BOT PartB

B.
SUBNSTANTIVE ASPECT
I. PRE-CONSTRUCTION PHASE
A. PROJECT FEASIBILITY, APPROVAL AND PUBLICATION
AUDIT OBJECTIVES AUDIT PROCEDURES AUDIT ISSUES
1.10 To determine whether the 1.1.1 Check legal basis/authority of the What are the consequences of
project supports or Agency/LGU concerned to undertake the absence of
contributes to the overall the infrastructure/development project
development plan of the
Agency/LGU concerned 1.1.2 Identify the project based on the a. approval of NEDA Board,
following eligible types of projects Investment Coordination
To determine whether the Committee (ICC) or the
project is included in the - power plants local development council?
list of priority projects - hydropower power plants
approved by either the NEDA - highways b. pre-feasibility study?
Board, Investment Coordination - ports
Committee (ICC), or the local - airports What compensating or
development council concerned - canals mitigating factors were
in accordance with - dams available to support the
the pertinent provisions of the - housing decision to push through with
IRR of R.A. 6957, as amended - tourism projects the project despite the
by R.A. 7718 - sewerage absence of mandatory approval
- dredging and pre-feasibility study?
To determine whether a - slaughterhouses
pre-feasibility study was - industrial estates/ townships Given the compensating/
conducted. - information technology network mitigating factors, do you
- education and health facilities think these compensating/
To determine if the project - water supply mitigating factors were
was publicized as required - irrigation sufficient/justifiable to
under Sec. 2.4 of the IRR of - telecommunications forego the mandatory approval
RA 6957 as amended by RA 7718. - railroads and railways and pre-feasibility study?
- transport system
- government building In case of non-publication of
- solid waste management project, what are
- data based infrastructure
- warehouses a. the consequences
- drainage b. opportunity losses?
- markets
Assuming all mandatory
1.1.3 Obtain a copy of the Agency's requirements and procedures
infrastructure/development program for prequalification of
and list of priority projects as bidders were followed, will
well as the Agency's you still require the
pre-feasibility study. publication of the project?
Why or why not?
1.1.4 Examine if list of priority
projects is in accordance with What are the effects if the
Sections 2.6, 2.7, 2.8, of the IRR duly registered project
of RA 7718, to wit: proponents of the Agency were
not officially notified/
Sec. 2.6. The list of national furnished by the Agency a copy
projects shall be approved by: of the list of priority
project every six (6) months?
a) for projects costing up to P300

million, the list shall be
approved by the ICC of the NEDA
Board.
b) for more than P300 million,

the list shall be approved by
the NEDA Board thru ICC
Section 2.7 for local projects of

LGUs, the list shall be submitted
for confirmation as follows:
a) to municipal development
council for projects costing
up to P20 million
b) to provincial development
council for those costing P20
million up to P50 million
c) to city development council

for those costing up to P50
million
d) to regional development
council or, in the case of
Metro Manila projects, the
Metro Manila Authority, for
those costing above P50 up to
P200 million
e) to ICC of NEDA Board for those

costing above P200 million
Section 2.8 for BOO projects,

Presidential approval is
required. Projects undertaken
through contractual arrangements
or schemes other than those
defined under Section 1.3c of the
IRR of RA 7718 require
Presidential approval.
1.1.5 In case of inaction on the list of

priority projects by the ICC of
NEDA and the concerned Local
Development Council (LDC),
determine if 30 working days after
the satisfactory compliance of the
requirements had passed. If so,
unless notified in writing, the
Agency/LGU may proceed with
solicitation of proposals.
1.1.6 Determine if the list of priority

projects was given wide

publicity. Indicate in the
working papers the:
- national newspaper
- international newspaper
- frequency (once every 6 months)
and dates of publications
1.1.7 Obtain a copy of registration of

project proponents.
1.1.8 Determine if the duly registered

project proponents were officially
notified and furnished by the
Agency/LGU a copy of the list of
priority projects at least once in
every six (6) months.
B. PREQUALIFICATION, BIDS AND AWARDS

COMMITTEE (PBAC)
1.2 To determine whether the PBAC 1.2.1 Examine the composition of the What are the effects of
composition is in accordance PBAC. See if the following were
with that specified in the observed: a) non-compliance with the
Act, to ensure independence IRR?
objectivity in the pre- a) For Agencies:
qualification of bidders. b) absence of non-voting
members?
- At least a third
ranking officer of the c) non compliance with the
agency Chairman NEDA Guidelines on the
Procurement of Consulting
Services in hiring the
- Legal Officer Member-Secretary technical consultant of
PBAC?
- One technical officer Was a compensating control

knowledgeable with the in place to countercheck
technical aspects of the PBAC composition
requirements of the deficiency?
project, duly designated by
the Head of the Agency on To what extent will you
project-to-project consider the deviation in PBAC
basis Member membership acceptable?
(provisional)
- One technical officer

knowledgeable with aspects
or requirements of the
project from a concerned
regulatory body, when
applicable, to be invited
by the agency concerned Member
on a project-to-project (provisional
Basis and non-voting)
- An officer knowledgeable in
finance Member
- An officer knowledgeable in
management/operation of the
project Member
- Two (2) representatives from

the private sector; one
from duly recognized
contractors association,
and the other from either
the facility users, or duly
recognized accounting Observers
association (non-voting)
- Representative from the Observer

Commission on Audit (non-voting)
- One (1) representative from Observer

the CCPAP to be invited on (non-voting)
a case to case basis
For LGUs, the PBAC shall be

composed and organized in the
manner provided under RA No. 7160
(Local Government Code of 1991)
1.2.2 Note down any affiliations (either

sanguinity, affinity or societal)
among PBAC members, project
proponents and agency officials
which may significantly influence
the independence/objectivity of
the PBAC. Be alert on any signs
of control measure deviations/
malfunctions.
1.2.3 Review the duties and

responsibilities of the PBAC.
Note down any conflicting duties
and responsibilities.
1.2.4 Obtain copies of the minutes of

the PBAC meetings. Prepare audit
notes on the salient points
discussed during the meetings.
1.2.5 Take note whether control

mechanism within the PBAC has been
sacrificed due to habitual
absenteeism of one or more members.
1.2.6 If a technical consultant was

hired to aid the PBAC, check if
the selection of the consultant
was in accordance with existing

laws, rules and regulations
including the NEDA Board-approved
Guidelines on the Procurement of
Consulting Services for Government
Projects (IRR).
C. PREQUALIFICATION OF BIDDERS:
1..3 To determine whether all 1.3.1 Determine who were invited by the What are the consequences if:
qualifed bidders were given a Agency to prequalify/participate
fair chance to participate in or apply for pre-qualification for a. Invitation to prequalify
the bidding process of the the project. and bid was not published?
project, whether proper and
extensive publications were 1.3.2 Determine the manner and frequency b. Submitted prequalification
done to draw the widest/ of publication of invitation to documents if the declared
largest participation among prequalify and bid. Check if the winning bidder did not
qualified bidders. following were observed: conform with the
requirements pursuant to
To determine whether the - done once every week for 3 Section 5.4 of the IRR of
prequalification requirements consecutive weeks, in at least RA 7718?
were clearly spelled out. two (2) newspapers of general
circulation and in at least one c. Prospective bidders failed
(1) local newspaper of general to submit their Statements
circulation in the region, of Acceptance of Criteria
province, city or municipality, in and Waiver of Rights to
which the project are to be Enjoin Projects?
implemented
d. Predisqualified
1.3.3 Obtain proof of publication such prospective bidders were
as affidavit of publication from not informed of the result
the publisher or verify of the PBAC action/
publication from the National decision?
Library.
1.3.4 Check if published invitation to

Prequalify and Bid contain the
following information:
- whether the contractor employed

to undertake the construction
works needed to be pre-identified
for prequalification purposes or
not.
- deadline for submission of

pre-qualification statements.
Check if the date of deadline
complied with:
- at least 30 calendar days from

the last date of publication of
the invitation to Prequalify and
Bid to prepare their respective
prequalification documents.
- for projects costing at least

