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PHILIPPINE SUPREME
COURT
DECISIONS
G.R.
No.
155001
G.R.
No.
155547
G.R.
No.
155661
SEPARATE OPINION PANGANIBAN,
J.:
The five (5) 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:chanroblesvirtuallawlibrarychanrobles virtual law library
My answer to all the above questions is a firm "Yes." The Procedural Issue: Jurisdiction, Standing and Arbitration Definitely and surely, the issues involved in these Petitions are clearly of transcendental importance and of national interest. The subject contracts pertain to the construction and the operation of the country’s premiere international airport terminal -- an ultramodern world-class public utility that will play a major role in the country’s economic development and serve to project a positive image of our country abroad. The five build-operate-&-transfer (BOT) contracts, while entailing the investment of billions of pesos in capital and the availment of several hundred millions of dollars in loans, contain provisions that tend to establish a monopoly, require the disbursements of public funds sans appropriations, and provide government guarantees in violation of statutory prohibitions, as well as other provisions equally offensive to law, public policy and the Constitution. Public interest will inevitably be affected thereby.chanrobles virtual law library Thus, objections to these Petitions, grounded upon (a) the hierarchy of courts, (b) the need for arbitration prior to court action, and (c) the alleged lack of sufficient personality, standing or interest, being in the main procedural matters, must now be set aside, as they have been in past cases. This Court must be permitted to perform its constitutional duty of determining whether the other agencies of government have acted within the limits of the Constitution and the laws, or if they have gravely abused the discretion entrusted to them.[1] Hierarchy of Courts The Court has, in the past, held that questions relating to gargantuan government contracts ought to be settled without delay.[2] This holding applies with greater force to the instant cases. Respondent Piatco is partly correct in averring that petitioners can obtain relief from the regional trial courts via an action to annul the contracts.cralaw:red Nevertheless, the unavoidable consequence of having to await the rendition and the finality of any such judgment would be a prolonged state of uncertainty that would be prejudicial to the nation, the parties and the general public. And, in light of the feared loss of jobs of the petitioning workers, consequent to the inevitable pretermination of contracts of the petitioning service providers that will follow upon the heels of the impending opening of NAIA Terminal III, the need for relief is patently urgent, and therefore, direct resort to this Court through the special civil action of prohibition is thus justified.[3] Contrary to Piatco’s argument that the resolution of the issues raised in the Petitions will require delving into factual questions,[4] I submit that their disposition ultimately turns on questions of law.[5] Further, many of the significant and relevant factual questions can be easily addressed by an examination of the documents submitted by the parties. In any event, the Petitions raise some novel questions involving the application of the amended BOT Law, which this Court has seen fit to tackle.cralaw:red Arbitration Should the dispute be referred to arbitration prior to judicial recourse? Respondent Piatco claims that Section 10.02 of the Amended and Restated Concession Agreement (ARCA) provides for arbitration under the auspices of the International Chamber of Commerce to settle any dispute or controversy or claim arising in connection with the Concession Agreement, its amendments and supplements. The government disagrees, however, insisting that there can be no arbitration based on Section 10.02 of the ARCA, since all the Piatco contracts are void ab initio. Therefore, all contractual provisions, including Section 10.02 of the ARCA, are likewise void, inexistent and inoperative. To support its stand, the government cites Chavez v. Presidential Commission on Good Government:[6] "The void agreement will not be rendered operative by the parties’ alleged performance (partial or full) of their respective prestations. A contract that violates the Constitution and the law is null and void ab initio and vests no rights and creates no obligations. It produces no legal effect at all." As will be discussed at length later, the Piatco contracts are indeed void in their entirety; thus, a resort to the aforesaid provision on arbitration is unavailing. Besides, petitioners and petitioners-in-intervention have pointed out that, even granting arguendo that the arbitration clause remained a valid provision, it still cannot bind them inasmuch as they are not parties to the Piatco contracts. And in the final analysis, it is unarguable that the arbitration process provided for under Section 10.02 of the ARCA, to be undertaken by a panel of three (3) arbitrators appointed in accordance with the Rules of Arbitration of the International Chamber of Commerce, will not be able to address, determine and definitively resolve the constitutional and legal questions that have been raised in the Petitions before us.cralaw:red Locus Standi Given this Court’s previous decisions in cases of similar import, no one will seriously doubt that, being taxpayers and members of the House of Representatives, Petitioners Baterina et al. have locus standi to bring the Petition in GR No. 155547. In Albano v. Reyes,[7] this Court held that the petitioner therein, suing as a citizen, taxpayer and member of the House of Representatives, was sufficiently clothed with standing to bring the suit questioning the validity of the assailed contract. The Court cited the fact that public interest was involved, in view of the important role of the Manila International Container Terminal (MICT) in the country’s economic development and the magnitude of the financial consideration. This, notwithstanding the fact that expenditure of public funds was not required under the assailed contract.cralaw:red 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.cralaw:red Petitioners thus correctly assert that the injury to them has a twofold aspect: (1) they are adversely affected as taxpayers on account of the illegal disbursement of public funds; and (2) they are prejudiced qua legislators, since the contractual provisions requiring the government to incur expenditures without appropriations also operate as limitations upon the exclusive power and prerogative of Congress over the public purse. As members of the House of Representatives, they are actually deprived of discretion insofar as the inclusion of those items of expenditure in the budget is concerned. To prevent such encroachment upon the legislative privilege and obviate injury to the institution of which they are members, petitioners-legislators have locus standi to bring suit.chanrobles virtual law library 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.cralaw:red 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.cralaw:red 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.cralaw:red And even if petitioners and petitioners-in-intervention were not sufficiently clothed with legal standing, I have at the outset already established that, given its impact on the public and on national interest, this controversy is laden with transcendental importance and constitutional significance. Hence, I do not hesitate to adopt the same position as was enunciated in Kilosbayan v. Guingona Jr.