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612 SUPREME COURT REPORTS ANNOTATED


Agan, Jr. vs. Philippine International Air Terminals Co., Inc.

*
G.R. No. 155001. May 5, 2003.

DEMOSTHENES P. AGAN, JR., JOSEPH B. CATAHAN, JOSE


MARI B. REUNILLA, MANUEL ANTONIO B. BOÑE,
MAMERTO S. CLARA, REUEL E. DIMALANTA, MORY V.
DOMALAON, CONRADO G. DIMAANO, LOLITA R. HIZON,
REMEDIOS P. ADOLFO, BIENVENIDO C. HILARIO, MIASCOR
WORKERS UNION-NATIONAL LABOR UNION (MWU-NLU),
and PHILIPPINE AIRLINES EMPLOYEES ASSOCIATION
(PALEA), petitioners, vs. PHILIPPINE INTERNATIONAL AIR
TERMINALS CO., INC., MANILA INTERNATIONAL AIRPORT
AUTHORITY, DEPARTMENT OF TRANSPORTATION AND
COMMUNICATIONS and SECRETARY LEANDRO M.
MENDOZA, in his capacity as Head of the Department of
Transportation and Communications, respondents.

MIASCOR GROUNDHANDLING CORPORATION,


DNATAWINGS AVIATION SYSTEMS CORPORATION,
MACROASIAEUREST SERVICES, INC., MACROASIA-
MENZIES AIRPORT SERVICES CORPORATION, MIASCOR
CATERING SERVICES CORPORATION, MIASCOR AIRCRAFT
MAINTENANCE CORPORATION, and MIASCOR LOGISTICS
CORPORATION, petitioners-in-intervention.
*
G.R. No. 155547. May 5, 2003.

SALACNIB F. BATERINA, CLAVEL A. MARTINEZ and


CONSTANTINO G. JARAULA, petitioners, vs. PHILIPPINE
INTERNATIONAL AIR TERMINALS CO., INC., MANILA
INTERNATIONAL AIRPORT AUTHORITY, DEPARTMENT OF
TRANSPORTATION AND COMMUNICATIONS, DEPARTMENT
OF PUBLIC WORKS AND HIGHWAYS, SECRETARY
LEANDRO M. MENDOZA, in his capacity as Head of the
Department of Transportation and Communications, and
SECRETARY SIMEON A. DATUMANONG, in his capacity as
Head of the Department of Public Works and Highways,
respondents.

JACINTO V. PARAS, RAFAEL P. NANTES, EDUARDO C.


ZIALCITA, WILLY BUYSON VILLARAMA, PROSPERO C.
NOGRA

_______________

* EN BANC.

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Agan, Jr. vs. Philippine International Air Terminals Co., Inc.
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LES, PROSPERO A. PICHAY, JR., HARLIN CAST ABAYON, and


BENASING O. MACARANBON, respondents-intervenors.

G.R. No. 155661. May 5, 2003.*

CEFERINO C. LOPEZ, RAMON M. SALES, ALFREDO B.


VALENCIA, MA. TERESA V. GAERLAN, LEONARDO DE LA
ROSA, DINA C. DE LEON, VIRGIE CATAMIN RONALD
SCHLOBOM, ANGELITO SANTOS, MA. LUISA M. PALCON
and SAMAHANG MANGGAGAWA SA PALIPARAN NG
PILIPINAS (SMPP), petitioners, vs. PHILIPPINE
INTERNATIONAL AIR TERMINALS CO., INC., MANILA
INTERNATIONAL AIRPORT AUTHORITY, DEPARTMENT OF
TRANSPORTATION AND COMMUNICATIONS, SECRETARY
LEANDRO M. MENDOZA, in his capacity as Head of the
Department of Transportation and Communications, respondents.

Judicial Review; Parties; Locus Standi; 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.—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.
Same; Same; Same; Petitioners who stand to lose their sources of
livelihood, a property right which is zealously protected by the Constitution,
have a direct and substantial interest in a controversy which confers on
them the requisite standing.—We hold that petitioners have the requisite
standing. In the above-mentioned 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,

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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.

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Same; Same; Same; 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; In view of the serious legal questions involved and their impact on
public interest, the Court resolves to grant standing to the petitioners.—
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.
Courts; Supreme Court; Hierarchy of Courts; Where a controversy
involves significant legal questions and the facts necessary to resolve such
legal questions are well established and, hence, need not be determined by a
trial court, the Supreme Court may assume jurisdiction over such
controversy.—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 viola-

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tion 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.
Same; Same; Same; The rule on hierarchy of courts 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 the Supreme Court’s primary
jurisdiction.—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

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of a remedy within and calling for the exercise of this Court’s primary
jurisdiction. 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.
Actions; Alternative Dispute Resolution; Arbitration; Where petitioners
are not parties to a contract with an arbitration clause, they 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.—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.

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Bids and Bidding; 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, with the government agency examining and
determining the ability of the bidder to fund the entire cost for the project by
considering the maximum amounts that each bidder may invest in the
project at the time of pre-qualification.—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 the true maximum
amount which a bidder may invest in the project.

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Same; 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
by the bidder and the Pre-Qualification, Bid and Awards Committee (PBAC)
should not be allowed to speculate on the future financial ability of the
bidder to undertake the project on the basis of the documents submitted;
Strict observance for the rules, regulations, and guidelines of the bidding
process is the only safeguard to a fair, honest and competitive public
bidding.—The determination of whether or not a bidder is prequalified 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

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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.
Same; 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, the Court holds that
Paircargo Consortium was not a qualified bidder.—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.
Same; By its very nature, public bidding aims to protect the public
interest by giving the public the best possible advantages through open
competition.—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

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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.
Same; 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—if the winning

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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.—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.
Same; While 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; The determination of
whether or not a modification or amendment 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.—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.
Same; The 1997 Concession Agreement clearly gives PIATCO more
favorable terms than what was available to other bidders at the time the
contract was bidded out.—When taken as a whole, the changes under the

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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.
Same; Section 4.04 of the 1997 Concession Agreement is an important
amendment because it grants PIATCO a financial advantage or benefit
which was not previously made available during the bidding process.—
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.
Same; 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.—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, com-

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petitive public bidding aims to protect the public interest by giving the
public the best possible advantages through open competition. It has been

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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.
Same; 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.—
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.
Same; The fact that substantial amendments were made on the 1997
Concession Agreement renders the same null and void for being contrary to
public policy.—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

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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.
Same; Build-Operate-and-Transfer (BOT) Projects; Direct government
guarantee is prohibited by the law on BOT projects.—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. These amounts include “all interests, penalties,
associated fees, charges, surcharges, indemnities, reimbursements and other
related expenses.” This obligation of the Government to pay PIATCO’s

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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. 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.
Same; Same; If the government would in the end still be at a risk of
paying the debts incurred by the private entity in the BOT project, then the
purpose of the law is subverted.—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.