P300 million, the period of
preparation shall be at least 45

calendar days from the last date
of publication.
1.3.5 Obtain certified photocopy of a

notice inviting all project
proponents to pre-qualify and bid
for the approved projects.
1.3.6 Obtain certified photocopy of the

official notification of the same
to the project proponents
registered with the Agency.
1.3.7 Review and check prequalification

requirements to ensure that these
were in accordance with the
following criteria:
a. Legal Requirements:
o For purposes requiring

public utility franchise,
proponent and facility
operator shall be:
- a Filipino
- if a corporation, duly
registered with the SEC
and owned up to at least
60% by a Filipino(s).
- for projects to be operated

by project proponent itself
or owned by the proponent
but operated thru a facility
operator where operation
does not require a public
utility franchise, the
project proponent or the
facility operator may be
Filipino or foreign-owned.
o In case project proponent

is a joint venture or
consortium, the members/
participants shall have
submitted
- a sworn statement
undertaking that if
awarded the contract, they
shall bind themselves
jointly and severally
responsible for the
obligations of the project
proponent under the contract.
- in case members of joint

venture/consortium organize
themselves into a corpo-
ration registered under
Philippine laws, the
liabilities of such
members are in accordance
with said laws.
o If the contractor to be
engaged by the project
proponent to undertake the
construction works of the
project under bidding needs
to be pre-identified as
prescribed in the published
Invitation to Pre-qualify
and Bid and is a Filipino,
check if
- duly licensed and

accredited by the
Philippine Contractors
Accreditation Board (PCAB)
- if a foreign contractor,
check if it has the
necessary licenses from
the PCAB required of
foreign contractors
wishing to engage in
construction works in the
Philippines
b. Experience or Track Record:
o Check the following documents:
- a business plan
identifying the members and
contractors
- description of the
respective roles of
members and contractors
who will play in or
undertake the project
- a disclosure which member

of the joint venture/
consortium is
o the lead member
o financing arm
o the contractor(s)
required to be
prequalified as
prescribed in the
published Invitation to
Prequalify and Bid
o Evaluate the firm experience

by the following criteria:
- must have successfully

undertaken a project
similar or related to the
subject infrastructure/
development project to be
bid
- for joint venture/consortium,

proponent shall be
evaluated based on the
individual or collective
experience of the
member-firms of the joint
venture/consortium and of
the contractors which it has
engaged for the project
- key personnel of the

proponent and/or its
contractors must have
sufficient experience in
the relevant aspect of
schemes similar or related
to the subject project
c. Financial Capability
Obtain the following documents:
o proof of the ability of the

project proponent and/or
consortium to provide a
minimum amount of equity
to the project
o a letter testimonial from

reputable banks attesting
that the project proponent
and/or members of the
consortium are banking with
them, that they are in good
financial standing and that
they have adequate resources
d. Acceptance of Criteria and

Waiver of Rights to Enjoin
Project:
Among the prequalification

documents, check if the following

documents are available:
o statement stipulating that the

bidder has
- accepted the prequalification

criteria established by PBAC.
- waived any right it may have

to seek and obtain a writ of
injunction or prohibition or
restraining order against the
Agency or its PBAC to
prevent or restrain the
prequalification process or
any proceedings related thereto,
the holding of a bidding or
any proceedings related thereto,
the negotiation and award
of the contract to a successful
bidder, and the carrying out of
the awarded contract
- Such waiver shall be without

prejudice to the right of a
disqualified or losing bidder
to question the lawfulness
of its disqualification or the
rejection of its bid by
appropriate administrative or
judicial processes not involving
the issuance of a writ of
injuction or prohibition or
restraining order.
1.3.8 Secure the original copies of

submitted prequalified documents
by each bidder.
1.3.9 Prepare appropriate audit working

papers to systematically tabulate
the submitted documents of each
bidder and evaluate the same
1.3.10 Secure a list of prequalified and

predisqualified proponents duly
signed by the PBAC Chairman and
approved by Head of the Agency.
1.3.11 Check if submitted prequalifi-

cation documents of each project
proponent are
- properly marked as prequalified"

or predisqualified.
- countersigned by the PBAC Chairman

- reviewed and approved by the Head

of the Agency.
1.3.12 Obtain copy of notices of

predisqualification of
proponents. Check if:
- sent within 9 calendar days

after approval thereof
- reasons/grounds of disqualifi-
cation are stated
1.3.13 Check if predisqualified

proponents had made appeals on the
decision. If yes, find out if:
- appeal was done within 15

working days from receipt of
notice of disqualification.
- for national projects, appeal

was sent to the Head of the Agency
- for local projects, appeal was

sent to DILG
- appeal has been acted upon

within forty-five (45) working
days from receipt
- decision on appeal is final and

immediately executory
1.3.14 Check if supplemental notices were

issued. If yes, check if:
- all prospective bidders

acknowledged receipt hereof
- issued within a reasonable

period to allow all bidders to
consider the same in the
preparation of their bids
- acknowledgement of receipt of
supplemental notice is indicated
in the bid
1.3.15 Determine if pre-bid conferences

were conducted. If so, check if:
- conferences were conducted 30

days before the deadline for the
submission of bids to clarify any
provisions, requirements, etc.
- for projects consisting $300

million and above, the pre-bid
conference shall be conducted
ninety (90) to one hundred-twenty
(120) days before the submission
of bids.
- written amendments to modify any

provisions or terms and conditions
of the bidding documents were
issued
- if written amendments were

issued, these should be issued to
all bidders within reasonable time
to allow them to consider the same
in the preparation of their bids
and duly acknowledged by each
bidder prior to the submission of
his bid and duly indicated in
his bid.
1.3.16 Obtain copy of a summary of the

pre-bid conference proceedings.
Take note of any significant
resolutions, decisions, etc. which
may indicate favoritism and
subjectivity in the
prequalification of bidders.
D. BID/TENDER DOCUMENTS
1.4 To determine whether 1.4.1 Review the bid/tender documents.

bid/tender documents are Check if the following documents
comprehensive, complete, clear are included:
and fair to all prospective/
interested bidders. - Instructions to Bidders
- Minimum Design and Performance

Standards and Specifications, and
Economic Parameters
- Draft Contract
- Bid form
- Forms of Bid and Performance

Securities
- Others such as existing monetary

rules and regulations on foreign
remittances of income/revenues to
the home country of the foreign
contractors/investors
1.4.2 Check if Instructions to Bidders

is clear, comprehensive and fair
to all bidders and includes the

following information:
- General description and

objectives of the project,
including a statement that the
project shall be prosecuted under
RA 6957 as amended by RA 7718
- Contractual arrangement under

which the project shall be
undertaken
- Government undertakings such as

access to ODA/direct government
appropriations and investment
incentives as stipulated under
Rule 13 of the IRR of RA 7718.
- Bid and bid security validity period
- Milestone bonding
- Method and criteria (including

the minimum amount of equity) for
the evaluation of the technical
and financial components of the
bids.
- Formulas and appropriate indices

used in the adjustments of
tolls/fees/rentals/charges
- Requirements of concerned
regulatory bodies
- Monetary rules and regulations

on foreign exchange remittances
- Revenue sharing arrangements
- Expected commissioning date
Review the Minimum Designs,
Performance Standards and Economic

Parameters. Determine if these:
- are in accordance with

appropriate environmental
standards as prescribed by DENR
- clearly define and refer to the

desired quantity and quality of
outputs of the facility
- clearly state that

non-conformity with any of the
minimum requirements shall render

the bids as non-responsive
- prescribe the following economic

parameters:
a. discount rate and foreign

exchange date as prescribed by the ICC
b. maximum period of project

construction
c. fixed term for project

operation and collection of
tolls/fees/rentals/charges in case
of BOT, BOO, DOT, CAO, ROT,
ROO and other variations thereof
authorized/approved by the
President
d. formula and price indices to be

used in adjustments to
tolls/fees/rentals/charges, in
case of BOT, BOO, CAO, DOT, ROO
and other variations thereof
authorized/approved by the
President
e. minimum period of repayment in

the case of BT, BLT, BTO and other
variations thereof authorized/
approved by the President
1.5 To observe whether the bidding 1.5.1 Determine whether the prescribed
processes/procedures as two-envelope system was observed.
prescribed in the bidding
documents were complied with 1.5.2 In case of late bids (bids
submitted after the deadline for
submission prescribed in the
Instruction to Bidders), take note
whether these were returned
unopened
1.5.3 Observe whether the PBAC opened

only the first envelope and
ascertain if the first envelope
"Technical Proposal" contained as
follows:
o Operational feasibility of the

project which included
- proposed organization
- methods and procedures for the

operation and maintenance of the
project
o Technical soundness
- preliminary engineering design
- proposed project timeline
o Preliminary environmental assessment
- possible adverse effects of

the project on the environment and
the corresponding mitigating
measures
o Project cost including
- operating and maintenance cost

requirements
- proposed financing plan

(proposed equity contributions,
debt, etc.)
o Bid security in the form of

cash, certified check, manager's
check, letter of credit, or bank
draft/guarantee issued by a
reputable bank, or a surety bond
callable on demand issued by an
entity duly registered and
recognized by the Office of the
Insurance Commissioner and
acceptable to the Agency or any
combination thereof payable to the
Agency in accordance with the
following schedules:
Required Bid Estimated Cost

