentals and
   charges, except in the case of tolls for national highways, roads,
   bridges and public thoroughfares which shall be approved by the Toll
   Regulatory Board.”

4. Provisions of right-of-way and other facilities – The
   Agency/LGU shall acquire and provide to the contractor the required
   right-of-way and other associated facilities for the project (per
   Section 6.3 of these IRR), free of any third-party rights which will
   prevent or hamper the implementation and operation of the projects.
   These right-of-way and associated facilities shall be provided according
   to the timetables and specification stated in the Instructions to
   Bidders and in the contract. The Agency/LGU may require, in the said
   Bidders and in the contract, that the cost of the right-of-way or
   associated facilities be part of the bid, i.e., of the project cost to
   be financed and recovered by the contractor.

5. Project supervision – The Agency/LGU shall exercise
   “technical supervision” over the project activities of the contracts.
   The Agency/LGU shall inspect and check whether the project is
   “construed, operated, and maintained in accordance with the plans,
   specifications, standards and costs approved by the concerned government
   infrastructure agency.” Should the Agency/LGU find any deviation from
   or non-compliance with the approved plans, specifications and standards,
   it shall bring the same to the attention of the contractor for the
   necessary corrective actions. Such technical supervision by the
   Agency/LGU does not diminish the singular responsibility of the
   contractor for the proper constructions, operation, and maintenance of
   the facility, nor does it transfer any part of that responsibility to
   the Agency/LGU.

6. Audit of collections – The collection of tolls / fees /
   rentals / charges for the use of the infrastructure facility by the
   public for the recovery of its cost plus reasonable rate of return on
   investment is of public interest. To ascertain that such tolls / fees /
   rentals / charges are properly collected and recorded according to
   established rules and procedures, the Commission on Audit shall, after
   consultation with the implementing agency/LGU concerned, audit the
   pertinent books and records of the contractor-operator in accordance
   with the existing auditing rules and regulations.

18. Contract Terminations – The Agency/LGU by
itself and through no fault of the contractor or by mutual agreement
with the contractor, may revoke, cancel, or terminate the contract in
case of force majeure such as war, rebellion, major calamities or
extraordinary economic upheaval.

The Agency/LGU, through no fault
of the contractor and by mutual agreement with the contractor, may also
revoke, cancel, or terminate the contract in case of (a) failure of
the Agency/LGU to provide the required right-of-way and other facilities
which the government is obliged to provide under the contract, or (b)
changes in government plans and policies that require stoppage of the
project or major revisions therein which substantially affect the
original design and feasibility of the project (e.g., cancellation of plans for a new international airport and, instead, mere expansion of the present airport).

In any of the stated cases under the two preceding paragraph, the
Agency/LGU “shall compensate the said contractor for its actual expense
in the project plus a reasonable rate or return therein not exceeding
that stated in the bidding documents and in the contract as of the date
of such revocation, cancellation or termination, provided that the
interest of the Government in these instances shall be duly insured (by
the Agency/LGU) with the Government Service Insurance System or any
other insurance entity duly accredited by the Office of the Insurance
Commission, provided finally that the cost of the insurance shall be
included in the terms and conditions of the biddings”, and incorporated
in the bid and contract.

19. Assurance of Compliance by Contractor
– To assure compliance by the contractor with the performance targets
or milestones – both physical and financial – set out in the contract,
the said contract shall include any or all of the following provisions:

1. Confiscation by the Agency/LGU of the performance bond of the
   contractor in case of contract rescission due to the fault of the
   contractor to meet its obligations.

2. Liquidated damages on the contractor for failure to
   complete the project within the stipulated period, which will reflect
   the foregone economic and financial benefits to the country / facility
   users / Agency/LGU.

3. Incentive bonus to the contractor for completing the
   project earlier than stipulated which will reflect the
   additional/earlier economic and financial benefits to be realized by the
   country / facility users / Agency/LGU.

4. Nullification of the franchise of the contractor for
   failure to build, operate and maintain the project facility and services
   according to the minimum design and performance standards prescribed in
   the contract.

20. Adjustment of Tolls/Fees/Rentals/Charges –
“The tolls, free, rentals and charges on the facilities are subject to
adjustments according to a formula related to official government price
indices which shall be defined before the bidding through the bidding
documents and incorporated in the contract.”

These official price
indices shall mainly be those issued by the National Statistics Office
and the Central Bank of the Philippines, among others.

The
Agency/LGU shall also make appropriate adjustments in the tolls, fees,
rentals, and charges, to compensate for opportunity costs to the
contractor due to any undue delay and/or inadequacy in the right-of-way
or other project facilities which are required to be provided by the
Agency/LGU, provided that this provisions is defined in the bidding
documents and the contract.

21. Agency/LGU Implementing Guidelines
– The Agency/LGU concerned may issue its own implementing guidelines
provided the same are not inconsistent with the provisions of the law or
these implementing rules and regulations.

22. Effectivity
– These Implementing Rules and Regulations shall take effect fifteen
(15) days after the date of publication in a newspaper of general
circulation.

Adopted: 3 Apr 1991

(Sgd.) JOSE P. DE JESUS Secretary Department of Public Works and Highways	(Sgd.) JESUS P. ESTANISLAO Secretary Department of Finance
(Sgd.) ANTONIO W. DIOKNO Philippine Constructors Association	(Sgd.) CAYETANO W. PADERANGA, JR. Director General National Economic and Development Authority
(Sgd.) LUIS T. SANTOS Secretary Department of Interior and Local Government	(Sgd.) GODOFREDO J. MARQUEZ National Confederation of Constructors Association of the Philippines

^(*) Note: Quoted provisions are lifted verbatim from R.A. No. 6957.