Agan Vs Piatco

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

G.R. No. 155001. May 5, 2003.*
DEMOSTHENES P. AGAN, JR., JOSEPH B. CATAHAN, JOSE MARI B. REUNILLA, MANUEL ANTONIO B.
BOE, MAMERTO S. CLARA, REUEL E. DIMALANTA, MORY V. DOMALAON, CONRADO G. DIMAANO,
LOLITA R. HIZON, REMEDIOS P. ADOLFO, BIENVENIDO C. HILARIO, MIASCOR WORKERS UNION-
NATIONAL LABOR UNION (MWU-NLU), and PHILIPPINE AIRLINES EMPLOYEES ASSOCIATION
(PALEA), petitioners, vs.PHILIPPINE INTERNATIONAL AIR TERMINALS CO., INC., MANILA
INTERNATIONAL AIRPORT AUTHORITY, DEPARTMENT OF TRANSPORTATION AND
COMMUNICATIONS and SECRETARY LEANDRO M. MENDOZA, in his capacity as Head of the Department
of Transportation and Communications, respondents.
MIASCOR GROUNDHANDLING CORPORATION, DNATAWINGS AVIATION SYSTEMS CORPORATION,

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

SALACNIB F. BATERINA, CLAVEL A. MARTINEZ and CONSTANTINO G. JARAULA,
petitioners, vs. PHILIPPINE INTERNATIONAL AIR TERMINALS CO., INC., MANILA INTERNATIONAL
AIRPORT AUTHORITY, DEPARTMENT OF TRANSPORTATION AND COMMUNICATIONS, DEPARTMENT
OF PUBLIC WORKS AND HIGHWAYS, SECRETARY LEANDRO M. MENDOZA, in his capacity as Head of
the Department of Transportation and Communications, and SECRETARY SIMEON A. DATUMANONG, in his
capacity as Head of the Department of Public Works and Highways, respondents.
JACINTO V. PARAS, RAFAEL P. NANTES, EDUARDO C. ZIALCITA, WILLY BUYSON VILLARAMA,

PROSPERO C. NOGRA
_______________
*
EN BANC.
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LES, PROSPERO A. PICHAY, JR., HARLIN CAST ABAYON, and BENASING O. MACARANBON,
respondents-intervenors.
G.R. No. 155661. May 5, 2003.*

CEFERINO C. LOPEZ, RAMON M. SALES, ALFREDO B. VALENCIA, MA. TERESA V. GAERLAN,
LEONARDO DE LA ROSA, DINA C. DE LEON, VIRGIE CATAMIN RONALD SCHLOBOM, ANGELITO
SANTOS, MA. LUISA M. PALCON and SAMAHANG MANGGAGAWA SA PALIPARAN NG PILIPINAS
(SMPP), petitioners, vs. PHILIPPINE INTERNATIONAL AIR TERMINALS CO., INC., MANILA
INTERNATIONAL AIRPORT AUTHORITY, DEPARTMENT OF TRANSPORTATION AND
COMMUNICATIONS, SECRETARY LEANDRO M. MENDOZA, in his capacity as Head of the Department of
Transportation and Communications, respondents.
Judicial Review; Parties; Locus Standi; The question on legal standing is whether such parties have alleged
such a personal stake in the outcome of the controversy as to assure that concrete adverseness which sharpens the
presentation of issues upon which the court so largely depends for illumination of difficult constitutional
questions.The question on legal standing is whether such parties have alleged such a personal stake in the
outcome of the controversy as to assure that concrete adverseness which sharpens the presentation of issues
upon which the court so largely depends for illumination of difficult constitutional questions. Accordingly, it has
been held that the interest of a person assailing the constitutionality of a statute must be direct and personal.
He must be able to show, not only that the law or any government act is invalid, but also that he sustained or is
in imminent danger of sustaining some direct injury as a result of its enforcement, and not merely that he
suffers thereby in some indefinite way. It must appear that the person complaining has been or is about to be
denied some right or privilege to which he is lawfully entitled or that he is about to be subjected to some
burdens or penalties by reason of the statute or act complained of.
Same; Same; Same; Petitioners who stand to lose their sources of livelihood, a property right which is
zealously protected by the Constitution, have a direct and substantial interest in a controversy which confers on
them the requisite standing.We hold that petitioners have the requisite standing. In the above-mentioned
cases, petitioners have a direct and substantial interest to protect by reason of the implementation of the
PIATCO Contracts. They stand to lose their source of livelihood, a property right which is zealously protected by
the Constitution. Moreover,
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subsisting concession agreements between MIAA and petitioners-intervenors and service contracts
between international airlines and petitioners-intervenors stand to be nullified or terminated by the operation of
the NAIA IPT III under the PIATCO Contracts. The financial prejudice brought about by the PIATCO Contracts
on petitioners and petitioners-intervenors in these cases are legitimate interests sufficient to confer on them the
requisite standing to file the instant petitions.
Same; Same; Same; Standing is a peculiar concept in constitutional law because in some cases, suits are
not brought by parties who have been personally injured by the operation of a law or any other government act but
by concerned citizens, taxpayers or voters who actually sue in the public interest; In view of the serious legal
questions involved and their impact on public interest, the Court resolves to grant standing to the petitioners.
Standing is a peculiar concept in constitutional law because in some cases, suits are not brought by parties
who have been personally injured by the operation of a law or any other government act but by concerned
citizens, taxpayers or voters who actually sue in the public interest. Although we are not unmindful of the cases
of Imus Electric Co. v. Municipality of Imus and Gonzales v. Raquiza wherein this Court held that appropriation
must be made only on amounts immediately demandable, public interest demands that we take a more liberal
view in determining whether the petitioners suing as legislators, taxpayers and citizens have locus standi to file
the instant petition. In Kilosbayan, Inc. v. Guingona, this Court held [i]n line with the liberal policy of this
Court on locus standi, ordinary taxpayers, members of Congress, and even association of planters, and non-
profit civic organizations were allowed to initiate and prosecute actions before this Court to question the
constitutionality or validity of laws, acts, decisions, rulings, or orders of various government agencies or
instrumentalities. Further, insofar as taxpayers suits are concerned . . . (this Court) is not devoid of
discretion as to whether or not it should be entertained. As such . . . even if, strictly speaking, they [the
petitioners] are not covered by the definition, it is still within the wide discretion of the Court to waive the
requirement and so remove the impediment to its addressing and resolving the serious constitutional questions
raised. In view of the serious legal questions involved and their impact on public interest, we resolve to grant
standing to the petitioners.
Courts; Supreme Court; Hierarchy of Courts; Where a controversy involves significant legal questions and
the facts necessary to resolve such legal questions are well established and, hence, need not be determined by a
trial court, the Supreme Court may assume jurisdiction over such controversy.Respondent PIATCO further
alleges that this Court is without jurisdiction to review the instant cases as factual issues are involved which
this Court is ill-equipped to resolve. Moreover, PIATCO alleges that submission of this controversy to this Court
at the first instance is a viola-
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tion of the rule on hierarchy of courts. They contend that trial courts have concurrent jurisdiction with this
Court with respect to a special civil action for prohibition and hence, following the rule on hierarchy of courts,
resort must first be had before the trial courts. After a thorough study and careful evaluation of the issues
involved, this Court is of the view that the crux of the instant controversy involves significant legal
questions. The facts necessary to resolve these legal questions are well established and, hence, need not be
determined by a trial court.
Same; Same; Same; The rule on hierarchy of courts may be relaxed when the redress desired cannot be
obtained in the appropriate courts or where exceptional and compelling circumstances justify availment of a
remedy within and calling for the exercise of the Supreme Courts primary jurisdiction.The rule on hierarchy of
courts will not also prevent this Court from assuming jurisdiction over the cases at bar. The said rule may be
relaxed when the redress desired cannot be obtained in the appropriate courts or where exceptional and
compelling circumstances justify availment of a remedy within and calling for the exercise of this Courts primary
jurisdiction. It is easy to discern that exceptional circumstances exist in the cases at bar that call for the
relaxation of the rule. Both petitioners and respondents agree that these cases are of transcendental
importance as they involve the construction and operation of the countrys premier international airport.
Moreover, the crucial issues submitted for resolution are of first impression and they entail the proper legal
interpretation of key provisions of the Constitution, the BOT Law and its Implementing Rules and Regulations.
Thus, considering the nature of the controversy before the Court, procedural bars may be lowered to give way for
the speedy disposition of the instant cases.
Actions; Alternative Dispute Resolution; Arbitration; Where petitioners are not parties to a contract with an
arbitration clause, they cannot be compelled to submit to arbitration proceedings; A speedy and decisive
resolution of all the critical issues in the present controversy, including those raised by petitioners, cannot be
made before an arbitral tribunal.It is established that petitioners in the present cases who have presented
legitimate interests in the resolution of the controversy are not parties to the PIATCO Contracts. Accordingly,
they cannot be bound by the arbitration clause provided for in the ARCA and hence, cannot be compelled to
submit to arbitration proceedings. A speedy and decisive resolution of all the critical issues in the present
controversy, including those raised by petitioners, cannot be made before an arbitral tribunal. The object of
arbitration is precisely to allow an expeditious determination of a dispute. This objective would not be met if this
Court were to allow the parties to settle the cases by arbitration as there are certain issues involving non-
parties to the PIATCO Contracts which the arbitral tribunal will not be equipped to resolve.
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Bids and Bidding; The purpose of pre-qualification in any public bidding is to determine, at the earliest
opportunity, the ability of the bidder to undertake the project, with the government agency examining and
determining the ability of the bidder to fund the entire cost for the project by considering the maximum amounts
that each bidder may invest in the project at the time of pre-qualification.The purpose of pre-qualification in
any public bidding is to determine, at the earliest opportunity, the ability of the bidder to undertake the project.
Thus, with respect to the bidders financial capacity at the pre-qualification stage, the law requires the
government agency to examine and determine the ability of the bidder to fund the entire cost of the project by
considering the maximum amounts that each bidder may invest in the project at the time of pre-qualification. The
PBAC has determined that any prospective bidder for the construction, operation and maintenance of the NAIA
IPT III project should prove that it has the ability to provide equity in the minimum amount of 30% of the
project cost, in accordance with the 70:30 debt-to-equity ratio prescribed in the Bid Documents. Thus, in the
case of Paircargo Consortium, the PBAC should determine the maximum amounts that each member of the
consortium may commit for the construction, operation and maintenance of the NAIA IPT III project at the time
of pre-qualification. With respect to Security Bank, the maximum amount which may be invested by it would
only be 15% of its net worth in view of the restrictions imposed by the General Banking Act. Disregarding the
investment ceilings provided by applicable law would not result in a proper evaluation of whether or not a bidder
is pre-qualified to undertake the project as for all intents and purposes, such ceiling or legal restriction
determines the true maximum amount which a bidder may invest in the project.
Same; The determination of whether or not a bidder is pre-qualified to undertake the project requires an
evaluation of the financial capacity of the said bidder at the time the bid is submitted based on the required
documents by the bidder and the Pre-Qualification, Bid and Awards Committee (PBAC) should not be allowed to
speculate on the future financial ability of the bidder to undertake the project on the basis of the documents
submitted; Strict observance for the rules, regulations, and guidelines of the bidding process is the only safeguard
to a fair, honest and competitive public bidding.The determination of whether or not a bidder is prequalified to
undertake the project requires an evaluation of the financial capacity of the said bidder at the time the bid is
submitted based on the required documents presented by the bidder. The PBAC should not be allowed to
speculate on the future financial ability of the bidder to undertake the project on the basis of documents
submitted. This would open doors to abuse and defeat the very purpose of a public bidding. This is especially
true in the case at bar which involves the investment of billions of pesos by the project proponent. The relevant
government authority is duty-bound to ensure that the awardee of the contract possesses the
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minimum required financial capability to complete the project. To allow the PBAC to estimate the bidders
future financial capability would not secure the viability and integrity of the project. A restrictive and
conservative application of the rules and procedures of public bidding is necessary not only to protect the
impartiality and regularity of the proceedings but also to ensure the financial and technical reliability of the
project. It has been held that: The basic rule in public bidding is that bids should be evaluated based on the
required documents submitted before and not after the opening of bids. Otherwise, the foundation of a fair and
competitive public bidding would be defeated. Strict observance of the rules, regulations, and guidelines of the
bidding process is the only safeguard to a fair, honest and competitive public bidding.
Same; Considering that at the pre-qualification stage, the maximum amounts which the Paircargo
Consortium may invest in the project fell short of the minimum amounts prescribed by the PBAC, the Court holds
that Paircargo Consortium was not a qualified bidder.If the maximum amount of equity that a bidder may
invest in the project at the time the bids are submitted falls short of the minimum amounts required to be put up
by the bidder, said bidder should be properly disqualified. Considering that at the pre-qualification stage, the
maximum amounts which the Paircargo Consortium may invest in the project fell short of the minimum
amounts prescribed by the PBAC, we hold that Paircargo Consortium was not a qualified bidder. Thus the award
of the contract by the PBAC to the Paircargo Consortium, a disqualified bidder, is null and void. While it would
be proper at this juncture to end the resolution of the instant controversy, as the legal effects of the
disqualification of respondent PIATCOs predecessor would come into play and necessarily result in the nullity
of all the subsequent contracts entered by it in pursuance of the project, the Court feels that it is necessary to
discuss in full the pressing issues of the present controversy for a complete resolution thereof.
Same; By its very nature, public bidding aims to protect the public interest by giving the public the best
possible advantages through open competition.By its very nature, public bidding aims to protect the public
interest by giving the public the best possible advantages through open competition. Thus: Competition must be
legitimate, fair and honest. In the field of government contract law, competition requires, not only bidding upon
a common standard, a common basis, upon the same thing, the same subject matter, the same undertaking, but
also that it be legitimate, fair and honest; and not designed to injure or defraud the government.
Same; An essential element of a publicly bidded contract is that all bidders must be on equal footing, not
simply in terms of application of the procedural rules and regulations imposed by the relevant government
agency, but more importantly, on the contract bidded uponif the winning
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bidder is allowed to later include or modify certain provisions in the contract awarded such that the
contract is altered in any material respect, then the essence of fair competition in the public bidding is destroyed.
An essential element of a publicly bidded contract is that all bidders must be on equal footing. Not simply in
terms of application of the procedural rules and regulations imposed by the relevant government agency, but
more importantly, on the contract bidded upon. Each bidder must be able to bid on the same thing. The rationale
is obvious. If the winning bidder is allowed to later include or modify certain provisions in the contract awarded
such that the contract is altered in any material respect, then the essence of fair competition in the public
bidding is destroyed. A public bidding would indeed be a farce if after the contract is awarded, the winning
bidder may modify the contract and include provisions which are favorable to it that were not previously made
available to the other bidders. Thus: It is inherent in public biddings that there shall be a fair competition
among the bidders. The specifications in such biddings provide the common ground or basis for the bidders. The
specifications should, accordingly, operate equally or indiscriminately upon all bidders.
Same; While a winning bidder is not precluded from modifying or amending certain provisions of the
contract bidded upon, such changes must not constitute substantial or material amendments that would alter the
basic parameters of the contract and would constitute a denial to the other bidders of the opportunity to bid on the
same terms; The determination of whether or not a modification or amendment constitutes a substantial
amendment rests on whether the contract, when taken as a whole, would contain substantially different terms
and conditions that would have the effect of altering the technical and/or financial proposals previously
submitted by other bidders.While we concede that a winning bidder is not precluded from modifying or
amending certain provisions of the contract bidded upon, such changes must not constitute substantial or
material amendments that would alter the basic parameters of the contract and would constitute a denial to the
other bidders of the opportunity to bid on the same terms. Hence, the determination of whether or not a
modification or amendment of a contract bidded out constitutes a substantial amendment rests on whether the
contract, when taken as a whole, would contain substantially different terms and conditions that would have the
effect of altering the technical and/or financial proposals previously submitted by other bidders. The alterations
and modifications in the contract executed between the government and the winning bidder must be such as to
render such executed contract to be an entirely different contract from the one that was bidded upon.
Same; The 1997 Concession Agreement clearly gives PIATCO more favorable terms than what was
available to other bidders at the time the contract was bidded out.When taken as a whole, the changes under
the
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1997 Concession Agreement with respect to reduction in the types of fees that are subject to MIAA
regulation and the relaxation of such regulation with respect to other fees are significant amendments that
substantially distinguish the draft Concession Agreement from the 1997 Concession Agreement. The 1997
Concession Agreement, in this respect, clearly gives PIATCO more favorable terms than what was available to
other bidders at the time the contract was bidded out. It is not very difficult to see that the changes in the 1997
Concession Agreement translate to direct and concrete financial advantages for PIATCO which were not
available at the time the contract was offered for bidding. It cannot be denied that under the 1997 Concession
Agreement only Public Utility Revenues are subject to MIAA regulation. Adjustments of all other fees imposed
and collected by PIATCO are entirely within its control. Moreover, with respect to terminal fees, under the 1997
Concession Agreement, the same is further subject to Interim Adjustments not previously stipulated in the
draft Concession Agreement. Finally, the change in the currency stipulated for Public Utility Revenues under
the 1997 Concession Agreement, except terminal fees, gives PIATCO an added benefit which was not available
at the time of bidding.
Same; Section 4.04 of the 1997 Concession Agreement is an important amendment because it grants
PIATCO a financial advantage or benefit which was not previously made available during the bidding process.
Without going into the validity of this provision at this juncture, suffice it to state that Section 4.04 of the
1997 Concession Agreement may be considered a form of security for the loans PIATCO has obtained to finance
the project, an option that was not made available in the draft Concession Agreement. Section 4.04 is an
important amendment to the 1997 Concession Agreement because it grants PIATCO a financial advantage or
benefit which was not previously made available during the bidding process. This financial advantage is a
significant modification that translates to better terms and conditions for PIATCO.
Same; It has been held that the three principles in public bidding are (1) the offer to the public, (2)
opportunity for competition, and (3) a basis for the exact comparison of bids.We agree that it is not inconsistent
with the rationale and purpose of the BOT Law to allow the project proponent or the winning bidder to obtain
financing for the project, especially in this case which involves the construction, operation and maintenance of
the NAIA IPT III. Expectedly, compliance by the project proponent of its undertakings therein would involve a
substantial amount of investment. It is therefore inevitable for the awardee of the contract to seek alternate
sources of funds to support the project. Be that as it may, this Court maintains that amendments to the contract
bidded upon should always conform to the general policy on public bidding if such procedure is to be faithful to
its real nature and purpose. By its very nature and characteristic, com-
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petitive public bidding aims to protect the public interest by giving the public the best possible advantages
through open competition. It has been held that the three principles in public bidding are (1) the offer to the
public; (2) opportunity for competition; and (3) a basis for the exact comparison of bids. A regulation of the
matter which excludes any of these factors destroys the distinctive character of the system and thwarts the
purpose of its adoption. These are the basic parameters which every awardee of a contract bidded out must
conform to, requirements of financing and borrowing notwithstanding. Thus, upon a concrete showing that, as in
this case, the contract signed by the government and the contract-awardee is an entirely different contract from
the contract bidded, courts should not hesitate to strike down said contract in its entirety for violation of public
policy on public bidding. A strict adherence on the principles, rules and regulations on public bidding must be
sustained if only to preserve the integrity and the faith of the general public on the procedure.
Same; Any government action which permits any substantial variance between the conditions under which
the bids are invited and the contract executed after the award thereof is a grave abuse of discretion amounting to
lack or excess of jurisdiction which warrants proper judicial action.Public bidding is a standard practice for
procuring government contracts for public service and for furnishing supplies and other materials. It aims to
secure for the government the lowest possible price under the most favorable terms and conditions, to curtail
favoritism in the award of government contracts and avoid suspicion of anomalies and it places all bidders in
equal footing. Any government action which permits any substantial variance between the conditions under
which the bids are invited and the contract executed after the award thereof is a grave abuse of discretion
amounting to lack or excess of jurisdiction which warrants proper judicial action.
Same; The fact that substantial amendments were made on the 1997 Concession Agreement renders the
same null and void for being contrary to public policy.In view of the above discussion, the fact that the
foregoing substantial amendments were made on the 1997 Concession Agreement renders the same null and
void for being contrary to public policy. These amendments convert the 1997 Concession Agreement to
an entirely different agreement from the contract bidded out or the draft Concession Agreement. It is not difficult
to see that the amendments on (1) the types of fees or charges that are subject to MIAA regulation or control
and the extent thereof and (2) the assumption by the Government, under certain conditions, of the liabilities of
PIATCO directly translates concrete financial advantages to PIATCO that were previously not available during
the bidding process. These amendments cannot be taken as merely supplements to or implementing provisions
of those already existing in the draft Concession Agreement. The amendments discussed above present new
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terms and conditions which provide financial benefit to PIATCO which may have altered the technical and
financial parameters of other bidders had they known that such terms were available.
Same; Build-Operate-and-Transfer (BOT) Projects; Direct government guarantee is prohibited by the law on
BOT projects.It is clear from the above-quoted provisions that Government, in the event that PIATCO defaults
in its loan obligations, is obligated to pay all amounts recorded and from time to time outstanding from the
books of PIATCO which the latter owes to its creditors. These amounts include all interests, penalties,
associated fees, charges, surcharges, indemnities, reimbursements and other related expenses. This obligation
of the Government to pay PIATCOs creditors upon PIATCOs default would arise if the Government opts to take
over NAIA IPT III. It should be noted, however, that even if the Government chooses the second option, which is
to allow PIATCOs unpaid creditors operate NAIA IPT III, the Government is still at a risk of being liable to
PIATCOs creditors should the latter be unable to designate a qualified operator within the prescribed period. In
effect, whatever option the Government chooses to take in the event of PIATCOs failure to fulfill its loan
obligations, the Government is still at a risk of assuming PIATCOs outstanding loans . This is due to the fact
that the Government would only be free from assuming PIATCOs debts if the unpaid creditors would be able to
designate a qualified operator within the period provided for in the contract. Thus, the Governments assumption
of liability is virtually out of its control. The Government under the circumstances provided for in the 1997
Concession Agreement is at the mercy of the existence, availability and willingness of a qualified operator. The
above contractual provisions constitute a direct government guarantee which is prohibited by law.
Same; Same; If the government would in the end still be at a risk of paying the debts incurred by the private
entity in the BOT project, then the purpose of the law is subverted.One of the main impetus for the enactment
of the BOT Law is the lack of government funds to construct the infrastructure and development projects
necessary for economic growth and development. This is why private sector resources are being tapped in order
to finance these projects. The BOT law allows the private sector to participate, and is in fact encouraged to do so
by way of incentives, such as minimizing the unstable flow of returns, provided that the government would not
have to unnecessarily expend scarcely available funds for the project itself. As such, direct guarantee, subsidy
and equity by the government in these projects are strictly prohibited. This is but logical for if the government
would in the end still be at a risk of paying the debts incurred by the private entity in the BOT projects, then the
purpose of the law is subverted.
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Same; Same; The proscription against government guarantee in any form is one of the policy considerations
behind the BOT Law.The proscription against government guarantee in any form is one of the policy
considerations behind the BOT Law. Clearly, in the present case, the ARCA obligates the Government to pay for
all loans, advances and obligations arising out of financial facilities extended to PIATCO for the implementation
of the NAIA IPT III project should PIATCO default in its loan obligations to its Senior Lenders and the latter
fails to appoint a qualified nominee or transferee. This in effect would make the Government liable for PIATCOs
loans should the conditions as set forth in the ARCA arise. This is a form of direct government guarantee.
Same; Same; The BOT Law clearly and strictly prohibits direct government guarantee, subsidy and equity
in unsolicited proposals that the mere inclusion of a provision to that effect is fatal and is sufficient to deny the
proposal; It stands to reason that if a proposal can be denied by reason of the existence of direct government
guarantee, then its inclusion in the contract executed after the said proposal has been accepted is likewise
sufficient to invalidate the contract itself.The BOT Law and its implementing rules provide that in order for an
unsolicited proposal for a BOT project may be accepted, the following conditions must first be met: (1) the project
involves a new concept in technology and/or is not part of the list of priority projects, (2) no direct government
guarantee, subsidy or equity is required, and (3) the government agency or local government unit has invited by
publication other interested parties to a public bidding and conducted the same. The failure to meet any of the
above conditions will result in the denial of the proposal. It is further provided that the presence of direct
government guarantee, subsidy or equity will necessarily disqualify a proposal from being treated and accepted
as an unsolicited proposal. The BOT Law clearly and strictly prohibits direct government guarantee, subsidy
and equity in unsolicited proposals that the mere inclusion of a provision to that effect is fatal and is sufficient to
deny the proposal. It stands to reason therefore that if a proposal can be denied by reason of the existence of
direct government guarantee, then its inclusion in the contract executed after the said proposal has been
accepted is likewise sufficient to invalidate the contract itself. A prohibited provision, the inclusion of which
would result in the denial of a proposal cannot, and should not, be allowed to later on be inserted in the contract
resulting from the said proposal. The basic rules of justice and fair play alone militate against such an
occurrence and must not, therefore, be countenanced particularly in this instance where the government is
exposed to the risk of shouldering hundreds of million of dollars in debt.
Same; Same; The Supreme Court has long and consistently adhered to the legal maxim that those that
cannot be done directly cannot be done indirectly.This Court has long and consistently adhered to the legal
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maxim that those that cannot be done directly cannot be done indirectly. To declare the PIATCO contracts
valid despite the clear statutory prohibition against a direct government guarantee would not only make a
mockery of what the BOT Law seeks to preventwhich is to expose the government to the risk of incurring a
monetary obligation resulting from a contract of loan between the project proponent and its lenders and to which
the Government is not a party tobut would also render the BOT Law useless for what it seeks to achieveto
make use of the resources of the private sector in the financing, operation and maintenance of infrastructure and
development projects which are necessary for national growth and development but which the government,
unfortunately, could ill-afford to finance at this point in time.
Public Utilities; Police Power; Temporary Takeover of Business Affected with Public Interest; When the
government temporarily takes over a business affected with public interest pursuant to Article XII, Section 17 of
the Constitution, it is not required to compensate the private entity-owner of the said business as there is no
transfer of ownership, whether permanent or temporary, and the private entity-owner affected by the temporary
takeover cannot, likewise, claim just compensation for the use of the said business and its properties as the
temporary takeover by the government is in exercise of its police power and not of its power of eminent domain.
The above provision pertains to the right of the State in times of national emergency, and in the exercise of its
police power, to temporarily take over the operation of any business affected with public interest. In the 1986
Constitutional Commission, the term national emergency was defined to include threat from external
aggression, calamities or national disasters, but not strikes unless it is of such proportion that would paralyze
government service. The duration of the emergency itself is the determining factor as to how long the
temporary takeover by the government would last. The temporary takeover by the government extends only to
the operation of the business and not to the ownership thereof. As such the government is not required to
compensate the private entity-owner of the said business as there is no transfer of ownership, whether permanent
or temporary. The private entity-owner affected by the temporary takeover cannot, likewise, claim just
compensation for the use of the said business and its properties as the temporary takeover by the government is
in exercise of its police power and not of its power of eminent domain.
Same; Same; Same; Article XII, Section 17 of the 1987 Constitution envisions a situation wherein the
exigencies of the times necessitate the government to temporarily take over or direct the operation of any privately
owned public utility or business affected with public interest; Clearly, the State in effecting the temporary
takeover is exercising its police power and its exercise therefore must not be unreasonably hampered nor its
exercise be a source of obligation by the government in the absence of dam-
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age due to arbitrariness of its exercise, and requiring the government to pay reasonable compensation for
the reasonable use of the property pursuant to the operation of the business contravenes the Constitution.
PIATCO cannot, by mere contractual stipulation, contravene the Constitutional provision on temporary
government takeover and obligate the government to pay reasonable cost for the use of the Terminal and/or
Terminal Complex. Article XII, section 17 of the 1987 Constitution envisions a situation wherein the exigencies
of the times necessitate the government to temporarily take over or direct the operation of any privately owned
public utility or business affected with public interest. It is the welfare and interest of the public which is the
paramount consideration in determining whether or not to temporarily take over a particular business. Clearly,
the State in effecting the temporary takeover is exercising its police power. Police power is the most essential,
insistent, and illimitable of powers. Its exercise therefore must not be unreasonably hampered nor its exercise
be a source of obligation by the government in the absence of damage due to arbitrariness of its exercise. Thus,
requiring the government to pay reasonable compensation for the reasonable use of the property pursuant to the
operation of the business contravenes the Constitution.
Same; Monopolies; Words and Phrases; A monopoly is a privilege or peculiar advantage vested in one or
more persons or companies, consisting in the exclusive right (or power) to carry on a particular business or trade,
manufacture a particular article, or control the sale of a particular commodity; Monopolies are not per se
prohibited by the Constitution but may be permitted to exist to aid the government in carrying on an enterprise or
to aid in the performance of various services and functions in the interest of the public; As monopolies are subject
to abuses that can inflict severe prejudice to the public, they are subject to a higher level of State regulation than
an ordinary business undertaking.A monopoly is a privilege or peculiar advantage vested in one or more
persons or companies, consisting in the exclusive right (or power) to carry on a particular business or trade,
manufacture a particular article, or control the sale of a particular commodity. The 1987 Constitution strictly
regulates monopolies, whether private or public, and even provides for their prohibition if public interest so
requires. Article XII, Section 19 of the 1987 Constitution states: Sec. 19. The state shall regulate or prohibit
monopolies when the public interest so requires. No combinations in restraint of trade or unfair competition
shall be allowed. Clearly, monopolies are not per se prohibited by the Constitution but may be permitted to exist
to aid the government in carrying on an enterprise or to aid in the performance of various services and
functions in the interest of the public. Nonetheless, a determination must first be made as to whether public
interest requires a monopoly. As monopolies are subject to abuses that can inflict severe prejudice to the public,
they are subject to a higher level of State regulation than an ordinary business undertaking.
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Same; Same; Air Transportation; Airport Terminals; The operation of an international passenger airport
terminal is no doubt an undertaking imbued with public interest; While it is the declared policy of the BOT Law
to encourage private sector participation by providing a climate of minimum government regulations, the same
does not mean that Government must completely surrender its sovereign power to protect public interest in the
operation of a public utility as a monopolythe right granted to the public utility may be exclusive but the
exercise of the right cannot run riot; The privilege granted to PIATCO is subject to reasonable regulation and
supervision by the Government through the MIAA, which is the government agency authorized to operate the
NAIA complex, as well as DOTC, the department to which MIAA is attached.The operation of an international
passenger airport terminal is no doubt an undertaking imbued with public interest. In entering into a Build-
Operate-and-Transfer contract for the construction, operation and maintenance of NAIA IPT III, the
government has determined that public interest would be served better if private sector resources were used in
its construction and an exclusive right to operate be granted to the private entity undertaking the said project,
in this case PIATCO. Nonetheless, the privilege given to PIATCO is subject to reasonable regulation and
supervision by the Government through the MIAA, which is the government agency authorized to operate the
NAIA complex, as well as DOTC, the department to which MIAA is attached. This is in accord with the
Constitutional mandate that a monopoly which is not prohibited must be regulated. While it is the declared
policy of the BOT Law to encourage private sector participation by providing a climate of minimum government
regulations, the same does not mean that Government must completely surrender its sovereign power to protect
public interest in the operation of a public utility as a monopoly. The operation of said public utility can not be
done in an arbitrary manner to the detriment of the public which it seeks to serve. The right granted to the
public utility may be exclusive but the exercise of the right cannot run riot. Thus, while PIATCO may be
authorized to exclusively operate NAIA IPT III as an international passenger terminal, the Government,
through the MIAA, has the right and the duty to ensure that it is done in accord with public interest. PIATCOs
right to operate NAIA IPT III cannot also violate the rights of third parties.
Same; Same; Same; Same; Contracts; While the service providers presently operating at NAIA Terminal I
do not have an absolute right for the renewal or the extension of their respective contracts, those contracts whose
duration extends beyond NAIA IPT IIIs In-Service-Date should not be unduly prejudicedPIATCO cannot, by
law and certainly not by contract, render a valid and binding contract nugatory.We hold that while the service
providers presently operating at NAIA Terminal I do not have an absolute right for the renewal or the extension
of their respective contracts, those contracts whose duration extends beyond NAIA IPT IIIs In-
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26
Service-Date should not be unduly prejudiced. These contracts must be respected not just by the parties
thereto but also by third parties. PIATCO cannot, by law and certainly not by contract, render a valid and
binding contract nugatory. PIATCO, by the mere expedient of claiming an exclusive right to operate, cannot
require the Government to break its contractual obligations to the service providers. In contrast to the arrastre
and stevedoring service providers in the case of Anglo-Fil Trading Corporation v. Lazaro whose contracts consist
of temporary hold-over permits, the affected service providers in the cases at bar, have a valid and binding
contract with the Government, through MIAA, whose period of effectivity, as well as the other terms and
conditions thereof cannot be violated.
Same; Same; Same; Same; The provisions of the 1997 Concession Agreement and the Amended and
Restated Concession Agreement (ARCA) did not strip government, thru the MIAA, of its right to supervise the
operation of the whole NAIA complex, including NAIA IPT III.In fine, the efficient functioning of NAIA IPT III
is imbued with public interest. The provisions of the 1997 Concession Agreement and the ARCA did not strip
government, thru the MIAA, of its right to supervise the operation of the whole NAIA complex, including NAIA
IPT III. As the primary government agency tasked with the job, it is MIAAs responsibility to ensure that
whoever by contract is given the right to operate NAIA IPT III will do so within the bounds of the law and with
due regard to the rights of third parties and above all, the interest of the public.
VITUG, J., Separate Opinion:
Supreme Court; Jurisdiction; The Supreme Court is bereft of jurisdiction to hear the petition at bar.This
Court is bereft of jurisdiction to hear the petitions at bar. The Constitution provides that the Supreme Court
shall exercise original jurisdiction over, among other actual controversies, petitions for certiorari, prohibition,
mandamus, quo warranto, and habeas corpus. The cases in question, although denominated to be petitions for
prohibition, actually pray for the nullification of the PIATCO contracts and to restrain respondents from
implementing said agreements for being illegal and unconstitutional.
Same; Same; Declaratory Relief; The petitions, in effect, are in the nature of actions for declaratory relief
which are cognizable by regional trial courts.The petitions, in effect, are in the nature of actions for
declaratory relief under Rule 63 of the Rules of Court. The Rules provide that any person interested under a
contract may, before breach or violation thereof, bring an action in the appropriate Regional Trial Court to
determine any question of construction or validity arising, and for a declaration of his rights or duties
thereunder. The Supreme Court assumes no jurisdiction
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over petitions for declaratory relief which are cognizable by regional trial courts.
Same; Same; Separation of Powers; The Supreme Court should not be thought of as having been tasked
with the awesome responsibility of overseeing the entire bureaucracythe Court may not at good liberty intrude,
in the guise of sovereign imprimatur, into every affair of government.As I have so expressed in Tolentino vs.
Secretary of Finance, reiterated in Santiago vs. Guingona, Jr., the Supreme Court should not be thought of as
having been tasked with the awesome responsibility of overseeing the entire bureaucracy. Pervasive and
limitless, such as it may seem to be under the 1987 Constitution, judicial power still succumbs to the paramount
doctrine of separation of powers. The Court may not at good liberty intrude, in the guise of
sovereign imprimatur, into every affair of government. What significance can still then remain of the time-
honored and widely acclaimed principle of separation of powers if, at every turn, the Court allows itself to pass
upon at will the disposition of a co-equal, independent and coordinate branch in our system of government. I
dread to think of the so varied uncertainties that such an undue interference can lead to.
PANGANIBAN, J., Separate Opinion:
Courts; Judicial Review; The Court has, in the past, held that questions relating to gargantuan government
contracts ought to be settled without delay.The Court has, in the past, held that questions relating to
gargantuan government contracts ought to be settled without delay. This holding applies with greater force to
the instant cases. Respondent Piatco is partly correct in averring that petitioners can obtain relief from the
regional trial courts via an action to annul the contracts.
Same; Same; Alternative Dispute Resolution; Arbitration; Public Utilities; Build-Operate-and-Transfer
(BOT) Projects; International Airport Terminal; The Piatco contracts are void in their entiretyresort to
arbitration is unavailing.As will be discussed at length later, the Piatco contracts are indeed void in their
entirety; thus, a resort to the aforesaid provision on arbitration is unavailing. Besides, petitioners and
petitioners-in-intervention have pointed out that, even granting arguendo that the arbitration clause remained
a valid provision, it still cannot bind them inasmuch as they are not parties to the Piatco contracts. And in the
final analysis, it is unarguable that the arbitration process provided for under Section 10.02 of the ARCA, to be
undertaken by a panel of three (3) arbitrators appointed in accordance with the Rules of Arbitration of the
International Chamber of Commerce, will not be able to address, determine and
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28
definitively resolve the constitutional and legal questions that have been raised in the Petitions before us.
Same; Same; Parties; Locus Standi; In cases of transcendental importance, the Court may relax the
standing requirements and allow a suit to prosper even when there is no direct injury to the party claiming the
right of judicial review.And even if petitioners and petitioners-in-intervention were not sufficiently clothed
with legal standing, I have at the outset already established that, given its impact on the public and on national
interest, this controversy is laden with transcendental importance and constitutional significance. Hence, I do
not hesitate to adopt the same position as was enunciated in Kilosbayan v. Guingona, Jr. that in cases of
transcendental importance, the Court may relax the standing requirements and allow a suit to prosper even when
there is no direct injury to the party claiming the right of judicial review.
Bids and Bidding; It is unarguably and contrary to the very concept of public bidding to permit a variance
between the conditions under which bids are invited and those under which proposals are submitted and
approved.By virtue of the prequalified status conferred upon the Paircargo, Undersecretary Cals 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 Courts consistent
doctrine emphasizing the strict application of pertinent rules, regulations and guidelines for the public bidding
process, in order to place each bidderactual or potentialon the same footing. Thus, it is unarguably irregular
and contrary to the very concept of public bidding to permit a variance between the conditions under which bids
are invited and those under which proposals are submitted and approved.
Same; Public Utilities; Build-Operate-and-Transfer (BOT) Projects; The propriety information referred to
in Section 11.6 of the IRR pertains only to the proprietary information of the originator of an unsolicited
proposal, and not to those belonging to a challenger; Patently, the intent of the BOT Law is to encourage
individuals and groups to come up with creative innovations, fresh ideas and new technologyhence, the
significance and necessity of protecting propriety information in connection with unsolicited proposals.The
proprietary information referred to in Section 11.6 of the IRR pertains only to the proprietary information of
the originator of an unsolicited proposal, and not to those belonging to a challenger. The reason for the
protection accorded proprietary information at all is the fact that, according to Section 4-A of the BOT Law as
amended, a proposal qualifies as an unsolicited proposal when it pertains to a project that involves a new
concept or technology, and/or a project that is not on the governments list of priority projects. To be considered
as utilizing a new concept or technology, a project must involve the possession of exclusive
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rights (worldwide or regional) over a process; or possession of intellectual property rights over a design,
methodology or engineering concept. Patently, the intent of the BOT Law is to encourage individuals and groups
to come up with creative innovations, fresh ideas and new technology. Hence, the significance and necessity of
protecting proprietary information in connection with unsolicited proposals. And to make the encouragement
real, the law also extends to such individuals and groups what amounts to a right of first refusal to undertake
the project they conceptualized, involving the use of new technology or concepts, through the mechanism of
matching a price challenge.
Same; Same; Same; Allowing the winning bidder to renegotiate the contract for which the bidding process
has ended is tantamount to permitting it to put in anything it wants.The aforementioned case dealt with the
unauthorized amendment of a contract executed after public bidding; in the situation before us, the
amendments were made also after the bidding, but prior to execution. Be that as it may, the same rationale
underlying Caltex applies to the present situation with equal force. Allowing the winning bidder to renegotiate
the contract for which the bidding process has ended is tantamount to permitting it to put in anything it wants.
Here, the winning bidder (Piatco) did not even bother to wait until after actual execution of the contract before
rushing to amend it. Perhaps it believed that if the changes were made to a contract already won through
bidding (DCA) instead of waiting until it is executed, the amendments would not be noticed or discovered by the
public.
Same; Same; Same; Franchises;The constitutional prohibition against the exclusivity of a franchise applies
to the franchise for the operation of NAIA Terminal III.While Section 2.02 of the ARCA spoke of granting to
Piatco a franchise to operate and maintain the Terminal Complex, Section 3.02(a) of the same ARCA granted
to Piatco, for the entire term of the concession agreement, the exclusive right to operate a commercial
international passenger terminal within the Island of Luzon with the exception of those three terminals already
existing at the time of execution of the ARCA. Section 11 of Article XII of the Constitution prohibits the grant of
a franchise, certificate, or any other form of authorization for the operation of a public utility that is exclusive
in character. In its Opinion No. 078, Series of 1995, the Department of Justice held that the NAIA Terminal III
which x x x is a terminal for public use is a public utility. Consequently, the constitutional prohibition against
the exclusivity of a franchise applies to the franchise for the operation of NAIA Terminal III as well.
Same; Same; Same; Unjust Enrichment; The government should pay for reasonable expenses incurred in
the construction of the NAIA Terminal III, otherwise it will be unjustly enriching itself at the expense of Piatco
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and, in particular, its finders, contractors and investorsboth local and foreign.Should government pay
at all for reasonable expenses incurred in the construction of the Terminal? Indeed it should, otherwise it will be
unjustly enriching itself at the expense of Piatco and, in particular, its funders, contractors and investorsboth
local and foreign. After all, there is no question that the State needs and will make use of Terminal III, it being
part and parcel of the critical infrastructure and transportationrelated programs of government. In Melchor v.
Commission on Audit, this Court held that even if the contract therein was void, the principle of payment
by quantum meruit was found applicable, and the contractor was allowed to recover the reasonable value of the
thing or services rendered (regardless of any agreement as to the supposed value), in order to avoid unjust
enrichment on the part of government. The principle of quantum meruit was likewise applied in Eslao v.
Commission on Audit, because to deny payment for a building almost completed and already occupied would be
to permit government to unjustly enrich itself at the expense of the contractor. The same principle was applied
in Republic v. Court of Appeals.
SPECIAL CIVIL ACTION in the Supreme Court. Prohibition.
The facts are stated in the opinion of the Court.