Security not of Construction
less than 2.0% less than P5.0 B
of the estimated
cost of construc-
tion
not less than P5.0 B to P10.0 B

1.0 % of the
estimated cost of
construction but
at least P100
million
not less than P10.0 B and above

1.0% of the
estimated cost
of construction
but at least
P150 million
Note: The posting of the bid

security is for the purpose of
guaranteeing that the proposed
contract awardee shall within 7
calendar days from receipt of the
Notice of Award enter into
contract with the Agency and
furnish the required performance
security within the time
prescribed therefor.
1.5.4 Check validity of bids and bids

securities (maximum period is 180
calendar days from the date of
opening of bids).
1.5.5 Check whether the first envelope

of bids determined at the bid
opening date to have incomplete
requirements was automatically
rejected and the second envelope
was returned unopened together
with reasons for disqualifications
from the bidding
1.5.6 Take note of the names of these

disqualified proponents
1.5.7 Observe that only those bidders

who passed the first stage of
evaluation had their second
envelopes opened for further
evaluation
for the second envelope (Financial

Proposal), check if the following
documents are present:
o For BOT, BOO, CAO, DOT, ROT, ROO

and similar variants
- Proposed user tolls/fees/

rentals/other charges
- Present worth of proposed

user tools/fees/rentals/other
charges over the fixed term
based on the discounting rate
and foreign exchange rate as
prescribed by the ICC
o For BT, BLT, BOT and similar

variants:
- Proposed amortization payments

and repayment period

amortization payments based on

the discount rate and foreign
exchange rate prescribed by ICC
o For projects which are not

public utilities, where the Agency
requires payments to be made by
project proponent to the
government and where the Agency
opts to adopt the method and
criteria for financial evaluation
as prescribed under
- Proposed payments schedule

payments based on the discounting
rate and foreign exchange rate
prescribed by ICC
E. EVALUATION OF BIDS
1.6 To determine whether bids were 1.6.1 Study and understand the What are the effects of
properly evaluated so that the prescribed requirements and
most qualified proponent was criteria/minimum standards and a. deficient and defective
selected basic parameters prescribed in the bid/tender documents?
bidding documents
b. non-compliance of the two
1.6.2 Determine those bids which had envelope system?
positively passed the first stage
of evaluation (assessment of the c. deviations in bidding
technical, operational, process from those required by
environmental and financing the IRR of RA 7718?
viability of the proposal as
contained in the bidder's first What are the consequences/
envelope) effects significant/material
to warrant the issuance of an
1.6.3 Obtain copy of detailed audit memorandum?
evaluation/assessment report on What are the consequences if
PBAC decision duly approved by the bids were opened on a certain
Head of the Agency. date/time not in accordance
with the instructions to
1.6.4 Review the Agency's evaluation on bidders?
the technical proposals of the
qualified bidders vis-a-vis the
following criteria:
a. Technical soundness
(preliminary engineering design)
- Project's basic engineering

design should conform with the
minimum design and performance
standards and specifications
set by the agency as
documents.
- Engineering surveys, plans

and estimates should be
undertaken within 20% of final
quantities
- Construction methods and

schedules should be feasible
or "doable"
b. Operational feasibility
o Proposed organization,
methods and procedures for
operating and maintaining the
completed facility
- are well defined
- conform to the prescribed

performance standards
- workable
- provide technology transfer

in every place of the project
c. Environmental Standards:
o Proposed design and techno-

logy of the project to be
used must be
- in accordance with the

environmental standards set
forth by the Agency as
documents and the
Department of Environment
and Natural Resources (DENR)
o Identify any negative/adverse

effects on the environment
as a consequence of the project
o Identify the corresponding

corrective/mitigating measures
d. Project Financing
The proposed financing plan should
- positively show that it could

adequately meet the construction
cost, and operating and main-
tenance cost requirements of
the project
e. Enhancements
Other terms which the project

proponent may offer the govern-
ment to make the proposals more
attractive such as:
- provisions allowing the

government to share in
revenues
- less government guarantees

or reduction in the level
of government undertakings
or support
1.6.5 Note down any deviations, special

features and prepare the audit
comments on the agency's
evaluation on the technical
proposals
1.6.6 Review and check the agency's

evaluation on the financial
proposals of the bidders (Second
Stage of Evaluation) vis-a-vis the
following criteria:
a. For BOT, BOO, CAO, ROT,

ROO and other similar schemes
approved/ authorized by the President,
assessment and comparison of the
financial proposals of bidders
shall be based on the present
value of the proposed tolls, fees,
rentals and other charges over a
fixed term for the facility to
be constructed, rehabilitated,
operated and maintained according
to the prescribed minimum design
and performance standards, plans
and specifications.
b. for BT, BLT, BTO and other

similar schemes that may be
approved/authorized by the
President, assessment and
comparison of the financial
proposals of the bidders shall
be based on the present value of
the proposed schedule of
amortization payments for the
facility to be constructed
according to the prescribed
minimum design and performance
standards, plans and
specifications.
c. For projects which are not

public utilities where the
Agency/LGU concerned requires
payments to be made by the
project proponent to the
government, the assessment and
comparison of the financial
proposals of bidders may be based
on the present value of proposed
payments
1.6.7 Check if the agency awarded the

contract to the bidders whose
proposed tolls/fees/rentals/
charges in case of BOT, BOO, CAO,
DOT, ROT, ROO and other similar
schemes, or proposed schedule of
amortization payments in case of
BT, BLT, BOT, and other similar
schemes were determined to have
the lowest present value.
1.6.8 For projects of (c), determine if

contract was awarded to the bidder
whose proposed payments had the
highest present value.
1.6.9 In the case of BT, BLT and BTO

schemes, check if there were
Filipino project proponents.
If so, determine if a Filipino
project proponent had submitted an
equally advantageous bid with
exactly the same price and
technical specifications as that
of a foreign project proponent
1.6.11 See if the contract had been

awarded to that Filipino proponent
by virtue of first preference. If
not, obtain reason/justification
from the Agency. Evaluate
reasons/justification and prepare
audit comments
1.6.11 In case where no complying bids

were received, check if the
bidding was declared a failure.
In such cases, the project shall
be subjected to a rebidding.
F. AWARD OF CONTRACT
1.7 To determine whether contract 1.7.1 On the basis of audited detailed On the basis of audited bids
has been awarded to the bidder evaluation/assessment report on evaluation/assessment report,
whose bid provides the most the PBAC's decision duly approved the contract was awarded at
advantageous terms to the by the Head of the Agency, find the terms most advantageous to
government based on the bids out if the contract has been the government. However,
evaluated. awarded to the proponent whose bid certain deficiencies were
offered the most advantageous noted in the Notice of Award,
To determine whether the terms to the government. If not, bid security, ICC clearance,
contract was awarded in secure reasons/justifications from etc. What are the consequences
accordance with the provisions the Agency and evaluate agency's of the above deficiencies?
of the Act. reasons/justifications and prepare
audit comments
1.7.2 Obtain copy of Notice of Award and

Check Notice of Award as to
a. date of notice (It should be 7

calendar days from the date of
decision/resolution of PBAC to
award the contract
b. approving officer (Head of the

Agency)
c. acknowledgment date of awardee

(within 7 calendar days from
approval of the Notice of Award)
d. time within which the proposed

awardee shall submit
- proof of commitment of equity

contributions
- indications of financing
resources
- in case of a joint venture/

consortium, the agreement
indicating that the members
are jointly and severally
responsible for the
obligations of the project
e. award of contract was made

within the period of validity of
bids. The required bid security
is valid within 180 calendar days
following the opening of bids.
- Bid securities are to be

returned to the unsuccessful
bidders as soon as the contract
with the successful bidder has
been approved by the Head of
the Agency
- When an extension of validity

of bids is considered necessary,
those who submitted bids are

requested in writing to
extend the validity of their
bids before the expiration date.
However, bidders are not allowed
to modify or revise the price
or other substance of their bids.
- Bidders shall have the right

to refuse to grant such an
extension without forfeiting
their bid security, but those
who are willing to extend the
validity of their bid should be
required to provide a suitable
extension of bid security
1.7.3 Check if award of contract required

