SYLLABUS
EN BANC
[G.R. No. 155001. May 5, 2003.]
SYNOPSIS
On October 5, 1994, Asia's Emerging Dragon Corp. (AEDC) submitted an
unsolicited proposal to the Government for the development of Ninoy Aquino International
Airport International Passenger Terminal III (NAIA IPT III) under a build-operate-and-
transfer arrangement pursuant to RA 6957, as amended. It was endorsed to the National
Economic Development Authority (NEDA), which, in turn, reviewed and approved it for
bidding. The Paircargo Consortium was the only company that submitted a competitive
proposal. AEDC questioned, among others, the financial capability of Paircargo Consortium.
However, the Pre-Qualification Bids and Awards Committee (PBAC) had prequalified the
Paircargo Consortium to undertake the project. Later, Paircargo Consortium incorporated
into Philippine International Airport Terminals Co., (PIATCO). And for failure of AEDC to
match the price proposal submitted by PIATCO, the project was awarded to PIATCO. On
July 12, 1997, the Government signed the 1997 Concession Agreement. Thereafter, the
Amended and Restated Concession Agreement (ARCA) and three Supplements thereto were
signed by the Government and PIATCO. Consequently, the workers of the international
airline service providers, claiming that they stand to lose their employment upon the
implementation of the said agreements, filed before this Court a petition for prohibition
docketed as G.R. No. 155001. Later, the service providers joined their cause. Congressmen
Salacnib Baterina, Clavel Martinez and Constantino Jaraula, alleging that the said contracts
compelled government expenditure without appropriation, filed a similar petition docketed
as G.R. No. 155547. And several employees of the MIAA likewise filed a petition docketed
as G.R. No. 155661 assailing the legality of these agreements.
The Court ruled that in accordance with the provisions of R.A. No. 337, as
amended, the maximum amount that Security Bank, as one of the members of the
Paircargo Consortium could validly invest, is only 15% of its entire net worth. The total net
worth, therefore of the Paircargo Consortium, after considering the maximum amounts that
may be validly invested by each of its members, is only 6.08% of the project cost, which
substantially less than the prescribed minimum equity investment which is 30% of the
project cost. Thus, the award of the contract by the PBAC to the Paircargo Consortium, a
disqualified bidder, is null and void.
As to the validity of the agreements, the ARCA obligates the Government to pay
for all loans, advances and obligations arising out of financial facilities extended to PIATCO
for the implementation of the NAIA IPT III project should PIATCO default in its loan
obligations to its Senior Lenders and the latter fails to appoint a qualified nominee or
transferee. This in effect would make the Government liable for PIATCO's loans should the
conditions set forth in the ARCA arise. This is a form of direct government guarantee and
to declare the PIATCO contracts valid despite the clear statutory prohibitions against a
direct government guarantee would only make a mockery of that the BOT Law seeks to
prevent. The Court also ruled that the operation of an international passenger airport
terminal is no doubt an undertaking imbued with public interest. Thus, the privilege given
to PIATCO is subject to reasonable regulation and supervision by the Government through
the MIAA. Another thing, PIATCO, by the mere expedient of claiming an exclusive right to
operate, cannot require the Government to break its contractual obligations to the service
providers. Accordingly, the 1997 Concession Agreement, the Amended and Restated
Concession Agreement and the Supplements thereto were set aside for being null and
void. TCEaDI
1. REMEDIAL LAW; CIVIL PROCEDURE; PARTIES; INTEREST OF PERSON
ASSAILING THE CONSTITUTIONALITY OF A STATUTE MUST BE DIRECT AND PERSONAL. —
The question on legal standing is whether such parties have "alleged such a personal stake
in the outcome of the controversy as to assure that concrete adverseness which sharpens
the presentation of issues upon which the court so largely depends for illumination of
difficult constitutional questions." Accordingly, it has been held that the interest of a person
assailing the constitutionality of a statute must be direct and personal. He must be able, to
show, not only that the law or any government act is invalid, but also that he sustained or
is in imminent danger of sustaining some direct injury as a result of its enforcement, and
not merely that he suffers thereby in some indefinite way. It must appear that the person
complaining has been or is about to be denied some right or privilege to which he is lawfully
entitled or that he is about to be subjected to some burdens or penalties by reason of the
statute or act complained of.
2. ID.; ID.; ID.; ID.; FINANCIAL PREJUDICE IS A LEGITIMATE INTEREST
SUFFICIENT TO CONFER THE REQUISITE STANDING. — [P]etitioners have a direct and
substantial interest to protect by reason of the implementation of the PIATCO Contracts.
They stand to lose their source of livelihood, a property right which is zealously protected
by the Constitution. Moreover, subsisting concession agreements between MIAA and
petitioners-intervenors and service contracts between international airlines and petitioners-
intervenors stand to be nullified or terminated by the operation of the NAIA IPT III under
the PIATCO Contracts. The financial prejudice brought about by the PIATCO Contracts on
petitioners and petitioners-intervenors in these cases are legitimate interests sufficient to
confer on them the requisite standing to file the instant petitions.
3. ID.;ID.;ID.;ID.;COURT MUST BE MORE LIBERAL IN DETERMINING WHETHER
THE PETITIONERS HAVE LOCUS STANDI TO FILE A PETITION. — Standing is a peculiar
concept in constitutional law because in some cases, suits are not brought by parties who
have been personally injured by the operation of a law or any other government act but by
concerned citizens, taxpayers or voters who actually sue in the public interest. Although we
are not unmindful of the cases of Imus Electric Co. v. Municipality of Imus and Gonzales v.
Raquiza wherein this Court held that appropriation must be made only on amounts
immediately demandable, public interest demands that we take a more liberal view in
determining whether the petitioners suing as legislators, taxpayers and citizens have locus
standi to file the instant petition.In Kilosbayan, Inc. v. Guingona,this Court held "[i]n line
with the liberal policy of this Court on locus standi,ordinary taxpayers, members of
Congress, and even association of planters, and non-profit civic organizations were allowed
to initiate and prosecute actions before this Court to question the constitutionality or validity
of laws, acts, decisions, rulings, or orders of various government agencies or
instrumentalities," Further, "insofar as taxpayers' suits are concerned ...(this Court) is not
devoid of discretion as to whether or not it should be entertained." As such "...even if,
strictly speaking, they [the petitioners] are not covered by the definition, it is still within
the wide discretion of the Court to waive the requirement and so remove the impediment
to its addressing and resolving the serious constitutional questions raised." In view of the
serious legal questions involved and their impact on public interest, we resolve to grant
standing to the petitioners.
4. ID.;ID.;JURISDICTION; HIERARCHY OF COURTS MAY BE RELAXED WHEN THE
REDRESS DESIRED CANNOT BE OBTAINED IN THE APPROPRIATE COURTS. — The rule on
hierarchy of courts will not also prevent this Court from assuming jurisdiction over the cases
at bar. The said rule may be relaxed when the redress desired cannot be obtained in the
appropriate courts or where exceptional and compelling circumstances justify availment of
a remedy within and calling for the exercise of this Court's primary jurisdiction. ATaDHC
5. ID.;ID.;ID.;PROCEDURAL BARS MAY BE LOWERED TO GIVE WAY FOR THE
SPEEDY DISPOSITION OF CASES OF TRANSCENDENTAL IMPORTANCE. — It is easy to
discern that exceptional circumstances exist in the cases at bar that call for the relaxation
of the rule. Both petitioners and respondents agree that these cases are oftranscendental
importance as they involve the construction and operation of the country's premier
international airport. Moreover, the crucial issues submitted for resolution are of first
impression and they entail the proper legal interpretation of key provisions of
the Constitution, the BOT Law and its Implementing Rules and Regulations. Thus,
considering the nature of the controversy before the Court, procedural bars may be lowered
to give way for the speedy disposition of the instant cases.
6. CIVIL LAW; OBLIGATIONS AND CONTRACTS; ARBITRATION CLAUSE; NOT
BINDING TO PERSONS NOT PARTIES TO THE CONTRACT. — It is established thatpetitioners
in the present cases who have presented legitimate interests in the resolution of the
controversy are not parties to the PIATCO Contracts.Accordingly, they cannot be bound by
the arbitration clause provided for in the ARCA and hence, cannot be compelled to submit
to arbitration proceedings. A speedy and decisive resolution of all the critical issues in the
present controversy, including those raised by petitioners, cannot be made before an
arbitral tribunal.The object of arbitration is precisely to allow an expeditious determination
of a dispute. This objective would not be met if this Court were to allow the parties to settle
the cases by arbitration as there are certain issues involving non-parties to the PIATCO
Contracts which the arbitral tribunal will not be equipped to resolve.
7. POLITICAL LAW; ADMINISTRATIVE LAW; REPUBLIC ACT NO. 6957 (BUILD-
OPERATE-AND-TRANSFER or BOT LAW); CONTRACT SHALL BE AWARDED TO THE BIDDER
WHO SATISFIED THE. MINIMUM FINANCIAL, TECHNICAL, ORGANIZATIONAL AND LEGAL
STANDARDS REQUIRED BY LAW. — Under the BOT Law, in case of a build-operate-and-
transfer arrangement, the contract shall be awarded to the bidder "who, having satisfied
the minimum financial, technical, organizational and leg standards" required by the law,
has submitted the lowest bid and most favorable terms of the project. ...Accordingly, ...the
Paircargo Consortium or any challenger to the unsolicited proposal of AEDC has to show
that it possesses the requisite financial capability to undertake the project in the minimum
amount of 30% of the project costthrough (i) proof of the ability to provide a minimum
amount of equity to the project, and (ii) a letter testimonial from reputable banks attesting
that the project proponent or members of the consortium are banking with them, that they
are in good financial standing, and that they have adequate resources.
8. ID.;ID.;ID.;ID.;TOTAL NET WORTH OF THE PAIRCARGO CONSORTIUM IS LESS
THAT THE PRESCRIBED MINIMUM EQUITY INVESTMENT REQUIRED FOR THE PROJECT. —
We agree with public respondents that with respect to Security Bank, the entire amount of
its net worth could not be invested in a single undertaking or enterprise, whether allied or
non-allied in accordance with the provisions of R.A. No. 337, as amended or the General
Banking Act[.] . . . Thus, the maximum amount that Security Bank could validly invest in
the Paircargo Consortium is only P528,525,656.55, representing 15% of its entire net
worth. The total net worth therefore of the Paircargo Consortium, after considering
the maximum amounts that may be validly invested by each of its members
is P558,384,871.55 or only 6.08% of the project cost,an amount substantially less than the
prescribed minimum equity investment required for the project in the amount of
P2,755,095,000.00 or 30% of the project cost. cHaADC
9. ID.;ID.;PUBLIC BIDDING; PRE-QUALIFICATION STAGE; GOVERNMENT
AGENCY MUST DETERMINE THE BIDDER'S FINANCIAL CAPACITY. — The purpose of pre-
qualification in any public bidding is to determine, at the earliest opportunity, the ability of
the bidder to undertake the project. Thus, with respect to the bidder's financial capacity at
the pre-qualification stage, the law requires the government agency to examine and
determine the ability of the bidder to fund the entire cost of the project by considering the
maximum amounts that each bidder may invest in the project at the time of pre-
qualification.
10. ID.;ID.;ID.;ID.;ID.;SHOULD DETERMINE THE MAXIMUM AMOUNT THAT EACH
MEMBER OF THE CONSORTIUM MAY COMMIT WITHOUT DISREGARDING THE INVESTMENT
CEILINGS PROVIDED BY APPLICABLE LAW. — The PBAC has determined that any
prospective bidder, for the construction, operation and maintenance of the NAIA IPT III
project should prove that it has the ability to provide equity in the minimum amount of
30% of the project cost, in accordance with the 70:30 debt-to-equity ratio prescribed in
the Bid Documents. Thus, in the case of Paircargo Consortium, the PBAC should determine
the maximum amounts that each member of the consortium may commit for the
construction, operation and maintenance of the NAIA IPT III project at the time of pre-
qualification. With respect to Security Bank, the maximum amount which may be invested
by it would only be 15% of its net worth in view of the restrictions imposed by the General
Banking Act. Disregarding the investment ceilings provided by applicable law would not
result in a proper evaluation of whether or not a bidder is pre-qualified to undertake the
project as for all intents and purposes, such ceiling or legal restriction determines the true
maximum amount which a bidder may invest in the project.
11. ID.;ID.;ID.;ID.;ID.;EVALUATION OF THE FINANCIAL CAPACITY OF THE
BIDDER MUST BE AT THE TIME THE BID IS SUBMITTED. — [T]he determination of whether
or not a bidder is pre-qualified to undertake the project requires an evaluation of the
financial capacity of the said bidder at the time the bid is submitted based on the required
documents presented by the bidder. The PBAC should not be allowed to speculate on
the future financial ability of the bidder to undertake the project on the basis of documents
submitted. This would open doors to abuse and defeat the very purpose of a public bidding.
This is especially true in the case at bar which involves the investment of billions of pesos
by the project proponent. The relevant government authority is duty-bound to ensure that
the awardee of the contract possesses the minimum required financial capability to
complete the project. To allow the PBAC to estimate the bidder's future financial
capability would not secure the viability and integrity of the project.
12. ID.;ID.;ID.;ID.;ID.;IF THE BIDDER FALLS SHORT OF THE MINIMUM
AMOUNTS REQUIRED, THE SAID BIDDER SHOULD BE DISQUALIFIED. — Thus, if
themaximum amount of equity that a bidder may invest in the project at the time the bids
are submitted falls short of the minimum amounts required to be put up by the bidder, said
bidder should be properly disqualified. Considering that at the pre-qualification stage, the
maximum amounts which the Paircargo Consortium may invest in the project fell short of
the minimum amounts prescribed by the PBAC, we hold that Paircargo Consortium was not
a qualified bidder. Thus the award of the contract by the PBAC to the Paircargo Consortium,
a disqualified bidder, is null and void.
13. ID.;ID.;ID.;RESTRICTIVE AND CONSERVATIVE APPLICATION OF THE RULES
AND PROCEDURE IS NECESSARY. — A restrictive and conservative application of the rules
and procedures of public bidding is necessary not only to protect the impartiality and
regularity of the proceedings but also to ensure the financial and technical reliability of the
project. It has been held that: "The basic rule in public bidding is that bids should be
evaluated based on the required documents submitted before and not after the opening of
bids. Otherwise, the foundation of a fair and competitive public bidding would be
defeated. Strict observance of the rules, regulations, and guidelines of the bidding process
is the only safeguard to a fair, honest and competitive public bidding." ACIDSc
14. ID.;ID.;ID.;PURPOSE. — By its very nature, public bidding aims to protect the
public interest by giving the public the best possible advantages through open competition.
Thus: "Competition must be legitimate, fair and honest. In the field of government contract
law, competition requires, not only bidding upon a common standard, a common basis,
upon the same thing, the same subject matter, the same undertaking,' but also that it be
legitimate, fair and honest; and not designed to injure or defraud the government."
15. ID.;ID.;ID.;ALL BIDDERS MUST BE ON EQUAL FOOTING ON THE CONTRACT
RIDDED UPON. — An essential element of a publicly bidded contract is that all bidders must
be on equal footing. Not simply in terms of application of the procedural rules and
regulations imposed by the relevant government agency, but more importantly, on the
contract bidded upon. Each bidder must be able to bid on the same thing.The rationale is
obvious. If the winning bidder is allowed to later include or modify certain provisions in the
contract awarded such that the contract is altered in any material respect, then the essence
of fair competition in the public bidding is destroyed. A public bidding would indeed be a
farce if after the contract is awarded, the winning bidder may modify the contract and
include provisions which are favorable to it that were not previously made available to the
other bidders.
16. ID.;ID.;ID.;AMENDMENTS TO CONTRACT BIDDED; WINNING BIDDER IS NOT
PRECLUDED FROM MODIFYING OR AMENDING CERTAIN PROVISIONS OF THE CONTRACT
THAT DOES NOT CONSTITUTE SUBSTANTIAL OR MATERIAL AMENDMENTS. — While we
concede that a winning bidder is not precluded from modifying or amending certain
provisions of the contract bidded upon, such changes must not constitute substantial or
material amendments that would alter the basic parameters of the contract and would
constitute a denial to the other bidders of the opportunity to bid on the same terms.Hence,
the determination of whether or not a modification or amendment of a contract bidded out
constitutes a substantial amendment rests on whether the contract, when taken as a whole,
would contain substantially different terms and conditions that would have the effect of
altering the technical and/or financial proposals previously submitted by other bidders. The
alterations and modifications in the contract executed between the government and the
winning bidder must be such as to render such executed contract to be an entirely different
contract from the one that was bidded upon.
17. ID.;ID.;ID.;ID.;SIGNIFICANT AMENDMENTS IN THE PIATCO'S DRAFT
CONCESSION AGREEMENT; TYPES OF FEES THAT MAY BE IMPOSED AND COLLECTED BY
PIATCO. — When taken as a whole, the changes under the 1997 Concession Agreement
with respect to reduction in the types of fees that are subject to MIAA regulation and the
relaxation of such regulation with respect to other fees are significant amendments that
substantially distinguish the draft Concession Agreement from the 1997 Concession
Agreement. The 1997 Concession Agreement, in this respect, clearly gives PIATCO more
favorable terms than what was available to other bidders at the time the contract was
bidded out.It is not very difficult to see that the changes in the 1997 Concession Agreement
translate to direct and concrete financial advantages for PIATCO which were not available
at the time the contract was offered for bidding. It cannot be denied that under the 1997
Concession Agreement only "Public Utility Revenues" are subject to MIAA regulation.
Adjustments of all other fees imposed and collected by PIATCO are entirely within its
control.Moreover, with respect to terminal fees, under the 1997 Concession Agreement,
the same is further subject to "Interim Adjustments" not previously stipulated in the draft
Concession Agreement. Finally, the change in the currency stipulated for "Public Utility
Revenues" under the 1997 Concession Agreement, except terminal fees, gives PIATCO an
added benefit which was not available at the time of bidding. acHCSD
18. ID.;ID.;ID.;ID.;ID.;ASSUMPTION BY THE GOVERNMENT OF THE LIABILITIES
OF PIATCO IN THE EVENT OF THE LATTER'S DEFAULT TRANSLATES BETTER TERMS AND
CONDITION FOR PIATCO. — Under the draft Concession Agreement,default by PIATCO of
any of its obligations to creditors who have provided, loaned or advanced funds for the
NAIA IPT III project does not result in the assumption by the Government of these liabilities.
In fact, nowhere in the said contract does default of PIATCO's loans figure in the agreement.
Such default does not directly result in any concomitant right or obligation in favor of the
Government. However, the 1997 Concession Agreement ...[u]nder ...Section 4.04 in
relation to the definition of "Attendant Liabilities," default by PIATCO of its loans used to
finance the NAIA IPT III project triggers the occurrence of certain events that leads to the
assumption by the Government of the liability for the loans.Only in one instance may the
Government escape the assumption of PIATCO's liabilities, i.e.,when the Government so
elects and allows a qualified operator to take over as Concessionaire. However, this
circumstance is dependent on the existence and availability of a qualified operator who is
willing to take over the rights and obligations of PIATCO under the contract, a circumstance
that is not entirely within the control of the Government.Without going into the validity of
this provision at this juncture, suffice it to state that Section 4.04 of the 1997 Concession
Agreement may be considered a form of security for the loans PIATCO has obtained to
finance the project, an option that was not made available in the draft Concession
Agreement. Section 4.04 is an important amendment to the 1997 Concession Agreement
because it grants PIATCO a financial advantage or benefit which was not previously made
available during the bidding process.This financial advantage is a significant modification
that translates to better terms and conditions for PIATCO.
19. ID.;ID.;ID.;ID.;SHOULD ALWAYS CONFORM TO THE GENERAL PUBLIC
POLICY. — [T]his Court maintains that amendments to the contract bidded upon should
always conform to the general policy on public bidding if such procedure is to be faithful to
its real nature and purpose. By its very nature and characteristic, competitive public bidding
aims to protect the public interest by giving the public the best possible advantages through
open competition. It has been held that the three principles in public bidding are (1) the
offer to the public; (2) opportunity for competition; and (3) a basis for the exact comparison
of bids. A regulation of the matter which excludes any of these factors destroys the
distinctive character of the system and thwarts the purpose of its adoption. These are the
basic parameters which every awardee of a contract bidded out must conform to,
requirements of financing and borrowing notwithstanding. Thus, upon a concrete showing
that, as in this case, the contract signed by the government and the contract awardee is
an entirely different contract from the contract bidded, courts should not hesitate to strike
down said contract in its entirety for violation of public policy on public bidding. A strict
adherence on the principles, rules and regulations on public bidding must be sustained if
only to preserve the integrity and the faith of the general public on the procedure.
20. ID.;ID.;ID.;ID.;ANY GOVERNMENT ACTION WHICH PERMITS ANY
SUBSTANTIAL VARIANCE THEREOF IS A GRAVE ABUSE OF DISCRETION. — Public bidding
is a standard practice for procuring government contracts for public service and for
furnishing supplies and other materials. It aims to secure for the government the lowest
possible price under the most favorable terms and conditions, to curtail favoritism in the
award of government contracts and avoid suspicion of anomalies and it places all bidders
in equal footing. Any government action which permits any substantial variance between
the conditions under which the bids are invited and the contract executed after the award
thereof is a grave abuse of discretion amounting to lack or excess of jurisdiction which
warrants proper judicial action. CaHcET
21. ID.;ID.;ID.;ID.;DIRECTLY TRANSLATES CONCRETE FINANCIAL ADVANTAGES
TO PIATCO THAT WERE PREVIOUSLY NOT AVAILABLE DURING THE BIDDING PROCESS. —
The fact that the ...substantial amendments were made on the 1997 Concession
Agreement renders the same null and void for being contrary to public policy.These
amendments convert the 1997 Concession Agreement to an entirely different
agreement from the contract bidded out or the draft Concession Agreement. It is not
difficult to see that the amendments on (1) the types of fees or charges that are subject to
MIAA regulation or control and the extent thereof and (2) the assumption by the
Government, under certain conditions, of the liabilities of PIATCO directly translates
concrete financial advantages to PIATCO that were previously not available during the
bidding process.These amendments cannot be taken as merely supplements to or
implementing provisions of those already existing in the draft Concession Agreement. The
amendments discussed above present new terms and conditions which provide financial
benefit to PIATCO which may have altered the technical and financial parameters of other
bidders had they known that such terms were available.
22. ID.; ID.; BOT LAW; PURPOSE. — One of the main impetus for the enactment
of the BOT Law is the lack of government funds to construct the infrastructure and
development projects necessary for economic growth and development. This is why private
sector resources are being tapped in order to finance these projects. The BOT law allows
the private sector to participate, and is in fact encouraged to do so by way of incentives,
such as minimizing, the unstable flow of returns, provided that the government would not
have to unnecessarily expend scarcely available funds for the project itself. As such, direct
guarantee, subsidy and equity by the government in these projects are strictly
prohibited. This is but logical for if the government would in the end still be at a risk of
paying the debts incurred by the private entity in the BOT projects, then the purpose of the
law is subverted.
 23. ID.; ID.; ID.; CONDITIONS FOR THE ACCEPTANCE OF THE UNSOLICITED
PROPOSAL FOR A BOT PROJECT. — The BOT Law and its implementing rules provide that
in order for an unsolicited proposal for a BOT project may be accepted, the following
conditions must first be met: (1) the project involves a new concept in technology and/or
is not part of the list of priority projects, (2) no direct government guarantee, subsidy or
equity is required,and (3) the government agency or local government unit has invited by
publication other interested parties to a public bidding and conducted the same. The failure
to meet any of the above conditions will result in the denial of the proposal.
24. ID.; ID.; ID.; STRICTLY PROHIBITS DIRECT GOVERNMENT GUARANTEE,
SUBSIDY AND EQUITY IN UNSOLICITED PROPOSAL. — It is further provided that the
presence of direct government guarantee, subsidy or equity will "necessarily, disqualify a
proposal from being treated and accepted as an unsolicited proposal." TheBOT Law clearly
and strictly prohibits direct government guarantee, subsidy and equity in unsolicited
proposals that the mere inclusion of a provision to that effect is fatal and is sufficient to
deny the proposal. It stands to reason therefore that if a proposal can be denied by reason
of the existence of direct government guarantee, then its inclusion in the contract executed
after the said proposal has been accepted is likewise sufficient to invalidate the contract
itself. A prohibited provision, the inclusion of which would result in the denial of a proposal
cannot, and should not, be allowed to later on be inserted in the contract resulting from
the said proposal. The basic rules of justice and fair play alone militate against such an
occurrence and must not, therefore, be countenanced particularly in this instance where
the government is exposed to the risk of shouldering hundreds of million of dollars in
debt. CSDcTA
25. ID.;ID.;ID.;ID.;VIOLATED IN CASE AT BAR. — The proscription against
government guarantee in any form is one of the policy considerations behind the BOT
Law.Clearly, in the present case, the ARCA obligates the Government to pay for all loans,
advances and obligations arising out of financial facilities extended to PIATCO for the
implementation of the NAIA IPT III project should PIATCO default in its loan obligations to
its Senior Lenders and the latter fails to appoint a qualified nominee or transferee. This in
effect would make the Government liable for PIATCO's loans should the conditions as set
forth in the ARCA arise. This is a form of direct government guarantee. ...This Court has
long and consistently adhered to the legal maxim that those that cannot be done directly
cannot be done indirectly. To declare the PIATCO contracts valid despite the clear statutory
prohibition against a direct government guarantee would not only make a mockery of what
the BOT Law seeks to prevent — which is to expose the government to the risk of incurring
a monetary obligation resulting from a contract of loan between the project proponent and
its lenders and to which the Government is not a party to — but would also render the BOT
Law useless for what it seeks to achieve — to make use of the resources of the private
sector in the "financing, operation and maintenance of infrastructure and development
projects" which are necessary for national growth and development but which the
government, unfortunately, could ill-afford to finance at this point in time.
26. ID.; CONSTITUTIONAL LAW; POLICE POWER; TEMPORARY TAKEOVER OF
BUSINESS AFFECTED WITH PUBLIC INTEREST; GOVERNMENT IS NOT REQUIRED TO
COMPENSATE THE PRIVATE ENTITY-OWNER. — Article XII, Section 17 of the 1987
Constitution . . . pertains to the right of the State in times of national emergency, and in
the exercise of its police power, to temporarily take over the operation of any business
affected with public interest. In the 1986 Constitutional Commission, the term "national
emergency" was defined to include threat from external aggression, calamities or national
disasters, but not strikes "unless it is of such proportion that would paralyze government
service." The duration of the emergency itself is the determining factor as to how long the
temporary takeover by the government would last. The temporary takeover by the
government extends only to the operation of the business and not to the ownership thereof.
As such the government is not required to compensate the private entity-owner of the said
business as there is no transfer of ownership,whether permanent or temporary. The private
entity-owner affected by the temporary takeover cannot, likewise, claim just compensation
for the use of the said business and its properties as the temporary takeover by the
government is in exercise of its police power and not of its power of eminent domain.
27. ID.;ID.;ID.;ID.;ID.;CANNOT BE CONTRAVENED BY MERE CONTRACTUAL
STIPULATION. — PIATCO cannot, by mere contractual stipulation, contravene the
Constitutional provision on temporary government takeover and obligate the government
to pay "reasonable cost for the use of the Terminal and/or Terminal Complex." Article XII,
Section 17 of the 1987 Constitution envisions a situation wherein the exigencies of the
times necessitate the government to "temporarily take over or direct the operation of any
privately owned public utility or business affected with public interest." It is the welfare and
interest of the public which is the paramount consideration in determining whether or not
to temporarily take over a particular business. Clearly, the State in effecting the temporary
takeover is exercising its police power. Police power is the "most essential, insistent, and
illimitable of powers." Its exercise therefore must not be unreasonably hampered nor its
exercise be a source of obligation by the government in the absence of damage due to
arbitrariness of its exercise. Thus, requiring the government to pay reasonable
compensation for the reasonable use of the property pursuant to the operation of the
business contravenes the Constitution.
28. ID.; ID.; NATIONAL ECONOMY AND PATRIMONY; CONSTITUTION STRICTLY
REGULATES MONOPOLIES. — A monopoly is "a privilege or peculiar advantage vested in
one or more persons or companies, consisting in the exclusive right (or power) to carry on
a particular business or trade, manufacture a particular article, or control the sale of a
particular commodity." The 1987 Constitution strictly regulates monopolies,whether private
or public, and even provides for their prohibition if public interest so requires. ...Clearly,
monopolies are not per se prohibited by the Constitution but may be permitted to exist to
aid the government in carrying on an enterprise or to aid in the performance of various
services and functions in the interest of the public.Nonetheless, a determination must first
be made as to whether public interest requires a monopoly. As monopolies are subject to
abuses that can inflict severe prejudice to the public, they are subject to a higher level of
State regulation than an ordinary business undertaking. ETHIDa
29. ID.;ID.;ID.;ID.;PRIVILEGE GIVEN TO PIATCO SHOULD BE SUBJECT TO
REASONABLE REGULATION AND SUPERVISION BY THE GOVERNMENT. — The operation of
an international passenger airport terminal is no doubt an undertaking imbued with public
interest. In entering into a Build-Operate-and-Transfer contract for the construction,
operation and maintenance of NAIA IPT III, the government has determined that public
interest would be served better if private sector resources were used in its construction and
an exclusive right to operate be granted to the private entity undertaking the said project,
in this case PIATCO. Nonetheless, the privilege given to PIATCO is subject to reasonable
regulation and supervision by the Government through the MIAA, which is the government
agency authorized to operate the NAIA complex, as well as DOTC, the department to which
MIAA is attached. This is in accord with the Constitutional mandate that a monopoly which
is not prohibited must be regulated.
30. ID.; ID.; ID.; ID.; OPERATION OF PUBLIC UTILITY CANNOT BE DONE IN AN
ARBITRARY MANNER TO THE DETRIMENT OF THE PUBLIC. — While it is the declared policy
of the BOT Law to encourage private sector participation by "providing a climate of
minimum government regulations," the same does not mean that Government must
completely surrender its sovereign power to protect public interest in the operation of a
public utility as a monopoly. The operation of said public utility can not be done in an
arbitrary manner to the detriment of the public which it seeks to serve. The right granted
to the public utility may be exclusive but the exercise of the right cannot run riot. Thus,
while PIATCO may be authorized to exclusively operate NAIA IPT III as an international
passenger terminal, the Government, through the MIAA, has the right and the duty to
ensure that it is done in accord with public interest. PIATCO's right to operate NAIA IPT III
cannot also violate the rights of third parties.
31. ID.;ID.;BILL OF RIGHTS NON-IMPAIRMENT OF OBLIGATIONS OF CONTRACT;
PIATCO, BY CLAIMING AN EXCLUSIVE RIGHT TO OPERATE, CANNOT REQUIRE THE
GOVERNMENT TO BREAK ITS CONTRACTUAL OBLIGATIONS TO THE SERVICE PROVIDERS.
— We hold that while the service providers presently operating at NAIA Terminal 1 do not
have an absolute right for the renewal or the extension of their respective contracts, those
contracts whose duration extends beyond NAIA IPT III's In-Service-Date should not be
unduly prejudiced. These contracts must be respected not just by the parties thereto but
also by third parties. PIATCO cannot, by law and certainly not by contract, render a valid
and binding contract nugatory. PIATCO, by the mere expedient of claiming an exclusive
right to operate, cannot require the Government to break its contractual obligations to the
service providers. In contrast to the arrastre and stevedoring service providers in the case
of Anglo-Fil Trading Corporation v. Lazaro whose contracts consist of temporary hold-over
permits, the affected service providers in the cases at bar, have a valid and binding contract
with the Government, through MIAA, whose period of effectivity, as well as the other terms
and conditions thereof cannot be violated.