Salonga, Hernandez & Mendoza for petitioners in G.R. No. 155001.
Jose A. Bernas for petitioners in G.R. No. 155547.
Erwin P. Erfe for petitioners in G.R. No. 155661.
Jose Espinas for MWU-NLU.
Jose E. Marigondon for PALEA.
Angara, Abello, Concepcion, Regala & Cruz for petitioners-in-intervention.
Arthur D. Lim Law Office for Asias Emerging Dragon, etc.
Romulo, Mabanta, Buenaventura, Sayoc & Delos Angeles; Chavez & Laureta & Associates; and Moises
Tolentino, Jr. for PIATCO.
Office of the Government Corporate Counsel for MIAA.
Mario E. Ongkiko, Fernando F. Manas, Jr., Raymund C. De Castro and Angelito S. Lazaro, Jr. for
respondents-intervenors.
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VOL. 402, MAY 5, 2003 631
PUNO, J.:
Petitioners and petitioners-in-intervention filed the instant petitions for prohibition under Rule 65 of the
Revised Rules of Court seeking to prohibit the Manila International Airport Authority (MIAA) and the
Department of Transportation and Communications (DOTC) and its Secretary from implementing the following
agreements executed by the Philippine Government through the DOTC and the MIAA and the Philippine
International Air Terminals Co., Inc. (PIATCO): (1) the Concession Agreement signed on July 12, 1997, (2) the
Amended and Restated Concession Agreement dated November 26, 1999, (3) the First Supplement to the
Amended and Restated Concession Agreement dated August 27, 1999, (4) the Second Supplement to the
Amended and Restated Concession Agreement dated September 4, 2000, and (5) the Third Supplement to the
Amended and Restated Concession Agreement dated June 22, 2001 (collectively, the PIATCO Contracts).
The facts are as follows:
In August 1989, the DOTC engaged the services of Aeroport de Paris (ADP) to conduct a comprehensive
study of the Ninoy Aquino International Airport (NAIA) and determine whether the present airport can cope
with the traffic development up to the year 2010. The study consisted of two parts: first, traffic forecasts,
capacity of existing facilities, NAIA future requirements, proposed master plans and development plans; and
second, presentation of the preliminary design of the passenger terminal building. The ADP submitted a Draft
Final Report to the DOTC in December 1989.
Some time in 1993, six business leaders consisting of John Gokongwei, Andrew Gotianun, Henry Sy, Sr.,
Lucio Tan, George Ty and Alfonso Yuchengco met with then President Fidel V. Ramos to explore the possibility
of investing in the construction and operation of a new international airport terminal. To signify their
commitment to pursue the project, they formed the Asias Emerging Dragon Corp. (AEDC) which was registered
with the Securities and Exchange Commission (SEC) on September 15, 1993.
On October 5, 1994, AEDC submitted an unsolicited proposal to the Government through the DOTC/MIAA
for the development of NAIA International Passenger Terminal III (NAIA IPT III) under
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a build-operate-and-transfer arrangement pursuant to RA 6957 as amended by RA 7718 (BOT Law).1
On December 2, 1994, the DOTC issued Dept. Order No. 94-832 constituting the Prequalification Bids and
Awards Committee (PBAC) for the implementation of the NAIA IPT III project.
On March 27, 1995, then DOTC Secretary Jose Garcia endorsed the proposal of AEDC to the National
Economic and Development Authority (NEDA). A revised proposal, however, was forwarded by the DOTC to
NEDA on December 13, 1995. On January 5, 1996, the NEDA Investment Coordinating Council (NEDA ICC)-
Technical Board favorably endorsed the project to the ICC-Cabinet Committee which approved the same, subject
to certain conditions, on January 19, 1996. On February 13, 1996, the NEDA passed Board Resolution No. 2
which approved the NAIA IPT III project.
On June 7, 14, and 21, 1996, DOTC/MIAA caused the publication in two daily newspapers of an invitation
for competitive or comparative proposals on AEDCs unsolicited proposal, in accordance with Sec. 4-A of RA
6957, as amended. The alternative bidders were required to submit three (3) sealed envelopes on or before 5:00
p.m. of September 20, 1996. The first envelope should contain the Prequalification Documents, the second
envelope the Technical Proposal, and the third envelope the Financial Proposal of the proponent.
On June 20, 1996, PBAC Bulletin No. 1 was issued, postponing the availment of the Bid Documents and the
submission of the comparative bid proposals. Interested firms were permitted to obtain the Request for Proposal
Documents beginning June 28, 1996, upon submission of a written application and payment of a non-refundable
fee of P50,000.00 (US$2,000).
The Bid Documents issued by the PBAC provided among others that the proponent must have adequate
capability to sustain the financing requirement for the detailed engineering, design, construction, operation, and
maintenance phases of the project. The proponent would be evaluated based on its ability to provide a minimum
amount of equity to the project, and its capacity to secure external financing for the project.
_______________
1
An Act Authorizing the Financing, Construction, Operation and Maintenance of Infrastructure Projects by
the Private Sector.
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VOL. 402, MAY 5, 2003 633
On July 23, 1996, the PBAC issued PBAC Bulletin No. 2 inviting all bidders to a pre-bid conference on July 29,
1996.
On August 16, 1996, the PBAC issued PBAC Bulletin No. 3 amending the Bid Documents. The following
amendments were made on the Bid Documents:
1. a.Aside from the fixed Annual Guaranteed Payment, the proponent shall include in its financial
proposal an additional percentage of gross revenue share of the Government, as follows:
1. i.First 5 years 5.0%
2. ii.Next 10 years 7.5%
3. iii.Next 10 years 10.0%
1. b.The amount of the fixed Annual Guaranteed Payment shall be subject of the price challenge.
Proponent may offer an Annual Guaranteed Payment which need not be of equal amount, but
payment of which shall start upon site possession.
2. c.The project proponent must have adequate capability to sustain the financing requirement for the
detailed engineering, design, construction, and/or operation and maintenance phases of the project as
the case may be. For purposes of pre-qualification, this capability shall be measured in terms of:
1. i.Proof of the availability of the project proponent and/or the consortium to provide the minimum
amount of equity for the project; and
2. ii.a letter testimonial from reputable banks attesting that the project proponent and/or the members of
the consortium are banking with them, that the project proponent and/or the members are of good
financial standing, and have adequate resources.
1. d.The basis for the prequalification shall be the proponents compliance with the minimum technical
and financial requirements provided in the Bid Documents and the IRR of the BOT Law. The
minimum amount of equity shall be 30% of the Project Cost.
2. e.Amendments to the draft Concession Agreement shall be issued from time to time. Said amendments
shall only cover items that would not materially affect the preparation of the proponents proposal.
On August 29, 1996, the Second Pre-Bid Conference was held where certain clarifications were made. Upon the
request of prospective bidder Peoples Air Cargo & Warehousing Co., Inc (Paircargo), the PBAC warranted that
based on Sec. 11.6, Rule 11 of the Implementing Rules and Regulations of the BOT Law, only the
634
proposed Annual Guaranteed Payment submitted by the challengers would be revealed to AEDC, and that the
challengers technical and financial proposals would remain confidential. The PBAC also clarified that the list of
revenue sources contained in Annex 4.2a of the Bid Documents was merely indicative and that other revenue
sources may be included by the proponent, subject to approval by DOTC/MIAA. Furthermore, the PBAC clarified
that only those fees and charges denominated as Public Utility Fees would be subject to regulation, and those
charges which would be actually deemed Public Utility Fees could still be revised, depending on the outcome of
PBACs query on the matter with the Department of Justice.
In September 1996, the PBAC issued Bid Bulletin No. 5, entitled Answers to the Queries of PAIRCARGO as
Per Letter Dated September 3 and 10, 1996. Paircargos queries and the PBACs responses were as follows:
1. 1.It is difficult for Paircargo and Associates to meet the required minimum equity requirement as
prescribed in Section 8.3.4 of the Bid Documents considering that the capitalization of each member
company is so structured to meet the requirements and needs of their current respective business
undertaking/activities. In order to comply with this equity requirement, Paircargo is requesting PBAC
to just allow each member of (sic) corporation of the Joint Venture to just execute an agreement that
embodies a commitment to infuse the required capital in case the project is awarded to the Joint
Venture instead of increasing each corporations current authorized capital stock just for
prequalification purposes.
In prequalification, the agency is interested in ones financial capability at the time of prequalification,
not future or potential capability.
A commitment to put up equity once awarded the project is not enough to establish that present
financial capability. However, total financial capability of all member companies of the Consortium, to
be established by submitting the respective companies audited financial statements, shall be
acceptable.
2. 2.At present, Paircargo is negotiating with banks and other institutions for the extension of a
Performance Security to the joint venture in the event that the Concessions Agreement (sic) is awarded
to them. However, Paircargo is being required to submit a copy of the draft concession as one of the
documentary requirements. Therefore, Paircargo is requesting that theyd (sic) be furnished copy of the
approved negotiated agreement between the PBAC and the AEDC at the soonest possible time.
A copy of the draft Concession Agreement is included in the Bid Documents. Any material changes would be
made known to prospective
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challengers through bid bulletins. However, a final version will be issued before the award of contract.
The PBAC also stated that it would require AEDC to sign Supplement C of the Bid Documents (Acceptance of
Criteria and Waiver of Rights to Enjoin Project) and to submit the same with the required Bid Security.
On September 20, 1996, the consortium composed of Peoples Air Cargo and Warehousing Co., Inc.
(Paircargo), Phil. Air and Grounds Services, Inc. (PAGS) and Security Bank Corp. (Security Bank) (collectively,
Paircargo Consortium) submitted their competitive proposal to the PBAC. On September 23, 1996, the PBAC
opened the first envelope containing the prequalification documents of the Paircargo Consortium. On the
following day, September 24, 1996, the PBAC prequalified the Paircargo Consortium.
On September 26, 1996, AEDC informed the PBAC in writing of its reservations as regards the Paircargo
Consortium, which include:
1. a.The lack of corporate approvals and financial capability of PAIRCARGO;
2. b.The lack of corporate approvals and financial capability of PAGS;
3. c.The prohibition imposed by RA 337, as amended (the General Banking Act) on the amount that
Security Bank could legally invest in the project;
4. d.The inclusion of Siemens as a contractor of the PAIRCARGO Joint Venture, for prequalification
purposes; and
5. e.The appointment of Lufthansa as the facility operator, in view of the Philippine requirement in the
operation of a public utility.
The PBAC gave its reply on October 2, 1996, informing AEDC that it had considered the issues raised by the
latter, and that based on the documents submitted by Paircargo and the established prequalification criteria,
the PBAC had found that the challenger, Paircargo, had prequalified to undertake the project. The Secretary of
the DOTC approved the finding of the PBAC.
The PBAC then proceeded with the opening of the second envelope of the Paircargo Consortium which
contained its Technical Proposal.
636
On October 3, 1996, AEDC reiterated its objections, particularly with respect to Paircargos financial capability,
in view of the restrictions imposed by Section 21-B of the General Banking Act and Sections 1380 and 1381 of
the Manual Regulations for Banks and Other Financial Intermediaries. On October 7, 1996, AEDC again
manifested its objections and requested that it be furnished with excerpts of the PBAC meeting and the
accompanying technical evaluation report where each of the issues they raised were addressed.
On October 16, 1996, the PBAC opened the third envelope submitted by AEDC and the Paircargo
Consortium containing their respective financial proposals. Both proponents offered to build the NAIA
Passenger Terminal III for at least $350 million at no cost to the government and to pay the government: 5%
share in gross revenues for the first five years of operation, 7.5% share in gross revenues for the next ten years of
operation, and 10% share in gross revenues for the last ten years of operation, in accordance with the Bid
Documents. However, in addition to the foregoing, AEDC offered to pay the government a total of P135 million
as guaranteed payment for 27 years while Paircargo Consortium offered to pay the government a total of P17.75
billion for the same period.
Thus, the PBAC formally informed AEDC that it had accepted the price proposal submitted by the Paircargo
Consortium, and gave AEDC 30 working days or until November 28, 1996 within which to match the said bid,
otherwise, the project would be awarded to Paircargo.
As AEDC failed to match the proposal within the 30-day period, then DOTC Secretary Amado Lagdameo, on
December 11, 1996, issued a notice to Paircargo Consortium regarding AEDCs failure to match the proposal.
On February 27, 1997, Paircargo Consortium incorporated into Philippine International Airport Terminals
Co., Inc. (PIATCO).
AEDC subsequently protested the alleged undue preference given to PIATCO and reiterated its objections as
regards the prequalification of PIATCO.
On April 11, 1997, the DOTC submitted the concession agreement for the second-pass approval of the
NEDA-ICC.
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On April 16, 1997, AEDC filed with the Regional Trial Court of Pasig a Petition for Declaration of Nullity of the
Proceedings, Mandamus and Injunction against the Secretary of the DOTC, the Chairman of the PBAC, the
voting members of the PBAC and Pantaleon D. Alvarez, in his capacity as Chairman of the PBAC Technical
Committee.
On April 17, 1997, the NEDA-ICC conducted an ad referendum to facilitate the approval, on a no-objection
basis, of the BOT agreement between the DOTC and PIATCO. As the ad referendum gathered only four (4) of
the required six (6) signatures, the NEDA merely noted the agreement.
On July 9, 1997, the DOTC issued the notice of award for the project to PIATCO.
On July 12, 1997, the Government, through then DOTC Secretary Arturo T. Enrile, and PIATCO, through
its President, Henry T. Go, signed the Concession Agreement for the Build-Operate-and-Transfer Arrangement
of the Ninoy Aquino International Airport Passenger Terminal III (1997 Concession Agreement). The
Government granted PIATCO the franchise to operate and maintain the said terminal during the concession
period and to collect the fees, rentals and other charges in accordance with the rates or schedules stipulated in
the 1997 Concession Agreement. The Agreement provided that the concession period shall be for twenty-five (25)
years commencing from the in-service date, and may be renewed at the option of the Government for a period
not exceeding twenty-five (25) years. At the end of the concession period, PIATCO shall transfer the development
facility to MIAA.
On November 26, 1998, the Government and PIATCO signed an Amended and Restated Concession
Agreement (ARCA). Among the provisions of the 1997 Concession Agreement that were amended by the ARCA
were: Sec. 1.11 pertaining to the definition of certificate of completion; Sec. 2.05 pertaining to the Special
Obligations of GRP; Sec. 3.02 (a) dealing with the exclusivity of the franchise given to the Concessionaire; Sec.
4.04 concerning the assignment by Concessionaire of its interest in the Development Facility; Sec. 5.08 (c)
dealing with the proceeds of Concessionaires insurance; Sec. 5.10 with respect to the temporary take-over of
operations by GRP; Sec. 5.16 pertaining to the taxes, duties and other imposts that may be levied on the
Concessionaire; Sec. 6.03 as regards the periodic adjustment of public utility fees and charges; the entire
638
Article VIII concerning the provisions on the termination of the contract; and Sec. 10.02 providing for the venue
of the arbitration proceedings in case a dispute or controversy arises between the parties to the agreement.
Subsequently, the Government and PIATCO signed three Supplements to the ARCA. The First Supplement
was signed on August 27, 1999; the Second Supplement on September 4, 2000; and the Third Supplement on
June 22, 2001 (collectively, Supplements).
The First Supplement to the ARCA amended Sec. 1.36 of the ARCA defining Revenues or Gross
Revenues; Sec. 2.05 (d) of the ARCA referring to the obligation of MIAA to provide sufficient funds for the
upkeep, maintenance, repair and/or replacement of all airport facilities and equipment which are owned or
operated by MIAA; and further providing additional special obligations on the part of GRP aside from those
already enumerated in Sec. 2.05 of the ARCA. The First Supplement also provided a stipulation as regards the
construction of a surface road to connect NAIA Terminal II and Terminal III in lieu of the proposed access
tunnel crossing Runway 13/31; the swapping of obligations between GRP and PIATCO regarding the
improvement of Sales Road; and the changes in the timetable. It also amended Sec. 6.01 (c) of the ARCA
pertaining to the Disposition of Terminal Fees; Sec. 6.02 of the ARCA by inserting an introductory paragraph;
and Sec. 6.02 (a) (iii) of the ARCA referring to the Payments of Percentage Share in Gross Revenues.
The Second Supplement to the ARCA contained provisions concerning the clearing, removal, demolition or
disposal of subterranean structures uncovered or discovered at the site of the construction of the terminal by the
Concessionaire. It defined the scope of works; it provided for the procedure for the demolition of the said
structures and the consideration for the same which the GRP shall pay PIATCO; it provided for time extensions,
incremental and consequential costs and losses consequent to the existence of such structures; and it provided
for some additional obligations on the part of PIATCO as regards the said structures.
Finally, the Third Supplement provided for the obligations of the Concessionaire as regards the construction
of the surface road connecting Terminals II and III.
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VOL. 402, MAY 5, 2003 639
Meanwhile, the MIAA which is charged with the maintenance and operation of the NAIA Terminals I and II,
had existing concession contracts with various service providers to offer international airline airport services,
such as in-flight catering, passenger handling, ramp and ground support, aircraft maintenance and provisions,
cargo handling and warehousing, and other services, to several international airlines at the NAIA. Some of
these service providers are the Miascor Group, DNATA-Wings Aviation Systems Corp., and the MacroAsia
Group. Miascor, DNATA and Macro-Asia, together with Philippine Airlines (PAL), are the dominant players in
the industry with an aggregate market share of 70%.
On September 17, 2002, the workers of the international airline service providers, claiming that they stand
to lose their employment upon the implementation of the questioned agreements, filed before this Court a
petition for prohibition to enjoin the enforcement of said agreements.2
On October 15, 2002, the service providers, joining the cause of the petitioning workers, filed a motion for
intervention and a petition-in-intervention.
On October 24, 2002, Congressmen Salacnib Baterina, Clavel Martinez and Constantino Jaraula filed a
similar petition with this Court.3
On November 6, 2002, several employees of the MIAA likewise filed a petition assailing the legality of the
various agreements.4 On December 11, 2002, another group of Congressmen, Hon. Jacinto V. Paras, Rafael P.
Nantes, Eduardo C. Zialcita, Willie B. Villarama, Prospero C. Nograles, Prospero A. Pichay, Jr., Harlin Cast
Abayon and Benasing O. Macaranbon, moved to intervene in the case as Respondents-Intervenors. They filed
their Comment-In-Intervention defending the validity of the assailed agreements and praying for the dismissal
of the petitions.
During the pendency of the case before this Court, President Gloria Macapagal Arroyo, on November 29,
2002, in her speech at the 2002 Golden Shell Export Awards at Malacaang Palace,
_______________
2
G.R. No. 155001.
3
G.R. No. 155547.
4
G.R. No. 155661.
640
stated that she will not honor (PIATCO) contracts which the Executive Branchs legal offices have concluded
(as) null and void.5
Respondent PIATCO filed its Comments to the present petitions on November 7 and 27, 2002. The Office of
the Solicitor General and the Office of the Government Corporate Counsel filed their respective Comments in
behalf of the public respondents.
On December 10, 2002, the Court heard the case on oral argument. After the oral argument, the Court then
resolved in open court to require the parties to file simultaneously their respective Memoranda in amplification
of the issues heard in the oral arguments within 30 days and to explore the possibility of arbitration or
mediation as provided in the challenged contracts.
In their consolidated Memorandum, the Office of the Solicitor General and the Office of the Government
Corporate Counsel prayed that the present petitions be given due course and that judgment be rendered
declaring the 1997 Concession Agreement,
_______________
An international airport is any nations gateway to the world, the first contact of foreigners with the
5
Philippine Republic, especially those foreigners who have not been in contact with the wonderful exports of the
Philippine economy, those foreigners who have not had the benefit of enjoying Philippine export products.
Because for them, when they see your products, that is the face of the Philippines they see. But if they are not
exposed to your products, then its the airport thats the first face of the Philippines they see. Therefore, its not
only a matter of opening yet, but making sure that it is a world class airport that operates without any hitches
at all and without the slightest risk to travelers. But its also emerging as a test case of my administrations
commitment to fight corruption to rid our state from the hold of any vested interest, the Solicitor General, and
the Justice Department have determined that all five agreements covering the NAIA Terminal 3, most of which
were contracted in the previous administration, are null and void. I cannot honor contracts which the Executive
Branchs legal offices have concluded (as) null and void.
I am, therefore, ordering the Department of Justice and the Presidential Anti-Graft Commission to investigate
any anomalies and prosecute all those found culpable in connection with the NAIA contract. But despite all of the
problems involving the PIATCO contracts, I am assuring our people, our travelers, our exporters, my
administration will open the terminal even if it requires invoking the whole powers of the Presidency under the
Constitution and we will open a safe, secure and smoothly functioning airport, a world class airport, as world
class as the exporters we are honoring today. (Speech of President Arroyo, emphasis supplied)
641
VOL. 402, MAY 5, 2003 641
the ARCA and the Supplements thereto void for being contrary to the Constitution, the BOT Law and its
Implementing Rules and Regulations.
On March 6, 2003, respondent PIATCO informed the Court that on March 4, 2003 PIATCO commenced
arbitration proceedings before the International Chamber of Commerce, International Court of Arbitration
(ICC) by filing a Request for Arbitration with the Secretariat of the ICC against the Government of the Republic
of the Philippines acting through the DOTC and MIAA.
In the present cases, the Court is again faced with the task of resolving complicated issues made difficult by
their intersecting legal and economic implications. The Court is aware of the far reaching fall out effects of the
ruling which it makes today. For more than a century and whenever the exigencies of the times demand it, this
Court has never shirked from its solemn duty to dispense justice and resolve actual controversies involving
rights which are legally demandable and enforceable, and to determine whether or not there has been grave
abuse of discretion amounting to lack or excess of jurisdiction. 6 To be sure, this Court will not begin to do
otherwise today.
We shall first dispose of the procedural issues raised by respondent PIATCO which they allege will bar the
resolution of the instant controversy.
Petitioners Legal Standing to File the present Petitions
a. G.R. Nos. 155001 and 155661
In G.R. No. 155001 individual petitioners are employees of various service providers 7 having separate concession
contracts with MIAA and continuing service agreements with various international airlines to provide in-flight
catering, passenger handling, ramp and ground support, aircraft maintenance and provisions, cargo handling
and warehousing and other services. Also included as petitioners are labor unions MIASCOR Workers Union-
National Labor Union and Philippine Airlines Employees Association. These
_______________
6
Art. VIII, Sec. 1, Philippine Constitution.
7
MIASCOR, MACROASIA-EUREST, MACROASIA OGDEN and Philippine Airlines.
642
petitioners filed the instant action for prohibition as taxpayers and as parties whose rights and interests stand
to be violated by the implementation of the PIATCO Contracts.
Petitioners-Intervenors in the same case are all corporations organized and existing under Philippine laws
engaged in the business of providing in-flight catering, passenger handling, ramp and ground support, aircraft
maintenance and provisions, cargo handling and warehousing and other services to several international
airlines at the Ninoy Aquino International Airport. Petitioners-Intervenors allege that as tax-paying
international airline and airport-related service operators, each one of them stands to be irreparably injured by
the implementation of the PIATCO Contracts. Each of the petitioners-intervenors have separate and subsisting
concession agreements with MIAA and with various international airlines which they allege are being interfered
with and violated by respondent PIATCO.
In G.R. No. 155661, petitioners constitute employees of MIAA and Samahang Manggagawa sa Paliparan ng
Pilipinasa legitimate labor union and accredited as the sole and exclusive bargaining agent of all the
employees in MIAA. Petitioners anchor their petition for prohibition on the nullity of the contracts entered into
by the Government and PIATCO regarding the build-operate-and-transfer of the NAIA IPT III. They filed the
petition as taxpayers and persons who have a legitimate interest to protect in the implementation of the
PIATCO Contracts.
Petitioners in both cases raise the argument that the PIATCO Contracts contain stipulations which directly
contravene numerous provisions of the Constitution, specific provisions of the BOT Law and its Implementing
Rules and Regulations, and public policy. Petitioners contend that the DOTC and the MIAA, by entering into
said contracts, have committed grave abuse of discretion amounting to lack or excess of jurisdiction which can be
remedied only by a writ of prohibition, there being no plain, speedy or adequate remedy in the ordinary course of
law.
In particular, petitioners assail the provisions in the 1997 Concession Agreement and the ARCA which grant
PIATCO the exclusive right to operate a commercial international passenger terminal within the Island of
Luzon, except those international airports already existing at the time of the execution of the agreement. The
contracts further provide that upon the commencement of opera-
643
VOL. 402, MAY 5, 2003 643
tions at the NAIA IPT III, the Government shall cause the closure of Ninoy Aquino International Airport
Passenger Terminals I and II as international passenger terminals. With respect to existing concession
agreements between MIAA and international airport service providers regarding certain services or operations,
the 1997 Concession Agreement and the ARCA uniformly provide that such services or operations will not be
carried over to the NAIA IPT III and PIATCO is under no obligation to permit such carry over except through a
separate agreement duly entered into with PIATCO.8
With respect to the petitioning service providers and their employees, upon the commencement of operations
of the NAIA IPT III, they allege that they will be effectively barred from providing international airline airport
services at the NAIA Terminals I and II as all international airlines and passengers will be diverted to the
NAIA IPT III. The petitioning service providers will thus be compelled to contract with PIATCO alone for such
services, with no assurance that subsisting contracts with MIAA and other international airlines will be
respected. Petitioning service providers stress that despite the very competitive market, the substantial capital
investments required and the high rate of fees, they entered into their respective contracts with the MIAA with
the understanding that the said contracts will be in force for the stipulated period, and thereafter, renewed so as
to allow each of the petitioning service providers to recoup their investments and obtain a reasonable return
thereon.
Petitioning employees of various service providers at the NAIA Terminals I and II and of MIAA on the other
hand allege that with the closure of the NAIA Terminals I and II as international passenger terminals under
the PIATCO Contracts, they stand to lose employment.
The question on legal standing is whether such parties have alleged such a personal stake in the outcome of
the controversy as to assure that concrete adverseness which sharpens the presentation of issues upon which
the court so largely depends for illumina-
_______________
8
Sections 3.01 (a) and 3.02, 1997 Concession Agreement; Sections 3.01 (d) and (e) and 3.02, ARCA.
644
tion of difficult constitutional questions.9 Accordingly, it has been held that the interest of a person assailing the
constitutionality of a statute must be direct and personal. He must be able to show, not only that the law or any
government act is invalid, but also that he sustained or is in imminent danger of sustaining some direct injury
as a result of its enforcement, and not merely that he suffers thereby in some indefinite way. It must appear that
the person complaining has been or is about to be denied some right or privilege to which he is lawfully entitled
or that he is about to be subjected to some burdens or penalties by reason of the statute or act complained of.10
We hold that petitioners have the requisite standing. In the above-mentioned cases, petitioners have a direct
and substantial interest to protect by reason of the implementation of the PIATCO Contracts. They stand to lose
their source of livelihood, a property right which is zealously protected by the Constitution. Moreover, subsisting
concession agreements between MIAA and petitioners-intervenors and service contracts between international
airlines and petitioners-intervenors stand to be nullified or terminated by the operation of the NAIA IPT III
under the PIATCO Contracts. The financial prejudice brought about by the PIATCO Contracts on petitioners
and petitioners-intervenors in these cases are legitimate interests sufficient to confer on them the requisite
standing to file the instant petitions.
b. G.R. No. 155547
In G.R. No. 155547, petitioners filed the petition for prohibition as members of the House of Representatives,
citizens and taxpayers. They allege that as members of the House of Representatives, they are especially
interested in the PIATCO Contracts, because the contracts compel the Government and/or the House of
Representatives to appropriate funds necessary to comply with the provisions therein. 11 They cite provisions of
the PIATCO Contracts which require disbursement of unappropriated amounts in compli-
_______________
9
Kilosbayan, Inc. v. Morato, G.R. No. 118910, July 17, 1995, 246 SCRA 540, 562-563, citing Baker v.
Carr, 369 U.S. 186, 7 L. Ed. 633 (1962).
10
Id.; Bayan v. Zamora, G.R. No. 138570, October 10, 2000, 342 SCRA 449, 478.
11
Rollo, G.R. No. 155547, p. 12.
645
VOL. 402, MAY 5, 2003 645
ance with the contractual obligations of the Government. They allege that the Government obligations in the
PIATCO Contracts which compel government expenditure without appropriation is a curtailment of their
prerogatives as legislators, contrary to the mandate of the Constitution that [n]o money shall be paid out of the
treasury except in pursuance of an appropriation made by law.12
Standing is a peculiar concept in constitutional law because in some cases, suits are not brought by parties
who have been personally injured by the operation of a law or any other government act but by concerned
citizens, taxpayers or voters who actually sue in the public interest. Although we are not unmindful of the cases
of Imus Electric Co. v. Municipality of Imus 13 and Gonzales v. Raquiza14 wherein this Court held that
appropriation must be made only on amounts immediately demandable, public interest demands that we take a
more liberal view in determining whether the petitioners suing as legislators, taxpayers and citizens have locus
standi to file the instant petition. In Kilosbayan, Inc. v. Guingona,15 this Court held [i]n line with the liberal
policy of this Court on locus standi, ordinary taxpayers, members of Congress, and even association of planters,
and non-profit civic organizations were allowed to initiate and prosecute actions before this Court to question
the constitutionality or validity of laws, acts, decisions, rulings, or orders of various government agencies or
instrumentalities.16 Further, insofar as taxpayers suits are concerned . . . (this Court) is not devoid of
discretion as to whether or not it should be entertained.17 As such . . . even if, strictly speaking, they [the
petitioners] are not covered by the definition, it is still within the wide discretion of the Court to waive the
requirement and so remove the impediment to its addressing and resolving the serious constitutional questions
raised.18 In view of the serious legal ques-
_______________
12
Article VI, Section 29(1).
13
G.R. No. 39842, March 28, 1934, 59 Phil. 823.
14
G.R. No. 29627, December 19, 198, 180 SCRA 254, 260-261.
15
G.R. No. 113375, May 5, 1994, 232 SCRA 110.
16
Id.
17
Id., citing Tan vs. Macapagal, 43 SCRA 677, 680 [1972].
18
Association of Small Landowners in the Philippines, Inc. vs. Secretary of Agrarian Reform, G.R. No. 78742,
July 14, 1989, 175 SCRA 343, 364-365 [1989].
646
tions involved and their impact on public interest, we resolve to grant standing to the petitioners.
Other Procedural Matters
Respondent PIATCO further alleges that this Court is without jurisdiction to review the instant cases as factual
issues are involved which this Court is ill-equipped to resolve. Moreover, PIATCO alleges that submission of this
controversy to this Court at the first instance is a violation of the rule on hierarchy of courts. They contend that
trial courts have concurrent jurisdiction with this Court with respect to a special civil action for prohibition and
hence, following the rule on hierarchy of courts, resort must first be had before the trial courts.
After a thorough study and careful evaluation of the issues involved, this Court is of the view that the crux
of the instant controversy involves significant legal questions. The facts necessary to resolve these legal
questions are well established and, hence, need not be determined by a trial court.
The rule on hierarchy of courts will not also prevent this Court from assuming jurisdiction over the cases at
bar. The said rule may be relaxed when the redress desired cannot be obtained in the appropriate courts or where
exceptional and compelling circumstances justify availment of a remedy within and calling for the exercise of this
Courts primary jurisdiction.19
It is easy to discern that exceptional circumstances exist in the cases at bar that call for the relaxation of the
rule. Both petitioners and respondents agree that these cases are of transcendental importance as they involve
the construction and operation of the countrys premier international airport. Moreover, the crucial issues
submitted for resolution are of first impression and they entail the proper legal interpretation of key provisions
of the Constitution, the BOT Law and its Implementing Rules and Regulations. Thus, considering the nature of
the controversy before the Court, procedural bars may be lowered to give way for the speedy disposition of the
instant cases.
_______________
19
Santiago v. Vasquez, G.R. Nos. 99289-90, January 27, 1993, 217 SCRA 633, 652.
647
VOL. 402, MAY 5, 2003 647
Legal Effect of the Commencement of Arbitration Proceedings by PIATCO
There is one more procedural obstacle which must be overcome. The Court is aware that arbitration proceedings
pursuant to Section 10.02 of the ARCA have been filed at the instance of respondent PIATCO. Again, we hold
that the arbitration step taken by PIATCO will not oust this Court of its jurisdiction over the cases at bar.
In Del Monte Corporation-USA v. Court of Appeals,20even after finding that the arbitration clause in the
Distributorship Agreement in question is valid and the dispute between the parties is arbitrable, this Court
affirmed the trial courts decision denying petitioners Motion to Suspend Proceedings pursuant to the
arbitration clause under the contract. In so ruling, this Court held that as contracts produce legal effect between
the parties, their assigns and heirs, only the parties to the Distributorship Agreement are bound by its terms,
including the arbitration clause stipulated therein. This Court ruled that arbitration proceedings could be called
for but only with respect to the parties to the contract in question. Considering that there are parties to the case
who are neither parties to the Distributorship Agreement nor heirs or assigns of the parties thereto, this Court,
citing its previous ruling in Salas, Jr. v. Laperal Realty Corporation,21 held that to tolerate the splitting of
proceedings by allowing arbitration as to some of the parties on the one hand and trial for the others on the
other hand would, in effect, result in multiplicity of suits, duplicitous procedure and unnecessary delay. 22 Thus,
we ruled that the interest of justice would best be served if the trial court hears and adjudicates the case in
a single and complete proceeding.
It is established that petitioners in the present cases who have presented legitimate interests in the
resolution of the controversy are not parties to the PIATCO Contracts. Accordingly, they cannot be bound by the
arbitration clause provided for in the ARCA and hence, cannot be compelled to submit to arbitration
proceedings. A
_______________
20
G.R. No. 136154, February 7, 2001, 351 SCRA 373, 381.
21
G.R. No. 135362, December 13, 1999, 320 SCRA 610.
22
Del Monte Corporation-USA v. Court of Appeals, G.R. No. 136154, February 7, 2001, 351 SCRA 373, 382.
648
speedy and decisive resolution of all the critical issues in the present controversy, including those raised by
petitioners, cannot be made before an arbitral tribunal. The object of arbitration is precisely to allow an
expeditious determination of a dispute. This objective would not be met if this Court were to allow the parties to
settle the cases by arbitration as there are certain issues involving non-parties to the PIATCO Contracts which
the arbitral tribunal will not be equipped to resolve.
Now, to the merits of the instant controversy.
I Is PIATCO a qualified bidder?
Public respondents argue that the Paircargo Consortium, PIATCOs predecessor, was not a duly pre-qualified
bidder on the unsolicited proposal submitted by AEDC as the Paircargo Consortium failed to meet the financial
capability required under the BOT Law and the Bid Documents. They allege that in computing the ability of the
Paircargo Consortium to meet the minimum equity requirements for the project, the entire net worth of Security
Bank, a member of the consortium, should not be considered.
PIATCO relies, on the other hand, on the strength of the Memorandum dated October 14, 1996 issued by the
DOTC Undersecretary Primitivo C. Cal stating that the Paircargo Consortium is found to have a combined net
worth of P3,900,000,000.00, sufficient to meet the equity requirements of the project. The said Memorandum
was in response to a letter from Mr. Antonio Henson of AEDC to President Fidel V. Ramos questioning the
financial capability of the Paircargo Consortium on the ground that it does not have the financial resources to
put up the required minimum equity of P2,700,000,000.00. This contention is based on the restriction under
R.A. No. 337, as amended or the General Banking Act that a commercial bank cannot invest in any single
enterprise in an amount more than 15% of its net worth. In the said Memorandum, Undersecretary Cal opined:
The Bid Documents, as clarified through Bid Bulletin Nos. 3 and 5, require that financial capability will be
evaluated based on total financial capability of all the member companies of the [Paircargo] Consortium. In this
connection, the Challenger was found to have a combined net worth of
649
VOL. 402, MAY 5, 2003 649
P3,926,421,242.00 that could support a project costing approximately P13 Billion.
It is not a requirement that the net worth must be unrestricted. To impose that as a requirement now will
be nothing less than unfair.
The financial statement or the net worth is not the sole basis in establishing financial capability. As stated
in Bid Bulletin No. 3, financial capability may also be established by testimonial letters issued by reputable
banks. The Challenger has complied with this requirement.
To recap, net worth reflected in the Financial Statement should not be taken as the amount of the money to
be used to answer the required thirty percent (30%) equity of the challenger but rather to be used in
establishing if there is enough basis to believe that the challenger can comply with the required 30% equity. In
fact, proof of sufficient equity is required as one of the conditions for award of contract (Section 12.1 IRR of the
BOT Law) but not for pre-qualification (Section 5.4 of the same document).23
Under the BOT Law, in case of a build-operate-and-transfer arrangement, the contract shall be awarded to the
bidder who, having satisfied the minimum financial, technical, organizational and legal standards required by
the law, has submitted the lowest bid and most favorable terms of the project. 24 Further, the 1994 Implementing
Rules and Regulations of the BOT Law provide:
Section 5.4. Pre-qualification Requirements.
....
c. Financial Capability: The project proponent must have adequate capability to sustain the financing
requirements for the detailed engineering design, construction and/or operation and maintenance phases of the
project, as the case may be. For purposes of pre-qualification, this capability shall be measured in terms of (i)
proof of the ability of the project proponent and/or the consortium to provide a minimum amount of equity to the
project, and (ii) a letter testimonial from reputable banks attesting that the project proponent and/or members of
the consortium are banking with them, that they are in good financial standing, and that they have adequate
resources. The government agency/LGU concerned shall determine on a project-to-project basis and before pre-
qualification, the minimum amount of equity needed. (emphasis supplied)
_______________
23
Rollo, G.R. No. 155001, pp. 2487-2488.
24
Section 5, R.A. No. 7718.
650
Pursuant to this provision, the PBAC issued PBAC Bulletin No. 3 dated August 16, 1996 amending the financial
capability requirements for pre-qualification of the project proponent as follows:
6. Basis of Pre-qualification
The basis for the pre-qualification shall be on the compliance of the proponent to the minimum technical and
financial requirements provided in the Bid Documents and in the IRR of the BOT Law, R.A. No. 6957, as
amended by R.A. 7718.
The minimum amount of equity to which the proponents financial capability will be based shall be thirty
percent (30%) of the project cost instead of the twenty percent (20%) specified in Section 3.6.4 of the Bid
Documents. This is to correlate with the required debt-to-equity ratio of 70:30 in Section 2.01a of the draft
concession agreement. The debt portion of the project financing should not exceed 70% of the actual project cost.
Accordingly, based on the above provisions of law, the Paircargo Consortium or any challenger to the unsolicited
proposal of AEDC has to show that it possesses the requisite financial capability to undertake the project in the
minimum amount of 30% of the project cost through (i) proof of the ability to provide a minimum amount of
equity to the project, and (ii) a letter testimonial from reputable banks attesting that the project proponent or
members of the consortium are banking with them, that they are in good financial standing, and that they have
adequate resources.
As the minimum project cost was estimated to be US$350,000,000.00 or roughly P9,183,650,000.00, 25 the
Paircargo Consortium had to show to the satisfaction of the PBAC that it had the ability to provide the
minimum equity for the project in the amount of at least P2,755,095,000.00.
Paircargos Audited Financial Statements as of 1993 and 1994 indicated that it had a net worth of
P2,783,592.00 and P3,123,515.00 respectively.26 PAGS Audited Financial Statements as of 1995 indicate that it
has approximately P26,735,700.00 to invest as its equity for the project.27 Security Banks Audited Finan-
_______________
At the United States Dollar-Philippine Peso exchange rate of US$1:P26.239 quoted by the Bangko Sentral
25
ng Pilipinas at that time.