ICC clearance.
- If the projects involve substan-

tial government undertakings as
defined under the ICC guidelines,
secure copy of ICC clearance on
no-objection basis specifically on
the extent of the final government
undertaking to be provided to the
project.
- Determine if contract includes

government undertakings within
the scope of an earlier ICC
approval.
- If so, secure a communication to

show that the contract was
submitted for the information of
ICC.
1.7.4 If contract includes additional

provisions or provisions different
from the original scope of
government undertakings, check if
the contract had been reviewed by
ICC.
G. NEGOTIATED CONTRACTS
1.8 To determine whether direct 1.8.1 Verify if direct negotiation

negotiation undertaken met the resorted to after there was only
conditions prescribed in one complying bidder left had
Section 10.1 of the IRR of RA complied the following conditions:
7718 and were not entered upon
to favor certain unqualified a. If after advertisement, only
contractors. one project proponent applied for
prequalification and it met the
prequalification requirements.
After which it is submitted a
bid/proposal which was

subsequently found by the
Agency/LGU to be complying.
b. If after advertisement, more than

one project proponent applied for
prequalification but only one met
the prequalification requirements,
after which it submitted a bid
proposal which was found by the
Agency/LGU to be complying
c. If after prequalification of
more than one project proponent,
only one submitted a bid which
was found by the Agency/LGU to be
complying
1.8.2 Under any circumstances, verify if

any disqualified bidder has made
an appeal on the decision of the
Agency-PBAC to the following:
- Head of Agency in case of

national projects
- DILG in case of local projects
within 15 working days from

receipt of notice of disquali-
fication
1.8.3 Determine the action/decision on

the appeal. Find out if the
decision was made within 45 days
from receipt. (Note: the
Agency's decision is final and
immediately executory.) If none,
inquire for the reason/s of the
inaction.
1.8.4 Evaluate the Agency's decision if

such was done at the most
advantageous terms for the
government.
1.8.5 For financial and technical

evaluation of negotiated
contracts, verify if the same
rules provided for the evaluation
of the technical and financial
aspects of bid proposals were
applied. If not, indicate in the
working papers what rules were
applied in evaluating the
financial and technical aspects of
the negotiated contracts.
1.8.6 Take note that the appropriate

rate of return for negotiated
contracts is determined by the ICC
in accordance with the IRR prior
to negotiation and/or call for
proposals.
H. UNSOLICITED PROPOSALS
1.9 To determine whether the 1.9.1 For negotiated unsolicited

requisites for unsolicited proposals, verify if all the
proposals as enumerated in following conditions were met:
Section 11.1 of the IRR were
met. a. the project involves a new
concept or technology and/or is
not part of the list of priority
projects;
b. no direct government guarantee,

subsidy or equity is required;
and
c. the Agency/LGU concerned has

invited by publication, for three
(3) consecutive weeks, in a
newspaper of general circulation,
comparative or competitive
proposals and no other proposal
was received for a period of sixty
(60) working days. In the event
that another project proponent
submitted a price proposal lower
than that submitted by the
original proponent, the latter
shall have the right to match
said price proposal within thirty
(30) working days. Should the
original project proponent fail
to match the lower price proposal
submitted within the specified
period, the contract shall be
awarded to the tenderer of the
lowest price
On the other hand, if the original

project proponent matches the
submitted lower price within the
specified period, the original
project proponent shall
immediately be awarded the project.
1.9.2 Evaluate the project proposals

vis-a-vis the following criteria:
a. For new technology:
o As incorporated in its
proposal information, the new
concept or technology shall

been directly, or through any
of its key members, success-
fully implemented at a scale
similar to the proposed
project by the proponents.
o The information disclosed

in the project study must be
in sufficient detail to allow
the Agency/LGU to properly
evaluate the new concept or
technology
o The new technology must

possess at least one (1) of the
following attributes:
- a recognized process,
design, methodology or
engineering concept which
has demonstrated its ability
to significantly reduce
implementation of construction
costs, accelerate project
extension, improve safety,
enhance project performance,
extend economic life,
reduce costs of facility
maintenance and operations,
or reduce negative environ-
mental impact or social/
economic disturbances or
disruptions during either the
project implementation/
construction phases or the
operation phase; or
- a process for which the

project proponent or a
member of the proponent joint
venture/consortium possesses
exclusive rights, either
worldwide or regionally; or
- a design, methodology or
engineering concept for
which the proponent or a
member of the proponent joint
venture/consortium possesses
intellectual property rights
b. For Government Undertakings
- The presence of government

support, other than direct
government guarantees,
subsidy or equity, shall not,
as may be determined by the

ICC, necessarily disqualify a
proposal from being treated
and accepted as an unsolicited
proposal.
- The sale or lease of govern-

ment assets to project
proponent shall not be con-
sidered as subsidy or equity.
- Unsolicited proposal shall be

submitted to the ICC only upon
official endorsement by the Head
of the Agency/LGU that it is
part of or consistent with the
Agency/LGUs development programs
and may be prosecuted under
any of the contractual
arrangements authorized under
the IRR. ICC shall approve the
project scope in accordance with
the guidelines.
c. Invitation for Comparative Proposals
The invitation for comparative

or competitive proposals should
be published at least once every
week for three (3) weeks in at
least one (1) newspaper of general
circulation.
It shall indicate the time and

place where tender/bidding
documents could be obtained and
shall likewise explicitly specify
a time of sixty (60) calendar
days reckoned from the last date
of publication during which
proposals shall be received.
Beyond said deadline, no proposals
shall be accepted.
1.9.3 If above were not complied with,

obtain Agency's justifications for
non-compliance. Evaluate
justifications and determine
effects and prepare audit comments.
1.9.4 For publicly-bidded unsolicited

proposals, ensure that the
preparation of tender documents
shall be along the same rules as
solicited proposals. Take note
that proprietary information shall
be respected, protected and
treated with utmost confident-
iality. As such, it shall not

form part of the bidding/tender
and related documents.
1.10 To determine the reasonableness 1.10.1 Obtain the details on the compu-
of the rate of return on investment tations and analysis on the rate
based on acceptable standards of return on investment per contract
1.10.2 Compare the contract rate of

return with the one as evaluated
by the reviewing/approving
authority (local development
council concerned, ICC,
NEDA Board, etc.).
1.10.3 Take note on the differences in

the contract rate of return on
investment and as reviewed/
approved.
1.10.4 In consultation with reviewing/

approving authority, validate reason-
ableness of contract rate of return.
1.10.5 If possible, obtain data on acceptable

rate of return on investment from
other sources and compare contract
rate of return on investment with these
data.
1.11 To determine the reasonableness 1.11.1 Obtain the details on the computations
of the rate of lease and the period. and analysis on the rate of lease and
the period per contract.
1.11.2 Compare the contract rate of lease and

period with the ones as evaluated by
the reviewing/approving authority,
validate reasonableness of contract rate
of lease and the period.
1.11.3 Take note of the differences in the

contract rate of lease and period and
as reviewed/approved.
1.11.4 In consultation with the reviewing/

approving authority, validate
reasonableness of contract rate
of lease and the period.

rate of lease and period from other
sources and compare contract rate
of lease and period with these data.
1.12 To determine the reasonableness 1.12.1 Obtain the details on the computations
of the tolls, fees, rentals and charges and analysis on the tolls, fees rentals
and charges per contract.
1.12.2 Compare the contract tolls, fees, rentals

and charges with the ones as evaluated
by the reviewing/approving authority
(local development council concerned,
ICC, NEDA Board, etc.).
1.12.3 Take note of the differences in the

contract, tolls, fees, rentals, and
charges and as reviewed/approved
1.12.4 In consultation with the reviewing/

approving authority, validate
reasonableness of contract tolls, fees,
rentals, and charges.
1.12.5 In consultation with toll regulatory

body/eis, validate reasonableness
of tolls, etc.