32. ID.;ID.;ID.;ID.;MIAA SHOULD ENSURE THAT WHOEVER BY CONTRACT IS
GIVEN THE RIGHT TO OPERATE NAIA IPT III WILL DO SO WITHIN THE BOUNDS OF THE
LAW. — In fine, the efficient functioning of NAIA IPT III is imbued with public interest. The
provisions of the 1997 Concession Agreement and the ARCA did not strip government, thru
the MIAA, of its right to supervise the operation of the whole NAIA complex, including NAIA
IPT III. As the primary government agency tasked with the job, it is MIAA's responsibility
to ensure that whoever by contract is given the right to operate NAIA IPT III will do so
within the bounds of the law and with due regard to the rights of third parties and above
all, the interest of the public. TSHIDa
PANGANIBAN,J.,separate opinion:
1. REMEDIAL LAW; SPECIAL CIVIL ACTION; PROHIBITION; DIRECT RESORT TO
THE SUPREME COURT BY THE EMPLOYEES WHO FEARED LOSS OF THEIR JOBS IS
JUSTIFIED. — The Court has, in the past, held that questions relating to gargantuan
government contracts ought to be settled without delay. This holding applies with greater
force to the instant cases. Respondent Piatco is partly correct in averring that petitioners
can obtain relief from the regional trial courts via an action to annul the contracts.
Nevertheless, the unavoidable consequence of having to await the rendition and the finality
of any such judgment would be a prolonged state of uncertainty that would be prejudicial
to the nation, the parties and the general public. And, in light of the feared loss of jobs of
the petitioning workers, consequent to the inevitable pretermination of contracts of the
petitioning service providers that will follow upon the heels of the impending opening of
NAIA Terminal III, the need for relief is patently urgent, and therefore, direct resort to this
Court through the special civil action of prohibition is thus justified.
2. ID.; ID.; ID.; DISPOSITION THEREOF ULTIMATELY RUNS ON QUESTIONS OF
LAW; CASE AT BAR. — Contrary to Piatco's argument that the resolution of the issues raised
in the Petitions will require delving into factual questions, I submit that their disposition
ultimately turns on questions of law. Further, many of the significant and relevant factual
questions can be easily addressed by an examination of the documents submitted by the
parties. In any event, the Petitions raise some novel questions involving the application of
the amended BOT Law, which this Court has seen fit to tackle.
3. ID.;CIVIL PROCEDURE; ARBITRATION PROCEEDINGS; CANNOT ADDRESS,
DETERMINE AND DEFINITIVELY RESOLVE THE CONSTITUTIONAL AND LEGAL QUESTIONS.
— As will be discussed at length later, the Piatco contracts are indeed void in their entirety;
thus, a resort to the aforesaid provision on arbitration is unavailing. Besides, petitioners
and petitioners-in-intervention have pointed out that, even granting arguendo that the
arbitration clause remained a valid provision, it still cannot bind them inasmuch as they are
not parties to the Piatco contracts. And in the final analysis, it is unarguable that the
arbitration process provided for under Section 10.02 of the Amended and Restated
Concession Agreement (ARCA),to be undertaken by a panel of three (3) arbitrators
appointed in accordance with the Rules of Arbitration of the International Chamber of
Commerce, will not be able to address, determine and definitively resolve the constitutional
and legal questions that have been raised in the Petitions before us.
4. ID.;ID.;LOCUS STANDI; CITIZEN, TAXPAYER AND MEMBERS OF THE HOUSE
OF REPRESENTATIVES ARE SUFFICIENTLY CLOTHED WITH STANDING TO BRING SUIT
QUESTIONING THE VALIDITY OF CONTRACT AFFECTING PUBLIC INTEREST. — Given this
Court's previous decisions in cases of similar import, no one will seriously doubt that, being
taxpayers and members of the House of Representatives, Petitioners Baterina et
al.have locus standi to bring the Petition in GR No. 155547. In Albano v. Reyes,this Court
held that the petitioner therein, suing as a citizen, taxpayer and member of the House of
Representatives, was sufficiently clothed with standing to bring the suit questioning the
validity of the assailed contract. The Court cited the fact that public interest was involved,
in view of the important role of the Manila International Container Terminal (MICT) in the
country's economic development and the magnitude of the financial consideration. This,
notwithstanding the fact that expenditure of public funds was not required under the
assailed contract. CcEHaI
5. ID.;ID.;ID.;MEMBERS OF HOUSE OF REPRESENTATIVES ARE DEPRIVED OF
DISCRETION; CASE AT BAR. — In the cases presently under consideration, petitioners'
personal and substantial interest in the controversy is shown by the fact that certain
provisions in the Piatco contracts create obligations on the part of government (through the
DOTC and the MIAA) to disburse public funds without prior congressional appropriations.
Petitioners thus correctly assert that the injury to them has a twofold aspect: (1) they are
adversely affected as taxpayers on account of the illegal disbursement of public funds; and
(2) they are prejudiced qualegislators, since the contractual provisions requiring the
government to incur expenditures without appropriations also operate as limitations upon
the exclusive power and prerogative of Congress over the public purse. As members of the
House of Representatives, they are actually deprived of discretion insofar as the inclusion
of those items of expenditure in the budget is concerned. To prevent such encroachment
upon the legislative privilege and obviate injury to the institution of which they are
members, petitioners-legislators have locus standi to bring suit.
6. ID.;ID.;ID.;EMPLOYEES ARE CONFRONTED WITH THE PROSPECT OF BEING
LAID OFF FROM THEIR JOBS. — Messrs. Agan et al.and Lopez et al.,are likewise taxpayers
and thus possessed of standing to challenge the illegal disbursement of public funds.
Messrs. Agan et al.,in particular, are employees (or representatives of employees) of
various service providers that have (1) existing concession agreements with the MIAA to
provide airport services necessary to the operation of the NAIA and (2) service agreements
to furnish essential support services to the international airlines operating at the NAIA.
Messrs. Lopez et al.are employees of the MIAA. These petitioners (Messrs. Agan et al.and
Messrs. Lopez et al.) are confronted with the prospect of being laid off from their jobs and
losing their means of livelihood when their employer-companies are forced to shut down or
otherwise retrench and cut back on manpower. Such development would result from the
imminent implementation of certain provisions in the contracts that tend toward the
creation of a monopoly in favor of Piatco, its subsidiaries and related companies.
7. ID.;ID.;ID.;SERVICE PROVIDERS CLAIM TO BE DEPRIVED OF THEIR PROPERTY
AND OF THE LIBERTY TO CONTRACT WITHOUT DUE PROCESS OF LAW. — Petitioners-in-
intervention are service providers in the business of furnishing airport-related services to
international airlines and passengers in the NAIA and are therefore competitors of Piatco
as far as that line of business is concerned. On account of provisions in the Piatco contracts,
petitioners-in-intervention have to enter into a written contract with Piatco so as not to be
shut out of NAIA Terminal III and barred from doing business there. Since there is no
provision to ensure or safeguard free and fair competition, they are literally at its mercy.
They claim injury on account of their deprivation of property (business) and of the liberty
to contract, without due process of law.
8. ID.;ID.;ID.;IN CASES OF TRANSCENDENTAL IMPORTANCE, THE SUPREME
COURT MAY RELAX THE STANDING REQUIREMENTS AND ALLOW A SUIT TO PROSPER. —
And even if petitioners and petitioners-in-intervention were not sufficiently clothed with
legal standing, I have at the outset already established that, given its impact on the public
and on national interest, this controversy is laden with transcendental importance and
constitutional significance. Hence, I do not hesitate to adopt the same position as was
enunciated in Kilosbayan v. Guingona Jr. that "in cases of transcendental importance, the
Court may relax the standing requirements and allow a suit to prosper even when there is
no direct injury to the party claiming the right of judicial review."
9. POLITICAL LAW; ADMINISTRATIVE LAW; REPUBLIC ACT NO. 6957 (BUILD-
OPERATE-AND TRANSFER or BOT LAW); PUBLIC BIDDING; BIDDER MUST SATISFY THE
MINIMUM REQUIREMENTS AND MEET THE TECHNICAL, FINANCIAL, ORGANIZATIONAL AND
LEGAL STANDARDS. — I must emphasize that the law requires the award of a BOT project
to the bidder that has satisfied the minimum requirements; and met the technical, financial,
organizational and legal standards provided in the BOT Law. DAHaTc
10. ID.;ID.;ID.;ID.;MUST BE CONDUCTED UNDER A TWO-STAGE SYSTEM. —
Section 5 of this statute requires that the price challenge via public bidding "must be
conducted under a two-envelope/two-stage system: the first envelope to contain the
technical proposal and the second envelope to contain the financial proposal." Moreover,
the 1994 Implementing Rules and Regulations (IRR) provide that only those bidders that
have passed the prequalification stage are permitted to have their two envelopes reviewed.
In other words, prospective bidders must prequalify by submitting their prequalification
documents for evaluation; and only the pre-qualified bidders would be entitled to have their
bids opened, evaluated and appreciated. On the other hand, disqualified bidders are to be
informed of the reason for their disqualification. This procedure was confirmed and
reiterated in the Bid Documents, which I quote thus: "Prequalified proponents will be
considered eligible to move to second stage technical proposal evaluation. The second and
third envelopes of pre-disqualified proponents will be returned."
11. ID.;ID.;ID.;ID.;PROPONENT MUST PROVE THAT IT IS ABLE TO RAISE THE
MINIMUM AMOUNT REQUIRED FOR THE PROJECT. — Aside from complying with the legal
and technical requirements (track record or experience of the firm and its key personnel),a
project proponent desiring to prequalify must also demonstrate its financial capacity to
undertake the projects. To establish such capability, a proponent must prove that it is able
to raise the minimum amount of equity required for the project and to procure the loans or
financing needed for it. Since the minimum amount of equity for the project was set at 30
percent of the minimum project cost of US$350 million, the minimum amount of equity
required of any proponent stood at US$105 million. Converted to pesos at the exchange
rate then of P26.239 to US$1.00 (as quoted by the Bangko Sentral ng Pilipinas),the peso
equivalent of the minimum equity was P2,755,095,000.
12. ID.;ID.;ID.;ID.;ID.;NOT COMPLIED WITH IN CASE AT BAR. — However, the
combined equity or net worth of the Paircargo consortium stood at only P558,384,871.55.
This amount was only slightly over 6 percent of the minimum project cost and very much
short of the required minimum equity, which was equivalent to 30 percent of the project
cost. Such deficiency should have immediately caused the disqualification of the Paircargo
consortium.
13. ID.; ID.; ID.; ID.; RULES, REGULATIONS AND GUIDELINES MUST BE
STRICTLY APPLIED; VIOLATED IN CASE AT BAR. — By virtue of the prequalified status
conferred upon the Paircargo, Undersecretary Cal's findings in effect relieved the
consortium of the need to comply with the financial capability requirement imposed by
the BOT Law and IRR. This position is unmistakably and squarely at odds with the Supreme
Court's consistent doctrine emphasizing the strict application of pertinent rules, regulations
and guidelines for the public bidding process, in order to place each bidder — actual or
potential — on the same footing. Thus, it is unarguably irregular and contrary to the very
concept of public bidding to permit a variance between the conditions under which bids are
invited and those under which proposals are submitted and approved.
14. ID.;ID.;ID.;ID.;ESSENCE. — Republic v. Capulong teaches that if one bidder
is relieved from having to conform to the conditions that impose some duty upon it, that
bidder is not contracting in fair competition with those bidders that propose to be bound by
all conditions. The essence of public bidding is, after all, an opportunity for fair competition
and a basis for the precise comparison of bids. Thus, each bidder must bid under the same
conditions; and be subject to the same guidelines, requirements and limitations. The
desired result is to be able to determine the best offer or lowest bid, all things being equal.
15. ID.;ID.;ID.;ID.;SINCE THE ENTIRE BIDDING PROCESS WAS FLAWED. AND
TAINTED FROM THE VERY OUTSET, THE AWARD OF CONCESSION WAS VOID. — Inasmuch
as the Paircargo consortium did not possess the minimum equity equivalent to 30 percent
of the minimum project cost, it should not have been prequalified or allowed to participate
further in the bidding. The Prequalification and Bidding Committee (PBAC) should therefore
not have opened the two envelopes of the consortium containing its technical and financial
proposals; required AEDC to match the consortium's bid; or awarded the Concession
Agreement to the consortium's successor-in-interest, Piatco. As there was effectively no
public bidding to speak of, the entire bidding process having been flawed and tainted from
the very outset, therefore, the award of the concession to Paircargo's successor Piatco was
void, and the Concession Agreement executed with the latter was likewise void ab initio.For
this reason, Piatco cannot and should not be allowed to benefit from that
Agreement. ICDcEA
16. ID.;ID.;ID.;ID.;PROTECTION OF THE PROPRIETARY INFORMATION IS
APPLICABLE TO THE ORIGINATOR OF THE UNSOLICITED PROPOSAL ONLY. — The
"proprietary information" referred to in Section 11.6 of the IRR pertains only to the
proprietary information of the originator of an unsolicited proposal, and not to those
belonging to a challenger. The reason for the protection accorded proprietary information
at all is the fact that, according to Section 4-A of the BOT Law as amended, a proposal
qualifies as an "unsolicited proposal" when it pertains to a project that involves "a new
concept or technology," and/or a project that is not on the government's list of priority
projects.
17. ID.; ID.; ID.; ID.; ID.; RATIONALE. — To be considered as utilizing a new
concept or technology, a project must involve the possession of exclusive rights (worldwide
or regional) over a process; or possession of intellectual property rights over a design,
methodology or engineering concept. Patently, the intent of the BOT Law is to encourage
individuals and groups to come up with creative innovations, fresh ideas and new
technology. Hence, the significance and necessity of protecting proprietary information in
connection with unsolicited proposals. And to make the encouragement real, the law also
extends to such individuals and groups what amounts to a "right of first refusal" to
undertake the project they conceptualized, involving the use of new technology or concepts,
through the mechanism of matching a price challenge.
18. ID.;ID.;ID.;ID.;BIDDER MUST BE GIVEN ACCESS TO THE ASSUMPTION AND
THE CALCULATIONS THAT WENT INTO CRAFTING THE COMPETING BID. — A competing
bid is never just any figure conjured from out of the blue; it is arrived at after studying
economic, financial, technical and other factors; it is likewise based on certain assumptions
as to the nature of the business, the market potentials, the probable demand for the product
or service, the future behavior of cost items, political and other risks, and so on. It is thus
self-evident that in order to be able to intelligently match a bid or price challenge, a bidder
must be given access to the assumptions and the calculations that went into crafting the
competing bid. In this instance, the financial and technical proposals of Piatco would have
provided AEDC with the necessary information to enable it to make a reasonably informed
matching bid. To put it more simply, a bidder unable to access the competitor's assumptions
will never figure out how the competing bid came about; requiring him to "counter-propose"
is like having him shoot at a target in the dark while blindfolded.
19. ID.;ID.;ID.;DEFINITE AND FIRM TIMETABLE FOR THE SUBMISSION OF THE
REQUIREMENTS TO EXPOSE AND WEED OUT UNQUALIFIED PROPONENTS. — The purpose
of having a definite and firm timetable for the submission of the requirements is not only
to prevent delays in the project implementation, but also to expose and weed out
unqualified proponents, who might have unceremoniously slipped through the earlier
prequalification process, by compelling them to put their money where their mouths are,
so to speak.
 20. ID.;ID.;ID.;ID.;EASILY CIRCUMVENTED BY MERELY POSTPONING THE
ACTUAL ISSUANCE OF THE NOTICE OF AWARD. — Nevertheless, this provision can be easily
circumvented by merely postponing the actual issuance of the Notice of Award, in order to
give the favored proponent sufficient time to comply with the requirements. Hence, to aver
or minimize the manipulation of the post-bidding process, the IRR not only set out the
precise sequence of events occurring between the completion of the evaluation of the
technical bids and the issuance of the Notice of Award, but also specified the timetables for
each such event. Definite allowable extensions of time were provided for, as were the
consequences of a failure to meet a particular deadline.
21. ID.;ID.;ID.;ID.;TO DISCOURAGE COLLUSION AND REDUCE THE
OPPORTUNITY FOR AGENTS OF GOVERNMENT TO ABUSE THEIR DISCRETION. — The highly
regulated time-frames within which the agents of government were to act evinced the intent
to impose upon them the duty to act expeditiously throughout the process, to the end that
the project be prosecuted and implemented without delay. This regulated scenario was
likewise intended to discourage collusion and substantially reduce the opportunity for
agents of government to abuse their discretion in the course of the award process. DcTSHa
22. ID.;ID.;ID.;PROCEDURE FOR THE AWARD OF THE PROJECTS. — In particular,
Section 9.1 of the 1994 IRR prescribed that within 30 calendar days from the time the
second-stage evaluation shall have been completed, the Committee must come to a
decision whether or not to award the contract and, within 7 days therefrom, the Notice of
Award must be approved by the head of agency or local government unit (LGU) concerned,
and its issuance must follow within another 7 days thereafter. Section 9.2 of the IRR set
the procedure applicable to projects involving substantial government undertakings as
follows: Within 7 days after the decision to award is made, the draft contract shall be
submitted to the ICC for clearance on a no-objection basis. If the draft contract includes
government undertakings already previously approved, then the submission shall be for
information only. However, should there be additional or new provisions different from the
original government undertakings, the draft shall have to be reviewed and approved. The
ICC has 15 working days to act thereon, and unless otherwise specified, its failure to act
on the contract within the specified time frame signifies that the agency or LGU may
proceed with the award. The head of agency or LGU shall approve the Notice of Award
within seven days of the clearance by the ICC on a no-objection basis, and the Notice itself
has to be issued within seven days thereafter.
23. ID.;ID.;ID.;VIOLATED IN CASE AT BAR. — Despite the clear timetables set
out in the IRR, several lengthy and still-unexplained delays occurred in the award process,
as can be observed from the presentation made by the counsel for public respondents.
[T]he chronology of events bespeaks an unmistakable disregard, if not disdain, by the
persons in charge of the award process for the time limitations prescribed by the IRR. Their
attitude flies in the face of this Court's solemn pronouncement in Republic v. Capulong that
"strict observance of the rules, regulations and guidelines of the bidding process is the only
safeguard to a fair, honest and competitive public bidding." From the foregoing, the only
conclusion that can possibly be drawn is that the BOT law and its IRR were repeatedly
violated with unmitigated impunity — and by agents of government, no less! On account of
such violation, the award of the contract to Piatco, which undoubtedly gained time and
benefited from the delays, must be deemed null and void from the beginning.
24. ID.;ID.;ID.;CHANGES TO THE CONTRACT BIDDED OUT RESULTED IN A
SUBSTANTIALLY DIFFERENT CONTRACT. — After the PBAC made its decision on December
11, 1996 to award the contract to Piatco, the latter negotiated changes to the Contract
bidded out and ended up with what amounts to a substantially new contract without any
public bidding.This Contract was subsequently further amended four more times through
negotiation and without any bidding. Thus, the contract actually executed between Piatco
and DOTC/MIAA on July 12, 1997 (the Concession Agreement or "CA") differed from the
contract bidded out[.] It goes without saying that the amendment of the Contract bidded
out (the DCA or draft concession agreement) — in such substantial manner, without any
public bidding, and after the bidding process had been concluded on December 11, 1996 —
is violative of public policy on public biddings, as well as the spirit and intent of the BOT
Law. The whole point of going through the public bidding exercise was completely lost. Its
very rationale was totally subverted by permitting Piatco to amend the contract for which
public bidding had already been concluded. Competitive bidding aims to obtain the best
deal possible by fostering transparency and preventing favoritism, collusion and fraud in
the awarding of contracts.That is the reason why procedural rules pertaining to public
bidding demand strict observance.
25. ID.;ID.;ID.;SUBSTANTIVE AMENDMENTS TO A CONTRACT FOR WHICH A
PUBLIC BIDDING HAS ALREADY BEEN FINISHED SHOULD ONLY BE AWARDED AFTER
ANOTHER PUBLIC BIDDING. — In a relatively early case, Caltex v. Delgado Brothers,this
Court made it clear that substantive amendments to a contract for which a public bidding
has already been finished should only be awarded after another public bidding: "The due
execution of a contract after public bidding is a limitation upon the right of the contracting
parties to alter or amend it without another public bidding, for otherwise what would a
public bidding be good for if after the execution of a contract after public bidding, the
contracting parties may alter or amend the contract, or even cancel it, at their will? Public
biddings are held for the protection of the public, and to give the public the best possible
advantages by means of open competition between the bidders. He who bids or offers the
best terms is awarded the contract subject of the bid, and it is obvious that such protection
and best possible advantages to the public will disappear if the parties to a contract
executed after public bidding may alter or amend it without another previous public
bidding." EaIcAS
26. ID.; ID.; ID.; TERMS, CONDITIONS AND STIPULATIONS OF THE CONTRACTS
MUST REMAIN INTACT AND NOT BE SUBJECT TO FURTHER NEGOTIATION. — TheBOT
Law cannot be said to allow the negotiation of contractual stipulations resulting in a
substantially new contract after the bidding process and price challenge had been
concluded. In fact, the BOT Law, in recognition of the time, money and effort invested in
an unsolicited proposal, accords its originator the privilege of matching the challenger's bid.
Section 4-A of the BOT Law specifically refers to a "lower price proposal" by a competing
bidder; and to the right of the original proponent "to match the price" of the challenger.
Thus, only the price proposals are in play. The terms, conditions and stipulations in the
contract for which public bidding has been concluded are understood to remain intact and
not be subject to further negotiation.Otherwise, the very essence of public bidding will be
destroyed — there will no basis for an exact comparison between bids. Moreover, Piatco
misinterpreted the meaning behind PBAC Bid Bulletin No. 3. The phrase amendments
...from time to timerefers only to those amendments to the draft concession agreement
issued by the PBAC prior to the submission of the price challenge; it certainly does not
include or permit amendments negotiated for and introduced after the bidding process, has
been terminated.
27. ID.;ID.;ID.;REVISIONS AND AMENDMENTS IN THE CONTRACTS THAT GIVE
UNDUE ADVANTAGE TO THE GOVERNMENT IS ILLEGAL. — In sum, the revisions and
amendments as embodied in the ARCA constitute very material alterations of the terms and
conditions of the CA, and give further manifestly undue advantage to Piatco at the expense
of government.Piatco claims that the changes to the CA were necessitated by the demands
of its foreign lenders. However, no proof whatsoever has been adduced to buttress this
claim.In any event, it is quite patent that the sum total of the aforementioned changes
resulted in drastically weakening the position of government to a degree that seems quite
excessive, even from the standpoint of a businessperson who regularly transacts with banks
and foreign lenders, is familiar with their mind-set, and understands what motivates them.
On the other hand, whatever it was that impelled government officials concerned to accede
to those grossly disadvantageous changes, I can only hazard a guess. There is no question
in my mind that the ARCA was unauthorized and illegal for lack of public bidding and for
being patently disadvantageous to government.
28. ID.;ID.;ID.;FIRST SUPPLEMENT TO VOID AND INEXISTENT ORIGINAL
CONCESSION AGREEMENT IS ALSO VOID AND INOPERATIVE; CASE AT BAR. — I must
emphasize that the First Supplement [FS] is void in two respects. First,it is merely an
amendment to the ARCA, upon which it is wholly dependent; therefore, since the ARCA is
void, inexistent and not capable of being ratified or amended, it follows that the FS too is
void, inexistent and inoperative. Second,even assuming arguendo that the ARCA is
somehow remotely valid, nonetheless the FS, in imposing significant new obligations upon
government, altered the fundamental terms and stipulations of the ARCA, thus
necessitating a public bidding all over again. That the FS was entered into sans public
bidding renders it utterly void and inoperative.
29. ID.;ID.;ID.;SECOND SUPPLEMENT IS ALSO VOID AND INOPERATIVE AS IT
DID NOT UNDERGO ANY PUBLIC BIDDING. — The Second Supplement ("SS") was executed
between the government and Piatco on September 4, 2000. It calls for Piatco, acting not
as concessionaire of NAIA Terminal III but as a public works contractor, to undertake — in
the government's stead — the clearing, removal, demolition and disposal of improvements,
subterranean obstructions and waste materials at the project site. The scope of the works,
the procedures involved, and the obligations of the contractor are provided for in Parts II
and III of the SS. Section 4.1 sets out the compensation to be paid, listing specific rates
per cubic meter of materials for each phase of the work — excavation, leveling, removal
and disposal, backfilling and dewatering. The amounts collectible by Piatco are to be offset
against the Annual Guaranteed Payments it must pay government. Though denominated
as Second Supplement, it was nothing less than an entirely new public works contract. Yet
it, too, did not undergo any public bidding, for which reason it is also void and inoperative.
Not surprisingly, Piatco had to subcontract the works to a certain Wintrack Builders, a firm
reputedly owned by a former high-ranking DOTC official. But that is another story
altogether. AaSHED
30. ID.;ID.;ID.;THIRD SUPPLEMENT IS VOID AB INITIO AS IT CREATED A NEW
MONETARY OBLIGATION ON THE PART OF THE GOVERNMENT WITHOUT PRIOR
APPROPRIATIONS. — The Third Supplement (TS) depends upon and is intended to
supplement the ARCA as well as the First Supplement, both of which are void and inexistent
and not capable of being ratified or amended. It follows that the TS is likewise void,
inexistent and inoperative. And even if, hypothetically speaking, both ARCA and FS are
valid, still, the Third Supplement — imposing as it does significant new obligations upon
government — would in effect alter the terms and stipulations of the ARCA in material
respects, thus necessitating another public bidding. Since the TS was not subjected to public
bidding, it is consequently utterly void as well. At any rate, the TS created new monetary
obligations on the part of government, for which there were no prior appropriations. Hence,
it follows that the same is, void ab initio.
31. ID.; ID.; ID.; DIRECT GOVERNMENT GUARANTEE IS PROHIBITED IN
UNSOLICITED PROPOSALS. — Section 4-A of the BOT Law as amended states
thatunsolicited proposals,such as the NAIA Terminal III Project, may be accepted by
government provided inter alia that no direct government guarantee, subsidy or equity is
required.In short, such guarantee is prohibited in unsolicited proposals. Section 2(n) of the
same legislation defines direct government guarantee as "an agreement whereby the
government or any of its agencies or local government units (will) assume responsibility
for the repayment of debt directly incurred by the project proponent in implementing the
project in case of a loan default."
32. ID.; ID.; ID.; ID.; REASON. — In the final analysis, Section 4.04(c)(iv) to (vi)
of the ARCA is diametrically at odds with the spirit and the intent of the BOT Law. The law
meant to mobilize private resources (the private sector) to take on the burden and the risks
of financing the construction, operation and maintenance of relevant infrastructure and
development projects for the simple reason that government is not in a position to do so.
By the same token, government guarantee was prohibited, since it would merely defeat the
purpose and raison d'être of a build-operate-and-transfer project to be undertaken by the
private sector. To the extent that the project proponent is able to obtain loans to fund the
project, those risks are shared between the project proponent on the one hand, and its
banks and other lenders on the other. But where the proponent or its lenders manage to
cajol or coerce the government into extending a guarantee of payment of the loan
obligations, the risks assumed by the lenders are passed right back to government. I cannot
understand why, in the instant case, government cheerfully assented to re-assuming the
risks of the project when it gave the prohibited guarantee and thus simply negated the very
purpose of the BOT Law and the protection it gives the government.
33. ID.;ID.;ID.;ID.;THE AMOUNT TO BE PAID BY GOVERNMENT IS GREATER OF
EITHER THE APPRAISED VALUE OF THE PROJECT OR THE AGGREGATE AMOUNT OF THE
MONEYS OWED BY PIATCO; CASE AT BAR. — Government's agreement to pay becomes
effective in the event of a default by Piatco on any of its loan obligations to the Senior
Lenders, and the amount to be paid by government is the greater of either the Appraised
Value of Terminal III or the aggregate amount of the moneys owed by Piatco — whether to
the Senior Lenders or to other entities, including its suppliers, contractors and
subcontractors. In effect, therefore, this agreement already constitutes the prohibited
assumption by government of responsibility for repayment of Piatco's debts in case of a
loan default. In fine, a direct government guarantee. It matters not that there is a
roundabout procedure prescribed by Section 4.04(c)(iv),(v) and (vi) that would
require, first,an attempt (albeit unsuccessful) by the Senior Lenders to transfer Piatco's
rights to a transferee of their choice; and, second,an effort (equally unsuccessful) to "enter
into any other arrangement" with the government regarding the Terminal III facility, before
government is required to make good on its guarantee. What is abundantly clear is the fact
that, in the devious labyrinthine process detailed in the aforesaid section, it is entirely within
the Senior Lenders' power, prerogative and control — exercisable via a mere refusal or
inability to agree upon "a transferee" or "any other arrangement" regarding the terminal
facility — to push the process forward to the ultimate contractual cul-de-sac,wherein
government will be compelled to abjectly surrender and make good on its guarantee of
payment.
34. ID.;ID.;ID.;ID.;PIATCO CONTRACTS ARE GROSSLY LOPSIDED IN FAVOR OF
PIATCO AND/OR ITS SENIOR LENDERS. — Piatco also argues that there is
no provisorequiring government to pay the Senior Lenders in the event of Piatco's default.
This is literally true, in the sense that Section 4.04(c)(vi) of ARCA speaks of government
making the termination payment to Piatco,not to the lenders. However, it is almost a
certainty that the Senior tenders will already have made Piatco sign over to them, ahead
of time, its right to receive such payments from government; and/or they may already have
had themselves appointed its attorneys-in-fact for the purpose of collecting and receiving
such payments. Nevertheless, as petitioners-in-intervention pointed out in their
Memorandum, the termination payment is to be made to Piatco, not to the lenders; and
there is no provision anywhere in the contract documents to prevent it from diverting the
proceeds to its own benefit and/or to ensure that it will necessarily use the same to pay off
the Senior Lenders and other creditors, in order to avert the foreclosure of the mortgage
and other liens on the terminal facility. Such deficiency puts the interests of government at
great risk. Indeed, if the unthinkable were to happen, government would be paying several
hundreds of millions of dollars, but the mortgage liens on the facility may still be foreclosed
by the Senior Lenders just the same.Consequently, the Piatco contracts are also
objectionable for grievously failing to adequately protect government's interests. More
accurately, the contracts would consistently weaken and do away with protection of
government interests. As such, they are therefore grossly lopsided in favor of Piatco and/or
its Senior Lenders. IAEcaH
35. ID.;ID.;ID.;ID.;AMENDED AND RESTATED CONCESSION AGREEMENT (ARCA)
INTENDS TO HAVE ALL PIATCO'S DEBTS COVERED BY THE GUARANTEE. — While on this
subject, it is well to recall the earlier discussion regarding a particularly noticeable alteration
of the concept of "Attendant Liabilities." In Section 1.06 of the CA defining the term, the
Piatco debts to be assumed/paid by government were qualified by the phrases recorded
and from time to time outstanding in the books of the Concessionaire and actually used for
the project.These phrases were eliminated from the ARCA's definition of Attendant
Liabilities. Since no explanation has been forthcoming from Piatco as to the possible
justification for such a drastic change, the only conclusion possible is that it intends to
have all of its debts covered by the guarantee, regardless of whether or not they are
disclosed in its books. This has particular reference to those borrowings which were
obtained in violation of the loan covenants requiring Piatco to maintain a minimum 70:30
debt-to-equity ratio, and even if the loan proceeds were not actually used for the project
itself. This point brings us back to the guarantee itself. In Section 4.04(c)(vi) of ARCA, the
amount which government has guaranteed to pay as termination payment is the greater of
either (i) the Appraised Value of the terminal facility or (ii) the aggregate of the Attendant
Liabilities. Given that the Attendant Liabilities may include practically any Piatco debt under
the sun, it is highly conceivable that their sum may greatly exceed the appraised value of
the facility, and government may end up paying very much more than the real worth of
Terminal III. (So why did government have to bother with public bidding anyway?)
36. ID.; ID.; ID.; INSTANCES WHEN TERMINATION COMPENSATION MAY BE
ALLOWED. — Section 7 of the BOT Law as amended in effect provides for the following
limited instances when termination compensation may be allowed: 1. Termination by the
government through no fault of the project proponent 2. Termination upon the parties'
mutual agreement and 3. Termination by the proponent due to government's default on
certain major contractual obligations. To emphasize, the law does not permit compensation
for the project proponent when contract termination is due to the proponent's own fault or
breach of contract.