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Same; Same; The proscription against government guarantee in any


form is one of the policy considerations behind the BOT Law.—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.
Same; Same; 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 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.—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
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conducted the same. 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.” 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.
Same; Same; The Supreme Court has long and consistently adhered to
the legal maxim that those that cannot be done directly cannot be done
indirectly.—This Court has long and consistently adhered to the legal

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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.
Public Utilities; Police Power; Temporary Takeover of Business
Affected with Public Interest; When the government temporarily takes over
a business affected with public interest pursuant to Article XII, Section 17 of
the Constitution, it is not required to compensate the private entity-owner of
the said business as there is no transfer of ownership, whether permanent or
temporary, and 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.—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.” 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
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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.
Same; Same; Same; 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”;
Clearly, the State in effecting the temporary takeover is exercising its police
power and its exercise therefore must not be unreasonably hampered nor its
exercise be a source of obligation by the government in the absence of dam-

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age due to arbitrariness of its exercise, and requiring the government to pay
reasonable compensation for the reasonable use of the property pursuant to
the operation of the business contravenes the Constitution.—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.
Same; Monopolies; Words and Phrases; 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; 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; 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.—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. 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. 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.
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Same; Same; Air Transportation; Airport Terminals; The operation of


an international passenger airport terminal is no doubt an undertaking
imbued with public interest; 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 right granted
to the public utility may be exclusive but the exercise of the right cannot run
riot; The privilege granted 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.—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. 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.
Same; Same; Same; Same; Contracts; While the service providers
presently operating at NAIA Terminal I 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—PIATCO cannot, by law and certainly not by contract,
render a valid and binding contract nugatory.—We hold that while the
service providers presently operating at NAIA Terminal I 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-

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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.
Same; Same; Same; Same; The provisions of the 1997 Concession
Agreement and the Amended and Restated Concession Agreement (ARCA)
did not strip government, thru the MIAA, of its right to supervise the
operation of the whole NAIA complex, including NAIA IPT III.—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.

VITUG, J., Separate Opinion:

Supreme Court; Jurisdiction; The Supreme Court is bereft of


jurisdiction to hear the petition at bar.—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.
Same; Same; Declaratory Relief; The petitions, in effect, are in the
nature of actions for declaratory relief which are cognizable by regional
trial courts.—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

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over petitions for declaratory relief which are cognizable by regional trial
courts.
Same; Same; Separation of Powers; The Supreme Court should not be
thought of as having been tasked with the awesome responsibility of
overseeing the entire bureaucracy—the Court may not at good liberty
intrude, in the guise of sovereign imprimatur, 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
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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.

PANGANIBAN, J., Separate Opinion:

Courts; Judicial Review; The Court has, in the past, held that questions
relating to gargantuan government contracts ought to be settled without
delay.—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.
Same; Same; Alternative Dispute Resolution; Arbitration; Public
Utilities; Build-Operate-and-Transfer (BOT) Projects; International Airport
Terminal; The Piatco contracts are void in their entirety—resort to
arbitration is unavailing.—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

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definitively resolve the constitutional and legal questions that have been
raised in the Petitions before us.
Same; Same; Parties; Locus Standi; 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.—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.”
Bids and Bidding; It is unarguably 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.—By virtue of the prequalified status conferred upon the
Paircargo, Undersecretary Cal’s findings in effect relieved the consortium of

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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.
Same; Public Utilities; Build-Operate-and-Transfer (BOT) Projects;
The “propriety 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; 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 propriety information in connection
with unsolicited proposals.—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

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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.
Same; Same; Same; 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.—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.
Same; Same; Same; Franchises;The constitutional prohibition against
the exclusivity of a franchise applies to the franchise for the operation of
NAIA Terminal III.—While Section 2.02 of the ARCA spoke of granting to
Piatco “a franchise to operate and maintain the Terminal Complex,” Section

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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 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 x x x 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.
Same; Same; Same; Unjust Enrichment; The government should pay
for reasonable expenses incurred in the construction of the NAIA Terminal
III, otherwise it will be unjustly enriching itself at the expense of Piatco

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and, in particular, its finders, contractors and investors—both local and


foreign.—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 transportationrelated
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 of quantum 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.

SPECIAL CIVIL ACTION in the Supreme Court. Prohibition.

The facts are stated in the opinion of the Court.


     Salonga, Hernandez & Mendoza for petitioners in G.R. No.
155001.
     Jose A. Bernas for petitioners in G.R. No. 155547.
     Erwin P. Erfe for petitioners in G.R. No. 155661.
     Jose Espinas for MWU-NLU.
     Jose E. Marigondon for PALEA.
     Angara, Abello, Concepcion, Regala & Cruz for petitioners-
in-intervention.
     Arthur D. Lim Law Office for Asia’s Emerging Dragon, etc.
          Romulo, Mabanta, Buenaventura, Sayoc & Delos Angeles;
Chavez & Laureta & Associates; and Moises Tolentino, Jr. for
PIATCO.
     Office of the Government Corporate Counsel for MIAA.
     Mario E. Ongkiko, Fernando F. Manas, Jr., Raymund C. De
Castro and Angelito S. Lazaro, Jr. for respondents-intervenors.

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PUNO, J.:

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.
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

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Agan, Jr. vs. Philippine International Air Terminals Co., Inc.

a build-operate-and-transfer arrangement pursuant to RA 6957 as


1
amended by RA 7718 (BOT Law).
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.

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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.

_______________

1 An Act Authorizing the Financing, Construction, Operation and Maintenance of


Infrastructure Projects by the Private Sector.

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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
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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.
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

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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 PBACs 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.
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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

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Agan, Jr. vs. Philippine International Air Terminals Co., Inc.

challengers through bid bulletins. However, a final version will be issued


before the award of contract.

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.

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The PBAC then proceeded with the opening of the second


envelope of the Paircargo Consortium which contained its Technical
Proposal.

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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.
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.
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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

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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

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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.

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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.

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Agan, Jr. vs. Philippine International Air Terminals Co., Inc.

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 Macro-
Asia, 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
2
agreements.
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
3
Court.
On November 6, 2002, several employees of the MIAA likewise
4
filed a petition assailing the legality of the various agreements. 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,

_______________

2 G.R. No. 155001.


3 G.R. No. 155547.
4 G.R. No. 155661.

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Agan, Jr. vs. Philippine International Air Terminals Co., Inc.

stated that she will not “honor (PIATCO) contracts which the
Executive Branch’s legal offices have concluded (as) null and
5
void.”
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.
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,

_______________

5 An international airport is any nation’s gateway to the world, the first contact of
foreigners with the Philippine Republic, especially those foreigners who have not
been in contact with the wonderful exports of the Philippine economy, those
foreigners who have not had the benefit of enjoying Philippine export products.
Because for them, when they see your products, that is the face of the Philippines they
see. But if they are not exposed to your products, then it’s the airport that’s the first
face of the Philippines they see. Therefore, it’s not only a matter of opening yet, but
making sure that it is a world class airport that operates without any hitches at all and
without the slightest risk to travelers. But it’s also emerging as a test case of my
administration’s commitment to fight corruption to rid our state from the hold of any
vested interest, the Solicitor General, and the Justice Department have determined
that all five agreements covering the NAIA Terminal 3, most of which were contracted
in the previous administration, are null and void. I cannot honor contracts which the
Executive Branch’s legal offices have concluded (as) null and void.
I am, therefore, ordering the Department of Justice and the Presidential Anti-Graft
Commission to investigate any anomalies and prosecute all those found culpable in
connection with the NAIA contract. But despite all of the problems involving the
PIATCO contracts, I am assuring our people, our travelers, our exporters, my
administration will open the terminal even if it requires invoking the whole powers of
the Presidency under the Constitution and we will open a safe, secure and smoothly
functioning airport, a world class airport, as world class as the exporters we are
honoring today. (Speech of President Arroyo, emphasis supplied)

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the ARCA and the Supplements thereto void for being contrary to
the Constitution, 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
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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
6
jurisdiction.” 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
7
service providers 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

_______________

6 Art. VIII, Sec. 1, Philippine Constitution.


7 MIASCOR, MACROASIA-EUREST, MACROASIA OGDEN and Philippine
Airlines.

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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.
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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 opera-

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tions 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
8
through a separate agreement duly entered into with PIATCO.
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 illumina-

_______________

8 Sections 3.01 (a) and 3.02, 1997 Concession Agreement; Sections 3.01 (d) and
(e) and 3.02, ARCA.

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9
tion 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
10
burdens or penalties by reason of the statute or act complained of.
We hold that petitioners have the requisite standing. In the above-
mentioned 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.

