Agan Vs PIATCO PDF

EN BANC
[G.R. No. 155001. May 5, 2003.]
DEMOSTHENES P. AGAN, JR., JOSEPH B. CATAHAN, JOSE MARI B.

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

AVIATION SYSTEMS CORPORATION, MACROASIA-EUREST
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. NOGRALES, 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
CD Technologies Asia, Inc. 2018 cdasiaonline.com
AUTHORITY, DEPARTMENT OF TRANSPORTATION AND
COMMUNICATIONS, SECRETARY LEANDRO M. MENDOZA, in his
capacity as Head of the Department of Transportation and
Communications, respondents.
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 and Cruz for petitioners-in-intervention.
Arthur D. Lim Law Office for Asia's Emerging Dragon etc.
Romulo Mabanta Buenaventura Sayoc & Delos Angeles, Chavez & Laureta &
Associate and Moises Tolentino, Jr. for PIATCO.
The Office of the Government Corporate Counsel for MIAA.
The Solicitor General for public respondents.
Mario E. Ongkiko, Fernando F. Manas, Jr. Raymund C. de Castro & Angelito S. Lazaro,
Jr. for respondents-intervenors.
SYNOPSIS
On October 5, 1994, Asia's Emerging Dragon Corp. (AEDC) submitted an unsolicited

proposal to the Government for the development of Ninoy Aquino International Airport
International Passenger Terminal III (NAIA IPT III) under a build-operate-and-transfer
arrangement pursuant to RA 6957, as amended. It was endorsed to the National Economic
Development Authority (NEDA), which, in turn, reviewed and approved it for bidding. The
Paircargo Consortium was the only company that submitted a competitive proposal.
AEDC questioned, among others, the nancial capability of Paircargo Consortium.
However, the Pre-Quali cation Bids and Awards Committee (PBAC) had prequali ed the
Paircargo Consortium to undertake the project. Later, Paircargo Consortium incorporated
into Philippine International Airport Terminals Co., (PIATCO). And for failure of AEDC to
match the price proposal submitted by PIATCO, the project was awarded to PIATCO. On
July 12, 1997, the Government signed the 1997 Concession Agreement. Thereafter, the
Amended and Restated Concession Agreement (ARCA) and three Supplements thereto
were signed by the Government and PIATCO. Consequently, the workers of the
international airline service providers, claiming that they stand to lose their employment
upon the implementation of the said agreements, led before this Court a petition for
prohibition docketed as G.R. No. 155001. Later, the service providers joined their cause.
Congressmen Salacnib Baterina, Clavel Martinez and Constantino Jaraula, alleging that the
said contracts compelled government expenditure without appropriation, led a similar
petition docketed as G.R. No. 155547. And several employees of the MIAA likewise led a
petition docketed as G.R. No. 155661 assailing the legality of these agreements.

The Court ruled that in accordance with the provisions of R.A. No. 337, as amended,
the maximum amount that Security Bank, as one of the members of the Paircargo
Consortium could validly invest, is only 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 only 6.08% of the project cost, which
substantially less than the prescribed minimum equity investment which is 30% of the
project cost. Thus, the award of the contract by the PBAC to the Paircargo Consortium, a
disqualified bidder, is null and void.
As to the validity of the agreements, the ARCA obligates the Government to pay for
all loans, advances and obligations arising out of nancial 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 quali ed nominee or
transferee. This in effect would make the Government liable for PIATCO's loans should the
conditions set forth in the ARCA arise. This is a form of direct government guarantee and
to declare the PIATCO contracts valid despite the clear statutory prohibitions against a
direct government guarantee would only make a mockery of that the BOT Law seeks to
prevent. The Court also ruled that the operation of an international passenger airport
terminal is no doubt an undertaking imbued with public interest. Thus, the privilege given to
PIATCO is subject to reasonable regulation and supervision by the Government through
the MIAA. Another thing, 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. Accordingly, the 1997 Concession Agreement, the Amended and Restated
Concession Agreement and the Supplements thereto were set aside for being null and
void. TCEaDI
SYLLABUS
1. REMEDIAL LAW; CIVIL PROCEDURE; PARTIES; INTEREST OF PERSON ASSAILING

THE CONSTITUTIONALITY OF A STATUTE MUST BE DIRECT AND PERSONAL. — 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
di cult 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 inde nite 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.
2. ID.; ID.; ID.; ID.; FINANCIAL PREJUDICE IS A LEGITIMATE INTEREST SUFFICIENT
TO CONFER THE REQUISITE STANDING. — [P]etitioners 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 nulli ed or terminated by the operation of the NAIA IPT III under
the PIATCO Contracts. The nancial prejudice brought about by the PIATCO Contracts on
petitioners and petitioners-intervenors in these cases are legitimate interests su cient to
confer on them the requisite standing to file the instant petitions.
3. ID.; ID.; ID.; ID.; COURT MUST BE MORE LIBERAL IN DETERMINING WHETHER THE
PETITIONERS HAVE LOCUS STANDI TO FILE A PETITION. — 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 le 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-pro t 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 de nition, 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.
4. ID.; ID.; JURISDICTION; HIERARCHY OF COURTS MAY BE RELAXED WHEN THE
REDRESS DESIRED CANNOT BE OBTAINED IN THE APPROPRIATE COURTS. — 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 Court's primary
jurisdiction. ATaDHC
5. ID.; ID.; ID.; PROCEDURAL BARS MAY BE LOWERED TO GIVE WAY FOR THE
SPEEDY DISPOSITION OF CASES OF TRANSCENDENTAL IMPORTANCE. — It is easy to
discern that exceptional circumstances exist in the cases at bar that call for the relaxation
of the rule. Both petitioners and respondents agree that these cases are of transcendental
importance as they involve the construction and operation of the country's premier
international airport. Moreover, the crucial issues submitted for resolution are of rst
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.
6. CIVIL LAW; OBLIGATIONS AND CONTRACTS; ARBITRATION CLAUSE; NOT
BINDING TO PERSONS NOT PARTIES TO THE CONTRACT. — 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.
7. POLITICAL LAW; ADMINISTRATIVE LAW; REPUBLIC ACT NO. 6957 (BUILD-
OPERATE-AND-TRANSFER or BOT LAW); CONTRACT SHALL BE AWARDED TO THE BIDDER
WHO SATISFIED THE. MINIMUM FINANCIAL, TECHNICAL, ORGANIZATIONAL AND LEGAL
STANDARDS REQUIRED BY LAW. — Under the BOT Law, in case of a build-operate-and-
transfer arrangement, the contract shall be awarded to the bidder "who, having satis ed
the minimum nancial, technical, organizational and leg standards " required by the law, has
submitted the lowest bid and most favorable terms of the project. . . . Accordingly, . . . the
Paircargo Consortium or any challenger to the unsolicited proposal of AEDC has to show
that it possesses the requisite nancial 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.
8. ID.; ID.; ID.; ID.; TOTAL NET WORTH OF THE PAIRCARGO CONSORTIUM IS LESS
THAT THE PRESCRIBED MINIMUM EQUITY INVESTMENT REQUIRED FOR THE PROJECT.
— 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[.] . . . 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, 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. cHaADC
9. ID.; ID.; PUBLIC BIDDING; PRE-QUALIFICATION STAGE; GOVERNMENT AGENCY