26
Rollo, G.R. No. 155001, pp. 2471-2474.
27
Id., at pp. 2475-2477. Derived from the figures on the authorized capital stock and the shares of stock that
are subscribed and paid-up.
651
VOL. 402, MAY 5, 2003 651
cial Statements as of 1995 show that it has a net worth equivalent to its capital funds in the amount of
P3,523,504,377.00.28
We agree with public respondents that with respect to Security Bank, the entire amount of its net worth
could not be invested in a single undertaking or enterprise, whether allied or non-allied in accordance with the
provisions of R.A. No. 337, as amended or the General Banking Act:
Sec. 21-B. The provisions in this or in any other Act to the contrary notwithstanding, the Monetary Board,
whenever it shall deem appropriate and necessary to further national development objectives or support
national priority projects, may authorize a commercial bank, a bank authorized to provide commercial banking
services, as well as a government-owned and controlled bank, to operate under an expanded commercial banking
authority and by virtue thereof exercise, in addition to powers authorized for commercial banks, the powers of an
Investment House as provided in Presidential Decree No. 129, invest in the equity of a non-allied undertaking, or
own a majority or all of the equity in a financial intermediary other than a commercial bank or a bank
authorized to provide commercial banking services: Provided, That (a) the total investment in equities shall not
exceed fifty percent (50%) of the net worth of the bank; (b) the equity investment in any one enterprise whether
allied or nonallied shall not exceed fifteen percent (15%) of the net worth of the bank; (c) the equity investment of
the bank, or of its wholly or majority-owned subsidiary, in a single non-allied undertaking shall not exceed
thirty-five percent (35%) of the total equity in the enterprise nor shall it exceed thirty-five percent (35%) of the
voting stock in that enterprise; and (d) the equity investment in other banks shall be deducted from the
investing banks net worth for purposes of computing the prescribed ratio of net worth to risk assets.
....
Further, the 1993 Manual of Regulations for Banks provides:
SECTION X383. Other Limitations and Restrictions.The following limitations and restrictions shall also
apply regarding equity investments of banks.
1. a.In any single enterprise.The equity investments of banks in any single enterprise shall not exceed at
any time fifteen percent (15%) of the net worth of the investing bank as defined in Sec. X106 and
Subsec. X121.5.
_______________
28
Id., at pp. 2478-2484.
652
Thus, the maximum amount that Security Bank could validly invest in the Paircargo Consortium is only
P528,525,656.55, representing 15% of its entire net worth. The total net worth therefore of the Paircargo
Consortium, after considering the maximum amounts that may be validly invested by each of its members
is P558,384,871.55 or only 6.08% of the project cost,29 an amount substantially less than the prescribed minimum
equity investment required for the project in the amount of P2,755,095,000.00 or 30% of the project cost.
The purpose of pre-qualification in any public bidding is to determine, at the earliest opportunity, the ability
of the bidder to undertake the project. Thus, with respect to the bidders financial capacity at the pre-
qualification stage, the law requires the government agency to examine and determine the ability of the bidder
to fund the entire cost of the project by considering the maximum amounts that each bidder may invest in the
project at the time of pre-qualification.
The PBAC has determined that any prospective bidder for the construction, operation and maintenance of
the NAIA IPT III project should prove that it has the ability to provide equity in the minimum amount of 30% of
the project cost, in accordance with the 70:30 debt-to-equity ratio prescribed in the Bid Documents. Thus, in the
case of Paircargo Consortium, the PBAC should determine the maximum amounts that each member of the
consortium may commit for the construction, operation and maintenance of the NAIA IPT III project at the time
of pre-qualification. With respect to Security Bank, the maximum amount which may be invested by it would
only be 15% of its net worth in view of the restrictions imposed by the General Banking Act. Disregarding the
investment ceilings provided by applicable law would not result in a proper evaluation of whether or not a bidder
is pre-qualified to undertake the project as for all intents and purposes, such ceiling or legal restriction
determines the true maximum amount which a bidder may invest in the project.
_______________
29
Member Maximum Amount of Equity