37. ID.;ID.;ID.;ID.;VIOLATED IN CASE AT BAR. — This principle was clearly
violated in the Piatco Contracts. The ARCA stipulates that government is to pay termination
compensation to Piatco even when termination is initiated by government. Clearly, this
condition is not in line with Section 7 of the BOT Law. That provision permits a project
proponent to recover the actual expenses it incurred in the prosecution of the project plus
a reasonable rate of return not in excess of that provided in the contract; or to be
compensated for the equivalent or proportionate contract cost as defined in the contract,
in case the government is in default on certain major contractual obligations.
38. ID.;ID.;ID.;ID.;IN TERMINATION COMPENSATION, IT IS INDISPENSABLE
THAT THE INTEREST OF GOVERNMENT BE DULY INSURED; NOT PRESENT IN CASE AT BAR.
— [I]n those instances where such termination compensation is authorized by the BOT Law,
it is indispensable that the interest of government be duly insured.Section 5.08 the ARCA
mandates insurance coverage for the terminal facility; but all insurance policies are to be
assigned, and all proceeds are payable, to the Senior Lenders. In brief, the interest being
secured by such coverage is that of the Senior Lenders, not that of government. This can
hardly be considered compliance with law.
39. ID.; ID.; ID.; PROHIBITS A DIRECT GOVERNMENT SUBSIDY FOR
UNSOLICITED PROPOSALS. — It will be recalled that Section 4-A of the BOT Law as
amended prohibits not only direct government guarantees, but likewise a direct
government subsidy for unsolicited proposals. Section 13.2. b iii. of the 1999 IRR defines
a direct government subsidy as encompassing "an agreement whereby the Government
...will ... postpone any payments due from the proponent." By any manner of interpretation
or application, however, Section 8.01(d) of the ARCA clearly mandates
the indefinite postponement of payment of all of Piatco's obligations to the government, in
order to ensure that Piatco's obligations to the Senior Lenders are paid in full first. That is
nothing more or less than the direct government subsidy prohibited by the BOT Law and
the IRR. The fact that Piatco will pay interest on the unpaid amounts owed to government
does not change the situation or render the prohibited subsidy any less
unacceptable. DTAIaH
40. ID.; ID.; ID.; GOVERNMENT WILL BE AT THE MERCY OF THE FOREIGN
LENDERS; CASE AT BAR. — Earlier; I mentioned that Section 8.01(d) of the ARCA
completely eliminated the proviso in Section 8.04(d) of the CA which gave government the
right to appoint a financial controller to manage the cash position of Piatco during situations
of financial distress. Not only has government been deprived of any means of monitoring
and managing the situation; worse, as can be seen from Section 8.01(d) above-quoted,
the Senior Lenders have effectively locked in on the right to exercise financial controllership
over Piatco and to allocate its cash resources to the payment of all amounts owed to the
Senior Lenders before allowing any payment to be made to government. In brief, this
particular provision of the ARCA has placed in the hands of foreign lenders the power and
the authority to determine how much (if at all) and when the Philippine government (as
grantor of the franchise) may be allowed to receive from Piatco. In that situation,
government will be at the mercy of the foreign lenders. This is a situation completely
contrary to the rationale of the BOT Law and to public policy. The aforesaid provision rouses
mixed emotions — shame and disgust at the parties' (especially the government officials')
docile submission and abject servitude and surrender to the imperious and excessive
demands of the foreign lenders, on the one hand; and vehement outrage at the affront to
the sovereignty of the Republic and to the national honor, on the other. It is indeed time
to put an end to such an unbearable, dishonorable situation.
41. ID.; CONSTITUTIONAL LAW; NATIONAL ECONOMY AND
PATRIMONY; CONSTITUTION EXPRESSLY PROSCRIBES MAKING A FRANCHISE
EXCLUSIVE; VIOLATED IN CASE AT BAR. — What was granted to Piatco was not merely a
franchise, but an "exclusive right" to operate an international passenger terminal within the
"Island of Luzon." What this grant effectively means is that the government is now estopped
from exercising its inherent power to award any other person another franchise or a right
to operate such a public utility, in the event public interest in Luzon requires it. This
restriction is highly detrimental to government and to the public interest. While it cannot
be gainsaid that an enterprise that is a public utility may happen to constitute a monopoly
on account of the very nature of its business and the absence of competition, such a
situation does not however constitute justification to violate the constitutional prohibition
and grant an exclusive franchise or exclusive. right to operate a public utility. Piatco's
contention that the Constitution does not actually prohibit monopolies is beside the point.
As correctly argued, the existence of a monopoly by a public utility is a situation created by
circumstances that do not encourage competition. This situation is different from the grant
of a franchise to operate a public utility, a privilege granted by government. Of course, the
grant of a franchise may result in a monopoly. But making such franchise exclusive is what
is expressly proscribed by the Constitution.
42. ID.; ID.; ID.; EASY PAYMENT PLAN OF PIATCO CONTRACTS VIOLATES THE
TIME LIMITATION ON FRANCHISES. — Section 11 of Article XII of the Constitutionalso
provides that "no franchise, certificate or any other form of authorization for the operation
of a public utility shall be . . . for a longer period than fifty years." After all, a franchise held
for an unreasonably long time would likely give rise to the same evils as a monopoly. The
Piatco Contracts have come up with an innovative way to circumvent the prohibition and
obtain an extension. This fact can be gleaned from Section 8.03(b) of the ARCA [.] The
easy payment scheme therein is less beneficial than it first appears. Although it enables
government to avoid having to make outright payment of an obligation that will likely run
into billions of pesos, this easy payment plan will nevertheless cost government
considerable loss of income, which it would earn if it were to operate Terminal III by itself.
Inasmuch as payments to the concessionaire (Piatco) will be on "installment basis," interest
charges on the remaining unpaid balance would undoubtedly cause the total outstanding
balance to swell. Piatco would thus be entitled to remain in the driver's seat and keep
operating the terminal for an indefinite length of time.
43. ID.;ID.;ID.;MONOPOLY; ELUCIDATED: — Gokongwei Jr. v. Securities and
Exchange Commission elucidates the criteria to be employed: "A 'monopoly' embraces any
combination the tendency of which is to prevent competition in the broad and general
sense, or to control prices to the detriment of the public. In short, it is the concentration of
business in the hands of a few. The material consideration in determining its existence is
not that prices are raised and competition actually excluded, but that power exists to raise
prices or exclude competition when desired."
44. ID.; ID.; ID.; ID.; PIATCO CONTRACTS GIVE THE CONCESSIONAIRE
LIMITLESS POWER OVER THE CHARGING OF FEES, RENTALS AND SO FORTH. — Aside from
creating a monopoly, the Piatco contracts also give the concessionaire virtually limitless
power over the charging of fees, rentals and so forth. What little "oversight function" the
government might be able and minded to exercise is less than sufficient to protect the
public interest[.] It will be noted that Sec. 6.06 (Adjustment of Non-Public Utility Fees and
Charges) has no teeth, so the concessionaire can defy the government without fear of any
sanction. Moreover, Section 6.06 — taken together with Section 6.03(c) of the ARCA —
falls short of the standard set by the BOT Law as amended, which expressly requires in
Section 2(b) that the project proponent is "allowed to charge facility users appropriate tolls,
fees, rentals and charges, not exceeding those proposed in its bid or as negotiated and
incorporated in the contract ..."
45. ID.;ID.;BILL OF RIGHTS; PROHIBITION AGAINST IMPAIRMENT OF
CONTRACTS; VIOLATED IN CASE AT BAR. — By the In-Service Date, Terminal III shall be
the only facility to be operated as an international passenger terminal at the NAIA; thus,
Terminal I and II shall no longer operate as such, and no one shall be allowed to compete
with Piatco in the operation of an international passenger terminal in the NAIA. The bottom
line is that, as of the In-Service Date, Terminal III will be the only terminal where the
business of providing airport-related services to international airlines and passengers may
be conducted at all. Consequently, government through the DOTC/MIAA will be compelled
to cease honoring existing contracts with service providers after the In-Service Date, as
they cannot be allowed to operate in Terminal III. In short, the CA and the ARCA obligate
and constrain government to break its existing contracts with these service providers.
46. ID.;ID.;ID.;PROHIBITION AGAINST DEPRIVATION OF PROPERTY WITHOUT
DUE PROCESS; VIOLATED IN CASE AT BAR. — Notably, government is not in a position to
require Piatco to accommodate the displaced service providers, and it would be unrealistic
to think that these service providers can perform their service contracts in some other
international airport outside Luzon. Obviously, then, these displaced service providers are
— to borrow a quaint expression — up the river without a paddle.In plainer terms, they will
have lost their businesses entirely, in the blink of an eye. Moreover, since the displaced
service providers, being unable to operate, will be forced to close shop, their respective
employees — among them Messrs. Agan and Lopez et al. — have very grave cause for
concern, as they will find themselves out of employment and bereft of their means of
livelihood. This situation comprises still another violation of the constitution prohibition
against deprivation of property without due process. True, doing business at the NAIA may
be viewed more as a privilege than as a right. Nonetheless, where that privilege has been
availed of by the petitioners-in-intervention service providers for years on end, a situation
arises, similar to that in American Inter-fashion v. GTEB.We held therein that a privilege
enjoyed for seven years "evolved into some form of property right which should not be
removed ...arbitrarily and without due process." Said pronouncement is particularly
relevant and applicable to the situation at bar because the livelihood of the employees of
petitioners-intervenors are at stake. DaIACS
47. ID.;ID.;ID.;PROHIBITION AGAINST DEPRIVATION OF LIBERTY WITHOUT DUE
PROCESS; VIOLATED IN CASE AT BAR. — The Piatco Contracts by locking out existing
service providers from entry into Terminal III and restricting entry of future service
providers, thereby infringed upon the freedom — guaranteed to and heretofore enjoyed by
international airlines — to contract with local service providers of their choice, and vice
versa.Both the service providers and their client airlines will be deprived of the right to
liberty,which includes the right to enter into all contracts, and/or the right to make a
contract in relation to one's business.
48. ID.; LEGISLATIVE DEPARTMENT; PROHIBITION AGAINST DISBURSEMENT OF
PUBLIC FUNDS WITHOUT VALID APPROPRIATION; EFFECT. — Clearly prohibited by
the Constitution is the disbursement of public funds out of the treasury, except in pursuance
of an appropriation made by law. The immediate effect of this constitutional ban is that all
the various agencies of government are constrained to limit their expenditures to the
amounts appropriated by law for each fiscal year; and to carefully count their cash before
taking on contractual commitments.
49. ID.;ID.;ID.;EXISTENCE OF APPROPRIATIONS AND THE AVAILABILITY OF
FUNDS ARE INDISPENSABLE TO THE EXECUTION OF GOVERNMENT CONTRACTS. — [T]his
Court has held that "(I)t is quite evident from the tenor of the language of the law that the
existence of appropriations and the availability of funds are indispensable pre-requisites to
or conditions sine qua non for the execution of government contracts. The obvious intent
is to impose such conditions as a priorirequisites to the validity of the proposed contract."
50. ID.;ID.;LEGISLATIVE POWER OVER THE PUBLIC PURSE; VIOLATED IN CASE
AT BAR. — But the particularly sad thing about this transaction between MIAA and DPWH
is the fact that both agencies were maneuvered into (or allowed themselves to be
maneuvered into) an agreement that would ensure delivery of upgraded roads for Piatco's
benefit, using funds not allocated for that purpose. The agreement would then be presented
to Congress as a done deal. Congress would thus be obliged to uphold the agreement and
support it with the necessary allocations and appropriations for three years, in order to
enable DPWH to deliver on its committed repayments to MIAA. The net result is an
infringement on the legislative power over the public purse and a diminution of Congress'
control over expenditures of public funds — a development that would not have come about,
were it not for the Supplements. Very clever but very illegal!
51. CIVIL LAW; OBLIGATIONS AND CONTRACTS; CRITERIA FOR DETERMINING
WHETHER THE BEST-EFFORTS BASIS WILL APPLY. — To determine whether the additional
obligations under the Supplements may really be undertaken on a best-efforts basis only,
the nature of each of these obligations must be examined in the context of its relevance
and significance to the Terminal III Project, as well as of any adverse impact that may
result if such obligation is not performed or undertaken on time. In short, the criteria for
determining whether the best-efforts basis will apply is whether the obligations are critical
to the success of the Project and, accordingly, whether failure to perform them (or to
perform them on time) could result in a material breach of the contract.
52. ID.;ID.;ID.;OBLIGATIONS IN THE SUPPLEMENTS ARE MANDATORY IN
CHARACTER AND NOT FOR BEST-EFFORTS COMPLIANCE ONLY. — Viewed in this light, the
"Additional Special Obligations" set out in Section 4 of the FS take on a different aspect. In
particular, each of the following may all be deemed to play a major role in the successful
and timely prosecution of the Terminal III Project: the obtention of land required by PIATCO
for the taxilane and taxiway; the implementation of government's existing storm drainage
master plan; and coordination with DPWH for the completion of the three left-turning
overpasses before the In-Service Date, as well as acquisition and delivery of additional land
for the construction of the T2-T3 access road. Conversely, failure to deliver on any of these
obligations may conceivably result in substantial prejudice to the concessionaire, to such
an extent as to constitute a material breach of the Piatco Contracts. Whereupon, the
concessionaire may outrightly terminate the Contracts pursuant to Section 8.01 (b)(i) and
(ii) of the ARCA and seek payment of Liquidated Damages in accordance with Section
8.02(a) of the ARCA; or the concessionaire may instead require government to pay the
Incremental and Consequential Losses under Section 1.23 of the ARCA. The logical
conclusion then is that the obligations in the Supplements are not to be performed on a
best-efforts basis only, but are unarguably mandatory in character.
53. ID.;ID.;PIATCO CONTRACTS ARE VOID AB INITIO AND INOPERATIVE. — I
find that all the Piatco contracts, without exception, are void ab initio,and therefore
inoperative. Even the very process by which the contracts came into being — the bidding
and the award — has been riddled with irregularities galore and blatant violations of law
and public policy, far too many to ignore. There is thus no conceivable way, as proposed
by some, of saving one (the original Concession Agreement) while junking all the rest.
Neither is it possible to argue for the retention of the Draft Concession Agreement (referred
to in the various pleadings as the Contract Bidded Out) as the contract that should be kept
in force and effect to govern the situation, inasmuch as it was never executed by the parties.
What Piatco and the government executed was the Concession Agreement which is entirely
different from the Draft Concession Agreement.
 54. ID.;ID.;ID.;KEEPING PIATCO ON AS CONCESSIONAIRE IS
UNCONSCIONABLE. — Ultimately, though, it would be tantamount to an outrageous,
grievous and unforgivable mutilation of public policy and an insult to ourselves if we opt to
keep in place a contract — any contract — for to do so would assume that we agree to
having Piatco continue as the concessionaire for Terminal III. Despite all the insidious
contraventions of the Constitution, law and public policy Piatco perpetrated, keeping Piatco
on as concessionaire and even rewarding it by allowing it to operate and profit from
Terminal III — instead of imposing upon it the stiffest sanctions permissible under the laws
— is unconscionable. It is no exaggeration to say that Piatco may not really mind which
contract we decide to keep in place. For all it may care, we can do just as well without
one, if we only let it continue and operate the facility.After all, the real money will come
not from building the Terminal, but fromactually operating it for fifty or more years and
charging whatever it feels like, without any competition at all.This scenario must not be
allowed to happen. EAHDac
55. ID.;ID.;ID.;AEDC SHOULD NOT BE ALLOWED TO OPERATE THE TERMINAL
III. — If the Piatco contracts are junked altogether as I think they should be, should not
AEDC automatically be considered the winning bidder and therefore allowed to operate the
facility? My answer is a stone-cold 'No.' AEDC never won the bidding, never signed any
contract, and never built any facility. Why should it be allowed to automatically step in and
benefit from the greed of another?
56. ID.;ID.;ID.;GOVERNMENT SHOULD PAY ALL REASONABLE EXPENSES
INCURRED IN THE CONSTRUCTION OF TERMINAL III. — Should government pay at all for
reasonable expenses incurred in the construction of the Terminal? Indeed it should,
otherwise it will be unjustly enriching itself at the expense of Piatco and, in particular, its
funders, contractors and investors — both local and foreign. After all, there is no question
that the State needs and will make use of Terminal III, it being part and parcel of the critical
infrastructure and transportation-related programs of government. In Melchor v.
Commission on Audit,this Court held that even if the contract therein was void, the principle
of payment by quantum meruit was found applicable, and the contractor was allowed to
recover the reasonable value of the thing or services rendered (regardless of any
agreement as to the supposed value),in order to avoid unjust enrichment on the part of
government. The principle ofquantum meruit was likewise applied in Eslao v. Commission
on Audit,because to deny payment for a building almost completed and already occupied
would be to permit government to unjustly enrich itself at the expense of the contractor.
The same principle was applied in Republic v. Court of Appeals.
57. ID.;ID.;ID.;POSSIBLE PRACTICAL SOLUTION IS TO BID OUT THE OPERATION
OF TERMINAL III. — One possible practical solution would be for government — in view of
the nullity of the Piatco contracts and of the fact that Terminal III has already been built
and is almost finished — to bid out the operation of the facility under the same or analogous
principles as build-operate-and-transfer projects. To be imposed, however, is the condition
that the winning bidder must pay the builder of the facility a price fixed by government
based on quantum meruit;on the real, reasonable — not inflated — value of the built facility.
How the payment or series of payments to the builder, funders, investors and contractors
will be staggered and scheduled, will have to be built into the bids, along with the annual
guaranteed payments to government. In this manner, this whole sordid mess could result
in something truly beneficial for all, especially for the Filipino people.
VITUG, J.,separate dissenting opinion:
1. REMEDIAL LAW; CIVIL PROCEDURE; JURISDICTION; SUPREME COURT IS
BEREFT OF JURISDICTION OVER CASES INVOLVING NULLIFICATION OF CONTRACTS. —
This Court is bereft of jurisdiction to hear the petitions at bar. The Constitution provides
that the Supreme Court shall exercise original jurisdiction over, among other actual
controversies, petitions for certiorari, prohibition, mandamus, quo warranto,and habeas
corpus.The cases in question, although denominated to be petitions for prohibition, actually
pray for the nullification of the PIATCO contracts and to restrain respondents from
implementing said agreements for being illegal and unconstitutional.
2. ID.;ID.;ID.;SUPREME COURT IS NOT A TRIER OF FACTS. — The rule is explicit.
A petition for prohibition may be filed against a tribunal, corporation, board, officer or
person, exercising judicial, quasi-judicial or ministerial functions.What the petitions seek
from respondents do not involve judicial, quasi-judicial or ministerial functions. In
prohibition, only legal issues affecting the jurisdiction of the tribunal, board or officer
involved may be resolved on the basis of undisputed facts.The parties allege, respectively,
contentious evidentiary facts. It would be difficult, if not anomalous, to decide the
jurisdictional issue on the basis of the contradictory factual submissions made by the
parties. As the Court has so often exhorted, it is not a trier of facts.
3. ID.;ID.;ID.;PETITIONS FOR DECLARATORY RELIEF ARE COGNIZABLE BY THE
REGIONAL TRIAL COURT. — The petitions, in effect, are in the nature of actions for
declaratory relief under Rule 63 of the Rules of Court. The Rules provide that any person
interested under a contract may, before breach or violation thereof, bring an action in
the appropriate Regional Trial Court to determine any question of construction or validity
arising, and for a declaration of his rights or duties thereunder. The Supreme Court assumes
no jurisdiction over petitions for declaratory relief which are cognizable by regional trial
courts.
4. POLITICAL LAW; SEPARATION OF POWERS; COURT MAY NOT INTRUDE INTO
EVERY AFFAIR OF GOVERNMENT. — As I have so expressed in Tolentino vs. Secretary of
Finance,reiterated in Santiago vs. Guingona, Jr., the Supreme Court should not be thought
of as having been tasked with the awesome responsibility of overseeing the entire
bureaucracy. Pervasive and limitless, such as it may seem to be under the 1987
Constitution, judicial power still succumbs to the paramount doctrine of separation of
powers. The Court may not at good liberty intrude, in the guise of sovereign imprimatur,
into every affair of government. What significance can still then remain of the time-honored
and widely acclaimed principle of separation of powers if, at every turn, the Court allows
itself to pass upon at will the disposition of a co-equal, independent and coordinate branch
in our system of government. I dread to think of the so varied uncertainties that such an
undue interference can lead to.
DECISION
PUNO, J p:
Petitioners and petitioners-in-intervention filed the instant petitions for prohibition
under Rule 65 of the Revised Rules of Court seeking to prohibit the Manila International
Airport Authority (MIAA) and the Department of Transportation and Communications
(DOTC) and its Secretary from implementing the following agreements executed by the
Philippine Government through the DOTC and the MIAA and the Philippine International Air
Terminals Co.,Inc. (PIATCO):(1) the Concession Agreement signed on July 12, 1997, (2)
the Amended and Restated Concession Agreement dated November 26, 1999, (3) the First
Supplement to the Amended and Restated Concession Agreement dated August 27, 1999,
(4) the Second Supplement to the Amended and Restated Concession Agreement dated
September 4, 2000, and (5) the Third Supplement to the Amended and Restated
Concession Agreement dated June 22, 2001 (collectively, the PIATCO Contracts).
The facts are as follows:
In August 1989, the DOTC engaged the services of Aeroport de Paris (ADP) to
conduct a comprehensive study of the Ninoy Aquino International Airport (NAIA) and
determine whether the present airport can cope with the traffic development up to the year
2010. The study consisted of two parts: first, traffic forecasts, capacity of existing facilities,
NAIA future requirements, proposed master plans and development plans; and second,
presentation of the preliminary design of the passenger terminal building. The ADP
submitted a Draft Final Report to the DOTC in December 1989.
Some time in 1993, six business leaders consisting of John Gokongwei, Andrew
Gotianun, Henry Sy, Sr.,Lucio Tan, George Ty and Alfonso Yuchengco met with then
President Fidel V. Ramos to explore the possibility of investing in the construction and
operation of a new international airport terminal. To signify their commitment to pursue
the project, they formed the Asia's Emerging Dragon Corp. (AEDC) which was registered
with the Securities and Exchange Commission (SEC) on September 15, 1993. CSaITD
On October 5, 1994, AEDC submitted an unsolicited proposal to the Government
through the DOTC/MIAA for the development of NAIA International Passenger Terminal III
(NAIA IPT III) under a build-operate-and-transfer arrangement pursuant to RA 6957 as
amended by RA 7718 (BOT Law). 1
On December 2, 1994, the DOTC issued Dept. Order No. 94-832 constituting the
Prequalification Bids and Awards Committee (PBAC) for the implementation of the NAIA IPT
III project.
On March 27, 1995, then DOTC Secretary Jose Garcia endorsed the proposal of
AEDC to the National Economic and Development Authority (NEDA).A revised proposal,
however, was forwarded by the DOTC to NEDA on December 13, 1995. On January 5, 1996,
the NEDA Investment Coordinating Council (NEDA ICC) — Technical Board favorably
endorsed the project to the ICC — Cabinet Committee which approved the same, subject
to certain conditions, on January 19, 1996. On February 13, 1996, the NEDA passed Board
Resolution No. 2 which approved the NAIA IPT III Project.
On June 7, 14, and 21, 1996, DOTC/MIAA caused the publication in two daily
newspapers of an invitation for competitive or comparative proposals on AEDC's unsolicited
proposal, in accordance with Sec. 4-A of RA 6957, as amended. The alternative bidders
were required to submit three (3) sealed envelopes on or before 5:00 p.m. of September
20, 1996. The first envelope should contain the Prequalification Documents, the second
envelope the Technical Proposal, and the third envelope the Financial Proposal of the
proponent.
On June 20, 1996, PBAC Bulletin No. 1 was issued, postponing the availment of
the Bid Documents and the submission of the comparative bid proposals. Interested firms
were permitted to obtain the Request for Proposal Documents beginning June 28, 1996,
upon submission of a written application and payment of a non-refundable fee of
P50,000.00 (US$2,000).
The Bid Documents issued by the PBAC provided among others that the proponent
must have adequate capability to sustain the financing requirement for the detailed
engineering, design, construction, operation, and maintenance phases of the project. The
proponent would be evaluated based on its ability to provide a minimum amount of equity
to the project, and its capacity to secure external financing for the project.
On July 23, 1996, the PBAC issued PBAC Bulletin No. 2 inviting all bidders to a
pre-bid conference on July 29, 1996.
On August 16, 1996, the PBAC issued PBAC Bulletin No. 3 amending the Bid
Documents. The following amendments were made on the Bid Documents:
a. Aside from the fixed Annual Guaranteed Payment, the proponent
shall include in its financial proposal an additional
percentage of gross revenue share of the Government, as
follows:
i. First 5 years 5.0%
ii. Next 10 years 7.5%
iii. Next 10 years 10.0%
b. The amount of the fixed Annual Guaranteed Payment shall be
subject of the price challenge. Proponent may offer an
Annual Guaranteed Payment which need not be of equal
amount, but payment of which shall start upon site
possession.
c. The project proponent must have adequate capability to sustain the
financing requirement for the detailed engineering, design,
construction, and/or operation and maintenance phases of
the project as the case may be. For purposes of pre-
qualification, this capability shall be measured in terms of:
i. Proof of the availability of the project proponent and/or
the consortium to provide the minimum amount of
equity for the project; and
ii. a letter testimonial from reputable banks attesting that
the project proponent and/or the members of the
consortium are banking with them, that the
project proponent and/or the members are of good
financial standing, and have adequate resources.
d. The basis for the prequalification shall be the proponent's
compliance with the minimum technical and financial
requirements provided in the Bid Documents and the IRR of
the BOT Law. The minimum amount of equity shall be 30%
of the Project Cost. CSaITD
e. Amendments to the draft Concession Agreement shall be issued
from time to time. Said amendments shall only cover items
that would not materially affect the preparation of the
proponent's proposal.
On August 29, 1996, the Second Pre-Bid Conference was held where certain
clarifications were made. Upon the request of prospective bidder People's Air Cargo &
Warehousing Co., Inc (Paircargo), the PBAC warranted that based on Sec. 11.6, Rule 11 of
the Implementing Rules and Regulations of the BOT Law, only the proposed Annual
Guaranteed Payment submitted by the challengers would be revealed to AEDC, and that
the challengers' technical and financial proposals would remain confidential. The PBAC also
clarified that the list of revenue sources contained in Annex 4.2a of the Bid Documents was
merely indicative and that other revenue sources may be included by the proponent, subject
to approval by DOTC/MIAA. Furthermore, the PBAC clarified that only those fees and
charges denominated as Public Utility Fees would be subject to regulation, and those
charges which would be actually deemed Public Utility Fees could still be revised, depending
on the outcome of PBAC's query on the matter with the Department of Justice.
In September 1996, the PBAC issued Bid Bulletin No. 5, entitled "Answers to the
Queries of PAIRCARGO as Per Letter Dated September 3 and 10, 1996." Paircargo's queries
and the PBAC's responses were as follows:
1. It is difficult for Paircargo and Associates to meet the
required minimum equity requirement as prescribed in Section 8.3.4
of the Bid Documents considering that the capitalization of each
member company is so structured to meet the requirements and
needs of their current respective business undertaking/activities. In
order to comply with this equity requirement, Paircargo is requesting
PBAC to just allow each member of (sic) corporation of the joint
 Venture to just execute an agreement that embodies a commitment
to infuse the required capital in case the project is awarded to the
Joint Venture instead of increasing each corporation's current
authorized capital stock just for prequalification purposes.
In prequalification, the agency is interested in one's financial
capability at the time of prequalification, not future or potential
capability.
A commitment to put up equity once awarded the project is
not enough to establish that "present" financial capability. However,
total financial capability of all member companies of the Consortium,
to be established by submitting the respective companies' audited
financial statements, shall be acceptable.
2. At present, Paircargo is negotiating with banks and other
institutions for the extension of a Performance Security to the joint
venture in the event that the Concessions Agreement (sic) is awarded
to them. However, Paircargo is being required to submit a copy of the
draft concession as one of the documentary requirements. Therefore,
Paircargo is requesting that they'd (sic) be furnished copy of the
approved negotiated agreement between the PBAC and the AEDC at
the soonest possible time.
A copy of the draft Concession Agreement is included in the
Bid Documents. Any material changes would be made known to
prospective challengers through bid bulletins. However, a final version
will be issued before the award of contract. SECAHa
The PBAC also stated that it would require AEDC to sign Supplement C of the Bid
Documents (Acceptance of Criteria and Waiver of Rights to Enjoin Project) and to submit
the same with the required Bid Security.
On September 20, 1996, the consortium composed of People's Air Cargo and
Warehousing Co.,Inc. (Paircargo),Phil. Air and Grounds Services, Inc. (PAGS) and Security
Bank Corp. (Security Bank) (collectively, Paircargo Consortium) submitted their competitive
proposal to the PBAC. On September 23, 1996, the PBAC opened the first envelope
containing the prequalification documents of the Paircargo Consortium. On the following
day, September 24, 1996, the PBAC prequalified the Paircargo Consortium.
On September 26, 1996, AEDC informed the PBAC in writing of its reservations
as regards the Paircargo Consortium, which include:
a. The lack of corporate approvals and financial capability of
PAIRCARGO;
b. The lack of corporate approvals and financial capability of PAGS;
c. The prohibition imposed by RA 337, as amended (the General
Banking Act) on the amount that Security Bank could legally
invest in the project;
d. The inclusion of Siemens as a contractor of the PAIRCARGO Joint
Venture, for prequalification purposes; and
e. The appointment of Lufthansa as the facility operator, in view of
the Philippine requirement in the operation of a public utility.
The PBAC gave its reply on October 2, 1996, informing AEDC that it had
considered the issues raised by the latter, and that based on the documents submitted by
Paircargo and the established prequalification criteria, the PBAC had found that the
challenger, Paircargo, had prequalified to undertake the project. The Secretary of the DOTC
approved the finding of the PBAC.
The PBAC then proceeded with the opening of the second envelope of the
Paircargo Consortium which contained its Technical Proposal.
On October 3, 1996, AEDC reiterated its objections, particularly with respect to
Paircargo's financial capability, in view of the restrictions imposed by Section 21-B of
the General Banking Act and Sections 1380 and 1381 of the Manual Regulations for Banks
and Other Financial Intermediaries. On October 7, 1996, AEDC again manifested its
objections and requested that it be furnished with excerpts of the PBAC meeting and the
accompanying technical evaluation report where each of the issues they raised were
addressed.
On October 16, 1996, the PBAC opened the third envelope submitted by AEDC
and the Paircargo Consortium containing their respective financial proposals. Both
proponents offered to build the NAIA Passenger Terminal III for at least $350 million at no
cost to the government and to pay the government: 5% share in gross revenues for the
first five years of operation, 7.5% share in gross revenues for the next ten years of
operation, and 10%.share in gross revenues for the last ten years of operation, in
accordance with the Bid Documents. However, in addition to the foregoing, AEDC offered
to pay the government a total of P135 million as guaranteed payment for 27 years while
Paircargo Consortium offered to pay the government a total of P17.75 billion for the same
period. CSaITD
Thus, the PBAC formally informed AEDC that it had accepted the price proposal
submitted by the Paircargo Consortium, and gave AEDC 30 working days or until November
28, 1996 within which to match the said bid, otherwise, the project would be awarded to
Paircargo.
As AEDC failed to match the proposal within the 30-day period, then DOTC
Secretary Amado Lagdameo, on December 11, 1996, issued a notice to Paircargo
Consortium regarding AEDC's failure to match the proposal.
On February 27, 1997, Paircargo Consortium incorporated into Philippine
International Airport Terminals Co.,Inc. (PIATCO).
AEDC subsequently protested the alleged undue preference given to PIATCO and
reiterated its objections as regards the prequalification of PIATCO.