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
11
provisions therein. They cite provisions of the PIATCO Contracts
which require disbursement of unappropriated amounts in compli-

_______________

9 Kilosbayan, Inc. v. Morato, G.R. No. 118910, July 17, 1995, 246 SCRA 540,
562-563, citing Baker v. Carr, 369 U.S. 186, 7 L. Ed. 633 (1962).
10 Id.; Bayan v. Zamora, G.R. No. 138570, October 10, 2000, 342 SCRA 449, 478.
11 Rollo, G.R. No. 155547, p. 12.

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ance 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
12
treasury except in pursuance of an appropriation made by law.”
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
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13
of the cases of Imus Electric Co. v. Municipality of Imus and
14
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.
15
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
16
instrumentalities.” Further, “insofar as taxpayers’ suits are
concerned . . . (this Court) is not devoid of discretion as to whether
17
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
18
serious constitutional questions raised.” In view of the serious legal
ques-

_______________

12 Article VI, Section 29(1).


13 G.R. No. 39842, March 28, 1934, 59 Phil. 823.
14 G.R. No. 29627, December 19, 198, 180 SCRA 254, 260-261.
15 G.R. No. 113375, May 5, 1994, 232 SCRA 110.
16 Id.
17 Id., citing Tan vs. Macapagal, 43 SCRA 677, 680 [1972].
18 Association of Small Landowners in the Philippines, Inc. vs. Secretary of
Agrarian Reform, G.R. No. 78742, July 14, 1989, 175 SCRA 343, 364-365 [1989].

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646 SUPREME COURT REPORTS ANNOTATED


Agan, Jr. vs. Philippine International Air Terminals Co., Inc.

tions 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
19
the exercise of this Court’s primary jurisdiction.
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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.

_______________

19 Santiago v. Vasquez, G.R. Nos. 99289-90, January 27, 1993, 217 SCRA 633,
652.

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Agan, Jr. vs. Philippine International Air Terminals Co., Inc.

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.
20
In Del Monte Corporation-USA v. Court of Appeals, 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
21
Corporation, 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
22
multiplicity of suits, duplicitous procedure and unnecessary delay.
Thus, we ruled that the interest of justice would best be served if the
trial court hears and adjudicates the case in a single 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

_______________

20 G.R. No. 136154, February 7, 2001, 351 SCRA 373, 381.


21 G.R. No. 135362, December 13, 1999, 320 SCRA 610.

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22 Del Monte Corporation-USA v. Court of Appeals, G.R. No. 136154, February 7,
2001, 351 SCRA 373, 382.

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Agan, Jr. vs. Philippine International Air Terminals Co., Inc.

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

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Agan, Jr. vs. Philippine International Air Terminals Co., Inc.

P3,926,421,242.00 that could support a project costing approximately P13


Billion.
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.

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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
23
not for pre-qualification (Section 5.4 of the same document).

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
24
bid and most favorable terms of the project. Further, the 1994
Implementing Rules and Regulations of the BOT Law provide:

Section 5.4. Pre-qualification Requirements.


....
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. (emphasis supplied)

_______________

23 Rollo, G.R. No. 155001, pp. 2487-2488.


24 Section 5, R.A. No. 7718.

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650 SUPREME COURT REPORTS ANNOTATED


Agan, Jr. vs. Philippine International Air Terminals Co., Inc.

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

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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
25
US$350,000,000.00 or roughly P9,183,650,000.00, 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
26
respectively. PAGS’ Audited Financial Statements as of 1995
indicate that it has approximately P26,735,700.00 to invest as its
27
equity for the project. Security Bank’s Audited Finan-

_______________

25 At the United States Dollar-Philippine Peso exchange rate of US$1:P26.239


quoted by the Bangko Sentral ng Pilipinas at that time.
26 Rollo, G.R. No. 155001, pp. 2471-2474.
27 Id., at pp. 2475-2477. Derived from the figures on the authorized capital stock
and the shares of stock that are subscribed and paid-up.

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Agan, Jr. vs. Philippine International Air Terminals Co., Inc.

cial Statements as of 1995 show that it has a net worth equivalent to


28
its capital funds in the amount of P3,523,504,377.00.
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 nonallied
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.
....
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.

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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.

_______________

28 Id., at pp. 2478-2484.

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652 SUPREME COURT REPORTS ANNOTATED


Agan, Jr. vs. Philippine International Air Terminals Co., Inc.

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
29
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.
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 the
true maximum amount which a bidder may invest in the project.

_______________

29

Member Maximum Amount of Equity


Security Bank P528,525,656.55
PAGS      26,735,700.00
Paircargo 3,123,515.00          
TOTAL P558,384,871.55

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Further, the determination of whether or not a bidder is prequalified


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 dutybound 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
30
public bidding.

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
prequalification 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

_______________

30 Republic of the Philippines vs. Hon. Ignacio C. Capulong, G.R. No. 93359, July
12, 1991, 199 SCRA 134, 146-147. Emphasis supplied.

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654 SUPREME COURT REPORTS ANNOTATED


Agan, Jr. vs. Philippine International Air Terminals Co., Inc.

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.
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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
31
designed to injure or defraud the government.

An essential element of a publicly bidded contract is that all bidders


must be on equal footing. Not simply in terms of applica-

_______________

31 Danville Maritime, Inc. v. Commission on Audit, G.R. No. 85285, July 28, 1989,
175 SCRA 701, 713. Citations omitted.

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Agan, Jr. vs. Philippine International Air Terminals Co., Inc.

tion 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
32
equally or indiscriminately upon all bidders.

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
33
invited.

In fact, in the PBAC Bid Bulletin No. 3 cited by PIATCO to support


its argument that the draft concession agreement is subject to
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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

_______________

32 A. Cobacha & D. Lucenario, LAW ON PUBLIC BIDDING AND


GOVERNMENT CONTRACTS 13 (1960).
33 Diamond v. City of Mankato, et al., 93 N.W. 912.

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656 SUPREME COURT REPORTS ANNOTATED


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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.
In34 the case of Caltex (Philippines), Inc. v. Delgado Brothers,
Inc., 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
35
bidding may alter or amend it without another previous public bidding.