[8] that "in cases of transcendental importance, the Court may relax the standing requirements and allow a suit to prosper even when there is no direct injury to the party claiming the right of judicial review."[9] The Substantive Issue: Violations of the Constitution and the Laws From the Outset, the Bidding Process Was Flawed and Tainted After studying the documents submitted and arguments advanced by the parties, I have no doubt that, right at the outset, Piatco was not qualified to participate in the bidding process for the Terminal III project, but was nevertheless permitted to do so. It even won the bidding and was helped along by what appears to be a series of collusive and corrosive acts.cralaw:red The build-operate-and-transfer (BOT) project for the NAIA Passenger Terminal III comes under the category of an "unsolicited proposal,"which is the subject of Section 4-A of the BOT Law.[10] The unsolicited proposal was originally submitted by the Asia’s Emerging Dragon Corporation (AEDC) to the Department of Transportation and Communications (DOTC) and the Manila International Airport Authority (MIAA), which reviewed and approved the proposal.cralaw:red 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.chanrobles virtual law library The DOTC/MIAA then prepared the Bid Documents, incorporating therein the negotiated Draft Concession Agreement, and published invitations for public bidding, i.e., for the submission of comparative or competitive proposals. Piatco’s predecessor-in-interest, the Paircargo Consortium, was the only company that submitted a competitive bid or price challenge.chanrobles virtual law library 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:chanrobles virtual law library
The same provision requires that the price challenge via public bidding "must be conducted under a two-envelope/two-stage system: the first envelope to contain the technical proposal and the second envelope to contain the financial proposal." Moreover, the 1994 Implementing Rules and Regulations (IRR) provide that only those bidders that have passed the prequalification stage are permitted to have their two envelopes reviewed. In other words, prospective bidders must prequalify by submitting their prequalification documents for evaluation; and only the pre-qualified bidders would be entitled to have their bids opened, evaluated and appreciated. On the other hand, disqualified bidders are to be informed of the reason for their disqualification. This procedure was confirmed and reiterated in the Bid Documents, which I quote thus: "Prequalified proponents will be considered eligible to move to second stage technical proposal evaluation. The second and third envelopes of pre-disqualified proponents will be returned."[11]chanrobles virtual law library Aside from complying with the legal and technical requirements (track record or experience of the firm and its key personnel), a project proponent desiring to prequalify must also demonstrate its financial capacity to undertake the project. To establish such capability, a proponent must prove that it is able to raise the minimum amount of equity required for the project and to procure the loans or financing needed for it. Section 5.4(c) of the 1994 IRR provides:chanrobles virtual law library
Since the minimum amount of equity for the project was set at 30 percent[12] of the minimum project cost of US$350 million, the minimum amount of equity required of any proponent stood at US$105 million. Converted to pesos at the exchange rate then of P26.239 to US$1.00 (as quoted by the Bangko Sentral ng Pilipinas), the peso equivalent of the minimum equity was P2,755,095,000. However, the combined equity or net worth of the Paircargo consortium stood at only P558,384,871.55.[13] This amount was only slightly over 6 percent of the minimum project cost and very much short of the required minimum equity, which was equivalent to 30 percent of the project cost. Such deficiency should have immediately caused the disqualification of the Paircargo consortium. This matter was brought to the attention of the Prequalification and Bidding Committee (PBAC).chanrobles virtual law library 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.cralaw:red By virtue of the prequalified status conferred upon the Paircargo, Undersecretary Cal’s findings in effect relieved the consortium of the need to comply with the financial capability requirement imposed by the BOT Law and IRR. This position is unmistakably and squarely at odds with the Supreme Court’s consistent doctrine emphasizing the strict application of pertinent rules, regulations and guidelines for the public bidding process, in order to place each bidder -- actual or potential -- on the same footing. Thus, it is unarguably irregular and contrary to the very concept of public bidding to permit a variance between the conditions under which bids are invited and those under which proposals are submitted and approved.cralaw:red Republic v. Capulong[14] teaches that if one bidder is relieved from having to conform to the conditions that impose some duty upon it, that bidder is not contracting in fair competition with those bidders that propose to be bound by all conditions. The essence of public bidding is, after all, an opportunity for fair competition and a basis for the precise comparison of bids.[15] Thus, each bidder must bid under the same conditions; and be subject to the same guidelines, requirements and limitations. The desired result is to be able to determine the best offer or lowest bid, all things being equal.chanrobles virtual law library Inasmuch as the Paircargo consortium did not possess the minimum equity equivalent to 30 percent of the minimum project cost, it should not have been prequalified or allowed to participate further in the bidding. The Prequalification and Bidding Committee (PBAC) should therefore not have opened the two envelopes of the consortium containing its technical and financial proposals; required AEDC to match the consortium’s bid;[16] or awarded the Concession Agreement to the consortium’s successor-in-interest, Piatco.cralaw:red As there was effectively no public bidding to speak of, the entire bidding process having been flawed and tainted from the very outset, therefore, the award of the concession to Paircargo’s successor Piatco was void, and the Concession Agreement executed with the latter was likewise void ab initio. For this reason, Piatco cannot and should not be allowed to benefit from that Agreement.