tools, fees, rentals and charges from
other sources and compare
contract data with these data.
B. SUBSTANTIVE ASPECT
II CONTRACT APPROVAL AND IMPLEMENTATION
2.1 To determine whether BOT 2.1.1 Check compliance with the What are the adverse effects
projects approved for following conditions for the award of non-compliance to the award
implementation complied with of contract by the Head of the of the contract as enumerated
the conditions set in Section Agency: in 2.1.1 to 2.1.5?
12.1 of the IRR.
a. Submission of the required
performance security.
b. Proof of sufficient equity and

firm commitments from reputable
financial institution to provide
sufficient credit lines to cover
the total estimated cost of the
project.
c. In case of a joint venture/

consortium, submission of a sworn
undertaking that the members of
the joint venture/consortium are
jointly and severally responsible
for the obligations of the project
d. Clearance from ICC on a

no-objection basis.
e. For negotiated contracts and

for projects which have been
granted a natural monopoly or
where the public has no access

to alternative facilities,
approval by the concerned
regulatory bodies of the proposed
tolls/fees/rentals/charges.
f. Such other conditions imposed

by the Agency/LGU.
Note: Failure by the winning

project proponent to submit
the requirements prescribed
under items a, b and c
above within the time period
specified by the concerned
Agency/LGU in the Notice
of Award shall result in
the disapproval of the con-
tract or disqualification
of the bidder, as well as
the forfeiture of the bid
security of the bidder
2.1.2 Verify the date of the Agency

Head's approval/disapproval of the
contract. See to it that the
contract was approved/disapproved
within fifteen (15) calendar days
from the date that the winning
project proponent shall have
submitted the requirements.
2.1.3 Verify if DENR environmental

clearance was obtained.
Note: Approval of the contract

shall be without prejudice
to the obligation of the
Agency/LGU concerned and

winning project proponent
from securing such other
government approvals as may
be required under existing
laws, rules and regulations
The winning project

proponent shall be respon-
sible for securing the
necessary and appropriate
environmental clearances
from the DENR prior to actual
project execution in accordance
with existing laws, rules and
regulations. The DENR
shall act on all required
environmental clearances
within 30 calendar days upon
receipt of all necessary/

required documents/information.
The Agency/LGU may

provide the necessary assist-
ance to the project propo-
nent in securing all required
clearances.
2.1.4 In case of project requiring a

utility franchise, verify if:
- Franchise was automatically

granted to winning project
proponent including the collection
of tolls/fees, rentals and other
charges in accordance with the
schedule stipulated in the
approved contract.
- Franchise period including

extensions does not exceed fifty
(50) years.
2.1.5 Verify if the Notice to Proceed to

successful bidder was issued not
later than fifteen (15) calendar
days from the date of approval of
the contract by the Agency/LGU.
If not, obtain Agency's
justifications and evaluate its
acceptability.
2.2 To determine whether the 2.2.1 Obtain a copy of the agreements/

interest of the government is contracts drawn by and between the
protected in the contract government agency and the project
signed by and between the proponent/operator.
government and the project
proponent/project operator. 2.2.2 Obtain a copy of the project evaluation
conducted by the NEDA Technical
Staff/ICC/LDC concerned and the
evaluation requirements.
2.2.3 Compare the data of obtained in 2.2.1

with those obtained in 2.2.2 and
determine compliance of the final
contract with the draft contract and the
evaluation requirements.
2.2.4 If instances of noncompliance are.

identified, through proper channels,
inform the evaluating/appropriate
authorities concerned, for appropriate
action
2.3 To determine whether the 2.3.1 Obtain a copy of the agreements/ 1. Are the terms and
interest of the government is contracts drawn by and between the conditions of the contracts
protected in the contract government agency and the project complied with by the agency
signed by and between proponent/operator. and project proponent/project

the government and the project operator?
proponent/project operator. In energy/power projects for
instance, the following contracts/ 2. Are the terms and
agreements are involved: conditions of the contract
advantageous to the
- Implementation and agreement or government? What are the
state support agreement provisions of the contract
which are onerous to the
- Land accession agreement government?
- Engineering procurement and 3. What are the reasons/

construction contract justification for agreeing to
the terms and conditions which
- Completion guarantees, are disadvantageous to the
performance bonds and warranty Agency?
bonds
- Power purchase agreement
- Fuel supply agreement
- Operations and maintenance

agreement
2.3.2 Determine the nature and extent

of state support provided to the
project proponent by way of
commitments, inducements and
guarantees.
2.3.3 Particularly with regard to

project financing, establish
extent of commitment provided by
the government. Is financial
commitment involved minimal
compared to that of the proponent?
2.3.4 Verify if the following conditions

are explicitly contained/explained
in the agreements:
- statement of proponent's/
contractor's undertaking. In the
case of a power project, for
instance, a statement in the Power
Purchase Agreement that the
proponent agrees to sell power per
terms and conditions of the
agreement and that the purchaser
(government agency) agrees to the
terms and conditions.
- cooperation period
- terms and termination - effect-

ive dates of start and end of
the project.
- conditions under which terms can

be extended or prematurely
terminated.
- responsibilities of the proponent/

contractor
- penalties in case of failure to

perform responsibilities
- responsibilities of the agency
- control and operation of

facilities - describes how the
facilities will be operated and
maintained and the types of
documents and records to be
maintained.
- extent of government supervision

and monitoring.
- Tariff structure - compensation,

payment and billing including
pricing described in the form of
formulas.
- Insurance and the liabilities

and other claims and who shall
bear which type, such as all -
risk, etc.
- Liability, non-compliance and

guarantees-discusses indemni-
fication obligations, forms
and limits of facility completion
guarantees and of facility
performance guarantees, limits
and conditions on transfer of
facility from project proponent
to other organizations/government
agency
- Force Majeure - defines what

events constitute force majeure,
the actions required and who bears
the risk.
- Choice of Law and Resolution of

Disputes - identifies under which
laws the agreement will be
governed and the process to be
used to resolve disputes.
- Notices - provide for the

method, language, process and
distribution of notices among
parties.
- Changes on Law - provide for the

extent of protection for the
proponent, should the law change
to adversely affect the cost of
construction or operation.
- Options to purchase - Depending

on the type of agreement, defines
how the project proponent or
government agency can exercise the
option to purchase the facility.
- Transfer of ownership -
Addresses the final disposition
of the project facilities at the
end of the agreement period. This
may include physical transfer or
purchase of the facility,
continuation of the agreement or
liquidation of salvageable assets.
2.3.5 Take note of contract provisions

which are deemed onerous as far as
the government is concerned.
2.3.6 Obtain the agency's justification

for agreeing to such provisions.
Evaluate acceptability.
2.3.7 Comment on and quantify effect of

unjustified onerous provision.
2.4 To determine whether the 2.4.1 Determine the manner land What are the "safety nets"
government's interest is ownership is transferred through provided in the contract to
protected in land conveyance purchase or through long-term ensure that government's
agreements. lease. interest is protected?
2.4.2 Determine extent of government

participation as far as
right-of-way activities are
concerned.
- Who should undertake right-of-

way (ROW) activities.
- Terms (period when ROW activi-

ties should be undertaken).
The term should commence not
later than the start of the
construction and the duration
should be at least commensurate
with the terms of the operating
agreement. Under certain
circumstances, it is usually more
advantageous to have a term
greater than the terms of the
operating agreement to provide

allowances for construction delays
or force majeure events which may
extend the operating agreement on
a day to day basis. Without this
extension, the terms of the LCA
and the operating agreement may
not match and that could mean that
the term of the operating
agreement could be terminated
prematurely.
- Manner of appraisal
- Payment schedule and ROW milestone
- Remedies - consequences/ penalties

for failure of the party respon-
sible to perform as specified.
2.4.3 Determine whether the following

terms are contained in the
agreement:
- That land use must be exclusive

to the project
- That land is assignable to

lenders (financiers) so that they
can takeover the facility in case
of default by the proponent. If
land is owned by the government,
determine safeguards against
possible takeover by financiers.
- responsibilities as far as land

requirements, zoning laws,
building codes and other are
concerned.
- arrangement for the disposition

of the land and related
constructions at the termination
of the LCA.
III. CONSTRUCTION AND RIGHT OF WAY