Security Bank P528,525,656.55
PAGS 26,735,700.00
Paircargo 3,123,515.00
TOTAL P558,384,871.55
653
VOL. 402, MAY 5, 2003 653
Further, the determination of whether or not a bidder is prequalified to undertake the project requires an
evaluation of the financial capacity of the said bidder at the time the bid is submitted based on the required
documents presented by the bidder. The PBAC should not be allowed to speculate on the future financial
ability of the bidder to undertake the project on the basis of documents submitted. This would open doors to
abuse and defeat the very purpose of a public bidding. This is especially true in the case at bar which involves
the investment of billions of pesos by the project proponent. The relevant government authority is dutybound to
ensure that the awardee of the contract possesses the minimum required financial capability to complete the
project. To allow the PBAC to estimate the bidders future financial capability would not secure the viability and
integrity of the project. A restrictive and conservative application of the rules and procedures of public bidding
is necessary not only to protect the impartiality and regularity of the proceedings but also to ensure the
financial and technical reliability of the project. It has been held that:
The basic rule in public bidding is that bids should be evaluated based on the required documents submitted
before and not after the opening of bids. Otherwise, the foundation of a fair and competitive public bidding
would be defeated. Strict observance of the rules, regulations, and guidelines of the bidding process is the only
safeguard to a fair, honest and competitive public bidding.30
Thus, if the maximum amount of equity that a bidder may invest in the project at the time the bids are
submitted falls short of the minimum amounts required to be put up by the bidder, said bidder should be
properly disqualified. Considering that at the prequalification stage, the maximum amounts which the Paircargo
Consortium may invest in the project fell short of the minimum amounts prescribed by the PBAC, we hold that
Paircargo Consortium was not a qualified bidder. Thus the award of the contract by the PBAC to the Paircargo
Consortium, a disqualified bidder, is null and void.
While it would be proper at this juncture to end the resolution of the instant controversy, as the legal effects
of the disqualification of respondent PIATCOs predecessor would come into play and
_______________
Republic of the Philippines vs. Hon. Ignacio C. Capulong, G.R. No. 93359, July 12, 1991, 199 SCRA 134,
30
146-147. Emphasis supplied.
654
necessarily result in the nullity of all the subsequent contracts entered by it in pursuance of the project, the
Court feels that it is necessary to discuss in full the pressing issues of the present controversy for a complete
resolution thereof.
II Is the 1997 Concession Agreement valid?
Petitioners and public respondents contend that the 1997 Concession Agreement is invalid as it contains
provisions that substantially depart from the draft Concession Agreement included in the Bid Documents. They
maintain that a substantial departure from the draft Concession Agreement is a violation of public policy and
renders the 1997 Concession Agreement null and void.
PIATCO maintains, however, that the Concession Agreement attached to the Bid Documents is intended to
be a draft, i.e., subject to change, alteration or modification, and that this intention was clear to all participants,
including AEDC, and DOTC/MIAA. It argued further that said intention is expressed in Part C (6) of Bid
Bulletin No. 3 issued by the PBAC which states:
6. Amendments to the Draft Concessions Agreement
Amendments to the Draft Concessions Agreement shall be issued from time to time. Said amendments shall
only cover items that would not materially affect the preparation of the proponents proposal.
By its very nature, public bidding aims to protect the public interest by giving the public the best possible
advantages through open competition. Thus:
Competition must be legitimate, fair and honest. In the field of government contract law, competition requires,
not only bidding upon a common standard, a common basis, upon the same thing, the same subject matter, the
same undertaking, but also that it be legitimate, fair and honest; and not designed to injure or defraud the
government.31
An essential element of a publicly bidded contract is that all bidders must be on equal footing. Not simply in
terms of applica-
_______________
Danville Maritime, Inc. v. Commission on Audit, G.R. No. 85285, July 28, 1989, 175 SCRA 701, 713.
31
Citations omitted.
655
VOL. 402, MAY 5, 2003 655
tion of the procedural rules and regulations imposed by the relevant government agency, but more importantly,
on the contract bidded upon. Each bidder must be able to bid on the same thing. The rationale is obvious. If the
winning bidder is allowed to later include or modify certain provisions in the contract awarded such that the
contract is altered in any material respect, then the essence of fair competition in the public bidding is
destroyed. A public bidding would indeed be a farce if after the contract is awarded, the winning bidder may
modify the contract and include provisions which are favorable to it that were not previously made available to
the other bidders. Thus:
It is inherent in public biddings that there shall be a fair competition among the bidders. The specifications in
such biddings provide the common ground or basis for the bidders. The specifications should, accordingly, operate
equally or indiscriminately upon all bidders.32
The same rule was restated by Chief Justice Stuart of the Supreme Court of Minnesota:
The law is well settled that where, as in this case, municipal authorities can only let a contract for public work to
the lowest responsible bidder, the proposals and specifications therefore must be so framed as to permit free and
full competition. Nor can they enter into a contract with the best bidder containing substantial provisions
beneficial to him, not included or contemplated in the terms and specifications upon which the bids were invited.33
In fact, in the PBAC Bid Bulletin No. 3 cited by PIATCO to support its argument that the draft concession
agreement is subject to amendment, the pertinent portion of which was quoted above, the PBAC also clarified
that [s]aid amendments shall only cover items that would not materially affect the preparation of the proponents
proposal.
While we concede that a winning bidder is not precluded from modifying or amending certain provisions of
the contract bidded upon, such changes must not constitute substantial or material amendments that would alter
the basic parameters of the contract
_______________
32
A. Cobacha & D. Lucenario, LAW ON PUBLIC BIDDING AND GOVERNMENT CONTRACTS 13 (1960).
33
Diamond v. City of Mankato, et al., 93 N.W. 912.
656
and would constitute a denial to the other bidders of the opportunity to bid on the same terms. Hence, the
determination of whether or not a modification or amendment of a contract bidded out constitutes a substantial
amendment rests on whether the contract, when taken as a whole, would contain substantially different terms
and conditions that would have the effect of altering the technical and/or financial proposals previously
submitted by other bidders. The alterations and modifications in the contract executed between the government
and the winning bidder must be such as to render such executed contract to be an entirely different contract
from the one that was bidded upon.
In the case of Caltex (Philippines), Inc. v. Delgado Brothers, Inc.,34 this Court quoted with approval the ruling
of the trial court that an amendment to a contract awarded through public bidding, when such subsequent
amendment was made without a new public bidding, is null and void:
The Court agrees with the contention of counsel for the plaintiffs that the due execution of a contract after
public bidding is a limitation upon the right of the contracting parties to alter or amend it without another
public bidding, for otherwise what would a public bidding be good for if after the execution of a contract after
public bidding, the contracting parties may alter or amend the contract, or even cancel it, at their will? Public
biddings are held for the protection of the public, and to give the public the best possible advantages by means of
open competition between the bidders. He who bids or offers the best terms is awarded the contract subject of the
bid, and it is obvious that such protection and best possible advantages to the public will disappear if the parties
to a contract executed after public bidding may alter or amend it without another previous public bidding.35
Hence, the question that comes to fore is this: is the 1997 Concession Agreement the same agreement that was
offered for public bidding, i.e., the draft Concession Agreement attached to the Bid Documents? A close
comparison of the draft Concession Agreement attached to the Bid Documents and the 1997 Concession
Agreement reveals that the documents differ in at least two material respects:
_______________
34
G.R. No. L-5439, December 29, 1954, 96 Phil. 368.
35
Id., at p. 375.
657
VOL. 402, MAY 5, 2003 657
a. Modification on the Public Utility Revenues and Non-Public Utility Revenues that may be collected by PIATCO
The fees that may be imposed and collected by PIATCO under the draft Concession Agreement and the 1997
Concession Agreement may be classified into three distinct categories: (1) fees which are subject to periodic
adjustment of once every two years in accordance with a prescribed parametric formula and adjustments are
made effective only upon written approval by MIAA; (2) fees other than those included in the first category
which maybe adjusted by PIATCO whenever it deems necessary without need for consent of DOTC/MIAA; and
(3) new fees and charges that may be imposed by PIATCO which have not been previously imposed or collected
at the Ninoy Aquino International Airport Passenger Terminal I, pursuant to Administrative Order No. 1,
Series of 1993, as amended. The glaring distinctions between the draft Concession Agreement and the 1997
Concession Agreement lie in the types of fees included in each category and the extent of the supervision and
regulation which MIAA is allowed to exercise in relation thereto.
For fees under the first category, i.e., those which are subject to periodic adjustment in accordance with a
prescribed parametric formula and effective only upon written approval by MIAA, the draft Concession
Agreement includes the following:36
1. (1)aircraft parking fees;
2. (2)aircraft tacking fees;
3. (3)groundhandling fees;
4. (4)rentals and airline offices;
5. (5)check-in counter rentals; and
6. (6)porterage fees.
Under the 1997 Concession Agreement, fees which are subject to adjustment and effective upon MIAA approval
are classified as Public Utility Revenues and include:37
_______________
36
Section 6.03, draft Concession Agreement.
37
Sections 1.33 and 6.03(b), 1997 Concession Agreement.
658
1. (1)aircraft parking fees;

2. (2)aircraft tacking fees;
3. (3)check-in counter fees; and
4. (4)Terminal Fees.
The implication of the reduced number of fees that are subject to MIAA approval is best appreciated in relation
to fees included in the second category identified above. Under the 1997 Concession Agreement, fees which
PIATCO may adjust whenever it deems necessary without need for consent of DOTC/MIAA are Non-Public
Utility Revenues and is defined as all other income not classified as Public Utility Revenues derived from
operations of the Terminal and the Terminal Complex. 38 Thus, under the 1997 Concession Agreement,
groundhandling fees, rentals from airline offices and porterage fees are no longer subject to MIAA regulation.
Further, under Section 6.03 of the draft Concession Agreement, MIAA reserves the right to regulate (1) lobby
and vehicular parking fees and (2) other new fees and charges that may be imposed by PIATCO. Such regulation
may be made by periodic adjustment and is effective only upon written approval of MIAA. The full text of said
provision is quoted below:
Section 6.03. Periodic Adjustment in Fees and Charges. Adjustments in the aircraft parking fees, aircraft tacking
fees, groundhandling fees, rentals and airline offices, check-in-counter rentals and porterage fees shall be
allowed only once every two years and in accordance with the Parametric Formula attached hereto as Annex F.
Provided that adjustments shall be made effective only after the written express approval of the MIAA.
Provided, further, that such approval of the MIAA, shall be contingent only on the conformity of the adjustments
with the above said parametric formula. The first adjustment shall be made prior to the InService Date of the
Terminal.
The MIAA reserves the right to regulate under the foregoing terms and conditions the lobby and vehicular
parking fees and other new fees and charges as contemplated in paragraph 2 of Section 6.01 if in its judgment the
users of the airport shall be deprived of a free option for the services they cover.39
_______________
38
Sections 1.27 and 6.06, 1997 Concession Agreement.
39
Emphasis supplied.
659
VOL. 402, MAY 5, 2003 659
On the other hand, the equivalent provision under the 1997 Concession Agreement reads:
Section 6.03. Periodic Adjustment in Fees and Charges.
....
(c) Concessionaire shall at all times be judicious in fixing fees and charges constituting Non-Public Utility
Revenues in order to ensure that End Users are not unreasonably deprived of services. While the vehicular
parking fee, porterage fee and greeter/well wisher fee constitute Non-Public Utility Revenues of Concessionaire,
GRP may intervene and require Concessionaire to explain and justify the fee it may set from time to time, if in the
reasonable opinion of GRP the said fees have become exorbitant resulting in the unreasonable deprivation of
End Users of such services.40
Thus, under the 1997 Concession Agreement, with respect to (1) vehicular parking fee, (2) porterage fee and (3)
greeter/well wisher fee, all that MIAA can do is to require PIATCO to explain and justify the fees set by
PIATCO. In the draft Concession Agreement, vehicular parking fee is subject to MIAA regulation and approval
under the second paragraph of Section 6.03 thereof while porterage fee is covered by the first paragraph of the
same provision. There is an obvious relaxation of the extent of control and regulation by MIAA with respect to
the particular fees that may be charged by PIATCO.
Moreover, with respect to the third category of fees that may be imposed and collected by PIATCO, i.e., new
fees and charges that may be imposed by PIATCO which have not been previously imposed or collected at the
Ninoy Aquino International Airport Passenger Terminal I, under Section 6.03 of the draft Concession
Agreement MIAA has reserved the right to regulate the same under the same conditions that MIAA may
regulate fees under the first category, i.e., periodic adjustment of once every two years in accordance with a
prescribed parametric formula and effective only upon written approval by MIAA. However, under the 1997
Concession Agreement, adjustment of fees under the third category is not subject to MIAA regulation.
_______________
40
Emphasis supplied.
660
With respect to terminal fees that may be charged by PIATCO,41 as shown earlier, this was included within the
category of Public Utility Revenues under the 1997 Concession Agreement. This classification is significant
because under the 1997 Concession Agreement, Public Utility Revenues are subject to an Interim
Adjustment of fees upon the occurrence of certain extraordinary events specified in the agreement. 42 However,
under the draft Concession Agreement, terminal fees are not included in the types of fees that may be subject to
Interim Adjustment.43
Finally, under the 1997 Concession Agreement, Public Utility Revenues, except terminal fees, are
denominated in US Dollars44 while payments to the Government are in Philippine Pesos. In the draft
Concession Agreement, no such stipulation was included. By stipulating that Public Utility Revenues will be
paid to PIATCO in US Dollars while payments by PIATCO to the Government are in Philippine currency under
the 1997 Concession Agreement, PIATCO is able to enjoy the benefits of depreciations of the Philippine Peso,
while being effectively insulated from the detrimental effects of exchange rate fluctuations.
_______________
41
Referred to as Passenger Service Fee under the draft Concession Agreement.
42
Section 6.05 Interim Adjustment
1. (a)Concessionaire may apply for and, if warranted, may be granted an interim adjustment of the fees
and charges constituting Public Utility Revenues upon the occurrence of extraordinary events
resulting from any of the following:
1. i.a depreciation since the last adjustment by at least fifteen percent (15%) of the value of the Philippine
Peso relative to the US Dollar using the exchange rates published by the Philippine Dealing System as
reference;
2. ii.an increase since the last adjustment by at least fifteen percent (15%) in the Metro Manila Consumer
Price Index based on National Census and Statistics Office publications;
3. iii.an increase since the last adjustment in MERALCO power rates billing by at least fifteen percent
(15%); iv. an increase since the last adjustment in the 180-day Treasury Bill interest rates by at least
thirty (30%).
....
43
Section 6.05, draft Concession Agreement.
44
Section 1.33, 1997 Concession Agreement.
661
VOL. 402, MAY 5, 2003 661
When taken as a whole, the changes under the 1997 Concession Agreement with respect to reduction in the
types of fees that are subject to MIAA regulation and the relaxation of such regulation with respect to other fees
are significant amendments that substantially distinguish the draft Concession Agreement from the 1997
Concession Agreement. The 1997 Concession Agreement, in this respect, clearly gives PIATCO more favorable
terms than what was available to other bidders at the time the contract was bidded out. It is not very difficult to
see that the changes in the 1997 Concession Agreement translate to direct and concrete financial advantages for
PIATCO which were not available at the time the contract was offered for bidding. It cannot be denied that
under the 1997 Concession Agreement only Public Utility Revenues are subject to MIAA regulation.
Adjustments of all other fees imposed and collected by PIATCO are entirely within its control. Moreover, with
respect to terminal fees, under the 1997 Concession Agreement, the same is further subject to Interim
Adjustments not previously stipulated in the draft Concession Agreement. Finally, the change in the currency
stipulated for Public Utility Revenues under the 1997 Concession Agreement, except terminal fees, gives
PIATCO an added benefit which was not available at the time of bidding.
b. Assumption by the Government of the liabilities of PIATCO in the event of the latters default thereof
Under the draft Concession Agreement, default by PIATCO of any of its obligations to creditors who have
provided, loaned or advanced funds for the NAIA IPT III project does not result in the assumption by the
Government of these liabilities. In fact, nowhere in the said contract does default of PIATCOs loans figure in the
agreement. Such default does not directly result in any concomitant right or obligation in favor of the
Government.
However, the 1997 Concession Agreement provides:
Section 4.04. Assignment.
....
1. (b)In the event Concessionaire should default in the payment of an Attendant Liability, and the default
has resulted in the acceleration of
662
the payment due date of the Attendant Liability prior to its stated date of maturity, the Unpaid Creditors
and Concessionaire shall immediately inform GRP in writing of such default. GRP shall, within one hundred
eighty (180) Days from receipt of the joint written notice of the Unpaid Creditors and Concessionaire, either (i)
take over the Development Facility and assume the Attendant Liabilities, or (ii) allow the Unpaid Creditors, if
qualified, to be substituted as concessionaire and operator of the Development Facility in accordance with the
terms and conditions hereof, or designate a qualified operator acceptable to GRP to operate the Development
Facility, likewise under the terms and conditions of this Agreement; Provided that if at the end of the 180-day
period GRP shall not have served the Unpaid Creditors and Concessionaire written notice of its choice, GRP
shall be deemed to have elected to take over the Development Facility with the concomitant assumption of
Attendant Liabilities.
1. (c)If GRP should, by written notice, allow the Unpaid Creditors to be substituted as concessionaire, the
latter shall form and organize a concession company qualified to take over the operation of the
Development Facility. If the concession company should elect to designate an operator for the
Development Facility, the concession company shall in good faith identify and designate a qualified
operator acceptable to GRP within one hundred eighty (180) days from receipt of GRPs written notice.
If the concession company, acting in good faith and with due diligence, is unable to designate a
qualified operator within the aforesaid period, then GRP shall at the end of the 180-day period take
over the Development Facility and assume Attendant Liabilities.
The term Attendant Liabilities under the 1997 Concession Agreement is defined as:
Attendant Liabilities refer to all amounts recorded and from time to time outstanding in the books of the
Concessionaire as owing to Unpaid Creditors who have provided, loaned or advanced funds actually used for the
Project, including all interests, penalties, associated fees, charges, surcharges, indemnities, reimbursements and
other related expenses, and further including amounts owed by Concessionaire to its suppliers, contractors and
sub-contractors.
Under the above quoted portions of Section 4.04 in relation to the definition of Attendant Liabilities, default by
PIATCO of its loans used to finance the NAIA IPT III project triggers the occurrence of certain events that leads to
the assumption by the Government of the liability for the loans. Only in one instance may the Government escape
the assumption of PIATCOs liabilities, i.e., when the Government so elects and allows a qualified operator to
663
VOL. 402, MAY 5, 2003 663
take over as Concessionaire. However, this circumstance is dependent on the existence and availability of a
qualified operator who is willing to take over the rights and obligations of PIATCO under the contract, a
circumstance that is not entirely within the control of the Government.
Without going into the validity of this provision at this juncture, suffice it to state that Section 4.04 of the
1997 Concession Agreement may be considered a form of security for the loans PIATCO has obtained to finance
the project, an option that was not made available in the draft Concession Agreement. Section 4.04 is an
important amendment to the 1997 Concession Agreement because it grants PIATCO a financial advantage or
benefit which was not previously made available during the bidding process. This financial advantage is a
significant modification that translates to better terms and conditions for PIATCO.
PIATCO, however, argues that the parties to the bidding procedure acknowledge that the draft Concession
Agreement is subject to amendment because the Bid Documents permit financing or borrowing. They claim that
it was the lenders who proposed the amendments to the draft Concession Agreement which resulted in the 1997
Concession Agreement.
We agree that it is not inconsistent with the rationale and purpose of the BOT Law to allow the project
proponent or the winning bidder to obtain financing for the project, especially in this case which involves the
construction, operation and maintenance of the NAIA IPT III. Expectedly, compliance by the project proponent
of its undertakings therein would involve a substantial amount of investment. It is therefore inevitable for the
awardee of the contract to seek alternate sources of funds to support the project. Be that as it may, this Court
maintains that amendments to the contract bidded upon should always conform to the general policy on public
bidding if such procedure is to be faithful to its real nature and purpose. By its very nature and characteristic,
competitive public bidding aims to protect the public interest by giving the public the best possible advantages
through open competition.45 It has been held that the three principles in public bidding are (1) the offer to the
public; (2) opportunity for competition; and (3) a basis for the exact comparison of bids. A regulation of the
matter which
_______________
45
Supra note 31.
664
excludes any of these factors destroys the distinctive character of the system and thwarts the purpose of its
adoption.46 These are the basic parameters which every awardee of a contract bidded out must conform to,
requirements of financing and borrowing notwithstanding. Thus, upon a concrete showing that, as in this case,
the contract signed by the government and the contract-awardee is an entirely different contract from the
contract bidded, courts should not hesitate to strike down said contract in its entirety for violation of public
policy on public bidding. A strict adherence on the principles, rules and regulations on public bidding must be
sustained if only to preserve the integrity and the faith of the general public on the procedure.
Public bidding is a standard practice for procuring government contracts for public service and for
furnishing supplies and other materials. It aims to secure for the government the lowest possible price under the
most favorable terms and conditions, to curtail favoritism in the award of government contracts and avoid
suspicion of anomalies and it places all bidders in equal footing. 47 Any government action which permits any
substantial variance between the conditions under which the bids are invited and the contract executed after the
award thereof is a grave abuse of discretion amounting to lack or excess of jurisdiction which warrants proper
judicial action.
In view of the above discussion, the fact that the foregoing substantial amendments were made on the 1997
Concession Agreement renders the same null and void for being contrary to public policy. These amendments
convert the 1997 Concession Agreement to an entirely different agreement from the contract bidded out or the
draft Concession Agreement. It is not difficult to see that the amendments on (1) the types of fees or charges
that are subject to MIAA regulation or control and the extent thereof and (2) the assumption by the
Government, under certain conditions, of the liabilities of PIATCO directly translates concrete financial
advantages to PIATCO that were previously not available during the bidding process. These amendments cannot
be taken as merely supplements to or implementing provisions of those already exist-
_______________
46
Malaga v. Penachos, Jr., G.R No. 86695, September 3, 1992, 213 SCRA 516, 526.
47
A. Cobacha & D. Lucenario, LAW ON PUBLIC BIDDING AND GOVERNMENT CONTRACTS 6-7 (1960).
665
VOL. 402, MAY 5, 2003 665
ing in the draft Concession Agreement. The amendments discussed above present new terms and conditions
which provide financial benefit to PIATCO which may have altered the technical and financial parameters of
other bidders had they known that such terms were available.
III Direct Government Guarantee
Article IV, Section 4.04(b) and (c), in relation to Article 1.06, of the 1997 Concession Agreement provides:
Section 4.04. Assignment
....
1. (b)In the event Concessionaire should default in the payment of an Attendant Liability, and the default
resulted in the acceleration of the payment due date of the Attendant Liability prior to its stated date
of maturity, the Unpaid Creditors and Concessionaire shall immediately inform GRP in writing of
such default. GRP shall within one hundred eighty (180) days from receipt of the joint written notice
of the Unpaid Creditors and Concessionaire, either (i) take over the Development Facility and assume
the Attendant Liabilities, or (ii) allow the Unpaid Creditors, if qualified to be substituted as
concessionaire and operator of the Development facility in accordance with the terms and conditions
hereof, or designate a qualified operator acceptable to GRP to operate the Development Facility,
likewise under the terms and conditions of this Agreement; Provided, that if at the end of the 180-day
period GRP shall not have served the Unpaid Creditors and Concessionaire written notice of its
choice, GRP shall be deemed to have elected to take over the Development Facility with the concomitant
assumption of Attendant Liabilities.
2. (c)If GRP, by written notice, allow the Unpaid Creditors to be substituted as concessionaire, the latter
shall form and organize a concession company qualified to takeover the operation of the Development
Facility. If the concession company should elect to designate an operator for the Development Facility,
the concession company shall in good faith identify and designate a qualified operator acceptable to
GRP within one hundred eighty (180) days from receipt of GRPs written notice. If the concession
company, acting in good faith and with due diligence, is unable to designate a qualified operator
within the aforesaid period, then GRP shall at the end of the 180-day period take over the Development
Facility and assume Attendant Liabilities.
....
666
Section 1.06. Attendant Liabilities
Attendant Liabilities refer to all amounts recorded and from time to time outstanding in the books of the
Concessionaire as owing to Unpaid Creditors who have provided, loaned or advanced funds actually used for the
Project, including all interests, penalties, associated fees, charges, surcharges, indemnities, reimbursements and
other related expenses, and further including amounts owed by Concessionaire to its suppliers, contractors and
subcontractors.48
It is clear from the above-quoted provisions that Government, in the event that PIATCO defaults in its loan
obligations, is obligated to pay all amounts recorded and from time to time outstanding from the books of
PIATCO which the latter owes to its creditors. 49 These amounts include all interests, penalties, associated fees,
charges, surcharges, indemnities, reimbursements and other related expenses. 50 This obligation of the
Government to pay PIATCOs creditors upon PIATCOs default would arise if the Government opts to take over
NAIA IPT III. It should be noted, however, that even if the Government chooses the second option, which is to
allow PIATCOs unpaid creditors operate NAIA IPT III, the Government is still at a risk of being liable to
PIATCOs creditors should the latter be unable to designate a qualified operator within the prescribed
period.51 In effect, whatever option the Government chooses to take in the event of PIATCOs failure to fulfill its
loan obligations, the Government is still at a risk of assuming PIATCOs outstanding loans. This is due to the
fact that the Government would only be free from assuming PIATCOs debts if the unpaid creditors would be
able to designate a qualified operator within the period provided for in the contract. Thus, the Governments
assumption of liability is virtually out of its control. The Government under the circumstances provided for in
the 1997 Concession Agreement is at the mercy of the existence, availability and willingness of a qualified
operator. The above contractual provisions constitute a direct government guarantee which is prohibited by law.
_______________
48
Emphasis supplied.
49
Concession Agreement, Art. 4, Sec. 4.04 (b) and (c), Art. 1, Sec. 1.06, July 12, 1997.
50
Ibid.
51
Id., at Art. 4, Sec. 4.04 (c).
667
VOL. 402, MAY 5, 2003 667
One of the main impetus for the enactment of the BOT Law is the lack of government funds to construct the
infrastructure and development projects necessary for economic growth and development. This is why private
sector resources are being tapped in order to finance these projects. The BOT law allows the private sector to
participate, and is in fact encouraged to do so by way of incentives, such as minimizing the unstable flow of
returns,52 provided that the government would not have to unnecessarily expend scarcely available funds for the
project itself. As such, direct guarantee, subsidy and equity by the government in these projects are strictly
prohibited.53 This is but logical for if the government would in the end still be at a risk of paying the debts
incurred by the private entity in the BOT projects, then the purpose of the law is subverted.
Section 2(n) of the BOT Law defines direct guarantee as follows:
(n) Direct government guaranteeAn agreement whereby the government or any of its agencies or local
government units assume responsibility for the repayment of debt directly incurred by the project proponent in
implementing the project in case of a loan default.
Clearly by providing that the Government assumes the attendant liabilities, which consists of PIATCOs
unpaid debts, the 1997 Concession Agreement provided for a direct government guarantee for the debts incurred
by PIATCO in the implementation of the NAIA IPT III project. It is of no moment that the relevant sections are
subsumed under the title of assignment. The provisions providing for direct government guarantee which is
prohibited by law is clear from the terms thereof.
The fact that the ARCA superseded the 1997 Concession Agreement did not cure this fatal defect. Article IV,
Section 4.04(c), in relation to Article I, Section 1.06, of the ARCA provides:
Section 4.04. Security
....
_______________
52
Record of the Senate Second Regular Session 1993-1994, vol. III, no. 42, p. 362.
53
Republic Act No. 7718, Secs. 2 and 4-A, Implementing Rules and Regulations, Rule 11, Secs. 11.1 and 11.3.
668
1. (c)GRP agrees with Concessionaire (PIATCO) that it shall negotiate in good faith and enter into direct
agreement with the Senior Lenders, or with an agent of such Senior Lenders (which agreement shall
be subject to the approval of the Bangko Sentral ng Pilipinas), in such form as may be reasonably
acceptable to both GRP and Senior Lenders, with regard, inter alia, to the following parameters:
....
1. (iv)If the Concessionaire [PIATCO] is in default under a payment obligation owed to the Senior Lenders,
and as a result thereof the Senior Lenders have become entitled to accelerate the Senior Loans, the
Senior Lenders shall have the right to notify GRP of the same, and without prejudice to any other
rights of the Senior Lenders or any Senior Lenders agent may have (including without limitation
under security interests granted in favor of the Senior Lenders), to either in good faith identify and
designate a nominee which is qualified under sub-clause (viii)(y) below to operate the Development
Facility [NAIA Terminal 3] or transfer the Concessionaires [PIATCO] rights and obligations under
this Agreement to a transferee which is qualified under sub-clause (viii) below;
....
2. (vi)if the Senior Lenders, acting in good faith and using reasonable efforts, are unable to designate a
nominee or effect a transfer in terms and conditions satisfactory to the Senior Lenders within one
hundred eighty (180) days after giving GRP notice as referred to respectively in (iv) or (v) above, then
GRP and the Senior Lenders shall endeavor in good faith to enter into any other arrangement relating
to the Development Facility [NAIA Terminal 3] (other than a turnover of the Development Facility
[NAIA Terminal 3] to GRP) within the following one hundred eighty (180) days. If no
agreement relating to the Development Facility [NAIA Terminal 3] is arrived at by GRP and the
Senior Lenders within the said 180-day period, then at the end thereof the Development Facility
[NAIA Terminal 3] shall be transferred by the Concessionaire [PIATCO] to GRP or its designee and
GRP shall make a termination payment to Concessionaire [PIATCO] equal to the Appraised Value (as
hereinafter defined) of the Development Facility [NAIA Terminal 3] or the sum of the Attendant
Liabilities, if greater. Notwithstanding Section 8.01(c) hereof, this Agreement shall be deemed
terminated upon the transfer of the Development Facility [NAIA Terminal 3] to GRP pursuant
hereto;
....
Section 1.06. Attendant Liabilities