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:

_______________

34 G.R. No. L-5439, December 29, 1954, 96 Phil. 368.


35 Id., at p. 375.

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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 maybe 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
36
draft Concession Agreement includes the following:

(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
37
“Public Utility Revenues” and include:

_______________

36 Section 6.03, draft Concession Agreement.


37 Sections 1.33 and 6.03(b), 1997 Concession Agreement.

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Agan, Jr. vs. Philippine International Air Terminals Co., Inc.

(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-
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Public Utility Revenues” and is defined as “all other income not


classified as Public Utility Revenues derived from operations of the
38
Terminal and the Terminal Complex.” Thus, 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 InService 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
39
they cover.

_______________

38 Sections 1.27 and 6.06, 1997 Concession Agreement.


39 Emphasis supplied.

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On the other hand, the equivalent provision under the 1997


Concession Agreement reads:

Section 6.03. Periodic Adjustment in Fees and Charges.


....
(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
40
resulting in the unreasonable deprivation of End Users of such services.

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.
Moreover, with respect to the third category of fees that may be
imposed and collected by PIATCO, i.e., new fees and charges that
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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.

_______________

40 Emphasis supplied.

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41
With respect to terminal fees that may be charged by PIATCO, 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
42
events specified in the agreement. However, under the draft
Concession Agreement, terminal fees are not included in the types of
43
fees that may be subject to “Interim Adjustment.”
Finally, under the 1997 Concession Agreement, “Public Utility 44
Revenues,” except terminal fees, are denominated in US Dollars
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.

_______________

41 Referred to as “Passenger Service Fee” under the draft Concession Agreement.


42 Section 6.05 Interim Adjustment

(a) Concessionaire may apply for and, if warranted, may be granted an interim
adjustment of the fees and charges constituting Public Utility Revenues upon
the occurrence of extraordinary events resulting from any of the following:

i. a depreciation since the last adjustment by at least fifteen percent (15%) of


the value of the Philippine Peso relative to the US Dollar using the exchange
rates published by the Philippine Dealing System as reference;
ii. an increase since the last adjustment by at least fifteen percent (15%) in the
Metro Manila Consumer Price Index based on National Census and Statistics
Office publications;
iii. an increase since the last adjustment in MERALCO power rates billing by at
least fifteen percent (15%); iv. an increase since the last adjustment in the
180-day Treasury Bill interest rates by at least thirty (30%).
....

43 Section 6.05, draft Concession Agreement.


44 Section 1.33, 1997 Concession Agreement.

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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.

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.


....

(b) In the event Concessionaire should default in the payment of an


Attendant Liability, and the default has resulted in the acceleration
of

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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
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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

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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.

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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
45
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

_______________

45 Supra note 31.

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excludes any of these factors destroys the distinctive


46
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.
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 47
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.
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

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bidding process. These amendments cannot be taken as merely


supplements to or implementing provisions of those already exist-

_______________

46 Malaga v. Penachos, Jr., G.R No. 86695, September 3, 1992, 213 SCRA 516,
526.
47 A. Cobacha & D. Lucenario, LAW ON PUBLIC BIDDING AND
GOVERNMENT CONTRACTS 6-7 (1960).

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ing 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


....

(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.
....

666

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666 SUPREME COURT REPORTS ANNOTATED
Agan, Jr. vs. Philippine International Air Terminals Co., Inc.

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,
48
contractors and subcontractors.

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 49
from
the books” of PIATCO which the latter owes to its creditors. These
amounts include “all interests, penalties, associated fees, charges,
surcharges, indemnities, reimbursements and other related
50
expenses.” 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
51
to designate a qualified operator within
the prescribed period. 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.

_______________

48 Emphasis supplied.
49 Concession Agreement, Art. 4, Sec. 4.04 (b) and (c), Art. 1, Sec. 1.06, July 12,
1997.
50 Ibid.
51 Id., at Art. 4, Sec. 4.04 (c).

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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
52
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
53
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53
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.

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 the repayment 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 I, Section 1.06, of the ARCA provides:

Section 4.04. Security


....

_______________

52 Record of the Senate Second Regular Session 1993-1994, vol. III, no. 42, p. 362.
53 Republic Act No. 7718, Secs. 2 and 4-A, Implementing Rules and Regulations, Rule 11,
Secs. 11.1 and 11.3.

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Agan, Jr. vs. Philippine International Air Terminals Co., Inc.

(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:
....

(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;
....
(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
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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;
....

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

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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
54
consultants and advisers, suppliers, contractors and sub-contractors.

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 expenses55
. . . whether payable at
maturity, by acceleration or otherwise.”
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
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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

_______________

54 Emphasis and caption supplied.


55 Sec. 1.06, ARCA.

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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.

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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
56
bidding and conducted the same. 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
57
from being treated
and accepted as an unsolicited proposal.” 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 58
that those that cannot be done directly cannot be done indirectly.

_______________

56 Republic Act No. 7718, as amended, Sec. 4-A, May 5, 1994; Implementing
Rules and Regulations, Rule 10, Sec. 10.1.
57 Implementing Rules and Regulations, Rule 10, Sec. 10.4.
58 North Negros Sugar Co., Inc. v. Hidalgo, G.R. No. 42334, October 31, 1936;
Intestate estate of the deceased Florentino San Gil. Josefa R. Oppus v. Bonifacio San
Gil, G.R. No. 48115, October 12, 1942; San Diego v. Municipality of Naujan, G.R.
No. L-9920, February 29, 1960; Favis vs. Municipality of Sabañgan, G.R. No. L-
26522, 27 February 1969, 27 SCRA 92; City of Manila vs. Tarlac Development
Corporation, L-24557, L-24469 & L-24481, 31 July 1968, 24 SCRA 466; In the
matter of the Petition for Declaratory Judgment on Title to Real Property (Quieting of
Title) Pechueco Sons Company v. Provincial Board of Antique, G.R. No. L-27038,
January 30, 1970, 31 SCRA 320; Fornilda v. The Branch 164, Regional

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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
59
and maintenance of infrastructure and
development projects” which are necessary for national growth
and development but which the government, unfortunately, could
illafford to finance at this point in time.

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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 60
it
is of such proportion that would paralyze government service.”
The duration of the emergency itself is the determining factor as to
61
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

_______________

Trial Court IVth Judicial Region, Pasig, G.R. No. L-72306, October 5, 1988, 166
SCRA 281; Laurel v. Civil Service Commission, G.R. No. 71562, October 28, 1991,
203 SCRA 195; Davac v. Court of Appeals, G.R. No. 106105, April 21, 1994, 231
SCRA 665.
59 Republic Act No. 7718, Sec. 1.
60 III Record of the Constitutional Commission, pp. 266-267 (1986).
61 Id.

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the government is not required to compensate the private


entityowner 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.


....
(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
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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
62
payable by Concessionaire to GRP.

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

_______________

62 Except for providing for the suspension of all payments due to the Government
for the duration of the takeover, Article V, Section 5.10(b) of the ARCA contains the
same provision. Emphasis and caption supplied.

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63
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
64
of powers.” Its exercise therefore must not be unreasonably
hampered nor its exercise be a source of obligation by the
government
65
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.

V 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
66
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. 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 carry-

_______________

63 Id.
64 Bataan Shipyard and Engineering Co., Inc. v. Presidential Commission on Good
Government, G.R. No. 75885, May 27, 1987, 150 SCRA 181; citing Freund, The
Police Power (Chicago, 1904).