ACTIVITIES
3.1 To determine whether the 3.1.1 Obtain the documents necessary in How did the Agency ensure that
project proponent constructed the evaluation of the constructed project specifications were
the facility in accordance project such as the: complied with?
with the construction contract
(may be applicable only for - construction contract What evaluation tools were used?
BTO projects).
- plans and specifications What results are available?
(description of plant design,
criteria and specifications, If there is variance from the
summary lay-out and process requirements, what are the
drawings) causes?
- summary of manifests of equipment What are the adverse effects

of non-compliance with plans,
- certificate of acceptance specifications and schedules?
- voucher relative to government Is there supervision to ensure

agency payments made quality of construction work?
- payment schedule based on

construction progress and testing
milestone
3.1.2 Arrange for the conduct of a

competent COA technical personnel
of the physical inspection of the
plant constructed together with
representatives from the
government agency, the project
proponent and the contractor.
3.1.3 Determine whether construction was

undertaken in accordance with
plans and specifications,
commensurate with cost stated in
the contract.
3.1.4 Quantify the value of defective

work and report findings to the
agency for proper disposition. In
cases where payments have already
been made, issue notice of
suspension and eventually notice
of disallowance in case defect is
not corrected by the contractor
based on schedule contained in the
warranty clause of the Construction
Contract.
3.2 To determine whether the 3.2.1 Obtain the following documents

provisions in the construction from the government agency:
contract relative to the
posting of performance and - proof that performance and
warranty bonds, preparation of warranty bonds have been posted.
payment schedules and project
milestones, performance tests, - payment schedule and project
insurance, indemnification, milestones
among others, are complied
with. (Note: Only where the - certificates of performance
government is a party to the based on tests performed.
construction contract).
- insurance certificates (those
obtained from the GSIS, among
others)
3.2.2 Determine whether terms contained

in these documents comply with
contract provisions.
3.2.3 Identify deviations to contract

provisions and obtain agency
justifications.
3.3 If right-of-way (ROW) activi- 3.3.1 Document the actual ROW systems as Were right-of-way activities
ties are the government's performed by the government agency. properly performed to ensure
responsibility, to determine that the project construction
whether ROW activities are 3.3.2 Establish whether right-of-way can go on as scheduled?
performed in accordance with activities are right on schedule
EO 1035, dated June 25, 1985 by computing for time log between What were the losses incurred
which provides for the time estimates within which they by the government because of
procedures and guidelines for should be performed and actual the agency's failure to pursue
the expeditious acquisition by time the major activities were right-of-way activities properly?
the government of private real accomplished.
properties or rights thereon
for infrastructure and other 3.3.3 Establish causes of delays or
government projects. failure to pursue right-of-way
activities by identifying
provisions of EO 1035 which were
not complied with such as:
a) Has a feasibility study been

made and does it contain the
social, political, cultural and
environmental impact of the
project?
b) Has an information campaign

been launched? Among the local
inhabitants that will be affected
by the project, to acquaint them
with the objectives and benefits
to be derived from the project and
thus avoid any resistance to or
objection against the acquisition
of property.
c) Has detailed engineering, inclu-

ding parcellary surveys been
undertaken to indicate ownership
of the land, size of the sites
and ownership of the land
including status?
d) Have funds been programmed and

budgeted well in advance?
e) Has the estimated cost of

financing been considered:
- pre-investment costs,
including cost of feasi-
bility study and public
information campaign
- investment cost, including

cost of engineering, cost of
property to be acquired and

cost of construction and
construction supervision.
3.3.4 Establish procedures for

acquisition of property-negotiated
sale with owner? If yes:
a. includes land and improvements?
b. determinates of purchase
price-based on current and market
value established based on
assessments of Department of
Finance and the Provincial/City/
Municipal Assessor vs. current
and market value declared by the
owner or administrator of the
land whichever is lower?
by expropriation? If yes:
a. through the office of the

Solicitor General or the
Government Corporate Counsel?
b. "just compensation in
accordance with the provisions of
PD 1533?"
c. implementing agency has depo-

sited an amount equivalent to
10% of the amount of just
compensation provided in PD 1533?
d. writ of possession issued by

courts on or before five days
from the date deposit was made?
3.3.5 Establish when foreign loan

negotiations were made
- was this made only after the

negotiation for acquisition with
the property owners have been
completed or the expropriation
proceedings have been initiated?
- has financing institution

favorably appraised the project
before filing expropriation
proceedings?
3.3.6 If foreign loan negotiations were

not made in accordance with 3.3.5,
ensure that an exemption was
obtained from the Investment
Coordination Committee.
3.3.7 Summarize provisions in EO 1035

which were not complied with by the
agency.
3.3.8 Obtain management's justification

and assess reasonableness and
acceptability of such.
3.39 For deviations where justifications

are found unacceptable, establish
effects of failure to comply with EO
1035 by quantifying penalties which
the government may have to pay,
storage charges for unutilized
equipment, among others.
3.4 To determine whether 3.4.1 Obtain a list of ROW claimants

right-of-way payments were both paid and to be paid as well
based on proper assessments as records showing how assessments
based on EO 1035 and whether were made.
these were made to valid
claimants. 3.4.2 On a sample basis, establish
whether the required documents are
attached to the assessments/
payments made as proof of
compliance with Sections 9,10,11,
& 12 of EO 1035
- certification by the implement-

ing agency upon receipt of tax
assessment, that upon payment to
the land owner it shall deduct
the corresponding capital gains
tax and any unpaid estate tax and
real estate tax.
- tax clearance from the BIR and

the Provincial/City/Municipal
Treasurer for the registration of
the property in favor of the
implementing agency/instrument-
ality concerned.
- official receipt evidencing tax

remittances to the BIR/Provincial/
City/Municipal Treasurer.
- physical inventory report

prepared and certified to by the
representatives of the agency,
the Commission on Audit and the
claimant - for payments for
improvements on property acquired
which are not included in the
respective tax declaration of the
owner.
- affidavits of the claimant and

of two adjoining land owners or
barangay officials attesting to
or substantiating the ownership of
improvements.
- in case of untitled properties,

proof of posting of indemnity or
property bond based on amount
fixed by the Provincial/City/
Municipal Treasurer concerned
based on market value as
determined by the Assessor and as
appearing on the current tax
declaration of the property. This
requirement shall be dispensed
with for claims not exceeding
P50,000.
- emancipation patent of land is

covered by Operation Land Transfer
pursuant to Section 14 of EO 1035.
3.4.3 Prepare timelog analysis based on

sample (3.4.2) - was payment made
within 90 days upon approval by
appropriate authorities as
detailed in Section 13 of EO 1035.
3.4.4 Establish whether payments were

acknowledged by the claimants or
authorized parties concerned. In
the case of properties covered by
Operation Land Transfer, payments
shall be made to the landowners or
to the Land Bank based on conditions
noted in Section 14 of EO 1035.
3.4.5 Establish whether survey plans of

parcels of land affected by
government projects have been
approved by the National Land
Titles and Deeds Registration
Administration pursuant to Sec. 5
of EO 1035. If not, confirm
directly from such agency to
ensure that plans were indeed
filed for approval.
3.4.6 Establish whether the Register of

Deeds has registered the deed of
conveyance and has issued the
corresponding title in favor of the
government within 7 days from
presentation of documents required.
If not, confirm directly from such
agency and verify cause of delay.
3.4.7 For financial assistance extended

to displaced tenants of
agricultural lands, ensure proper
compliance with Section 18 of EO
1035 which, among others, require.
- accreditation by the Department

of Agrarian Reform Forest
Management Bureau and Office of
Muslim Affairs and Office of
Cultural Communities
(Southern/Northern).
- presentation of land occupancy

certificates pursuant to PD 410
- amount to be paid shall not be

less than P15,000 per hectare and
shall be based on the average
annual gross harvest for the last
three preceeding crop years.
3.4.8 Financial assistance extended to

owners of land acquired under CA
410 - evaluate how basis for
payment was made and whether COA
has been consulted prior to
payment.
3.4.9 Establish when financial

assistance was granted - payment
shall be made at the time of
relocating tenants/farmers and not
before.
3.4.10 Conduct ocular inspections of

affected sites where ROW
recipients are scheduled for
relocation/resettlement together
with a competent COA technical
inspector.
3.4.11 Based on samples actually

inspected, reappraise value of
properties and compare with
appraised value. Also take note
of claimants who were already paid
but whose residences have yet to
be demolished.
3.4.12 Take note of questionable