Attendant Liabilities refer to all amounts in each case supported by verifiable evidence from time to
time owed or which may become owing by
669
VOL. 402, MAY 5, 2003 669
Concessionaire [PIATCO] to Senior Lenders or any other persons or entities who have provided, loaned, or
advanced funds or provided financial facilities to Concessionaire [PIATCO] for the Project [NAIA Terminal
3], including, without limitation, all principal, interest, associated fees, charges, reimbursements, and other
related expenses (including the fees, charges and expenses of any agents or trustees of such persons or entities),
whether payable at maturity, by acceleration or otherwise, and further including amounts owed by
Concessionaire [PIATCO] to its professional consultants and advisers, suppliers, contractors and sub-
contractors.54
It is clear from the foregoing contractual provisions that in the event that PIATCO fails to fulfill its loan
obligations to its Senior Lenders, the Government is obligated to directly negotiate and enter into an agreement
relating to NAIA IPT III with the Senior Lenders, should the latter fail to appoint a qualified nominee or
transferee who will take the place of PIATCO. If the Senior Lenders and the Government are unable to enter
into an agreement after the prescribed period, the Government must then pay PIATCO, upon transfer of NAIA
IPT III to the Government, termination payment equal to the appraised value of the project or the value of the
attendant liabilities whichever is greater. Attendant liabilities as defined in the ARCA includes all amounts owed
or thereafter may be owed by PIATCO not only to the Senior Lenders with whom PIATCO has defaulted in its
loan obligations but to all other persons who may have loaned, advanced funds or provided any other type of
financial facilities to PIATCO for NAIA IPT III. The amount of PIATCOs debt that the Government would have
to pay as a result of PIATCOs default in its loan obligationsin case no qualified nominee or transferee is
appointed by the Senior Lenders and no other agreement relating to NAIA IPT III has been reached between the
Government and the Senior Lendersincludes, but is not limited to, all principal, interest, associated fees,
charges, reimbursements, and other related expenses . . . whether payable at maturity, by acceleration or
otherwise.55
It is clear from the foregoing that the ARCA provides for a direct guarantee by the government to pay
PIATCOs loans not only to its Senior Lenders but all other entities who provided PIATCO funds or services upon
PIATCOs default in its loan obligation with its Senior Lenders. The fact that the Governments obligation to pay
_______________
54
Emphasis and caption supplied.
55
Sec. 1.06, ARCA.
670
PIATCOs lenders for the latters obligation would only arise after the Senior Lenders fail to appoint a qualified
nominee or transferee does not detract from the fact that, should the conditions as stated in the contract occur,
the ARCA still obligates the Government to pay any and all amounts owed by PIATCO to its lenders in
connection with NAIA IPT III. Worse, the conditions that would make the Government liable for PIATCOs debts
is triggered by PIATCOs own default of its loan obligations to its Senior Lenders to which loan contracts the
Government was never a party to. The Government was not even given an option as to what course of action it
should take in case PIATCO defaulted in the payment of its senior loans. The Government, upon PIATCOs
default, would be merely notified by the Senior Lenders of the same and it is the Senior Lenders who are
authorized to appoint a qualified nominee or transferee. Should the Senior Lenders fail to make such an
appointment, the Government is then automatically obligated to directly deal and negotiate with the Senior
Lenders regarding NAIA IPT III. The only way the Government would not be liable for PIATCOs debt is for a
qualified nominee or transferee to be appointed in place of PIATCO to continue the construction, operation and
maintenance of NAIA IPT III. This pre-condition, however, will not take the contract out of the ambit of a
direct guarantee by the government as the existence, availability and willingness of a qualified nominee or
transferee is totally out of the governments control. As such the Government is virtually at the mercy of
PIATCO (that it would not default on its loan obligations to its Senior Lenders), the Senior Lenders (that they
would appoint a qualified nominee or transferee or agree to some other arrangement with the Government) and
the existence of a qualified nominee or transferee who is able and willing to take the place of PIATCO in NAIA
IPT III.
The proscription against government guarantee in any form is one of the policy considerations behind the
BOT Law. Clearly, in the present case, the ARCA obligates the Government to pay for all loans, advances and
obligations arising out of financial facilities extended to PIATCO for the implementation of the NAIA IPT III
project should PIATCO default in its loan obligations to its Senior Lenders and the latter fails to appoint a
qualified nominee or transferee. This in effect would make the Government liable for PIATCOs loans should the
conditions as set forth in the ARCA arise. This is a form of direct government guarantee.
671
VOL. 402, MAY 5, 2003 671
The BOT Law and its implementing rules provide that in order for an unsolicited proposal for a BOT project
may be accepted, the following conditions must first be met: (1) the project involves a new concept in technology
and/or is not part of the list of priority projects, (2) no direct government guarantee, subsidy or equity is required,
and (3) the government agency or local government unit has invited by publication other interested parties to a
public bidding and conducted the same.56 The failure to meet any of the above conditions will result in the denial
of the proposal. It is further provided that the presence of direct government guarantee, subsidy or equity will
necessarily disqualify a proposal from being treated and accepted as an unsolicited proposal. 57 The BOT Law
clearly and strictly prohibits direct government guarantee, subsidy and equity in unsolicited proposals that the
mere inclusion of a provision to that effect is fatal and is sufficient to deny the proposal. It stands to reason
therefore that if a proposal can be denied by reason of the existence of direct government guarantee, then its
inclusion in the contract executed after the said proposal has been accepted is likewise sufficient to invalidate
the contract itself. A prohibited provision, the inclusion of which would result in the denial of a proposal cannot,
and should not, be allowed to later on be inserted in the contract resulting from the said proposal. The basic
rules of justice and fair play alone militate against such an occurrence and must not, therefore, be countenanced
particularly in this instance where the government is exposed to the risk of shouldering hundreds of million of
dollars in debt.
This Court has long and consistently adhered to the legal maxim that those that cannot be done directly
cannot be done indirectly.58
_______________
Republic Act No. 7718, as amended, Sec. 4-A, May 5, 1994; Implementing Rules and Regulations, Rule 10,
56
Sec. 10.1.
57
Implementing Rules and Regulations, Rule 10, Sec. 10.4.
58
North Negros Sugar Co., Inc. v. Hidalgo, G.R. No. 42334, October 31, 1936; Intestate estate of the deceased
Florentino San Gil. Josefa R. Oppus v. Bonifacio San Gil, G.R. No. 48115, October 12, 1942; San Diego v.
Municipality of Naujan, G.R. No. L-9920, February 29, 1960; Favis vs. Municipality of Sabagan, G.R. No. L-
26522, 27 February 1969, 27 SCRA 92; City of Manila vs. Tarlac Development Corporation, L-24557, L-
24469 & L-24481, 31 July 1968, 24 SCRA 466; In the matter of the Petition for Declaratory Judgment on Title to
Real Property (Quieting of Title) Pechueco Sons Company v. Provincial Board of Antique, G.R. No. L-27038,
January 30, 1970, 31 SCRA 320; Fornilda v. The Branch 164, Regional
672
To declare the PIATCO contracts valid despite the clear statutory prohibition against a direct government
guarantee would not only make a mockery of what the BOT Law seeks to preventwhich is to expose the
government to the risk of incurring a monetary obligation resulting from a contract of loan between the project
proponent and its lenders and to which the Government is not a party tobut would also render the BOT Law
useless for what it seeks to achieveto make use of the resources of the private sector in the financing, operation
and maintenance of infrastructure and development projects 59 which are necessary for national growth and
development but which the government, unfortunately, could illafford to finance at this point in time.
IV Temporary takeover of business affected with public interest
Article XII, Section 17 of the 1987 Constitution provides:
Section 17. In times of national emergency, when the public interest so requires, the State may, during the
emergency and under reasonable terms prescribed by it, temporarily take over or direct the operation of any
privately owned public utility or business affected with public interest.
The above provision pertains to the right of the State in times of national emergency, and in the exercise of its
police power, to temporarily take over the operation of any business affected with public interest. In the 1986
Constitutional Commission, the term national emergency was defined to include threat from external
aggression, calamities or national disasters, but not strikes unless it is of such proportion that would paralyze
government service.60 The duration of the emergency itself is the determining factor as to how long the
temporary takeover by the government would last.61 The temporary takeover by the government extends only to
the operation of the business and not to the ownership thereof. As such
_______________
Trial Court IVth Judicial Region, Pasig, G.R. No. L-72306, October 5, 1988, 166 SCRA 281; Laurel v. Civil
Service Commission, G.R. No. 71562, October 28, 1991, 203 SCRA 195; Davac v. Court of Appeals, G.R. No.
106105, April 21, 1994, 231 SCRA 665.
59
Republic Act No. 7718, Sec. 1.
60
III Record of the Constitutional Commission, pp. 266-267 (1986).
61
Id.
673
VOL. 402, MAY 5, 2003 673
the government is not required to compensate the private entityowner of the said business as there is no transfer of
ownership, whether permanent or temporary. The private entity-owner affected by the temporary takeover
cannot, likewise, claim just compensation for the use of the said business and its properties as the temporary
takeover by the government is in exercise of its police power and not of its power of eminent domain.
Article V, Section 5.10 (c) of the 1997 Concession Agreement provides:
Section 5.10. Temporary Take-over of operations by GRP.
....
(c) In the event the development Facility or any part thereof and/or the operations of Concessionaire or any
part thereof, become the subject matter of or be included in any notice, notification, or declaration concerning or
relating to acquisition, seizure or appropriation by GRP in times of war or national emergency, GRP shall, by
written notice to Concessionaire, immediately take over the operations of the Terminal and/or the Terminal
Complex. During such take over by GRP, the Concession Period shall be suspended; provided, that upon
termination of war, hostilities or national emergency, the operations shall be returned to Concessionaire, at
which time, the Concession period shall commence to run again. Concessionaire shall be entitled to reasonable
compensation for the duration of the temporary take over by GRP, which compensation shall take into account the
reasonable cost for the use of the Terminal and/or Terminal Complex, (which is in the amount at least equal to
the debt service requirements of Concessionaire, if the temporary take over should occur at the time when
Concessionaire is still servicing debts owed to project lenders), any loss or damage to the Development Facility,
and other consequential damages. If the parties cannot agree on the reasonable compensation of Concessionaire,
or on the liability of GRP as aforesaid, the matter shall be resolved in accordance with Section 10.01
[Arbitration]. Any amount determined to be payable by GRP to Concessionaire shall be offset from the amount
next payable by Concessionaire to GRP.62
PIATCO cannot, by mere contractual stipulation, contravene the Constitutional provision on temporary
government takeover and obligate the government to pay reasonable cost for the use of the
_______________
Except for providing for the suspension of all payments due to the Government for the duration of the
62
takeover, Article V, Section 5.10(b) of the ARCA contains the same provision. Emphasis and caption supplied.
674
Terminal and/or Terminal Complex.63 Article XII, section 17 of the 1987 Constitution envisions a situation
wherein the exigencies of the times necessitate the government to temporarily take over or direct the operation
of any privately owned public utility or business affected with public interest. It is the welfare and interest of
the public which is the paramount consideration in determining whether or not to temporarily take over a
particular business. Clearly, the State in effecting the temporary takeover is exercising its police power. Police
power is the most essential, insistent, and illimitable of powers. 64 Its exercise therefore must not be
unreasonably hampered nor its exercise be a source of obligation by the government in the absence of damage
due to arbitrariness of its exercise.65 Thus, requiring the government to pay reasonable compensation for the
reasonable use of the property pursuant to the operation of the business contravenes the Constitution.
V Regulation of Monopolies
A monopoly is a privilege or peculiar advantage vested in one or more persons or companies, consisting in the
exclusive right (or power) to carry on a particular business or trade, manufacture a particular article, or control
the sale of a particular commodity.66 The 1987 Constitution strictly regulates monopolies, whether private or
public, and even provides for their prohibition if public interest so requires. Article XII, Section 19 of the 1987
Constitution states:
Sec. 19. The state shall regulate or prohibit monopolies when the public interest so requires. No combinations in
restraint of trade or unfair competition shall be allowed.
Clearly, monopolies are not per se prohibited by the Constitution but may be permitted to exist to aid the
government in carry-
_______________
63
Id.
Bataan Shipyard and Engineering Co., Inc. v. Presidential Commission on Good Government, G.R. No.
64
75885, May 27, 1987, 150 SCRA 181; citing Freund, The Police Power (Chicago, 1904).
65
Genuino v. Court of Agrarian Relations, G.R. No. L-25035, February 26, 1968, 22 SCRA 792.
66
Blacks Law Dictionary, 4th Ed., p. 1158.
675
VOL. 402, MAY 5, 2003 675
ing on an enterprise or to aid in the performance of various services and functions in the interest of the
public.67 Nonetheless, a determination must first be made as to whether public interest requires a monopoly. As
monopolies are subject to abuses that can inflict severe prejudice to the public, they are subject to a higher level
of State regulation than an ordinary business undertaking.
In the cases at bar, PIATCO, under the 1997 Concession Agreement and the ARCA, is granted the exclusive
right to operate a commercial international passenger terminal within the Island of Luzon at the NAIA IPT
III.68 This is with the exception of already existing international airports in Luzon such as those located in the
Subic Bay Freeport Special Economic Zone (SBFSEZ), Clark Special Economic Zone (CSEZ) and in Laoag
City.69 As such, upon commencement of PIATCOs operation of NAIA IPT III, Terminals 1 and 2 of NAIA would
cease to function as international passenger terminals. This, however, does not prevent MIAA to use Terminals
1 and 2 as domestic passenger terminals or in any other manner as it may deem appropriate except those
activities that would compete with NAIA IPT III in the latters operation as an international passenger
terminal.70 The right granted to PIATCO to exclusively operate NAIA IPT III would be for a period of twenty-five
(25) years from the In-Service Date 71 and renewable for another twenty-five (25) years at the option of the
government.72 Both the 1997 Concession Agreement and the ARCA further provide that, in view of the exclusive
right granted to PIATCO, the concession contracts of the service providers currently servicing Terminals 1 and 2
would no longer be renewed and those concession contracts whose expiration
_______________
36 Am Jur 480 citing Slaughter-House Cases, 16 Wall. (US) 36, 21 L ed 394.

67
Concession Agreement (CA) dated July 12, 1997, Art. III, Sec. 3.02(a); Amended and Restated
68
Concession Agreement (ARCA) dated November 26, 1998, Art. III, Sec. 3.02(a).
69
Ibid.
70
Id., at CA, Art. III, Sec. 3.02(b); ARCA, Art. III, Sec. 3.02(b).
71
The day immediately following the day on which the Certificate of Completion is issued or deemed to be
issued.
72
Id., at CA, Art. III, Sec. 3.01(a) and (b); ARCA, Art. III, Sec. 3.01 (a) and (b).
676
are subsequent to the In-Service Date would cease to be effective on the said date.73
The operation of an international passenger airport terminal is no doubt an undertaking imbued with public
interest. In entering into a Build-Operate-and-Transfer contract for the construction, operation and
maintenance of NAIA IPT III, the government has determined that public interest would be served better if
private sector resources were used in its construction and an exclusive right to operate be granted to the private
entity undertaking the said project, in this case PIATCO. Nonetheless, the privilege given to PIATCO is subject
to reasonable regulation and supervision by the Government through the MIAA, which is the government
agency authorized to operate the NAIA complex, as well as DOTC, the department to which MIAA is attached.74
This is in accord with the Constitutional mandate that a monopoly which is not prohibited must be
regulated.75 While it is the declared policy of the BOT Law to encourage private sector participation by
providing a climate of minimum government regulations, 76 the same does not mean that Government must
completely surrender its sovereign power to protect public interest in the operation of a public utility as a
monopoly. The operation of said public utility can not be done in an arbitrary manner to the detriment of the
public which it seeks to serve. The right granted to the public utility may be exclusive but the exercise of the
right cannot run riot. Thus, while PIATCO may be authorized to exclusively operate NAIA IPT III as an
international passenger terminal, the Government, through the MIAA, has the right and the duty to ensure
that it is done in accord with public interest. PIATCOs right to operate NAIA IPT III cannot also violate the
rights of third parties.
Section 3.01(e) of the 1997 Concession Agreement and the ARCA provide:
3.01 Concession Period
....
_______________
73
Id., at CA, Art. Ill, Sec. 3.01(d) and (e); ARCA, Art. III, Sec. 3.01(d) and (e).
74
Executive Order No. 903, as amended, Sec. 4 (b) and (c).
75
Art. XII, Sec. 19, Philippine Constitution.
76
Republic Act No. 7718, Sec. 1.
677
VOL. 402, MAY 5, 2003 677
1. (e)GRP confirms that certain concession agreements relative to certain services and operations currently
being undertaken at the Ninoy Aquino International Airport passenger Terminal I have a validity
period extending beyond the In-Service Date. GRP through DOTC/MIAA, confirms that these services
and operations shall not be carried over to the Terminal and the Concessionaire is under no legal
obligation to permit such carryover except through a separate agreement duly entered into with
Concessionaire. In the event Concessionaire becomes involved in any litigation initiated by any such
concessionaire or operator, GRP undertakes and hereby holds Concessionaire free and harmless on
full indemnity basis from and against any loss and/or any liability resulting from any such litigation,
including the cost of litigation and the reasonable fees paid or payable to Concessionaires counsel of
choice, all such amounts shall be fully deductible by way of an offset from any amount which the
Concessionaire is bound to pay GRP under this Agreement.
During the oral arguments on December 10, 2002, the counsel for the petitioners-in-intervention for G.R. No.
155001 stated that there are two service providers whose contracts are still existing and whose validity extends
beyond the In-Service Date. One contract remains valid until 2008 and the other until 2010.77
We hold that while the service providers presently operating at NAIA Terminal 1 do not have an absolute
right for the renewal or the extension of their respective contracts, those contracts whose duration extends
beyond NAIA IPT IIIs In-Service-Date should not be unduly prejudiced. These contracts must be respected not
just by the parties thereto but also by third parties. PIATCO cannot, by law and certainly not by contract, render
a valid and binding contract nugatory. PIATCO, by the mere expedient of claiming an exclusive right to operate,
cannot require the Government to break its contractual obligations to the service providers. In contrast to the
arrastre and stevedoring service providers in the case of Anglo-Fil Trading Corporation v. Lazaro78 whose
contracts consist of temporary hold-over permits, the affected service providers in the cases at bar, have a valid
and binding contract with the Government, through MIAA, whose period of effectivity, as well as the other
terms and conditions thereof cannot be violated.
In fine, the efficient functioning of NAIA IPT III is imbued with public interest. The provisions of the 1997
Concession Agreement
_______________
77
Transcript of Oral Arguments, p. 157, December 10, 2002.
78
G.R. No. L-54958, September 2, 1983, 124 SCRA 494.
678
and the ARCA did not strip government, thru the MIAA, of its right to supervise the operation of the whole
NAIA complex, including NAIA IPT III. As the primary government agency tasked with the job, 79 it is MIAAs
responsibility to ensure that whoever by contract is given the right to operate NAIA IPT III will do so within the
bounds of the law and with due regard to the rights of third parties and above all, the interest of the public.
VI CONCLUSION
In sum, this Court rules that in view of the absence of the requisite financial capacity of the Paircargo
Consortium, predecessor of respondent PIATCO, the award by the PBAC of the contract for the construction,
operation and maintenance of the NAIA IPT III is null and void. Further, considering that the 1997 Concession
Agreement contains material and substantial amendments, which amendments had the effect of converting the
1997 Concession Agreement into an entirely different agreement from the contract bidded upon, the 1997
Concession Agreement is similarly null and void for being contrary to public policy. The provisions under
Sections 4.04(b) and (c) in relation to Section 1.06 of the 1997 Concession Agreement and Section 4.04(c) in
relation to Section 1.06 of the ARCA, which constitute a direct government guarantee expressly prohibited by,
among others, the BOT Law and its Implementing Rules and Regulations are also null and void. The Sup-
_______________
Executive Order No. 903, July 21, 1983, provides:

79
Section 5. Functions, Powers, and Duties.The Authority shall have the following functions, powers and duties:
...
1. (b)To control, supervise, construct, maintain, operate and provide such facilities or services as shall be
necessary for the efficient functioning of the Airport;
2. (c)To promulgate rules and regulations governing the planning, development, maintenance, operation
and improvement of the Airport and to control and/or supervise as may be necessary the construction
of any structure or the rendition of any service within the Airport;
...
679
VOL. 402, MAY 5, 2003 679
plements, being accessory contracts to the ARCA, are likewise null and void.
WHEREFORE, the 1997 Concession Agreement, the Amended and Restated Concession Agreement and the
Supplements thereto are set aside for being null and void.
SO ORDERED.
Davide, Jr. (C.J.), Bellosillo, Ynares-Santiago, Sandoval-Gutierrez, Austria-
Martinez, Corona and Carpio-Morales, JJ., concur.
Vitug, J., Please see Separate (Dissenting) Opinion.
Panganiban, J., Please see Separate Opinion.
Quisumbing, J., No Jurisdiction. Please see separate opinion of Justice Vitug in which I concur.
Carpio, J., No part.
Callejo, Sr., J., Also concur with the separate opinion of Justice Panganiban.
Azcuna, J., I join the Separate Opinion of Justice Vitug.
SEPARATE OPINION
VITUG, J.:
This Court is bereft of jurisdiction to hear the petitions at bar. The Constitution provides that the Supreme
Court shall exercise original jurisdiction over, among other actual controversies, petitions for certiorari,
prohibition, mandamus, quo warranto, and habeas corpus.1 The cases in question, although denominated to be
petitions for prohibition, actually pray for the nullification of the PIATCO contracts and to restrain respondents
from implementing said agreements for being illegal and unconstitutional.
Section 2, Rule 65 of the Rules of Court states:
When the proceedings of any tribunal, corporation, board, officer or person, whether exercising judicial, quasi-
judicial or ministerial functions, are without or in excess of its or his jurisdiction, or with grave abuse of
_______________
1
Article VIII, Section 5(1), 1987 Constitution.
680
discretion amounting to lack or excess of jurisdiction, and there is no appeal or any other plain, speedy and
adequate remedy in the ordinary course of law, a person aggrieved thereby may file a verified petition in the
proper court, alleging the facts with certainty and praying that judgment be rendered commanding the
respondent to desist from further proceedings in the action or matter specified therein, or otherwise granting
such incidental reliefs as law and justice may require.
The rule is explicit. A petition for prohibition may be filed against a tribunal, corporation, board, officer or
person, exercising judicial, quasi-judicial or ministerial functions. What the petitions seek from respondents do
not involve judicial, quasi-judicial or ministerial functions. In prohibition, only legal issues affecting the
jurisdiction of the tribunal, board or officer involved may be resolved on the basis of undisputed facts.2 The
parties allege, respectively, contentious evidentiary facts. It would be difficult, if not anomalous, to decide the
jurisdictional issue on the basis of the contradictory factual submissions made by the parties. 3 As the Court has
so often exhorted, it is not a trier of facts.
The petitions, in effect, are in the nature of actions for declaratory relief under Rule 63 of the Rules of Court.
The Rules provide that any person interested under a contract may, before breach or violation thereof, bring an
action in the appropriate Regional Trial Court to determine any question of construction or validity arising, and
for a declaration of his rights or duties thereunder. 4 The Supreme Court assumes no jurisdiction over petitions
for declaratory relief which are cognizable by regional trial courts.5
As I have so expressed in Tolentino vs. Secretary of Finance,6 reiterated in Santiago vs. Guingona, Jr.,7 the
Supreme Court should not be thought of as having been tasked with the awesome responsibility of overseeing
the entire bureaucracy. Pervasive and limitless, such as it may seem to be under the 1987 Constitution, judicial
power still succumbs to the paramount doctrine of separation
_______________
2
Matuguina Integrated Products, Inc. vs. Court of Appeals, 263 SCRA 490 (1996); Mafinco Trading
Corporation vs. Ople, 70 SCRA 139 (1976).
3
Mafinco Trading Corporation vs. Ople, supra.
4
Section 1, Rule 63, Rules of Court.
5
In re: Bermudez, 145 SCRA 160 (1988).
6
235 SCRA 630, 720 (1994).
7
298 SCRA 795 (1998).
681
VOL. 402, MAY 5, 2003 681
of powers. The Court may not at good liberty intrude, in the guise of sovereign imprimatur, into every affair of
government. What significance can still then remain of the time-honored and widely acclaimed principle of
separation of powers if, at every turn, the Court allows itself to pass upon at will the disposition of a co-equal,
independent and coordinate branch in our system of government. I dread to think of the so varied uncertainties
that such an undue interference can lead to.
Accordingly, I vote for the dismissal of the petition.
SEPARATE OPINION
PANGANIBAN, J.:
The five contracts for the construction and the operation of Ninoy Aquino International Airport (NAIA)
Terminal III, the subject of the consolidated Petitions before the Court, are replete with outright violations of
law, public policy and the Constitution. The only proper thing to do is declare them all null and void ab
initio and let the chips fall where they may. Fiat iustitia ruat coelum.
The facts leading to this controversy are already well presented in the ponencia. I shall not burden the
readers with a retelling thereof. Instead, I will cut to the chase and directly address the two sets of gut issues:
1. 1.The first issue is procedural: Does the Supreme Court have original jurisdiction to hear and decide
the Petitions? Corollarily, do petitioners have locus standi and should this Court decide the cases
without any mandatory referral to arbitration?
2. 2.The second one is substantive in character: Did the subject contracts violate the Constitution, the
laws, and public policy to such an extent as to render all of them void and inexistent?
My answer to all the above questions is a firm Yes.

The Procedural Issue:
Jurisdiction, Standing and Arbitration
Definitely and surely, the issues involved in these Petitions are clearly of transcendental importance and of
national interest. The subject contracts pertain to the construction and the operation of the countrys premiere
international airport terminalan ultra-
682
modern world-class public utility that will play a major role in the countrys economic development and serve to
project a positive image of our country abroad. The five build-operate-&-transfer (BOT) contracts, while
entailing the investment of billions of pesos in capital and the availment of several hundred millions of dollars in
loans, contain provisions that tend to establish a monopoly, require the disbursements of public funds sans
appropriations, and provide government guarantees in violation of statutory prohibitions, as well as other
provisions equally offensive to law, public policy and the Constitution. Public interest will inevitably be affected
thereby.
Thus, objections to these Petitions, grounded upon (a) the hierarchy of courts, (b) the need for arbitration
prior to court action, and (c) the alleged lack of sufficient personality, standing or interest, being in the main
procedural matters, must now be set aside, as they have been in past cases. This Court must be permitted to
perform its constitutional duty of determining whether the other agencies of government have acted within the
limits of the Constitution and the laws, or if they have gravely abused the discretion entrusted to them.1
Hierarchy of Courts
The Court has, in the past, held that questions relating to gargantuan government contracts ought to be settled
without delay.2 This holding applies with greater force to the instant cases. Respondent Piatco is partly correct
in averring that petitioners can obtain relief from the regional trial courts via an action to annul the contracts.
Nevertheless, the unavoidable consequence of having to await the rendition and the finality of any such
judgment would be a prolonged state of uncertainty that would be prejudicial to the nation, the parties and the
general public. And, in light of the feared loss of jobs of the petitioning workers, consequent to the inevitable
pretermination of contracts of the petitioning service
_______________
See Kilosbayan, Inc. v. Guingona, Jr., 232 SCRA 110, May 5, 1994; and Basco v. Phil. Amusements and
1
Gaming Corporation, 197 SCRA 52, May 14, 1991.

2
Commission on Elections v. Quijano-Padilla, G.R. No. 151992, September 18, 2002, 389 SCRA 353.
683
VOL. 402, MAY 5, 2003 683
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 Piatcos argument that the resolution of the issues raised in the Petitions will require delving
into factual questions,4 I submit that their disposition ultimately turns on questions of law. 5 Further, many of
the significant and relevant factual questions can be easily addressed by an examination of the documents
submitted by the parties. In any event, the Petitions raise some novel questions involving the application of the
amended BOT Law, which this Court has seen fit to tackle.
Arbitration
Should the dispute be referred to arbitration prior to judicial recourse? Respondent Piatco claims that Section
10.02 of the Amended and Restated Concession Agreement (ARCA) provides for arbitration under the auspices
of the International Chamber of Commerce to settle any dispute or controversy or claim arising in connection
with the Concession Agreement, its amendments and supplements. The government disagrees, however,
insisting that there can be no arbitration based on Section 10.02 of the ARCA, since all the Piatco contracts are
void ab initio. Therefore, all contractual provisions, including Section 10.02 of the ARCA, are likewise void,
inexistent and inoperative. To support its stand, the government cites Chavez v. Presidential Commission on
Good Government:6 The void agreement will not be rendered operative by the parties alleged performance
(partial or full) of their respective prestations. A contract that violates the Constitution and the law is null and
void ab initio and vests no rights and creates no obligations. It produces no legal effect at all.
As will be discussed at length later, the Piatco contracts are indeed void in their entirety; thus, a resort to
the aforesaid provision
_______________
Vide: ABS-CBS Broadcasting Corp. v. Commission on Elections,323 SCRA 811, January 28, 2000;
3
likewise, Commission on Elections v. Quijano-Padilla, supra.