MUST DETERMINE THE BIDDER'S FINANCIAL CAPACITY. — The purpose of pre-
quali cation in any public bidding is to determine, at the earliest opportunity, the ability of
the bidder to undertake the project. Thus, with respect to the bidder's nancial capacity at
the pre-quali cation 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.
10. ID.; ID.; ID.; ID.; ID.; SHOULD DETERMINE THE MAXIMUM AMOUNT THAT EACH
MEMBER OF THE CONSORTIUM MAY COMMIT WITHOUT DISREGARDING THE
INVESTMENT CEILINGS PROVIDED BY APPLICABLE LAW. — 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
t h e 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-quali ed 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.
11. ID.; ID.; ID.; ID.; ID.; EVALUATION OF THE FINANCIAL CAPACITY OF THE BIDDER
MUST BE AT THE TIME THE BID IS SUBMITTED. — [T]he determination of whether or not a
bidder is pre-quali ed to undertake the project requires an evaluation of the nancial
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 nancial 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 minimum required nancial
capability to complete the project. To allow the PBAC to estimate the bidder's future
financial capability would not secure the viability and integrity of the project.
12. ID.; ID.; ID.; ID.; ID.; IF THE BIDDER FALLS SHORT OF THE MINIMUM AMOUNTS
REQUIRED, THE SAID BIDDER SHOULD BE DISQUALIFIED. — 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 disquali ed. Considering that at the pre-quali cation 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
quali ed bidder. Thus the award of the contract by the PBAC to the Paircargo Consortium,
a disqualified bidder, is null and void.
13. ID.; ID.; ID.; RESTRICTIVE AND CONSERVATIVE APPLICATION OF THE RULES
AND PROCEDURE IS NECESSARY. — 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 nancial 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." ACIDSc
14. ID.; ID.; ID.; PURPOSE. — 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 eld 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."
15. ID.; ID.; ID.; ALL BIDDERS MUST BE ON EQUAL FOOTING ON THE CONTRACT
RIDDED UPON. — 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.
16. ID.; ID.; ID.; AMENDMENTS TO CONTRACT BIDDED; WINNING BIDDER IS NOT
PRECLUDED FROM MODIFYING OR AMENDING CERTAIN PROVISIONS OF THE CONTRACT
THAT DOES NOT CONSTITUTE SUBSTANTIAL OR MATERIAL AMENDMENTS. — 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 modi cation 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 nancial proposals previously submitted by
other bidders. The alterations and modi cations 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.
17. ID.; ID.; ID.; ID.; SIGNIFICANT AMENDMENTS IN THE PIATCO'S DRAFT
CONCESSION AGREEMENT; TYPES OF FEES THAT MAY BE IMPOSED AND COLLECTED
BY PIATCO. — 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 signi cant 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 di cult to see that the changes in the 1997 Concession
Agreement translate to direct and concrete nancial 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. acHCSD
18. ID.; ID.; ID.; ID.; ID.; ASSUMPTION BY THE GOVERNMENT OF THE LIABILITIES OF
PIATCO IN THE EVENT OF THE LATTER'S DEFAULT TRANSLATES BETTER TERMS AND
CONDITION FOR PIATCO. — Under the draft Concession Agreement, default by PIATCO of
any of its obligations to creditors who have provided, loaned or advanced funds for the
NAIA IPT III project does not result in the assumption by the Government of these
liabilities. In fact, nowhere in the said contract does default of PIATCO's loans gure 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 . . . [u]nder . . . Section
4.04 in relation to the de nition of "Attendant Liabilities," default by PIATCO of its loans
used to finance the NAIA IPT III project triggers the occurrence of certain events that leads
to the assumption by the Government of the liability for the loans. Only in one instance may
the Government escape the assumption of PIATCO's liabilities, i.e., when the Government
so elects and allows a quali ed operator to take over as Concessionaire. However, this
circumstance is dependent on the existence and availability of a quali ed 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 nance 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 nancial advantage or bene t which was not
previously made available during the bidding process. This nancial advantage is a
significant modification that translates to better terms and conditions for PIATCO.
19. ID.; ID.; ID.; ID.; SHOULD ALWAYS CONFORM TO THE GENERAL PUBLIC POLICY.
— [T]his 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. 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 nancing 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.
20. ID.; ID.; ID.; ID.; ANY GOVERNMENT ACTION WHICH PERMITS ANY
SUBSTANTIAL VARIANCE THEREOF IS A GRAVE ABUSE OF DISCRETION. — 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. CaHcET
21. ID.; ID.; ID.; ID.; DIRECTLY TRANSLATES CONCRETE FINANCIAL ADVANTAGES
TO PIATCO THAT WERE PREVIOUSLY NOT AVAILABLE DURING THE BIDDING PROCESS.
— The fact that the . . . 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 di cult 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 nancial
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 terms and conditions which provide nancial bene t to
PIATCO which may have altered the technical and nancial parameters of other bidders
had they known that such terms were available.
22. ID.; ID.; BOT LAW; PURPOSE. — 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 nance 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 ow 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.
23. ID.; ID.; ID.; CONDITIONS FOR THE ACCEPTANCE OF THE UNSOLICITED
PROPOSAL FOR A BOT PROJECT. — 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 rst 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.
24. ID.; ID.; ID.; STRICTLY PROHIBITS DIRECT GOVERNMENT GUARANTEE, SUBSIDY
AND EQUITY IN UNSOLICITED 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 su cient 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 su cient 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.
CSDcTA
25. ID.; ID.; ID.; ID.; VIOLATED IN CASE AT BAR. — 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 nancial 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 quali ed nominee or transferee. This in
effect would make the Government liable for PIATCO's loans should the conditions as set
forth in the ARCA arise. This is a form of direct government guarantee. . . . This Court has
long and consistently adhered to the legal maxim that those that cannot be done directly
cannot be done indirectly. To declare the PIATCO contracts valid despite the clear
statutory prohibition against a direct government guarantee would not only make a
mockery of what the BOT Law seeks to prevent — which is to expose the government to
the risk of incurring a monetary obligation resulting from a contract of loan between the
project proponent and its lenders and to which the Government is not a party to — but
would also render the BOT Law useless for what it seeks to achieve — to make use of the
resources of the private sector in the " nancing, 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 nance at this
point in time.
26. ID.; CONSTITUTIONAL LAW; POLICE POWER; TEMPORARY TAKEOVER OF
BUSINESS AFFECTED WITH PUBLIC INTEREST; GOVERNMENT IS NOT REQUIRED TO
COMPENSATE THE PRIVATE ENTITY-OWNER. — Article XII, Section 17 of the 1987
Constitution . . . 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 de ned 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.
27. ID.; ID.; ID.; ID.; ID.; CANNOT BE CONTRAVENED BY MERE CONTRACTUAL
STIPULATION. — 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.
28. ID.; ID.; NATIONAL ECONOMY AND PATRIMONY; CONSTITUTION STRICTLY
REGULATES 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." The 1987 Constitution strictly regulates monopolies, whether
private or public, and even provides for their prohibition if public interest so requires. . . .
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 rst be made as to whether public interest requires a monopoly. As monopolies are
subject to abuses that can in ict severe prejudice to the public, they are subject to a higher
level of State regulation than an ordinary business undertaking. ETHIDa
29. ID.; ID.; ID.; ID.; PRIVILEGE GIVEN TO PIATCO SHOULD BE SUBJECT TO
REASONABLE REGULATION AND SUPERVISION BY THE GOVERNMENT. — 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.
30. ID.; ID.; ID.; ID.; OPERATION OF PUBLIC UTILITY CANNOT BE DONE IN AN
ARBITRARY MANNER TO THE DETRIMENT OF THE PUBLIC. — While it is the declared
policy of the BOT Law to encourage private sector participation by "providing a climate of
minimum government regulations," the same does not mean that Government must
completely surrender its sovereign power to protect public interest in the operation of a
public utility as a monopoly. The operation of said public utility can not be done in an
arbitrary manner to the detriment of the public which it seeks to serve. The right granted to
the public utility may be exclusive but the exercise of the right cannot run riot. Thus, while
PIATCO may be authorized to exclusively operate NAIA IPT III as an international
passenger terminal, the Government, through the MIAA, has the right and the duty to
ensure that it is done in accord with public interest. PIATCO's right to operate NAIA IPT III
cannot also violate the rights of third parties.
31. ID.; ID.; BILL OF RIGHTS NON-IMPAIRMENT OF OBLIGATIONS OF CONTRACT;
PIATCO, BY CLAIMING AN EXCLUSIVE RIGHT TO OPERATE, CANNOT REQUIRE THE
GOVERNMENT TO BREAK ITS CONTRACTUAL OBLIGATIONS TO THE SERVICE
PROVIDERS. — We hold that while the service providers presently operating at NAIA
Terminal 1 do not have an absolute right for the renewal or the extension of their
respective contracts, those contracts whose duration extends beyond NAIA IPT III's In-
Service-Date should not be unduly prejudiced. These contracts must be respected not just
by the parties thereto but also by third parties. PIATCO cannot, by law and certainly not by
contract, render a valid and binding contract nugatory. PIATCO, by the mere expedient of
claiming an exclusive right to operate, cannot require the Government to break its
contractual obligations to the service providers. In contrast to the arrastre and
stevedoring service providers 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.
32. ID.; ID.; ID.; ID.; MIAA SHOULD ENSURE THAT WHOEVER BY CONTRACT IS
GIVEN THE RIGHT TO OPERATE NAIA IPT III WILL DO SO WITHIN THE BOUNDS OF THE
LAW. — In ne, the e cient functioning of NAIA IPT III is imbued with public interest. The
provisions of the 1997 Concession Agreement and the ARCA did not strip government,
thru the MIAA, of its right to supervise the operation of the whole NAIA complex, including
NAIA IPT III. As the primary government agency tasked with the job, it is MIAA's
responsibility to ensure that whoever by contract is given the right to operate NAIA IPT III
will do so within the bounds of the law and with due regard to the rights of third parties
and above all, the interest of the public. TSHIDa
PANGANIBAN , J., separate opinion:

1. REMEDIAL LAW; SPECIAL CIVIL ACTION; PROHIBITION; DIRECT RESORT TO THE
SUPREME COURT BY THE EMPLOYEES WHO FEARED LOSS OF THEIR JOBS IS JUSTIFIED.
— 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. Nevertheless, the
unavoidable consequence of having to await the rendition and the nality of any such
judgment would be a prolonged state of uncertainty that would be prejudicial to the nation,
the parties and the general public. And, in light of the feared loss of jobs of the petitioning
workers, consequent to the inevitable pretermination of contracts of the petitioning
service providers that will follow upon the heels of the impending opening of NAIA
Terminal III, the need for relief is patently urgent, and therefore, direct resort to this Court
through the special civil action of prohibition is thus justified.
2. ID.; ID.; ID.; DISPOSITION THEREOF ULTIMATELY RUNS ON QUESTIONS OF LAW;
CASE AT BAR. — Contrary to Piatco's argument that the resolution of the issues raised in
the Petitions will require delving into factual questions, I submit that their disposition
ultimately turns on questions of law. Further, many of the signi cant 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.
3. ID.; CIVIL PROCEDURE; ARBITRATION PROCEEDINGS; CANNOT ADDRESS,
DETERMINE AND DEFINITIVELY RESOLVE THE CONSTITUTIONAL AND LEGAL
QUESTIONS. — 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 nal analysis, it is unarguable that
the arbitration process provided for under Section 10.02 of the Amended and Restated
Concession Agreement (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 de nitively resolve the
constitutional and legal questions that have been raised in the Petitions before us.
4. ID.; ID.; LOCUS STANDI; CITIZEN, TAXPAYER AND MEMBERS OF THE HOUSE OF
REPRESENTATIVES ARE SUFFICIENTLY CLOTHED WITH STANDING TO BRING SUIT
QUESTIONING THE VALIDITY OF CONTRACT AFFECTING PUBLIC INTEREST. — Given this
Court's previous decisions in cases of similar import, no one will seriously doubt that,
being taxpayers and members of the House of Representatives, Petitioners Baterina et al.
have locus standi to bring the Petition in GR No. 155547. In Albano v. Reyes, this Court held
that the petitioner therein, suing as a citizen, taxpayer and member of the House of
Representatives, was su ciently clothed with standing to bring the suit questioning the
validity of the assailed contract. The Court cited the fact that public interest was involved,
in view of the important role of the Manila International Container Terminal (MICT) in the
country's economic development and the magnitude of the nancial consideration. This,
notwithstanding the fact that expenditure of public funds was not required under the
assailed contract. CcEHaI

