Republic of the Philippines
Supreme Court
Manila
SECOND DIVISION
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PHILIPPINE ECONOMIC ZONE AUTHORITY, Petitioner,
- versus - GREEN ASIA CONSTRUCTION & DEVELOPMENT CORPORATION Represented by Mr. Renato P. Legaspi,
President/CEO, Respondents.
|
G.R. No. 188866 Present:
CARPIO, J., Chairperson, BRION, SERENO, REYES, and PERLAS-BERNABE,* JJ. Promulgated: October 19, 2011 |
|
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DECISION
SERENO,
J.:
The Court, in this Petition for Review
on Certiorari, is called upon to rule on a contractors entitlement to a price
escalation in a government infrastructure contract. Further, the Court is asked to rule on
whether there is a need to prove first
that direct acts of the government influenced the increase of construction
materials.
The
Factual Backdrop
The parties to this case -- petitioner
Philippine Economic Zone Authority (PEZA), formerly the Export Processing Zone
Authority (EPZA), and respondent Green
Asia Construction & Development Corporation (hereinafter Green Asia) were
parties to a contract for a road network/storm drainage project. The project was awarded to Green Asia on 14
September 1992 with a contract price of P130,595,337.40.[1] Tagumpay R. Jardiniano, administrator of the
then EPZA and Renato P. Legaspi, the president of Green Asia, signed the
contract on 23 September 1992.[2] The stipulations in the contract include the contract price,[3]
the mode of payment, advance payment, and the progress payment.[4]
These stipulations
found in Articles III to VI of the contract comprised all the liabilities
pertaining to EPZA. EPZA was later on
effectively succeeded by PEZA.
On 26 March 1996, Green Asia sent a
letter to the PEZA Director General through Atty. Eugenio V. Vigo, Project
Director for Construction of the PEZA Development Project. The letter, invoking Presidential Decree (PD)
No. 1594, notified PEZA of Green Asias
claim for price escalation in the amount of P 9,860,169.58.[5] This claim was denied by PEZA through a
letter signed by the Acting Corporate Secretary Atty. Nestor Hun Nadal. The denial of the claim was anchored on
Section 8, PD 1594, requiring proof of the increase or decrease in construction
cost due to the direct acts of the government.
Alleging that Green Asia failed
to present proof, PEZA stated in its letter as follows:[6]
As per the records, it has not been established or proven that the increase/s in the cost of labor, equipment, materials and supplies required for the construction was/were due to the direct acts of the government.
Moreover, the claim that the grant of claims for price escalation is a normal process in the construction industry was not enough to persuade the Board.
Having failed to comply with the condition provided for by law, the Board decided to deny your claim for price escalation.
Despite the denial, Green Asia insisted
on its claim and followed it up with three letters sent to PEZA from 1997 to
2000. Through Director General Lilia B.
de Lima, PEZA reiterated the denial of the claim.[7] Because of these repeated denials, Green Asia
made a final demand, which was received by PEZA on 29 November 2006 and
signed by one Atty. Larry Ignacio. Atty.
Ignacio included in the demand the amount of P 2,500,357.11 for the
price escalation of another project, legal interest, and a collection fee of 1%
of the total amount due.[8] The exchanges of correspondence pertaining to
Green Asias claim continued until 2006.[9] PEZA was, however, consistent in its position
that Green Asia was not entitled to its claim, as the latter failed to prove
the legal necessity of applying the price escalation provided for in PD
1594. In its letter dated 30 November
2006, PEZA pointed out that the contract price was fixed, as stipulated in
Article IV of the contract, and that this provision was in effect a waiver of
the provisions of PD 1594.[10]
On 2 August 2007, Green Asia sent to
PEZA another notice, labelled final demand notice, a copy of which was
furnished to the Office of the President.