4
See Respondent PIATCOs Memorandum, pp. 25-26.
5
See public respondents Memorandum, p. 24.
6
307 SCRA 394, 399, May 19, 1999, per Panganiban, J.
684
on arbitration is unavailing. Besides, petitioners and petitioners-in-intervention have pointed out that, even
granting arguendo that the arbitration clause remained a valid provision, it still cannot bind them inasmuch as
they are not parties to the Piatco contracts. And in the final analysis, it is unarguable that the arbitration
process provided for under Section 10.02 of the ARCA, to be undertaken by a panel of three (3) arbitrators
appointed in accordance with the Rules of Arbitration of the International Chamber of Commerce, will not be
able to address, determine and definitively resolve the constitutional and legal questions that have been raised
in the Petitions before us.
Locus Standi
Given this Courts 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 countrys economic
development and the magnitude of the financial consideration. This, notwithstanding the fact that expenditure
of public funds was not required under the assailed contract.
In the cases presently under consideration, petitioners personal and substantial interest in the controversy
is shown by the fact that certain provisions in the Piatco contracts create obligations on the part of government
(through the DOTC and the MIAA) to disburse public funds without prior congressional appropriations.
Petitioners thus correctly assert that the injury to them has a twofold aspect: (1) they are adversely affected
as taxpayers on account of the illegal disbursement of public funds; and (2) they are prejudiced qua legislators,
since the contractual provisions requiring the government to incur expenditures without appropriations also
operate as limitations upon the exclusive power and prerogative of Congress over the public purse. As members
of the
_______________
7
175 SCRA 264, July 11, 1989.
685
VOL. 402, MAY 5, 2003 685
House of Representatives, they are actually deprived of discretion insofar as the inclusion of those items of
expenditure in the budget is concerned. To prevent such encroachment upon the legislative privilege and obviate
injury to the institution of which they are members, petitioners-legislators have locus standi to bring suit.
Messrs. Agan et al. and Lopez et al., are likewise taxpayers and thus possessed of standing to challenge the
illegal disbursement of public funds. Messrs. Agan et al., in particular, are employees (or representatives of
employees) of various service providers that have (1) existing concession agreements with the MIAA to provide
airport services necessary to the operation of the NAIA and (2) service agreements to furnish essential support
services to the international airlines operating at the NAIA.
On the other hand, Messrs. Lopez et al. are employees of the MIAA. These petitioners (Messrs. Agan et al.
and Messrs. Lopez et al.) are confronted with the prospect of being laid off from their jobs and losing their
means of livelihood when their employer-companies are forced to shut down or otherwise retrench and cut back
on manpower. Such development would result from the imminent implementation of certain provisions in the
contracts that tend toward the creation of a monopoly in favor of Piatco, its subsidiaries and related companies.
Petitioners-in-intervention are service providers in the business of furnishing airport-related services to
international airlines and passengers in the NAIA and are therefore competitors of Piatco as far as that line of
business is concerned. On account of provisions in the Piatco contracts, petitioners-in-intervention have to enter
into a written contract with Piatco so as not to be shut out of NAIA Terminal III and barred from doing business
there. Since there is no provision to ensure or safeguard free and fair competition, they are literally at its mercy.
They claim injury on account of their deprivation of property (business) and of the liberty to contract, without
due process of law.
And even if petitioners and petitioners-in-intervention were not sufficiently clothed with legal standing, I
have at the outset already established that, given its impact on the public and on national interest, this
controversy is laden with transcendental importance and constitutional significance. Hence, I do not hesitate to
adopt the same position as was enunciated in Kilosbayan v. Guin-
686
gona, Jr. that in cases of transcendental importance, the Court may relax the standing requirements and allow
8
a suit to prosper even when there is no direct injury to the party claiming the right of judicial review.9
The Substantive Issue:
Violations of the Constitution and the Laws
From the Outset, the Bidding
Process Was Flawed and Tainted
After studying the documents submitted and arguments advanced by the parties, I have no doubt that, right at
the outset, Piatco was not qualified to participate in the bidding process for the Terminal III project, but was
nevertheless permitted to do so. It even won the bidding and was helped along by what appears to be a series of
collusive and corrosive acts.
The build-operate-and-transfer (BOT) project for the NAIA Passenger Terminal III comes under the category
of an unsolicited proposal, which is the subject of Section 4-A of the BOT Law. 10The unsolicited proposal was
originally submitted by the Asias Emerging Dragon Corporation (AEDC) to the Department of Transportation
and Communications (DOTC) and the Manila International Airport Authority (MIAA), which reviewed and
approved the proposal.
The draft of the concession agreement as negotiated between AEDC and DOTC/MIAA was endorsed to the
National Economic Development Authority (NEDA-ICC), which in turn reviewed it on the basis of its scope,
economic viability, financial indicators and risks; and thereafter approved it for bidding.
The DOTC/MIAA then prepared the Bid Documents, incorporating therein the negotiated Draft Concession
Agreement, and published invitations for public bidding, i.e., for the submission of comparative or competitive
proposals. Piatcos predecessor-in-
_______________
Supra, Paras, J.
8
As reiterated in Bayan (Bagong Alyansang Makabayan) v. Zamora, 342 SCRA 449, 480-481, October 10,
9
2000.
10
RA No. 6957 as amended by RA No. 7718.
687
VOL. 402, MAY 5, 2003 687
interest, the Paircargo Consortium, was the only company that submitted a competitive bid or price challenge.
At this point, I must emphasize that the law requires the award of a BOT project to the bidder that has
satisfied the minimum requirements; and met the technical, financial, organizational and legal standards
provided in the BOT Law. Section 5 of this statute states:
Sec. 5. Public bidding of projects.x x x
In the case of a build-operate-and-transfer arrangement, the contract shall be awarded to the bidder
who, having satisfied the minimum financial, technical, organizational and legal standards required by this Act ,
has submitted the lowest bid and most favorable terms for the project, based on the present value of its proposed
tolls, fees, rentals and charges over a fixed term for the facility to be constructed, rehabilitated, operated and
maintained according to the prescribed minimum design and performance standards, plans and specifications. x
x x. (Emphasis supplied.)
The same provision requires that the price challenge via public bidding must be conducted under a two-
envelope/two-stage system: the first envelope to contain the technical proposal and the second envelope to contain
the financial proposal. Moreover, the 1994 Implementing Rules and Regulations (IRR) provide that only those
bidders that have passed the prequalification stage are permitted to have their two envelopes reviewed.
In other words, prospective bidders must prequalify by submitting their prequalification documents for
evaluation; and only the pre-qualified bidders would be entitled to have their bids opened, evaluated and
appreciated. On the other hand, disqualified bidders are to be informed of the reason for their disqualification.
This procedure was confirmed and reiterated in the Bid Documents, which I quote thus: Prequalified
proponents will be considered eligible to move to second stage technical proposal evaluation. The second and third
envelopes of pre-disqualified proponents will be returned.11
Aside from complying with the legal and technical requirements (track record or experience of the firm and
its key personnel), a project proponent desiring to prequalify must also demonstrate its financial capacity to
undertake the project. To establish such capa-
_______________
11
Par. 3.6.1 on page 8 of the Bid Documents.
688
bility, a proponent must prove that it is able to raise the minimum amount of equity required for the project and
to procure the loans or financing needed for it. Section 5.4(c) of the 1994 IRR provides:
Sec. 5.4. Prequalification Requirements.To pre-qualify, a project proponent must comply with the following
requirements:
xxx xxx xxx
c. Financial Capability.The project proponent must have adequate capability to sustain the financing
requirements for the detailed engineering design, construction, and/or operation and maintenance phases of the
project, as the case may be. For purposes of prequalification, this capability shall be measured in terms of:
(i) proof of the ability of the project proponent and/or the consortium to provide a minimum amount of equity to
the project, and (ii) a letter testimonial from reputable banks attesting that the project proponent and/or
members of the consortium are banking with them, that they are in good financial standing, and that they have
adequate resources. The government Agency/LGU concerned shall determine on a project-to-project basis, and
before prequalification, the minimum amount of equity needed. x x x. (Italics supplied)
Since the minimum amount of equity for the project was set at 30 percent 12 of the minimum project cost of
US$350 million, the minimum amount of equity required of any proponent stood at US$105 million. Converted
to pesos at the exchange rate then of P26.239 to US$1.00 (as quoted by the Bangko Sentral ng Pilipinas), the
peso equivalent of the minimum equity was P2,755,095,000.
However, the combined equity or net worth of the Paircargo consortium stood at only P558,384,871.55. 13This
amount was only
_______________
12
Initially the minimum equity was set at 20%, per Sec. 3.6.4 of the Bid Documents. However, this was later
clarified in Bid Bulletin No. 3(B)(6) to read 30% of Project Cost, to bring the same in line with the draft
concession agreements Art. II Sec. 2.01 (a), which specifically set the projects debt-to-equity ratio at 70:30,
thereby requiring a minimum equity of 30% of project cost.
13
The consortium was composed of Paircargo, PAGS and Security Bank. Paircargos audited financial
statements as of 1993 and 1994 showed a net worth of P2,783,592 and P3,123,515 respectively. PAGS audited
financial statements as of 1995 showed a paid-up capital of P5,000,000 and deposits on future subscriptions of
P21,735,700, or an aggregate of P26,735,700 of equity available to invest in the project. Security Banks audited
statements for 1995 showed a net worth of
689
VOL. 402, MAY 5, 2003 689
slightly over 6 percent of the minimum project cost and very much short of the required minimum equity, which
was equivalent to 30 percent of the project cost. Such deficiency should have immediately caused the
disqualification of the Paircargo consortium. This matter was brought to the attention of the Prequalification
and Bidding Committee (PBAC).
Notwithstanding the glaring deficiency, DOTC Undersecretary Primitivo C. Cal, concurrent chair of the
PBAC, declared in a Memorandum dated 14 October 1996 that the Challenger (Paircargo consortium) was
found to have a combined net worth of P3,926,421,242.00 that could support a project costing approximately P13
billion. To justify his conclusion, he asserted: It is not a requirement that the networth must be unrestricted. To
impose this as a requirement now will be nothing less than unfair.
He further opined, (T)he networth reflected in the Financial Statement should not be taken as the amount of
money to be used to answer the required thirty (30%) percent equity of the challenger but rather to be used in
establishing if there is enough basis to believe that the challenger can comply with the required 30% equity. In
fact, proof of sufficient equity is required as one of the conditions for award of contract (Sec. 12.1 of IRR of the
BOT Law) but not for prequalification (Sec. 5.4 of same document).
On the basis of the foregoing dubious declaration, the Paircargo consortium was deemed prequalified and
thus permitted to proceed to the other stages of the bidding process.
By virtue of the prequalified status conferred upon the Paircargo, Undersecretary Cals 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 Courts consistent
_______________
P3,523,504,377. However, the banks entire net worth was not available for investment in the project since
Sec. 21-B of the General Banking Act provides inter alia that a commercial banks equity investment in any one
enterprise, whether allied or non-allied, should not exceed 15% of the net worth of the investing bank. This
limitation is reiterated in Sec. 1381.1.a. of the Manual for Banks and Other Financial Intermediaries. Thus, the
maximum amount which Security Bank could have legally invested in the project was only P528,525,656.55.
And consequently, the maximum amount of equity which the consortium could have put up was only
P558,384,871.55.
690
doctrine emphasizing the strict application of pertinent rules, regulations and guidelines for the public bidding
process, in order to place each bidderactual or potentialon the same footing. Thus, it is unarguably irregular
and contrary to the very concept of public bidding to permit a variance between the conditions under which bids
are invited and those under which proposals are submitted and approved.
Republic v. Capulong14 teaches that if one bidder is relieved from having to conform to the conditions that
impose some duty upon it, that bidder is not contracting in fair competition with those bidders that propose to be
bound by all conditions. The essence of public bidding is, after all, an opportunity for fair competition and a
basis for the precise comparison of bids. 15 Thus, each bidder must bid under the same conditions; and be subject
to the same guidelines, requirements and limitations. The desired result is to be able to determine the best offer
or lowest bid, all things being equal.
Inasmuch as the Paircargo consortium did not possess the minimum equity equivalent to 30 percent of the
minimum project cost, it should not have been prequalified or allowed to participate further in the bidding. The
Prequalification and Bidding Committee (PBAC) should therefore not have opened the two envelopes of the
consortium containing its technical and financial proposals; required AEDC to match the consortiums bid; 16 or
awarded the Concession Agreement to the consortiums successor-in-interest, Piatco.
As there was effectively no public bidding to speak of, the entire bidding process having been flawed and
tainted from the very outset, therefore, the award of the concession to Paircargos 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
_______________
199 SCRA 134, July 12, 1991.

14
Malaga v. Penachos, Jr., 213 SCRA 516, September 3, 1992.

15
16
Part of the bid process under the BOT Law is the right of the originator of an unsolicited proposal to
match a price challenge. Pursuant to Sec. 4-A, in the event another proponent submits a lower price proposal,
the original proponent shall have the right to match that price within thirty (30) working days.
17
Cf. Malaga v. Penachos, Jr., supra.
691
VOL. 402, MAY 5, 2003 691
AEDC Was Deprived of the Right to Match PIATCOs 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 latters financial and
technical proposals that constituted the basis for the price challenge in the first place. This was supposedly in
keeping with Section 11.6 of the 1994 IRR, which provides that proprietary information is to be respected,
protected and treated with utmost confidentiality, and is therefore not to form part of the bidding/tender and
related documents.
This pronouncement, I believe, was a grievous misapplication of the mentioned provision. The proprietary
information referred to in Section 11.6 of the IRR pertains only to the proprietary information of
the originator of an unsolicited proposal, and not to those belonging to a challenger. The reason for the
protection accorded proprietary information at all is the fact that, according to Section 4-A of the BOT Law as
amended, a proposal qualifies as an unsolicited proposal when it pertains to a project that involves a new
concept or technology, and/or a project that is not on the governments list of priority projects.
To be considered as utilizing a new concept or technology, a project must involve the possession of exclusive
rights (worldwide or regional) over a process; or possession of intellectual property rights over a design,
methodology or engineering concept.18 Patently, the intent of the BOT Law is to encourage individuals and
groups to come up with creative innovations, fresh ideas and new technology. Hence, the significance and
necessity of protecting proprietary information in connection with unsolicited proposals. And to make the
encouragement real, the law also extends to such individuals and groups what amounts to a right of first
refusal to undertake the project they conceptualized, involving the use of new technology or concepts, through
the mechanism of matching a price challenge.
_______________
18
11.2, 1994 IRR.
692
A competing bid is never just any figure conjured from out of the blue; it is arrived at after studying economic,
financial, technical and other factors; it is likewise based on certain assumptions as to the nature of the
business, the market potentials, the probable demand for the product or service, the future behavior of cost
items, political and other risks, and so on. It is thus self-evident that in order to be able to intelligently match a
bid or price challenge, a bidder must be given access to the assumptions and the calculations that went into
crafting the competing bid.
In this instance, the financial and technical proposals of Piatco would have provided AEDC with the
necessary information to enable it to make a reasonably informed matching bid. To put it more simply, a bidder
unable to access the competitors assumptions will never figure out how the competing bid came about; requiring
him to counter-propose is like having him shoot at a target in the dark while blindfolded.
By withholding from AEDC the challengers financial and technical proposals containing the critical
information it needed, Undersecretary Cal actually and effectively deprived AEDC of the ability to match the
price challenge. One could say that AEDC did not have the benefit of a level playing field. It seems to me,
though, that AEDC was actually shut out of the game altogether.
At the end of the day, the bottom line is that the validity and the propriety of the award to Piatco had been
irreparably impaired.
Delayed Issuance of the Notice of Award Violated the BOT Law and the IRR
Section 9.5 of the IRR requires that the Notice of Award must indicate the time frame within which the winner
of the bidding (and therefore the prospective awardee) shall submit the prescribed performance security, proof of
commitment of equity contributions, and indications of sources of financing (loans); and, in the case of joint
ventures, an agreement showing that the members are jointly and severally responsible for the obligations of the
project proponent under the contract.
The purpose of having a definite and firm timetable for the submission of the aforementioned requirements
is not only to prevent delays in the project implementation, but also to expose and
693
VOL. 402, MAY 5, 2003 693
weed out unqualified proponents, who might have unceremoniously slipped through the earlier prequalification
process, by compelling them to put their money where their mouths are, so to speak.
Nevertheless, this provision can be easily circumvented by merely postponing the actual issuance of the
Notice of Award, in order to give the favored proponent sufficient time to comply with the requirements. Hence,
to avert or minimize the manipulation of the post-bidding process, the IRR not only set out the precise sequence
of events occurring between the completion of the evaluation of the technical bids and the issuance of the Notice
of Award, but also specified the timetables for each such event. Definite allowable extensions of time were
provided for, as were the consequences of a failure to meet a particular deadline.
In particular, Section 9.1 of the 1994 IRR prescribed that within 30 calendar days from the time the second-
stage evaluation shall have been completed, the Committee must come to a decision whether or not to award the
contract and, within 7 days therefrom, the Notice of Award must be approved by the head of agency or local
government unit (LGU) concerned, and its issuance must follow within another 7 days thereafter.
Section 9.2 of the IRR set the procedure applicable to projects involving substantial government
undertakings as follows: Within 7 days after the decision to award is made, the draft contract shall be submitted
to the ICC for clearance on a no-objection basis. If the draft contract includes government undertakings already
previously approved, then the submission shall be for information only.
However, should there be additional or new provisions different from the original government undertakings,
the draft shall have to be reviewed and approved. The ICC has 15 working days to act thereon, and unless
otherwise specified, its failure to act on the contract within the specified time frame signifies that the agency or
LGU may proceed with the award. The head of agency or LGU shall approve the Notice of Award within seven
days of the clearance by the ICC on a no-objection basis, and the Notice itself has to be issued within seven days
thereafter.
The highly regulated time-frames within which the agents of government were to act evinced the intent to
impose upon them the duty to act expeditiously throughout the process, to the end that the project be prosecuted
and implemented without delay. This
694
regulated scenario was likewise intended to discourage collusion and substantially reduce the opportunity for
agents of government to abuse their discretion in the course of the award process.
Despite the clear timetables set out in the IRR, several lengthy and still-unexplained delays occurred in the
award process, as can be observed from the presentation made by the counsel for public respondents, 19 quoted
hereinbelow:
11 Dec. 1996The Paircargo Joint Venture was informed by the PBAC that AEDC failed to match and that
negotiations preparatory to Notice of Award should be commenced. This was the decision to award that should
have commenced the running of the 7-day period to approve the Notice of Award, as per Section 9.1 of the IRR,
or to submit the draft contract to the ICC for approval conformably with Section 9.2.
01 April 1997The PBAC resolved that a copy of the final draft of the Concession Agreement be submitted
to the NEDA for clearance on a no-objection basis. This resolution came more than 3 months too late as it should
have been made on the 20th of December 1996 at the latest.
16 April 1997The PBAC resolved that the period of signing the Concession Agreement be extended by 15
days.
18 April 1997NEDA approved the Concession Agreement. Again this is more than 3 months too late as
the NEDAs decision should have been released on the 16th of January 1997 or fifteen days after it should have
been submitted to it for review.
09 July 1997The Notice of Award was issued to PIATCO. Following the provisions of the IRR, the Notice
of Award should have been issued fourteen days after NEDAs approval, or the 28th of January 1997. In any
case, even if it were to be assumed that the release of NEDAs approval on the 18th of April was timely, the
Notice of Award should have been issued on the 9th of May 1997. In both cases, therefore, the release of the
Notice of Award occurred in a decidedly less than timely fashion.
This chronology of events bespeaks an unmistakable disregard, if not disdain, by the persons in charge of the
award process for the time limitations prescribed by the IRR. Their attitude flies in the face of this Courts
solemn pronouncement in Republic v. Capulong20 that strict observance of the rules, regulations and guidelines
_______________
Public respondents Memorandum, pp. 86-87; prepared jointly by the Solicitor General, the acting
19
Government Corporate Counsel, and their respective deputies and assistants.

