BIR Ruling [DA-197-99]

March 30, 1999 BIR RULING [DA-197-99] MEMORANDUM FOR: The Deputy Commissioner Resource Management Group SUBJECT : Contract between the Bureau of Internal Revenue (BIR) and Cyclic Trading and Engineering Services for the supply, delivery and installation of air-conditioning units in the various regional and district offices of the Bureau This refers to the request for a legal opinion on the matter relating to the interpretation of the following provisions of the above subject contract, viz: "SEC. II. Delivery Time . The delivery and installation of the brand new packaged type air-conditioning units by CYCLIC to BIR , mentioned in SECTION I shall be effected within forty-five (45) calendar days from receipt of CYCLIC of BIR's instruction to proceed with the installation and confirming therein that installation sites are ready to accommodate the unit or units scheduled for installation. "SEC. IX. Damages For Delayed Delivery . CYCLIC shall complete the delivery and installation within the time prescribed in SECTION II hereof. Should CYCLIC delay in its performance for reasons attributable exclusively against it, CYCLIC shall pay a penalty of (1%) of the total contract price for each day of delay beyond the specified period. It is understood that delay in the delivery of certain specified products as per SECTION I hereof shall not give rise to refusal of withholding or payment by BIR for other products already delivered." Background of the Case . The contract was duly awarded to Cyclic Trading on March 21, 1995. (Record, pp. 34-40). On April 10, 1995, the BIR issued a "Notice to Proceed" immediately with the installation of Package type Air-conditioning units in the different Regions of the Bureau. (Record, pp. 27-28). The BIR likewise made a repeat order for additional air-conditioning units with the schedule of installation instruction duly referred to as being provided for in Section II of the original contract dated March 21, 1995. (PO # J-6-97-232-95 dated July 6, 1995; Record, pp. 22-23). The Purchase Order was received by Cyclic on August 11, 1995. On July 18, 1997, in a letter received by the BIR on the same date, Cyclic thru its Gen. Manager, Mr. Roberto Regilme, protested the penalties imposed for the delays in the installation of air-conditioning units in RR# 6, Assessment Division, Manila and RDO# 41, Mandaluyong City. Cyclic claimed that the delays were due to the on-going repair works in the affected buildings. (Record, p 16) In this connection, the concerned BIR officials in the mentioned BIR offices had issued a certification confirming that delays were due to the on-going repairs with respect to RR# 6, Assessment Division, Manila and that RDO# 41 transferred offices. (Record, pp 17-18) Despite of this, the Pre-qualifications, Bids and Awards Committee (PBAC), in a meeting held on August 11, 1997 had resolved affirming the penalties imposed because, accordingly, Cyclic failed to inform the BIR of the said delays before the lapse of the specified period. (Record, p. 14). Cyclic, in another letter dated August 22, 1997, requested for waiver of the penalties imposed in RR# 6, RDO# 41 and also RDO# 42 (San Juan) because the cause of delay was beyond their control as duly certified by the Revenue Officials of the involved BIR offices. (Record, pp 8 and 25). In a meeting held on August 28, 1997, the PBAC resolved to reject the request of Cyclic because, accordingly, the latter had slept on its responsibilities and had failed to notify the BIR before the expiration of the period. The above PBAC's resolution was basically founded on the provision of PD No. 1594 which specifically provide that the Government is not bound to take into account, any claim for an extension of time unless the contractor has, prior to the expiration of the contract time and within thirty (30) calendar days after such work has been commenced . . ., delivered to the governmental notices in order that, it could have investigated at that time. Failure to provide such notice shall constitute a waiver by the contractor of any claim . . . In a letter dated December 22, 1998, Cyclic requested for a reconsideration of the denial of the payments to them because of the accumulated penalties imposed. (Record, p. 1). As per computation by PBAC, penalties imposed with respect to the Contract is P503,328.00 and with respect to P.O. is P173,024.00 (Record, pp 30 and 21, respectively). In view of the above factual circumstances, you now posed the following issues: "1. Whether or not the mere notice of the BIR "to proceed" without categorically stating therein a "confirmation" that the site is ready to accommodate the units is sufficient in form and substance with respect to the notice requirement of the Contract. "2. Whether or not Cyclic can be considered in delay for reasons exclusively attributable against it. "3. Assuming that Cyclic is in delay, what should be the basis for computing the penalty? Should it be the entire contract price, or merely the cost of the installation considering that a) the equipment had been delivered or available on site but merely could not be installed; and b) there exists a separate price for the cost of equipment and the cost of installation." In reply, please be informed as follows: A. The notice to proceed immediately with the installation of the air-conditioning units without further confirmation as to the availability of the site, is sufficient in form and substance . In interpreting the subject Contract, this Office refers to the following provisions of the Civil Code of the Philippines, viz: "ARTICLE 1375. Words which may have different significations shall be understood in that which is most in keeping with the nature and object of the contract." "ARTICLE 1371. In order to judge the intention of the contracting parties, their contemporaneous and subsequent acts shall be principally considered. A perusal of the "Notice to Proceed" disclosed that the BIR thru Mr. Pedro D. Ramos, Assistant Chief, General Services Division, had in fact instructed Cyclic Trading to proceed immediately with the installation of the Packaged Type Air-conditioning Units in the different Regions of the BIR as enumerated. The said categorical instruction "to proceed immediately" with the installation of the air-conditioning units presupposes that the site was ready to accommodate the units, hence, the BIR need not issue further notice