This notice was for unpaid claims for the price escalation of the road
network and drainage system in the amount of P 9,860,169.58, as well as
for the sewage treatment plant in the
amount of P 2,500,357.11. Green
Asia disagreed with PEZA and posited that the fact that the contract stipulated
a fixed price did not mean that it was
the final receivable amount for the
contractor. The fixed price, according
to Green Asia, would apply only when the work orders in the construction did
not vary during the construction period.
Green Asia explained that it was impossible and unrealistic to stay
within the original budgeted amount.
Thus, there was a need for price escalation under Cl 12.1 of the
Implementing Rules and Regulations (IRR) of PD 1594. Green Asia stressed that the basis of its
claim was the price escalation under the IRR, and not merely the price
adjustment provided in Section 8 of PD 1594.[11]
Subsequent to the final demand notice
to PEZA, Green Asia sent then President Gloria Macapagal Arroyo, on 14 November
2007, a letter with the heading Appeal for the Settlement of Unpaid Claims for
Price Escalation Under Project of the Philippines Economic Zone
Authority. In this letter, Green Asia
asked her to intervene for the affirmative resolution of its claim against PEZA
in the amount of P 12,360,525.69.[12] The Office of the President (OP) took
cognizance of the letter as an appeal, docketed it as O.P. Case No. 07-K-451,
and ordered Green Asia to pay the appeal fee and PEZA to forward the complete
records of the case.[13]
After summary proceedings in the OP,
the case was decided in favor of Green Asia.
The dispositive portion of the OP Decision reads as follows:
WHEREFORE, herein claim for Price Escalation Payment sought by Green Asia Construction & Development Corp. through its President/CEO Renato P. Legaspi is hereby GRANTED.
Respondent Philippine Economic Zone Authority (PEZA) is hereby ordered to pay claimant the total amount of P12,360,526.70, subject to its verification by PEZA using the parametric formula provided in Cl 12, IRR, PD 1594.
In addition, PEZA is liable to pay interest upon the total unpaid claims at the legal interest of 6% per annum reckoned from the date Green Asia made the final demand notice on August 6, 2007 up to finality of this Decision, and 12% interest from its finality up to full payment.
SO ORDERED.[14]
The OPs reason for granting Green
Asias claim was that proof of increase in relevant construction prices due to
the direct acts of the government was not required by law, before a price
escalation may be invoked. The OP cited
Item 6, Cl 12.1 of the IRR of PD 1594, quoting the following portions:
Escalation of
prices for work accomplishment on infrastructure construction x x x shall be
made x x x using the parametric formula as described below, to compensate for
fluctuation of prices of construction supplies and materials, equipment and
labor which would bring about during the period under consideration an
increase or decrease of more than five percent (5%) of the original OR ADJUSTED contract unit price of
items of work.
The OP also interpreted the phrase due
to direct acts of the Government. It
held that PD 454,[15]
a prior enactment on government infrastructure projects, authorized price
escalation; and that direct acts of the government included increases in the
prices of gasoline, fuel oil and cement.
It was, therefore, not necessary to actually show that the prices of those commodities increased because of the
direct acts of the government. In
effect, the OP Decision held that price escalation is automatically awarded to
contractors of all government infrastructure projects.
The Court of Appeals (CA), in CA-G.R.
SP No. 105430,[16]
sustained the OP Decision. It found the
OPs construction of PD 1594, in connection with PD 454, proper. Since PD 454 was not expressly repealed by PD
1594, and since there was no apparent conflict between the two laws, the
appellate court deemed it best to harmonize them. The result was again a
favorable Decision to Green Asia.
The OP Decision was, however, modified
by the CA as to the amount of the price escalation awarded to Green Asia.
Citing paragraphs 6 and 7, Cl 12.1 of the IRR of PD 1594, the appellate court
ordered the parties to compute the price escalation using the parametric
formula provided therein. The Court of
Appeals held:
...[W]e find that petitioner correctly faults the Office of the President for ordering the payment of respondent's claim for price escalation in the sum of P12,360,526.70 with legal interest from respondent's August 6, 2007 demand despite the absence of showing of how said amount was computed. Granted that the assailed decision prov[i]des that payment is subject to verification, it cannot be gainsaid that paragraphs 6 and 7, CI 12.1 of the Amended Rules and Regulations implementing Presidential Decree No. 1594 provide as follows:
6.
