NKTI told to collect P25.2-M liquidated damages from firm

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State auditors on Thursday reminded the National Kidney and Transplant Institute (NKTI) to immediately demand and collect P25.2 million from a firm for delays in the delivery and installation of diagnostic medical equipment in 2011.

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Based on a 2014 audit report on NKTI by the Commission on Audit (COA), the government hospital collected only P13.05 million instead of P38.28 million as liquidated damages from Philips Electronics and Lighting, Inc.

“Liquidated damages collected from the supplier for the delays in the delivery and installation and in complying with the acceptance testing requirement within the stipulated period, in connection with NKTI’s acquisition in 2011 of various diagnostic medical equipment, were deficient by P25.227 million,” the state auditors said.

The NKTI executed a memorandum of agreement (MOA) on Oct. 22, 2010 to Philips for the supply and delivery of various diagnostic medical equipment worth P482 million.

As per the deal, the firm must pay liquidated damages to NKTI should it fail to complete the delivery and installation of the facilities/equipment within the period agreed upon, which shall not exceed 90 days from its receipt of the Notice to Proceed (NTP).

The state hospital issued the NTP on Oct. 26, 2010 and the firm’s representative agreed three days later.

The MOA also provides an adjustment period of 30 days maximum for the firm to pass the Acceptance Test Criteria. Should it fail to conform to the Acceptance Test Criteria upon expiration of the adjustment period, it would likewise pay liquidated damages to NKTI.

“Based on the terms of the MOA, the 90-day period for the delivery and installation of the various equipment would have started on October 29, 2010 and ended on January 29, 2011. However, the above-mentioned 90-day period was changed starting January 6, 2011 to April 6, 2011,” auditors said.

The NKTI explained to COA that this happened because it was only on Jan. 5, 2011 that the diagnostic center building— where the medical rooms were to be located— was partially turned over to the hospital.

“The Company took over the diagnostic center building on January 6, 2011 for the installation of the various medical equipment. However, the equipment items were delivered only on February 8, 2011,” the auditors pointed out.

“The Company was in possession of the building until May 6, 2011 when it turned over the medical rooms to the Contractor who undertook the interior finishing work such as, installation of floor vinyl, installation of false ceiling, painting of walls, and others. While the Contractor was doing the finishing work, the Company’s engineers and personnel were given continuous access, from May 6, 2011 to June 20, 2011, to the medical rooms for them to monitor, calibrate and test the equipment and install the necessary accessories to ensure that the equipment would function properly,” they added.

In its final payment to the firm on Sept. 3, 2013, NKTI withheld P48.984 million as penalty for late delivery/installation which was computed at 1/10 of 1 percent of the cost of the unperformed portion of the contract for every day of delay in line with the procurement law (Republic Act or R.A. No. 9184).

The NKTI used two acceptance certificates as basis in determining that the firm failed to deliver and install the equipment within Jan. 6, 2011 to Apr. 6, 2011 as well as determining the number of days that would be subject to liquidated damages.

One was a certification dated July 2, 2012 issued by the hospital’s Technical Working Group certifying that the equipment conform to test procedures and comply with the specifications in the deal. It also indicated the actual date of operation/acceptance of the equipment. The other was a certification dated Aug. 29, 2013 from the Chairperson of NKTI’s Department of Radiological Sciences indicating the actual date of use/deployment of the various radiological equipment.

But the firm questioned the computation of liquidated damages in an Oct. 1, 2013 letter to NKTI, saying it should have been 1/10 of 1 percent of the performance security in line with the MOA. Auditors said the firm also claimed that, “the MOA sanctions a Liquidated Damage of only around P1.737 million as per [the Company’s]computation.”

The firm sought the intervention of COA, which called the parties to a meeting at the Commission’s Central Office on May 28, 2014, in order to resolve the dispute.

“This meeting was attended by COA Chairperson’s Chief of Staff and also by the COA-NKTI Audit Team Leader. At said meeting, COA clarified that the provision of R.A. No. 9184 on the computation of liquidated damages should prevail. As for the Company’s allegation that they did not cause the delay and therefore not liable for liquidated damages, the Chairperson’s Chief of Staff advised the parties to submit the issue for arbitration,” the auditors said.

This was followed by a series of discussions between NKTI and the firm until the parties reached an agreement dated Sept. 26, 2014 where NKTI agreed to extend the delivery and installation period from Apr. 6, 2011 to May 6, 2011 and further to June 21, 2011.

NKTI came up with P13.05 million in its re-computation of the liquidated damages based on the number of delays from June 21, 2011 to the dates in the acceptance certificates.

On Sept. 30, 2014, the state hospital released P35.931 million to the firm, representing the difference between the previously withheld sum of P48.984 million and the recomputed liquidated damages of P13.053 million.

But the auditors noted that this computation by NKTI was “incorrect” and said that the total liquidated damages was P38.280 million.

Under the MOA, they said, the firm must deliver and install the equipment within the 90-day period from Jan. 6, 2011 to Apr. 6, 2011 and meet the 30-day acceptance-testing period from June 21, 2011 to July 21, 2011.

“First, the period from June 21, 2011 was actually the acceptance testing period. Second, the Company was not given a grace period from June 21, 2011 to pass the NKTI’s Acceptance Testing as provided for in the MoA. Therefore, there should have been a separate computation of the liquidated damages for the delay in complying with the acceptance testing period after July 21, 2011,” the auditors said.

“It is also our view that the extension of the delivery and installation period from April 6, 2011 to May 6, 2011 and from May 6, 2011 to June 21, 2011 had no basis. Hence, we noted that the Company was delayed for 75 days from April 6, 2011 to June 20, 2011 because it failed to complete the installation within the stipulated period,” they added.

“Based on all the foregoing, we calculated the liquidated damages at P38.280 million,” the auditors said.

The COA broke down the figure P36.15 million into “Delay of 75 days from April 6, 2011 to June 20, 2011 in the delivery and installation of all the equipment, accessories and furnishings,” and P2,130,355 pertaining to “Delay in the acceptance test of some of the equipment from July 21, 2011 up to Acceptance Date as indicated in the Certificate of Acceptance issued by NKTI to the Company.”

“Since the amount actually collected from the Company was only P13.053 million, we recommended that the NKTI demand and collect from the Company the P25.227 million deficiency in liquidated damages,” the auditors said.

The NKTI commented that the two extension periods were approved by the hospital’s authorized officers; that actual installation took place only on June 16, 2011; and that the nature of the equipment “limited the actions of the (Company) to monitoring the equipment in terms of ensuring the preservation of the integrity of packaging of the radiologic equipment while waiting for the completion of the construction work.”

But COA auditors said, “We regret to disagree.”

“We maintain our position that the company is liable for the liquidated damages totalling P38.280 million…We reiterate our recommendation that Management immediately demand and collect from the Company the P25.227 million deficiency in liquidated damages,” they closed.

The NKTI is a tertiary specialty center attached to the Department of Health mandated to specialize in the prevention and treatment of kidney and allied diseases through dialysis and transplantation. It is also recognized as the lead agency in voluntary blood services.

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