5. ID.; ID.; ID.; MEMBERS OF HOUSE OF REPRESENTATIVES ARE DEPRIVED OF
DISCRETION; CASE AT BAR. — 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 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.
6. ID.; ID.; ID.; EMPLOYEES ARE CONFRONTED WITH THE PROSPECT OF BEING
LAID OFF FROM THEIR JOBS. — 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. 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.
7. ID.; ID.; ID.; SERVICE PROVIDERS CLAIM TO BE DEPRIVED OF THEIR PROPERTY
AND OF THE LIBERTY TO CONTRACT WITHOUT DUE PROCESS OF LAW. — 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.
8. ID.; ID.; ID.; IN CASES OF TRANSCENDENTAL IMPORTANCE, THE SUPREME
COURT MAY RELAX THE STANDING REQUIREMENTS AND ALLOW A SUIT TO PROSPER. —
And even if petitioners and petitioners-in-intervention were not su ciently 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 signi cance. 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."
9. POLITICAL LAW; ADMINISTRATIVE LAW; REPUBLIC ACT NO. 6957 (BUILD-
OPERATE-AND TRANSFER or BOT LAW); PUBLIC BIDDING; BIDDER MUST SATISFY THE
MINIMUM REQUIREMENTS AND MEET THE TECHNICAL, FINANCIAL, ORGANIZATIONAL
AND LEGAL STANDARDS. — I must emphasize that the law requires the award of a BOT
project to the bidder that has satis ed the minimum requirements; and met the technical,
financial, organizational and legal standards provided in the BOT Law.DAHaTc
10. ID.; ID.; ID.; ID.; MUST BE CONDUCTED UNDER A TWO-STAGE SYSTEM. —
Section 5 of this statute requires that the price challenge via public bidding "must be
conducted under a two-envelope/two-stage system: the rst envelope to contain the
technical proposal and the second envelope to contain the nancial proposal ." Moreover,
the 1994 Implementing Rules and Regulations (IRR) provide that only those bidders that
have passed the prequali cation stage are permitted to have their two envelopes
reviewed. In other words, prospective bidders must prequalify by submitting their
prequali cation documents for evaluation; and only the pre-quali ed bidders would be
entitled to have their bids opened, evaluated and appreciated. On the other hand,
disquali ed bidders are to be informed of the reason for their disquali cation. This
procedure was con rmed and reiterated in the Bid Documents, which I quote thus:
"Prequali ed proponents will be considered eligible to move to second stage technical
proposal evaluation. The second and third envelopes of pre-disquali ed proponents will be
returned."
11. ID.; ID.; ID.; ID.; PROPONENT MUST PROVE THAT IT IS ABLE TO RAISE THE
MINIMUM AMOUNT REQUIRED FOR THE PROJECT. — Aside from complying with the legal
and technical requirements (track record or experience of the rm and its key personnel), a
project proponent desiring to prequalify must also demonstrate its nancial capacity to
undertake the projects. To establish such capability, a proponent must prove that it is able
to raise the minimum amount of equity required for the project and to procure the loans or
nancing needed for it. Since the minimum amount of equity for the project was set at 30
percent of the minimum project cost of US$350 million, the minimum amount of equity
required of any proponent stood at US$105 million. Converted to pesos at the exchange
rate then of P26.239 to US$1.00 (as quoted by the Bangko Sentral ng Pilipinas), the peso
equivalent of the minimum equity was P2,755,095,000.
12. ID.; ID.; ID.; ID.; ID.; NOT COMPLIED WITH IN CASE AT BAR. — However, the
combined equity or net worth of the Paircargo consortium stood at only P558,384,871.55.
This amount was only slightly over 6 percent of the minimum project cost and very much
short of the required minimum equity, which was equivalent to 30 percent of the project
cost. Such deficiency should have immediately caused the disqualification of the Paircargo
consortium.
13. ID.; ID.; ID.; ID.; RULES, REGULATIONS AND GUIDELINES MUST BE STRICTLY
APPLIED; VIOLATED IN CASE AT BAR. — By virtue of the prequali ed status conferred
upon the Paircargo, Undersecretary Cal's ndings in effect relieved the consortium of the
need to comply with the nancial capability requirement imposed by the BOT Law and IRR.
This position is unmistakably and squarely at odds with the Supreme Court's consistent
doctrine emphasizing the strict application of pertinent rules, regulations and guidelines
for the public bidding process, in order to place each bidder — actual or potential — on the
same footing. Thus, it is unarguably irregular and contrary to the very concept of public
bidding to permit a variance between the conditions under which bids are invited and
those under which proposals are submitted and approved.

14. ID.; ID.; ID.; ID.; ESSENCE. — Republic v. Capulong teaches that if one bidder is
relieved from having to conform to the conditions that impose some duty upon it, that
bidder is not contracting in fair competition with those bidders that propose to be bound
by all conditions. The essence of public bidding is, after all, an opportunity for fair
competition and a basis for the precise comparison of bids. 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.
15. ID.; ID.; ID.; ID.; SINCE THE ENTIRE BIDDING PROCESS WAS FLAWED. AND
TAINTED FROM THE VERY OUTSET, THE AWARD OF CONCESSION WAS VOID. — 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 prequali ed or allowed to participate
further in the bidding. The Prequali cation and Bidding Committee (PBAC) should
therefore not have opened the two envelopes of the consortium containing its technical
and nancial proposals; required AEDC to match the consortium's bid; or awarded the
Concession Agreement to the consortium's successor-in-interest, Piatco. As there was
effectively no public bidding to speak of, the entire bidding process having been awed
and tainted from the very outset, therefore, the award of the concession to Paircargo's
successor Piatco was void, and the Concession Agreement executed with the latter was
likewise void ab initio. For this reason, Piatco cannot and should not be allowed to bene t
from that Agreement. ICDcEA
16. ID.; ID.; ID.; ID.; PROTECTION OF THE PROPRIETARY INFORMATION IS