On April 11, 1997, the DOTC submitted the concession agreement for the second-
pass approval of the NEDA-ICC,
On April 16, 1997, AEDC filed with the Regional Trial Court of Pasig a Petition for
Declaration of Nullity of the Proceedings, Mandamus and Injunction against the Secretary
of the DOTC, the Chairman of the PBAC, the voting members of the PBAC and Pantaleon D.
Alvarez, in his capacity as Chairman of the PBAC Technical Committee.
On April 17, 1997, the NEDA-ICC conducted an ad referendum to facilitate the
approval, on a no-objection basis, of the BOT agreement between the DOTC and PIATCO.
As the ad referendum gathered only four (4) of the required six (6) signatures, the NEDA
merely noted the agreement.
On July 9, 1997, the DOTC issued the notice of award for the project to PIATCO.
On July 12, 1997, the Government, through then DOTC Secretary Arturo T. Enrile,
and PIATCO, through its President, Henry T. Go, signed the "Concession Agreement for the
Build-Operate-and-Transfer Arrangement of the Ninoy Aquino International Airport
Passenger Terminal III" (1997 Concession Agreement).The Government granted PIATCO
the franchise to operate and maintain the said terminal during the concession period and
to collect the fees, rentals and other charges in accordance with the rates or schedules
stipulated in the 1997 Concession Agreement. The Agreement provided that the concession
period shall be for twenty-five (25) years commencing from the in-service date, and may
be renewed at the option of the Government for a period not exceeding twenty-five (25)
years. At the end of the concession period, PIATCO shall transfer the development facility
to MIAA.
On November 26, 1998, the Government and PIATCO signed an Amended and
Restated Concession Agreement (ARCA).Among the provisions of the 1997 Concession
Agreement that were amended by the ARCA were: Sec. 1.11 pertaining to the definition of
"certificate of completion";Sec. 2.05 pertaining to the Special Obligations of GRP; Sec. 3.02
(a) dealing with the exclusivity of the franchise given to the Concessionaire; Sec. 4.04
concerning the assignment by Concessionaire of its interest in the Development Facility;
Sec. 5.08 (c) dealing with the proceeds of Concessionaire's insurance; Sec. 5.10 with
respect to the temporary take-over of operations by GRP; Sec. 5.16 pertaining to the taxes,
duties and other imposts that may be levied on the Concessionaire; Sec. 6.03 as regards
the periodic adjustment of public utility fees and charges; the entire Article VIII concerning
the provisions on the termination of the contract; and Sec. 10.02 providing for the venue
of the arbitration proceedings in case a dispute or controversy arises between the parties
to the agreement.
Subsequently, the Government and PIATCO signed three Supplements to the
ARCA. The First Supplement was signed on August 27, 1999; the Second Supplement on
September 4, 2000; and the Third Supplement on June 22, 2001 (collectively,
Supplements).
The First Supplement to the ARCA amended Sec. 1.36 of the ARCA defining
"Revenues" or "Gross Revenues";Sec. 2.05 (d) of the ARCA referring to the obligation of
MIAA to provide sufficient funds for the upkeep, maintenance, repair and/or replacement
of all airport facilities and equipment which are owned or operated by MIAA; and further
providing additional special obligations on the part of GRP aside from those already
enumerated in Sec. 2.05 of the ARCA. The First Supplement also provided a stipulation as
regards the construction of a surface road to connect NAIA Terminal II and Terminal III in
lieu of the proposed access tunnel crossing Runway 13/31; the swapping of obligations
between GRP and PIATCO regarding the improvement of Sales Road; and the changes in
the timetable. It also amended Sec. 6.01 (c) of the ARCA pertaining to the Disposition of
Terminal Fees; Sec. 6.02 of the ARCA by inserting an introductory paragraph; and Sec.
6.02 (a) (iii) of the ARCA referring to the Payments of Percentage, Share in Gross
Revenues. CSaITD
The Second Supplement to the ARCA contained provisions concerning the
clearing, removal, demolition or disposal of subterranean structures uncovered or
discovered at the site of the construction of the terminal by the Concessionaire. It defined
the scope of works; it provided for the procedure for the demolition of the said structures
and the consideration for the same which the GRP shall pay PIATCO; it provided for time
extensions, incremental and consequential costs and losses consequent to the existence of
such structures; and it provided for some additional obligations on the part of PIATCO as
regards the said structures.
Finally, the Third Supplement provided for the obligations of the Concessionaire
as regards the construction of the surface road connecting Terminals II and III.
Meanwhile, the MIAA which is charged with the maintenance and operation of the
NAIA Terminals I and II, had existing concession contracts with various service providers
to offer international airline airport services, such as in-flight catering, passenger handling,
ramp and ground support, aircraft maintenance and provisions, cargo handling and
warehousing, and other services, to several international airlines at the NAIA. Some of
these service providers are the Miascor Group, DNATA-Wings Aviation Systems Corp.,and
the MacroAsia Group. Miascor, DNATA and MacroAsia, together with Philippine Airlines
(PAL),are the dominant players in the industry with an aggregate market share of 70%.
On September 17, 2002, the workers of the international airline service providers,
claiming that they stand to lose their employment upon the implementation of the
questioned agreements, filed before this Court a petition for prohibition to enjoin the
enforcement of said agreements. 2
On October 15, 2002, the service providers, joining the cause of the petitioning
workers, filed a motion for intervention and a petition-in-intervention.
On October 24, 2002, Congressmen Salacnib Baterina, Clavel Martinez and
Constantino Jaraula filed a similar petition with this Court. 3
On November 6, 2002, several employees of the MIAA likewise filed a petition
assailing the legality of the various agreements. 4
On December 11, 2002. another group of Congressmen, Hon. Jacinto V. Paras,
Rafael P. Nantes, Eduardo C. Zialcita, Willie B. Villarama, Prospero C. Nograles, Prospero
A. Pichay, Jr.,Harlin Cast Abayon and Benasing O. Macaranbon, moved to intervene in the
case as Respondents-Intervenors. They filed their Comment-In-Intervention defending the
validity of the assailed agreements and praying for the dismissal of the petitions.
During the pendency of the case before this Court, President Gloria Macapagal
Arroyo, on November 29, 2002, in her speech at the 2002 Golden Shell Export Awards at
Malacañang Palace, stated that she will not "honor (PIATCO) contracts which the Executive
Branch's legal offices have concluded (as) null and void." 5
Respondent PIATCO filed its Comments to the present petitions on November 7
and 27, 2002. The Office of the Solicitor General and the Office of the Government
Corporate Counsel filed their respective Comments in behalf of the public respondents.
On December 10, 2002, the Court heard the case on oral argument. After the oral
argument, the Court then resolved in open court to require the parties to file simultaneously
their respective Memoranda in amplification of the issues heard in the oral arguments within
30 days and to explore the possibility of arbitration or mediation as provided in the
challenged contracts. CSaITD
In their consolidated Memorandum, the Office of the Solicitor General and the
Office of the Government Corporate Counsel prayed that the present petitions be given due
course and that judgment be rendered declaring the 1997 Concession Agreement, the ARCA
and the Supplements thereto void for being contrary to theConstitution, the BOT Law and
its Implementing Rules and Regulations.
On March 6, 2003, respondent PIATCO informed the Court that on March 4, 2003
PIATCO commenced arbitration proceedings before the International Chamber of
Commerce, International Court of Arbitration (ICC) by filing a Request for Arbitration with
the Secretariat of the ICC against the Government of the Republic of the Philippines acting
through the DOTC and MIAA.
In the present cases, the Court is again faced with the task of resolving
complicated issues made difficult by their intersecting legal and economic implications. The
Court is aware of the far reaching fall out effects of the ruling which it makes today. For
more than a century and whenever the exigencies of the times demand it, this Court has
never shirked from its solemn duty to dispense justice and resolve "actual controversies
involving rights which are legally demandable and enforceable, and to determine whether
or not there has been grave abuse of discretion amounting to lack or excess of
jurisdiction." 6 To be sure, this Court will not begin to do otherwise today.
We shall first dispose of the procedural issues raised by respondent PIATCO which
they allege will bar the resolution of the instant controversy.
Petitioners' Legal Standing to File
the present Petitions
 a. G.R. Nos. 155001 and 155661
In G.R. No. 155001 individual petitioners are employees of various service
providers 7 having separate concession contracts with MIAA and continuing service
agreements with various international airlines to provide in-flight catering, passenger
handling, ramp and ground support, aircraft maintenance and provisions, cargo handling
and warehousing and other services. Also included as petitioners are labor unions MIASCOR
Workers Union-National Labor Union and Philippine Airlines Employees Association, These
petitioners filed the instant action for prohibition as taxpayers and as parties whose rights
and interests stand to be violated by the implementation of the PIATCO Contracts.
Petitioners-Intervenors in the same case are all corporations organized and
existing under Philippine laws engaged in the business of providing in-flight catering,
passenger handling, ramp and ground support, aircraft maintenance and provisions, cargo
handling and warehousing and other services to several international airlines at the Ninoy
Aquino International Airport. Petitioners-Intervenors allege that as tax-paying international
airline and airport-related service operators, each one of them stands to be irreparably
injured by the implementation of the PIATCO Contracts. Each of the petitioners-intervenors
have separate and subsisting concession agreements with MIAA and with various
international airlines which they allege are being interfered with and violated by respondent
PIATCO.
In G.R. No. 155661, petitioners constitute employees of MIAA and Samahang
Manggagawa sa Paliparan ng Pilipinas — a legitimate labor union and accredited as the sole
and exclusive bargaining agent of all the employees in MIAA. Petitioners anchor their
petition for prohibition on the nullity of the contracts entered into by the Government and
PIATCO regarding the build-operate-and-transfer of the NAIA IPT III. They filed the petition
as taxpayers and persons who have a legitimate interest to protect in the implementation
of the PIATCO Contracts.
Petitioners in both cases raise the argument that the PIATCO Contracts contain
stipulations which directly contravene numerous provisions of the Constitution, specific
provisions of the BOT Law and its Implementing Rules and Regulations, and public policy.
Petitioners contend that the DOTC and the MIAA, by entering into said contracts, have
committed grave abuse of discretion amounting to lack or excess of jurisdiction which can
be remedied only by a writ of prohibition, there being no plain, speedy or adequate remedy
in the ordinary course of law.
In particular, petitioners assail the provisions in the 1997 Concession Agreement
and the ARCA which grant PIATCO the exclusive right to operate a commercial international
passenger terminal within the Island of Luzon, except those international airports already
existing at the time of the execution of the agreement. The contracts further provide that
upon the commencement of operations at the NAIA IPT III, the Government shall cause
the closure of Ninoy Aquino International Airport Passenger Terminals I and II as
international passenger terminals. With respect to existing concession agreements between
MIAA and international airport service providers regarding certain services or operations,
the 1997 Concession Agreement and the ARCA uniformly provide that such services or
operations will not be carried over to the NAIA IPT III and PIATCO is under no obligation to
permit such carry over except through a separate agreement duly entered into with
PIATCO. 8
With respect to the petitioning service providers and their employees, upon the
commencement of operations of the NAIA IPT III, they allege that they will be effectively
barred from providing international airline airport services at the NAIA Terminals I and II
as all international airlines and passengers will be diverted to the NAIA IPT III. The
petitioning service providers will thus be compelled to contract with PIATCO alone for such
services, with no assurance that subsisting contracts with MIAA and other international
airlines will be respected. Petitioning service providers stress that despite the very
competitive market, the substantial capital investments required and the high rate of fees,
they entered into their respective contracts with the MIAA with the understanding that the
said contracts will be in force for the stipulated period, and thereafter, renewed so as to
allow each of the petitioning service providers to recoup their investments and obtain a
reasonable return thereon.
Petitioning employees of various service providers at the NAIA Terminals I and II
and of MIAA on the other hand allege that with the closure of the NAIA Terminals I and II
as international passenger terminals under the PIATCO Contracts, they stand to lose
employment.
The question on legal standing is whether such parties have "alleged such a
personal stake in the outcome of the controversy as to assure that concrete adverseness
which sharpens the presentation of issues upon which the court so largely depends for
illumination of difficult constitutional questions." 9 Accordingly, it has been held that the
interest of a person assailing the constitutionality of a statute must be direct and personal.
He must be able, to show, not only that the law or any government act is invalid, but also
that he sustained or is in imminent danger of sustaining some direct injury as a result of
its enforcement, and not merely that he suffers thereby in some indefinite way. It must
appear that the person complaining has been or is about to be denied some right or privilege
to which he is lawfully entitled or that he is about to be subjected to some burdens or
penalties by reason of the statute or act complained of. 10
We hold that petitioners have the requisite standing. In the abovementioned
cases, petitioners have a direct and substantial interest to protect by reason of the
implementation of the PIATCO Contracts. They stand to lose their source of livelihood, a
property right which is zealously protected by the Constitution. Moreover, subsisting
concession agreements between MIAA and petitioners-intervenors and service contracts
between international airlines and petitioners-intervenors stand to be nullified or
terminated by the operation of the NAIA IPT III under the PIATCO Contracts. The financial
prejudice brought about by the PIATCO Contracts on petitioners and petitioners-intervenors
in these cases are legitimate interests sufficient to confer on them the requisite standing to
file the instant petitions. CSaITD
b. G.R. No. 155547
In G.R. No. 155547, petitioners filed the petition for prohibition as members of
the House of Representatives, citizens and taxpayers. They allege that as members of the
House of Representatives, they are especially interested in the PIATCO Contracts, because
the contracts compel the Government and/or the House of Representatives to appropriate
funds necessary to comply with the provisions therein. 11 They cite provisions of the
PIATCO Contracts which require disbursement of unappropriated amounts in compliance
with the contractual obligations of the Government. They allege that the Government
obligations in the PIATCO Contracts which compel government expenditure without
appropriation is a curtailment of their prerogatives as legislators, contrary to the mandate
of the Constitution that "[n]o money shall be paid out of the treasury except in pursuance
of an appropriation made by law." 12
Standing is a peculiar concept in constitutional law because in some cases, suits
are not brought by parties who have been personally injured by the operation of a law or
any other government act but by concerned citizens, taxpayers or voters who actually sue
in the public interest. Although we are not unmindful of the cases ofImus Electric
Co. v. Municipality of Imus 13 and Gonzales v. Raquiza 14 wherein this Court held that
appropriation must be made only on amounts immediately demandable, public interest
demands that we take a more liberal view in determining whether the petitioners suing as
legislators, taxpayers and citizens have locus standi to file the instant
petition.In Kilosbayan, Inc. v. Guingona, 15 this Court held "[i]n line with the liberal policy
of this Court on locus standi,ordinary taxpayers, members of Congress, and even
association of planters, and non-profit civic organizations were allowed to initiate and
prosecute actions before this Court to question the constitutionality or validity of laws, acts,
decisions, rulings, or orders of various government agencies or
instrumentalities," 16 Further, "insofar as taxpayers' suits are concerned ...(this Court)
is not devoid of discretion as to whether or not it should be entertained." 17 As such
"...even if, strictly speaking, they [the petitioners] are not covered by the definition, it is
still within the wide discretion of the Court to waive the requirement and so remove the
impediment to its addressing and resolving the serious constitutional questions
raised." 18 In view of the serious legal questions involved and their impact on public
interest, we resolve to grant standing to the petitioners.
Other Procedural Matters
Respondent PIATCO further alleges that this Court is without jurisdiction to review
the instant cases as factual issues are involved which this Court is ill-equipped to resolve.
Moreover, PIATCO alleges that submission of this controversy to this Court at the first
instance is a violation of the rule on hierarchy of courts. They contend that trial courts have
concurrent jurisdiction with this Court with respect to a special civil action for prohibition
and hence, following the rule on hierarchy of courts, resort must first be had before the
trial courts.
After a thorough study and careful evaluation of the issues involved, this Court is
of the view that the crux of the instant controversy involves significant legal questions.The
facts necessary to resolve these legal questions are well established and, hence, need not
be determined by a trial court.
The rule on hierarchy of courts will not also prevent this Court from assuming
jurisdiction over the cases at bar. The said rule may be relaxed when the redress desired
cannot be obtained in the appropriate courts or where exceptional and compelling
circumstances justify availment of a remedy within and calling for the exercise of this
Court's primary jurisdiction. 19
It is easy to discern that exceptional circumstances exist in the cases at bar that
call for the relaxation of the rule. Both petitioners and respondents agree that these cases
are of transcendental importance as they involve the construction and operation of the
country's premier international airport. Moreover, the crucial issues submitted for resolution
are of first impression and they entail the proper legal interpretation of key provisions of
the Constitution, the BOT Law and its Implementing Rules and Regulations. Thus,
considering the nature of the controversy before the Court, procedural bars may be lowered
to give way for the speedy disposition of the instant cases.
Legal Effect of the Commencement
of Arbitration Proceedings by
PIATCO
There is one more procedural obstacle which must be overcome. The Court is
aware that arbitration proceedings pursuant to Section 10.02 of the ARCA have been filed
at the instance of respondent PIATCO. Again, we hold that the arbitration step taken by
PIATCO will not oust this Court of its jurisdiction over the cases at bar.
In Del Monte Corporation-USA v. Court of Appeals, 20 even after finding that the
arbitration clause in the Distributorship Agreement in question is valid and the dispute
between the parties is arbitrable, this Court affirmed the trial court's decision denying
petitioner's Motion to Suspend Proceedings pursuant to the arbitration clause under the
contract. In so ruling, this Court held that as contracts produce legal effect between the
parties, their assigns and heirs, only the parties to the Distributorship Agreement are bound
by its terms, including the arbitration clause stipulated therein. This Court ruled that
arbitration proceedings could be called for but only with respect to the parties to the
contract in question. Considering that there are parties to the case who are neither parties
to the Distributorship Agreement nor heirs or assigns of the parties thereto, this Court,
citing its previous ruling in Salas, Jr. v. Laperal Realty Corporation, 21 held that to tolerate
the splitting of proceedings by allowing arbitration as to some of the parties on the one
hand and trial for the others on the other hand would, in effect, result in multiplicity of
suits, duplicitous procedure and unnecessary delay. 22 Thus, we ruled that the interest of
justice would best be served if the trial court hears and adjudicates the case in asingle and
complete proceeding.
It is established that petitioners in the present cases who have presented
legitimate interests in the resolution of the controversy are not parties to the PIATCO
Contracts.Accordingly, they cannot be bound by the arbitration clause provided for in the
ARCA and hence, cannot be compelled to submit to arbitration proceedings. A speedy and
decisive resolution of all the critical issues in the present controversy, including those raised
by petitioners, cannot be made before an arbitral tribunal.The object of arbitration is
precisely to allow an expeditious determination of a dispute. This objective would not be
met if this Court were to allow the parties to settle the cases by arbitration as there are
certain issues involving non-parties to the PIATCO Contracts which the arbitral tribunal will
not be equipped to resolve.
Now, to the merits of the instant controversy.
I
Is PIATCO a qualified bidder?
Public respondents argue that the Paircargo Consortium, PIATCO's predecessor,
was not a duly pre-qualified bidder on the unsolicited proposal submitted by AEDC as the
Paircargo Consortium failed to meet the financial capability required under the BOT Law and
the Bid Documents. They allege that in computing the ability of the Paircargo Consortium
to meet the minimum equity requirements for the project, the entire net worth of Security
Bank, a member of the consortium, should not be considered.
PIATCO relies, on the other hand, on the strength of the Memorandum dated
October 14, 1996 issued by the DOTC Undersecretary Primitivo C. Cal stating that the
Paircargo Consortium is found to have a combined net worth of P3,900,000,000.00,
sufficient to meet the equity requirements of the project. The said Memorandum was in
response to a letter from Mr. Antonio Henson of AEDC to President Fidel V. Ramos
questioning the financial capability of the Paircargo Consortium on the ground that it does
not have the financial resources to put up the required minimum equity of
P2,700,000,000.00. This contention is based on the restriction under R.A. No. 337, as
amended or the General Banking Act that a commercial bank cannot invest in any single
enterprise in an amount more than 15% of its net worth. In the said Memorandum,
Undersecretary Cal opined:
The Bid Documents, as clarified through Bid Bulletin Nos. 3
and 5, require that financial capability will be evaluated based on total
financial capability of all the member companies of the [Paircargo]
Consortium. In this connection, the Challenger was found to have a
combined net worth of P3,926,421,242.00 that could support a
project costing approximately P13 Billion. CSaITD
It is not a requirement that the net worth must be
"unrestricted." To impose that as a requirement now will be nothing
less than unfair.
The financial statement or the net worth is not the sole basis
in establishing financial capability. As stated in Bid Bulletin No. 3,
financial capability may also be established by testimonial letters
issued by reputable banks. The Challenger has complied with this
requirement.
To recap, net worth reflected in the Financial Statement
should not be taken as the amount of the money to be used to answer
the required thirty percent (30%) equity of the challenger but rather
to be used in establishing if there is enough basis to believe that the
challenger can comply with the required 30% equity. In fact, proof of
 sufficient equity is required as one of the conditions for award of
contract (Section 12.1 IRR of the BOT Law) but not for pre-
qualification (Section 5.4 of the same document). 23
Under the BOT Law, in case of a build-operate-and-transfer arrangement, the
contract shall be awarded to the bidder "who, having satisfied the minimum financial,
technical, organizational and legal standards" required by the law, has submitted the lowest
bid and most favorable terms of the project, 24 Further, the 1994 Implementing Rules and
Regulations of the BOT Law provide:
Section 5.4 Pre-qualification Requirements.
xxx xxx xxx
c. Financial Capability: The project proponent must have
adequate capability to sustain the financing requirements for the
detailed engineering design, construction and/or operation and
maintenance phases of the project, as the case may be. For purposes
of pre-qualification, this capability shall be measured in terms of (i)
proof of the ability of the project proponent and/or the consortium to
provide a minimum amount of equity to the project, and (ii) 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.The government agency/LGU concerned shall determine on
a project-to-project basis and before pre-qualification, the minimum
amount of equity needed. (Italics supplied)
Pursuant to this provision, the PBAC issued PBAC Bulletin No. 3 dated August 16,
1996 amending the financial capability requirements for pre-qualification of the project
proponent as follows:
6. Basis of Pre-qualification
The basis for the pre-qualification shall be on the compliance
of the proponent to the minimum technical and financial requirements
provided in the Bid Documents and in the IRR of the BOT Law, R.A.
No. 6957, as amended by R.A. 7718.
The minimum amount of equity to which the proponent's
financial capability will be based shall be thirty percent (30%) of the
project cost instead of the twenty percent (20%) specified in Section
3.6.4 of the Bid Documents.This is to correlate with the required debt-
to-equity ratio of 70:30 in Section 2.01a of the draft concession
agreement, The debt portion of the project financing should not
exceed 70% of the actual project cost.
Accordingly, based on the above provisions of law, the Paircargo Consortium or
any challenger to the unsolicited proposal of AEDC has to show that it possesses the
requisite financial capability to undertake the project in the minimum amount of 30% of
the project cost through (i) proof of the ability to provide a minimum amount of equity to
the project, and (ii) a letter testimonial from reputable banks attesting that the project
proponent or members of the consortium are banking with them, that they are in good
financial standing, and that they have adequate resources.
As the minimum project cost was estimated to be US$350,000,000.00 or roughly
P9,183,650,000.00, 25 the Paircargo Consortium had to show to the satisfaction of the
PBAC that it had the ability to provide the minimum equity for the project in the amount of
at least P2,755,095,000.00.
Paircargo's Audited Financial Statements as of 1993 and 1994 indicated that it
had a net worth of P2,783,592,00 and P3,123,515,00 respectively. 26 PAGS' Audited
Financial Statements as of 1995 indicate that it has approximately P26,735,700.00 to invest
as its equity for the project. 27 Security Bank's Audited Financial Statements as of 1995
show that it has a net worth equivalent to its capital funds in the amount of
P3,523,504,377.00. 28
We agree with public respondents that with respect to Security Bank, the entire
amount of its net worth could not be invested in a single undertaking or enterprise, whether
allied or non-allied in accordance with the provisions of R.A. No. 337, as amended or
the General Banking Act:
Sec. 21-B. The provisions in this or in any other Act to the
contrary notwithstanding, the Monetary Board, whenever it shall
deem appropriate and necessary to further national development
objectives or support national priority projects, may authorize a
commercial bank, a bank authorized to provide commercial banking
services, as well as a government-owned and controlled bank, to
operate under an expanded commercial banking authority and by
virtue thereof exercise, in addition to powers authorized for
commercial banks, the powers of an Investment House as provided in
Presidential Decree No. 129, invest in the equity of a non-allied
undertaking,or own a majority or all of the equity in a financial
intermediary other than a commercial bank or a bank authorized to
provide commercial banking services; Provided, That (a) the total
investment in equities shall not exceed fifty percent (50%) of the net
worth of the bank; (b) the equity investment in any one enterprise
whether allied or non-allied shall not exceed fifteen percent (15%) of
the net worth of the bank;(c) the equity investment of the bank, or
of its wholly or majority-owned subsidiary, in a single non-allied
undertaking shall not exceed thirty-five percent (35%) of the total
equity in the enterprise nor shall it exceed thirty-five percent (35%)
of the voting stock in that enterprise; and (d) the equity investment
in other banks shall be deducted from the investing bank's net worth
for purposes of computing the prescribed ratio of net worth to risk
assets.
xxx xxx xxx
Further, the 1993 Manual of Regulations for Banks provides:
SECTION X383. Other Limitations and Restrictions.— The
following limitations and restrictions shall also apply regarding equity
investments of banks.
a. In any single enterprise.— The equity investments of
banks in any single enterprise shall not exceed at any time fifteen
percent (15%) of the net worth of the 'investing bank as defined in
Sec. X106 and Subsec. X121.5. CSaITD
Thus, the maximum amount that Security Bank could validly invest in the
Paircargo Consortium is only P528,525,656.55, representing 15% of its entire net worth.
The total net worth therefore of the Paircargo Consortium, after considering the maximum
amounts that may be validly invested by each of its members isP558,384,871.55 or only
6.08% of the project cost,29 an amount substantially less than the prescribed minimum
equity investment required for the project in the amount of P2,755,095,000.00 or 30% of
the project cost.
The purpose of pre-qualification in any public bidding is to determine, at the
earliest opportunity, the ability of the bidder to undertake the project. Thus, with respect
to the bidder's financial capacity at the pre-qualification stage, the law requires the
government agency to examine and determine the ability of the bidder to fund the entire
cost of the project by considering the maximum amounts that each bidder may invest in
the project at the time of pre-qualification.
The PBAC has determined that any prospective bidder, for the construction,
operation and maintenance of the NAIA IPT III project should prove that it has the ability
to provide equity in the minimum amount of 30% of the project cost, in accordance with
the 70:30 debt-to-equity ratio prescribed in the Bid Documents. Thus, in the case of
Paircargo Consortium, the PBAC should determine the maximum amounts that each
member of the consortium may commit for the construction, operation and maintenance of
the NAIA IPT III project at the time of pre-qualification.With respect to Security Bank,
the maximum amount which may be invested by it would only be 15% of its net worth in
view of the restrictions imposed by the General Banking Act. Disregarding the investment
ceilings provided by applicable law would not result in a proper evaluation of whether or
not a bidder is pre-qualified to undertake the project as for all intents and purposes, such
ceiling or legal restriction determines thetrue maximum amount which a bidder may invest
in the project.
Further, the determination of whether or not a bidder is pre-qualified to undertake
the project requires an evaluation of the financial capacity of the said bidder at the time
the bid is submitted based on the required documents presented by the bidder. The PBAC
should not be allowed to speculate on the future financial ability of the bidder to undertake
the project on the basis of documents submitted. This would open doors to abuse and
defeat the very purpose of a public bidding. This is especially true in the case at bar which
involves the investment of billions of pesos by the project proponent. The relevant
government authority is duty-bound to ensure that the awardee of the contract possesses
the minimum required financial capability to complete the project. To allow the PBAC to
estimate the bidder's future financial capability would not secure the viability and integrity
of the project. A restrictive and conservative application of the rules and procedures of
public bidding is necessary not only to protect the impartiality and regularity of the
proceedings but also to ensure the financial and technical reliability of the project. It has
been held that:
The basic rule in public bidding is that bids should be
evaluated based on the required documents submitted before and not
after the opening of bids. Otherwise, the foundation of a fair and
competitive public bidding would be defeated. Strict observance of the
rules, regulations, and guidelines of the bidding process is the only
safeguard to a fair, honest and competitive public bidding. 30
Thus, if the maximum amount of equity that a bidder may invest in the project at
the time the bids are submitted falls short of the minimum amounts required to be put up
by the bidder, said bidder should be properly disqualified. Considering that at the pre-
qualification stage, the maximum amounts which the Paircargo Consortium may invest in
the project fell short of the minimum amounts prescribed by the PBAC, we hold that
Paircargo Consortium was not a qualified bidder. Thus the award of the contract by the
PBAC to the Paircargo Consortium, a disqualified bidder, is null and void.
While it would be proper at this juncture to end the resolution of the instant
controversy, as the legal effects of the disqualification of respondent PIATCO's predecessor
would come into play and necessarily result in the nullity of all the subsequent contracts
entered by it in pursuance of the project, the Court feels that it is necessary to discuss in
full the pressing issues of the present controversy for a complete resolution thereof.
II
Is the 1997 Concession Agreement valid?
Petitioners and public respondents contend that the 1997 Concession Agreement
is invalid as it contains provisions that substantially depart from the draft Concession
Agreement included in the Bid Documents. They maintain that a substantial departure from
the draft Concession Agreement is a violation of public policy and renders the 1997
Concession Agreement null and void.
PIATCO maintains, however, that the Concession Agreement attached to the Bid
Documents is intended to be a draft,i.e.,subject to change, alteration or modification, and
that this intention was clear to all participants, including AEDC, and DOTC/MIAA. It argued
further that said intention is expressed in Part C (6) of Bid Bulletin No. 3 issued by the PBAC
which states:
6. Amendments to the Draft Concessions Agreement
Amendments to the Draft Concessions Agreement shall be
issued from time to time. Said amendments shall only cover
items that would not materially affect the preparation of the
proponent's proposal.
By its very nature, public bidding aims to protect the public interest by giving the
public the best possible advantages through open competition. Thus:
Competition must be legitimate, fair and honest. In the field
of government contract law, competition requires, not only bidding
upon a common standard, a common basis, upon the same thing, the
same subject matter, the same undertaking,' but also that it be
legitimate, fair and honest; and not designed to injure or defraud the
government. 31
An essential element of a publicly bidded contract is that all bidders must be on
equal footing. Not simply in terms of application of the procedural rules and regulations
imposed by the relevant government agency, but more importantly, on the contract bidded
upon. Each bidder must be able to bid on the same thing.The rationale is obvious. If the
winning bidder is allowed to later include or modify certain provisions in the contract
awarded such that the contract is altered in any material respect, then the essence of fair
competition in the public bidding is destroyed. A public bidding would indeed be a farce if
after the contract is awarded, the winning bidder may modify the contract and include
provisions which are favorable to it that were not previously made available to the other
bidders. Thus:
It is inherent in public biddings that there shall be a fair
competition among the bidders. The specifications in such biddings
provide the common ground or basis for the bidders. The
specifications should, accordingly, operate equally or indiscriminately
upon all bidders. 32
The same rule was restated by Chief Justice Stuart of the Supreme Court of
Minnesota:
The law is well settled that where, as in this case, municipal
authorities can only let a contract for public work to the lowest
responsible bidder, the proposals and specifications therefore must be
so framed as to permit free and full competition. Nor can they enter
into a contract with the best bidder containing substantial provisions
beneficial to him, not included or contemplated in the terms and
specifications upon which the bids were invited. 33
In fact, in the PBAC Bid Bulletin No. 3 cited by PIATCO to support its argument
that the draft concession agreement is subject to amendment, the pertinent portion of
which was quoted above, the PBAC also clarified that "[s]aid amendments shall only cover
items that would not materially affect the preparation of the proponent's proposal."