Escalation of prices for work accomplishment on infrastructure
construction, rehabilitation and/or improvement projects shall be made
periodically, using the parametric formula as described below, to compensate
for fluctuation of prices of construction supplies and materials, equipment and
labor which would bring about during the period under consideration an increase
or decrease of more than five percent (5%) of the original or adjusted contract
unit price of items of work.
7. Price escalation shall be reckoned from
the month of bidding of the project, and shall be allowed for every progress
billing. When the contract has not been
the subject of competitive bidding, price escalation shall be reckoned from the
month agreed upon in the contract and shall be granted for every progress
billing. For construction and related
materials under government-controlled prices, the computation of price
escalation shall be reckoned from the actual date of bidding the projects, or
the actual date agreed upon in the contract has not been the subject of
competitive project.
To our mind, the present quandary regarding the amount due is attributable to petitioner's outright and unjustified denial of the price escalation claimed by respondent as well as the concomitant failure on the part of the latter to submit the computation thereof. Given the practical and legal import of the foregoing provisions and respondent's right to the price escalation provided under Section 8 of Presidential Decree No. 1594, it consequently behooves the parties to compute the same in accordance with the parametric formula provided under CI12 of the Implementing Rules and Regulations of said law. Considering respondent's long-standing demand therefor, however, we find it equitable that payment of interest on the amount of price escalation due shall accrue upon determination of the amount due in accordance with the aforesaid parametric formula.
Hence, this petition for review.
The
Issue
Whether
Presidential Decree 1594 requires the contractor to prove that the price
increase of construction materials was due to the direct acts of the government
before a price escalation is granted in this payment dispute in a construction
contract
PEZA argues that there was no need for
any statutory construction of PD 1594, since the provisions thereof are not
ambiguous. It insists that Section 8
thereof requires certain conditions before an adjustment of the contract price
may be made.[17] These conditions obtain when there is a
concurrence of the following: there was an increase or a decrease in the cost
of labor, equipment, materials and
supplies for construction; and the said increase or decrease is due to
the direct acts of the government. PEZA
stresses that respondent Green Asia has failed to show the existence of these
conditions.[18]
Green Asia, in its Comment,[19]
claims that it has proved the increase or decrease in the cost of labor and
construction materials. It has allegedly
relied on the official indices of prices regularly issued by the National
Statistics Office (NSO) for Calendar Years 1992-1999. It was on these indices that it based the
amount of its claim.[20]
The
Courts Ruling
We sustain the assailed Decision.
After a painstaking study of the
records before us and the relevant laws, we are of the opinion that the Court
of Appeals was correct in its disposition of the case.
We agree with the ruling of the
appellate court that the OP correctly construed PD 1594 as being in pari
materia to PD 454. Since the two
presidential decrees are in pari materia, there is a need to
construe them together. Thus explained
the Court in Honasan v. The Panel of the
Investigating Prosecutors of the Department of Justice:[21]
Statutes are in pari materia when they relate to the same person or thing or to the same class of persons or things, or object, or cover the same specific or particular subject matter.
It is axiomatic in statutory construction that a statute must be
interpreted, not only to be consistent with itself, but also to harmonize with
other laws on the same subject matter, as to form a complete, coherent and
intelligible system. The rule is expressed in the maxim, interpretare et concordare legibus est
optimus interpretandi, or every statute must be so construed and
harmonized with other statutes as to form a uniform system of jurisprudence.[22]
PD 454 which was enacted prior to PD
1594, was where the phrase direct acts of the government was explained to
cover the increase of prices during the effectivity of a government
infrastructure contract. The phrase was
first used in Republic Act (RA) No. 1595, which was amended by PD 454. The latter amended R.A. No. 1595 by supplying
the meaning of the phrase direct acts of the government and expressly
including the increase of prices of gasoline within the coverage of that
phrase. Consequently, when PD 1594
reproduced the phrase without supplying a contrary or different definition, the
definition provided by the earlier enacted PD 454 was deemed adopted by the
later decree. Thus, proof of an increase
in fuel and cement price and a subsequent increase in the cost of labor and
relevant construction materials during the contract period are considered a
compliance with the IRR requirements for a claim for price escalation.