assessments and payments made.
Obtain management's justifications
and formally report payments which
are found questionable.
3.5 To determine whether the 3.5.1 Determine whether the bond has
project proponent has been posted in favor of the
guaranteed performance of agency/LGU and within the time

construction works by posting prescribed by such agency/LGU.
a performance security.
3.5.2 Determine whether security:
a. in the forms of cash, manager's

check, cashier's check, bank
draft or guarantee have been
confirmed by a local bank, in
case of foreign bidders bonded
by a foreign bank.
b. in case of letter of credit,

whether this is issued by a
reputable bank.
c. in case of survey bond callable

on demand, whether issued by the
Government Service Insurance
System or by surety or insurance
companies duly accredited by the
Office of the Insurance
Commissioner.
d. in case of combination thereof,

whether in accordance with the
following schedules:
- Cash, manager's check, cashier's

check, irrevocable letter of
credit - 20% of the total
estimated cost of government
undertaking.
- Bank guarantee -30% of the total

undertaking
- Surety bond - 50% of the total

undertaking
3.6 To determine whether technical 3.6.1 Gather proof that monitoring and
supervision is exercised over supervision is actually performed
the project activities of the by way of reports and communi-
project proponent and whether cations on such BOT project
deviations noted in monitoring maintained by Agency.
reports are corrected within
the time prescribed by the 3.6.2 Determine whether reports point
Agency/LGU. out specific deviations and
whether corrective measures were
recommended by the Agency.
3.6.3 Follow-through implementation of

recommended corrective measures
and whether these were implemented
within the time prescribed.
3.6.4 Determine measures undertaken by

agency in case of non-compliance
and determine effect as far as the
government is concerned.
3.7 To determine whether project 3.7.1 Establish project milestones as

is undertaken in accordance contained in the construction
with milestones and whether contract.
penalties are imposed in case
of delays. 3.7.2 Determine whether progress is in
accordance with project
milestones; determine causes of
delays and whether such delays are
approved by Agency.
3.7.3 Determine whether penalties by way

of performance bond forfeiture, or
payment of liquidated damages or
even contract rescission is
warranted because of construction
delays.
3.7.4 In case of liquidated damages,

compute for the cost of liquidated
damages which should have been
paid by proponent (shall in no
case be less than 1/10th of 1% of
the total project construction
cost). Determine whether such was
paid to Agency/LGU.
Liquidated damages shall not be

imposed in case the projects do
not involve government under-
takings whatsoever. In cases
where the delay exceeds 20% of the
approved construction period, in-
clusive of the extension or grace
period stipulated in the contract,
the government shall terminate the
contract.
IV. COMPLETION OPERATION PHASE
4.1 To determine whether the use 4.1.1 Determine what inputs are to be Is issuance of government
of inputs are properly provided by the government based inputs properly controlled and
monitored by the agency as far on the contract signed by and monitored at the agency's end?
as utilization of such is between the Agency and the
concerned. proponent. Is the government made to
assume unnecessary input costs?
4.1.2 Obtain a list of assets which are
considered as assets for use in
the BOT project as part of the
government's undertaking. On a
test basis, conduct ocular
inspection to determine existence
as well as conditions of such.
4.1.3 In case of assets to be

turned-over after the cooperation
period, determine whether the
agency has a list of such. If
not, establish controls of agency
over such assets.
4.1.4 With regard to expendable inputs

such as fuel, determine adequacy
of controls over movement (receipt
and issuance) of such. Conduct
walk-through of property
management systems over expendable
assets. Comment on adequacy of
system and or weaknesses which
should be corrected.
4.2 To determine whether 4.2.1 Determine based on the contract, Does the government agency
contractor's/proponent's the obligations which should be ensure that sanctions are
compliance with its obli- assumed by the parties and what imposed against proponent/
gations are monitored by the sanctions should be taken against contractors in case of
Agency and whether sanctions them in case of non-compliance. non-compliance with their
are imposed in case of non- obligations?
compliance. In like manner, 4.2.2 Determine how the agency monitors
determine whether the on performance of proponent; what Does the government agency
government agency ensures reports are prepared and who ensure that its obligations
compliance with its obli- prepares these reports. are complied with to prevent
gations to avoid payment of payment of penalties?
penalties. 4.2.3 Conduct walk-through of monitoring
system and establish system
breakdowns. Establish whether
penalties were paid to the or by
the contractor and causes for
such. In like manner, determine
how agency ensures its compliance
with its obligations.
4.2.4 Examine reporting and monitoring

documents/reports and note
deficiencies reported on as well
as subsequent actions taken by
parties concerned.
4.2.5 Examine accomplishment reports and

other documents presented by the
proponent; are these submitted
within the time required and do
these contain the required
information?
4.2.6 Determine instances where

penalties for non-compliance by
the contractor were not imposed.
4.3 To determine whether the loan 4.3.1 Examine the contract provisions Is the government made to
guarantees issued by the related to government guarantees, assume unnecessary financial
government for the project if any, and determine its nature, risks?
conforms with existing laws, extent, timing, amount and other

rules and regulations. terms and conditions. If contract
is silent, formally inquire the
To determine whether the extent of government guarantee on
government's interest has been the project.
properly safeguarded, part-
icularly in cases where direct 4.3.2 Evaluate the actual government
government guarantees were guarantee and determine conformity
issued. with the contract requirements and
the BOT Law, its IRR as well as
other existing laws.
4.3.3 If direct guarantee is issued,

list the relevant terms and
conditions and verify if:
a) COA's visitorial authority to

audit governmental contingent
liability of such guarantee is
recognized by the parties
concerned (Sec. 29 (2), PD 1445)
b) the government agency has any

participation in the proponent's
use of funds arising out of the
guarantees
c) the government agency has

direct access over the proponent's
books of accounts related to the
use of funds from guarantees.
4.3.4 Document and walkthrough the

control and monitoring system of
the agency on releases and
payments of guaranteed loans:
- Inquire and take note of the

Contractor's payment proce-
dures/arrangements such as manner
of billings, recording and
reporting
- Verify the existence, if any, of

a feedback mechanism that will
inform the government agency of
contractor's compliance or
non-compliance with its financial
obligations covered by government
guarantees from the financing
organization.
- Verify if the guarantee agency

is provided by the contractor with
reports on the payment and balance
of their guaranteed loan accounts
on a regular basis.
- Examine if the reports of

payment and balance conform with
the terms and conditions of the
loan agreement.
- Confirm, if necessary, the

reported loan balance of
contractor from financing
organization
4.3.5 Report on weaknesses noted
4.4 To determine whether revenues 4.4.1 Prepare an outline/summary of the Is the government ensured that
reported by the facility contract provisions relating to it receives its rightful share
operator and used as basis for contractor's collection of fees, from tolls, fees and charges
the payment of tolls/fees to tolls or charges detailing, among collected out of BOT projects?
the government are accurate. others, the nature, mode of
collection, amount and exchange Are these tolls, fees and
To determine whether fees and rates used. charges computed in accordance
tolls share of government are with the contract provisions?
collected and accounted as 4.4.2 Prepare a summary of the contract
income. provisions relating to the Are these properly accounted
government's share of tolls/fees for in the books of the
collected by operator/proponent, government agency?
detailing, among others, the
special receipts issued, the
amount, manner and exchange rates
used.
4.4.3 Inquire from knowledgeable agency

officials the existing collection
system. Document and walkthrough
the collection and recording
procedures documented. List down
the weaknesses noted.
4.4.4 As part of COA's visitorial

functions, examine the project
operator's collection records
and reports.
a) Take note of total reported

payments to the government agency
and compare with reported receipts
at the government agency's end.
b) Establish reliability of
contractor's collection reports
by test-tracing to original source
documents and test-recomputations
of assessments made.
c) Take note of collection

understatements and compute for
additional government share which
should have been collected.
4.5 To determine whether payments 4.5.1 Summarize the contract provisions Are charges to be paid by
made are in accordance with relating to contractor's claims/ government agency in

rates provided for in the charges. accordance with the contract?
contract.
4.5.2 Inquire from knowledgeable agency Are charges properly computed
To determine whether the officials the existing procedures at the government agency's end?
agency has a built-in system in the payment of contractors'
for ensuring the correctness claims/charges including the
of billings received from the supporting documents required, the
contractor for charges to be accounting, monitoring and
paid. reporting system and document the
same.
4.5.3 Document and walkthrough the system.
4.5.4 Recompute certain agency payments