[17] AEDC Was Deprived of the Right to Match PIATCO‘s Price Challenge In DOTC PBAC Bid Bulletin No. 4 (par. 3), Undersecretary Cal declared that, for purposes of matching the price challenge of Piatco, AEDC as originator of the unsolicited proposal would be permitted access only to the schedule of proposed Annual Guaranteed Payments submitted by Piatco, and not to the latter’s financial and technical proposals that constituted the basis for the price challenge in the first place. This was supposedly in keeping with Section 11.6 of the 1994 IRR, which provides that proprietary information is to be respected, protected and treated with utmost confidentiality, and is therefore not to form part of the bidding/tender and related documents.cralaw:red 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.chanrobles virtual law library To be considered as utilizing a new concept or technology, a project must involve the possession of exclusive rights (worldwide or regional) over a process; or possession of intellectual property rights over a design, methodology or engineering concept.[18] Patently, the intent of the BOT Law is to encourage individuals and groups to come up with creative innovations, fresh ideas and new technology. Hence, the significance and necessity of protecting proprietary information in connection with unsolicited proposals. And to make the encouragement real, the law also extends to such individuals and groups what amounts to a "right of first refusal"to undertake the project they conceptualized, involving the use of new technology or concepts, through the mechanism of matching a price challenge.cralaw:red 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.cralaw:red 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.cralaw:red 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.cralaw:red 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.chanrobles virtual law library 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.cralaw:red The purpose of having a definite and firm timetable for the submission of the aforementioned requirements is not only to prevent delays in the project implementation, but also to expose and weed out unqualified proponents, who might have unceremoniously slipped through the earlier prequalification process, by compelling them to put their money where their mouths are, so to speak.cralaw:red 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.cralaw:red 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.cralaw:red 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.chanrobles virtual law library 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.cralaw:red The highly regulated time-frames within which the agents of government were to act evinced the intent to impose upon them the duty to act expeditiously throughout the process, to the end that the project be prosecuted and implemented without delay. This regulated scenario was likewise intended to discourage collusion and substantially reduce the opportunity for agents of government to abuse their discretion in the course of the award process.cralaw:red Despite the clear timetables set out in the IRR, several lengthy and still-unexplained delays occurred in the award process, as can be observed from the presentation made by the counsel for public respondents,[19] quoted hereinbelow:chanrobles virtual law library
This chronology of events bespeaks an unmistakable disregard, if not disdain, by the persons in charge of the award process for the time limitations prescribed by the IRR. Their attitude flies in the face of this Court’s solemn pronouncement in Republic v. Capulong[20] that "strict observance of the rules, regulations and guidelines of the bidding process is the only safeguard to a fair, honest and competitive public bidding." From the foregoing, the only conclusion that can possibly be drawn is that the BOT law and its IRR were repeatedly violated with unmitigated impunity - and by agents of government, no less! On account of such violation, the award of the contract to Piatco, which undoubtedly gained time and benefited from the delays, must be deemed null and void from the beginning.chanrobles virtual law library 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:chanrobles virtual law library
It goes without saying that the amendment of the Contract bidded out (the DCA or draft concession agreement) -- in such substantial manner, without any public bidding, and after the bidding process had been concluded on December 11, 1996 -- is violative of public policy on public biddings, as well as the spirit and intent of the BOT Law. The whole point of going through the public bidding exercise was completely lost. Its very rationale was totally subverted by permitting Piatco to amend the contract for which public bidding had already been concluded. Competitive bidding aims to obtain the best deal possible by fostering transparency and preventing favoritism, collusion and fraud in the awarding of contracts. That is the reason why procedural rules pertaining to public bidding demand strict observance.[26] In a relatively early case, Caltex v. Delgado Brothers,[27] this Court made it clear that substantive amendments to a contract for which a public bidding has already been finished should only be awarded after another public bidding:chanrobles virtual law library "The due execution of a contract after public bidding is a limitation upon the right of the contracting parties to alter or amend it without another public bidding, for otherwise what would a public bidding be good for if after the execution of a contract after public bidding, the contracting parties may alter or amend the contract, or even cancel it, at their will? Public biddings are held for the protection of the public, and to give the public the best possible advantages by means of open competition between the bidders. He who bids or offers the best terms is awarded the contract subject of the bid, and it is obvious that such protection and best possible advantages to the public will disappear if the parties to a contract executed after public bidding may alter or amend it without another previous public bidding."