 While we concede that a winning bidder is not precluded from modifying or
amending certain provisions of the contract bidded upon, such changes must not constitute
substantial or material amendments that would alter the basic parameters of the contract
and would constitute a denial to the other bidders of the opportunity to bid on the same
terms.Hence, the determination of whether or not a modification or amendment of a
contract bidded out constitutes a substantial amendment rests on whether the contract,
when taken as a whole, would contain substantially different terms and conditions that
would have the effect of altering the technical and/or financial proposals previously
submitted by other bidders. The alterations and modifications in the contract executed
between the government and the winning bidder must be such as to render such executed
contract to be an entirely different contract from the one that was bidded upon.CSaITD
In the case of Caltex (Philippines),Inc. v. Delgado Brothers, Inc., 34 this Court
quoted with approval the ruling of the trial court that an amendment to a contract awarded
through public bidding, when such subsequent amendment was made without a new public
bidding, is null and void:
The Court agrees with the contention of counsel for the
plaintiffs that the due execution of a contract after public bidding is a
limitation upon the right of the contracting parties to alter or amend
it without another public bidding, for otherwise what would a public
bidding be good for if after the execution of a contract after public
bidding, the contracting parties may alter or amend the contract, or
even cancel it, at their will? Public biddings are held for the protection
of the public, and to give the public the best possible advantages by
means of open competition between the bidders. He who bids or
offers the best terms is awarded the contract subject of the bid, and
it is obvious that such protection and best possible advantages to the
public will disappear if the parties to a contract executed after public
bidding may alter or amend it without another previous public
bidding. 35
Hence, the question that comes to fore is this: is the 1997 Concession Agreement
the same agreement that was offered for public bidding,i.e.,the draft Concession
Agreement attached to the Bid Documents? A close comparison of the draft Concession
Agreement attached to the Bid Documents and the 1997 Concession Agreement reveals
that the documents differ in at least two material respects:
a. Modification on the Public
Utility Revenues and Non-Public
Utility Revenues that may be
collected by PIATCO
The fees that may be, imposed and collected by PIATCO under the draft
Concession Agreement and the 1997 Concession Agreement may be classified into three
distinct categories: (1) fees which are subject to periodic adjustment of once every two
years in accordance with a prescribed parametric formula and adjustments are made
effective only upon written approval by MIAA; (2) fees other than those included in the first
category which may be adjusted by PIATCO whenever it deems necessary without need for
consent of DOTC/MIAA; and (3) new fees and charges that may be imposed by PIATCO
which have not been previously imposed or collected at the Ninoy Aquino International
Airport Passenger Terminal I, pursuant to Administrative Order No. 1, Series of 1993, as
amended. The glaring distinctions between the draft Concession Agreement and the 1997
Concession Agreement lie in the types of fees included in each category and the extent of
the supervision and regulation which MIAA is allowed to exercise in relation thereto.
For fees under the first category,i.e.,those which are subject to periodic
adjustment in accordance with a prescribed parametric formula and effective only upon
written approval by MIAA, the draft Concession Agreement includes the following: 36
(1) aircraft parking fees;
(2) aircraft tacking fees;
(3) groundhandling fees;
(4) rentals and airline offices;
(5) check-in counter rentals; and
(6) porterage fees.
Under the 1997 Concession Agreement,fees which are subject to adjustment and
effective upon MIAA approval are classified as "Public Utility Revenues" and include: 37
(1) aircraft parking fees;
(2) aircraft tacking fees;
(3) check-in counter fees; and
(4) Terminal Fees.
The implication of the reduced number of fees that are subject to MIAA approval
is best appreciated in relation to fees included in the second category identified above.
Under the 1997 Concession Agreement,fees which PIATCO may adjust whenever it deems
necessary without need for consent of DOTC/MIAA are "Non-Public Utility Revenues" and is
defined as "all other income not classified as Public Utility Revenues derived from operations
of the Terminal and the Terminal Complex." 38Thus, under the 1997 Concession
Agreement, groundhandling fees, rentals from airline offices and porterage fees are no
longer subject to MIAA regulation.
Further, under Section 6.03 of the draft Concession Agreement;MIAA reserves the
right to regulate (1) lobby and vehicular parking fees and (2) other new fees and charges
that may be imposed by PIATCO. Such regulation may be made by periodic adjustment and
is effective only upon written approval of MIAA. The full text of said provision is quoted
below:
Section 6.03. Periodic Adjustment in Fees and
Charges.Adjustments in the aircraft parking fees, aircraft tacking
fees, groundhandling fees, rentals and airline offices, check-in-
counter rentals and porterage fees shall be allowed only once every
two years and in accordance with the Parametric Formula attached
hereto as Annex F. Provided that adjustments shall be made effective
only after the written express approval of the MIAA. Provided, further,
that such approval of the MIAA, shall be contingent only on the
conformity of the adjustments with the above said parametric
formula. The first adjustment shall be made prior to the In-Service
Date of the Terminal.
The MIAA reserves the right to regulate under the foregoing
terms and conditions the lobby and vehicular parking fees and other
new fees and charges as contemplated in paragraph 2 of Section 6.01
if in its judgment the users of the airport shall be deprived of a free
option for the services they cover. 39
On the other hand, the equivalent provision under the 1997 Concession
Agreement reads:
Section 6.03 Periodic Adjustment in Fees, and Charges.
xxx xxx xxx
 (c) Concessionaire shall at all times be judicious in fixing
fees and charges constituting Non-Public Utility Revenues in order to
ensure that End Users are not unreasonably deprived of
services. While the vehicular parking fee, porterage fee and
greeter/well wisher fee constitute Non-Public Utility Revenues of
Concessionaire, GRP may intervene and require Concessionaire to
explain and justify the fee it may set from time to time,if in the
reasonable opinion of GRP the said fees have become exorbitant
resulting in the unreasonable deprivation of End Users of such
services. 40
Thus, under the 1997 Concession Agreement,with respect to (1) vehicular parking
fee, (2) porterage fee and (3) greeter/well wisher fee, all that MIAA can do is to require
PIATCO to explain and justify the fees set by PIATCO. In the draft Concession
Agreement,vehicular parking fee is subject to MIAA regulation and approval under the
second paragraph of Section 6.03 thereof while porterage fee is covered by the first
paragraph of the same provision. There is an obvious relaxation of the extent of control
and regulation by MIAA with respect to the particular fees that may be charged by
PIATCO. CSaITD
Moreover, with respect to the third category of fees that may be imposed and
collected by PIATCO, i.e.,new fees and charges that may be imposed by PIATCO which have
not been previously imposed or collected at the Ninoy Aquino International Airport
Passenger Terminal I, under Section 6.03 of the draft Concession Agreement MIAA has
reserved the right to regulate the same under the same conditions that MIAA may regulate
fees under the first category, i.e.,periodic adjustment of once every two years in accordance
with a prescribed parametric formula and effective only upon written approval by MIAA.
However, under the 1997 Concession Agreement,adjustment of fees under the third
category is not subject to MIAA regulation.
With respect to terminal fees that may be charged by PIATCO, 41 as shown
earlier, this was included within the category of "Public Utility Revenues" under the 1997
Concession Agreement.This classification is significant because under the 1997 Concession
Agreement, "Public Utility Revenues" are subject to an "Interim Adjustment" of fees upon
the occurrence of certain extraordinary events specified in the agreement. 42 However,
under the draft Concession Agreement, terminal fees are not included in the types of fees
that may be subject to "Interim Adjustment." 43
Finally, under the 1997 Concession Agreement,"Public Utility Revenues," except
terminal fees, are denominated in US Dollars 44 while payments to the Government are in
Philippine Pesos. In the draft Concession Agreement,no such stipulation was included. By
stipulating that "Public Utility Revenues" will be paid to PIATCO in US Dollars while
payments by PIATCO to the Government are in Philippine currency under the 1997
Concession Agreement, PIATCO is able to enjoy the benefits of depreciations of the
Philippine Peso, while being effectively insulated from the detrimental effects of exchange
rate fluctuations.
When taken as a whole, the changes under the 1997 Concession Agreement with
respect to reduction in the types of fees that are subject to MIAA regulation and the
relaxation of such regulation with respect to other fees are significant amendments that
substantially distinguish the draft Concession Agreement from the 1997 Concession
Agreement. The 1997 Concession Agreement, in this respect, clearly gives PIATCO more
favorable terms than what was available to other bidders at the time the contract was
bidded out.It is not very difficult to see that the changes in the 1997 Concession Agreement
translate to direct and concrete financial advantages for PIATCO which were not available
at the time the contract was offered for bidding. It cannot be denied that under the 1997
Concession Agreement only "Public Utility Revenues" are subject to MIAA
regulation. Adjustments of all other fees imposed and collected by PIATCO are entirely
within its control.Moreover, with respect to terminal fees, under the 1997 Concession
Agreement, the same is further subject to "Interim Adjustments" not previously stipulated
in the draft Concession Agreement. Finally, the change in the currency stipulated for "Public
Utility Revenues" under the 1997 Concession Agreement, except terminal fees, gives
PIATCO an added benefit which was not available at the time of bidding. aSTAIH
b. Assumption by the
Government
of the liabilities of PIATCO in
the event
of the latter's default thereof
Under the draft Concession Agreement,default by PIATCO of any of its obligations
to creditors who have provided, loaned or advanced funds for the NAIA IPT III project does
not result in the assumption by the Government of these liabilities. In fact, nowhere in the
said contract does default of PIATCO's loans figure in the agreement. Such default does not
directly result in any concomitant right or obligation in favor of the Government.
However, the 1997 Concession Agreement provides:
Section 4.04 Assignment.
xxx xxx xxx
(b) In the event Concessionaire should default in the
payment of an Attendant Liability, and the default has resulted in the
acceleration of the payment due date of the Attendant Liability prior
to its stated date of maturity, the Unpaid Creditors and Concessionaire
shall immediately inform GRP in writing of such default. GRP shall,
within one hundred eighty (180) Days from receipt of the joint written
notice of the Unpaid Creditors and Concessionaire, either (i) take over
the Development Facility and assume the Attendant Liabilities, or (ii)
allow the Unpaid Creditors, if qualified, to be substituted as
concessionaire and operator of the Development Facility in
accordance with the terms and conditions hereof, or designate a
qualified operator acceptable to GRP to operate the Development
Facility, likewise under the terms and conditions of this Agreement;
Provided that if at the end of the 180-day period GRP shall not have
served the Unpaid Creditors and Concessionaire written notice of its
choice, GRP shall be deemed to have elected to take over the
Development Facility with the concomitant assumption of Attendant
Liabilities.
(c) If GRP should, by written notice, allow the Unpaid
Creditors to be substituted as concessionaire, the latter shall form and
organize a concession company qualified to take over the operation
of the Development Facility. If the concession company should elect
to designate an operator for the Development Facility, the concession
company shall in good faith identify and designate a qualified operator
acceptable to GRP within one hundred eighty (180) days from receipt
of GRP's written notice. If the concession company, acting in good
faith and with due diligence, is unable to designate a qualified
operator within the aforesaid period, then GRP shall at the end of the
180-day period take over the Development Facility and assume
Attendant Liabilities.
The term "Attendant Liabilities" under the 1997 Concession Agreement is defined
as:
Attendant Liabilities refer to all amounts recorded and from
time to time outstanding in the books of the Concessionaire as owing
to Unpaid Creditors who have provided, loaned or advanced funds
actually used for the Project,including all interests, penalties,
 associated fees, charges, surcharges, indemnities, reimbursements
and other related expenses, and further including amounts owed by
Concessionaire to its suppliers, contractors and sub-contractors.
Under the above quoted portions of Section 4.04 in relation to the definition of
"Attendant Liabilities," default by PIATCO of its loans used to finance the NAIA IPT III
project triggers the occurrence of certain events that leads to the assumption by the
Government of the liability for the loans.Only in one instance may the Government escape
the assumption of PIATCO's liabilities, i.e.,when the Government so elects and allows a
qualified operator to take over as Concessionaire. However, this circumstance is dependent
on the existence and availability of a qualified operator who is willing to take over the rights
and obligations of PIATCO under the contract, a circumstance that is not entirely within the
control of the Government.
Without going into the validity of this provision at this juncture, suffice it to state
that Section 4.04 of the 1997 Concession Agreement may be considered a form of security
for the loans PIATCO has obtained to finance the project, an option that was not made
available in the draft Concession Agreement. Section 4.04 is an important amendment to
the 1997 Concession Agreement because it grants PIATCO a financial advantage or benefit
which was not previously made available during the bidding process.This financial
advantage is a significant modification that translates to better terms and conditions for
PIATCO.
PIATCO, however, argues that the parties to the bidding procedure acknowledge
that the draft Concession Agreement is subject to amendment because the Bid Documents
permit financing or borrowing. They claim that it was the lenders who proposed the
amendments to the draft Concession Agreement which resulted in the 1997 Concession
Agreement.
We agree that it is not inconsistent with the rationale and purpose of the BOT
Law to allow the project proponent or the winning bidder to obtain financing for the project,
especially in this case which involves the construction, operation and maintenance of the
NAIA IPT III. Expectedly, compliance by the project proponent of its undertakings therein
would involve a substantial amount of investment. It is therefore inevitable for the awardee
of the contract to seek alternate sources of funds to support the project. Be that as it may,
this Court maintains that amendments to the contract bidded upon should always conform
to the general policy on public bidding if such procedure is to be faithful to its real nature
and purpose. By its very nature and characteristic, competitive public bidding aims to
protect the public interest by giving the public the best possible advantages through open
competition. 45 It has been held that the three principles in public bidding are (1) the offer
to the public; (2) opportunity for competition; and (3) a basis for the exact comparison of
bids. A regulation of the matter which excludes any of these factors destroys the distinctive
character of the system and thwarts the purpose of its adoption. 46 These are the basic
parameters which every awardee of a contract bidded out must conform to, requirements
of financing and borrowing notwithstanding. Thus, upon a concrete showing that, as in this
case, the contract signed by the government and the contract awardee is an entirely
different contract from the contract bidded, courts should not hesitate to strike down said
contract in its entirety for violation of public policy on public bidding. A strict adherence on
the principles, rules and regulations on public bidding must be sustained if only to preserve
the integrity and the faith of the general public on the procedure.
Public bidding is a standard practice for procuring government contracts for public
service and for furnishing supplies and other materials. It aims to secure for the government
the lowest possible price under the most favorable terms and conditions, to curtail
favoritism in the award of government contracts and avoid suspicion of anomalies and it
places all bidders in equal footing. 47 Any government action which permits any substantial
variance between the conditions under which the bids are invited and the contract executed
after the award thereof is a grave abuse of discretion amounting to lack or excess of
jurisdiction which warrants proper judicial action.
In view of the above discussion, the fact that the foregoing substantial
amendments were made on the 1997 Concession Agreement renders the same null and
void for being contrary to public policy.These amendments convert the 1997 Concession
Agreement to an entirely different agreement from the contract bidded out or the draft
Concession Agreement. It is not difficult to see that the amendments on (1) the types of
fees or charges that are subject to MIAA regulation or control and the extent thereof and
(2) the assumption by the Government, under certain conditions, of the liabilities of
PIATCO directly translates concrete financial advantages to PIATCO that were previously
not available during the bidding process.These amendments cannot be taken as merely
supplements to or implementing provisions of those already existing in the draft Concession
Agreement. The amendments discussed above present new terms and conditions which
provide financial benefit to PIATCO which may have altered the technical and financial
parameters of other bidders had they known that such terms were available.
III
Direct Government Guarantee
Article IV, Section 4.04(b) and (c),in relation to Article 1.06, of the 1997
Concession Agreement provides:
Section 4.04 Assignment
xxx xxx xxx
(b) In the event Concessionaire should default in the
payment of an Attendant Liability,and the default resulted in the
acceleration of the payment due date of the Attendant Liability prior
to its stated date of maturity, the Unpaid Creditors and Concessionaire
shall immediately inform GRP in writing of such default. GRP shall
within one hundred eighty (180) days from receipt of the joint written
notice of the Unpaid Creditors and Concessionaire, either (i) take over
the Development Facility and assume the Attendant Liabilities,or (ii)
allow the Unpaid Creditors, if qualified to be substituted as
concessionaire and operator of the Development facility in accordance
with the terms and conditions hereof, or designate a qualified operator
acceptable to GRP to operate the Development Facility, likewise under
the terms and conditions of this Agreement; Provided, that if at the
end of the 180-day period GRP shall not have served the Unpaid
Creditors and Concessionaire written notice of its choice, GRP shall be
deemed to have elected to take over the Development Facility with
the concomitant assumption of Attendant Liabilities.
(c) If GRP, by written notice, allow the Unpaid Creditors to
be substituted as concessionaire, the latter shall form and organize a
concession company qualified to takeover the operation of the
Development Facility. If the concession company should elect to
designate an operator for the Development Facility, the concession
company shall in good faith identify and designate a qualified operator
acceptable to GRP within one hundred eighty (180) days from receipt
of GRP's written notice. If the concession company, acting in good
faith and with due diligence, is unable to designate a qualified
operator within the aforesaid period, then GRP shall at the end of the
180-day period take over the Development Facility and assume
Attendant Liabilities.
xxx xxx xxx
Section 1.06. Attendant Liabilities
 Attendant Liabilities refer to all amounts recorded and from
time to time outstanding in the books of the Concessionaire as owing
to Unpaid Creditors who have provided, loaned or advanced funds
actually used for the Project, including all interests, penalties,
associated fees, charges, surcharges, indemnities, reimbursements
and other related expenses,and further including amounts owed by
Concessionaire to its suppliers, contractors and subcontractors. 48
It is clear from the above-quoted provisions that Government, in the event that
PIATCO defaults in its loan obligations, is obligated to pay "all amounts recorded and from
time to time outstanding from the books" of PIATCO which the latter owes to its
creditors. 49 These amounts include "all interests, penalties, associated fees, charges,
surcharges, indemnities, reimbursements and other related expenses." 50 This obligation
of the Government to pay PIATCO's creditors upon PIATCO's default would arise if the
Government opts to take over NAIA IPT III. It should be noted, however, that even if the
Government chooses the second option, which is to allow PIATCO's unpaid creditors operate
NAIA IPT III, the Government is still at a risk of being liable to PIATCO's creditors should
the latter be unable to designate a qualified operator within the prescribed period. 51 In
effect, whatever option the Government chooses to take in the event of PIATCO's failure to
fulfill its loan obligations, the Government is still at a risk of assuming PIATCO's outstanding
loans.This is due to the fact that the Government would only be free from assuming
PIATCO's debts if the unpaid creditors would be able to designate a qualified operator within
the period provided for in the contract. Thus, the Government's assumption of liability is
virtually out of its control.The Government under the circumstances provided for in the
1997 Concession Agreement is at the mercy of the existence, availability and willingness of
a qualified operator. The above contractual provisions constitute a direct government
guarantee which is prohibited by law.
One of the main impetus for the enactment of the BOT Law is the lack of
government funds to construct the infrastructure and development projects necessary for
economic growth and development. This is why private sector resources are being tapped
in order to finance these projects. The BOT law allows the private sector to participate, and
is in fact encouraged to do so by way of incentives, such as minimizing, the unstable flow
of returns, 52 provided that the government would not have to unnecessarily expend
scarcely available funds for the project itself. As such, direct guarantee, subsidy and equity
by the government in these projects are strictly prohibited. 53 This is but logical for if the
government would in the end still be at a risk of paying the debts incurred by the private
entity in the BOT projects, then the purpose of the law is subverted.
Section 2(n) of the BOT Law defines direct guarantee as follows:
(n) Direct government guarantee — An agreement whereby
the government or any of its agencies or local government units
assume responsibility for therepayment of debt directly incurred by
the project proponent in implementing the project in case of a loan
default.
Clearly by providing that the Government "assumes" the attendant liabilities,
which consists of PIATCO's unpaid debts, the 1997 Concession Agreement provided for a
direct government guarantee for the debts incurred by PIATCO in the implementation of
the NAIA IPT III project. It is of no moment that the relevant sections are subsumed under
the title of "assignment".The provisions providing for direct government guarantee which
is prohibited by law is clear from the terms thereof.
The fact that the ARCA superseded the 1997 Concession Agreement did not cure
this fatal defect. Article IV, Section 4.04(c),in relation to Article 1, Section 1.06, of the
ARCA provides:
Section 4.04 Security
xxx xxx xxx
(c) GRP agrees with Concessionaire (PIATCO) that it shall
negotiate in good faith and enter into direct agreement with the
Senior Lenders,or with an agent of such Senior Lenders (which
agreement shall be subject to the approval of the Bangko Sentral ng
Pilipinas),in such form as may be reasonably acceptable to both GRP
and Senior Lenders, with regard, inter alia, to the following
parameters:
xxx xxx xxx
(iv) If the Concessionaire [PIATCO] is in default under a
payment obligation owed to the Senior Lenders,and as a result thereof
the Senior Lenders have become entitled to accelerate the Senior
Loans, the Senior Lenders shall have the right to notify GRP of the
same, and without prejudice to any other rights of the Senior Lenders
or any Senior Lenders' agent may have (including without limitation
under security interests granted in favor of the Senior Lenders),to
either in good faith identify and designate a nominee which is qualified
under sub-clause (viii)(y) below to operate the Development Facility
[NAIA Terminal 3] or transfer the Concessionaire's [PIATCO] rights
and obligations under this Agreement to a transferee which is
qualified under sub-clause (viii) below;
xxx xxx xxx
(vi) if the Senior Lenders, acting in good faith and using
reasonable efforts, are unable to designate a nominee or effect a
transfer in terms and conditions satisfactory to the Senior Lenders
within one hundred eighty (180) days after giving GRP notice as
referred to respectively in (iv) or (v) above, then GRP and the Senior
Lenders shall endeavor in good faith to enter into any other
arrangement relating to the Development Facility [NAIA Terminal 3]
(other than a turnover of the Development Facility [NAIA Terminal 3]
to GRP) within the following one hundred eighty (180) days. If no
agreement relating to the Development Facility [NAIA Terminal 3] is
arrived at by GRP and the Senior Lenders within the said 180-day
period, then at the end thereof the Development Facility [NAIA
Terminal 3] shall be transferred by the Concessionaire [PIATCO] to
GRP or its designee and GRP shall make a termination payment to
Concessionaire [PIATCO] equal to the Appraised Value (as hereinafter
defined) of the Development Facility [NAIA Terminal 3] or the sum of
the Attendant Liabilities, if greater.Notwithstanding Section 8.01 (c)
hereof, this Agreement shall be deemed terminated upon the transfer
of the Development Facility [NAIA Terminal 3] to GRP pursuant
hereto;
xxx xxx xxx
Section 1.06. Attendant Liabilities
Attendant Liabilities refer to all amounts in each case
supported by verifiable evidence from time to time owed or which
may become owing by Concessionaire [PIATCO] to Senior Lenders or
any other persons or entities who have provided, loaned, or advanced
funds or provided financial facilities to Concessionaire [PIATCO] for
the Project [NAIA Terminal 3],including, without limitation, all
principal, interest, associated fees, charges, reimbursements, and
other related expenses (including the fees, charges and expenses of
 any agents or trustees of such persons or entities),whether payable
at maturity, by acceleration or otherwise, and further including
amounts owed by Concessionaire [PIATCO] to its professional
consultants and advisers, suppliers, contractors and sub-
contractors. 54
It is clear from the foregoing contractual provisions that in the event that PIATCO
fails to fulfill its loan obligations to its Senior Lenders, the Government is obligated to
directly negotiate and enter into an agreement relating to NAIA IPT III with the Senior
Lenders, should the latter fail to appoint a qualified nominee or transferee who will take the
place of PIATCO. If the Senior Lenders and the Government are unable to enter into an
agreement after the prescribed period, the Government must then pay PIATCO, upon
transfer of NAIA IPT III to the Government, termination payment equal to the appraised
value of the project or the value of the attendant liabilities whichever is greater.Attendant
liabilities as defined in the ARCA includes all amounts owed or thereafter may be owed by
PIATCO not only to the Senior Lenders with whom PIATCO has defaulted in its loan
obligations but to all other persons who may have loaned, advanced funds or provided any
other type of financial facilities to PIATCO for NAIA IPT III. The amount of PIATCO's debt
that the Government would have to pay as a result of PIATCO's default in its loan obligations
— in case no qualified nominee or transferee is appointed by the Senior Lenders and no
other agreement relating to NAIA IPT III has been reached between the Government and
the Senior Lenders — includes, but is not limited to, "all principal, interest, associated fees,
charges, reimbursements, and other related expenses ...whether payable at maturity, by
acceleration or otherwise." 55
It is clear from the foregoing that the ARCA provides for a direct guarantee by the
government to pay PIATCO's loans not only to its Senior Lenders but all other entities who
provided PIATCO funds or services upon PIATCO's default in its loan obligation with its
Senior Lenders.The fact that the Government's obligation to pay PIATCO's lenders for the
latter's obligation would only arise after the Senior Lenders fail to appoint a qualified
nominee or transferee does not detract from the fact that, should the conditions as stated
in the contract occur, the ARCA still obligates the Government to pay any and all amounts
owed by PIATCO to its lenders in connection with NAIA IPT III. Worse, the conditions that
would make the Government liable for PIATCO's debts is triggered by PIATCO's own default
of its loan obligations to its Senior Lenders to which loan contracts the Government was
never a party to. The Government was not even given an option as to what course of action
it should take in case PIATCO defaulted in the payment of its senior loans. The Government,
upon PIATCO's default, would be merely notified by the Senior Lenders of the same and it
is the Senior Lenders who are authorized to appoint a qualified nominee or transferee.
Should the Senior Lenders fail to make such an appointment, the Government is then
automatically obligated to "directly deal and negotiate" with the Senior Lenders regarding
NAIA IPT III. The only way the Government would not be liable for PIATCO's debt is for a
qualified nominee or transferee to be appointed in place of PIATCO to continue the
construction, operation and maintenance of NAIA IPT III. This "pre-condition",however, will
not take the contract out of the ambit of a direct guarantee by the government as the
existence, availability and willingness of a qualified nominee or transferee is totally out of
the government's control. As such the Government is virtually at the mercy of PIATCO (that
it would not default on its loan obligations to its Senior Lenders),the Senior Lenders (that
they would appoint a qualified nominee or transferee or agree to some other arrangement
with the Government) and the existence of a qualified nominee or transferee who is able
and willing to take the place of PIATCO in NAIA IPT III.
The proscription against government guarantee in any form is one of the policy
considerations behind the BOT Law.Clearly, in the present case, the ARCA obligates the
Government to pay for all loans, advances and obligations arising out of financial facilities
extended to PIATCO for the implementation of the NAIA IPT III project should PIATCO
default in its loan obligations to its Senior Lenders and the latter fails to appoint a qualified
nominee or transferee. This in effect would make the Government liable for PIATCO's loans
should the conditions as set forth in the ARCA arise. This is a form of direct government
guarantee.
The BOT Law and its implementing rules provide that in order for an unsolicited
proposal for a BOT project may be accepted, the following conditions must first be met: (1)
the project involves a new concept in technology and/or is not part of the list of priority
projects, (2) no direct government guarantee, subsidy or equity is required, and (3) the
government agency or local government unit has invited by publication other interested
parties to a public bidding and conducted the same. 56 The failure to meet any of the above
conditions will result in the denial of the proposal. It is further provided that the presence
of direct government guarantee, subsidy or equity will "necessarily, disqualify a proposal
from being treated and accepted as an unsolicited proposal." 57 The BOT Law clearly and
strictly prohibits direct government guarantee, subsidy and equity in unsolicited proposals
that the mere inclusion of a provision to that effect is fatal and is sufficient to deny the
proposal. It stands to reason therefore that if a proposal can be denied by reason of the
existence of direct government guarantee, then its inclusion in the contract executed after
the said proposal has been accepted is likewise sufficient to invalidate the contract itself. A
prohibited provision, the inclusion of which would result in the denial of a proposal cannot,
and should not, be allowed to later on be inserted in the contract resulting from the said
proposal. The basic rules of justice and fair play alone militate against such an occurrence
and must not, therefore, be countenanced particularly in this instance where the
government is exposed to the risk of shouldering hundreds of million of dollars in debt.
This Court has long and consistently adhered to the legal maxim that those that
cannot be done directly cannot be done indirectly. 58 To declare the PIATCO contracts valid
despite the clear statutory prohibition against a direct government guarantee would not
only make a mockery of what the BOT Law seeks to prevent —which is to expose the
government to the risk of incurring a monetary obligation resulting from a contract of loan
between the project proponent and its lenders and to which the Government is not a party
to — but would also render the BOT Law useless for what it seeks to achieve — to make
use of the resources of the private sector in the "financing, operation and maintenance of
infrastructure and development projects" 59 which are necessary for national growth and
development but which the government, unfortunately, could ill-afford to finance at this
point in time.
IV
Temporary takeover of business affected with public interest
Article XII, Section 17 of the 1987 Constitution provides:
Section 17. In times of national emergency, when the public
interest so requires, the State may, during the emergency and under
reasonable terms prescribed by it, temporarily take over or direct the
operation of any privately owned public utility or business affected
with public interest.
The above provision pertains to the right of the State in times of national
emergency, and in the exercise of its police power, to temporarily take over the operation
of any business affected with public interest. In the 1986 Constitutional Commission, the
term "national emergency" was defined to include threat from external aggression,
calamities or national disasters, but not strikes "unless it is of such proportion that would
paralyze government service." 60 The duration of the emergency itself is the determining
factor as to how long the temporary takeover by the government would last. 61 The
temporary takeover by the government extends only to the operation of the business and
not to the ownership thereof. As such the government is not required to compensate the
private entity-owner of the said business as there is no transfer of ownership,whether
permanent or temporary. The private entity-owner affected by the temporary takeover
cannot, likewise, claim just compensation for the use of the said business and its properties
as the temporary takeover by the government is in exercise of its police power and not of
its power of eminent domain.
 Article V, Section 5.10 (c) of the 1997 Concession Agreement provides:
Section 5.10 Temporary Take-over of operations by GRP.
xxx xxx xxx
(c) In the event the development Facility or any part thereof
and/or the operations of Concessionaire or any part thereof, become
the subject matter of or be included in any notice, notification, or
declaration concerning or relating to acquisition, seizure or
appropriation by GRP in times of war or national emergency, GRP
shall, by written notice to Concessionaire, immediately take over the
operations of the Terminal and/or the Terminal Complex. During such
take over by GRP, the Concession Period shall be suspended;
provided, that upon termination of war, hostilities or national
emergency, the operations shall be returned to Concessionaire, at
which time, the Concession period shall commence to run
again. Concessionaire shall be entitled to reasonable compensation
for the duration of the temporary take over by GRP, which
compensation shall take into account the reasonable cost for the use
of the Terminal and/or Terminal Complex, (which is in the amount at
least equal to the debt service requirements of Concessionaire, if the
temporary take over should occur at the time when Concessionaire is
still servicing debts owed to project lenders),any loss or damage to
the Development Facility, and other consequential damages. If the
parties cannot agree on the reasonable compensation of
Concessionaire, or on the liability of GRP as aforesaid, the matter shall
be resolved in accordance with Section 10.01 [Arbitration].Any
amount determined to be payable by GRP to Concessionaire shall be
offset from the amount next payable by Concessionaire to GRP. 62
PIATCO cannot, by mere contractual stipulation, contravene the Constitutional
provision on temporary government takeover and obligate the government to pay
"reasonable cost for the use of the Terminal and/or Terminal Complex." 63 Article XII,
section 17 of the 1987 Constitution envisions a situation wherein the exigencies of the times
necessitate the government to "temporarily take over or direct the operation of any
privately owned public utility or business affected with public interest." It is the welfare and
interest of the public which is the paramount consideration in determining whether or not
to temporarily take over a particular business. Clearly, the State in effecting the temporary
takeover is exercising its police power. Police power is the "most essential, insistent, and
illimitable of powers." 64 Its exercise therefore must not be unreasonably hampered nor
its exercise be a source of obligation by the government in the absence of damage due to
arbitrariness of its exercise. 65 Thus, requiring the government to pay reasonable
compensation for the reasonable use of the property pursuant to the operation of the
business contravenes theConstitution.
V parties.
