DO 18-A S30, 2005, 462 S

1. SUBSTANTIAL CAPITALIZATION/NFCC/SERVICE FEE

This is by far the most legitimate and pressing concern of contractors under DO 18-A. Prior to
the issuance of DO 18-A, there were no fixed rules in determining whether a contractor is
substantially capitalized or not. The determination is made on a case to case basis, depending
on the circumstances of each case. For instance, in the 1993 case of Neri vs. NLRC, et al (G.R.
Nos. 97008-09, July 23, 1993), the Supreme Court declared as adequate capitalization ₱1
million which were fully subscribed and paid for.

However, DO 18-A fixed the required capitalization of

at least ₱3 million paid-up capital stocks/shares in
the case of corporations, and a net worth of at least
₱3 million for single proprietorship. Also, DO 18-A
requires contractors to show their contracting
capacity. The Net Financial Contracting Capacity or
NFCC, which refers to the formula to determine the
financial capacity of the contractor to carry out the
job, work or services sought to be undertaken under
a service agreement, must be equal to the total
contract cost. Thus, if the contract cost is ₱10
million, then the NFCC should at least be ₱10 million
also. DO 18-A likewise fixed the administrative fee to
be paid to the contractor at 10% of the total contract
cost.

Given the stringent requirements on capitalization, it would not be

uncommon to see contractors having problems with meeting the
required capitalization and NFCC. On the other hand, principals may
also be prejudiced because they will be paying an increased service fee
of 10%
is an independent employer who meets the following:

1) Minimum capitalization of at least P3 Million

 fully paid up capital for corporation, partnership and cooperative;
 net worth for single proprietorship
2) Proof of ownership or lease agreement on tools, equipment, machineries and
work premises

3) Payment of P25,000.00 registration fee

4) Proof of financial capacity to pay the wages and benefits of its workers using
the Net Financial Contracting Capacity (NFCC) formula in government
procurement
5) Control over the performance of the work of the employee deployed or assigned
to render the contracted work or services
6) Not engaged in labor-only contracting arrangement as provided in Section 6
Certificate of Bank Deposits
7) Not engaged in prohibited activities enumerated in Section 7
8) Observes the rights of the workers as provided in Section 8
9) Observes the required contracts under Section 9
10) Not delisted from the registry of legitimate contractor/subcontractor

_____________________________________________________________________

DOLE’s new Rules on Contracting Arrangement takes effect April 3

The new Department of Labor and Employment or DOLE’s

Department Order No. 174, Series of 2017, or the Rules
Implementing Articles 106 to 109 of the Labor Code of the
Philippines, as amended, also known as the new Rules on
Contracting or Subcontracting Arrangement, already took effect
last April 3, 2017, according to DOLE 6 Regional Director Henry
John S. Jalbuena.

With the effectivity of this new Rules, DO 162, Series of 2016,

which suspends the registration of new applicants as contractor or
subcontractor under DO 18-A, is lifted.
New applicant-contractor or subcontractor may already register with the
DOLE Regional Office where it operates and pay P100,000.00
registration fee upon registration.
All persons or entities acting as contractors or subcontractors are mandated
to register with the DOLE Regional Office where it operates.

“Unregistered contractors or subcontractors are presumed engaged in labor-

only contracting,” Jalbuena said.

Contractors/subcontractors with existing Certificates of Registration under

DO 18-A, Series of 2011 will remain valid until its expiration and need not
have to apply for renewal under DO 174, Series of 2017.

Meanwhile, those with pending application for renewal of Certificate of

Registration under DO18-A filed before the effectivity date of DO 174, or
before April 3, 2017 shall be processed in accordance with the provision of
the DO 18-A.

Other important features of the new DO are the validity of the Certificate of
Registration which shortened from three to two years, and the substantial
capital of the contractors or subcontractor which was increased from P3-
million to P5-million.
Jalbuena thus encouraged those with expired registration as well as those
with expiring registration to register as new applicant-
contractor/subcontractor under DO 174, Series of 2017 to remain in the
roster of legitimate contractors/subcontractors in the Region