[28]chanrobles virtual law library 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.cralaw:red In a later case, Mata v. San Diego,[29] this Court reiterated its ruling as follows:chanrobles virtual law library "It is true that modification of government contracts, after the same had been awarded after a public bidding, is not allowed because such modification serves to nullify the effects of the bidding and whatever advantages the Government had secured thereby and may also result in manifest injustice to the other bidders. This prohibition, however, refers to a change in vital and essential particulars of the agreement which results in a substantially new contract." Piatco’s counter-argument may be summed up thus: There was nothing in the 1994 IRR that prohibited further negotiations and eventual amendments to the DCA even after the bidding had been concluded. In fact, PBAC Bid Bulletin No. 3 states: "[A]mendments to the Draft Concession Agreement shall be issued from time to time. Said amendments will only cover items that would not materially affect the preparation of the proponent’s proposal." I submit that accepting such warped argument will result in perverting the policy underlying public bidding. The BOT Law cannot be said to allow the negotiation of contractual stipulations resulting in a substantially new contract after the bidding process and price challenge had been concluded. In fact, the BOT Law, in recognition of the time, money and effort invested in an unsolicited proposal, accords its originator the privilege of matching the challenger’s bid.chanrobles virtual law library 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.cralaw:red 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.cralaw:red 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:chanrobles virtual law library
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.chanrobles virtual law library 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.cralaw:red 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.cralaw:red The Three Supplements Imposed New Obligations on Government, Also Without Prior Public Bidding After Piatco had managed to breach the protective rampart of public bidding, it recklessly went on a rampage of further assaults on the ARCA.cralaw:red 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:chanrobles virtual law library
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. The Second Supplement Is Similarly Void and Inexistent The Second Supplement ("SS") was executed between the government and Piatco on September 4, 2000. It calls for Piatco, acting not as concessionaire of NAIA Terminal III but as a public works contractor, to undertake -- in the government’s stead -- the clearing, removal, demolition and disposal of improvements, subterranean obstructions and waste materials at the project site.[57] The scope of the works, the procedures involved, and the obligations of the contractor are provided for in Parts II and III of the SS. Section 4.1 sets out the compensation to be paid, listing specific rates per cubic meter of materials for each phase of the work -- excavation, leveling, removal and disposal, backfilling and dewatering. The amounts collectible by Piatco are to be offset against the Annual Guaranteed Payments it must pay government.cralaw:red 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.cralaw:red Not surprisingly, Piatco had to subcontract the works to a certain Wintrack Builders, a firm reputedly owned by a former high-ranking DOTC official. But that is another story altogether.cralaw:red 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.cralaw:red By way of background, at the inception of and forming part of the NAIA Terminal III project was the proposed construction of an access tunnel crossing Runway 13/31, which would connect Terminal III to Terminal II. The Bid Documents in Section 4.1.2.3[B][i] declared that the said access tunnel was subject to further negotiation; but for purposes of the bidding, the proponent should submit a bid for it as well. Therefore, the tunnel was supposed to be part and parcel of the Terminal III project.chanrobles virtual law library 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.cralaw:red 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:chanrobles virtual law library
The TS depends upon and is intended to supplement the ARCA as well as the First Supplement, both of which are void and inexistent and not capable of being ratified or amended. It follows that the TS is likewise void, inexistent and inoperative. And even if, hypothetically speaking, both ARCA and FS are valid, still, the Third Supplement -- imposing as it does significant new obligations upon government -- would in effect alter the terms and stipulations of the ARCA in material respects, thus necessitating another public bidding. Since the TS was not subjected to public bidding, it is consequently utterly void as well. At any rate, the TS created new monetary obligations on the part of government, for which there were no prior appropriations. Hence it follows that the same is void ab initio. In patiently tracing the progress of the Piatco contracts from their inception up to the present, I noted that the whole process was riddled with significant lapses, if not outright irregularity and wholesale violations of law and public policy. The rationale of beginning at the beginning, so to speak, will become evident when the question of what to do with the five Piatco contracts is discussed later on.cralaw:red In the meantime, I shall take up specific provisions or changes in the contracts and highlight the more prominent objectionable features.cralaw:red 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.cralaw:red 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."chanrobles virtual law library Both the CA and the ARCA have provisions that undeniably create such prohibited government guarantee. Section 4.04 (c)(iv) to (vi) of the ARCA, which is similar to Section 4.04 of the CA, provides thus:chanrobles virtual law library
In turn, the term Attendant Liabilities is defined in Section 1.06 of the ARCA as follows:chanroblesvirtuallawlibrary
