Costs Entitled to Contractors due to Termination by Convenience

FSI VS LICOMEN INC, August 31, 2007, G.R. No. 169678

Facts:
LICOMCEN, the developer, and Foundation Specialist, Inc. (FSI), the contractor, signed a
Construction Agreement for the bored pile foundation of LCC City Mall in Legaspi. LICOMCEN
was given the right to suspend the work or terminate the contract.
During the course of the construction, LICOMEN revised the design with substantial reduction
in number and length of piles. FSI was informed of the major revision and ordered the nondelivery of steel bars approved initially pending the approval of the new design. FSI, however,
replied that the steel bars were already shipped out of Manila and was advised that only 50%
should be delivered. Despite the order, the whole batch was subsequently delivered to the
site. LICOMEN ordered suspension of work and demobilization of the materials and equipment
for the project. Subsequently, LICOMCEN indefinitely suspended the project, due to a pending
case in the Ombudsman, which amounted to termination of contract.
FSI demanded payment for its work accomplishments, material costs, and standby off
equipment, as well as other expenses amounting to P22,667,026.97, but LICOMCEN took no
heed.
The case reached CIAC and after due proceedings, ruled in favor of FSI and awarded the
following:

P14,643,638. 51 representing material costs at site;

P2,957,989.94 representing payment for equipment and labor standby costs;
P5,120,000.00 representing unrealized profit; and
P1,264,404.12 representing the unpaid balance of FSI's billing.
Costs of the proceedings to be borne by LICOMEN
Interest 6% per annum from the date of formal demand until the finality of decision;
12% from thereon until fully paid

Issue:
Whether or not the CIAC award in favor of FSI, the contractor, is correct

Ruling:
The case was appealed to CA and SC and both ruled in favor of FSI but modified the monetary
award as follows:

Material Cost Only P5,694,939.85 material costs reasonably ordered for the project
and which were delivered to the job site is entitled to the contractor. This includes cost
for demobilization if included in the contract. Cost for 50% of the steel bars, which were
not ordered, was deducted.
Equipment and labor standard costs was denied because clear and convincing proof
was not presented:
o Equipment lease contract or the receipts of payment issued by the owners of
the rented equipment
o Labor - employees must be actually employed at the construction site during the
suspension
Unrealized profit denied because of stipulation in the contract prohibiting the claim
against anticipated profits
Unpaid billing, Costs of Proceedings and Interests were approved.