Regulation of Monopolies
A monopoly is "a privilege or peculiar advantage vested in one or more persons
or companies, consisting in the exclusive right (or power) to carry on a particular business
or trade, manufacture a particular article, or control the sale of a particular
commodity." 66 The 1987 Constitution strictly regulates monopolies,whether private or
public, and even provides for their prohibition if public interest so requires. Article XII,
Section 19 of the 1987 Constitution states:
Sec. 19. The state shall regulate or prohibit monopolies
when the public interest so requires. No combinations in restraint of
trade or unfair competition shall be allowed.
Clearly, monopolies are not per se prohibited by the Constitution but may be
permitted to exist to aid the government in carrying on an enterprise or to aid in the
performance of various services and functions in the interest of the public. 67 Nonetheless,
a determination must first be made as to whether public interest requires a monopoly. As
monopolies are subject to abuses that can inflict severe prejudice to the public, they are
subject to a higher level of State regulation than an ordinary business undertaking.
In the cases at bar, PIATCO, under the 1997 Concession Agreement and the
ARCA, is granted the "exclusive right to operate a commercial international passenger
terminal within the Island of Luzon" at the NAIA IPT III. 68 This is with the exception of
already existing international airports in Luzon such as those located in the Subic Bay
Freeport Special Economic Zone ("SBFSEZ"), Clark Special Economic Zone ("CSEZ") and in
Laoag City. 69 As such, upon commencement of PIATCO's operation of NAIA IPT III,
Terminals 1 and 2 of NAIA would cease to function as international passenger terminals.
This, however, does not prevent MIAA to use Terminals 1 and 2 as domestic passenger
terminals or in any other manner as it may deem appropriate except those activities that
would compete with NAIA IPT III in the latter's operation as an international passenger
terminal. 70 The right granted to PIATCO to exclusively operate NAIA IPT III would be for
a period of twenty-five (25) years from the In-Service Date 71 and renewable for another
twenty-five (25) years at the option of the government. 72 Both the 1997 Concession
Agreement and the ARCA further provide that, in view of the exclusive right granted to
PIATCO,the concession contracts of the service providers currently servicing Terminals 1
and 2 would no longer be renewed and those concession contracts whose expiration are
subsequent to the In-Service Date would cease to be effective on the said date. 73
The operation of an international passenger airport terminal is no doubt an
undertaking imbued with public interest. In entering into a Build-Operate-and-Transfer
contract for the construction, operation and maintenance of NAIA IPT III, the government
has determined that public interest would be served better if private sector resources were
used in its construction and an exclusive right to operate be granted to the private entity
undertaking the said project, in this case PIATCO. Nonetheless, the privilege given to
PIATCO is subject to reasonable regulation and supervision by the Government through the
MIAA, which is the government agency authorized to operate the NAIA complex, as well as
DOTC, the department to which MIAA is attached. 74
This is in accord with the Constitutional mandate that a monopoly which is not
prohibited must be regulated. 75 While it is the declared policy of the BOT Law to
encourage private sector participation by "providing a climate of minimum government
regulations," 76 the same does not mean that Government must completely surrender its
sovereign power to protect public interest in the operation of a public utility as a monopoly.
The operation of said public utility can not be done in an arbitrary manner to the detriment
of the public which it seeks to serve. The right granted to the public utility may be exclusive
but the exercise of the right cannot run riot. Thus, while PIATCO may be authorized to
exclusively operate NAIA IPT III as an international passenger terminal, the Government,
through the MIAA, has the right and the duty to ensure that it is done in accord with public
interest. PIATCO's right to operate NAIA IPT III cannot also violate the rights of third
Section 3.01(e) of the 1997 Concession Agreement and the ARCA provide:
3.01 Concession Period
xxx xxx xxx
(e) GRP confirms that certain concession
agreements relative to certain services and operations currently being
undertaken at the Ninoy Aquino International Airport passenger
Terminal I have a validity period extending beyond the In-Service
Date.GRP through DOTC/MIAA, confirms that these services and
operations shall not be carried over to the Terminal and the
 Concessionaire is under no legal obligation to permit such carry-
over except through a separate agreement duly entered into with
Concessionaire. In the event Concessionaire becomes involved in any
litigation initiated by any such concessionaire or operator, GRP
undertakes and hereby holds Concessionaire free and harmless on full
indemnity basis from and against any loss and/or any liability
resulting from any such litigation, including the cost of litigation and
the reasonable fees paid or payable to Concessionaire's counsel of
choice, all such amounts shall be fully deductible by way of an offset
from any amount which the Concessionaire is bound to pay GRP under
this Agreement.
During the oral arguments on December 10, 2002, the counsel for the petitioners-
in-intervention for G.R. No. 155001 stated that there are two service providers whose
contracts are still existing and whose validity extends beyond the In-Service Date. One
contract remains valid until 2008 and the other until 2010. 77
We hold that while the service providers presently operating at NAIA Terminal 1
do not have an absolute right for the renewal or the extension of their respective contracts,
those contracts whose duration extends beyond NAIA IPT III's In-Service-Date should not
be unduly prejudiced. These contracts must be respected not just by the parties thereto
but also by third parties. PIATCO cannot, by law and certainly not by contract, render a
valid and binding contract nugatory. PIATCO, by the mere expedient of claiming an
exclusive right to operate, cannot require the Government to break its contractual
obligations to the service providers. In contrast to the arrastre and stevedoring service
providers in the case of Anglo-Fil Trading Corporation v. Lazaro 78 whose contracts consist
of temporary hold-over permits, the affected service providers in the cases at bar, have a
valid and binding contract with the Government, through MIAA, whose period of effectivity,
as well as the other terms and conditions thereof cannot be violated.
In fine, the efficient functioning of NAIA IPT III is imbued with public interest. The
provisions of the 1997 Concession Agreement and the ARCA did not strip government, thru
the MIAA, of its right to supervise the operation of the whole NAIA complex, including NAIA
IPT III. As the primary government agency tasked with the job, 79 it is MIAA's
responsibility to ensure that whoever by contract is given the right to operate NAIA IPT III
will do so within the bounds of the law and with due regard to the rights of third parties
and above all, the interest of the public.
VI
CONCLUSION
In sum, this Court rules that in view of the absence of the requisite financial
capacity of the Paircargo Consortium, predecessor of respondent PIATCO, the award by the
PBAC of the contract for the construction, operation and maintenance of the NAIA IPT III
is null and void. Further, considering that the 1997 Concession Agreement contains material
and substantial amendments, which amendments had the effect of converting the 1997
Concession Agreement into an entirely different agreement from the contract bidded upon,
the 1997 Concession Agreement is similarly null and void for being contrary to public policy.
The provisions under Sections 4.04(b) and (c) in relation to Section 1.06 of the 1997
Concession Agreement and Section 4.04(c) in relation to Section 1.06 of the ARCA, which
constitute a direct government guarantee expressly prohibited by, among others, the BOT
Law and its Implementing Rules and Regulations are also null and void. The Supplements,
being accessory contracts to the ARCA, are likewise null and void. TcEaAS
WHEREFORE, the 1997 Concession Agreement, the Amended and Restated
Concession Agreement and the Supplements thereto are set aside for being null and void.
SO ORDERED.
Davide, Jr.,C.J.,Bellosillo, Ynares-Santiago, Sandoval-Gutierrez, Austria Martinez,
Corona and Carpio Morales, JJ., concur.
Vitug, J.,please see separate (dissenting) opinion
Panganiban, J.,please see separate opinion
Quisumbing and Azcuna, JJ.,concur with separate (dissenting) opinion of J. Vitug.
Callejo, Sr.,J.,concurs with separate opinion of J. Panganiban.
Carpio, J., took no part.
Separate Opinions
VITUG, J.:
This Court is bereft of jurisdiction to hear the petitions at bar.
The Constitution provides that the Supreme Court shall exercise original jurisdiction over,
among other actual controversies, petitions for certiorari, prohibition, mandamus, quo
warranto, and habeas corpus. 1 The cases in question, although denominated to be
petitions for prohibition, actually pray for the nullification of the PIATCO contracts and to
restrain respondents from implementing said agreements for being illegal and
unconstitutional.
Section 2, Rule 65 of the Rules of Court states:
"When the proceedings of any tribunal, corporation, board,
officer or person, whether exercising judicial, quasi-judicial or
ministerial functions, are without or in excess of its or his jurisdiction,
or with grave abuse of discretion amounting to lack or excess of
jurisdiction, and there is no appeal or any other plain, speedy and
adequate remedy in the ordinary course of law, a person aggrieved
thereby may file a verified petition in the proper court, alleging the
facts with certainty and praying that judgment be rendered
commanding the respondent to desist from further proceedings in the
action or matter specified therein, or otherwise granting such
incidental reliefs as law and justice may require."
The rule is explicit. A petition for prohibition may be filed against a tribunal,
corporation, board, officer or person, exercising judicial, quasi-judicial or ministerial
functions.What the petitions seek from respondents do not involve judicial, quasi-judicial
or ministerial functions. In prohibition, only legal issues affecting the jurisdiction of the
tribunal, board or officer involved may be resolved on the basis of undisputed facts. 2 The
parties allege, respectively, contentious evidentiary facts. It would be difficult, if not
anomalous, to decide the jurisdictional issue on the basis of the contradictory factual
submissions made by the parties. 3 As the Court has so often exhorted, it is not a trier of
facts.
The petitions, in effect, are in the nature of actions for declaratory relief under
Rule 63 of the Rules of Court. The Rules provide that any person interested under a contract
may, before breach or violation thereof, bring an action in the appropriate Regional Trial
Court to determine any question of construction or validity arising, and for a declaration of
his rights or duties thereunder. 4 The Supreme Court assumes no jurisdiction over petitions
for declaratory relief which are cognizable by regional trial courts. 5
As I have so expressed in Tolentino vs. Secretary of Finance, 6 reiterated
in Santiago vs. Guingona, Jr., 7 the Supreme Court should not be thought of as having
been tasked with the awesome responsibility of overseeing the entire bureaucracy.
Pervasive and limitless, such as it may seem to be under the 1987 Constitution, judicial
power still succumbs to the paramount doctrine of separation of powers. The Court may
not at good liberty intrude, in the guise of sovereign imprimatur, into every affair of
government. What significance can still then remain of the time-honored and widely
acclaimed principle of separation of powers if, at every turn, the Court allows itself to pass
upon at will the disposition of a co-equal, independent and coordinate branch in our system
of government. I dread to think of the so varied uncertainties that such an undue
interference can lead to. CSTDIE
Accordingly, I vote for the dismissal of the petition.
PANGANIBAN, J.:
The five contracts for the construction and the operation of Ninoy Aquino
International Airport (NAIA) Terminal III, the subject of the consolidated Petitions before
the Court, are replete with outright violations of law, public policy and the Constitution. The
only proper thing to do is declare them all null and void ab initio and let the chips fall where
they may. Fiat iustitia ruat coelum.
The facts leading to this controversy are already well presented in the ponencia.I
shall not burden the readers with a retelling thereof. Instead, I will cut to the chase and
directly address the two sets of gut issues:
1. The first issue is procedural:Does the Supreme Court have original jurisdiction
to hear and decide the Petitions? Corollarily, do petitioners have locus standiand should this
Court decide the cases without any mandatory referral to arbitration?
2. The second one is substantive in character: Did the subject contracts violate
the Constitution, the laws, and public policy to such an extent as to render all of them void
and inexistent?
My answer to all the above questions is a firm "Yes."
The Procedural Issue:
Jurisdiction, Standing and Arbitration
Definitely and surely, the issues involved in these Petitions are clearly of
transcendental importance and of national interest. The subject contracts pertain to the
construction and the operation of the country's premiere international airport terminal —
an ultramodern world-class public utility that will play a major role in the country's economic
development and serve to project a positive image of our country abroad. The five build-
operate-&-transfer (BOT) contracts, while entailing the investment of billions of pesos in
capital and the availment of several hundred millions of dollars in loans, contain provisions
that tend to establish a monopoly, require the disbursements of public funds sans
appropriations, and provide government guarantees in violation of statutory prohibitions,
as well as other provisions equally offensive to law, public policy and the Constitution. Public
interest will inevitably be affected thereby.
Thus, objections to these Petitions, grounded upon (a) the hierarchy of courts,
(b) the need for arbitration prior to court action, and (c) the alleged lack of sufficient
personality, standing or interest, being in the main procedural matters, must now be set
aside, as they have been in past cases. This Court must be permitted to perform its
constitutional duty of determining whether the other agencies of government have acted
within the limits of the Constitution and the laws, or if they have gravely abused the
discretion entrusted to them. 1
Hierarchy of Courts
The Court has, in the past, held that questions relating to gargantuan government
contracts ought to be settled without delay. 2 This holding applies with greater force to the
instant cases. Respondent Piatco is partly correct in averring that petitioners can obtain
relief from the regional trial courts via an action to annul the contracts.
Nevertheless, the unavoidable consequence of having to await the rendition and
the finality of any such judgment would be a prolonged state of uncertainty that would be
prejudicial to the nation, the parties and the general public. And, in light of the feared loss
of jobs of the petitioning workers, consequent to the inevitable pretermination of contracts
of the petitioning service providers that will follow upon the heels of the impending opening
of NAIA Terminal III, the need for relief is patently urgent, and therefore, direct resort to
this Court through the special civil action of prohibition is thus justified. 3
Contrary to Piatco's argument that the resolution of the issues raised in the
Petitions will require delving into factual questions, 4 I submit that their disposition
ultimately turns on questions of law. 5 Further, many of the significant and relevant factual
questions can be easily addressed by an examination of the documents submitted by the
parties. In any event, the Petitions raise some novel questions involving the application of
the amended BOT Law, which this Court has seen fit to tackle.
Arbitration
Should the dispute be referred to arbitration prior to judicial recourse?
Respondent Piatco claims that Section 10.02 of the Amended and Restated Concession
Agreement (ARCA) provides for arbitration under the auspices of the International Chamber
of Commerce to settle any dispute or controversy or claim arising in connection with the
Concession Agreement, its amendments and supplements. The government disagrees,
however, insisting that there can be no arbitration based on Section 10.02 of the ARCA,
since all the Piatco contracts are void ab initio.Therefore, all contractual provisions,
including Section 10.02 of the ARCA, are likewise void, inexistent and inoperative. To
support its stand, the government cites Chavez v. Presidential Commission on Good
Government: 6 "The void agreement will not be rendered operative by the parties' alleged
performance (partial or full) of their respective prestations. A contract that violates
the Constitution and the law is null and void ab initio and vests no rights and creates no
obligations. It produces no legal effect at all."
As will be discussed at length later, the Piatco contracts are indeed void in their
entirety; thus, a resort to the aforesaid provision on arbitration is unavailing. Besides,
petitioners and petitioners-in-intervention have pointed out that, even
granting arguendo that the arbitration clause remained a valid provision, it still cannot bind
them inasmuch as they are not parties to the Piatco contracts. And in the final analysis, it
is unarguable that the arbitration process provided for under Section 10.02 of the ARCA, to
be undertaken by a panel of three (3) arbitrators appointed in accordance with the Rules
of Arbitration of the International Chamber of Commerce, will not be able to address,
determine and definitively resolve the constitutional and legal questions that have been
raised in the Petitions before us.
Locus Standi
Given this Court's previous decisions in cases of similar import, no one will
seriously doubt that, being taxpayers and members of the House of Representatives,
Petitioners Baterina et al.,have locus standi to bring the Petition in GR No. 155547.
In Albano v. Reyes, 7 this Court held that the petitioner therein, suing as a citizen, taxpayer
and member of the House of Representatives, was sufficiently clothed with standing to
bring the suit questioning the validity of the assailed contract. The Court cited the fact that
public interest was involved, in view of the important role of the Manila International
Container Terminal (MICT) in the country's economic development and the magnitude of
the financial consideration. This, notwithstanding the fact that expenditure of public funds
was not required under the assailed contract.
 In the cases presently under consideration, petitioners' personal and substantial
interest in the controversy is shown by the fact that certain provisions in the Piatco
contracts create obligations on the part of government (through the DOTC and the MIAA)
to disburse public funds without prior congressional appropriations.
Petitioners thus correctly assert that the injury to them has a twofold aspect: (1)
they are adversely affected as taxpayers on account of the illegal disbursement of public
funds; and (2) they are prejudiced qua legislators, since the contractual provisions
requiring the government to incur expenditures without appropriations also operate as
limitations upon the exclusive power and prerogative of Congress over the public purse. As
members of the House of Representatives, they are actually deprived of discretion insofar
as the inclusion of those items of expenditure in the budget is concerned. To prevent such
encroachment upon the legislative privilege and obviate injury to the institution of which
they are members, petitioners-legislators have locus standi to bring suit.
Messrs. Agan et al and Lopez et al., are likewise taxpayers and thus possessed of
standing to challenge the illegal disbursement of public funds. Messrs. Agan et al., in
particular, are employees (or representatives of employees) of various service providers
that have (1) existing concession agreements with the MIAA to provide airport services
necessary to the operation of the NAIA and (2) service agreements to furnish essential
support services to the international airlines operating at the NAIA.
On the other hand, Messrs. Lopez et al. are employees of the MIAA. These
petitioners (Messrs. Agan et al. and Messrs. Lopez et al.) are confronted with the prospect
of being laid off from their jobs and losing their means of livelihood when their employer-
companies are forced to shut down or otherwise retrench and cut back on manpower. Such
development would result from the imminent implementation of certain provisions in the
contracts that tend toward the creation of a monopoly in favor of Piatco, its subsidiaries
and related companies.
Petitioners-in-intervention are service providers in the business of furnishing
airport-related services to international airlines and passengers in the NAIA and are
therefore competitors of Piatco as far as that line of business is concerned. On account of
provisions in the Piatco contracts, petitioners-in-intervention have to enter into a written
contract with Piatco so as not to be shut out of NAIA Terminal III and barred from doing
business there. Since there is no provision to ensure or safeguard free and fair competition,
they are literally at its mercy. They claim injury on account of their deprivation of property
(business) and of the liberty to contract, without due process of law.
And even if petitioners and petitioners-in-intervention were not sufficiently
clothed with legal standing, I have at the outset already established that, given its impact
on the public and on national interest, this controversy is laden with transcendental
importance and constitutional significance. Hence, I do not hesitate to adopt the same
position as was enunciated in Kilosbayan v. Guingona Jr. 8 that "in cases of transcendental
importance, the Court may relax the standing requirements and allow a suit to prosper
even when there is no direct injury to the party claiming the right of judicial review." 9
The Substantive Issue:
Violations of the Constitution and the Laws
From the Outset, the Bidding
Process Was Flawed and Tainted
After studying the documents submitted and arguments advanced by the parties,
I have no doubt that, right at the outset, Piatco was not qualified to participate in the
bidding process for the Terminal III project, but was nevertheless permitted to do so. It
even won the bidding and was helped along by what appears to be a series of collusive and
corrosive acts.
The build-operate-and-transfer (BOT) project for the NAIA Passenger Terminal III
comes under the category of an "unsolicited proposal," which is the subject of Section 4-A
of the BOT Law. 10 The unsolicited proposal was originally submitted by the Asia's
Emerging Dragon Corporation (AEDC) to the Department of Transportation and
Communications (DOTC) and the Manila International Airport Authority (MIAA),which
reviewed and approved the proposal.
The draft of the concession agreement as negotiated between AEDC and
DOTC/MIAA was endorsed to the National Economic Development Authority (NEDA-
ICC),which in turn reviewed it on the basis of its scope, economic viability, financial
indicators and risks; and thereafter approved it for bidding.
The DOTC/MIAA then prepared the Bid Documents, incorporating therein the
negotiated Draft Concession Agreement, and published invitations for public bidding, i.e.,for
the submission of comparative or competitive proposals. Piatco's predecessor-in-interest,
the Paircargo Consortium, was the only company that submitted a competitive bid or price
challenge.
At this point, I must emphasize that the law requires the award of a BOT project
to the bidder that has satisfied the minimum requirements; and met the technical, financial,
organizational and legal standards provided in the BOT Law. Section 5 of this statute states:
"Sec. 5. Public bidding of projects.- ...
"In the case of a build-operate-and-transfer arrangement,
the contract shall be awarded to the bidder who, having satisfied the
minimum financial, technical, organizational and legal standards
required by this Act,has submitted the lowest bid and most favorable
terms for the project, based on the present value of its proposed tolls,
fees, rentals and 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. ..." (Italics supplied.)
The same provision requires that the price challenge via public bidding "must be
conducted under a two-envelope/two-stage system: the first envelope to contain the
technical proposal and the second envelope to contain the financial proposal." Moreover,
the 1994 Implementing Rules and Regulations (IRR) provide that only those bidders that
have passed the prequalification stage are permitted to have their two envelopes reviewed.
In other words, prospective bidders must prequalify by submitting their
prequalification documents for evaluation; and only the pre-qualified bidders would be
entitled to have their bids opened, evaluated and appreciated. On the other hand,
disqualified bidders are to be informed of the reason for their disqualification. This
procedure was confirmed and reiterated in the Bid Documents, which I quote thus:
"Prequalified proponents will be considered eligible to move to second stage technical
proposal evaluation. The second and third envelopes of pre-disqualified proponents will be
returned." 11
Aside from complying with the legal and technical requirements (track record or
experience of the firm and its key personnel),a project proponent desiring to prequalify
must also demonstrate its financial capacity to undertake the project. To establish such
capability, a proponent must prove that it is able to raise the minimum amount of equity
required for the project and to procure the loans or financing needed for it. Section 5.4(c)
of the 1994 IRR provides:
"Sec. 5.4. Prequalification Requirements.— To pre-qualify, a
project proponent must comply with the following requirements:
xxx xxx xxx
 "c. Financial Capability. The project proponent must have
adequate capability to sustain the financing requirements for the
detailed engineering design, construction, and/or operation and
maintenance phases of the project, as the case may be. For purposes
of prequalification, this capability shall be measured in terms of:
(i) proof of the ability of the project proponent and/or the consortium
to provide a minimum amount of equity to the project,and (ii) 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. The government Agency/LGU concerned shall determine
on a project-to-project basis, and before prequalification, the
minimum amount of equity needed. ...." (Italics supplied)
Since the minimum amount of equity for the project was set at 30 percent 12 of
the minimum project cost of US$350 million, the minimum amount of equity required of
any proponent stood at US$105 million. Converted to pesos at the exchange rate then of
P26.239 to US$1.00 (as quoted by the Bangko Sentral ng Pilipinas),the peso equivalent of
the minimum equity was P2,755,095,000.
However, the combined equity or net worth of the Paircargo consortium stood at
only P558,384,871.55. 13 This amount was only slightly over 6 percent of the minimum
project cost and very much short of the required minimum equity, which was equivalent to
30 percent of the project cost. Such deficiency should have immediately caused the
disqualification of the Paircargo consortium. This matter was brought to the attention of the
Prequalification and Bidding Committee (PBAC).
Notwithstanding the glaring deficiency, DOTC Undersecretary Primitivo C. Cal,
concurrent chair of the PBAC, declared in a Memorandum dated 14 October 1996 that "the
Challenger (Paircargo consortium) was found to have a combined net worth of
P3,926,421,242.00 that could support a project costing approximately P13 billion." To
justify his conclusion, he asserted: "It is not a requirement that the networth must be
`unrestricted.' To impose this as a requirement now will be nothing less than unfair."
He further opined, "(T)he networth reflected in the Financial Statement should
not be taken as the amount of money to be used to answer the required thirty (30%)
percent equity of the challenger but rather to be used in establishing if there is enough
basis to believe that the challenger can comply with the required 30% equity. In fact, proof
of sufficient equity is required as one of the conditions for award of contract (Sec. 12.1 of
IRR of the BOT Law) but not for prequalification (Sec. 5.4 of same document)."
On the basis of the foregoing dubious declaration, the Paircargo consortium was
deemed prequalified and thus permitted to proceed to the other stages of the bidding
process.
By virtue of the prequalified status conferred upon the Paircargo, Undersecretary
Cal's findings in effect relieved the consortium of the need to comply with the financial
capability requirement imposed by the BOT Law and IRR. This position is unmistakably and
squarely at odds with the Supreme Court's consistent doctrine emphasizing the strict
application of pertinent rules, regulations and guidelines for the public bidding process, in
order to place each bidder — actual or potential — on the same footing. Thus, it is
unarguably irregular and contrary to the very concept of public bidding to permit a variance
between the conditions under which bids are invited and those under which proposals are
submitted and approved.
Republic v. Capulong 14 teaches that if one bidder is relieved from having to
conform to the conditions that impose some duty upon it, that bidder is not contracting in
fair competition with those bidders that propose to be bound by all conditions. The essence
of public bidding is, after all, an opportunity for fair competition and a basis for the precise
comparison of bids. 15 Thus, each bidder must bid under the same conditions; and be
subject to the same guidelines, requirements and limitations. The desired result is to be
able to determine the best offer or lowest bid, all things being equal.
Inasmuch as the Paircargo consortium did not possess the minimum equity
equivalent to 30 percent of the minimum project cost, it should not have been prequalified
or allowed to participate further in the bidding. The Prequalification and Bidding Committee
(PBAC) should therefore not have opened the two envelopes of the consortium containing
its technical and financial proposals; required AEDC to match the consortium's bid; 16 or
awarded the Concession Agreement to the consortium's successor-in-interest, Piatco.
As there was effectively no public bidding to speak of, the entire bidding process
having been flawed and tainted from the very outset, therefore, the award of the concession
to Paircargo's successor Piatco was void, and the Concession Agreement executed with the
latter was likewise void ab initio. For this reason, Piatco cannot and should not be allowed
to benefit from that Agreement. 17
AEDC Was Deprived of the
Right to Match PIATCO's
Price Challenge
In DOTC PBAC Bid Bulletin No. 4 (par. 3),Undersecretary Cal declared that, for
purposes of matching the price challenge of Piatco, AEDC as originator of the unsolicited
proposal would be permitted access only to the schedule of proposed Annual Guaranteed
Payments submitted by Piatco, and not to the latter's financial and technical proposals that
constituted the basis for the price challenge in the first place. This was supposedly in
keeping with Section 11.6 of the 1994 IRR, which provides that proprietary information is
to be respected, protected and treated with utmost confidentiality, and is therefore not to
form part of the bidding/tender and related documents.
This pronouncement, I believe, was a grievous misapplication of the mentioned
provision. The "proprietary information" referred to in Section 11.6 of the IRR pertains only
to the proprietary information of the originator of an unsolicited proposal, and not to those
belonging to a challenger. The reason for the protection accorded proprietary information
at all is the fact that, according to Section 4-A of the BOT Law as amended, a proposal
qualifies as an "unsolicited proposal" when it pertains to a project that involves "a new
concept or technology," and/or a project that is not on the government's list of priority
projects.
To be considered as utilizing a new concept or technology, a project must involve
the possession of exclusive rights (worldwide or regional) over a process; or possession of
intellectual property rights over a design, methodology or engineering
concept. 18 Patently, the intent of the BOT Law is to encourage individuals and groups to
come up with creative innovations, fresh ideas and new technology. Hence, the significance
and necessity of protecting proprietary information in connection with unsolicited proposals.
And to make the encouragement real, the law also extends to such individuals and groups
what amounts to a "right of first refusal" to undertake the project they conceptualized,
involving the use of new technology or concepts, through the mechanism of matching a
price challenge.
A competing bid is never just any figure conjured from out of the blue; it is arrived
at after studying economic, financial, technical and other, factors; it is likewise based on
certain assumptions as to the nature of the business, the market potentials, the probable
demand for the product or service, the future behavior of cost items, political and other
risks, and so on. It is thus self-evident that in order to be able to intelligently match a bid
or price challenge, a bidder must be given access to the assumptions and the calculations
that went into crafting the competing bid.
In this instance, the financial and technical proposals of Piatco would have
provided AEDC with the necessary information to enable it to make a reasonably informed
matching bid. To put it more simply, a bidder unable to access the competitor's assumptions
will never figure out how the competing bid came about; requiring him to "counter-propose"
is like having him shoot at a target in the dark while blindfolded.
By withholding from AEDC the challenger's financial and technical proposals
containing the critical information it needed, Undersecretary Cal actually and effectively
deprived AEDC of the ability to match the price challenge. One could say that AEDC did not
have the benefit of a "level playing field." It seems to me, though, that AEDC was actually
shut out of the game altogether.
At the end of the day, the bottom line is that the validity and the propriety of the
award to Piatco had been irreparably impaired.
Delayed Issuance of the
Notice of Award Violated
the BOT Law and the IRR
Section 9.5 of the IRR requires that the Notice of Award must indicate the time
frame within which the winner of the bidding (and therefore the prospective awardee) shall
submit the prescribed performance security, proof of commitment of equity contributions,
and indications of sources of financing (loans);and, in the case of joint ventures, an
agreement showing that the members are jointly and severally responsible for the
obligations of the project proponent under the contract.
The purpose of having a definite and firm timetable for the submission of the
aforementioned requirements is not only to prevent delays in the project implementation,
but also to expose and weed out unqualified proponents, who might have unceremoniously
slipped through the earlier prequalification process, by compelling them to put their money
where their mouths are, so to speak.
Nevertheless, this provision can be easily circumvented by merely postponing the
actual issuance of the Notice of Award, in order to give the favored proponent sufficient
time to comply with the requirements. Hence, to avert or minimize the manipulation of the
post-bidding process, the IRR not only set out the precise sequence of events occurring
between the completion of the evaluation of the technical bids and the issuance of the
Notice of Award, but also specified the timetables for each such event. Definite allowable
extensions of time were provided for, as were the consequences of a failure to meet a
particular deadline.
In particular, Section 9.1 of the 1994 IRR prescribed that within 30 calendar days
from the time the second-stage evaluation shall have been completed, the Committee must
come to a decision whether or not to award the contract and, within 7 days therefrom, the
Notice of Award must be approved by the head of agency or local government unit (LGU)
concerned, and its issuance must follow within another 7 days thereafter.
Section 9.2 of the IRR set the procedure applicable to projects involving
substantial government undertakings as follows: Within 7 days after the decision to award
is made, the draft contract shall be submitted to the ICC for clearance on a no-objection
basis. If the draft contract includes government undertakings already previously approved,
then the submission shall be for information only.
However, should there be additional or new provisions different from the original
government undertakings, the draft shall have to be reviewed and approved. The ICC has
15 working days to act thereon, and unless otherwise specified, its failure to act on the
contract within the specified time frame signifies that the agency or LGU may proceed with
the award. The head of agency or LGU shall approve the Notice of Award within seven days
of the clearance by the ICC on a no-objection basis, and the Notice itself has to be issued
within seven days thereafter.
The highly regulated time-frames within which the agents of government were to
act evinced the intent to impose upon them the duty to act expeditiously throughout the
process, to the end that the project be prosecuted and implemented without delay. This
regulated scenario was likewise intended to discourage collusion and substantially reduce
the opportunity for agents of government to abuse their discretion in the course of the
award process.
Despite the clear timetables set out in the IRR, several lengthy and still-
unexplained delays occurred in the award process, as can be observed from the
presentation made by the counsel for public respondents, 19 quoted hereinbelow:
"11 Dec. 1996 — The Paircargo Joint Venture was informed
by the PBAC that AEDC failed to match and that negotiations
preparatory to Notice of Award should be commenced. This was
the decision to award that should have commenced the running of the
7-day period to approve the Notice of Award, as per Section 9.1 of
the IRR, or to submit the draft contract to the ICC for approval
conformably with Section 9.2.
"01 April 1997 — The PBAC resolved that a copy of the final
draft of the Concession Agreement be submitted to the NEDA for
clearance on a no-objection basis. This resolution came more than 3
months too late as it should have been made on the 20th of December
1996 at the latest.
"16 April 1997 — The PBAC resolved that the period of
signing the Concession Agreement be extended by 15 days.
"18 April 1997 — NEDA approved the Concession
Agreement. Again this is more than 3 months too late as the NEDA's
decision should have been released on the 16th of January 1997 or
fifteen days after it should have been submitted to it for review.
"09 July 1997 — The Notice of Award was issued to PIATCO.