APPLICABLE TO THE ORIGINATOR OF THE UNSOLICITED PROPOSAL ONLY. — 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
quali es as an "unsolicited proposal" when it pertains to a project that involves " a new
concept or technology," and/or a project that is not on the government's list of priority
projects.
17. ID.; ID.; ID.; ID.; ID.; RATIONALE. — 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. 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 signi cance 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 rst refusal" to
undertake the project they conceptualized, involving the use of new technology or
concepts, through the mechanism of matching a price challenge.
18. ID.; ID.; ID.; ID.; BIDDER MUST BE GIVEN ACCESS TO THE ASSUMPTION AND
THE CALCULATIONS THAT WENT INTO CRAFTING THE COMPETING BID. — A competing
bid is never just any gure conjured from out of the blue; it is arrived at after studying
economic, nancial, 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 nancial and technical proposals
of Piatco would have provided AEDC with the necessary information to enable it to make a
reasonably informed matching bid. To put it more simply, a bidder unable to access the
competitor's assumptions will never gure 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.
19. ID.; ID.; ID.; DEFINITE AND FIRM TIMETABLE FOR THE SUBMISSION OF THE
REQUIREMENTS TO EXPOSE AND WEED OUT UNQUALIFIED PROPONENTS. — The
purpose of having a de nite and rm timetable for the submission of the requirements is
not only to prevent delays in the project implementation, but also to expose and weed out
unquali ed proponents, who might have unceremoniously slipped through the earlier
prequali cation process, by compelling them to put their money where their mouths are,
so to speak.
20. ID.; ID.; ID.; ID.; EASILY CIRCUMVENTED BY MERELY POSTPONING THE ACTUAL
ISSUANCE OF THE NOTICE OF AWARD. — 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 su cient time to comply with the requirements. Hence, to aver
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 speci ed the timetables
for each such event. De nite allowable extensions of time were provided for, as were the
consequences of a failure to meet a particular deadline.
21. ID.; ID.; ID.; ID.; TO DISCOURAGE COLLUSION AND REDUCE THE OPPORTUNITY
FOR AGENTS OF GOVERNMENT TO ABUSE THEIR DISCRETION. — The highly regulated
time-frames within which the agents of government were to act evinced the intent to
impose upon them the duty to act expeditiously throughout the process, to the end that
the project be prosecuted and implemented without delay. This regulated scenario was
likewise intended to discourage collusion and substantially reduce the opportunity for
agents of government to abuse their discretion in the course of the award process. DcTSHa
22. ID.; ID.; ID.; PROCEDURE FOR THE AWARD OF THE PROJECTS. — 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 speci ed, its failure to act
on the contract within the speci ed time frame signi es 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.
23. ID.; ID.; ID.; VIOLATED IN CASE AT BAR. — 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. [T]he
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
ies in the face of this Court's solemn pronouncement in Republic v. Capulong that "strict
observance of the rules, regulations and guidelines of the bidding process is the only
safeguard to a fair, honest and competitive public bidding ." From the foregoing, the only
conclusion that can possibly be drawn is that the BOT law and its IRR were repeatedly
violated with unmitigated impunity — and by agents of government, no less! On account of
such violation, the award of the contract to Piatco, which undoubtedly gained time and
benefited from the delays, must be deemed null and void from the beginning.
24. ID.; ID.; ID.; CHANGES TO THE CONTRACT BIDDED OUT RESULTED IN A
SUBSTANTIALLY DIFFERENT CONTRACT. — 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[.] It goes without saying that the amendment of the
Contract bidded out (the DCA or draft concession agreement) — in such substantial
manner, without any public bidding, and after the bidding process had been concluded on
December 11, 1996 — is violative of public policy on public biddings, as well as the spirit
and intent of the BOT Law. The whole point of going through the public bidding exercise
was completely lost. Its very rationale was totally subverted by permitting Piatco to
amend the contract for which public bidding had already been concluded. Competitive
bidding aims to obtain the best deal possible by fostering transparency and preventing
favoritism, collusion and fraud in the awarding of contracts. That is the reason why
procedural rules pertaining to public bidding demand strict observance.
25. ID.; ID.; ID.; SUBSTANTIVE AMENDMENTS TO A CONTRACT FOR WHICH A
PUBLIC BIDDING HAS ALREADY BEEN FINISHED SHOULD ONLY BE AWARDED AFTER
ANOTHER PUBLIC BIDDING. — In a relatively early case, Caltex v. Delgado Brothers , this
Court made it clear that substantive amendments to a contract for which a public bidding
has already been nished 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." EaIcAS
26. ID.; ID.; ID.; TERMS, CONDITIONS AND STIPULATIONS OF THE CONTRACTS
MUST REMAIN INTACT AND NOT BE SUBJECT TO FURTHER NEGOTIATION. — The BOT
Law cannot be said to allow the negotiation of contractual stipulations resulting in a
substantially new contract after the bidding process and price challenge had been
concluded. In fact, the BOT Law, in recognition of the time, money and effort invested in an
unsolicited proposal, accords its originator the privilege of matching the challenger's bid.
Section 4-A of the BOT Law speci cally refers to a "lower price proposal" by a competing
bidder; and to the right of the original proponent "to match the price" of the challenger.
Thus, only the price proposals are in play. The terms, conditions and stipulations in the
contract for which public bidding has been concluded are understood to remain intact and
not be subject to further negotiation. Otherwise, the very essence of public bidding will be
destroyed — there will 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.
27. ID.; ID.; ID.; REVISIONS AND AMENDMENTS IN THE CONTRACTS THAT GIVE
UNDUE ADVANTAGE TO THE GOVERNMENT IS ILLEGAL. — In sum, the 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
o cials 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.
28. ID.; ID.; ID.; FIRST SUPPLEMENT TO VOID AND INEXISTENT ORIGINAL
CONCESSION AGREEMENT IS ALSO VOID AND INOPERATIVE; CASE AT BAR. — I must
emphasize that the First Supplement [FS] 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 rati ed 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 signi cant 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.
29. ID.; ID.; ID.; SECOND SUPPLEMENT IS ALSO VOID AND INOPERATIVE AS IT DID
NOT UNDERGO ANY PUBLIC BIDDING. — The Second Supplement ("SS") was executed
between the government and Piatco on September 4, 2000. It calls for Piatco, acting not
as concessionaire of NAIA Terminal III but as a public works contractor, to undertake — in
the government's stead — the clearing, removal, demolition and disposal of improvements,
subterranean obstructions and waste materials at the project site. 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 speci c rates
per cubic meter of materials for each phase of the work — excavation, leveling, removal
and disposal, back lling 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 rm reputedly owned by a former high-ranking DOTC o cial. But that is another
story altogether. AaSHED
30. ID.; ID.; ID.; THIRD SUPPLEMENT IS VOID AB INITIO AS IT CREATED A NEW
MONETARY OBLIGATION ON THE PART OF THE GOVERNMENT WITHOUT PRIOR
APPROPRIATIONS. — The Third Supplement (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 rati ed or amended. It follows that the TS is likewise
void, inexistent and inoperative. And even if, hypothetically speaking, both ARCA and FS are
valid, still, the Third Supplement — imposing as it does signi cant new obligations upon
government — would in effect alter the terms and stipulations of the ARCA in material
respects, thus necessitating another public bidding. Since the TS was not subjected to
public bidding, it is consequently utterly void as well. At any rate, the TS created new
monetary obligations on the part of government, for which there were no prior
appropriations. Hence, it follows that the same is, void ab initio.
31. ID.; ID.; ID.; DIRECT GOVERNMENT GUARANTEE IS PROHIBITED IN
UNSOLICITED PROPOSALS. — 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 de nes 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."
32. ID.; ID.; ID.; ID.; REASON. — In the nal 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
nancing the construction, operation and maintenance of relevant infrastructure and
development projects for the simple reason that government is not in a position to do so.
By the same token, government guarantee was prohibited, since it would merely defeat the
purpose and raison d'être of a build-operate-and-transfer project to be undertaken by the
private sector. To the extent that the project proponent is able to obtain loans to fund the
project, those risks are shared between the project proponent on the one hand, and its
banks and other lenders on the other. But where the proponent or its lenders manage to
cajol or 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.
33. ID.; ID.; ID.; ID.; THE AMOUNT TO BE PAID BY GOVERNMENT IS GREATER OF
EITHER THE APPRAISED VALUE OF THE PROJECT OR THE AGGREGATE AMOUNT OF THE
MONEYS OWED BY PIATCO; CASE AT BAR. — Government's agreement to pay becomes
effective in the event of a default by Piatco on any of its loan obligations to the Senior
Lenders, and the amount to be paid by government is the greater of either the Appraised
Value of Terminal III or the aggregate amount of the moneys owed by Piatco — whether to
the Senior Lenders or to other entities, including its suppliers, contractors and
subcontractors. In effect, therefore, this agreement already constitutes the prohibited
assumption by government of responsibility for repayment of Piatco's debts in case of a
loan default. In ne, a direct government guarantee. It matters not that there is a
roundabout procedure prescribed by Section 4.04(c)(iv), (v) and (vi) that would require,
first, an attempt (albeit unsuccessful) by the Senior Lenders to transfer Piatco's rights to a
transferee of their choice; and, second, an effort (equally unsuccessful) to "enter into any
other arrangement" with the government regarding the Terminal III facility, before
government is required to make good on its guarantee. What is abundantly clear is the fact
that, in the devious labyrinthine process detailed in the aforesaid section, it is entirely
within the Senior Lenders' power, prerogative and control — exercisable via a mere refusal
or inability to agree upon "a transferee" or "any other arrangement" regarding the terminal
facility — to push the process forward to the ultimate contractual cul-de-sac, wherein
government will be compelled to abjectly surrender and make good on its guarantee of
payment.
34. ID.; ID.; ID.; ID.; PIATCO CONTRACTS ARE GROSSLY LOPSIDED IN FAVOR OF
PIATCO AND/OR ITS SENIOR LENDERS. — Piatco also argues that there is no proviso
requiring government to pay the Senior Lenders in the event of Piatco's default. This is
literally true, in the sense that Section 4.04(c)(vi) of ARCA speaks of government making
the termination payment to Piatco, not to the lenders. However, it is almost a certainty that
the Senior tenders 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, 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
bene t 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 de ciency puts the interests of government at great risk. Indeed, if
the unthinkable were to happen, government would be paying several hundreds of millions
of dollars, but the mortgage liens on the facility may still be foreclosed by the Senior
Lenders just the same. Consequently, the Piatco contracts are also objectionable for
grievously failing to adequately protect government's interests. More accurately, the
contracts would consistently weaken and do away with protection of government
interests. As such, they are therefore grossly lopsided in favor of Piatco and/or its Senior
Lenders. IAEcaH
35. ID.; ID.; ID.; ID.; AMENDED AND RESTATED CONCESSION AGREEMENT (ARCA)
INTENDS TO HAVE ALL PIATCO'S DEBTS COVERED BY THE GUARANTEE. — 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 de ning the
term, the Piatco debts to be assumed/paid by government were quali ed by the phrases
recorded and from time to time outstanding in the books of the Concessionaire and
actually used for the project. These phrases were eliminated from the ARCA's de nition of
Attendant Liabilities. Since no explanation has been forthcoming from Piatco as to the
possible justi cation 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?)
36. ID.; ID.; ID.; INSTANCES WHEN TERMINATION COMPENSATION MAY BE
ALLOWED. — Section 7 of the BOT Law as amended in effect provides for the following
limited instances when termination compensation may be allowed: 1. Termination by the
government through no fault of the project proponent 2. Termination upon the parties'
mutual agreement and 3. Termination by the proponent due to government's default on
certain major contractual obligations. To emphasize, the law does not permit
compensation for the project proponent when contract termination is due to the
proponent's own fault or breach of contract.
37. ID.; ID.; ID.; ID.; VIOLATED IN CASE AT BAR. — 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. Clearly, this
condition is not in line with Section 7 of the BOT Law. That provision permits a project
proponent to recover the actual expenses it incurred in the prosecution of the project plus
a reasonable rate of return not in excess of that provided in the contract; or to be
compensated for the equivalent or proportionate contract cost as de ned in the contract,
in case the government is in default on certain major contractual obligations.
38. ID.; ID.; ID.; ID.; IN TERMINATION COMPENSATION, IT IS INDISPENSABLE THAT
THE INTEREST OF GOVERNMENT BE DULY INSURED; NOT PRESENT IN CASE AT BAR. —
[I]n those instances where such termination compensation is authorized by the BOT Law, it
is indispensable that the interest of government be duly insured. Section 5.08 the ARCA
mandates insurance coverage for the terminal facility; but all insurance policies are to be
assigned, and all proceeds are payable, to the Senior Lenders. In brief, the interest being
secured by such coverage is that of the Senior Lenders, not that of government. This can
hardly be considered compliance with law.
39. ID.; ID.; ID.; PROHIBITS A DIRECT GOVERNMENT SUBSIDY FOR UNSOLICITED
PROPOSALS. — 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 de nes a direct government
subsidy as encompassing "an agreement whereby the Government . . . will . . . postpone
any payments due from the proponent." By any manner of interpretation or application,
however, Section 8.01(d) of the ARCA clearly mandates the indefinite postponement of
payment of all of Piatco's obligations to the government, in order to ensure that Piatco's
obligations to the Senior Lenders are paid in full rst. 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. DTAIaH
40. ID.; ID.; ID.; GOVERNMENT WILL BE AT THE MERCY OF THE FOREIGN LENDERS;
CASE AT BAR. — 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 nancial controller to manage the cash position of Piatco during situations of
nancial 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 nancial 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
grantor of the franchise) may be allowed to receive from Piatco. In that situation,