Government’s agreement to pay becomes effective in the event of a default by Piatco on any of its loan obligations to the Senior Lenders, and the amount to be paid by government is the greater of either the Appraised Value of Terminal III or the aggregate amount of the moneys owed by Piatco -- whether to the Senior Lenders or to other entities, including its suppliers, contractors and subcontractors. In effect, therefore, this agreement already constitutes the prohibited assumption by government of responsibility for repayment of Piatco’s debts in case of a loan default. In fine, a direct government guarantee. It matters not that there is a roundabout procedure prescribed by Section 4.04(c)(iv), (v) and (vi) that would require, first, an attempt (albeit unsuccessful) by the Senior Lenders to transfer Piatco’s rights to a transferee of their choice; and, second, an effort (equally unsuccessful) to "enter into any other arrangement"with the government regarding the Terminal III facility, before government is required to make good on its guarantee. What is abundantly clear is the fact that, in the devious labyrinthine process detailed in the aforesaid section, it is entirely within the Senior Lenders’ power, prerogative and control -- exercisable via a mere refusal or inability to agree upon "a transferee"or "any other arrangement"regarding the terminal facility -- to push the process forward to the ultimate contractual cul-de-sac, wherein government will be compelled to abjectly surrender and make good on its guarantee of payment.cralaw:red 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.cralaw:red Nevertheless, as petitioners-in-intervention pointed out in their Memorandum,[61] the termination payment is to be made to Piatco, not to the lenders; and there is no provision anywhere in the contract documents to prevent it from diverting the proceeds to its own benefit and/or to ensure that it will necessarily use the same to pay off the Senior Lenders and other creditors, in order to avert the foreclosure of the mortgage and other liens on the terminal facility. Such deficiency puts the interests of government at great risk. Indeed, if the unthinkable were to happen, government would be paying several hundreds of millions of dollars, but the mortgage liens on the facility may still be foreclosed by the Senior Lenders just the same.cralaw:red 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.cralaw:red 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.chanrobles virtual law library 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.cralaw:red 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.cralaw:red To the extent that the project proponent is able to obtain loans to fund the project, those risks are shared between the project proponent on the one hand, and its banks and other lenders on the other. But where the proponent or its lenders manage to cajol or coerce the government into extending a guarantee of payment of the loan obligations, the risks assumed by the lenders are passed right back to government. I cannot understand why, in the instant case, government cheerfully assented to re-assuming the risks of the project when it gave the prohibited guarantee and thus simply negated the very purpose of the BOT Law and the protection it gives the government.cralaw:red Contract Termination Provisions in the Piatco Contracts Are Voidchanrobles virtual law library The BOT Law as amended provides for contract termination as follows:chanrobles virtual law library
The foregoing statutory provision in effect provides for the following limited instances when termination compensation may be allowed:chanroblesvirtuallawlibrary
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:chanrobles virtual law library
As if that were not bad enough, the ARCA also inserted into Section 8.01 the phrase "Subject to Section 4.04." The effect of this insertion is that in those instances where government may terminate the contract on account of Piatco’s breach, and it is nevertheless required under the ARCA to make termination compensation to Piatco even though unauthorized by law, such compensation is to be equivalent to the payment amount guaranteed by government - either a) the Appraised Value of the terminal facility or (b) the aggregate of the Attendant Liabilities, whichever amount is greater! Clearly, this condition is not in line with Section 7 of the BOT Law. That provision permits a project proponent to recover the actual expenses it incurred in the prosecution of the project plus a reasonable rate of return not in excess of that provided in the contract; or to be compensated for the equivalent or proportionate contract cost as defined in the contract, in case the government is in default on certain major contractual obligations.cralaw:red Furthermore, in those instances where such termination compensation is authorized by the BOT Law, it is indispensable that the interest of government be duly insured. Section 5.08 the ARCA mandates insurance coverage for the terminal facility; but all insurance policies are to be assigned, and all proceeds are payable, to the Senior Lenders. In brief, the interest being secured by such coverage is that of the Senior Lenders, not that of government. This can hardly be considered compliance with law.cralaw:red In essence, the ARCA provisions on termination compensation result in another unauthorized government guarantee, this time in favor of Piatco.chanrobles virtual law library 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.cralaw:red 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:chanrobles virtual law library
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.cralaw:red In brief, this particular provision of the ARCA has placed in the hands of foreign lenders the power and the authority to determine how much (if at all) and when the Philippine government (as grantor of the franchise) may be allowed to receive from Piatco. In that situation, government will be at the mercy of the foreign lenders. This is a situation completely contrary to the rationale of the BOT Law and to public policy.chanrobles virtual law library 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.cralaw:red The Piatco Contracts Unarguably Violate Constitutional Injunctions I will now discuss the manner in which the Piatco Contracts offended the Constitution.cralaw:red The Exclusive Right Granted to Piatco to Operate a Public Utility Is Prohibited by the Constitution While Section 2.02 of the ARCA spoke of granting to Piatco "a franchise to operate and maintain the Terminal Complex,"Section 3.02(a) of the same ARCA granted to Piatco, for the entire term of the concession agreement, "the exclusive right to operate a commercial international passenger terminal within the Island of Luzon" with the exception of those three terminals already existing[63] at the time of execution of the ARCA.chanrobles virtual law library 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.cralaw:red 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:chanrobles virtual law library