20
Supra, note 14, per Medialdea, J.
695
VOL. 402, MAY 5, 2003 695
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 impunityand by agents of government, no less! On account of such
violation, the award of the contract to Piatco, which undoubtedly gained time and benefited from the delays,
must be deemed null and void from the beginning.
Further Amendments Resulted in a Substantially Different Contract, Awarded Without Public Bidding
But the violations and desecrations did not stop there. After the PBAC made its decision on December 11, 1996
to award the contract to Piatco, the latter negotiated changes to the Contract bidded out and ended up with
what amounts to a substantially new contract without any public bidding. This Contract was subsequently
further amended four more times through negotiation and without any bidding. Thus, the contract actually
executed between Piatco and DOTC/MIAA on July 12, 1997 (the Concession Agreement or CA) differed from
the contract bidded out (the draft concession agreement or DCA) in the following very significant respects:
1. 1.The CA inserted stipulations creating a monopoly in favor of Piatco in the business of providing
airport-related services for international airlines and passengers.21
2. 2.The CA provided that government is to answer for Piatcos unpaid loans and debts (lumped under the
term Attendant Liabilities) in the event Piatco fails to pay its senior lenders.22
3. 3.The CA provided that in case of termination of the contract due to the fault of government,
government shall pay all expenses that Piatco incurred for the project plus the appraised value of the
Terminal.23
_______________
21
3.01(d), 3.01(e), 3.02(a), 3.02(b) and 5.15 of the CA.
22
See 1.06 of the CA.
23
3.02 of the CA.
696
1. 4.The CA imposed new and special obligations on government, including delivery of clean possession of
the site for the terminal; acquisition of additional land at the governments expense for construction of
road networks required by Piatcos approved plans and specifications; and assistance to Piatco in
securing site utilities, as well as all necessary permits, licenses and authorizations.24
2. 5.Where Section 3.02 of the DCA requires government to refrain from competing with the contractor
with respect to the operation of NAIA Terminal III, Section 3.02(b) of the CA excludes and
prohibits everyone, including government, from directly or indirectly competing with Piatco, with
respect to the operation of, as well as operations in, NAIA Terminal III. Operations in is sufficiently
broad to encompass all retail and other commercial business enterprises operating within Terminal
III, inclusive of the businesses of providing various airport-related services to international airlines,
within the scope of the prohibition.
3. 6.Under Section 6.01 of the DCA, the following fees are subject to the written approval of MIAA:
lease/rental charges, concession privilege fees for passenger services, food services, transportation
utility concessions, groundhandling, catering and miscellaneous concession fees, porterage fees,
greeter/well-wisher fees, carpark fees, advertising fees, VIP facilities fees and others. Moreover,
adjustments to the groundhandling fees, rentals and porterage fees are permitted only once every two
years and in accordance with a parametric formula, per DCA Section 6.03. However, the CA as
executed with Piatco provides in Section 6.06 that all the aforesaid fees, rentals and charges may be
adjusted without MIAAs approval or intervention. Neither are the adjustments to these fees and
charges subject to or limited by any parametric formula.25
4. 7.Section 1.29 of the DCA provides that the terminal fees, aircraft tacking fees, aircraft parking fees,
check-in
_______________
24
2.05 of the CA.
25
The parametric formula referred to in the CA applies only to the following so-called public utility fees:
aircraft parking and tacking fees, check-in counter fees and terminal fees.
697
VOL. 402, MAY 5, 2003 697
1. counter fees and other fees are to be quoted and paid in Philippine pesos. But per Section 1.33 of the
CA, all the aforesaid fees save the terminal fee are denominated in US Dollars.
2. 8.Under Section 8.07 of the DCA, the term attendant liabilities refers to liabilities pertinent to NAIA
Terminal III, such as payment of lease rentals and performance of other obligations under the Land
Lease Agreement; the obligations under the Tenant Agreements; and payment of all taxes, fees,
charges and assessments of whatever kind that may be imposed on NAIA Terminal III or parts
thereof. But in Section 1.06 of the CA, Attendant Liabilities refers to unpaid debts of Piatco: All
amounts recorded and from time to time outstanding in the books of [Piatco] as owing to Unpaid
Creditors who have provided, loaned or advanced funds actually used for the Project, including all
interests, penalties, associated fees, charges, surcharges, indemnities, reimbursements and other related
expenses, and further including amounts owed by [Piatco] to its suppliers, contractors and
subcontractors.
3. 9.Per Sections 8.04 and 8.06 of the DCA, government may, on account of the contractors breach, rescind
the contract and select one of four options: (a) take over the terminal and assume all its attendant
liabilities; (b) allow the contractors creditors to assign the Project to another entity acceptable to
DOTC/MIAA; (c) pay the contractor rent for the facilities and equipment the DOTC may utilize; or (d)
purchase the terminal at a price established by independent appraisers. Depending on the option
selected, government may take immediate possession and control of the terminal and its operations.
Government will be obligated to compensate the contractor for the equivalent or proportionate
contract costs actually disbursed, but only where government is the one in breach of the contract. But
under Section 8.06(a) of the CA, whether on account of Piatcos breach of contract or its inability to
pay its creditors, government is obliged to either (a) take over Terminal III and assume all of Piatcos
debts or (b) permit the qualified unpaid creditors to be substituted in place of Piatco or to designate a
new operator. And in the event of governments breach of contract, Piatco may compel it to purchase
the terminal at fair market value, per Section 8.06(b) of the CA.
698
1. 10.Under the DCA, any delay by Piatco in the payment of the amounts due the government constitutes
breach of contract. However, under the CA, such delay does not necessarily constitute breach of
contract, since Piatco is permitted to suspend payments to the government in order to first satisfy the
claims of its secured creditors, per Section 8.04(d) of the CA.
It goes without saying that the amendment of the Contract bidded out (the DCA or draft concession agreement)
in such substantial manner, without any public bidding, and after the bidding process had been concluded on
December 11, 1996is 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:
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
_______________
26
Fernandez, A Treatise on Government Contracts under Philippine Law, 2001 ed., p. 70.
27
96 Phil. 368, December 29, 1954.
28
Id., p. 375, per Paras, CJ.
699
VOL. 402, MAY 5, 2003 699
The aforementioned case dealt with the unauthorized amendment of a contract executed after public bidding; in
the situation before us, the amendments were made also after the bidding, but prior to execution. Be that as it
may, the same rationale underlying Caltex applies to the present situation with equal force. Allowing the winning
bidder to renegotiate the contract for which the bidding process has ended is tantamount to permitting it to put
in anything it wants. Here, the winning bidder (Piatco) did not even bother to wait until after actual execution of
the contract before rushing to amend it. Perhaps it believed that if the changes were made to a contract already
won through bidding (DCA) instead of waiting until it is executed, the amendments would not be noticed or
discovered by the public.
In a later case, Mata v. San Diego,29 this Court reiterated its ruling as follows:
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.
Piatcos 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 proponents
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 challengers bid.
_______________
29
63 SCRA 170, 177-178, March 21, 1975, per Antonio, J.
700
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 destroyedthere will be no basis for an exact comparison between bids.
Moreover, Piatco misinterpreted the meaning behind PBAC Bid Bulletin No. 3. The
phrase amendments . . . from time to time refers only to those amendments to the draft concession agreement
issued by the PBAC prior to the submission of the price challenge; it certainly does not include or permit
amendments negotiated for and introduced after the bidding process has been terminated.
Piatcos Concession Agreement Was Further Amended, (ARCA) Again Without Public Bidding
Not satisfied with the Concession Agreement, Piatcoonce more without bothering with public bidding
negotiated with government for still more substantial changes. The result was the Amended and Restated
Concession Agreement (ARCA) executed on November 26, 1998. The following changes were introduced:
1. 1.The definition of Attendant Liabilities was further amended with the result that the unpaid loans of
Piatco, for which government may be required to answer, are no longer limited to only those loans
recorded in Piatcos books or loans whose proceeds were actually used in the Terminal III project.30
2. 2.Although the contract may be terminated due to breach by Piatco, it will not be liable to pay the
government any Liquidated Damages if a new operator is designated to take over the operation of the
terminal.31
_______________
30
Cf 1.06 of the ARCA vis--vis 1.06 of the CA.
31
4.04 and 8.01 of the ARCA vis--vis 8.04 of the CA.
701
VOL. 402, MAY 5, 2003 701
1. 3.The Liquidated Damages which government becomes liable for in case of its breach of contract were
substantially increased.32
2. 4.Governments right to appoint a comptroller for Piatco in case the latter encounters liquidity problems
was deleted.33
3. 5.Government is made liable for Incremental and Consequential Costs and Losses in case it fails to
comply or cause any third party under its direct or indirect control to comply with the special
obligations imposed on government.34
4. 6.The insurance policies obtained by Piatco covering the terminal are now required to be assigned to
the Senior Lenders as security for the loans; previously, their proceeds were to be used to repair and
rehabilitate the facility in case of damage.35
5. 7.Government bound itself to set the initial rate of the terminal fee, to be charged when Terminal III
begins operations, at an amount higher than US$20.36
6. 8.Government waived its defense of the illegality of the contract and even agreed to be liable to pay
damages to Piatco in the event the contract was declared illegal.37
7. 9.Even though government may be entitled to terminate the ARCA on account of breach by Piatco,
government is still liable to pay Piatco the appraised value of Terminal III or the Attendant
Liabilities, if the termination occurs before the In-Service Date. 38 This condition contravenes the BOT
Law provision on termination compensation.
8. 10.Government is obligated to take the administrative action required for Piatcos imposition, collection
and applica
_______________
32
As cf. Annex G of the ARCA vis--vis Annex G of the CA.
33
Cf. 8.04(d) of the ARCA vis--vis 9.01 (d) of the CA.
34
Cf 2.05 of the ARCA vis--vis 2.05 of the CA.
35
Cf 5.08(a) of the ARCA vis--vis 5.08(a) of the CA
36
Cf. 6.03(a) (i) of the ARCA vis--vis 6.03(a) of the CA.
37
Cf 8.01(b) and 12.09 of the ARCA vis--vis 8.04(b) and 12.09 of the CA.
38
Cf 8.03(a) (i) of the ARCA vis--vis 8.06(a) (i) of the CA.
702
1. tion of all Public Utility Revenues.39 No such obligation existed previously.
2. 11.Government is now also obligated to perform and cause other persons and entities under its direct or
indirect control to perform all acts necessary to perfect the security interests to be created in favor of
Piatcos Senior Lenders.40 No such obligation existed previously.
3. 12.DOTC/MIAAs right of intervention in instances where Piatcos Non-Public Utility Revenues become
exorbitant or excessive has been removed.41
4. 13.The illegality and unenforceability of the ARCA or any of its material provisions was made an event
of default on the part of government only, thus constituting a ground for Piatco to terminate the
ARCA.42
5. 14.Amounts due from and payable by government under the contract were made payable on demand
net of taxes, levies, imposts, duties, charges or fees of any kind except as required by law.43
6. 15.The Parametric Formula in the contract, which is utilized to compute for adjustments/increases to
the public utility revenues (i.e., aircraft parking and tacking fees, checkin counter fee and terminal
fee), was revised to permit Piatco to input its more costly short-term borrowing rates instead of the
longer-terms rates in the computations for adjustments, with the end result that the changes will
redound to its greater financial benefit.
7. 16.The Certificate of Completion simply deleted the successful performance-testing of the terminal
facility in accordance with defined performance standards as a precondition for governments
acceptance of the terminal facility.44
_______________
39
2.05(g) of the ARCA.
40
4.04(b) of the ARCA.
41
6.03(c) of the ARCA vis--vis 6.03(c) of the CA.
42
Cf 8.01 (b) of the ARCA vis--vis 8.04(b) of the CA.
43
12.14 of the ARCA.
44
Cf. 1.11(b) and 5.06 of the ARCA vis--vis 1.11(b) and 5.06 of the CA.
703
VOL. 402, MAY 5, 2003 703
In sum, the foregoing revisions and amendments as embodied in the ARCA constitute very material
alterations of the terms and conditions of the CA, and give further manifestly undue advantage to Piatco at the
expense of government. Piatco claims that the changes to the CA were necessitated by the demands of its foreign
lenders. However, no proof whatsoever has been adduced to buttress this claim.
In any event, it is quite patent that the sum total of the aforementioned changes resulted in drastically
weakening the position of government to a degree that seems quite excessive, even from the standpoint of a
businessperson who regularly transacts with banks and foreign lenders, is familiar with their mind-set, and
understands what motivates them. On the other hand, whatever it was that impelled government officials
concerned to accede to those grossly disadvantageous changes, I can only hazard a guess.
There is no question in my mind that the ARCA was unauthorized and illegal for lack of public bidding and
for being patently disadvantageous to government.
The Three Supplements Imposed New Obligations on Government, Also Without Prior Public Bidding
After Piatco had managed to breach the protective rampart of public bidding, it recklessly went on a rampage of
further assaults on the ARCA.
The First Supplement Is as Void as the ARCA
In the First Supplement (FS) executed on August 27, 1999, the following changes were made to the ARCA:
1. 1.The amounts payable by Piatco to government were reduced by allowing additional exceptions to the
Gross Revenues in which government is supposed to participate.45
2. 2.Made part of the properties which government is obliged to construct and/or maintain and keep in
good repair are (a) the access road connecting Terminals II and IIIthe
_______________
45
2 of the FS, amending 1.36 of the ARCA.
704
1. construction of this access road is the obligation of Piatco, in lieu of its obligation to construct an Access
Tunnel connecting Terminals II and III; and (b) the taxilane and taxiwaythese are likewise part of
Piatcos obligations, since they are part and parcel of the project as described in Clause 1.3 of the Bid
Documents.46
2. 3.The MIAA is obligated to provide funding for the maintenance and repair of the airports and facilities
owned or operated by it and by third persons under its control. It will also be liable to Piatco for the
latters losses, expenses and damages as well as liability to third persons, in case MIAA fails to
perform such obligations. In addition, MIAA will also be liable for the incremental and consequential
costs of the remedial work done by Piatco on account of the formers default.47
3. 4.The FS also imposed on government ten (10) Additional Special Obligations, including the following:
1. (a)Working for the removal of the general aviation traffic from the NAIA airport complex48
2. (b)Providing through MIAA the land required by Piatco for the taxilane and one taxiway at no cost to
Piatco49
3. (c)Implementing the governments existing storm drainage master plan50
4. (d)Coordinating with DPWH the financing, the implementation and the completion of the following
works before the In-Service Date: three left-turning overpasses (EDSA to Tramo St., Tramo to
Andrews Ave., and Manlunas Road to Sales Ave.);51 and a road upgrade and improvement program
involving widening, repair and resurfacing of Sales Road, Andrews Avenue and Manlunas Road;
improvement of Nichols
_______________
46
3 of the FS, amending 2.05(d) of the ARCA.
47
Ibid.
48
4 of the FS, adding 2.05(h) to ARCA.
49
4 of the FS, adding 2.05(i) to ARCA.
50
4 of the FS, adding 2.05(p) to ARCA.
51
Per 4 of the FS, adding 2.05(n) to ARCA.
705
VOL. 402, MAY 5, 2003 705
1. Interchange; and removal of squatters along Andrews Avenue.52
2. (e)Dealing directly with BCDA and the Phil. Air Force in acquiring additional land or right of way for
the road upgrade and improvement program.53
1. 5. Government is required to work for the immediate reversion to MIAA of the Nayong Pilipino National
Park.54
2. 6.Governments share in the terminal fees collected was revised from a flat rate of P180 to 36 percent
thereof; together with governments percentage share in the gross revenues of Piatco, the amount will
be remitted to government in pesos instead of US dollars. 55 This amendment enables Piatco to benefit
from the further erosion of the peso-dollar exchange rate, while preventing government from building
up its foreign exchange reserves.
3. 7.All payments from Piatco to government are now to be invoiced to MIAA, and payments are to accrue
to the latters exclusive benefit.56 This move appears to be in support of the funds MIAA advanced to
DPWH.
I must emphasize that the First Supplement is void in two respects. First, it is merely an amendment to the
ARCA, upon which it is wholly dependent; therefore, since the ARCA is void, inexistent and not capable of being
ratified or amended, it follows that the FS too is void, inexistent and inoperative. Second, even
assuming arguendo that the ARCA is somehow remotely valid, nonetheless the FS, in imposing significant new
obligations upon government, altered the fundamental terms and stipulations of the ARCA, thus necessitating a
public bidding all over again. That the FS was entered into sans public bidding renders it utterly void and
inoperative.
_______________
52
Per 4 of the FS, adding 2.05(o) to ARCA.
53
Per 4 of the FS, adding 2.05(p) to ARCA.
54
Per 4 of the FS, adding 2.05(j) to ARCA.
55
8 of the FS, amending 6.01(c) of the ARCA.
56
9 of the FS, amending 6.02 of the ARCA.
706
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 undertakein
the governments steadthe 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 workexcavation, leveling, removal and disposal, backfilling and dewatering.
The amounts collectible by Piatco are to be offset against the Annual Guaranteed Payments it must pay
government.
Though denominated as Second Supplement, it was nothing less than an entirely new public works contract.
Yet it, too, did not undergo any public bidding, for which reason it is also void and inoperative.
Not surprisingly, Piatco had to subcontract the works to a certain Wintrack Builders, a firm reputedly owned
by a former highranking DOTC official. But that is another story altogether.
The Third Supplement Is Likewise Void and Inexistent
The Third Supplement (TS), executed between the government and Piatco on June 22, 2001, passed on to the
government certain obligations of Piatco as Terminal III concessionaire, with respect to the surface road
connecting Terminals II and III.
By way of background, at the inception of and forming part of the NAIA Terminal III project was the
proposed construction of an access tunnel crossing Runway 13/31, which would connect Terminal III to Terminal
II. The Bid Documents in Section 4.1.2.3[B][i] declared that the said access tunnel was subject to further
negotiation; but for purposes of the bidding, the proponent should submit
_______________
57
2.1 of the SS.
707
VOL. 402, MAY 5, 2003 707
a bid for it as well. Therefore, the tunnel was supposed to be part and parcel of the Terminal III project.
However, in Section 5 of the First Supplement, the parties declared that the access tunnel was not
economically viable at that time. In lieu thereof, the parties agreed that a surface access road (now called the
T2-T3 Road) was to be constructed by Piatco to connect the two terminals. Since it was plainly in substitution of
the tunnel, the surface road construction should likewise be considered part and parcel of the same project, and
therefore part of Piatcos obligation as well. While the access tunnel was estimated to cost about P800 million,
the surface road would have a price tag in the vicinity of about P100 million, thus producing significant savings
for Piatco.
Yet, the Third Supplement, while confirming that Piatco would construct the T2-T3 Road, nevertheless
shifted to government some of the obligations pertaining to the former, as follows:
1. 1.Government is now obliged to remove at its own expense all tenants, squatters, improvements and/or
waste materials on the site where the T2-T3 road is to be constructed. 58 There was no similar
obligation on the part of government insofar as the access tunnel was concerned.
2. 2.Should government fail to carry out its obligation as above described, Piatco may undertake it on
governments behalf, subject to the terms and conditions (including compensation payments)
contained in the Second Supplement.59
3. 3.MIAA will answer for the operation, maintenance and repair of the T2-T3 Road.60
The TS depends upon and is intended to supplement the ARCA as well as the First Supplement, both of which
are void and inexistent and not capable of being ratified or amended. It follows that the TS is likewise void,
inexistent and inoperative. And even if, hypothetically speaking, both ARCA and FS are valid, still, the Third
Supplementimposing as it does significant new obligations upon governmentwould in effect alter the terms
and stipulations of the ARCA in material respects, thus necessitating another pub-
_______________
58
Per 3.1 of the TS.
59
Vide 3.4 of the TS.
60
4.2 of the TS.
708
lic bidding. Since the TS was not subjected to public bidding, it is consequently utterly void as well. At any rate,
the TS created new monetary obligations on the part of government, for which there were no prior
appropriations. Hence it follows that the same is void ab initio.
In patiently tracing the progress of the Piatco contracts from their inception up to the present, I noted that
the whole process was riddled with significant lapses, if not outright irregularity and wholesale violations of law
and public policy. The rationale of beginning at the beginning, so to speak, will become evident when the
question of what to do with the five Piatco contracts is discussed later on.
In the meantime, I shall take up specific provisions or changes in the contracts and highlight the more
prominent objectionable features.
Government Directly Guarantees Piatco Debts
Certainly the most discussed provision in the parties arguments is the one creating an unauthorized, direct
government guarantee of Piatcos obligations in favor of the lenders.
Section 4-A of the BOT Law as amended states that unsolicited proposals, such as the NAIA Terminal III
Project, may be accepted by government provided inter alia that no direct government guarantee, subsidy or
equity is required. In short, such guarantee is prohibited in unsolicited proposals. Section 2(n) of the same
legislation defines direct government guarantee as an agreement whereby the government or any of its agencies
or local government units (will) assume responsibility for the repayment of debt directly incurred by the project
proponent in implementing the project in case of a loan default.
Both the CA and the ARCA have provisions that undeniably create such prohibited government guarantee.
Section 4.04 (c)(iv) to (vi) of the ARCA, which is similar to Section 4.04 of the CA, provides thus:
(iv) that if Concessionaire is in default under a payment obligation owed to the Senior Lenders, and as a result
thereof the Senior Lenders have become entitled to accelerate the Senior Loans, the Senior Lenders shall have
the right to notify GRP of the same x x x;
709
VOL. 402, MAY 5, 2003 709
(v) x x x the Senior Lenders may after written notification to GRP, transfer the Concessionaires rights and
obligations to a transferee x x x;
(vi) if the Senior Lenders x x x are unable to x x x effect a transfer x x x, then GRP and the Senior Lenders
shall endeavor x x x to enter into any other arrangement relating to the Development Facility x x x. If no
agreement relating to the Development Facility is arrived at by GRP and the Senior Lenders within the said
180-day period, then at the end thereof the Development Facility shall be transferred by the Concessionaire to
GRP or its designee and GRP shall make a termination payment to Concessionaire equal to the Appraised Value
(as hereinafter defined) of the Development Facility or the sum of the Attendant Liabilities, if greater. x x x.
In turn, the term Attendant Liabilities is defined in Section 1.06 of the ARCA as follows:
Attendant Liabilities refer to all amounts in each case supported by verifiable evidence from time to time owed
or which may become owing by Concessionaire to Senior Lenders or any other persons or entities who have
provided, loaned or advanced funds or provided financial facilities to Concessionaire for the Project, including,
without limitation, all principal, interest, associated fees, charges, reimbursements, and other related expenses
(including the fees, charges and expenses of any agents or trustees of such persons or entities), whether payable
at maturity, by acceleration or otherwise, and further including amounts owed by Concessionaire to its
professional consultants and advisers, suppliers, contractors and sub-contractors.
Governments 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 Piatcowhether 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
Piatcos 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 Piatcos rights to a transferee of
their choice; and, second, an effort
710
(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 controlexercisable via a mere refusal or inability to agree upon a transferee or any
other arrangement regarding the terminal facilityto push the process forward to the ultimate contractual cul-
de-sac, wherein government will be compelled to abjectly surrender and make good on its guarantee of payment.
Piatco also argues that there is no proviso requiring government to pay the Senior Lenders in the event of
Piatcos default. This is literally true, in the sense that Section 4.04(c)(vi) of ARCA speaks of government
making the termination payment to Piatco, not to the lenders. However, it is almost a certainty that the Senior
Lenders will already have made Piatco sign over to them, ahead of time, its right to receive such payments from
government; and/or they may already have had themselves appointed its attorneys-in-fact for the purpose of
collecting and receiving such payments.
Nevertheless, as petitioners-in-intervention pointed out in their Memorandum, 61 the termination payment is
to be made to Piatco, not to the lenders; and there is no provision anywhere in the contract documents to prevent
it from diverting the proceeds to its own benefit and/or to ensure that it will necessarily use the same to pay off
the Senior Lenders and other creditors, in order to avert the foreclosure of the mortgage and other liens on the
terminal facility. Such deficiency puts the interests of government at great risk. Indeed, if the unthinkable were
to happen, government would be paying several hundreds of millions of dollars, but the mortgage liens on the
facility may still be foreclosed by the Senior Lenders just the same.
Consequently, the Piatco contracts are also objectionable for grievously failing to adequately protect
governments interests. More accurately, the contracts would consistently weaken and do away with protection of
government interests. As such, they are therefore grossly lopsided in favor of Piatco and/or its Senior Lenders.
_______________
61
Page 37.
711
VOL. 402, MAY 5, 2003 711
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 ARCAs
definition of Attendant Liabilities.
Since no explanation has been forthcoming from Piatco as to the possible justification for such a drastic
change, the only conclusion possible is that it intends to have all of its debts covered by the guarantee,
regardless of whether or not they are disclosed in its books. This has particular reference to those borrowings
which were obtained in violation of the loan covenants requiring Piatco to maintain a minimum 70:30 debt-to-
equity ratio, and even if the loan proceeds were not actually used for the project itself.
This point brings us back to the guarantee itself. In Section 4.04(c)(vi) of ARCA, the amount which
government has guaranteed to pay as termination payment is the greater of either (i) the Appraised Value of the
terminal facility or (ii) the aggregate of the Attendant Liabilities. Given that the Attendant Liabilities may
include practically any Piatco debt under the sun, it is highly conceivable that their sum may greatly exceed the
appraised value of the facility, and government may end up paying very much more than the real worth of
Terminal III (So why did government have to bother with public bidding anyway?)
In the final analysis, Section 4.04(c)(iv) to (vi) of the ARCA is diametrically at odds with the spirit and the
intent of the BOT Law. The law meant to mobilize private resources (the private sector) to take on the burden
and the risks of financing the construction, operation and maintenance of relevant infrastructure and
development projects for the simple reason that government is not in a position to do so. By the same token,
government guarantee was prohibited, since it would merely defeat the purpose and raison dtre of a build-
operate-and-transfer project to be undertaken by the private sector.
To the extent that the project proponent is able to obtain loans to fund the project, those risks are shared
between the project proponent on the one hand, and its banks and other lenders on the other. But where the
proponent or its lenders manage to cajol or
712
coerce the government into extending a guarantee of payment of the loan obligations, the risks assumed by the
lenders are passed right back to government. I cannot understand why, in the instant case, government
cheerfully assented to re-assuming the risks of the project when it gave the prohibited guarantee and thus
simply negated the very purpose of the BOT Law and the protection it gives the government.
Contract Termination Provisions in the Piatco Contracts Are Void
The BOT Law as amended provides for contract termination as follows:
Sec. 7. Contract Termination.In the event that a project is revoked, cancelled or terminated by the
government through no fault of the project proponent or by mutual agreement, the Government shall
compensate the said project proponent for its actual expenses incurred in the project plus a reasonable rate of
return thereon not exceeding that stated in the contract as of the date of such revocation, cancellation or
termination: Provided, That the interest of the Government in this instances [sic] shall be duly insured with the
Government Service Insurance System or any other insurance entity duly accredited by the Office of the
Insurance Commissioner: Provided, finally, That the cost of the insurance coverage shall be included in the
terms and conditions of the bidding referred to above.
In the event that the government defaults on certain major obligations in the contract and such failure is
not remediable or if remediable shall remain unremedied for an unreasonable length of time, the project
proponent/contractor may, by prior notice to the concerned national government agency or local government unit
specifying the turn-over date, terminate the contract. The project proponent/contractor shall be reasonably
compensated by the Government for equivalent or proportionate contract cost as defined in the contract.
The foregoing statutory provision in effect provides for the following limited instances when termination
compensation may be allowed:
1. 1.Termination by the government through no fault of the project proponent
2. 2.Termination upon the parties mutual agreement
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VOL. 402, MAY 5, 2003 713
1. 3.Termination by the proponent due to governments default on certain major contractual obligations
To emphasize, the law does not permit compensation for the project proponent when contract termination is due to
the proponents 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:
1. (i)Failure of Concessionaire to finish the Works in all material respects in accordance with the Tender
Design and the Timetable;
2. (ii)Commission by Concessionaire of a material breach of this Agreement x x x;
3. (iii)x x x a change in control of Concessionaire arising from the sale, assignment, transfer or other
disposition of capital stock which results in an ownership structure violative of statutory or
constitutional limitations;
4. (iv)A pattern of continuing or repeated non-compliance, willful violation, or non-performance of other

terms and conditions hereof which is hereby deemed a material breach of this Agreement x x x.62
As if that were not bad enough, the ARCA also inserted into Section 8.01 the phrase Subject to Section 4.04.
The effect of this insertion is that in those instances where government may terminate the contract on account
of Piatcos 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
governmenteither a) the Appraised Value of the terminal facility or (b) the aggregate of the Attendant
Liabilities, whichever amount is greater!
Clearly, this condition is not in line with Section 7 of the BOT Law. That provision permits a project
proponent to recover the actual expenses it incurred in the prosecution of the project plus a reasonable rate of
return not in excess of that provided in the contract; or to be compensated for the equivalent or proportionate
_______________
62
8.01 (a) of the ARCA.
714
contract cost as defined in the contract, in case the government is in default on certain major contractual
obligations.
Furthermore, in those instances where such termination compensation is authorized by the BOT Law, it is
indispensable that the interest of government be duly insured. Section 5.08 of the ARCA mandates insurance
coverage for the terminal facility; but all insurance policies are to be assigned, and all proceeds are payable, to
the Senior Lenders. In brief, the interest being secured by such coverage is that of the Senior Lenders, not that
of government. This can hardly be considered compliance with law.
In essence, the ARCA provisions on termination compensation result in another unauthorized government
guarantee, this time in favor of Piatco.
A Prohibited Direct
Government Subsidy,
Which at the Same Time
Is an Assault on the
National Honor
Still another contractual provision offensive to law and public policy is Section 8.01 (d) of the ARCA, which is a
bolder and badder version of Section 8.04(d) of the CA.
It will be recalled that Section 4-A of the BOT Law as amended prohibits not only direct government
guarantees, but likewise a direct government subsidy for unsolicited proposals. Section 13.2. b. iii. of the 1999
IRR defines a direct government subsidy as encompassing an agreement whereby the Government x x x will x x
x postpone any payments due from the proponent.
Despite the statutory ban, Section 8.01 (d) of the ARCA provides thus:
(d) The provisions of Section 8.01 (a) notwithstanding, and for the purpose of preventing a disruption of the
operations in the Terminal and/or Terminal Complex, in the event that at any time Concessionaire is of the
reasonable opinion that it shall be unable to meet a payment obligation owed to the Senior Lenders,
Concessionaire shall give prompt notice to GRP, through DOTC/MIAA and to the Senior Lenders. In such
circumstances, the Senior Lenders (or the Senior Lenders Representative) may ensure that after making
provision for administrative expenses and depreciation, the cash resources of Concessionaire shall first be used
and applied to meet all payment obligations owed to the Senior Lenders. Any excess
715
VOL. 402, MAY 5, 2003 715
cash, after meeting such payment obligations, shall be earmarked for the payment of all sums payable by
Concessionaire to GRP under this Agreement. If by reason of the foregoing GRP should be unable to collect in full
all payments due to GRP under this Agreement, then the unpaid balance shall be payable within a 90-day grace
period counted from the relevant due date, with interest per annum at the rate equal to the average 91-day
Treasury Bill Rate as of the auction date immediately preceding the relevant due date. If payment is not effected
by Concessionaire within the grace period, then a spread of five (5%) percent over the applicable 91-day
Treasury Bill Rate shall be added on the unpaid amount commencing on the expiry of the grace period up to the
day of full payment. When the temporary illiquidity of Concessionaire shall have been corrected and the cash
position of Concessionaire should indicate its ability to meet its maturing obligations, then the provisions set
forth under this Section 8.01(d) shall cease to apply. The foregoing remedial measures shall be applicable only
while there remains unpaid and outstanding amounts owed to the Senior Lenders. (Italics supplied)
By any manner of interpretation or application, Section 8.01(d) of the ARCA clearly mandates
the indefinite postponement of payment of all of Piatcos obligations to the government, in order to ensure that
Piatcos obligations to the Senior Lenders are paid in full first. That is nothing more or less than the direct
government subsidy prohibited by the BOT Law and the IRR. The fact that Piatco will pay interest on the
unpaid amounts owed to government does not change the situation or render the prohibited subsidy any less
unacceptable.
But beyond the clear violations of law, there are larger issues involved in the ARCA. Earlier, I mentioned
that Section 8.01(d) of the ARCA completely eliminated the proviso in Section 8.04(d) of the CA which gave
government the right to appoint a financial controller to manage the cash position of Piatco during situations of
financial distress. Not only has government been deprived of any means of monitoring and managing the
situation; worse, as can be seen from Section 8.01(d) above-quoted, the Senior Lenders have effectively locked in
on the right to exercise financial controllership over Piatco and to allocate its cash resources to the payment of
all amounts owed to the Senior Lenders before allowing any payment to be made to government.
In brief, this particular provision of the ARCA has placed in the hands of foreign lenders the power and the
authority to determine how much (if at all) and when the Philippine government (as gran-
716
tor of the franchise) may be allowed to receive from Piatco. In that situation, government will be at the mercy of
the foreign lenders. This is a situation completely contrary to the rationale of the BOT Law and to public policy.
The aforesaid provision rouses mixed emotionsshame and disgust at the parties (especially the government
officials) docile submission and abject servitude and surrender to the imperious and excessive demands of the
foreign lenders, on the one hand; and vehement outrage at the affront to the sovereignty of the Republic and to the
national honor, on the other. It is indeed time to put an end to such an unbearable, dishonorable situation.
The Piatco Contracts Unarguably Violate Constitutional Injunctions
I will now discuss the manner in which the Piatco Contracts offended the Constitution.
The Exclusive Right Granted to Piatco to Operate a Public Utility Is Prohibited by the Constitution
While Section 2.02 of the ARCA spoke of granting to Piatco a franchise to operate and maintain the Terminal
Complex, Section 3.02(a) of the same ARCA granted to Piatco, for the entire term of the concession
agreement, the exclusive right to operate a commercial international passenger terminal within the Island of
Luzon with the exception of those three terminals already existing63 at the time of execution of the ARCA.
Section 11 of Article XII of the Constitution prohibits the grant of a franchise, certificate, or any other form
of authorization for the operation of a public utility that is exclusive in character.
In its Opinion No. 078, Series of 1995, the Department of Justice held that the NAIA Terminal III which x x
x is a terminal for public use is a public utility. Consequently, the constitutional prohibition against the
exclusivity of a franchise applies to the franchise for the operation of NAIA Terminal III as well.
_______________
Namely, the airports at the Subic Bay Freeport Special Economic Zone, the Clark Special Economic Zone,
63
and Laoag City.
717
VOL. 402, MAY 5, 2003 717
What was granted to Piatco was not merely a franchise, but an exclusive right to operate an international
passenger terminal within the Island of Luzon. What this grant effectively means is that the government is
now estopped from exercising its inherent power to award any other person another franchise or a right to
operate such a public utility, in the event public interest in Luzon requires it. This restriction is highly
detrimental to government and to the public interest. Former Secretary of Justice Hernando B. Perez expressed
this point well in his Memorandum for the President dated 21 May 2002:
Section 3.02 on Exclusivity
This provision gives to PIATCO (the Concessionaire) the exclusive right to operate a commercial
international airport within the Island of Luzon with the exception of those already existing at the time of the
execution of the Agreement, such as the airports at Subic, Clark and Laoag City. In the case of the Clark
International Airport, however, the provision restricts its operation beyond its design capacity of 850,000
passengers per annum and the operation of new terminal facilities therein until after the new NAIA Terminal
III shall have consistently reached or exceeded its design capacity of ten (10) million passenger capacity per year
for three (3) consecutive years during the concession period.
This is an onerous and disadvantageous provision. It effectively grants PIATCO a monopoly in Luzon and
ties the hands of government in the matter of developing new airports which may be found expedient and
necessary in carrying out any future plan for an inter-modal transportation system in Luzon.
Additionally, it imposes an unreasonable restriction on the operation of the Clark International Airport
which could adversely affect the operation and development of the Clark Special Economic Zone to the economic
prejudice of the local constituencies that are being benefited by its operation. (Italics supplied)
While it cannot be gainsaid that an enterprise that is a public utility may happen to constitute a monopoly on
account of the very nature of its business and the absence of competition, such a situation does not however,
constitute justification to violate the constitutional prohibition and grant an exclusive franchise or exclusive
right to operate a public utility.
718
Piatcos contention that the Constitution does not actually prohibit monopolies is beside the point. As correctly
argued,64 the existence of a monopoly by a public utility is a situation created by circumstances that do not
encourage competition. This situation is different from the grant of a franchise to operate a public utility, a
privilege granted by government. Of course, the grant of a franchise may result in a monopoly. But making such
franchise exclusive is what is expressly proscribed by the Constitution.
Actually, the aforementioned Section 3.02 of the ARCA more than just guaranteed exclusivity; it also
guaranteed that the government will not improve or expand the facilities at Clarkand in fact is required to put
a cap on the latters operationsuntil after Terminal III shall have been operated at or beyond its peak capacity
for three consecutive years.65 As counsel for public respondents pointed out, in the real world where the rate of
influx of international passengers can fluctuate substantially from year to year, it may take many years before
Terminal III sees three consecutive years operations at peak capacity. The Diosdado Macapagal International
Airport may thus end up stagnating for a long time. Indeed, in order to ensure greater profits for Piatco, the
economic progress of a region has had to be sacrificed.
The Piatco Contracts Violate the Time Limitation on Franchises
Section 11 of Article XII of the Constitution also provides that no franchise, certificate or any other form of
authorization for the operation of a public utility shall be 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.
_______________
Memorandum, pp. 5-7, of the petitioners-in-intervention.