government will be at the mercy of the foreign lenders. This is a situation completely
contrary to the rationale of the BOT Law and to public policy. The aforesaid provision
rouses mixed emotions — shame and disgust at the parties' (especially the government
o cials') 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.
41. ID.; CONSTITUTIONAL LAW; NATIONAL ECONOMY AND PATRIMONY;
CONSTITUTION EXPRESSLY PROSCRIBES MAKING A FRANCHISE EXCLUSIVE; VIOLATED
IN CASE AT BAR. — 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. 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 justi cation to violate the constitutional prohibition and grant an
exclusive franchise or exclusive. right to operate a public utility. Piatco's contention that
the Constitution does not actually prohibit monopolies is beside the point. As correctly
argued, 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.
42. ID.; ID.; ID.; EASY PAYMENT PLAN OF PIATCO CONTRACTS VIOLATES THE TIME
LIMITATION ON FRANCHISES. — Section 11 of Article XII of the Constitution also provides
that "no franchise, certi cate or any other form of authorization for the operation of a
public utility shall be . . . 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. 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 [.] The easy payment
scheme therein is less bene cial than it rst appears. Although it enables government to
avoid having to make outright payment of an obligation that will likely run into billions of
pesos, this easy payment plan will nevertheless cost government considerable loss of
income, which it would earn if it were to operate Terminal III by itself. Inasmuch as
payments to the concessionaire (Piatco) will be on "installment basis," interest charges on
the remaining unpaid balance would undoubtedly cause the total outstanding balance to
swell. Piatco would thus be entitled to remain in the driver's seat and keep operating the
terminal for an indefinite length of time.
43. ID.; ID.; ID.; MONOPOLY; ELUCIDATED: — Gokongwei Jr. v. Securities and
Exchange Commission elucidates the criteria to be employed: "A 'monopoly' embraces any
combination the tendency of which is to prevent competition in the broad and general
sense, or to control prices to the detriment of the public. In short, it is the concentration of
business in the hands of a few. The material consideration in determining its existence is
not that prices are raised and competition actually excluded, but that power exists to raise
prices or exclude competition when desired."
44. ID.; ID.; ID.; ID.; PIATCO CONTRACTS GIVE THE CONCESSIONAIRE LIMITLESS
POWER OVER THE CHARGING OF FEES, RENTALS AND SO FORTH. — 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 su cient to protect the
public interest[.] It will be noted that Sec. 6.06 (Adjustment of Non-Public Utility Fees and
Charges) has no teeth, so the concessionaire can defy the government without fear of any
sanction. Moreover, Section 6.06 — taken together with Section 6.03(c) of the ARCA — falls
short of the standard set by the BOT Law as amended, which expressly requires in Section
2(b) that the project proponent is "allowed to charge facility users appropriate tolls, fees,
rentals and charges, not exceeding those proposed in its bid or as negotiated and
incorporated in the contract . . ."
45. ID.; ID.; BILL OF RIGHTS; PROHIBITION AGAINST IMPAIRMENT OF CONTRACTS;
VIOLATED IN CASE AT BAR. — By the In-Service Date, Terminal III shall be the only facility
to be operated as an international passenger terminal at the NAIA; thus, Terminal I and II
shall no longer operate as such, and no one shall be allowed to compete with Piatco in the
operation of an international passenger terminal in the NAIA. The bottom line is that, as of
the In-Service Date, Terminal III will be the only terminal where the business of providing
airport-related services to international airlines and passengers may be conducted at all.
Consequently, government through the DOTC/MIAA will be compelled to cease honoring
existing contracts with service providers after the In-Service Date, as they cannot be
allowed to operate in Terminal III. In short, the CA and the ARCA obligate and constrain
government to break its existing contracts with these service providers.
46. ID.; ID.; ID.; PROHIBITION AGAINST DEPRIVATION OF PROPERTY WITHOUT DUE
PROCESS; VIOLATED IN CASE AT BAR. — Notably, government is not in a position to
require Piatco to accommodate the displaced service providers, and it would be
unrealistic to think that these service providers can perform their service contracts in
some other international airport outside Luzon. Obviously, then, these displaced service
providers are — to borrow a quaint expression — up the river without a paddle. In plainer
terms, they will have lost their businesses entirely, in the blink of an eye. Moreover, since
the displaced service providers, being unable to operate, will be forced to close shop, their
respective employees — among them Messrs. Agan and Lopez et al. — have very grave
cause for concern, as they will nd 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 . We held therein
that a privilege enjoyed for seven years "evolved into some form of property right which
should not be removed . . . 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. DaIACS
47. ID.; ID.; ID.; PROHIBITION AGAINST DEPRIVATION OF LIBERTY WITHOUT DUE
PROCESS; VIOLATED IN CASE AT BAR. — The Piatco Contracts by locking out existing
service providers from entry into Terminal III and restricting entry of future service
providers, thereby infringed upon the freedom — guaranteed to and heretofore enjoyed by
international airlines — to contract with local service providers of their choice, and vice
versa. Both the service providers and their client airlines will be deprived of the right to
liberty, which includes the right to enter into all contracts, and/or the right to make a
contract in relation to one's business.
48. ID.; LEGISLATIVE DEPARTMENT; PROHIBITION AGAINST DISBURSEMENT OF
PUBLIC FUNDS WITHOUT VALID APPROPRIATION; EFFECT. — Clearly prohibited by the
Constitution is the disbursement of public funds out of the treasury, except in pursuance
of an appropriation made by law. The immediate effect of this constitutional ban is that all
the various agencies of government are constrained to limit their expenditures to the
amounts appropriated by law for each scal year; and to carefully count their cash before
taking on contractual commitments.
49. ID.; ID.; ID.; EXISTENCE OF APPROPRIATIONS AND THE AVAILABILITY OF
FUNDS ARE INDISPENSABLE TO THE EXECUTION OF GOVERNMENT CONTRACTS. —
[T]his 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."
50. ID.; ID.; LEGISLATIVE POWER OVER THE PUBLIC PURSE; VIOLATED IN CASE AT
BAR. — But the particularly sad thing about this transaction between MIAA and DPWH is
the fact that both agencies were maneuvered into (or allowed themselves to be
maneuvered into) an agreement that would ensure delivery of upgraded roads for Piatco's
bene t, using funds not allocated for that purpose. The agreement would then be
presented to Congress as a done deal. Congress would thus be obliged to uphold the
agreement and support it with the necessary allocations and appropriations for three
years, in order to enable DPWH to deliver on its committed repayments to MIAA. The net
result is an infringement on the legislative power over the public purse and a diminution of
Congress' control over expenditures of public funds — a development that would not have
come about, were it not for the Supplements. Very clever but very illegal!
51. CIVIL LAW; OBLIGATIONS AND CONTRACTS; CRITERIA FOR DETERMINING
WHETHER THE BEST-EFFORTS BASIS WILL APPLY. — To determine whether the additional
obligations under the Supplements may really be undertaken on a best-efforts basis only,
the nature of each of these obligations must be examined in the context of its relevance
and signi cance 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.
52. ID.; ID.; ID.; OBLIGATIONS IN THE SUPPLEMENTS ARE MANDATORY IN
CHARACTER AND NOT FOR BEST-EFFORTS COMPLIANCE ONLY. — Viewed in this light, the
"Additional Special Obligations" set out in Section 4 of the FS take on a different aspect. In
particular, each of the following may all be deemed to play a major role in the successful
and timely prosecution of the Terminal III Project: the obtention of land required by
PIATCO for the taxilane and taxiway; the implementation of government's existing storm
drainage master plan; and coordination with DPWH for the completion of the three left-
turning overpasses before the In-Service Date, as well as acquisition and delivery of
additional land for the construction of the T2-T3 access road. Conversely, failure to deliver
on any of these obligations may conceivably result in substantial prejudice to the
concessionaire, to such an extent as to constitute a material breach of the Piatco
Contracts. Whereupon, the concessionaire may outrightly terminate 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. The logical conclusion then is that the obligations in the
Supplements are not to be performed on a best-efforts basis only, but are unarguably
mandatory in character.
53. ID.; ID.; PIATCO CONTRACTS ARE VOID AB INITIO AND INOPERATIVE. — I nd
that all the Piatco contracts, without exception, are void ab initio, and therefore inoperative.
Even the very process by which the contracts came into being — the bidding and the award
— has been riddled with irregularities galore and blatant violations of law and public policy,
far too many to ignore. There is thus no conceivable way, as proposed by some, of saving
one (the original Concession Agreement) while junking all the rest. 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.
54. ID.; ID.; ID.; KEEPING PIATCO ON AS CONCESSIONAIRE IS UNCONSCIONABLE.
— Ultimately, though, it would be tantamount to an outrageous, grievous and unforgivable
mutilation of public policy and an insult to ourselves if we opt to keep in place a contract —
any contract — for to do so would assume that we agree to having Piatco continue as the
concessionaire for Terminal III. Despite all the insidious contraventions of the Constitution,
law and public policy Piatco perpetrated, keeping Piatco on as concessionaire and even
rewarding it by allowing it to operate and pro t from Terminal III — instead of imposing
upon it the stiffest sanctions permissible under the laws — is unconscionable. It is no
exaggeration to say that Piatco may not really mind which contract we decide to keep in
place. For all it may care, we can do just as well without one, if we only let it continue and
operate the facility. After all, the real money will come not from building the Terminal, but
from actually operating it for fty or more years and charging whatever it feels like, without
any competition at all. This scenario must not be allowed to happen. EAHDac
55. ID.; ID.; ID.; AEDC SHOULD NOT BE ALLOWED TO OPERATE THE TERMINAL III. —
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?
56. ID.; ID.; ID.; GOVERNMENT SHOULD PAY ALL REASONABLE EXPENSES
INCURRED IN THE CONSTRUCTION OF TERMINAL III. — Should government pay at all for
reasonable expenses incurred in the construction of the Terminal? Indeed it should,
otherwise it will be unjustly enriching itself at the expense of Piatco and, in particular, its
funders, contractors and investors — both local and foreign. After all, there is no question
that the State needs and will make use of Terminal III, it being part and parcel of the critical
infrastructure and transportation-related programs of government. 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.
57. ID.; ID.; ID.; POSSIBLE PRACTICAL SOLUTION IS TO BID OUT THE OPERATION
OF TERMINAL III. — One possible practical solution would be for government — in view of
the nullity of the Piatco contracts and of the fact that Terminal III has already been built
and is almost nished — to bid out the operation of the facility under the same or
analogous principles as build-operate-and-transfer projects. To be imposed, however, is
the condition that the winning bidder must pay the builder of the facility a price xed by
government based on quantum meruit; on the real, reasonable — not in ated — value of the
built facility. How the payment or series of payments to the builder, funders, investors and
contractors will be staggered and scheduled, will have to be built into the bids, along with
the annual guaranteed payments to government. In this manner, this whole sordid mess
could result in something truly beneficial for all, especially for the Filipino people.
VITUG , J., separate dissenting opinion:
1. REMEDIAL LAW; CIVIL PROCEDURE; JURISDICTION; SUPREME COURT IS BEREFT
OF JURISDICTION OVER CASES INVOLVING NULLIFICATION OF CONTRACTS. — 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.
2. ID.; ID.; ID.; SUPREME COURT IS NOT A TRIER OF FACTS. — The rule is explicit. A
petition for prohibition may be led against a tribunal, corporation, board, o cer 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 o cer
involved may be resolved on the basis of undisputed facts. The parties allege, respectively,
contentious evidentiary facts. It would be di cult, if not anomalous, to decide the
jurisdictional issue on the basis of the contradictory factual submissions made by the
parties. As the Court has so often exhorted, it is not a trier of facts.
3. ID.; ID.; ID.; PETITIONS FOR DECLARATORY RELIEF ARE COGNIZABLE BY THE
REGIONAL TRIAL COURT. — 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 over petitions for declaratory relief which are cognizable by
regional trial courts.
4. POLITICAL LAW; SEPARATION OF POWERS; COURT MAY NOT INTRUDE 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 signi cance 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.
DECISION
PUNO , J : p
Petitioners and petitioners-in-intervention led 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: rst, tra c forecasts, capacity of existing
facilities, NAIA future requirements, proposed master plans and development plans; and
second, presentation of the preliminary design of the passenger terminal building. The
ADP submitted a Draft Final Report to the DOTC in December 1989.
Some time in 1993, six business leaders consisting of John Gokongwei, Andrew
Gotianun, Henry Sy, Sr., Lucio Tan, George Ty and Alfonso Yuchengco met with then
President Fidel V. Ramos to explore the possibility of investing in the construction and
operation of a new international airport terminal. To signify their commitment to pursue
the project, they formed the Asia's Emerging Dragon Corp. (AEDC) which was registered
with the Securities and Exchange Commission (SEC) on September 15, 1993. CSaITD
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 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
Prequali cation 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 AEDC's
unsolicited proposal, in accordance with Sec. 4-A of RA 6957, as amended. The alternative
bidders were required to submit three (3) sealed envelopes on or before 5:00 p.m. of
September 20, 1996. The rst envelope should contain the Prequali cation 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 rms
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 nancing 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.
On July 23, 1996, the PBAC issued PBAC Bulletin No. 2 inviting all bidders to a pre-
bid conference on July 29, 1996.
On August 16, 1996, the PBAC issued PBAC Bulletin No. 3 amending the Bid
Documents. The following amendments were made on the Bid Documents:
a. Aside from the xed Annual Guaranteed Payment, the proponent shall
include in its nancial proposal an additional percentage of gross
revenue share of the Government, as follows:
i. First 5 years 5.0%
ii. Next 10 years 7.5%
iii. Next 10 years 10.0%
b. The amount of the xed Annual Guaranteed Payment shall be subject of