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65 Genuino v. Court of Agrarian Relations, G.R. No. L-25035, February 26, 1968,
22 SCRA 792.
66 Black’s Law Dictionary, 4th Ed., p. 1158.

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ing on an enterprise or to aid in the performance 67


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.
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
68
terminal within the Island of
Luzon” at the NAIA IPT III. 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
69
Special Economic Zone (“CSEZ”) and in Laoag City. 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 IPT70III in the latter’s operation as an
international passenger terminal. The right granted to PIATCO to
exclusively operate NAIA IPT III would71 be for a period of twenty-
five (25) years from the In-Service Date and renewable for another
72
twenty-five (25) years at the option of the government. 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

_______________

67 36 Am Jur 480 citing Slaughter-House Cases, 16 Wall. (US) 36, 21 L ed 394.


68 Concession Agreement (“CA”) dated July 12, 1997, Art. III, Sec. 3.02(a);
Amended and Restated Concession Agreement (“ARCA”) dated November 26, 1998,
Art. III, Sec. 3.02(a).
69 Ibid.
70 Id., at CA, Art. III, Sec. 3.02(b); ARCA, Art. III, Sec. 3.02(b).
71 The day immediately following the day on which the Certificate of Completion
is issued or deemed to be issued.
72 Id., at CA, Art. III, Sec. 3.01(a) and (b); ARCA, Art. III, Sec. 3.01 (a) and (b).

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are subsequent73
to the In-Service Date would cease to be effective on
the said date.
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
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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
74
department to which MIAA is attached.
This is in accord with the Constitutional mandate that a
75
monopoly which is not prohibited must be regulated. While it is the
declared policy of the BOT Law to encourage private sector
participation 76by “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.
Section 3.01(e) of the 1997 Concession Agreement and the
ARCA provide:

3.01 Concession Period


....

_______________

73 Id., at CA, Art. Ill, Sec. 3.01(d) and (e); ARCA, Art. III, Sec. 3.01(d) and (e).
74 Executive Order No. 903, as amended, Sec. 4 (b) and (c).
75 Art. XII, Sec. 19, Philippine Constitution.
76 Republic Act No. 7718, Sec. 1.

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(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 carryover 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

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whose validity extends beyond the In-Service Date. 77


One contract
remains valid until 2008 and the other until 2010.
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
78
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.
In fine, the efficient functioning of NAIA IPT III is imbued with
public interest. The provisions of the 1997 Concession Agreement

_______________

77 Transcript of Oral Arguments, p. 157, December 10, 2002.


78 G.R. No. L-54958, September 2, 1983, 124 SCRA 494.

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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
79
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.

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 Sup-

_______________

79 Executive Order No. 903, July 21, 1983, provides:

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Section 5. Functions, Powers, and Duties.—The Authority shall have the following functions,
powers and duties:
...

(b) To control, supervise, construct, maintain, operate and provide such facilities or
services as shall be necessary for the efficient functioning of the Airport;
(c) To promulgate rules and regulations governing the planning, development,
maintenance, operation and improvement of the Airport and to control and/or
supervise as may be necessary the construction of any structure or the rendition of any
service within the Airport;
...

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plements, being accessory contracts to the ARCA, are likewise null


and void.
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, J., No Jurisdiction. Please see separate opinion
of Justice Vitug in which I concur.
     Carpio, J., No part.
          Callejo, Sr., J., Also concur with the separate opinion of
Justice Panganiban.
     Azcuna, J., I join the Separate Opinion of Justice Vitug.

SEPARATE OPINION

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
1
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.
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

_______________

1 Article VIII, Section 5(1), 1987 Constitution.

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Agan, Jr. vs. Philippine International Air Terminals Co., Inc.

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 2
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
3
factual submissions made by the parties. 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,
4
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
5
courts.
6
As I have so expressed in Tolentino vs. Secretary of Finance,
7
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

_______________

2 Matuguina Integrated Products, Inc. vs. Court of Appeals, 263 SCRA 490
(1996); Mafinco Trading Corporation vs. Ople, 70 SCRA 139 (1976).
3 Mafinco Trading Corporation vs. Ople, supra.
4 Section 1, Rule 63, Rules of Court.
5 In re: Bermudez, 145 SCRA 160 (1988).
6 235 SCRA 630, 720 (1994).
7 298 SCRA 795 (1998).

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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.
Accordingly, I vote for the dismissal of the petition.

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SEPARATE OPINION

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 standi and 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 ultra-

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modern 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
1
discretion entrusted to them.

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Hierarchy of Courts
The Court has, in the past, held that questions relating to gargantuan
2
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

_______________

1 See Kilosbayan, Inc. v. Guingona, Jr., 232 SCRA 110, May 5, 1994; and Basco v.
Phil. Amusements and Gaming Corporation, 197 SCRA 52, May 14, 1991.
2 Commission on Elections v. Quijano-Padilla, G.R. No. 151992, September 18,
2002, 389 SCRA 353.

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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
3
of prohibition is thus justified.
Contrary to Piatco’s argument that the resolution of the issues 4
raised in the Petitions will require delving into factual questions, I5
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.

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 6cites Chavez v. Presidential Commission on Good
Government: “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

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3 Vide: ABS-CBS Broadcasting Corp. v. Commission on Elections, 323 SCRA 811,
January 28, 2000; likewise, Commission on Elections v. Quijano-Padilla, supra.
4 See Respondent PIATCO’s Memorandum, pp. 25-26.
5 See public respondents’ Memorandum, p. 24.
6 307 SCRA 394, 399, May 19, 1999, per Panganiban, J.

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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 locus7
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.
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

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7 175 SCRA 264, July 11, 1989.

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House of Representatives, they are actually deprived of discretion


insofar as the inclusion of those items of expenditure in the budget is

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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. Guin-

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8
gona, Jr. that “in cases of transcendental importance, the Court
may relax the standing requirements and allow a suit to prosper
even when there 9is no direct injury to the party claiming the right of
judicial review.”

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
10
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10
proposal,” which is the subject of Section 4-A of the BOT Law. 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-

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8 Supra, Paras, J.
9 As reiterated in Bayan (Bagong Alyansang Makabayan) v. Zamora, 342 SCRA
449, 480-481, October 10, 2000.
10 RA No. 6957 as amended by RA No. 7718.

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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.—x x x


“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. x x x.” (Emphasis 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 11
third envelopes of pre-disqualified proponents will be
returned.”
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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 capa-

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11 Par. 3.6.1 on page 8 of the Bid Documents.