made to contractors and determine
if:
a) the fees/charges conform

with the contract
b) the mathematical computations

are accurate
c) the payment is fully supported

by valid documents
d) the payment made is properly

approved by responsible agency
officials.
e) the payment is properly

acknowledged by contractor's
receipt.
f) the payment is properly

accounted for and reported.
4.5.5 Verify the existence, if any, of a

monitoring system wherein the
government can independently check
on the correctness of the billings
received from the contractor for
charges to be paid. Evaluate
adequacy of such system.
4.6 To determine whether requests 4.6.1 Obtain a formal authority from the
for tariff or rate increases COA Chairman for the conduct of a
are justified by determining rate audit. Otherwise, formally
the actual rate of return on request the Special Audit Office
invested capital of the to conduct the rate audit pursuant
petitioning utility. to Section 38 of PD 1445.
To determine whether the 4.6.2 Refer to pages 363 to 375 of the

utility complies with State Audit Manual for the audit
prescribed regulations. procedures required.
4.7 To determine whether plant and 4.7.1 Prepare an outline/summary of the

equipment are adequately contract provisions relating to

insured (with the GSIS), and taxes.
that the items covered are
properly identified/listed and 4.7.2 Identify the kind of insurance
the beneficiaries thereof required to cover the perils to
specified. plant and equipment (such as
all-risk insurance) and ascertain
whether:
a) copies of all insurance

policies have been provided the
agency by contractor or vice-versa.
b) all premiums including increases

in premiums have been paid in
advance.
c) the insurance coverage is reason-

able
d) the insurance policies are

secured with the Government
Service Insurance System (GSIS)
pursuant to Administrative Order
No. 141.
4.7.3 Review the insurance policy

provisions (particularly coverage)
and ascertain whether they conform
with the BOT Contract provisions
(AP No. 1).
4.7.4 Ensure that insurance premiums

paid by the government agency are
only for insurance which it has
committed to pay per contract.
4.8 To determine whether the 4.8.1 Summarize the contract provisions Does the project comply with
required taxes, permits and relating to taxes, permits and local and national tax laws?
licenses have been secured and licenses according to nature,
paid for in accordance with extent and timing.
the contract and existing
laws. 4.8.2 Examine the documents/receipts
showing that the required taxes,
permits and licenses have been
secured and paid for.
4.8.3 Verify if the payments made are

based on correct computations, and
penalties and surcharges, if any,
are paid for by the party
responsible.
4.9 To validate the actual cost of 4.9.1 Obtain reports prepared by the
the project or total investment implementing agency pertaining to its
on the project as claimed by Supervisor of Project Construction,
the proponent Operation, and Maintenance
(pursuant to Sec. 12.8 of the IRR)

and consolidate the data of the costs.
4.9.3 Compare the consolidated data

on actual costs with the costs
provided for in the contract.
4.9.4 Identify value difference and determine

reasons for same.
.
4.9.5 Obtain information on whether or not
the implementing agency is aware of
the difference, and if in the alternative,
what if did about it
4.10 To validate whether the total 4.10.1 Obtain information on total actual
return on investment/total lease/ investment.
tolls, fees rentals, charges is.
equivalent to the total investment 4.10.2 Obtain information on total return on
on the project plus the reasonable investment/total lease/total tolls, fees,
margin of profit previously rentals, charges.
determine per contract
4.10.3 Compare the information in 4.10.
1 with the one in 4.10.2 and
take note of differences.
4.10.4 For differences/deviations noted,

determine reasons and effects on the
project.
4.11 To determine whether the 4.11.1 Summarize the contract provisions Will the project still be
necessary and appropriate relating to the required/specified usable/useful when ownership
repair and maintenance of the plant maintenance and repair is turned over to the
project is undertaken in program as to nature, extent and government after the franchise
accordance with the design and timing. or cooperation period?
performance standards
prescribed in the approved 4.11.2 Inquire from agency proponents and
contract to ensure that the agency personnel involved actual
facility operates at the plant maintenance program followed
desired level of service. as well as extent of monitoring
actually performed by government
agency.
4.11.3 Identify activities which are not

performed as well as sanctions
which should have been imposed.
4.11.4 Where applicable, verify if a

portion of the project revenues
equivalent to the cost of its
repair and maintenance, as
indicated in the project
proponent's bid proposal, have
been set aside and reserved
exclusively for repair and
maintenance costs of the project
(such as an escrow account for the
purpose).
V. COOPERATION PERIOD/BEFORE TURNOVER
5.1 To determine whether effi- 5.1.1 Establish efficiency targets based What is the quantity/quality
ciency targets by way of on standards identified in the of the product/service
output/capacity, and effi- contract. expected to be delivered?
ciency as it affects pricing
standards have been achieved. 5.1.2 Secure reports pertaining to the If there is a variance of the
actual performance. Establish actual delivery from the
based on available reports requirements, how did it
achievement of established happen?
standards. In the case of the
energy projects, for instance, What are the adverse effects
established efficiency indicators of the variance?
a) delivery of contracted annual

energy to NPC (1,370,000 mwh/yr)
b) delivery of nominated energy

per year to NPC
c) compare energy rates with

regular which should not be lower
than 90% of the instructed annual
energy.
5.1.3 Determine causes for failure to

meet efficiency standards as well
as effects including penalties to
be imposed against responsible
party.
5.2 To determine whether the 5.2.1 Establish effectiveness of What are the indicators that
desired benefits of the pro- standards and performance indi- the benefits of the project
ject were attained based on cators based on the project were attained?
specific standards and feasibility study. To illustrate,
indicators. in the case of energy projects: Are the targeted beneficiaries
reached by the project? Are
INDICATORS STANDARDS the beneficiaries satisfied?
a) population served target Are there effects/outcome that

b) blackouts (hrs/yr.) 7 hours/year were not intended? Are they
c) load factors 70% beneficial, non-beneficial or
d) system losses 10% to 12% harmful?
5.2.2 In a period of at least three to Evaluating the answers, is the

five years, compare actual perform- main objective attained or not?
ance (5.2.1 a to d) against
standard figures. With the effects/outcomes,
what could have been done to
5.2.3 Determine causes of unfavorable correct error in the past
deviations/variances between decisions and improve
actual and targeted figures/data succeeding decisions relative
as well as effects in terms of to the project and to other
benefits lost to project future projects?
recipients.
What lessons can be delivered
from this project for the
formulation of new policies?

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B.

A. PROJECT FEASIBILITY, APPROVAL AND PUBLICATION

AUDIT OBJECTIVES AUDIT PROCEDURES AUDIT ISSUES

a) for projects costing up to P300

b) for more than P300 million,

Section 2.7 for local projects of

c) to city development council

e) to ICC of NEDA Board for those

Section 2.8 for BOO projects,

1.1.5 In case of inaction on the list of

1.1.6 Determine if the list of priority

projects was given wide

1.1.7 Obtain a copy of registration of

1.1.8 Determine if the duly registered

B. PREQUALIFICATION, BIDS AND AWARDS

- One technical officer Was a compensating control

- One technical officer

- Two (2) representatives from

- Representative from the Observer

- One (1) representative from Observer

For LGUs, the PBAC shall be

1.2.2 Note down any affiliations (either

1.2.3 Review the duties and

1.2.4 Obtain copies of the minutes of

1.2.5 Take note whether control

1.2.6 If a technical consultant was

was in accordance with existing

1.3.4 Check if published invitation to

- whether the contractor employed

- deadline for submission of

- at least 30 calendar days from

- for projects costing at least

preparation shall be at least 45

1.3.5 Obtain certified photocopy of a

1.3.6 Obtain certified photocopy of the

1.3.7 Review and check prequalification

o For purposes requiring

- for projects to be operated

o In case project proponent

- in case members of joint

- duly licensed and

b. Experience or Track Record:

o Check the following documents:

- a disclosure which member

o the lead member

o Evaluate the firm experience

- must have successfully

- for joint venture/consortium,

- key personnel of the

Obtain the following documents:

o proof of the ability of the

o a letter testimonial from

d. Acceptance of Criteria and

Among the prequalification

documents, check if the following

o statement stipulating that the

- accepted the prequalification

- waived any right it may have

- Such waiver shall be without

1.3.8 Secure the original copies of

1.3.9 Prepare appropriate audit working

1.3.10 Secure a list of prequalified and