confirming the availability of the site. Apparently, even the records of this case disclosed that Cyclic was, except for RR# 6, Assessment Division, Manila and RR# 41, Mandaluyong City, and later RR# 42 San Juan, able to install the air-condition units in all other BIR offices, either without notice from the BIR to proceed with the installation or without further notice confirming the availability of the site where the unit is to be installed. Considering therefore, that with the mere Notice to Proceed with the instruction to install the unit/s immediately, Cyclic had in fact, installed the units, it is the opinion of this Office that said "Notice to Proceed" is sufficient in form and substance. Both parties having clearly understood the instructions to be that "Cyclic should install the unit/s since BIR had already made the site available for installation of the air-conditioning units. Thus, even without further confirmation, Cyclic may proceed with the installation and which in fact, it did and for which BIR did not complain. prcd B. The causes of delay were not attributable to Cyclic As certified by the concerned Revenue District Officer or the Head of the Division concerned, the reasons for the non-installation of the air-conditioning unit/s were the on-going repairs in RR# 6, Assessment Division, Manila and RDO# 42, San Juan; and transfer of offices in RDO# 41, Mandaluyong City. The instruction to proceed immediately with the installation of the air-conditioning in various BIR offices, is conclusive against the claim of BIR thru the PBAC, that a notice is necessary in order to extend the time for installation. The BIR should not have expected Cyclic to notify them of the on-going activities through a notice for extension of time as required under PD No. 1594. Between Cyclic and BIR, the latter was in better position to know the various activities in the BIR offices. If PBAC believed that it should have been notified by Cyclic of the delay caused by the on-going repairs and transfer of offices through request for extension of time in order not to impose a penalty therefor, then it failed to realize that it is not the contractor's responsibility to inform them of such activities. It should have been the head of the BIR office concerned or the head of the General Services Division who were in better position to relay the information. It is even embarrassing to say that the cause of the delay was the lack of coordination among BIR officers/personnel duly responsible in overseeing, monitoring these kind of activities. It seems that the BIR management was ignorant of the fact that there were various repairs that had been going on in various revenue offices. Based on the principle of justice and equity, this Office cannot sustain the stand of the PBAC, in imposing a penalty imposed under. Section IX of the Contract against Cyclic. In fulfilling the obligation of contract, both parties must realize that it should not be left to will of the other. The cause of delay was due to the activities undergoing in the mentioned BIR offices at that time. Cyclic, as a mere contractor, has no control over the situation. The BIR cannot require the contractor to install the units on time if the site cannot accommodate the units yet. To consider the contractor in delay in installing the air-conditioning units by reason attributable to the BIR, the installation has been left to the sole will of the BIR. In logic, it is understood that for as long as BIR does not make the site available, the installation cannot take place as scheduled. Finally, the provision of PD 1594 on the requirement for notice in any claim for an extension of time shall work against the interest of the claimant if it is in complete control of the matter or situation involved. PBAC's contention that it was Cyclic's responsibility to take notice of the on-going repairs and therefore should have informed the BIR of this fact by filing a notice for extension in order that delay may not set in is indeed absurd, if not illogical. The purpose of the notice as stated in PD No. 1594 is " in order for the Government, the BIR in this case, to investigate the reason for the extension " that if not made could ultimately result to the delay of various government projects. Stated differently, the BIR could not invoke PD 1594 as it is presumed that BIR was informed of the on-going activities, hence, there was nothing to investigate. Moreover, BIR never questioned the capability of the contractor Cyclic to install the air-conditioning units, or the quality or non-availability of the air-conditioning units which could effectively cause delay in the performance of the obligation by the latter, nor did it question the installation of the air-conditioning units in various BIR offices without the "Notice to Proceed". (See Record, pp. 29-30). C. Assuming Cyclic was in delay: the basis for computing the penalty For purposes of discussion, the Contract was: 1) for the supply and delivery of air-conditioning units; and 2) for the installation to identified BIR offices. Each object has its own stated cost. It was noted earlier that BIR had never questioned the unavailability of the air-conditioning units. In determining the basis, the following pertinent provision of the Civil Code must be considered, viz: "ARTICLE 1225. When the obligation has for its object the execution of . . . which are susceptible of partial performance, it shall be divisible. However, even though the object or service may be physically divisible, an obligation is indivisible if so provided by law or intended by the parties. "ARTICLE 1715. . . . . If the contractor fails or refuses to comply with his obligation, the employer may have . . . another work executed, at the contractor's cost. Based on the foregoing, since the cost of the installation is distinct and separate from the cost of the unit, the non-delivery of the unit or the non-performance of the obligation may not affect the other, unless the law so provides or the parties so intend. Moreover, the non-installation shall give rise to the employer's right to have another, work executed at the expense of the contractor. The cost to the contractor is, in all probability, the cost of services only. Thus, it is only the cost of the installation that should be considered in computing the penalty. Respectfully Submitted: (SGD.) MILAGROS V. REGALADO OIC, Assistant Commissioner Legal Service