The parties separately invoke PD 1594[23]
and its IRR. A reading of their
provisions, however, leads to the conclusion that price adjustment under PD
1594 is actually the same as price escalation under the IRR. Just as the term price escalation is not
found in PD 1594, so is price adjustment in the IRR. These concepts are, evidently, one and the
same. They have different names, but
pertain to the same thing -- the adjustment of the contract price due to
certain circumstances. The computation
of the adjustment has been explained in detail as price escalation in the IRR,
found in CI 12. At first glance, price
escalation may be considered as an expansion of the concept of price
adjustment. In truth, however, the IRR
did not expand anything, but merely laid out a guideline for the computation of
the adjustment or escalation of price.
The two provisions are therefore not separate and must be read
together. Otherwise, if we accept the
arguments of both parties that one is invoking either PD 1594 or the IRR, two
different rights would arise therefrom, which is obviously not intended by the
law.
Price escalation, as explained in
paragraph 6 of Cl 2.1 of the IRR, is meant to compensate for changes in the
prices of relevant construction necessities during the effectivity of the
contract, resulting in more than 5% increase or decrease in the unit price of those
items. It is thus the prices of the
items that have actually increased that become the basis of the
computation. It is also stated in the
IRR that in case of advance payment, the materials to which the advance payment
has been applied will not be adjusted for a price escalation.[24] The government will charge an interest on the
amount it has paid in advance to the contractor. This interest will be deducted from the
succeeding price escalation that may be due the contractor.[25]
It should also be mentioned that in National Steel Corporation v. The Regional
Trial Court of Lanao del Norte,[26]
the Supreme Court held:
[P]rice escalation is expressly allowed under Presidential Decree 1594, which law allows price escalation in all contracts involving government projects including contracts entered into by government entities and instrumentalities and Government Owned or Controlled Corporations (GOCCs). It is a basic rule in contracts that the law is deemed written into the contract between the parties. And when there is no prohibitory clause on price escalation, the Court will allow payment therefor.
The
contract between PEZA and Green Asia did not incorporate provisions prohibiting
price escalation or any clause that may be interpreted as a waiver of the price
escalation. Consequently, payment of
price escalation is deemed to have included the provision for the payment of
price escalation.
It was therefore wrong for PEZA to
disregard PD 454 by automatically denying the claim of Green Asia for price
escalation or to require the latter to prove that the increase in the
construction cost was due to the direct acts of the government. PD 454 actually bridges the gap between PD
1594 and its IRR. PD 1594 no longer
explains the provision on price adjustment, because it is already found in PD
454 and in older laws. In its Whereas
Clause, PD 454 states:
WHEREAS, the Government feels that amendment of the existing escalatory clause is a fair and equitable way of dealing with the situation.
The
amendment of the existing escalatory clause referred to is found in Section 1
of PD 454, which provides:
The provisions of Section 10(b) of Republic Act No. 5979 and other existing laws, or presidential decrees to the contrary notwithstanding, adjustment of contract prices for public works project is hereby authorized, should any or both of the following conditions occur:
(a) If during the effectivity of the contract, the cost of labor, materials, equipment rentals and supplies for construction should increase or decrease due to the direct acts of the government; and for purposes of this Decree the increase of prices of gasoline and other fuel oils, and of cement shall be considered direct acts of the Government;
(b) If during the effectivity of the contract, the costs of labor, equipment rentals, construction materials and supplies used in the project should cause the sum total of the prices of bid items to increase or decrease by more than five (5%) percent compared with the total contract price.