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bility, 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:
x x x      x x x      x x x
“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. x x x.” (Italics supplied)

Since the
12
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.
However, the combined equity or net13 worth of the Paircargo
consortium stood at only P558,384,871.55. This amount was only

_______________

12 Initially the minimum equity was set at 20%, per Sec. 3.6.4 of the Bid
Documents. However, this was later clarified in Bid Bulletin No. 3(B)(6) to read 30%
of Project Cost, to bring the same in line with the draft concession agreement’s Art. II
Sec. 2.01 (a), which specifically set the project’s debt-to-equity ratio at 70:30, thereby
requiring a minimum equity of 30% of project cost.
13 The consortium was composed of Paircargo, PAGS and Security Bank.
Paircargo’s audited financial statements as of 1993 and 1994 showed a net worth of
P2,783,592 and P3,123,515 respectively. PAGS’ audited financial statements as of
1995 showed a paid-up capital of P5,000,000 and deposits on future subscriptions of
P21,735,700, or an aggregate of P26,735,700 of equity available to invest in the
project. Security Bank’s audited statements for 1995 showed a net worth of

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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

_______________

P3,523,504,377. However, the bank’s entire net worth was not available for
investment in the project since Sec. 21-B of the General Banking Act provides inter
alia that a commercial bank’s equity investment in any one enterprise, whether allied
or non-allied, should not exceed 15% of the net worth of the investing bank. This
limitation is reiterated in Sec. 1381.1.a. of the Manual for Banks and Other Financial
Intermediaries. Thus, the maximum amount which Security Bank could have legally
invested in the project was only P528,525,656.55. And consequently, the maximum
amount of equity which the consortium could have put up was only P558,384,871.55.

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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
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
15
for the precise comparison of bids. Thus, each bidder must bid
under the same conditions; and be subject to the same guidelines,

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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 and16financial 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
17
should not be allowed to benefit from that Agreement.

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14 199 SCRA 134, July 12, 1991.


15 Malaga v. Penachos, Jr., 213 SCRA 516, September 3, 1992.
16 Part of the bid process under the BOT Law is the right of the originator of an
unsolicited proposal to match a price challenge. Pursuant to Sec. 4-A, “in the event
another proponent submits a lower price proposal, the original proponent shall have
the right to match that price within thirty (30) working days.”
17 Cf. Malaga v. Penachos, Jr., supra.

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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 intellectual18 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.

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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.

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18 §11.2, 1994 IRR.

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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

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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

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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 from19
the presentation made by the counsel for public
respondents, 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.
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“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 the20 face
of this Court’s solemn pronouncement in Republic v. Capulong that
“strict observance of the rules, regulations and guidelines

_______________

19 Public respondents’ Memorandum, pp. 86-87; prepared jointly by the Solicitor


General, the acting Government Corporate Counsel, and their respective deputies
and assistants.
20 Supra, note 14, per Medialdea, J.

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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
21
services for international airlines and passengers.
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
22
lenders.

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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
23
appraised value of the Terminal.

_______________

21 §§3.01(d), 3.01(e), 3.02(a), 3.02(b) and 5.15 of the CA.


22 See §1.06 of the CA.
23 §3.02 of the CA.

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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
24
well as all
necessary permits, licenses and authorizations.
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 25
charges
subject to or limited by any parametric formula.
7. Section 1.29 of the DCA provides that the terminal fees,
aircraft tacking fees, aircraft parking fees, check-in

_______________

24 §2.05 of the CA.


25 The parametric formula referred to in the CA applies only to the following so-
called public utility fees: aircraft parking and tacking fees, check-in counter fees and
terminal fees.

697

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Agan, Jr. vs. Philippine International Air Terminals Co., Inc.

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 contractor’s 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.

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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.

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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 26
rules pertaining to public bidding
demand strict observance. 27
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
28
bidding may alter or amend it without another previous public bidding.”

_______________

26 Fernandez, A Treatise on Government Contracts under Philippine Law, 2001


ed., p. 70.
27 96 Phil. 368, December 29, 1954.
28 Id., p. 375, per Paras, CJ.

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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. 29
In a later case, Mata v. San Diego, this Court reiterated its
ruling as follows:

“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
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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.

_______________

29 63 SCRA 170, 177-178, March 21, 1975, per Antonio, J.

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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
30
proceeds were actually used in the Terminal III
project.
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
31
is designated to take
over the operation of the terminal.

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30 Cf §1.06 of the ARCA vis-à-vis §1.06 of the CA.


31 §4.04 and 8.01 of the ARCA vis-à-vis §8.04 of the CA.

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3. The Liquidated Damages which government becomes


liable for in case of its breach of contract were substantially
32
increased.
4. Government’s right to appoint a comptroller for Piatco33in
case the latter encounters liquidity problems was deleted.
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 34
the special obligations imposed on
government.
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 35
used to repair and rehabilitate the facility in case
of damage.
7. Government bound itself to set the initial rate of the
terminal fee, to be charged when Terminal 36
III begins
operations, at an amount higher than US$20.
8. Government waived its defense of the illegality of the
contract and even agreed to be liable to pay damages to
37
Piatco in the event the contract was declared illegal.
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
38
the In-Service Date. This condition contravenes the BOT
Law provision on termination compensation.
10. Government is obligated to take the administrative action
required for Piatco’s imposition, collection and applica

_______________

32 As cf. Annex “G” of the ARCA vis-à-vis Annex “G” of the CA.
33 Cf. §8.04(d) of the ARCA vis-à-vis §9.01 (d) of the CA.
34 Cf §2.05 of the ARCA vis-à-vis §2.05 of the CA.
35 Cf §5.08(a) of the ARCA vis-à-vis §5.08(a) of the CA
36 Cf. §6.03(a) (i) of the ARCA vis-à-vis §6.03(a) of the CA.
37 Cf §8.01(b) and §12.09 of the ARCA vis-à-vis §8.04(b) and 12.09 of the CA.
38 Cf §8.03(a) (i) of the ARCA vis-à-vis §8.06(a) (i) of the CA.

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39
tion of all Public Utility Revenues. No 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
40
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40
to be created in favor of Piatco’s Senior Lenders. No such
obligation existed previously.
12. DOTC/MIAA’s right of intervention in instances where
Piatco’s Non-Public Utility Revenues
41
become exorbitant or
excessive has been removed.
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
42
Piatco to terminate the ARCA.
14. Amounts due from and payable by government under the
contract were made payable on demand—net of taxes,
levies, imposts, duties,
43
charges or fees of any kind except as
required by law.
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, checkin
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 precondition
44
for
government’s acceptance of the terminal facility.

_______________

39 §2.05(g) of the ARCA.


40 §4.04(b) of the ARCA.
41 §6.03(c) of the ARCA vis-à-vis §6.03(c) of the CA.
42 Cf §8.01 (b) of the ARCA vis-à-vis §8.04(b) of the CA.
43 §12.14 of the ARCA.
44 Cf. §§1.11(b) and 5.06 of the ARCA vis-à-vis §§1.11(b) and 5.06 of the CA.

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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

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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 45in which government is supposed to
participate.
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

_______________

45 §2 of the FS, amending §1.36 of the ARCA.

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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
46
project as described in
Clause 1.3 of the Bid Documents.
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
47
former’s default.
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
48
the NAIA airport complex
(b) Providing through MIAA the land required by49 Piatco for
the taxilane and one taxiway at no cost to Piatco
(c) Implementing
50
the government’s existing storm drainage
master plan
(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., Tramo51 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

_______________

46 §3 of the FS, amending §2.05(d) of the ARCA.

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47 Ibid.
48 §4 of the FS, adding §2.05(h) to ARCA.
49 §4 of the FS, adding §2.05(i) to ARCA.
50 §4 of the FS, adding §2.05(p) to ARCA.
51 Per §4 of the FS, adding §2.05(n) to ARCA.

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Interchange; and removal of squatters along Andrews


52
Avenue.
(e) Dealing directly with BCDA and the Phil. Air Force in
acquiring additional land or right53 of way for the road
upgrade and improvement program.