While it cannot be gainsaid that an enterprise that is a public utility may happen to constitute a monopoly on account of the very nature of its business and the absence of competition, such a situation does not however constitute justification to violate the constitutional prohibition and grant an exclusive franchise or exclusive right to operate a public utility. Piatco’s contention that the Constitution does not actually prohibit monopolies is beside the point. As correctly argued,[64] the existence of a monopoly by a public utility is a situation created by circumstances that do not encourage competition. This situation is different from the grant of a franchise to operate a public utility, a privilege granted by government. Of course, the grant of a franchise may result in a monopoly. But making such franchise exclusive is what is expressly proscribed by the Constitution.cralaw:red Actually, the aforementioned Section 3.02 of the ARCA more than just guaranteed exclusivity; it also guaranteed that the government will not improve or expand the facilities at Clark -- and in fact is required to put a cap on the latter’s operations -- until after Terminal III shall have been operated at or beyond its peak capacity for three consecutive years.[65] As counsel for public respondents pointed out, in the real world where the rate of influx of international passengers can fluctuate substantially from year to year, it may take many years before Terminal III sees three consecutive years’ operations at peak capacity. The Diosdado Macapagal International Airport may thus end up stagnating for a long time. Indeed, in order to ensure greater profits for Piatco, the economic progress of a region has had to be sacrificed.cralaw:red 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.cralaw:red 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:chanrobles virtual law library
The aforesaid easy payment scheme is less beneficial than it first appears. Although it enables government to avoid having to make outright payment of an obligation that will likely run into billions of pesos, this easy payment plan will nevertheless cost government considerable loss of income, which it would earn if it were to operate Terminal III by itself. Inasmuch as payments to the concessionaire (Piatco) will be on "installment basis,"interest charges on the remaining unpaid balance would undoubtedly cause the total outstanding balance to swell. Piatco would thus be entitled to remain in the driver’s seat and keep operating the terminal for an indefinite length of time. The Contracts Create Two Monopolies for Piatco By way of background, two monopolies were actually created by the Piatco contracts. The first and more obvious one refers to the business of operating an international passenger terminal in Luzon, the business end of which involves providing international airlines with parking space for their aircraft, and airline passengers with the use of departure and arrival areas, check-in counters, information systems, conveyor systems, security equipment and paraphernalia, immigrations and customs processing areas; and amenities such as comfort rooms, restaurants and shops.cralaw:red In furtherance of the first monopoly, the Piatco Contracts stipulate that the NAIA Terminal III will be the only facility to be operated as an international passenger terminal;[66] that NAIA Terminals I and II will no longer be operated as such;[67] and that no one (including the government) will be allowed to compete with Piatco in the operation of an international passenger terminal in the NAIA Complex.[68] Given that, at this time, the government and Piatco are the only ones engaged in the business of operating an international passenger terminal, I am not acutely concerned with this particular monopolistic situation.cralaw:red There was however another monopoly within the NAIA created by the subject contracts for Piatco -- in the business of providing international airlines with the following: groundhandling, in-flight catering, cargo handling, and aircraft repair and maintenance services. These are lines of business activity in which are engaged many service providers (including the petitioners-in-intervention), who will be adversely affected upon full implementation of the Piatco Contracts, particularly Sections 3.01(d)[69] and (e)[70] of both the ARCA and the CA.chanrobles virtual law library On the one hand, Section 3.02(a) of the ARCA makes Terminal III the only international passenger terminal at the NAIA, and therefore the only place within the NAIA Complex where the business of providing airport-related services to international airlines may be conducted. On the other hand, Section 3.01(d) of the ARCA requires government, through the MIAA, not to allow service providers with expired MIAA contracts to renew or extend their contracts to render airport-related services to airlines. Meanwhile, Section 3.01(e) of the ARCA requires government, through the DOTC and MIAA, not to allow service providers -- those with subsisting concession agreements for services and operations being conducted at Terminal I -- to carry over their concession agreements, services and operations to Terminal III, unless they first enter into a separate agreement with Piatco.cralaw:red 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.cralaw:red This intention is exceedingly clear in the declaration by Piatco that it is "completely within its rights to exclude any party that it has not contracted with from NAIA Terminal III."[71] Worse, there is nothing whatsoever in the Piatco Contracts that can serve to restrict, control or regulate the concessionaire’s discretion and power to reject any service provider and/or impose any term or condition it may see fit in any contract it enters into with a service provider. In brief, there is no safeguard whatsoever to ensure free and fair competition in the service-provider sector.cralaw:red In the meantime, and not surprisingly, Piatco is first in line, ready to exploit the unique business opportunity. It announced[72] that it has accredited three groundhandlers for Terminal III. Aside from the Philippine Airlines, the other accredited entities are the Philippine Airport and Ground Services Globeground, Inc. ("PAGSGlobeground") and the Orbit Air Systems, Inc. ("Orbit"). PAGSGlobeground is a wholly-owned subsidiary of the Philippine Airport and Ground Services, Inc. or PAGS,[73] while Orbit is a wholly-owned subsidiary of Friendship Holdings, Inc.,[74] which is in turn owned 80 percent by PAGS.[75] PAGS is a service provider owned 60 percent by the Cheng Family;[76] it is a stockholder of 35 percent of Piatco[77] and is the latter’s designated contractor-operator for NAIA Terminal III.[78]chanrobles virtual law library Such entry into and domination of the airport-related services sector appear to be very much in line with the following provisions contained in the First Addendum to the Piatco Shareholders Agreement,[79] executed on July 6, 1999, which appear to constitute a sort of master plan to create a monopoly and combinations in restraint of trade:chanrobles virtual law library
Precisely, proscribed by our Constitution are the monopoly and the restraint of trade being fostered by the Piatco Contracts through the erection of barriers to the entry of other service providers into Terminal III. In Tatad v. Secretary of the Department of Energy,[80] the Court ruled:chanroblesvirtuallawlibrary