Following the provisions of the IRR, the Notice of Award should have
been issued fourteen days after NEDA's approval, or the 28th of
January 1997. In any case, even if it were to be assumed that the
release of NEDA's approval on the 18th of April was timely, the Notice
of Award should have been issued on the 9th of May 1997. In both
cases, therefore, the release of the Notice of Award occurred in a
decidedly less than timely fashion."
This chronology of events bespeaks an unmistakable disregard, if not disdain, by
the persons in charge of the award process for the time limitations prescribed by the IRR.
Their attitude flies in the face of this Court's solemn pronouncement in Republic
v. Capulong 20 that "strict observance of the rules, regulations and guidelines of the
bidding process is the only safeguard to a fair, honest and competitive public bidding."
From the foregoing, the only conclusion that can possibly be drawn is that the BOT
law and its IRR were repeatedly violated with unmitigated impunity — and by agents of
government, no less! On account of such violation, the award of the contract to Piatco,
which undoubtedly gained time and benefited from the delays, must be deemed null and
void from the beginning.
Further Amendments Resulted
in a Substantially Different
Contract, Awarded Without
Public Bidding
But the violations and desecrations did not stop there. After the PBAC made its
decision on December 11, 1996 to award the contract to Piatco, the latter negotiated
changes to the Contract bidded out and ended up with what amounts to a substantially new
contract without any public bidding.This Contract was subsequently further amended four
more times through negotiation and without any bidding. Thus, the contract actually
executed between Piatco and DOTC/MIAA on July 12, 1997 (the Concession Agreement or
"CA") differed from the contract bidded out (the draft concession agreement or "DCA") in
the following very significant respects:
1. The CA inserted stipulations creating a monopoly in favor of Piatco
in the business of providing airport-related services for
international airlines and passengers. 21
2. The CA provided that government is to answer for Piatco's unpaid
loans and debts (lumped under the term Attendant
Liabilities) in the event Piatco fails to pay its senior
lenders. 22
3. The CA provided that in case of termination of the contract due to
the fault of government, government shall pay all expenses
that Piatco incurred for the project plus the appraised value
of the Terminal. 23
4. The CA imposed new and special obligations on government,
including delivery of clean possession of the site for the
terminal; acquisition of additional land at the government's
expense for construction of road networks required by
Piatco's approved plans and specifications; and assistance
to Piatco in securing site utilities, as well as all necessary
permits, licenses and authorizations. 24
5. Where Section 3.02 of the DCA requires government to refrain
from competing with the contractor with respect to
the operation of NAIA Terminal III,Section 3.02(b) of the CA
excludes and prohibits everyone,including government,
from directly or indirectly competing with Piatco, with
respect to the operation of, as well as operations in,NAIA
Terminal III. Operations in is sufficiently broad to
encompass all retail and other commercial business
enterprises operating within Terminal III, inclusive of the
businesses of providing various airport-related services to
international airlines, within the scope of the prohibition.
6. Under Section 6.01 of the DCA, the following fees are subject to
the written approval of MIAA: lease/rental charges,
concession privilege fees for passenger services, food
services, transportation utility concessions, groundhandling,
catering and miscellaneous concession fees, porterage fees,
greeter/well-wisher fees, carpark fees, advertising fees, VIP
facilities fees and others. Moreover, adjustments to the
groundhandling fees, rentals and porterage fees are
permitted only once every two years and in accordance with
a parametric formula, per DCA Section 6.03. However, the
CA as executed with Piatco provides in Section 6.06 that all
the aforesaid fees, rentals and charges may be
adjusted without MIAA's approval or intervention. Neither
are the adjustments to these fees and charges subject to or
limited by any parametric formula. 25
7. Section 1.29 of the DCA provides that the terminal fees, aircraft
tacking fees, aircraft parking fees, check-in counter fees and
other fees are to be quoted and paid in Philippine pesos. But
per Section 1.33 of the CA, all the aforesaid fees save the
terminal fee are denominated in US Dollars.
8. Under Section 8.07 of the DCA, the term attendant liabilities refers
to liabilities pertinent to NAIA Terminal III,such as payment
of lease rentals and performance of other obligations under
the Land Lease Agreement; the obligations under the
Tenant Agreements; and payment of all taxes, fees, charges
and assessments of whatever kind that may be imposed on
NAIA Terminal III or parts thereof. But in Section 1.06 of
the CA, Attendant Liabilities refers to unpaid debts of
Piatco:"All amounts recorded and from time to time
outstanding in the books of (Piatco) as owing to Unpaid
Creditors who have provided, loaned or advanced funds
actually used for the Project, including all interests,
penalties, associated fees, charges, surcharges,
indemnities, reimbursements and other related expenses,
and further including amounts owed by [Piatco] to its
suppliers, contractors and subcontractors."
9. Per Sections 8.04 and 8.06 of the DCA, government may, on
account of the contractors breach,rescind the contract and
select one of four options: (a) take over the terminal and
assume all its attendant liabilities; (b) allow the contractor's
creditors to assign the Project to another entity acceptable
to DOTC/MIAA; (c) pay the contractor rent for the facilities
and equipment the DOTC may utilize; or (d) purchase the
terminal at a price established by independent appraisers.
Depending on the option selected, government may take
immediate possession and control of the terminal and its
operations. Government will be obligated to compensate the
contractor for the "equivalent or proportionate contract
costs actually disbursed," but only where government is the
one in breach of the contract. But under Section 8.06(a) of
the CA, whether on account of Piatco's breach of contract or
its inability to pay its creditors, government is obliged to
either (a) take over Terminal III and assume all of Piatco's
debts or (b) permit the qualified unpaid creditors to be
substituted in place of Piatco or to designate a new operator.
And in the event of government's breach of contract, Piatco
may compel it to purchase the terminal at fair market value,
per Section 8.06(b) of the CA.
10. Under the DCA, any delay by Piatco in the payment of the
amounts due the government constitutes breach of
contract. However, under the CA, such delay does not
necessarily constitute breach of contract, since Piatco is
permitted to suspend payments to the government in order
to first satisfy the claims of its secured creditors, per Section
8.04(d) of the CA.
It goes without saying that the amendment of the Contract bidded out (the DCA
or draft concession agreement) — in such substantial manner, without any public bidding,
and after the bidding process had been concluded on December 11, 1996 — is violative of
public policy on public biddings, as well as the spirit and intent of theBOT Law. The whole
point of going through the public bidding exercise was completely lost. Its very rationale
was totally subverted by permitting Piatco to amend the contract for which public bidding
had already been concluded. Competitive bidding aims to obtain the best deal possible by
fostering transparency and preventing favoritism, collusion and fraud in the awarding of
contracts.That is the reason why procedural rules pertaining to public bidding demand strict
observance. 26
 In a relatively early case, Caltex v. Delgado Brothers, 27 this Court made it clear
that substantive amendments to a contract for which a public bidding has already been
finished should only be awarded after another public bidding:
"The due execution of a contract after public bidding is a
limitation upon the right of the contracting parties to alter or amend
it without another public bidding, for otherwise what would a public
bidding be good for if after the execution of a contract after public
bidding, the contracting parties may alter or amend the contract, or
even cancel it, at their will? Public biddings are held for the protection
of the public, and to give the public the best possible advantages by
means of open competition between the bidders. He who bids or offers
the best terms is awarded the contract subject of the bid, and it is
obvious that such protection and best possible advantages to the
public will disappear if the parties to a contract executed after public
bidding may alter or amend it without another previous public
bidding." 28
The aforementioned case dealt with the unauthorized amendment of a contract
executed after public bidding; in the situation before us, the amendments were made also
after the bidding, but prior to execution. Be that as it may, the same rationale
underlying Caltex applies to the present situation with equal force.Allowing the winning
bidder to renegotiate the contract for which the bidding process has ended is tantamount
to permitting it to put in anything it wants. Here, the winning bidder (Piatco) did not even
bother to wait until after actual execution of the contract before rushing to amend it.
Perhaps it believed that if the changes were made to a contract already won through bidding
(DCA) instead of waiting until it is executed, the amendments would not be noticed or
discovered by the public.
In a later case, Mata v. San Diego, 29 this Court reiterated its ruling as
follows: IcaEDC
"It is true that modification of government contracts, after
the same had been awarded after a public bidding, is not allowed
because such modification serves to nullify the effects of the bidding
and whatever advantages the Government had secured thereby and
may also result in manifest injustice to the other bidders. This
prohibition, however, refers to a change in vital and essential
particulars of the agreement which results in a substantially new
contract."
Piatco's counter-argument may be summed up thus: There was nothing in the
1994 IRR that prohibited further negotiations and eventual amendments to the DCA even
after the bidding had been concluded. In fact, PBAC Bid Bulletin No. 3
states: "[A]mendments to the Draft Concession Agreement shall be issued from time to
time.Said amendments will only cover items that would not materially affect the preparation
of the proponent's proposal."
I submit that accepting such warped argument will result in perverting the policy
underlying public bidding. The BOT Law cannot be said to allow the negotiation of
contractual stipulations resulting in a substantially new contract after the bidding process
and price challenge had been concluded. In fact, the BOT Law, in recognition of the time,
money and effort invested in an unsolicited proposal, accords its originator the privilege of
matching the challenger's bid.
Section 4-A of the BOT Law specifically refers to a "lower price proposal" by a
competing bidder; and to the right of the original proponent "to match the price" of the
challenger. Thus, only the price proposals are in play. The terms, conditions and
stipulations in the contract for which public bidding has been concluded are understood
to remain intact and not be subject to further negotiation. Otherwise, the very essence of
public bidding will be destroyed — there will be no basis for an exact comparison between
bids.
Moreover, Piatco misinterpreted the meaning behind PBAC Bid Bulletin No. 3. The
phrase amendments ... from time to time refers only to those amendments to the draft
concession agreement issued by the PBAC prior to the submission of the price challenge; it
certainly does not include or permit amendments negotiated for and introduced after the
bidding process, has been terminated.
Piatco's Concession
Agreement Was Further
Amended, (ARCA) Again
Without Public Bidding
Not satisfied with the Concession Agreement, Piatco — once more without
bothering with public bidding — negotiated with government for still more substantial
changes. The result was the Amended and Restated Concession Agreement (ARCA)
executed on November 26, 1998. The following changes were introduced:
1. The definition of Attendant Liabilities was further amended with the
result that the unpaid loans of Piatco, for which government
may be required to answer, are no longer limited to only
those loans recorded in Piatco's books or loans whose
proceeds were actually used in the Terminal III project. 30
2. Although the contract may be terminated due to breach by Piatco,
it will not be liable to pay the government any Liquidated
Damages if a new operator is designated to take over the
operation of the terminal. 31
3. The Liquidated Damages which government becomes liable for in
case of its breach of contract were substantially
increased. 32
4. Government's right to appoint a comptroller for Piatco in case the
latter encounters liquidity problems was deleted. 33
5. Government is made liable for Incremental and Consequential
Costs and Losses in case it fails to comply or cause any third
party under its direct or indirect control to comply with the
special obligations imposed on government. 34
6. The insurance policies obtained by Piatco covering the terminal are
now required to be assigned to the Senior Lenders as
security for the loans; previously, their proceeds were to be
used to repair and rehabilitate the facility in case of
damage. 35
7. Government bound itself to set the initial rate of the terminal fee,
to be charged when Terminal III begins operations, at an
amount higher than US$20. 36
8. Government waived its defense of the illegality of the contract and
even agreed to be liable to pay damages to Piatco in the
event the contract was declared illegal. 37
9. Even though government may be entitled to terminate the ARCA
on account of breach by Piatco, government is still liable to
pay Piatco the appraised value of Terminal III or the
Attendant Liabilities, if the termination occurs before the In-
 Service Date. 38 This condition contravenes the BOT
Lawprovision on termination compensation.
10. Government is obligated to take the administrative action
required for Piatco's imposition, collection and application of
all Public Utility Revenues. 39No such obligation existed
previously.
11. Government is now also obligated to perform and cause other
persons and entities under its direct or indirect control to
perform all acts necessary to perfect the security interests
to be created in favor of Piatco's Senior Lenders. 40 No such
obligation existed previously.
12. DOTC/MIAA's right of intervention in instances where Piatco's
Non-Public Utility Revenues become exorbitant or excessive
has been removed. 41
13. The illegality and unenforceability of the ARCA or any of its
material provisions was made an event of default on the
part of government only,thus constituting a ground for
Piatco to terminate the ARCA. 42
14. Amounts due from and payable by government under the contract
were made payable on demand — net of taxes, levies,
imposts, duties, charges or fees of any kind except as
required by law. 43
15. The Parametric Formula in the contract, which is utilized to
compute for adjustments/increases to the public utility
revenues (i.e.,aircraft parking and tacking fees, check-in
counter fee and terminal fee),was revised to permit Piatco
to input its more costly short-term borrowing rates instead
of the longer-terms rates in the computations for
adjustments, with the end result that the changes will
redound to its greater financial benefit.
16. The Certificate of Completion simply deleted the successful
performance-testing of the terminal facility in accordance
with defined performance standards as a pre-condition for
government's acceptance of the terminal facility. 44
In sum, the foregoing revisions and amendments as embodied in the ARCA
constitute very material alterations of the terms and conditions of the CA, and give further
manifestly undue advantage to Piatco at the expense of government.Piatco claims that the
changes to the CA were necessitated by the demands of its foreign lenders. However, no
proof whatsoever has been adduced to buttress this claim.
In any event, it is quite patent that the sum total of the aforementioned changes
resulted in drastically weakening the position of government to a degree that seems quite
excessive, even from the standpoint of a businessperson who regularly transacts with banks
and foreign lenders, is familiar with their mind-set, and understands what motivates them.
On the other hand, whatever it was that impelled government officials concerned to accede
to those grossly disadvantageous changes, I can only hazard a guess.
There is no question in my mind that the ARCA was unauthorized and illegal for
lack of public bidding and for being patently disadvantageous to government.
The Three Supplements
Imposed New Obligations on
Government, Also Without
Prior Public Bidding
After Piatco had managed to breach the protective rampart of public bidding, it
recklessly went on a rampage of further assaults on the ARCA.
The First Supplement Is
as Void as the ARCA
In the First Supplement ("FS") executed on August 27, 1999, the following
changes were made to the ARCA:
1. The amounts payable by Piatco to government were reduced by
allowing additional exceptions to the Gross Revenues in
which government is supposed to participate. 45
2. Made part of the properties which government is obliged to
construct and/or maintain and keep in good repair are (a)
the access road connecting Terminals II and III — the
construction of this access road is the obligation of Piatco,
in lieu of its obligation to construct an Access Tunnel
connecting Terminals II and III; and (b) the taxilane and
taxiway — these are likewise part of Piatco's obligations,
since they are part and parcel of the project as described in
Clause 1.3 of the Bid Documents. 46
3. The MIAA is obligated to provide funding for the maintenance and
repair of the airports and facilities owned or operated by it
and by third persons under its control. It will also be liable
to Piatco for the latter's losses, expenses and damages as
well as liability to third persons, in case MIAA fails to perform
such obligations. In addition, MIAA will also be liable for the
incremental and consequential costs of the remedial work
done by Piatco on account of the former's default. 47
4. The FS also imposed on government ten (10) "Additional Special
Obligations," including the following:
(a) Working for the removal of the general aviation traffic
from the NAIA airport complex 48
(b) Providing through MIAA the land required by Piatco for
the taxilane and one taxiway at no cost to
Piatco 49
(c) Implementing the government's existing storm drainage
master plan 50
(d) Coordinating with DPWH the financing, the
implementation and the completion of the
following works before the In-Service Date: three
left-turning overpasses (EDSA to Tramo St.,Tramo
to Andrews Ave.,and Manlunas Road to Sales
Ave.); 51 and a road upgrade and improvement
program involving widening, repair and
resurfacing of Sales Road, Andrews Avenue and
Manlunas Road; improvement of Nichols
Interchange; and removal of squatters along
Andrews Avenue. 52
 (e) Dealing directly with BCDA and the Phil. Air Force in
acquiring additional land or right of way for the
road upgrade and improvement program.53
5. Government is required to work for the immediate reversion to
MIAA of the Nayong Pilipino National Park. 54
6. Government's share in the terminal fees collected was revised from
a flat rate of P180 to 36 percent thereof; together with
government's percentage share in the gross revenues of
Piatco, the amount will be remitted to government in pesos
instead of US dollars. 55 This amendment enables Piatco to
benefit from the further erosion of the peso-dollar exchange
rate, while preventing government from building up its
foreign exchange reserves.
7. All payments from Piatco to government are now to be invoiced to
MIAA, and payments are to accrue to the latter's exclusive
benefit. 56 This move appears to be in support of the funds
MIAA advanced to DPWH.
I must emphasize that the First Supplement is void in two respects. First,it is
merely an amendment to the ARCA, upon which it is wholly dependent; therefore, since
the ARCA is void, inexistent and not capable of being ratified or amended, it follows that
the FS too is void, inexistent and inoperative. Second,even assumingarguendo that the
ARCA is somehow remotely valid, nonetheless the FS, in imposing significant new
obligations upon government, altered the fundamental terms and stipulations of the ARCA,
thus necessitating a public bidding all over again. That the FS was entered into sans public
bidding renders it utterly void and inoperative.
The Second Supplement Is
Similarly Void and Inexistent
The Second Supplement ("SS") was executed between the government and Piatco
on September 4, 2000. It calls for Piatco, acting not as concessionaire of NAIA Terminal III
but as a public works contractor, to undertake — in the government's stead — the clearing,
removal, demolition and disposal of improvements, subterranean obstructions and waste
materials at the project site. 57
The scope of the works, the procedures involved, and the obligations of the
contractor are provided for in Parts II and III of the SS. Section 4.1 sets out the
compensation to be paid, listing specific rates per cubic meter of materials for each phase
of the work — excavation, leveling, removal and disposal, backfilling and dewatering. The
amounts collectible by Piatco are to be offset against the Annual Guaranteed Payments it
must pay government.
Though denominated as Second Supplement, it was nothing less than an entirely
new public works contract. Yet it, too, did not undergo any public bidding, for which reason
it is also void and inoperative.
Not surprisingly, Piatco had to subcontract the works to a certain Wintrack
Builders, a firm reputedly owned by a former high-ranking DOTC official. But that is another
story altogether.
The Third Supplement Is
Likewise Void and Inexistent
The Third Supplement ("TS"),executed between the government and Piatco on
June 22, 2001, passed on to the government certain obligations of Piatco as Terminal III
concessionaire, with respect to the surface road connecting Terminals II and III.
By way of background, at the inception of and forming part of the NAIA Terminal
III project was the proposed construction of an access tunnel crossing Runway 13/31, which
would connect Terminal III to Terminal II. The Bid Documents in Section 4.1.2.3[B][i]
declared that the said access tunnel was subject to further negotiation; but for purposes of
the bidding, the proponent should submit a bid for it as well. Therefore, the tunnel was
supposed to be part and parcel of the Terminal III project.
However, in Section 5 of the First Supplement, the parties declared that the access
tunnel was not economically viable at that time. In lieu thereof, the parties agreed that a
surface access road (now called the T2-T3 Road) was to be constructed by Piatco to connect
the two terminals. Since it was plainly in substitution of the tunnel, the surface road
construction should likewise be considered part and parcel of the same project, and
therefore part of Piatco's obligation as well. While the access tunnel was estimated to cost
about P800 million, the surface road would have a price tag in the vicinity of about P100
million, thus producing significant savings for Piatco.
Yet, the Third Supplement, while confirming that Piatco would construct the T2-
T3 Road, nevertheless shifted to government some of the obligations pertaining to the
former, as follows:
1. Government is now obliged to remove at its own expense all
tenants, squatters, improvements and/or waste materials
on the site where the T2-T3 road is to be
constructed. 58 There was no similar obligation on the part
of government insofar as the access tunnel was concerned.
2. Should government fail to carry out its obligation as above
described, Piatco may undertake it on government's behalf,
subject to the terms and conditions (including compensation
payments) contained in the Second Supplement. 59
3. MIAA will answer for the operation, maintenance and repair of the
T2-T3 Road. 60
The TS depends upon and is intended to supplement the ARCA as well as the First
Supplement, both of which are void and inexistent and not capable of being ratified or
amended. It follows that the TS is likewise void, inexistent and inoperative. And even if,
hypothetically speaking, both ARCA and FS are valid, still, the Third Supplement — imposing
as it does significant new obligations upon government — would in effect alter the terms
and stipulations of the ARCA in material respects, thus necessitating another public bidding.
Since the TS was not subjected to public bidding, it is consequently utterly void as well. At
any rate, the TS created new monetary obligations on the part of government, for which
there were no prior appropriations. Hence it follows that the same is void ab initio.
In patiently tracing the progress of the Piatco contracts from their inception up to
the present, I noted that the whole process was riddled with significant lapses, if not
outright irregularity and wholesale violations of law and public policy. The rationale of
beginning at the beginning, so to speak, will become evident when the question of what to
do with the five Piatco contracts is discussed later on.
In the meantime, I shall take up specific, provisions or changes in the contracts
and highlight the more prominent objectionable features.
Government Directly
Guarantees Piatco Debts
Certainly the most discussed provision in the parties' arguments is the one
creating an unauthorized, direct government guarantee of Piatco's obligations in favor of
the lenders.
 Section 4-A of the BOT Law as amended states that unsolicited proposals,such as
the NAIA Terminal III Project, may be accepted by government provided inter aliathat no
direct government guarantee, subsidy or equity is required.In short, such guarantee is
prohibited in unsolicited proposals. Section 2(n) of the same legislation defines direct
government guarantee as "an agreement whereby the government or any of its agencies
or local government units (will) assume responsibility for the repayment of debt directly
incurred by the project proponent in implementing the project in case of a loan default."
Both the CA and the ARCA have provisions that undeniably create such prohibited
government guarantee. Section 4.04 (c)(iv) to (vi) of the ARCA, which is similar to Section
4.04 of the CA, provides thus:
"(iv) that if Concessionaire is in default under a payment
obligation owed to the Senior Lenders, and as a result thereof the
Senior Lenders have become entitled to accelerate the Senior Loans,
the Senior Lenders shall have the right to notify GRP of the same ...;
(v) ...the Senior Lenders may after written notification to
GRP, transfer the Concessionaire's rights and obligations to a
transferee ...;
(vi) if the Senior Lenders ...are unable to ...effect a transfer
...,then GRP and the Senior Lenders shall endeavor ...to enter into
any other arrangement relating to the Development Facility. ...If no
agreement relating to the Development Facility is arrived at by GRP
and the Senior Lenders within the said 180-day period, then at the
end thereof the Development Facility shall be transferred by the
Concessionaire to GRP or its designee and GRP shall make a
termination payment to Concessionaire equal to the Appraised Value
(as hereinafter defined) of the Development Facility or the sum of the
Attendant Liabilities, if greater ...."
In turn, the term Attendant Liabilities is defined in Section 1.06 of the ARCA as
follows:
"Attendant Liabilities refer to all amounts in each case
supported by verifiable evidence from time to time owed or which may
become, owing by Concessionaire to Senior Lenders or any other
persons or entities who have provided, loaned or advanced funds or
provided financial facilities to Concessionaire for the Project,
including, without limitation, all principal, interest, associated fees,
charges, reimbursements, and other related expenses (including the
fees, charges and expenses of any agents or trustees of such persons
or entities),whether payable at maturity, by acceleration or otherwise,
and further including amounts owed by Concessionaire to its
professional consultants and advisers, suppliers, contractors and sub-
contractors."
Government's agreement to pay becomes effective in the event of a default by
Piatco on any of its loan obligations to the Senior Lenders, and the amount to be paid by
government is the greater of either the Appraised Value of Terminal III or the aggregate
amount of the moneys owed by Piatco — whether to the Senior Lenders or to other entities,
including its suppliers, contractors and subcontractors. In effect, therefore, this agreement
already constitutes the prohibited assumption by government of responsibility for
repayment of Piatco's debts in case of a loan default. In fine, a direct government
guarantee.
It matters not that there is a roundabout procedure prescribed by Section
4.04(c)(iv),(v) and (vi) that would require, first,an attempt (albeit unsuccessful) by the
Senior Lenders to transfer Piatco's rights to a transferee of their choice; and, second,an
effort (equally unsuccessful) to "enter into any other arrangement" with the government
regarding the Terminal III facility, before government is required to make good on its
guarantee. What is abundantly clear is the fact that, in the devious labyrinthine process
detailed in the aforesaid section, it is entirely within the Senior Lenders' power, prerogative
and control — exercisable via a mere refusal or inability to agree upon "a transferee" or
"any other arrangement" regarding the terminal facility — to push the process forward to
the ultimate contractual cul-de-sac, wherein government will be compelled to abjectly
surrender and make good on its guarantee of payment.
Piatco also argues that there is no proviso requiring government to pay the Senior
Lenders in the event of Piatco's default. This is literally true, in the sense that Section
4.04(c)(vi) of ARCA speaks of government making the termination payment to Piatco,not
to the lenders. However, it is almost a certainty that the Senior Lenders will already have
made Piatco sign over to them, ahead of time, its right to receive such payments from
government; and/or they may already have had themselves appointed its attorneys-in-fact
for the purpose of collecting and receiving such payments.
Nevertheless, as petitioners-in-intervention pointed out in their
Memorandum, 61 the termination payment is to be made to Piatco, not to the lenders; and
there is no provision anywhere in the contract documents to prevent it from diverting the
proceeds to its own benefit and/or to ensure that it will necessarily use the same to pay off
the Senior Lenders and other creditors, in order to avert the foreclosure of the mortgage
and other liens on the terminal facility. Such deficiency puts the interests of government at
great risk. Indeed, if the unthinkable were to happen, government would be paying several
hundreds of millions of dollars, but the mortgage liens on the facility may still be foreclosed
by the Senior Lenders just the same.
Consequently, the Piatco contracts are also objectionable for grievously failing to
adequately protect government's interests. More accurately, the contracts would
consistently weaken and do away with protection of government interests. As such, they
are therefore grossly lopsided in favor of Piatco and/or its Senior Lenders.
While on this subject, it is well to recall the earlier discussion regarding a
particularly noticeable alteration of the concept of "Attendant Liabilities." In Section 1.06 of
the CA defining the term, the Piatco debts to be assumed/paid by government were
qualified by the phrases recorded and from time to time outstanding in the books of the
Concessionaire and actually used for the project.These phrases were eliminated from the
ARCA's definition of Attendant Liabilities.
Since no explanation has been forthcoming from Piatco as to the possible
justification for such a drastic change, the only conclusion, possible is that it intends to
have all of its debts covered by the guarantee, regardless of whether or not they are
disclosed in its books. This has particular reference to those borrowings which were
obtained in violation of the loan covenants requiring Piatco to maintain a minimum 70:30
debt-to-equity ratio, and even if the loan proceeds were not actually used for the project
itself.
This point brings us back to the guarantee itself. In Section 4.04(c)(vi) of ARCA,
the amount which government has guaranteed to pay as termination payment is
the greater of either (i) the Appraised Value of the terminal facility or (ii) the aggregate of
the Attendant Liabilities. Given that the Attendant Liabilities may include practically any
Piatco debt under the sun, it is highly conceivable that their sum may greatly exceed the
appraised value of the facility, and government may end up paying very much more than
the real worth of Terminal III. (So why did government have to bother with public bidding
anyway?)
In the final analysis, Section 4.04(c)(iv) to (vi) of the ARCA is diametrically at
odds with the spirit and the intent of the BOT Law. The law meant to mobilize private
resources (the private sector) to take on the burden and the risks of financing the
construction, operation and maintenance of relevant infrastructure and development
projects for the simple reason that government is not in a position to do so. By the same
token, government guarantee was prohibited, since it would merely defeat the purpose
and raison d'être of a build-operate-and-transfer project to be undertaken by the private
sector.
To the extent that the project proponent is able to obtain loans to fund the project,
those risks are shared between the project proponent on the one hand, and its banks and
other lenders on the other. But where the proponent or its lenders manage to cajol or
coerce the government into extending a guarantee of payment of the loan obligations, the
risks assumed by the lenders are passed right back to government. I cannot understand
why, in the instant case, government cheerfully assented to re-assuming the risks of the
project when it gave the prohibited guarantee and thus simply negated the very purpose
of the BOT Law and the protection it gives the government.
Contract Termination
Provisions in the Piatco
Contracts Are Void
The BOT Law as amended provides for contract termination as follows:
"Sec. 7. Contract Termination.— In the event that a project
is revoked, cancelled or terminated by the government through no
fault of the project proponent or by mutual agreement, the
Government shall compensate the said project proponent for its
actual expenses incurred in the project plus a reasonable rate of
return thereon not exceeding that stated in the contract as of the date
of such revocation, cancellation or termination: Provided,That the
interest of the Government in this instances [sic] shall be duly insured
with the Government Service Insurance System or any other
insurance entity duly accredited by the Office of the Insurance
Commissioner: Provided, finally,That the cost of the insurance
coverage shall be included in the terms and conditions of the bidding
referred to above.
"In the event that the government defaults on certain major
obligations in the contract and such failure is not remediable or if
remediable shall remain unremedied for an unreasonable length of
time, the project proponent/contractor may, by prior notice to the
concerned national government agency or local government unit
specifying the turn-over date, terminate the contract. The project
proponent/contractor shall be reasonably compensated by the
Government for equivalent or proportionate contract cost as defined
in the contract."
The foregoing statutory provision in effect provides for the following limited
instances when termination compensation may be allowed:
1. Termination by the government through no fault of the project
proponent
2. Termination upon the parties' mutual agreement
3. Termination by the proponent due to government's default on
certain major contractual obligations
To emphasize, the law does not permit compensation for the project proponent
when contract termination is due to the proponent's own fault or breach of contract.
This principle was clearly violated in the Piatco Contracts. The ARCA stipulates
that government is to pay termination compensation to Piatco even whentermination is
initiated by government for the following causes:
"(i) Failure of Concessionaire to finish the Works in all
material respects in accordance with the Tender Design and the
Timetable;
(ii) Commission by Concessionaire of a material breach of
this Agreement ...;
(iii) ...a change in control of Concessionaire arising from the
sale, assignment, transfer or other disposition of capital stock which
results in an ownership structure violative of statutory or
constitutional limitations;
(iv) A pattern of continuing or repeated non-compliance,
willful violation, or non-performance of other terms and conditions
hereof which is hereby deemed a material breach of this Agreement
..." 62
As if that were not bad enough, the ARCA also inserted into Section 8.01 the
phrase "Subject to Section 4.04." The effect of this insertion is that in those instances where
government may terminate the contract on account of Piatco's breach, and it is nevertheless
required under the ARCA to make termination compensation to Piatco even though
unauthorized by law, such compensation is to be equivalent to the payment amount
guaranteed by government — either a) the Appraised Value of the terminal facility or (b)
the aggregate of the Attendant Liabilities, whichever amount is greater!
Clearly, this condition is not in line with Section 7 of the BOT Law. That provision
permits a project proponent to recover the actual expenses it incurred in the prosecution
of the project plus a reasonable rate of return not in excess of that provided in the contract;
or to be compensated for the equivalent or proportionate contract cost as defined in the
contract, in case the government is in default on certain major contractual obligations.
Furthermore, in those instances where such termination compensation is
authorized by the BOT Law, it is indispensable that the interest of government be duly
insured.Section 5.08 the ARCA mandates insurance coverage for the terminal facility; but
all insurance policies are to be assigned, and all proceeds are payable, to the Senior
Lenders. In brief, the interest being secured by such coverage is that of the Senior Lenders,
not that of government. This can hardly be considered compliance with law.
In essence, the ARCA provisions on termination compensation result in another
unauthorized government guarantee, this time in favor of Piatco.
A Prohibited Direct Government Subsidy,
Which at the Same Time Is an Assault
on the National Honor
Still another contractual provision offensive to law and public policy is Section
8.01(d) of the ARCA, which is a "bolder and badder" version of Section 8.04(d) of the CA.
It will be recalled that Section 4-A of the BOT Law as amended prohibits not only
direct government guarantees, but likewise a direct government subsidy for unsolicited
proposals. Section 13.2. b. iii. of the 1999 IRR defines a direct government subsidy as
encompassing "an agreement whereby the Government ...will ...postpone any payments
due from the proponent."