the price challenge. Proponent may offer an Annual Guaranteed
Payment which need not be of equal amount, but payment of which
shall start upon site possession.
c. The project proponent must have adequate capability to sustain the
nancing 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-quali cation, this
capability shall be measured in terms of:
i. Proof of the availability of the project proponent and/or the
consortium to provide the minimum amount of equity for the
project; and
ii. a letter testimonial from reputable banks attesting that the project
proponent and/or the members of the consortium are banking
with them, that the project proponent and/or the members are
of good financial standing, and have adequate resources.
d. The basis for the prequali cation shall be the proponent's compliance
with the minimum technical and nancial 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. CSaITD
e. Amendments to the draft Concession Agreement shall be issued from

time to time. Said amendments shall only cover items that would not
materially affect the preparation of the proponent's proposal.
On August 29, 1996, the Second Pre-Bid Conference was held where certain
clari cations were made. Upon the request of prospective bidder People's Air Cargo &
Warehousing Co., Inc (Paircargo), the PBAC warranted that based on Sec. 11.6, Rule 11 of
the Implementing Rules and Regulations of the BOT Law, only the proposed Annual
Guaranteed Payment submitted by the challengers would be revealed to AEDC, and that
the challengers' technical and nancial proposals would remain con dential. The PBAC
also clari ed 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 clari ed 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 PBAC's query on the matter with the Department of
Justice.
In September 1996, the PBAC issued Bid Bulletin No. 5, entitled "Answers to the
Queries of PAIRCARGO as Per Letter Dated September 3 and 10, 1996." Paircargo's
queries and the PBAC's responses were as follows:
1. It is di cult for Paircargo and Associates to meet the required minimum
equity requirement as prescribed in Section 8.3.4 of the Bid Documents
considering that the capitalization of each member company is so structured to
meet the requirements and needs of their current respective business
undertaking/activities. In order to comply with this equity requirement, Paircargo
is requesting PBAC to just allow each member of (sic) corporation of the joint
Venture to just execute an agreement that embodies a commitment to infuse the
required capital in case the project is awarded to the Joint Venture instead of
increasing each corporation's current authorized capital stock just for
prequalification purposes.
In prequali cation, the agency is interested in one's nancial 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" nancial capability. However, total nancial capability of
all member companies of the Consortium, to be established by submitting the
respective companies' audited financial statements, shall be acceptable.
2. At present, Paircargo is negotiating with banks and other institutions for
the extension of a Performance Security to the joint venture in the event that the
Concessions Agreement (sic) is awarded to them. However, Paircargo is being
required to submit a copy of the draft concession as one of the documentary
requirements. Therefore, Paircargo is requesting that they'd (sic) be furnished
copy of the approved negotiated agreement between the PBAC and the AEDC at
the soonest possible time.
A copy of the draft Concession Agreement is included in the Bid
Documents. Any material changes would be made known to prospective
challengers through bid bulletins. However, a nal version will be issued before
the award of contract. SECAHa
The PBAC also stated that it would require AEDC to sign Supplement C of the Bid
Documents (Acceptance of Criteria and Waiver of Rights to Enjoin Project) and to submit
the same with the required Bid Security.
On September 20, 1996, the consortium composed of People's Air Cargo and
Warehousing Co., Inc. (Paircargo), Phil. Air and Grounds Services, Inc. (PAGS) and Security
Bank Corp. (Security Bank) (collectively, Paircargo Consortium) submitted their
competitive proposal to the PBAC. On September 23, 1996, the PBAC opened the rst
envelope containing the prequali cation documents of the Paircargo Consortium. On the
following day, September 24, 1996, the PBAC prequalified the Paircargo Consortium.
On September 26, 1996, AEDC informed the PBAC in writing of its reservations as
regards the Paircargo Consortium, which include:
a. The lack of corporate approvals and financial capability of PAIRCARGO;
b. The lack of corporate approvals and financial capability of PAGS;
c. The prohibition imposed by RA 337, as amended (the General Banking
Act) on the amount that Security Bank could legally invest in the
project;
d. The inclusion of Siemens as a contractor of the PAIRCARGO Joint
Venture, for prequalification purposes; and
e. The appointment of Lufthansa as the facility operator, in view of the
Philippine requirement in the operation of a public utility.
The PBAC gave its reply on October 2, 1996, informing AEDC that it had considered
the issues raised by the latter, and that based on the documents submitted by Paircargo
and the established prequali cation criteria, the PBAC had found that the challenger,
Paircargo, had prequali ed 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.
On October 3, 1996, AEDC reiterated its objections, particularly with respect to
Paircargo's nancial 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 nancial 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 rst ve 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. CSaITD
Thus, the PBAC formally informed AEDC that it had accepted the price proposal
submitted by the Paircargo Consortium, and gave AEDC 30 working days or until
November 28, 1996 within which to match the said bid, otherwise, the project would be
awarded to Paircargo.
As AEDC failed to match the proposal within the 30-day period, then DOTC Secretary
Amado Lagdameo, on December 11, 1996, issued a notice to Paircargo Consortium
regarding AEDC's failure to match the proposal.
On February 27, 1997, Paircargo Consortium incorporated into Philippine
International Airport Terminals Co., Inc. (PIATCO).
AEDC subsequently protested the alleged undue preference given to PIATCO and
reiterated its objections as regards the prequalification of PIATCO.
On April 11, 1997, the DOTC submitted the concession agreement for the second-
pass approval of the NEDA-ICC,
On April 16, 1997, AEDC led 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- ve (25) years commencing from the in-service
date, and may be renewed at the option of the Government for a period not exceeding
twenty- ve (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 de nition of
"certi cate of completion"; Sec. 2.05 pertaining to the Special Obligations of GRP; Sec.
3.02 (a) dealing with the exclusivity of the franchise given to the Concessionaire; Sec. 4.04
concerning the assignment by Concessionaire of its interest in the Development Facility;
Sec. 5.08 (c) dealing with the proceeds of Concessionaire's insurance; Sec. 5.10 with
respect to the temporary take-over of operations by GRP; Sec. 5.16 pertaining to the taxes,
duties and other imposts that may be levied on the Concessionaire; Sec. 6.03 as regards
the periodic adjustment of public utility fees and charges; the entire 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 de ning
"Revenues" or "Gross Revenues"; Sec. 2.05 (d) of the ARCA referring to the obligation of
MIAA to provide su cient 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. CSaITD
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 de ned 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.
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- ight 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 MacroAsia, 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, led 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 led 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 led their Comment-In-Intervention defending the
validity of the assailed agreements and praying for the dismissal of the petitions.
During the pendency of the case before this Court, President Gloria Macapagal
Arroyo, on November 29, 2002, in her speech at the 2002 Golden Shell Export Awards at
Malacañang Palace, stated that she will not "honor (PIATCO) contracts which the Executive
Branch's 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 O ce of the Solicitor General and the O ce 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 le
simultaneously their respective Memoranda in ampli cation 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. CSaITD
In their consolidated Memorandum, the O ce of the Solicitor General and the O ce

of the Government Corporate Counsel prayed that the present petitions be given due
course and that judgment be rendered declaring the 1997 Concession Agreement, 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 ling 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 di cult 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 rst 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- ight 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 petitioners
led 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- ight catering, passenger
handling, ramp and ground support, aircraft maintenance and provisions, cargo handling
and warehousing and other services to several international airlines at the Ninoy Aquino
International Airport. Petitioners-Intervenors allege that as tax-paying international airline
and airport-related service operators, each one of them stands to be irreparably injured by
the implementation of the PIATCO Contracts. Each of the petitioners-intervenors have
separate and subsisting concession agreements with MIAA and with various international
airlines which they allege are being interfered with and violated by respondent PIATCO.
In G.R. No. 155661, petitioners constitute employees of MIAA and Samahang
Manggagawa sa Paliparan ng Pilipinas — a legitimate labor union and accredited as the
sole and exclusive bargaining agent of all the employees in MIAA. Petitioners anchor their
petition for prohibition on the nullity of the contracts entered into by the Government and
PIATCO regarding the build-operate-and-transfer of the NAIA IPT III. They led 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, speci c
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 operations 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
illumination of di cult 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 inde nite 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. 1 0
We hold that petitioners have the requisite standing. In the abovementioned 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 nulli ed or
terminated by the operation of the NAIA IPT III under the PIATCO Contracts. The nancial
prejudice brought about by the PIATCO Contracts on petitioners and petitioners-
intervenors in these cases are legitimate interests su cient to confer on them the
requisite standing to file the instant petitions.
CSaITD
b. G.R. No. 155547