Gokongwei Jr. v. Securities and Exchange Commission[82] elucidates the criteria to be employed: "A ‘monopoly’ embraces any combination the tendency of which is to prevent competition in the broad and general sense, or to control prices to the detriment of the public. In short, it is the concentration of business in the hands of a few. The material consideration in determining its existence is not that prices are raised and competition actually excluded, but that power exists to raise prices or exclude competition when desired."[83] (Emphasis supplied) The Contracts Encourage Monopolistic Pricing, Too Aside from creating a monopoly, the Piatco contracts also give the concessionaire virtually limitless power over the charging of fees, rentals and so forth. What little "oversight function"the government might be able and minded to exercise is less than sufficient to protect the public interest, as can be gleaned from the following provisions:chanrobles virtual law library
Section 6.03 (c) in turn provides:chanroblesvirtuallawlibrary
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." The Piatco Contracts Violate Constitutional Prohibitions Against Impairment of Contracts and Deprivation of Property Without Due Process Earlier, I discussed how Section 3.01(e)[84] of both the CA and the ARCA requires government, through DOTC/MIAA, not to permit the carry-over to Terminal III of the services and operations of certain service providers currently operating at Terminal I with subsisting contracts.cralaw:red By the In-Service Date, Terminal III shall be the only facility to be operated as an international passenger terminal at the NAIA;[85] thus, Terminals I and II shall no longer operate as such,[86] and no one shall be allowed to compete with Piatco in the operation of an international passenger terminal in the NAIA.[87] The bottom line is that, as of the In-Service Date, Terminal III will be the only terminal where the business of providing airport-related services to international airlines and passengers may be conducted at all.cralaw:red 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.cralaw:red In short, the CA and the ARCA obligate and constrain government to break its existing contracts with these service providers.cralaw:red 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.cralaw:red What we have here is a set of contractual provisions that impair the obligation of contracts and contravene the constitutional prohibition against deprivation of property without due process of law.[88]chanrobles virtual law library 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.cralaw:red True, doing business at the NAIA may be viewed more as a privilege than as a right. Nonetheless, where that privilege has been availed of by the petitioners-in-intervention service providers for years on end, a situation arises, similar to that in American Inter-fashion v. GTEB.[89] We held therein that a privilege enjoyed for seven years "evolved into some form of property right which should not be removed 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.cralaw:red The Piatco Contracts Violate Constitutional Prohibition Against Deprivation of Liberty Without Due Process The Piatco Contracts by locking out existing service providers from entry into Terminal III and restricting entry of future service providers, thereby infringed upon the freedom -- guaranteed to and heretofore enjoyed by international airlines -- to contract with local service providers of their choice, and vice versa.cralaw:red Both the service providers and their client airlines will be deprived of the right to liberty, which includes the right to enter into all contracts,[90] and/or the right to make a contract in relation to one’s business.[91] By Creating New Financial Obligations for Government, Supplements to the ARCA Violate the Constitutional Ban on Disbursement of Public Funds Without Valid Appropriation Clearly prohibited by the Constitution is the disbursement of public funds out of the treasury, except in pursuance of an appropriation made by law.[92] The immediate effect of this constitutional ban is that all the various agencies of government are constrained to limit their expenditures to the amounts appropriated by law for each fiscal year; and to carefully count their cash before taking on contractual commitments. Giving flesh and form to the injunction of the fundamental law, Sections 46 and 47 of Executive Order 292, otherwise known as the Administrative Code of 1987, provide as follows:chanroblesvirtuallawlibrarychanrobles virtual law library
Referring to the aforequoted provisions, this Court has held that "(I)t is quite evident from the tenor of the language of the law that the existence of appropriations and the availability of funds are indispensable pre-requisites to or conditions sine qua non for the execution of government contracts. The obvious intent is to impose such conditions as a priori requisites to the validity of the proposed contract."[93] Notwithstanding the constitutional ban, statutory mandates and jurisprudential precedents, the three Supplements to the ARCA, which were not approved by NEDA, imposed on government the additional burden of spending public moneys without prior appropriation.cralaw:red In the First Supplement ("FS") dated August 27, 1999, the following requirements were imposed on the government:chanrobles virtual law library 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 runwayschanrobles virtual law library 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.cralaw:red Section 4 of the FS imposed on government ten (10) "Additional Special Obligations,"including the following:chanrobles virtual law library Ø Providing thru MIAA the land required by Piatco for the taxilane and one taxiway, at no cost to Piatco Ø Implementing the government’s existing storm drainage master plan Ø Coordinating with DPWH the financing, implementation and completion of the following works before the In-Service Date: three left-turning overpasses (Edsa to Tramo St., Tramo to Andrews Ave., and Manlunas Road to Sales Ave.) and a road upgrade and improvement program involving widening, repair and resurfacing of Sales Road, Andrews Avenue and Manlunas Road; improvement of Nichols Interchange; and removal of squatters along Andrews Avenuechanrobles virtual law library Ø Dealing directly with BCDA and the Philippine Air Force in acquiring additional land or right of way for the road upgrade and improvement program Ø Requiring government to work for the immediate reversion to MIAA of the Nayong Pilipino National Park, in order to permit the building of the second west parallel taxiway · Section 5 of the FS also provides that in lieu of the access tunnel, a surface