TERMINATION OF

CONTRACT
martin, m.d.
public servant
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Sec. 42. Contract Implementation and Termination. – The rules and

guidelines for the implementation and termination of contracts awarded
pursuant to the provisions of this Act shall be prescribed in the IRR.
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1. Purpose, Scope and Application of Guidelines.

The Guidelines on Termination of Contracts aim to promote fairness in
the termination of procurement contracts and to prescribe contract conditions
and measures to enable the government to protect its interests.
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2. Grounds for termination.

2.1 Termination for default;
2.2 Termination for convenience;
2.3 Termination for insolvency; and
2.4 Termination for unlawful acts
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2.1. Termination for default – for Contract for goods:

The following are grounds for terminations of contract for default:

1. There being no force majeure, the supplier fails to deliver any or
all of the goods within the period(s) specified in the contract, or
within any extension thereof granted by the Procuring Entity
pursuant to a request made by the supplier prior to the delay, and
such failure amounts to at least ten percent (10%) of the contract
price;
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2.1. Termination for default – for Contract for goods: - Cont.

Notes:

i. Rescinding and termination. Aside from rescinding the contract as a

consequence of the liquidated damages reaching at least 10% of the contract price,
the PE may terminate its procurement contract under the grounds provided in the
Guidelines for Termination of Contracts.

In case of delay in the delivery of goods, the PE may opt to terminate the contract
and blacklist the supplier with forfeiture of performance security when warranted by
the circumstances, provided the procedures provided in the Guidelines are properly
observed.
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2.1. Termination for default – for Contract for goods: - Cont.

Notes:

ii. Remedy of the PE. If the PE terminates the contract in whole or in part,
due to default, it may procure from third parties, through the alternative
method of procurement, goods or services similar to those undelivered. The
supplier that defaulted will be liable to the PR for any excess costs for such
similar goods or services.
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2.1. Termination for default – for Contract for goods: - Cont.

Sample problem:
Assume that Supplier A has been awarded a contract for the
purchase of ten (10) laptops, of a particular brand and model,
amounting to P75,000.00 each. Evident in the purchase order (PO) is
its date January 5, 2022 and the delivery period of 20 calendar days
(CD). Assume further, that the same PO was received by the said
supplier on January 10, 2022 and that Supplier A had delivered the
laptops to the procuring entity only on June 5, 2022.

Question: Based on the facts alone as presented above, will this

amount to a termination of the contract which may warrant a similar
recommendation to the HOPE?
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2.1. Termination for default – for Contract for goods: - Cont.

The following are grounds for terminations of contract for default: - Cont.
2. As a result of force majeure, the supplier is unable to deliver or perform
any or all of the goods or services, amounting to at least ten percent
(10%) of the contract price, for a period of not less than sixty (60)
calendar days after the receipt of the notice from the Procuring Entity
stating that the circumstance of force majeure is deemed to have ceased;
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2.1. Termination for default – for Contract for goods:- Cont.

The following are grounds for terminations of contract for default: - Cont.
3. The supplier fails to perform any other obligation(s) under the
contract; or

4. The supplier, in the judgment of the Procuring Entity, has engaged

in corrupt, fraudulent, collusive or coercive practices in competing
for or in executing the contract.
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2.2. Termination for convenience

The Procuring Entity may terminate the Contract, in whole or in part, at any
time for its convenience. The Head of the Procuring Entity may terminate a
contract for the convenience of the Government if he has determined the
existence of conditions that make Project Implementation economically,
financially or technically impractical and/or unnecessary, such as, but not
limited to, fortuitous event(s) or changes in law and national government
policies.
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2.2. Termination for convenience: - Cont.

Notes1:

What circumstances may constitute sufficient grounds to terminate a contract

for convenience?

Any of the following circumstances may constitute sufficient grounds

to terminate a contract for convenience:
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2.2. Termination for convenience: - Cont.

Any of the following circumstances may constitute sufficient grounds to

terminate a contract for convenience:
1. If physical and economic conditions have significantly changed so
as to render the project no longer economically, financially or
technically feasible, as determined by the Head of the Procuring
Entity;
2. The Head of the Procuring Entity has determined the existence of
conditions that make project implementation impractical and/or
unnecessary, such as, but not limited to, fortuitous event/s,
changes in laws and government policies;
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2.2. Termination for convenience: - Cont.

Any of the following circumstances may constitute sufficient grounds to

terminate a contract for convenience:
3. Funding for the project has been withheld or reduced by higher
authorities through no fault of the Procuring Entity; or

4. Any circumstance analogous to the foregoing.

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2.2. Termination for convenience: - Cont.

Notes2:
i. Outdated/ Obsolete Goods. There is basis to determine a contract for
convenience when the software license has become outdated or no loner
available in the market which renders the implementation of the contract
technically impossible or unnecessary.

ii. Quantum meruit. Payment on a quantum meruit basis may be made in

favor of the supplier/ manufacturer/ distributor in case of contract termination
for any cause OTHER THAN engaging in corrupt, fraudulent, collusive or
coercive practices, in competing for or in executing the contract.
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2.3. Termination for insolvency

The Procuring Entity shall terminate the contract if the

Supplier/Contractor/Consultant is declared bankrupt or insolvent as
determined with finality by a court of competent jurisdiction. In this event,
termination will be without compensation to the
Supplier/Contractor/Consultant, provided that such termination will not
prejudice or affect any right of action or remedy which has accrued or will
accrue thereafter to the Procuring Entity and/or the
Supplier/Contractor/Consultant.
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2.4. Termination for unlawful acts

The Procuring Entity may terminate the contract in case it is determined prima
facie that the Supplier/Contractor/Consultant has engaged, before or during
the implementation of the contract, in unlawful deeds and behaviors relative to
contract acquisition and implementation. Unlawful acts include, but are not
limited to, the following:
a) Corrupt, fraudulent, collusive and coercive practices;
b) Drawing up or using forged documents;
c) Using adulterated materials, means or methods, or engaging in
production contrary to rules of science or the trade; and
d) Any other act analogous to the foregoing.
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3. Termination by Contractor/ Consultant: - infra and consulting only

In contracts for Infrastructure Projects:
The Contractor may terminate its contract with the Procuring Entity
if the works are completely stopped for a continuous period of at
least sixty (60) calendar days through no fault of its own, due to any
of the following reasons:
a) Failure of the Procuring Entity to deliver, within a reasonable
time, supplies, materials, right-of-way, or other items it is
obligated to furnish under the terms of the contract; or
b) b) The prosecution of the work is disrupted by the adverse peace
and order situation, as certified by the Armed Forces of the
Philippines Provincial Commander and approved by the Secretary
of National Defense.
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3. Termination by Contractor/ Consultant: - infra and consultancy only

In contracts for Consulting services:
The Consultant may terminate its agreement with the Procuring
Entity if the latter is in material breach of its obligations pursuant to
the contract and has not remedied the same within sixty (60)
calendar days following its receipt of the Consultant’s notice
specifying such breach.