In G.R. No. 155547, petitioners led 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. 1 1 They cite provisions of the
PIATCO Contracts which require disbursement of unappropriated amounts in compliance
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." 1 2
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 1 3 and Gonzales v. Raquiza 1 4 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 le the instant petition . In
Kilosbayan, Inc. v. Guingona, 1 5 this Court held "[i]n line with the liberal policy of this Court
o n locus standi, ordinary taxpayers, members of Congress, and even association of
planters, and non-pro t 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," 1 6 Further, "insofar
as taxpayers' suits are concerned . . . (this Court) is not devoid of discretion as to whether
or not it should be entertained." 1 7 As such ". . . even if, strictly speaking, they [the
petitioners] are not covered by the de nition, 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." 1 8 In view of the serious legal
questions 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 rst
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 signi cant 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
Court's primary jurisdiction. 1 9
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
o f transcendental importance as they involve the construction and operation of the
country's premier international airport. Moreover, the crucial issues submitted for
resolution are of rst 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.
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 led 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.
I n Del Monte Corporation-USA v. Court of Appeals, 2 0 even after nding that the
arbitration clause in the Distributorship Agreement in question is valid and the dispute
between the parties is arbitrable, this Court a rmed the trial court's decision denying
petitioner's Motion to Suspend Proceedings pursuant to the arbitration clause under the
contract. In so ruling, this Court held that as contracts produce legal effect between the
parties, their assigns and heirs, only the parties to the Distributorship Agreement are
bound by its terms, including the arbitration clause stipulated therein. This Court ruled that
arbitration proceedings could be called for but only with respect to the parties to the
contract in question. Considering that there are parties to the case who are neither parties
to the Distributorship Agreement nor heirs or assigns of the parties thereto, this Court,
citing its previous ruling in Salas, Jr. v. Laperal Realty Corporation, 2 1 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. 2 2 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 speedy and decisive
resolution of all the critical issues in the present controversy, including those raised by
petitioners, cannot be made before an arbitral tribunal. The object of arbitration is
precisely to allow an expeditious determination of a dispute. This objective would not be
met if this Court were to allow the parties to settle the cases by arbitration as there are
certain issues involving non-parties to the PIATCO Contracts which the arbitral tribunal will
not be equipped to resolve.
Now, to the merits of the instant controversy.
I
Is PIATCO a qualified bidder?
Public respondents argue that the Paircargo Consortium, PIATCO's predecessor,
was not a duly pre-quali ed bidder on the unsolicited proposal submitted by AEDC as the
Paircargo Consortium failed to meet the nancial 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,
su cient 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 nancial capability of the Paircargo Consortium on the ground that it does
not have the nancial 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 clari ed through Bid Bulletin Nos. 3 and 5, require
that nancial capability will be evaluated based on total nancial capability of all
the member companies of the [Paircargo] Consortium. In this connection, the
Challenger was found to have a combined net worth of P3,926,421,242.00 that
could support a project costing approximately P13 Billion. CSaITD
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 nancial statement or the net worth is not the sole basis in
establishing nancial capability. As stated in Bid Bulletin No. 3, nancial
capability may also be established by testimonial letters issued by reputable
banks. The Challenger has complied with this requirement.
To recap, net worth re ected 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 su cient equity is required as one of the conditions for
award of contract (Section 12.1 IRR of the BOT Law) but not for pre-quali cation
(Section 5.4 of the same document). 2 3
Under the BOT Law, in case of a build-operate-and-transfer arrangement, the

contract shall be awarded to the bidder "who, having satis ed the minimum nancial,
technical, organizational and legal standards" required by the law, has submitted the
lowest bid and most favorable terms of the project, 2 4 Further, the 1994 Implementing
Rules and Regulations of the BOT Law provide:
Section 5.4 Pre-qualification Requirements.
xxx xxx xxx

c. Financial Capability: The project proponent must have adequate
capability to sustain the nancing 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-quali cation, 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 nancial
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. (Italics supplied)
Pursuant to this provision, the PBAC issued PBAC Bulletin No. 3 dated August 16,
1996 amending the nancial capability requirements for pre-quali cation of the project
proponent as follows:
6. Basis of Pre-qualification
The basis for the pre-quali cation shall be on the compliance of the
proponent to the minimum technical and nancial requirements provided in
the Bid Documents and in the IRR of the BOT Law, R.A. No. 6957, as
amended by R.A. 7718.
The minimum amount of equity to which the proponent's nancial
capability will be based shall be thirty percent (30%) of the project cost
instead of the twenty percent (20%) speci ed 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
nancial 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
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, 2 5 the Paircargo Consortium had to show to the satisfaction of the
PBAC that it had the ability to provide the minimum equity for the project in the amount of
at least P2,755,095,000 .00 .
Paircargo's Audited Financial Statements as of 1993 and 1994 indicated that it had
a net worth of P2,783,592,00 and P3,123,515,00 respectively. 2 6 PAGS' Audited Financial
Statements as of 1995 indicate that it has approximately P26,735,700.00 to invest as its
equity for the project. 2 7 Security Bank's Audited Financial 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
nancial 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 fty percent (50%) of the net worth of the bank; (b) the
equity investment in any one enterprise whether allied or non-allied shall not
exceed fteen 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- ve percent (35%) of the total equity
in the enterprise nor shall it exceed thirty- ve percent (35%) of the voting stock in
that enterprise; and (d) the equity investment in other banks shall be deducted
from the investing bank's net worth for purposes of computing the prescribed
ratio of net worth to risk assets.
xxx xxx xxx
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.
a. In any single enterprise. — The equity investments of banks in any single
enterprise shall not exceed at any time fteen percent (15%) of the net worth of
the 'investing bank as defined in Sec. X106 and Subsec. X121.5. CSaITD
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, 2 9 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-quali cation in any public bidding is to determine, at the earliest
opportunity, the ability of the bidder to undertake the project. Thus, with respect to the
bidder's nancial capacity at the pre-quali cation 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-quali cation . 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-quali ed 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.
Further, the determination of whether or not a bidder is pre-quali ed 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 minimum required nancial capability to complete the project. To allow the PBAC to
estimate the bidder's future nancial 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 nancial 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. 3 0
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 disquali ed. Considering that at the pre-
quali cation 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 quali ed 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 disquali cation of respondent PIATCO's
predecessor would come into play and necessarily result in the nullity of all the subsequent
contracts entered by it in pursuance of the project, the Court feels that it is necessary to
discuss in full the pressing issues of the present controversy for a complete resolution
thereof.
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 modi cation, and
that this intention was clear to all participants, including AEDC, and DOTC/MIAA. It argued
further that said intention is expressed in Part C (6) of Bid Bulletin No. 3 issued by the
PBAC which states:
6. Amendments to the Draft Concessions Agreement
Amendments to the Draft Concessions Agreement shall be issued from
time to time. Said amendments shall only cover items that would not
materially affect the preparation of the proponent's proposal.

By its very nature, public bidding aims to protect the public interest by giving the
public the best possible advantages through open competition. Thus:
Competition must be legitimate, fair and honest. In the eld 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. 3 1
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 speci cations in such biddings provide the common ground or
basis for the bidders. The speci cations should, accordingly, operate equally or
indiscriminately upon all bidders. 3 2
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 speci cations 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 bene cial to him, not included or contemplated in the
terms and specifications upon which the bids were invited. 3 3
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 clari ed that " [s]aid amendments shall only cover items
that would not materially affect the preparation of the proponent's proposal."
While we concede that a winning bidder is not precluded from modifying or
amending certain provisions of the contract bidded upon, such changes must not
constitute substantial or material amendments that would alter the basic parameters of
the contract 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 modi cation 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 nancial proposals
previously submitted by other bidders. The alterations and modi cations 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.
CSaITD
In the case of Caltex (Philippines), Inc. v. Delgado Brothers, Inc., 3 4 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. 3 5
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:
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 classi ed 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 rst category
which may be 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: 3 6
(1) aircraft parking fees;
(2) aircraft tacking fees;
(3) groundhandling fees;

(4) rentals and airline offices;
(5) check-in counter rentals; and
(6) porterage fees.
Under the 1997 Concession Agreement, fees which are subject to adjustment and
effective upon MIAA approval are classified as "Public Utility Revenues" and include: 3 7
(1) aircraft parking fees;
(2) aircraft tacking fees;
(3) check-in counter fees; and
(4) Terminal Fees.
The implication of the reduced number of fees that are subject to MIAA approval is
best appreciated in relation to fees included in the second category identi ed 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
de ned as "all other income not classi ed as Public Utility Revenues derived from
operations of the Terminal and the Terminal Complex." 3 8 Thus, under the 1997 Concession
Agreement, groundhandling fees, rentals from airline o ces 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
o ces, 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 rst adjustment shall be made prior to the In-
Service 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. 3 9
On the other hand, the equivalent provision under the 1997 Concession Agreement
reads:
Section 6.03 Periodic Adjustment in Fees, and Charges.
xxx xxx xxx

(c) Concessionaire shall at all times be judicious in xing 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. 4 0
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 rst 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. CSaITD
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 rst 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.
With respect to terminal fees that may be charged by PIATCO, 4 1 as shown earlier,
this was included within the category of "Public Utility Revenues" under the 1997
Concession Agreement. This classi cation is signi cant because under the 1997
Concession Agreement, "Public Utility Revenues" are subject to an "Interim Adjustment" of
fees upon the occurrence of certain extraordinary events speci ed in the agreement. 4 2
However, under the draft Concession Agreement, terminal fees are not included in the
types of fees that may be subject to "Interim Adjustment." 4 3
Finally, under the 1997 Concession Agreement, "Public Utility Revenues," except
terminal fees, are denominated in US Dollars 4 4 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 bene ts of depreciations of the
Philippine Peso, while being effectively insulated from the detrimental effects of exchange
rate fluctuations.
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 signi cant 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 di cult to see that the changes in the 1997 Concession
Agreement translate to direct and concrete nancial 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. aSTAIH

b. Assumption by the Government
of the liabilities of PIATCO in the event
of the latter's default thereof
Under the draft Concession Agreement, default by PIATCO of any of its obligations
to creditors who have provided, loaned or advanced funds for the NAIA IPT III project does
not result in the assumption by the Government of these liabilities. In fact, nowhere in the
said contract does default of PIATCO's loans gure 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.
xxx xxx xxx