5 . Government is required to work for the immediate 54


reversion to MIAA of the Nayong Pilipino National Park.
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 55
to
government in pesos instead of US dollars. 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 56payments are to accrue to the
latter’s exclusive benefit. 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 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.

_______________

52 Per §4 of the FS, adding §2.05(o) to ARCA.


53 Per §4 of the FS, adding §2.05(p) to ARCA.
54 Per §4 of the FS, adding §2.05(j) to ARCA.
55 §8 of the FS, amending §6.01(c) of the ARCA.
56 §9 of the FS, amending §6.02 of the ARCA.

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Agan, Jr. vs. Philippine International Air Terminals Co., Inc.

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,
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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, 57
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 highranking
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

_______________

57 § 2.1 of the SS.

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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
58
on the site where the T2-T3 road is to be constructed.

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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
59
payments) contained in the Second Supplement.
3. MIAA will answer for 60the operation, maintenance and
repair of the T2-T3 Road.

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 pub-

_______________

58 Per §3.1 of the TS.


59 Vide §3.4 of the TS.
60 §4.2 of the TS.

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lic 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 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.”
Both the CA and the ARCA have provisions that undeniably
create such prohibited government guarantee. Section 4.04 (c)(iv)

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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 x x x;

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(v) x x x the Senior Lenders may after written notification to GRP, transfer
the Concessionaire’s rights and obligations to a transferee x x x;
(vi) if the Senior Lenders x x x are unable to x x x effect a transfer x x x,
then GRP and the Senior Lenders shall endeavor x x x to enter into any
other arrangement relating to the Development Facility x x x. 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. x x x.”

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

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(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
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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,61
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.

_______________

61 Page 37.

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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.

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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

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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.”

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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

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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 when termination 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 x x x;
(iii) x x x 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
62
deemed a material breach of this
Agreement x x x.”

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

_______________

62 §8.01 (a) of the ARCA.

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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 of 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 x x x will x
x x 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

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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

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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 gran-

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tor 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 63
Luzon” with the exception of those three terminals already existing
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.”

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In its Opinion No. 078, Series of 1995, the Department of Justice


held that “the NAIA Terminal III which x x x 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.

_______________

63 Namely, the airports at the Subic Bay Freeport Special Economic Zone, the
Clark Special Economic Zone, and Laoag City.

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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.

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Piatco’s contention that the Constitution does not actually


64
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.
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
65
at or beyond its peak capacity
for three consecutive years. 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 x x x 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.

_______________

64 Memorandum, pp. 5-7, of the petitioners-in-intervention.


65 §3.02 a): “x x x. With regard to CSEZ, GRP shall ensure that, until such time as
the Development Facility Capacity shall have been consistently reached or exceeded
for three (3) consecutive years during the Concession Period, (i) Clark International
Airport shall not be operated beyond its design capacity of Eight Hundred Fifty
Thousand (850,000) passengers per annum and (ii) no new terminal facilities shall be
operated therein. “Development Facility Capacity” refers to the ten million
(10,000,000) passenger capacity per year of the Development Facility.”

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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) x x x      x x x      x x x
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
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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

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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 only66 facility to be
operated as an international passenger terminal; 67 that NAIA
Terminals I and II will no longer be operated as such; and that no
one (including the government) will be allowed to compete with
Piatco in the operation
68
of an international passenger terminal in the
NAIA Complex. 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

_______________

66 §3.02(a) of the ARCA and §3.02(a) of the CA.


67 §3.02(b) and (c) of the ARCA, and §3.02(b) of the CA.
68 §3.02(b) and (c) of the ARCA and §3.02(b) of the CA. Pertinent portions of
§3.02(b) of the ARCA are quoted hereinbelow:

“(b) On the In-Service Date, GRP shall cause the closure of the Ninoy Aquino International
Airport Passenger Terminals I and II as international passenger terminals in order to allow
Concessionaire, during the entire Concession Period, to exclusively operate a commercial
international passenger terminal within the island of Luzon; provided that the aforesaid
exclusive right to operate a commercial international passenger terminal shall be without
prejudice to the international passenger terminal operations already existing on the date of this
Agreement in SBFSEZ, CSEZ and Laoag City (but subject to the limitation with regard to
CSEZ referred to in Section 3.02[a]). Neither shall GRP, DOTC or MIAA use or permit the use
of Terminals I and/or II under any arrangement or scheme, for compensation or otherwise, with
any party which would directly or indirectly compete with Concessionaire in the latter’s

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operation of and the operations in the Terminal and Terminal Complex, including without
limitation the use of Terminals I and/or II for the handling of international traffic; provided that
if Terminals I and/or II are operated as domestic passenger terminals, the conduct of any
activity therein which under the ordinary course of operating a domestic passenger terminal is
normally undertaken, shall not be considered to be in direct or indirect competition with
Concessionaire in its operation of the Development Facility.”

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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
69 70
of the
Piatco Contracts, particularly Sections 3.01(d) and (e) 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

_______________

69 Sec. 3.01(d) of the ARCA and the CA reads as follows:

“(d) For the purpose of an orderly transition, MIAA shall not renew any expired concession
agreement relative to any service or operation currently being undertaken at the Ninoy Aquino
International Airport Passenger Terminal I, or extend any concession agreement which may
expire subsequent hereto, except to the extent that the continuation of existing services and
operations shall lapse on or before the In-Service Date. Nothing herein shall be construed to
prohibit MIAA from maintaining arrangements for the uninterrupted provision of essential
services at the Ninoy Aquino International Airport Passenger Terminal I until the Terminal
shall have commenced operations on the In-Service Date, and thereafter, from making such
arrangements as are necessary for the utilization of NAIA Passenger Terminal I as a domestic
passenger terminal or as a facility other than an international passenger terminal.

70 Sec. 3.01(e) of the ARCA and the CA reads as follows:

“(e) GRP confirms that certain concession agreements relative to certain services or 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 that
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 a full indemnity basis from and against any
loss and/or 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 being
fully deductible by way of an offset from any amount which Concessionaire is bound to pay
GRP under this Agreement.”

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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
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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.
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
71
any party that it has
not contracted with from NAIA Terminal III.”
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 in72 line, ready
to exploit the unique business opportunity. It announced 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 73
of the Philippine
Airport and Ground Services, Inc. or PAGS, while Orbit is a

_______________

71 PIATCO Comment, par. 9, on p. 6.


72 PIATCO letter dated October 14, 2002 addressed to the Board of Airline
Representatives, copy attached as Annex “OO-Service Providers.”
73 Based on the PAGSGlobeground GIS as of July 2000, attached as Annex “LL-
Service Providers” to the Memorandum of petitioners-in-intervention.

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74
wholly-owned subsidiary of Friendship75
Holdings, Inc., which is in
turn owned 80 percent by PAGS. PAGS 76
is a service provider
owned 60 percent by the Cheng Family; it is a stockholder of 35
77
percent of Piatco and78is the latter’s designated contractor-operator
for NAIA Terminal III.
Such entry into and domination of the airport-related services
sector appear to be very much in line with the following provisions
contained in 79
the First Addendum to the Piatco Shareholders
Agreement, 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. x x x      x x x      x x x;
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 groundhandling, catering and fueling services within
the Terminal Complex.

