MANILA, Philippines - The Department of National Defense (DND) is planning to scrap the contract for the supply of 21 UH-1 helicopters worth P1.2 billion, citing the supplier’s failure to deliver the air assets on time.
In a notice to terminate forwarded yesterday to the joint venture of Rice Aircraft Services Inc. and Eagle Copters Ltd., Defense Secretary Voltaire Gazmin informed the supplier of its failure to comply with the delivery schedule.
“You are hereby ordered to submit a verified position paper stating why the contract should not be terminated within seven days upon receipt thereof,” Gazmin said in the notice addressed to Robert Rice, the official representative of the joint venture.
Citing the procurement law, Gazmin said the contract for the purchase of UH-1 helicopters shall be partially terminated for exceeding the 10 percent maximum liquidated damages.
The liquidated damage is equivalent to one tenth of the one percent of the unperformed portion per day of delay. The supplier pays liquidated damage if it fails to meet delivery timetables.
The government has the option to terminate a contract if the supplier exceeds the 10 percent maximum liquidated damages as provided by law.
Gazmin said the joint venture of Rice and Eagle Copters exceeded the 10 percent maximum liquidated damages on Jan. 31, 2015.
“You failed to comply with the agreed schedule of requirement of the contract agreement which provides that the delivery should be within 180 calendar days upon the opening of the letter of credit,” the defense chief told the supplier.
A letter of credit is a document that assures the supplier that the government will honor its financial obligations.
Gazmin said the letter of credit was opened on March 27, 2014 and deadline for the delivery of contract was on Sept. 23, 2014.
He said the joint venture has only delivered eight out of the 21 UH-1 units.
If the government drops the deal, it will only pay for the eight helicopters that have been delivered and tested, making it a partial termination.