Despite the statutory ban, Section 8.01 (d) of the ARCA provides thus:
"(d) The provisions of Section 8.01(a) notwithstanding, and
for the purpose of preventing a disruption of the operations in the
Terminal and/or Terminal Complex, in the event that at any time
Concessionaire is of the reasonable opinion that it shall be unable to
meet a payment obligation owed to the Senior Lenders,
 Concessionaire shall give prompt notice to GRP, through DOTC/MIAA
and to the Senior Lenders. In such circumstances, the Senior Lenders
(or the Senior Lenders' Representative) may ensure that after making
provision for administrative expenses and depreciation, the cash
resources of Concessionaire shall first be used and applied to meet all
payment obligations owed to the Senior Lenders. Any excess cash,
after meeting such payment obligations, shall be earmarked for the
payment of all sums payable by Concessionaire to GRP under this
Agreement.If by reason of the foregoing GRP should be unable to
collect in full all payments due to GRP under this Agreement, then the
unpaid balance shall be payable within a 90-day grace period counted
from the relevant due date, with interest per annum at the rate equal
to the average 91-day Treasury Bill Rate as of the auction date
immediately preceding the relevant due date. If payment is not
effected by Concessionaire within the grace period, then a spread of
five (5%) percent over the applicable 91-day Treasury Bill Rate shall
be added on the unpaid amount commencing on the expiry of the
grace period up to the day of full payment. When the temporary
illiquidity of Concessionaire shall have been corrected and the cash
position of Concessionaire should indicate its ability to meet its
maturing obligations, then the provisions set forth under this Section
8.01(d) shall cease to apply. The foregoing remedial measures shall
be applicable only while there remains unpaid and outstanding
amounts owed to the Senior Lenders." (Italics supplied)
By any manner of interpretation or application, Section 8.01(d) of the ARCA
clearly mandates the indefinite postponement of payment of all of Piatco's obligations to
the government, in order to ensure that Piatco's obligations to the Senior Lenders are paid
in full first. That is nothing more or less than the direct government subsidy prohibited by
the BOT Law and the IRR. The fact that Piatco will pay interest on the unpaid amounts owed
to government does not change the situation or render the prohibited subsidy any less
unacceptable.
But beyond the clear violations of law, there are larger issues involved in the
ARCA. Earlier, I mentioned that Section 8.01(d) of the ARCA completely eliminated the
proviso in Section 8.04(d) of the CA which gave government the right to appoint a financial
controller to manage the cash position of Piatco during situations of financial distress. Not
only has government been deprived of any means of monitoring and managing the
situation; worse, as can be seen from Section 8.01(d) above-quoted, the Senior Lenders
have effectively locked in on the right to exercise financial controllership over Piatco and to
allocate its cash resources to the payment of all amounts owed to the Senior Lenders before
allowing any payment to be made to government.
In brief, this particular provision of the ARCA has placed in the hands of foreign
lenders the power and the authority to determine how much (if at all) and when the
Philippine government (as grantor of the franchise) may be allowed to receive from Piatco.
In that situation, government will be at the mercy of the foreign lenders. This is a situation
completely contrary to the rationale of the BOT Law and to public policy.
The aforesaid provision rouses mixed emotions — shame and disgust at the
parties' (especially the government officials') docile submission and abject servitude and
surrender to the imperious and excessive demands of the foreign lenders, on the one hand;
and vehement outrage at the affront to the sovereignty of the Republic and to the national
honor, on the other. It is indeed time to put an end to such an unbearable, dishonorable
situation.
The Piatco Contracts Unarguably
Violate Constitutional Injunctions
I will now discuss the manner in which the Piatco Contracts offended
the Constitution.
The Exclusive Right Granted to Piatco
to Operate a Public Utility Is Prohibited
by the Constitution
While Section 2.02 of the ARCA spoke of granting to Piatco "a franchise to operate
and maintain the Terminal Complex," Section 3.02(a) of the same ARCA granted to Piatco,
for the entire term of the concession agreement, "the exclusive right to operate a
commercial international passenger terminal within the Island of Luzon" with the exception
of those three terminals already existing 63 at the time of execution of the ARCA.
Section 11 of Article XII of the Constitution prohibits the grant of a "franchise,
certificate, or any other form of authorization for the operation of a public utility" that is
"exclusive in character."
In its Opinion No. 078, Series of 1995, the Department of justice held that "the
NAIA Terminal III which ...is a 'terminal for public use' is a public utility." Consequently,
the constitutional prohibition against the exclusivity of a franchise applies to the franchise
for the operation of NAIA Terminal III as well.
What was granted to Piatco was not merely a franchise, but an "exclusive right"
to operate an international passenger terminal within the "Island of Luzon." What this grant
effectively means is that the government is now estopped from exercising its inherent
power to award any other person another franchise or a right to operate such a public
utility, in the event public interest in Luzon requires it. This restriction is highly detrimental
to government and to the public interest. Former Secretary of Justice Hernando B. Perez
expressed this point well in his Memorandum for the President dated 21 May 2002:
"Section 3.02 on 'Exclusivity'
"This provision gives to PIATCO (the Concessionaire) the
exclusive right to operate a commercial international airport within
the Island of Luzon with the exception of those already existing at the
time of the execution of the Agreement, such as the airports at Subic,
Clark and Laoag City. In the case of the Clark International Airport,
however, the provision restricts its operation beyond its design
capacity of 850,000 passengers per annum and the operation of new
terminal facilities therein until after the new NAIA Terminal III shall
have consistently reached or exceeded its design capacity of ten (10)
million passenger capacity per year for three (3) consecutive years
during the concession period.
"This is an onerous and disadvantageous provision. It
effectively grants PIATCO a monopoly in Luzon and ties the hands of
government in the matter of developing new airports which may be
found expedient and necessary in carrying out any future plan for an
inter-modal transportation system in Luzon.
"Additionally, it imposes an unreasonable restriction on the
operation of the Clark International Airport which could adversely
affect the operation and development of the Clark Special Economic
Zone to the economic prejudice of the local constituencies that are
being benefited by its operation." (Italics supplied)
While it cannot be gainsaid that an enterprise that is a public utility may happen
to constitute a monopoly on account of the very nature of its business and the absence of
competition, such a situation does not however constitute justification to violate the
constitutional prohibition and grant an exclusive franchise or exclusive right to operate a
public utility.
 Piatco's contention that the Constitution does not actually prohibit monopolies is
beside the point. As correctly argued, 64 the existence of a monopoly by a public utility is
a situation created by circumstances that do not encourage competition. This situation is
different from the grant of a franchise to operate a public utility, a privilege granted by
government. Of course, the grant of a franchise may result in a monopoly. But making such
franchise exclusive is what is expressly proscribed by the Constitution.
Actually, the aforementioned Section 3.02 of the ARCA more than just guaranteed
exclusivity; it also guaranteed that the government will not improve or expand the facilities
at Clark — and in fact is required to put a cap on the latter's operations — until after
Terminal III shall have been operated at or beyond its peak capacity for three consecutive
years. 65 As counsel for public respondents pointed out, in the real world where the rate
of influx of international passengers can fluctuate substantially from year to year, it may
take many years before Terminal III sees three consecutive years' operations at peak
capacity. The Diosdado Macapagal International Airport may thus end up stagnating for a
long time. Indeed, in order to ensure greater profits for Piatco, the economic progress of a
region has had to be sacrificed.
The Piatco Contracts Violate
the Time Limitation on Franchises
Section 11 of Article XII of the Constitution also provides that "no franchise,
certificate or any other form of authorization for the operation of a public utility shall be . .
. for a longer period than fifty years." After all, a franchise held for an unreasonably long
time would likely give rise to the same evils as a monopoly.
The Piatco Contracts have come up with an innovative way to circumvent the
prohibition and obtain an extension. This fact can be gleaned from Section 8.03(b) of the
ARCA, which I quote thus:
"Sec. 8.03. Termination Procedure and Consequences of
Termination.—
a) ...
b) In the event the Agreement is terminated pursuant to
Section 8.01 (b) hereof, Concessionaire shall be entitled to collect the
Liquidated Damages specified in Annex 'G'.The full payment by GRP
to Concessionaire of the Liquidated Damages shall be a condition
precedent to the transfer by Concessionaire to GRP of the
Development Facility. Prior to the full payment of the Liquidated
Damages, Concessionaire shall to the extent practicable continue to
operate the Terminal and the Terminal Complex and shall be entitled
to retain and withhold all payments to GRP for the purpose of
offsetting the same against the Liquidated Damages. Upon full
payment of the Liquidated Damages, Concessionaire shall
immediately transfer the Development Facility to GRP on 'as-is-
where-is' basis."
The aforesaid easy payment scheme is less beneficial than it first appears.
Although it enables government to avoid having to make outright payment of an obligation
that will likely run into billions of pesos, this easy payment plan will nevertheless cost
government considerable loss of income, which it would earn if it were to operate Terminal
III by itself. Inasmuch as payments to the concessionaire (Piatco) will be on "installment
basis," interest charges on the remaining unpaid balance would undoubtedly cause the total
outstanding balance to swell. Piatco would thus be entitled to remain in the driver's seat
and keep operating the terminal for an indefinite length of time.
The Contracts Create Two
Monopolies for Piatco
By way of background, two monopolies were actually created by the Piatco
contracts. The first and more obvious one refers to the business of operating an
international passenger terminal in Luzon,the business end of which involves providing
international airlines with parking space for their aircraft, and airline passengers with the
use of departure and arrival areas, check-in counters, information systems, conveyor
systems, security equipment and paraphernalia, immigrations and customs processing
areas; and amenities such as comfort rooms, restaurants and shops.
In furtherance of the first monopoly, the Piatco Contracts stipulate that the NAIA
Terminal III will be the only facility to be operated as an international passenger
terminal; 66 that NAIA Terminals I and II will no longer be operated as such; 67 and that
no one (including the government) will be allowed to compete with Piatco in the operation
of an international passenger terminal in the NAIA Complex. 68 Given that, at this time,
the government and Piatco are the only ones engaged in the business of operating an
international passenger terminal, I am not acutely concerned with this particular
monopolistic situation.
There was however another monopoly within the NAIA created by the subject
contracts for Piatco — in the business of providing international airlines with the
following: groundhandling, in-flight catering, cargo handling, and aircraft repair and
maintenance services.These are lines of business activity in which are engaged many
service providers (including the petitioners-in-intervention),who will be adversely affected
upon full implementation of the Piatco Contracts, particularly Sections 3.01(d)69 and
(e) 70 of both the ARCA and the CA.
On the one hand, Section 3.02(a) of the ARCA makes Terminal III the only
international passenger terminal at the NAIA, and therefore the only place within the NAIA
Complex where the business of providing airport-related services to international airlines
may be conducted. On the other hand, Section 3.01(d) of the ARCA requires government,
through the MIAA, not to allow service providers with expired MIAA contracts to renew or
extend their contracts to render airport-related services to airlines. Meanwhile, Section
3.01(e) of the ARCA requires government, through the DOTC and MIAA, not to allow service
providers — those with subsisting concession agreements for services and operations being
conducted at Terminal I — to carry over their concession agreements, services and
operations to Terminal III, unless they first enter into a separate agreement with
Piatco. ACaTIc
The aforementioned provisions vest in Piatco effective and exclusive control over
which service provider may and may not operate at Terminal III and render the airport-
related services needed by international airlines. It thereby possesses the power to exclude
competition. By necessary implication, it also has effective control over the fees and charges
that will be imposed and collected by these service providers.
This intention is exceedingly clear in the declaration by Piatco that it is "completely
within its rights to exclude any party that it has not contracted with from NAIA Terminal
III." 71
Worse, there is nothing whatsoever in the Piatco Contracts that can serve to
restrict, control or regulate the concessionaire's discretion and power to reject any service
provider and/or impose any term or condition it may see fit in any contract it enters into
with a service provider. In brief, there is no safeguard whatsoever to ensure free and fair
competition in the service-provider sector.
In the meantime, and not surprisingly, Piatco is first in line, ready to exploit the
unique business opportunity. It announced 72 that it has accredited three groundhandlers
for Terminal III. Aside from the Philippine Airlines, the other accredited entities are the
Philippine Airport and Ground Services Globeground, Inc. ("PAGSGlobeground") and the
Orbit Air Systems, Inc. ("Orbit").PAGSGlobeground is a wholly-owned subsidiary of the
Philippine Airport and Ground Services, Inc. or PAGS, 73 while Orbit is a wholly-owned
subsidiary of Friendship Holdings, Inc., 74 which is in turn owned 80 percent by
PAGS. 75 PAGS is a service provider owned 60 percent by the Cheng Family; 76 it is a
stockholder of 35 percent of Piatco 77 and is the latter's designated contractor-operator for
NAIA Terminal III. 78
Such entry into and domination of the airport-related services sector appear to
be very much in line with the following provisions contained in the First Addendum to the
Piatco Shareholders Agreement, 79 executed on July 6, 1999, which appear to constitute
a sort of master plan to create a monopoly and combinations in restraint of trade:
"11. The Shareholders shall ensure:
a. ...
b. That (Phil. Airport and Ground Services, Inc.) PAGS
and/or its designated Affiliates shall, at all times during the
Concession Period, be exclusively authorized by (PIATCO) to
engage in the provision of ground-handling, catering and
fueling services within the Terminal Complex.
c. That PAIRCARGO and/or its designated Affiliate shall,
during the Concession Period, be the only entities authorized
to construct and operate a warehouse for all cargo handling
and related services within the Site."
Precisely, proscribed by our Constitution are the monopoly and the restraint of
trade being fostered by the Piatco Contracts through the erection of barriers to the entry
of other service providers into Terminal III. In Tatad v. Secretary of the Department of
Energy, 80 the Court ruled:
". . . [S]ection 19 of Article XII of the Constitution . . .
mandates: 'The State shall regulate or prohibit monopolies when the
public interest so requires. No combinations in restraint of trade or
unfair competition shall be allowed.'
"A monopoly is a privilege or peculiar advantage vested in
one or more persons or companies, consisting in the exclusive right
or power to carry on a particular business or trade, manufacture a
particular article, or control the sale or the whole supply of a particular
commodity. It is a form of market structure in which one or only a
few firms dominate the total sales of a product or service. On the
other hand, a combination in restraint of trade is an agreement or
understanding between two or more persons, in the form of a
contract, trust, pool, holding company, or other form of association,
for the purpose of unduly restricting competition, monopolizing trade
and commerce in a certain commodity, controlling its production,
distribution and price, or otherwise interfering with freedom of trade
without statutory authority. Combination in restraint of trade refers
to the means while monopoly refers to the end.
"xxx xxx xxx
"Section 19, Article XII of our Constitution is anti-trust in
history and in spirit. It espouses competition. The desirability of
competition is the reason for the prohibition against restraint of trade,
the reason for the interdiction of unfair competition, and the reason
for regulation of unmitigated monopolies. Competition is thus the
underlying principle of [S]ection 19, Article XII of our Constitution,. .
." 81
Gokongwei Jr. v. Securities and Exchange Commission 82 elucidates the criteria
to be employed: "A 'monopoly' embraces any combination the tendency of which is to
prevent competition in the broad and general sense, or to control prices to the detriment
of the public. In short, it is the concentration of business in the hands of a few. The material
consideration in determining its existence is not that prices are raised and competition
actually excluded, but that power exists to raise prices or exclude competition when
desired." 83 (Italics supplied)
The Contracts Encourage Monopolistic Pricing, Too
Aside from creating a monopoly, the Piatco contracts also give the concessionaire
virtually limitless power over the charging of fees, rentals and so forth. What little
"oversight function" the government might be able and minded to exercise is less than
sufficient to protect the public interest, as can be gleaned from the following provisions:
"Sec. 6.06. Adjustment of Non-Public Utility Fees and
Charges
"For fees, rentals and charges constituting Non-Public Utility
Revenues, Concessionaire may make any adjustments it deems
appropriate without need for the consent of GRP or any government
agency subject to Sec. 6.03(c)."
Section 6.03(c) in turn provides:
"(c) Concessionaire shall at all times be judicious in fixing
fees and charges constituting Non-Public Utility Revenues in order to
ensure that End Users are not unreasonably deprived of services.
While the vehicular parking fee, porterage fee and greeter/wellwisher
fee constitute Non-Public Utility Revenues of Concessionaire, GRP
may require Concessionaire to explain and justify the fee it may set
from time to time, if in the reasonable opinion of GRP the said fees
have become exorbitant resulting in the unreasonable deprivation of
End Users of such services."
It will be noted that the above-quoted provision has no teeth, so the
concessionaire can defy the government without fear of any sanction. Moreover, Section
6.06 — taken together with Section 6.03(c) of the ARCA — falls short of the standard set
by the BOT Law as amended, which expressly requires in Section 2(b) that the project
proponent is "allowed to charge facility users appropriate tolls, fees, rentals and charges
not exceeding those proposed in its bid or as negotiated and incorporated in the
contract ...."
The Piatco Contracts Violate
Constitutional Prohibitions
Against Impairment of Contracts
and Deprivation of Property Without
Due Process
Earlier, I discussed how Section 3.01(e) 84 of both the CA and the ARCA requires
government, through DOTC/MIAA, not to permit the carry-over to Terminal III of the
services and operations of certain service providers currently operating at Terminal I with
subsisting contracts.
By the In-Service Date, Terminal III shall be the only facility to be operated as an
international passenger terminal at the NAIA; 85 thus, Terminals I and II shall no longer
operate as such, 86 and no one shall be allowed to compete with Piatco in the operation of
an international passenger terminal in the NAIA. 87 The bottom line is that, as of the In-
Service Date, Terminal III will be the only terminal where the business of providing airport-
related services to international airlines and passengers may be conducted at all.
 Consequently, government through the DOTC/MIAA will be compelled to cease
honoring existing contracts with service providers after the In-Service Date, as they cannot
be allowed to operate in Terminal III.
In short, the CA and the ARCA obligate and constrain government to break its
existing contracts with these service providers.
Notably, government is not in a position to require Piatco to accommodate the
displaced service providers, and it would be unrealistic to think that these service providers
can perform their service contracts in some other international airport outside Luzon.
Obviously, then, these displaced service providers are — to borrow a quaint expression
— up the river without a paddle.In plainer terms, they will have lost their businesses
entirely, in the blink of an eye.
What we have here is a set of contractual provisions that impair the obligation of
contracts and contravene the constitutional prohibition against deprivation of property
without due process of law. 88
Moreover, since the displaced service providers, being unable to operate, will be
forced to close shop, their respective employees — among them Messrs. Agan and Lopez
et al. — have very grave cause for concern, as they will find themselves out of employment
and bereft of their means of livelihood. This situation comprises still another violation of
the constitution prohibition against deprivation of property without due process.
True, doing business at the NAIA may be viewed more as a privilege than as a
right. Nonetheless, where that privilege has been availed of by the petitioners-in-
intervention service providers for years on end, a situation arises, similar to that
in American Inter-fashion v. GTEB. 89 We held therein that a privilege enjoyed for seven
years "evolved into some form of property right which should not be
removed . . . arbitrarily and without due process." Said pronouncement is particularly
relevant and applicable to the situation at bar because the livelihood of the employees of
petitioners-intervenors are at stake.
The Piatco Contracts Violate
Constitutional Prohibition Against
Deprivation of Liberty Without
Due Process
The Piatco Contracts by locking out existing service providers from entry into
Terminal III and restricting entry of future service providers, thereby infringed upon the
freedom — guaranteed to and heretofore enjoyed by international airlines — to contract
with local service providers of their choice, and vice versa.
Both the service providers and their client airlines will be deprived of the right to
liberty,which includes the right to enter into all contracts, 90 and/or the right to make a
contract in relation to one's business. 91
By Creating New Financial Obligations for Government, Supplements to the ARCA
Violate the Constitutional Ban on Disbursement of Public Funds Without Valid
Appropriation
Clearly prohibited by the Constitution is the disbursement of public funds out of
the treasury, except in pursuance of an appropriation made by law. 92 The immediate
effect of this constitutional ban is that all the various agencies of government are
constrained to limit their expenditures to the amounts appropriated by law for each fiscal
year; and to carefully count their cash before taking on contractual commitments. Giving
flesh and form to the injunction of the fundamental law, Sections 46 and 47 of Executive
Order 292, otherwise known as the Administrative Code of 1987, provide as follows:
"Sec. 46. Appropriation Before Entering into Contract.— (1)
No contract involving the expenditure of public funds shall be entered
into unless there is an appropriation therefor, the unexpended
balance of which, free of other obligations, is sufficient to cover the
proposed expenditure; and ...
"Sec. 47. Certificate Showing Appropriation to Meet
Contract.— Except in the case of a contract for personal service, for
supplies for current consumption or to be carried in stock not
exceeding the estimated consumption for three (3) months, or
banking transactions of government-owned or controlled banks, no
contract involving the expenditure of public funds by any government
agency shall be entered into or authorized unless the proper
accounting official of the agency concerned shall have certified to the
officer entering into the obligation that funds have been duly
appropriated for the purpose and that the amount necessary to cover
the proposed contract for the current calendar year is available for
expenditure on account thereof, subject to verification by the auditor
concerned. The certificate signed by the proper accounting official and
the auditor who verified it, shall be attached to and become an
integral part of the proposed contract, and the sum so certified shall
not thereafter be available for expenditure for any other purpose until
the obligation of the government agency concerned under the
contract is fully extinguished."
Referring to the aforequoted provisions, this Court has held that "(I)t is quite
evident from the tenor of the language of the law that the existence of appropriations and
the availability of funds are indispensable pre-requisites to or conditions sine qua non for
the execution of government contracts. The obvious intent is to impose such conditions as
a priori requisites to the validity of the proposed contract." 93
Notwithstanding the constitutional ban, statutory mandates and Jurisprudential
precedents, the three Supplements to the ARCA, which were not approved by NEDA,
imposed on government the additional burden of spending public moneys without prior
appropriation.
In the First Supplement ("FS") dated August 27, 1999, the following requirements
were imposed on the government:
• To construct, maintain and keep in good repair and operating
condition all airport support services, facilities, equipment
and infrastructure owned and/or operated by MIAA, which
are not part of the Project or which are located outside the
Site, even though constructed by Concessionaire —
including the access road connecting Terminals II and III
and the taxilane, taxiways and runways
• To obligate the MIAA to provide funding for the upkeep,
maintenance and repair of the airports and facilities owned
or operated by it and by third persons under its control in
order to ensure compliance with international standards;
and holding MIAA liable to Piatco for the latter's losses,
expenses and damages as well as for the latter's liability to
third persons, in case MIAA fails to perform such obligations;
in addition, MIAA will also be liable for the incremental and
consequential costs of the remedial work done by Piatco on
account of the former's default.
• Section 4 of the FS imposed on government ten (10) "Additional
Special Obligations," including the following:
 Ø Providing thru MIAA the land required by Piatco for the
taxilane and one taxiway, at no cost to Piatco
Ø Implementing the government's existing storm drainage
master plan
Ø Coordinating with DPWH the financing, implementation
and completion of the following works before the
In-Service Date: three left-turning overpasses
(Edsa to Tramo St.,Tramo to Andrews Ave.,and
Manlunas Road to Sales Ave.) and a road upgrade
and improvement program involving widening,
repair and resurfacing of Sales Road, Andrews
Avenue and Manlunas Road; improvement of
Nichols Interchange; and removal of squatters
along Andrews Avenue
Ø Dealing directly with BCDA and the Philippine Air Force in
acquiring additional land or right of way for the
road upgrade and improvement program
Ø Requiring government to work for the immediate
reversion to MIAA of the Nayong Pilipino National
Park, in order to permit the building of the second
west parallel taxiway
• Section 5 of the FS also provides that in lieu of the access tunnel, a
surface access road (T2-T3) will be constructed. This
provision requires government to expend funds to purchase
additional land from Nayong Pilipino and to clear the same
in order to be able to deliver clean possession of the site to
Piatco, as required in Section 5(c) of the FS.
On the other hand, the Third Supplement ("TS") obligates the government to
deliver, within 120 days from date thereof, clean possession of the land on which the T2-
T3 Road is to be constructed.
The foregoing contractual stipulations undeniably impose on government the
expenditures of public funds not included in any congressional appropriation or authorized
by any other statute. Piatco however attempts to take these stipulations out of the ambit
of Sections 46 and 47 of the Administrative Code by characterizing them as stipulations for
compliance on a "best-efforts basis" only.
To determine whether the additional obligations under the Supplements may
really be undertaken on a best-efforts basis only, the nature of each of these obligations
must be examined in the context of its relevance and significance to the Terminal III
Project, as well as of any adverse impact that may result if such obligation is not performed
or undertaken on time. In short, the criteria for determining whether the best-efforts basis
will apply is whether the obligations are critical to the success of the Project and,
accordingly, whether failure to perform them (or to perform them on time) could result in
a material breach of the contract.
Viewed in this light, the "Additional Special Obligations" set out in Section 4 of the
FS take on a different aspect. In particular, each of the following may all be deemed to play
a major role in the successful and timely prosecution of the Terminal III Project: the
obtention of land required by PIATCO for the taxilane and taxiway; the implementation of
government's existing storm drainage master plan; and coordination with DPWH for the
completion of the three left-turning overpasses before the In-Service Date, as well as
acquisition and delivery of additional land for the construction of the T2-T3 access road.
Conversely, failure to deliver on any of these obligations may conceivably result
in substantial prejudice to the concessionaire, to such an extent as to constitute a material
breach of the Piatco Contracts. Whereupon, the concessionaire may outrightly terminate
the Contracts pursuant to Section 8.01(b)(i) and (ii) of the ARCA and seek payment of
Liquidated Damages in accordance with Section 8.02(a) of the ARCA; or the concessionaire
may instead require government to pay the Incremental and Consequential Losses under
Section 1.23 of the ARCA. 94 The logical conclusion then is that the obligations in the
Supplements are not to be performed on a best-efforts basis only, but are unarguably
mandatory in character.
Regarding MIAA's obligation to coordinate with the DPWH for the complete
implementation of the road upgrading and improvement program for Sales, Andrews and
Manlunas Roads (which provide access to the Terminal III site) prior to the In-Service Date,
it is essential to take note of the fact that there was a pressing need to complete the
program before the opening of Terminal III. 95 For that reason, the MIAA was compelled
to enter into a memorandum of agreement with the DPWH in order to ensure the timely
completion of the road widening and improvement program. MIAA agreed to advance the
total amount of P410.11 million to DPWH for the works, while the latter was committed to
do the following:
"2.2.8. Reimburse all advance payments to MIAA including
but not limited to interest, fees, plus other costs of money within the
periods CY2004 and CY2006 with payment of no less than One
Hundred Million Pesos (PhP100M) every year.
"2.2.9. Perform all acts necessary to include in its CY2004
to CY2006 budget allocation the repayments for the advances made
by MIAA, to ensure that the advances are fully repaid by CY2006. For
this purpose, DPWH shall include the amounts to be appropriated for
reimbursement to MIAA in the "Not Needing Clearance" column of
their Agency Budget Matrix (ABM) submitted to the Department of
Budget and Management."
It can be easily inferred, then, that DPWH did not set aside enough funds to be
able to complete the upgrading program for the crucially situated access roads prior to the
targeted opening date of Terminal III; and that, had MIAA not agreed to lend the P410
Million, DPWH would not have been able to complete the program on time. As a
consequence, government would have been in breach of a material obligation. Hence, this
particular undertaking of government may likewise not be construed as being for best-
efforts compliance only.
They also Infringe on the Legislative
Prerogative and Power Over the Public Purse
But the particularly sad thing about this transaction between MIAA and DPWH is
the fact that both agencies were maneuvered into (or allowed themselves to be maneuvered
into) an agreement that would ensure delivery of upgraded roads for Piatco's benefit, using
funds not allocated for that purpose. The agreement would then be presented to Congress
as a done deal. Congress would thus be obliged to uphold the agreement and support it
with the necessary allocations and appropriations for three years, in order to enable DPWH
to deliver on its committed repayments to MIAA. The net result is an infringement on the
legislative power over the public purse and a diminution of Congress' control over
expenditures of public funds — a development that would not have come about, were it not
for the Supplements. Very clever but very illegal!
EPILOGUE
What Do We Do Now?
In the final analysis, there remains but one ultimate question, which I raised
during the Oral Argument on December 10, 2002: What do we do with the Piatco Contracts
and Terminal III? 96 (Feeding directly into the resolution of the decisive question is the finished — to bid out the operation of the facility under the same or analogous principles
other nagging issue: Why should we bother with determining the legality and validity of as build-operate-and-transfer projects. To be imposed, however, is the condition that the
these contracts, when the Terminal itself has already been built and is practically winning bidder must pay the builder of the facility a price fixed by government based
complete?) on quantum meruit;on the real, reasonable — not inflated — value of the built facility.

Prescinding from all the foregoing disquisition, I find that all the Piatco contracts,
without exception, are void ab initio,and therefore inoperative. Even the very process by
which the contracts came into being — the bidding and the award — has been riddled with
irregularities galore and blatant violations of law and public policy, far too many to ignore.
There is thus no conceivable way, as proposed by some, of saving one (the original
Concession Agreement) while junking all the rest.
Neither is it possible to argue for the retention of the Draft Concession Agreement
(referred to in the various pleadings as the Contract Bidded Out) as the contract that should
be kept in force and effect to govern the situation, inasmuch as it was never executed by
the parties. What Piatco and the government executed was the Concession Agreement
which is entirely different from the Draft Concession Agreement.
How the payment or series of payments to the builder, funders, investors and
contractors will be staggered and scheduled, will have to be built into the bids, along with
the annual guaranteed payments to government. In this manner, this whole sordid mess
could result in something truly beneficial for all, especially for the Filipino people.
WHEREFORE, I vote to grant the Petitions and to declare the subject contracts
NULL and VOID.
||| (Agan, Jr. v. Philippine International Air Terminals Co., Inc., G.R. Nos. 155001,
155547 & 155661, [May 5, 2003], 450 PHIL 744-902)

Ultimately, though, it would be tantamount to an outrageous, grievous and

unforgivable mutilation of public policy and an insult to ourselves if we opt to keep in place
a contract — any contract — for to do so would assume that we agree to having Piatco
continue as the concessionaire for Terminal III.

Despite all the insidious contraventions of the Constitution, law and public policy
Piatco perpetrated, keeping Piatco on as concessionaire and even rewarding it by allowing
it to operate and profit from Terminal III — instead of imposing upon it the stiffest sanctions
permissible under the laws — is unconscionable.

It is no exaggeration to say that Piatco may not really mind which contract we
decide to keep in place. For all it may care, we can do just as well without one, if we only
let it continue and operate the facility.After all, the real money will come not from building
the Terminal, but from actually operating it for fifty or more years and charging whatever
it feels like, without any competition at all.This scenario must not be allowed to
happen. aATESD

If the Piatco contracts are junked altogether as I think they should be, should not
AEDC automatically be considered the winning bidder and therefore allowed to operate the
facility? My answer is a stone-cold 'No'.AEDC never won the bidding, never signed any
contract, and never built any facility. Why should it be allowed toautomatically step in and
benefit from the greed of another?

Should government pay at all for reasonable expenses incurred in the construction
of the Terminal? Indeed it should, otherwise it will be unjustly enriching itself at the expense
of Piatco and, in particular, its funders, contractors and investors — both local and foreign.
After all, there is no question that the State needs and will make use of Terminal III, it
being part and parcel of the critical infrastructure and transportation-related programs of
government.

In Melchor v. Commission on Audit, 97 this Court held that even if the contract
therein was void, the principle of payment by quantum meruit was found applicable, and
the contractor was allowed to recover the reasonable value of the thing or services
rendered (regardless of any agreement as to the supposed value),in order to avoid unjust
enrichment on the part of government. The principle of quantum meruit was likewise
applied in Eslao v. Commission on Audit, 98 because to deny payment for a building almost
completed and already occupied would be to permit government to unjustly enrich itself at
the expense of the contractor. The same principle was applied in Republic v. Court of
Appeals. 99

One possible practical solution would be for government — in view of the nullity
of the Piatco contracts and of the fact that Terminal III has already been built and is almost