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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 80into
Terminal III. In Tatad v. Secretary of the Department of Energy, the
Court ruled:

_______________

74 Based on the Orbit GIS as of August 2000, attached as Annex “MM-Service


Providers” to the Memorandum of petitioners-in-intervention.
75 Based on the Friendship Holdings, Inc. GIS as of December 2001, attached as
Annex “NN-Service Providers” to the Memorandum of petitioners-in-intervention.
76 Per the Articles of Incorporation of PAGS, attached as Annex ‘YService
Providers” to the petition-in-intervention.
77 Per the GIS of Piatco as of May 2000.
78 Per §5.15 of both the CA and the ARCA.
79 Copy of which was presented by Piatco to the Senate Blue Ribbon Committee
during committee hearings.
80 281 SCRA 330, November 5, 1997.

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“x x x [S]ection 19 of Article XII of the Constitution x x x 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.
“x x x      x x x      x x x
“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
81
our Constitution, x x x.”
82
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

83
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83
power exists to raise prices or exclude competition when desired.”
(Emphasis supplied)

_______________

81 Id., pp. 355-358, per Puno, J.


82 89 SCRA 336, April 11, 1979.
83 Id., p. 376, per Antonio, J.

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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 x x x.”

726

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The Piatco Contracts Violate


Constitutional Prohibitions
Against Impairment of Contracts
and Deprivation of Property
Without Due Process
84
Earlier, I discussed how Section 3.01(e) 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
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certain service providers currently operating at Terminal I with


subsisting contracts.
By the In-Service Date, Terminal III shall be the only facility to 85
be operated as an international passenger terminal at the NAIA;
86
thus, Terminals I and II shall no longer operate as such, and no one
shall be allowed to compete with Piatco in 87the 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.
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.

_______________

84 Please see footnote 70 supra.


85 §3.02(a) of the CA and §3.02(a) of the ARCA.
86 §3.02(b) of the CA and §3.02(b) and (c) of the ARCA.
87 Ibid.

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What we have here is a set of contractual provisions that impair the


obligation of contracts and contravene the constitutional prohibition
88
against deprivation of property without due process of law.
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 89situation 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 x x x 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

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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

_______________

88 §1, Art. III, Constitution.


89 197 SCRA 409, May 23, 1991, per Gutierrez, Jr., J.

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90
all contracts, 91 and/or the right to make a contract in relation to
one’s business.

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
92
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. 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 x x x
“Sec. 47. Certificate Showing Appropriation to Meet Contract.—Ex-cept
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.

_______________

90 See Rubi v. Provincial Board of Mindoro, 39 Phil. 660, March 7, 1919.


91 Davao Stevedores Mutual Benefit Association v. Compañia Maritima, 90 Phil. 847,
February 29, 1952.
92 §29(1), Article VI, 1987 Constitution.

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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
93
as a priori requisites to the validity of the proposed
contract.”
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.

_______________

93 Commission on Elections v. Quijano-Padilla, G.R. No. 151992, September 18,


2002, p. 20, 389 SCRA 353, per Sandoval-Gutierrez, J.

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• Section 4 of the FS imposed on government ten (10)


“Additional Special Obligations,” including the following:

Providing thru MIAA the land required by Piatco for


the taxilane and one taxiway, at no cost to Piatco
Implementing the government’s existing storm
drainage master plan
Coordinating with DPWH the financing,
implementation and completion of the following
works before the InService Date: three left-turning
overpasses (Edsa to Tramo St., Tramo to Andrews
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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
Dealing directly with BCDA and the Philippine Air
Force in acquiring additional land or right of way for
the road upgrade and improvement program
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 an additional obligations under the
Supplements may really be undertaken on a best-efforts basis only,
the

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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
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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 94
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 per-

_______________

94 §1.23 of the ARCA defines Incremental and Consequential Costs as “additional


costs properly documented and reasonably incurred by Concessionaire (including
without limitation additional overhead costs, cost of any catch-up program,
demobilization, re-mobilization, storage costs, termination penalties, increase in
construction costs, additional interest expense, costs, fees and other expenses and
increase in the cost of financing) in excess of a budgeted or contracted amount,
occasioned by, among other things, delay in the prosecution of Works by reason not
attributable to Concessionaire or a deviation from the Tender Design or any
suspension or interference with the operation of the Terminal Complex by reason not
attributable to Concessionaire. x x x”

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Agan, Jr. vs. Philippine International Air Terminals Co., Inc.

formed 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
95
need to complete the program before the opening of Terminal III.
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.

_______________

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95 Memorandum of Agreement between the Manila International Airport Authority
and the Department of Public Works and Highways, p. 2.

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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: 96
What do
we do with the Piatco Contracts and Terminal III? (Feeding
directly into the resolution of the decisive question is the other
nagging issue: Why should we bother with determining the legality
and validity of these contracts, when the Terminal itself has already
been built and is practically complete?)

_______________

96 When I asked this question, Atty. Jose A. Bernas replied that if Piatco is deemed
a builder in good faith then it may be entitled to some form of compensation under
the principle barring unjust enrichment. But if it is found to be a builder in bad faith
then it may not be entitled to compensation. (See TSN, December 10, 2002, pp. 58-
71. Faced with the same question, Solicitor General Alfredo L. Benipayo responded
that the facility will not be torn down but taken over by government by virtue of
police power or eminent domain. (Id., pp. 94-99.) When asked the same question,
Atty. Eduardo delos Angeles explained that under the provision on Step in Rights, the
senior lenders can designate a qualified operator to operate the facility. (Id., pp. 225-
226.) This solution, however, assumes that this contractual provision is valid.

734

734 SUPREME COURT REPORTS ANNOTATED


Agan, Jr. vs. Philippine International Air Terminals Co., Inc.

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

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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.
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.
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?

735

VOL. 402, MAY 5, 2003 735


Agan, Jr. vs. Philippine International Air Terminals Co., Inc.

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-related97programs 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 of
quantum98
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.
99
The same principle was
applied in Republic v. Court of Appeals.
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

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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.
WHEREFORE, I vote to grant the Petitions and to declare the
subject contracts NULL and VOID.

_______________

97 200 SCRA 704, August 16, 1991.


98 195 SCRA 730, April 8, 1991.
99 299 SCRA 199, November 25, 1998.

736

736 SUPREME COURT REPORTS ANNOTATED


Agan, Jr. vs. Philippine International Air Terminals Co., Inc.

1997 Concession Agreement, Amended and Restated Concession


Agreement and Supplements thereto set aside for being null and
void.

Notes.—Where a foreign firm submits the highest bid in a public


bidding concerning the grant of rights, privileges and concessions
covering the national economy and patrimony, thereby exceeding the
bid of a Filipino, there is no question that the Filipino will have to be
allowed to match the bid of the foreign entity. (Manila Prince Hotel
vs. Government Service Insurance System, 267 SCRA 408 [1997])
It is well-settled that the discretion to accept or reject any bid, or
even recall the award thereof, is of such wide latitude that the courts
will not generally interfere with the exercise thereof by the
Executive Department. (Hutchison Ports Philippines Limited vs.
Subic Bay Metropolitan Authority, 339 SCRA 434 [2000])

——o0o——

737

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