access road (T2-T3) will be constructed. This provision requires government to expend funds to purchase additional land from Nayong Pilipino and to clear the same in order to be able to deliver clean possession of the site to Piatco, as required in Section 5(c) of the FS.cralaw:red 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.cralaw:red 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.cralaw:red To determine whether the additional obligations under the Supplements may really be undertaken on a best-efforts basis only, the nature of each of these obligations must be examined in the context of its relevance and significance to the Terminal III Project, as well as of any adverse impact that may result if such obligation is not performed or undertaken on time. In short, the criteria for determining whether the best-efforts basis will apply is whether the obligations are critical to the success of the Project and, accordingly, whether failure to perform them (or to perform them on time) could result in a material breach of the contract.cralaw:red 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.chanrobles virtual law library Conversely, failure to deliver on any of these obligations may conceivably result in substantial prejudice to the concessionaire, to such an extent as to constitute a material breach of the Piatco Contracts. Whereupon, the concessionaire may outrightly terminate the Contracts pursuant to Section 8.01(b)(i) and (ii) of the ARCA and seek payment of Liquidated Damages in accordance with Section 8.02(a) of the ARCA; or the concessionaire may instead require government to pay the Incremental and Consequential Losses under Section 1.23 of the ARCA.[94] The logical conclusion then is that the obligations in the Supplements are not to be performed on a best-efforts basis only, but are unarguably mandatory in character.cralaw:red Regarding MIAA’s obligation to coordinate with the DPWH for the complete implementation of the road upgrading and improvement program for Sales, Andrews and Manlunas Roads (which provide access to the Terminal III site) prior to the In-Service Date, it is essential to take note of the fact that there was a pressing need to complete the program before the opening of Terminal III.[95] For that reason, the MIAA was compelled to enter into a memorandum of agreement with the DPWH in order to ensure the timely completion of the road widening and improvement program. MIAA agreed to advance the total amount of P410.11 million to DPWH for the works, while the latter was committed to do the following:chanrobles virtual law library
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.chanrobles virtual law library They also Infringe on the Legislative Prerogative and Power Over the Public Purse But the particularly sad thing about this transaction between MIAA and DPWH is the fact that both agencies were maneuvered into (or allowed themselves to be maneuvered into) an agreement that would ensure delivery of upgraded roads for Piatco’s benefit, using funds not allocated for that purpose. The agreement would then be presented to Congress as a done deal. Congress would thus be obliged to uphold the agreement and support it with the necessary allocations and appropriations for three years, in order to enable DPWH to deliver on its committed repayments to MIAA. The net result is an infringement on the legislative power over the public purse and a diminution of Congress’ control over expenditures of public funds -- a development that would not have come about, were it not for the Supplements. Very clever but very illegal! EPILOGUE What Do We Do Now? In the final analysis, there remains but one ultimate question, which I raised during the Oral Argument on December 10, 2002: What do we do with the Piatco Contracts and Terminal III?[96] (Feeding directly into the resolution of the decisive question is the 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?) Prescinding from all the foregoing disquisition, I find that all the Piatco contracts, without exception, are void ab initio and therefore inoperative. Even the very process by which the contracts came into being -- the bidding and the award -- has been riddled with irregularities galore and blatant violations of law and public policy, far too many to ignore. There is thus no conceivable way, as proposed by some, of saving one (the original Concession Agreement) while junking all the rest.chanrobles virtual law library 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.cralaw:red 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.cralaw:red 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.cralaw:red 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.cralaw:red 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?chanrobles virtual law library Should government pay at all for reasonable expenses incurred in the construction of the Terminal? Indeed it should, otherwise it will be unjustly enriching itself at the expense of Piatco and, in particular, its funders, contractors and investors -- both local and foreign. After all, there is no question that the State needs and will make use of Terminal III, it being part and parcel of the critical infrastructure and transportation-related programs of government.cralaw:red In Melchor v. Commission on Audit,[97] this Court held that even if the contract therein was void, the principle of payment by quantum meruit was found applicable, and the contractor was allowed to recover the reasonable value of the thing or services rendered (regardless of any agreement as to the supposed value), in order to avoid unjust enrichment on the part of government. The principle of quantum meruit was likewise applied in Eslao v. Commission on Audit,[98] because to deny payment for a building almost completed and already occupied would be to permit government to unjustly enrich itself at the expense of the contractor. The same principle was applied in Republic v. Court of Appeals.[99] One possible practical solution would be for government -- in view of the nullity of the Piatco contracts and of the fact that Terminal III has already been built and is almost finished -- to bid out the operation of the facility under the same or analogous principles as build-operate-and-transfer projects. To be imposed, however, is the condition that the winning bidder must pay the builder of the facility a price fixed by government based on quantum meruit; on the real, reasonable -- not inflated -- value of the built facility.cralaw:red 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.cralaw:red WHEREFORE, I vote to
grant the Petitions and to declare the subject contracts NULL and VOID.
Endnotes:chanroblesvirtuallawlibrary
[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.
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