64
3.02 a): x x x. With regard to CSEZ, GRP shall ensure that, until such time as the Development Facility
65
Capacity shall have been consistently reached or exceeded for three (3) consecutive years during the Concession
Period, (i) Clark International Airport shall not be operated beyond its design capacity of Eight Hundred Fifty
Thousand (850,000) passengers per annum and (ii) no new terminal facilities shall be operated therein.
Development Facility Capacity refers to the ten million (10,000,000) passenger capacity per year of the
Development Facility.
719
VOL. 402, MAY 5, 2003 719
The Piatco Contracts have come up with an innovative way to circumvent the prohibition and obtain an
extension. This fact can be gleaned from Section 8.03(b) of the ARCA, which I quote thus:
Sec. 8.03. Termination Procedure and Consequences of Termination.
1. a)x x x xxx xxx
2. b)In the event the Agreement is terminated pursuant to Section 8.01(b) hereof, Concessionaire shall be
entitled to collect the Liquidated Damages specified in Annex G. The full payment by GRP to
Concessionaire of the Liquidated Damages shall be a condition precedent to the transfer by
Concessionaire to GRP of the Development Facility. Prior to the full payment of the Liquidated
Damages, Concessionaire shall to the extent practicable continue to operate the Terminal and the
Terminal Complex and shall be entitled to retain and withhold all payments to GRP for the purpose of
offsetting the same against the Liquidated Damages. Upon full payment of the Liquidated Damages,
Concessionaire shall immediately transfer the Development Facility to GRP on as-is-where-is basis.
The aforesaid easy payment scheme is less beneficial than it first appears. Although it enables government to
avoid having to make outright payment of an obligation that will likely run into billions of pesos, this easy
payment plan will nevertheless cost government considerable loss of income, which it would earn if it were to
operate Terminal III by itself. Inasmuch as payments to the concessionaire (Piatco) will be on installment
basis, interest charges on the remaining unpaid balance would undoubtedly cause the total outstanding balance
to swell. Piatco would thus be entitled to remain in the drivers 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
720
paraphernalia, immigrations and customs processing areas; and amenities such as comfort rooms, restaurants
and shops.
In furtherance of the first monopoly, the Piatco Contracts stipulate that the NAIA Terminal III will be the
only facility to be operated as an international passenger terminal; 66 that NAIA Terminals I and II will no
longer be operated as such; 67 and that no one (including the government) will be allowed to compete with Piatco
in the operation of an international passenger terminal in the NAIA Complex. 68 Given that, at this time, the
government and Piatco are the only ones engaged in the business of operating an international passenger
terminal, I am not acutely concerned with this particular monopolistic situation.
There was however another monopoly within the NAIA created by the subject contracts for Piatcoin the
business of providing international airlines with the following: groundhandling, in-flight catering, cargo
handling, and aircraft repair and maintenance
_______________
66
3.02(a) of the ARCA and 3.02(a) of the CA.
67
3.02(b) and (c) of the ARCA, and 3.02(b) of the CA.
68
3.02(b) and (c) of the ARCA and 3.02(b) of the CA. Pertinent portions of 3.02(b) of the ARCA are quoted
hereinbelow:
(b) On the In-Service Date, GRP shall cause the closure of the Ninoy Aquino International Airport Passenger
Terminals I and II as international passenger terminals in order to allow Concessionaire, during the entire
Concession Period, to exclusively operate a commercial international passenger terminal within the island of
Luzon; provided that the aforesaid exclusive right to operate a commercial international passenger terminal
shall be without prejudice to the international passenger terminal operations already existing on the date of
this Agreement in SBFSEZ, CSEZ and Laoag City (but subject to the limitation with regard to CSEZ referred to
in Section 3.02[a]). Neither shall GRP, DOTC or MIAA use or permit the use of Terminals I and/or II under any
arrangement or scheme, for compensation or otherwise, with any party which would directly or indirectly
compete with Concessionaire in the latters operation of and the operations in the Terminal and Terminal
Complex, including without limitation the use of Terminals I and/or II for the handling of international traffic;
provided that if Terminals I and/or II are operated as domestic passenger terminals, the conduct of any activity
therein which under the ordinary course of operating a domestic passenger terminal is normally undertaken,
shall not be considered to be in direct or indirect competition with Concessionaire in its operation of the
Development Facility.
721
VOL. 402, MAY 5, 2003 721
services. These are lines of business activity in which are engaged many service providers (including the
petitioners-in-intervention), who will be adversely affected upon full implementation of the Piatco Contracts,
particularly Sections 3.01(d)69 and (e)70 of both the ARCA and the CA.
On the one hand, Section 3.02(a) of the ARCA makes Terminal III the only international passenger terminal
at the NAIA, and therefore the only place within the NAIA Complex where the business of providing airport-
related services to international airlines may be conducted. On the other hand, Section 3.01(d) of the ARCA
_______________
69
Sec. 3.01(d) of the ARCA and the CA reads as follows:
(d) For the purpose of an orderly transition, MIAA shall not renew any expired concession agreement relative to
any service or operation currently being undertaken at the Ninoy Aquino International Airport Passenger
Terminal I, or extend any concession agreement which may expire subsequent hereto, except to the extent that
the continuation of existing services and operations shall lapse on or before the In-Service Date. Nothing herein
shall be construed to prohibit MIAA from maintaining arrangements for the uninterrupted provision of
essential services at the Ninoy Aquino International Airport Passenger Terminal I until the Terminal shall have
commenced operations on the In-Service Date, and thereafter, from making such arrangements as are necessary
for the utilization of NAIA Passenger Terminal I as a domestic passenger terminal or as a facility other than an
international passenger terminal.
Sec. 3.01(e) of the ARCA and the CA reads as follows:

70
(e) GRP confirms that certain concession agreements relative to certain services or operations currently being
undertaken at the Ninoy Aquino International Airport Passenger Terminal I have a validity period extending
beyond the In-Service Date. GRP, through DOTC/MIAA, confirms that these services and operations shall not be
carried over to the Terminal and that Concessionaire is under no legal obligation to permit such carry-over
except through a separate agreement duly entered into with Concessionaire. In the event Concessionaire
becomes involved in any litigation initiated by any such concessionaire or operator, GRP undertakes and hereby
holds Concessionaire free and harmless on a full indemnity basis from and against any loss and/or liability
resulting from any such litigation, including the cost of litigation and the reasonable fees paid or payable to
Concessionaires counsel of choice, all such amounts being fully deductible by way of an offset from any amount
which Concessionaire is bound to pay GRP under this Agreement.
722
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 providersthose with subsisting
concession agreements for services and operations being conducted at Terminal Ito carry over their concession
agreements, services and operations to Terminal III, unless they first enter into a separate agreement with
Piatco.
The aforementioned provisions vest in Piatco effective and exclusive control over which service provider may
and may not operate at Terminal III and render the airport-related services needed by international airlines. It
thereby possesses the power to exclude competition. By necessary implication, it also has effective control over
the fees and charges that will be imposed and collected by these service providers.
This intention is exceedingly clear in the declaration by Piatco that it is completely within its rights to
exclude 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
concessionaires discretion and power to reject any service provider and/or impose any term or condition it may
see fit in any contract it enters into with a service provider. In brief, there is no safeguard whatsoever to ensure
free and fair competition in the service-provider sector.
In the meantime, and not surprisingly, Piatco is first in line, ready to exploit the unique business
opportunity. It announced72 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
_______________
PIATCO Comment, par. 9, on p. 6.

71
PIATCO letter dated October 14, 2002 addressed to the Board of Airline Representatives, copy attached as
72
Annex OO-Service Providers.

73
Based on the PAGSGlobeground GIS as of July 2000, attached as Annex LL-Service Providers to the
Memorandum of petitioners-in-intervention.
723
VOL. 402, MAY 5, 2003 723
wholly-owned subsidiary of Friendship Holdings, Inc.,74which 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
latters designated contractor-operator for NAIA Terminal III.78
Such entry into and domination of the airport-related services sector appear to be very much in line with the
following provisions contained in the First Addendum to the Piatco Shareholders Agreement, 79 executed on July
6, 1999, which appear to constitute a sort of master plan to create a monopoly and combinations in restraint of
trade:
11. The Shareholders shall ensure:
1. a.x x x xxx x x x;
2. b.That (Phil. Airport and Ground Services, Inc.) PAGS and/or its designated Affiliates shall, at all times
during the Concession Period, be exclusively authorized by (PIATCO) to engage in the provision of
groundhandling, catering and fueling services within the Terminal Complex.
3. c.That PAIRCARGO and/or its designated Affiliate shall, during the Concession Period, be the only
entities authorized to construct and operate a warehouse for all cargo handling and related services
within the Site.
Precisely, proscribed by our Constitution are the monopoly and the restraint of trade being fostered by the Piatco
Contracts through the erection of barriers to the entry of other service providers into Terminal III. In Tatad v.
Secretary of the Department of Energy,80 the Court ruled:
_______________
Based on the Orbit GIS as of August 2000, attached as Annex MM-Service Providers to the
74
Memorandum of petitioners-in-intervention.
75
Based on the Friendship Holdings, Inc. GIS as of December 2001, attached as Annex NN-Service
Providers to the Memorandum of petitioners-in-intervention.
76
Per the Articles of Incorporation of PAGS, attached as Annex YService Providers to the petition-in-
intervention.
77
Per the GIS of Piatco as of May 2000.
78
Per 5.15 of both the CA and the ARCA.
79
Copy of which was presented by Piatco to the Senate Blue Ribbon Committee during committee hearings.
80
281 SCRA 330, November 5, 1997.
724
x x x [S]ection 19 of Article XII of the Constitution x x x mandates: The State shall regulate or prohibit
monopolies when the public interest so requires. No combinations in restraint of trade or unfair competition
shall be allowed.
A monopoly is a privilege or peculiar advantage vested in one or more persons or companies, consisting in
the exclusive right or power to carry on a particular business or trade, manufacture a particular article, or
control the sale or the whole supply of a particular commodity. It is a form of market structure in which one or
only a few firms dominate the total sales of a product or service. On the other hand, a combination in restraint of
trade is an agreement or understanding between two or more persons, in the form of a contract, trust, pool,
holding company, or other form of association, for the purpose of unduly restricting competition, monopolizing
trade and commerce in a certain commodity, controlling its production, distribution and price, or otherwise
interfering with freedom of trade without statutory authority. Combination in restraint of trade refers to the
means while monopoly refers to the end.
x x x xxx xxx
Section 19, Article XII of our Constitution is anti-trust in history and in spirit. It espouses competition. The
desirability of competition is the reason for the prohibition against restraint of trade, the reason for the
interdiction of unfair competition, and the reason for regulation of unmitigated monopolies. Competition is thus
the underlying principle of [S]ection 19, Article XII of our Constitution, x x x.81
Gokongwei, Jr. v. Securities and Exchange Commission82 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)
_______________
81
Id., pp. 355-358, per Puno, J.
82
89 SCRA 336, April 11, 1979.
83
Id., p. 376, per Antonio, J.
725
VOL. 402, MAY 5, 2003 725
The Contracts Encourage Monopolistic Pricing, Too
Aside from creating a monopoly, the Piatco contracts also give the concessionaire virtually limitless power over
the charging of fees, rentals and so forth. What little oversight function the government might be able and
minded to exercise is less than sufficient to protect the public interest, as can be gleaned from the following
provisions:
Sec. 6.06. Adjustment of Non-Public Utility Fees and Charges
For fees, rentals and charges constituting Non-Public Utility Revenues, Concessionaire may make any
adjustments it deems appropriate without need for the consent of GRP or any government agency subject to Sec.
6.03(c).
Section 6.03 (c) in turn provides:

(c) Concessionaire shall at all times be judicious in fixing fees and charges constituting Non-Public Utility
Revenues in order to ensure that End Users are not unreasonably deprived of services. While the vehicular
parking fee, porterage fee and greeter/wellwisher fee constitute Non-Public Utility Revenues of Concessionaire,
GRP may require Concessionaire to explain and justify the fee it may set from time to time, if in the reasonable
opinion of GRP the said fees have become exorbitant resulting in the unreasonable deprivation of End Users of
such services.
It will be noted that the above-quoted provision has no teeth, so the concessionaire can defy the government
without fear of any sanction. Moreover, Section 6.06taken together with Section 6.03(c) of the ARCAfalls
short of the standard set by the BOT Law as amended, which expressly requires in Section 2(b) that the project
proponent is allowed to charge facility users appropriate tolls, fees, rentals and charges not exceeding those
proposed in its bid or as negotiated and incorporated in the contract x x x.
726
The Piatco Contracts Violate
Constitutional Prohibitions
Against Impairment of Contracts
and Deprivation of Property
Without Due Process
Earlier, I discussed how Section 3.01(e)84 of both the CA and the ARCA requires government, through
DOTC/MIAA, not to permit the carry-over to Terminal III of the services and operations of certain service
providers currently operating at Terminal I with subsisting contracts.
By the In-Service Date, Terminal III shall be the only facility to be operated as an international passenger
terminal at the NAIA;85 thus, Terminals I and II shall no longer operate as such,86 and no one shall be allowed to
compete with Piatco in the operation of an international passenger terminal in the NAIA. 87 The bottom line is
that, as of the In-Service Date, Terminal III will be the only terminal where the business of providing airport-
related services to international airlines and passengers may be conducted at all.
Consequently, government through the DOTC/MIAA will be compelled to cease honoring existing contracts
with service providers after the In-Service Date, as they cannot be allowed to operate in Terminal III.
In short, the CA and the ARCA obligate and constrain government to break its existing contracts with these
service providers.
Notably, government is not in a position to require Piatco to accommodate the displaced service providers,
and it would be unrealistic to think that these service providers can perform their service contracts in some
other international airport outside Luzon. Obviously, then, these displaced service providers areto borrow a
quaint expressionup the river without a paddle. In plainer terms, they will have lost their businesses entirely,
in the blink of an eye.
_______________
84
Please see footnote 70 supra.
85
3.02(a) of the CA and 3.02(a) of the ARCA.
86
3.02(b) of the CA and 3.02(b) and (c) of the ARCA.
87
Ibid.
727
VOL. 402, MAY 5, 2003 727
What we have here is a set of contractual provisions that impair the obligation of contracts and contravene the
constitutional prohibition against deprivation of property without due process of law.88
Moreover, since the displaced service providers, being unable to operate, will be forced to close shop, their
respective employeesamong them Messrs. Agan and Lopez et al.have very grave cause for concern, as they
will find themselves out of employment and bereft of their means of livelihood. This situation comprises still
another violation of the constitution prohibition against deprivation of property without due process.
True, doing business at the NAIA may be viewed more as a privilege than as a right. Nonetheless, where
that privilege has been availed of by the petitioners-in-intervention service providers for years on end, a
situation arises, similar to that in American Inter-fashion v. GTEB.89 We held therein that a privilege enjoyed for
seven years evolved into some form of property right which should not be removed x x x arbitrarily and without
due process. Said pronouncement is particularly relevant and applicable to the situation at bar because the
livelihood of the employees of petitioners-intervenors are at stake.
The Piatco Contracts Violate
Constitutional Prohibition
Against Deprivation of Liberty
Without Due Process
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 freedomguaranteed to and heretofore enjoyed by
international airlinesto contract with local service providers of their choice, and vice versa.
Both the service providers and their client airlines will be deprived of the right to liberty, which includes the
right to enter into
_______________
88
1, Art. III, Constitution.
89
197 SCRA 409, May 23, 1991, per Gutierrez, Jr., J.
728
all contracts,90 and/or the right to make a contract in relation to ones business.91
By Creating New Financial
Obligations for Government,
Supplements to the ARCA Violate
the Constitutional Ban on
Disbursement of Public Funds
Without Valid Appropriation
Clearly prohibited by the Constitution is the disbursement of public funds out of the treasury, except in
pursuance of an appropriation made by law.92 The immediate effect of this constitutional ban is that all the
various agencies of government are constrained to limit their expenditures to the amounts appropriated by law
for each fiscal year; and to carefully count their cash before taking on contractual commitments. Giving flesh
and form to the injunction of the fundamental law, Sections 46 and 47 of Executive Order 292, otherwise known
as the Administrative Code of 1987, provide as follows:
Sec. 46. Appropriation Before Entering into Contract.(1) No contract involving the expenditure of public funds
shall be entered into unless there is an appropriation therefor, the unexpended balance of which, free of other
obligations, is sufficient to cover the proposed expenditure; and x x x
Sec. 47. Certificate Showing Appropriation to Meet Contract.Ex-cept in the case of a contract for personal
service, for supplies for current consumption or to be carried in stock not exceeding the estimated consumption
for three (3) months, or banking transactions of government-owned or controlled banks, no contract involving
the expenditure of public funds by any government agency shall be entered into or authorized unless the proper
accounting official of the agency concerned shall have certified to the officer entering into the obligation that
funds have been duly appropriated for the purpose and that the amount necessary to cover the proposed
contract for the current calendar year is available for expenditure on account thereof, subject to verification by
the auditor concerned.
_______________
90
See Rubi v. Provincial Board of Mindoro, 39 Phil. 660, March 7, 1919.
91
Davao Stevedores Mutual Benefit Association v. Compaia Maritima, 90 Phil. 847, February 29, 1952.
92
29(1), Article VI, 1987 Constitution.
729
VOL. 402, MAY 5, 2003 729
The certificate signed by the proper accounting official and the auditor who verified it, shall be attached to and
become an integral part of the proposed contract, and the sum so certified shall not thereafter be available for
expenditure for any other purpose until the obligation of the government agency concerned under the contract is
fully extinguished.
Referring to the aforequoted provisions, this Court has held that (I)t is quite evident from the tenor of the
language of the law that the existence of appropriations and the availability of funds are indispensable pre-
requisites to or conditions sine qua non for the execution of government contracts. The obvious intent is to
impose such conditions as a priori requisites to the validity of the proposed contract.93
Notwithstanding the constitutional ban, statutory mandates and jurisprudential precedents, the three
Supplements to the ARCA, which were not approved by NEDA, imposed on government the additional burden of
spending public moneys without prior appropriation.
In the First Supplement (FS) dated August 27, 1999, the following requirements were imposed on the
government:
To construct, maintain and keep in good repair and operating condition all airport support services,
facilities, equipment and infrastructure owned and/or operated by MIAA, which are not part of the Project or
which are located outside the Site, even though constructed by Concessionaireincluding the access road
connecting Terminals II and III and the taxilane, taxiways and runways
To obligate the MIAA to provide funding for the upkeep, maintenance and repair of the airports and
facilities owned or operated by it and by third persons under its control in order to ensure compliance with
international standards; and holding MIAA liable to Piatco for the latters losses, expenses and damages as
well as for the latters 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 formers default.
_______________
Commission on Elections v. Quijano-Padilla, G.R. No. 151992, September 18, 2002, p. 20, 389 SCRA 353,
93
per Sandoval-Gutierrez, J.
730
Section 4 of the FS imposed on government ten (10) Additional Special Obligations, including the
following:
Providing thru MIAA the land required by Piatco for the taxilane
and one taxiway, at no cost to Piatco
Implementing the governments existing storm drainage master
plan
Coordinating with DPWH the financing, implementation and
completion of the following works before the InService Date: three
left-turning overpasses (Edsa to Tramo St., Tramo to Andrews
Ave., and Manlunas Road to Sales Ave.) and a road upgrade and
improvement program involving widening, repair and resurfacing
of Sales Road, Andrews Avenue and Manlunas Road; improvement
of Nichols Interchange; and removal of squatters along Andrews
Avenue
Dealing directly with BCDA and the Philippine Air Force in
acquiring additional land or right of way for the road upgrade and
improvement program
Requiring government to work for the immediate reversion to
MIAA of the Nayong Pilipino National Park, in order to permit the
building of the second west parallel taxiway
Section 5 of the FS also provides that in lieu of the access tunnel, a surface access road (T2-T3) will be
constructed. This provision requires government to expend funds to purchase additional land from Nayong
Pilipino and to clear the same in order to be able to deliver clean possession of the site to Piatco, as required
in Section 5(c) of the FS.
On the other hand, the Third Supplement (TS) obligates the government to deliver, within 120 days from date
thereof, clean possession of the land on which the T2-T3 Road is to be constructed.
The foregoing contractual stipulations undeniably impose on government the expenditures of public funds
not included in any congressional appropriation or authorized by any other statute. Piatco however attempts to
take these stipulations out of the ambit of Sections 46 and 47 of the Administrative Code by characterizing them
as stipulations for compliance on a best-efforts basis only.
To determine whether an additional obligations under the Supplements may really be undertaken on a best-
efforts basis only, the
731
VOL. 402, MAY 5, 2003 731
nature of each of these obligations must be examined in the context of its relevance and significance to the
Terminal III Project, as well as of any adverse impact that may result if such obligation is not performed or
undertaken on time. In short, the criteria for determining whether the best-efforts basis will apply is whether
the obligations are critical to the success of the Project and, accordingly, whether failure to perform them (or to
perform them on time) could result in a material breach of the contract.
Viewed in this light, the Additional Special Obligations set out in Section 4 of the FS take on a different
aspect. In particular, each of the following may all be deemed to play a major role in the successful and timely
prosecution of the Terminal III Project: the obtention of land required by PIATCO for the taxilane and taxiway;
the implementation of governments existing storm drainage master plan; and coordination with DPWH for the
completion of the three left-turning overpasses before the In-Service Date, as well as acquisition and delivery of
additional land for the construction of the T2-T3 access road.
Conversely, failure to deliver on any of these obligations may conceivably result in substantial prejudice to
the concessionaire, to such an extent as to constitute a material breach of the Piatco Contracts. Whereupon, the
concessionaire may outrightly terminate the Contracts pursuant to Section 8.01(b)(i) and (ii) of the ARCA and
seek payment of Liquidated Damages in accordance with Section 8.02(a) of the ARCA; or the concessionaire may
instead require government to pay the Incremental and Consequential Losses under Section 1.23 of the
ARCA.94 The logical conclusion then is that the obligations in the Supplements are not to be per-
_______________
94
1.23 of the ARCA defines Incremental and Consequential Costs as additional costs properly documented
and reasonably incurred by Concessionaire (including without limitation additional overhead costs, cost of any
catch-up program, demobilization, re-mobilization, storage costs, termination penalties, increase in construction
costs, additional interest expense, costs, fees and other expenses and increase in the cost of financing) in excess
of a budgeted or contracted amount, occasioned by, among other things, delay in the prosecution of Works by
reason not attributable to Concessionaire or a deviation from the Tender Design or any suspension or
interference with the operation of the Terminal Complex by reason not attributable to Concessionaire. x x x
732
formed on a best-efforts basis only, but are unarguably mandatory in character.
Regarding MIAAs obligation to coordinate with the DPWH for the complete implementation of the road
upgrading and improvement program for Sales, Andrews and Manlunas Roads (which provide access to the
Terminal III site) prior to the In-Service Date, it is essential to take note of the fact that there was a pressing
need to complete the program before the opening of Terminal III. 95 For that reason, the MIAA was compelled to
enter into a memorandum of agreement with the DPWH in order to ensure the timely completion of the road
widening and improvement program. MIAA agreed to advance the total amount of P410.11 million to DPWH for
the works, while the latter was committed to do the following:
2.2.8. Reimburse all advance payments to MIAA including but not limited to interest, fees, plus other costs of
money within the periods CY2004 and CY2006 with payment of no less than One Hundred Million Pesos
(PhP100M) every year.
2.2.9. Perform all acts necessary to include in its CY2004 to CY2006 budget allocation the repayments for
the advances made by MIAA, to ensure that the advances are fully repaid by CY2006. For this purpose, DPWH
shall include the amounts to be appropriated for reimbursement to MIAA in the Not Needing Clearance
column of their Agency Budget Matrix (ABM) submitted to the Department of Budget and Management.
It can be easily inferred, then, that DPWH did not set aside enough funds to be able to complete the upgrading
program for the crucially situated access roads prior to the targeted opening date of Terminal III; and that, had
MIAA not agreed to lend the P410 million, DPWH would not have been able to complete the program on time.
As a consequence, government would have been in breach of a material obligation. Hence, this particular
undertaking of government may likewise not be construed as being for best-efforts compliance only.
_______________
Memorandum of Agreement between the Manila International Airport Authority and the Department of
95
Public Works and Highways, p. 2.
733
VOL. 402, MAY 5, 2003 733
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 Piatcos 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 fundsa 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?)
_______________
When I asked this question, Atty. Jose A. Bernas replied that if Piatco is deemed a builder in good faith
96
then it may be entitled to some form of compensation under the principle barring unjust enrichment. But if it is
found to be a builder in bad faith then it may not be entitled to compensation. (See TSN, December 10, 2002, pp.
58-71. Faced with the same question, Solicitor General Alfredo L. Benipayo responded that the facility will not
be torn down but taken over by government by virtue of police power or eminent domain. (Id., pp. 94-99.) When
asked the same question, Atty. Eduardo delos Angeles explained that under the provision on Step in Rights, the
senior lenders can designate a qualified operator to operate the facility. (Id., pp. 225-226.) This solution,
however, assumes that this contractual provision is valid.
734
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 beingthe
bidding and the awardhas been riddled with irregularities galore and blatant violations of law and public
policy, far too many to ignore. There is thus no conceivable way, as proposed by some, of saving one (the original
Concession Agreement) while junking all the rest.
Neither is it possible to argue for the retention of the Draft Concession Agreement (referred to in the various
pleadings as the Contract Bidded Out) as the contract that should be kept in force and effect to govern the
situation, inasmuch as it was never executed by the parties. What Piatco and the government executed was the
Concession Agreement which is entirely different from the Draft Concession Agreement.
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 contractany contractfor to do so would assume
that we agree to having Piatco continue as the concessionaire for Terminal III.
Despite all the insidious contraventions of the Constitution, law and public policy Piatco perpetrated,
keeping Piatco on as concessionaire and even rewarding it by allowing it to operate and profit from Terminal III
instead of imposing upon it the stiffest sanctions permissible under the lawsis unconscionable.
It is no exaggeration to say that Piatco may not really mind which contract we decide to keep in place. For all
it may care, we can do just as well without one, if we only let it continue and operate the facility. After all,
the real money will come not from building the Terminal, but from actually operating it for fifty or more years
and charging whatever it feels like, without any competition at all. This scenario must not be allowed to happen.
If the Piatco contracts are junked altogether as I think they should be, should not AEDC automatically be
considered the winning bidder and therefore allowed to operate the facility? My answer is a stone-cold No.
AEDC never won the bidding, never signed any contract, and never built any facility. Why should it be allowed
to automatically step in and benefit from the greed of another?
735
VOL. 402, MAY 5, 2003 735
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 investorsboth local and foreign. After all, there is no question that the State needs and will
make use of Terminal III, it being part and parcel of the critical infrastructure and transportation-related
programs of government.
In Melchor v. Commission on Audit,97 this Court held that even if the contract therein was void, the principle
of payment by quantum meruit was found applicable, and the contractor was allowed to recover
the reasonable value of the thing or services rendered (regardless of any agreement as to the supposed value), in
order to avoid unjust enrichment on the part of government. The principle of quantum meruit was likewise
applied in Eslao v. Commission on Audit,98because 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 governmentin view of the nullity of the Piatco contracts and of
the fact that Terminal III has already been built and is almost finishedto 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, reasonablenot inflatedvalue of the built facility.
How the payment or series of payments to the builder, funders, investors and contractors will be staggered
and scheduled, will have to be built into the bids, along with the annual guaranteed payments to government. In
this manner, this whole sordid mess could result in something truly beneficial for all, especially for the Filipino
people.
WHEREFORE, I vote to grant the Petitions and to declare the subject contracts NULL and VOID.
_______________
97
200 SCRA 704, August 16, 1991.
98
195 SCRA 730, April 8, 1991.
99
299 SCRA 199, November 25, 1998.
736
1997 Concession Agreement, Amended and Restated Concession Agreement and Supplements thereto set aside for
being null and void.
Notes.Where a foreign firm submits the highest bid in a public bidding concerning the grant of rights,
privileges and concessions covering the national economy and patrimony, thereby exceeding the bid of a Filipino,
there is no question that the Filipino will have to be allowed to match the bid of the foreign entity. ( Manila
Prince Hotel vs. Government Service Insurance System, 267 SCRA 408 [1997])
It is well-settled that the discretion to accept or reject any bid, or even recall the award thereof, is of such
wide latitude that the courts will not generally interfere with the exercise thereof by the Executive Department.
(Hutchison Ports Philippines Limited vs. Subic Bay Metropolitan Authority, 339 SCRA 434 [2000])
o0o

Agan Vs Piatco

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Agan Vs Piatco

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SUPREME COURT REPORTS ANNOTATED

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

MIASCOR GROUNDHANDLING CORPORATION, DNATAWINGS AVIATION SYSTEMS CORPORATION,

G.R. No. 155547. May 5, 2003.*

JACINTO V. PARAS, RAFAEL P. NANTES, EDUARDO C. ZIALCITA, WILLY BUYSON VILLARAMA,

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

6 SUPREME COURT REPORTS ANNOTATED

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6 SUPREME COURT REPORTS ANNOTATED

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6 SUPREME COURT REPORTS ANNOTATED

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6 SUPREME COURT REPORTS ANNOTATED

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6 SUPREME COURT REPORTS ANNOTATED

VOL. 402, MAY 5, 2003 625

6 SUPREME COURT REPORTS ANNOTATED

VITUG, J., Separate Opinion:

VOL. 402, MAY 5, 2003 627

PANGANIBAN, J., Separate Opinion:

6 SUPREME COURT REPORTS ANNOTATED

VOL. 402, MAY 5, 2003 629

6 SUPREME COURT REPORTS ANNOTATED

SPECIAL CIVIL ACTION in the Supreme Court. Prohibition.

The facts are stated in the opinion of the Court.

1. i.First 5 years 5.0%

2. ii.Next 10 years 7.5%

3. iii.Next 10 years 10.0%

1. a.The lack of corporate approvals and financial capability of PAIRCARGO;

2. b.The lack of corporate approvals and financial capability of PAGS;

ng Pilipinas at that time.

Member Maximum Amount of Equity

146-147. Emphasis supplied.

1. (1)aircraft parking fees;

2. (2)aircraft tacking fees;

4. (4)rentals and airline offices;

5. (5)check-in counter rentals; and

1. (1)aircraft parking fees;

3. (3)check-in counter fees; and

Section 1.06. Attendant Liabilities

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

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

My answer to all the above questions is a firm Yes.

Gaming Corporation, 197 SCRA 52, May 14, 1991.

likewise, Commission on Elections v. Quijano-Padilla, supra.

199 SCRA 134, July 12, 1991.

Malaga v. Penachos, Jr., 213 SCRA 516, September 3, 1992.

Government Corporate Counsel, and their respective deputies and assistants.

1. tion of all Public Utility Revenues.39 No such obligation existed previously.

3. (c)Implementing the governments existing storm drainage master plan50

1. Interchange; and removal of squatters along Andrews Avenue.52

1. 1.Termination by the government through no fault of the project proponent

2. 2.Termination upon the parties mutual agreement

2. (ii)Commission by Concessionaire of a material breach of this Agreement x x x;

4. (iv)A pattern of continuing or repeated non-compliance, willful violation, or non-performance of other

and Laoag City.

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

1. a)x x x xxx xxx

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

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

Annex OO-Service Providers.