The increase or decrease in the contract price shall be determined by application of the appropriate official indices. (emphasis and underscoring supplied)
We find
that the assigned error allegedly committed by the Court of Appeals is
absent. The appellate court was, thus,
correct in granting respondents claim for payment of price escalation, and the
assailed Decision must be upheld.
It
will appear strange, to todays consumer, that the government would
automatically accept -- nay, decree under the express terms of PD 454 -- that
the increase of prices of gasoline and other fuel oils, and of cement shall be
considered direct acts of the Government, such that the effects of these
price increases in the form of escalation of the prices of contracts with the government
would be absorbed by it and, indirectly, by the taxpayer. It would appear that the context in which
this policy decision to absorb costs from price increases was made in an era in
which the government was strictly monitoring oil, cement and gasoline prices, and
was itself controlling the price of oil before the Downstream Oil Deregulation
Law[27] was
passed.
Considering the deregulation of the oil industry and the
removal of price control on gasoline and other fuel oils, we believe that the
wisdom behind Section 1 of PD 454 may no longer hold true. Government is
significantly less responsible today for the price of gasoline and other fuel
oils, as well as cement, than it used to be. The dynamics of pricing of these
commodities has changed dramatically. This law merits a thorough reevaluation. Congress and the Executive Department, it is
suggested, must look at whether this policy should be maintained.
IN VIEW OF THE FOREGOING, the assailed 15 July 2009
Decision of the Court of Appeals is hereby AFFIRMED in toto. Let a copy of this Decision be served on the
Office of the President, the Senate President and the Speaker of the House of
Representatives.
SO ORDERED.
MARIA
LOURDES P. A. SERENO
Associate Justice
WE CONCUR:
Chairperson
ARTURO
D. BRION BIENVENIDO L. REYES
Associate Justice
Associate Justice
ESTELA M. PERLAS-BERNABE
Associate Justice
A
T T E S T A T I O N
I attest that the
conclusions in the above Decision were reached in consultation before the case
was assigned to the writer of the opinion of the Courts Division.
Chairperson, Second Division
Pursuant to Section 13,
Article VIII of the Constitution and the Division Chairpersons Attestation, I
certify that the conclusions in the above Decision had been reached in
consultation before the case was assigned to the writer of the opinion of the
Courts Division.
RENATO
C. CORONA
* Designated as Acting Member of the Second Division vice Associate Justice Jose P. Perez per Special Order No. 1114 dated October 3, 2011.
[1]Rollo at 46.
[2]Id. at 56.
[3]Id. at 49-50.
[4]Id.
[5]Id. at 58.
[6]Id. at 59.
[7]Id. at 62.
[8]Id. at 63.
[9]Id. at 64-70.
[10]Id. at 71-72.
[11]Id. at 73-76.
[12]Id. at 77-78.
[13]Id. at 79-80.
[14]Id. at 103-104.
[15]Dated
14 May 1974; Amending the Provisions of Section 10(b) of Republic Act
No. 5979 to Authorize Adjustment of Contract Prices for Government Projects
under Certain Conditions.
[16]Decision dated 15 July 2009, with Associate
Justice Rebecca de Guia-Salvador as ponente,
and Associate Justices Japar B. Dimaampao and Sixto C. Marella, Jr. concurring;
rollo at 32-45.
[17]Id. at 21.
[18]Id. at 22.
[19]Id. at 165-169.
[20]Id. at 168-169.
[21]G.R. No. 159747, 13 April 2004, 427 SCRA
46.
[22]Id. at 69-70.
[23]Prescribing Policies, Guidelines, Rules
and Regulations for Government Infrasctructure
Contracts, June 11, 1978.
[24]IRR of PD 1594, Cl 2.1 (10).
[25]Id.
[26]G.R. No. 127004, March 11, 1999.
[27]Republic Act 8479