(b) In the event Concessionaire should default in the payment of an
Attendant Liability, and the default has 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 quali ed, to be substituted as concessionaire and operator of
the Development Facility in accordance with the terms and conditions hereof, or
designate a quali ed operator acceptable to GRP to operate the Development
Facility, likewise under the terms and conditions of this Agreement; Provided that
if at the end of the 180-day period GRP shall not have served the Unpaid Creditors
and Concessionaire written notice of its choice, GRP shall be deemed to have
elected to take over the Development Facility with the concomitant assumption of
Attendant Liabilities.
(c) If GRP should, by written notice, allow the Unpaid Creditors to be
substituted as concessionaire, the latter shall form and organize a concession
company quali ed 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
quali ed operator acceptable to GRP within one hundred eighty (180) days from
receipt of GRP's written notice. If the concession company, acting in good faith
and with due diligence, is unable to designate a quali ed 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 de ned
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 de nition of
"Attendant Liabilities," default by PIATCO of its loans used to nance the NAIA IPT III
project triggers the occurrence of certain events that leads to the assumption by the
Government of the liability for the loans. Only in one instance may the Government escape
the assumption of PIATCO's liabilities, i.e., when the Government so elects and allows a
quali ed operator to take over as Concessionaire. However, this circumstance is
dependent on the existence and availability of a quali ed 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 nance 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 nancial advantage or
bene t which was not previously made available during the bidding process . This nancial
advantage is a signi cant modi cation 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 nancing 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 nancing 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. 4 5 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.
4 6 These are the basic parameters which every awardee of a contract bidded out must
conform to, requirements of nancing 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. 4 7 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
a n entirely different agreement from the contract bidded out or the draft Concession
Agreement. It is not di cult 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 nancial 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 terms and
conditions which provide nancial bene t 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
xxx xxx xxx
(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 quali ed to be substituted as concessionaire and operator of the
Development facility in accordance with the terms and conditions hereof, or
designate a quali ed operator acceptable to GRP to operate the Development
Facility, likewise under the terms and conditions of this Agreement; Provided, that
if at the end of the 180-day period GRP shall not have served the Unpaid Creditors
and Concessionaire written notice of its choice, GRP shall be deemed to have
elected to take over the Development Facility with the concomitant assumption of
Attendant Liabilities.
(c) If GRP, by written notice, allow the Unpaid Creditors to be substituted as
concessionaire, the latter shall form and organize a concession company
quali ed 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 quali ed
operator acceptable to GRP within one hundred eighty (180) days from receipt of
GRP's written notice. If the concession company, acting in good faith and with
due diligence, is unable to designate a quali ed 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.
xxx xxx xxx
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. 4 8
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.
4 9 These amounts include "all interests, penalties, associated fees, charges, surcharges,
indemnities, reimbursements and other related expenses." 5 0 This obligation of the
Government to pay PIATCO's creditors upon PIATCO's default would arise if the
Government opts to take over NAIA IPT III. It should be noted, however, that even if the
Government chooses the second option, which is to allow PIATCO's unpaid creditors
operate NAIA IPT III, the Government is still at a risk of being liable to PIATCO's creditors
should the latter be unable to designate a quali ed operator within the prescribed period.
5 1 In effect, whatever option the Government chooses to take in the event of PIATCO's
failure to ful ll its loan obligations, the Government is still at a risk of assuming PIATCO's
outstanding loans. This is due to the fact that the Government would only be free from
assuming PIATCO's debts if the unpaid creditors would be able to designate a quali ed
operator within the period provided for in the contract. Thus, the Government's
assumption of liability is virtually out of its control. The Government under the
circumstances provided for in the 1997 Concession Agreement is at the mercy of the
existence, availability and willingness of a quali ed operator. The above contractual
provisions constitute a direct government guarantee which is prohibited by law.
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 ow
of returns, 5 2 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. 5 3 This is but logical for if the
government would in the end still be at a risk of paying the debts incurred by the private
entity in the BOT projects, then the purpose of the law is subverted.
Section 2(n) of the BOT Law defines direct guarantee as follows:
(n) Direct government guarantee — An agreement whereby the government
or any of its agencies or local government units assume responsibility for the
repayment of debt directly incurred by the project proponent in implementing the
project in case of a loan default.
Clearly by providing that the Government "assumes" the attendant liabilities, which
consists of PIATCO's unpaid debts, the 1997 Concession Agreement provided for a direct
government guarantee for the debts incurred by PIATCO in the implementation of the NAIA
IPT III project. It is of no moment that the relevant sections are subsumed under the title
of "assignment". The provisions providing for direct government guarantee which is
prohibited by law is clear from the terms thereof.
The fact that the ARCA superseded the 1997 Concession Agreement did not cure
this fatal defect. Article IV, Section 4.04(c), in relation to Article 1, Section 1.06, of the
ARCA provides:
Section 4.04 Security
xxx xxx xxx
(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:
xxx xxx xxx

(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 quali ed under sub-
clause (viii)(y) below to operate the Development Facility [NAIA Terminal 3] or
transfer the Concessionaire's [PIATCO] rights and obligations under this
Agreement to a transferee which is qualified under sub-clause (viii) below;
xxx xxx xxx
(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 de ned) 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;
xxx xxx xxx
Section 1.06. Attendant Liabilities

Attendant Liabilities refer to all amounts in each case supported by
veri able evidence from time to time owed or which may become owing by
Concessionaire [PIATCO] to Senior Lenders or any other persons or entities who
have provided, loaned, or advanced funds or provided nancial 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. 5 4
It is clear from the foregoing contractual provisions that in the event that PIATCO
fails to ful ll 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 quali ed 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 de ned 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 nancial facilities to PIATCO for NAIA IPT III. The amount of PIATCO's debt
that the Government would have to pay as a result of PIATCO's default in its loan
obligations — in case no quali ed nominee or transferee is appointed by the Senior
Lenders and no other agreement relating to NAIA IPT III has been reached between the
Government and the Senior Lenders — includes, but is not limited to, "all principal, interest,
associated fees, charges, reimbursements, and other related expenses . . . whether
payable at maturity, by acceleration or otherwise." 5 5
It is clear from the foregoing that the ARCA provides for a direct guarantee by the
government to pay PIATCO's loans not only to its Senior Lenders but all other entities who
provided PIATCO funds or services upon PIATCO's default in its loan obligation with its
Senior Lenders. The fact that the Government's obligation to pay PIATCO's lenders for the
latter's obligation would only arise after the Senior Lenders fail to appoint a quali ed
nominee or transferee does not detract from the fact that, should the conditions as stated
in the contract occur, the ARCA still obligates the Government to pay any and all amounts
owed by PIATCO to its lenders in connection with NAIA IPT III. Worse, the conditions that
would make the Government liable for PIATCO's debts is triggered by PIATCO's own
default of its loan obligations to its Senior Lenders to which loan contracts the
Government was never a party to. The Government was not even given an option as to
what course of action it should take in case PIATCO defaulted in the payment of its senior
loans. The Government, upon PIATCO's default, would be merely noti ed by the Senior
Lenders of the same and it is the Senior Lenders who are authorized to appoint a quali ed
nominee or transferee. Should the Senior Lenders fail to make such an appointment, the
Government is then automatically obligated to "directly deal and negotiate" with the Senior
Lenders regarding NAIA IPT III. The only way the Government would not be liable for
PIATCO's debt is for a quali ed 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 quali ed nominee or
transferee is totally out of the government's control. As such the Government is virtually at
the mercy of PIATCO (that it would not default on its loan obligations to its Senior
Lenders), the Senior Lenders (that they would appoint a quali ed nominee or transferee or
agree to some other arrangement with the Government) and the existence of a quali ed
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 nancial 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 quali ed
nominee or transferee. This in effect would make the Government liable for PIATCO's
loans should the conditions as set forth in the ARCA arise. This is a form of direct
government guarantee.
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 rst 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. 5 6 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." 5 7 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 su cient 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 su cient 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. 5 8 To declare the PIATCO contracts
valid despite the clear statutory prohibition against a direct government guarantee would
not only make a mockery of what the BOT Law seeks to prevent — which is to expose the
government to the risk of incurring a monetary obligation resulting from a contract of loan
between the project proponent and its lenders and to which the Government is not a party
to — but would also render the BOT Law useless for what it seeks to achieve — to make
use of the resources of the private sector in the " nancing, operation and maintenance of
infrastructure and development projects" 5 9 which are necessary for national growth and
development but which the government, unfortunately, could ill-afford to nance 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 de ned to include threat from external aggression, calamities or
national disasters, but not strikes "unless it is of such proportion that would paralyze
government service." 6 0 The duration of the emergency itself is the determining factor as
to how long the temporary takeover by the government would last. 6 1 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.
Article V, Section 5.10 (c) of the 1997 Concession Agreement provides:
Section 5.10 Temporary Take-over of operations by GRP.
xxx xxx xxx
(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, noti cation, 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 Terminal and/or Terminal Complex." 6 3 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." 6 4 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. 6 5 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." 6 6
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. 6 7 Nonetheless,
a determination must rst be made as to whether public interest requires a monopoly. As
monopolies are subject to abuses that can in ict 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. 6 8 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. 6 9 As such, upon commencement of PIATCO's operation of NAIA IPT III, Terminals 1
and 2 of NAIA would cease to function as international passenger terminals. This, however,
does not prevent MIAA to use Terminals 1 and 2 as domestic passenger terminals or in
any other manner as it may deem appropriate except those activities that would compete
with NAIA IPT III in the latter's operation as an international passenger terminal. 7 0 The
right granted to PIATCO to exclusively operate NAIA IPT III would be for a period of
twenty- ve (25) years from the In-Service Date 7 1 and renewable for another twenty- ve
(25) years at the option of the government. 7 2 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 are subsequent to
the In-Service Date would cease to be effective on the said date. 7 3
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. 7 4
This is in accord with the Constitutional mandate that a monopoly which is not
prohibited must be regulated. 7 5 While it is the declared policy of the BOT Law to
encourage private sector participation by "providing a climate of minimum government
regulations," 7 6 the same does not mean that Government must completely surrender its
sovereign power to protect public interest in the operation of a public utility as a
monopoly. The operation of said public utility can not be done in an arbitrary manner to the
detriment of the public which it seeks to serve. The right granted to the public utility may
be exclusive but the exercise of the right cannot run riot. Thus, while PIATCO may be
authorized to exclusively operate NAIA IPT III as an international passenger terminal, the
Government, through the MIAA, has the right and the duty to ensure that it is done in
accord with public interest. PIATCO's right to operate NAIA IPT III cannot also violate the
rights of third parties.
Section 3.01(e) of the 1997 Concession Agreement and the ARCA provide:
3.01 Concession Period
xxx xxx xxx
(e) GRP con rms 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, con rms that these services and
operations shall not be carried over to the Terminal and the 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
full indemnity basis from and against any loss and/or any liability resulting from
any such litigation, including the cost of litigation and the reasonable fees paid or
payable to Concessionaire's counsel of choice, all such amounts shall be fully
deductible by way of an offset from any amount which the Concessionaire is
bound to pay GRP under this Agreement.
During the oral arguments on December 10, 2002, the counsel for the petitioners-in-
intervention for G.R. No. 155001 stated that there are two service providers whose
contracts are still existing and whose validity extends beyond the In-Service Date. One
contract remains valid until 2008 and the other until 2010. 7 7
We hold that while the service providers presently operating at NAIA Terminal 1 do
not have an absolute right for the renewal or the extension of their respective contracts,
those contracts whose duration extends beyond NAIA IPT III's In-Service-Date should not
be unduly prejudiced. These contracts must be respected not just by the parties thereto
but also by third parties. PIATCO cannot, by law and certainly not by contract, render a
valid and binding contract nugatory. PIATCO, by the mere expedient of claiming an
exclusive right to operate, cannot require the Government to break its contractual
obligations to the service providers. In contrast to the arrastre and stevedoring service
providers in the case of Anglo-Fil Trading Corporation v. Lazaro 7 8 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 ne, the e cient 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, 7 9 it is MIAA's
responsibility to ensure that whoever by contract is given the right to operate NAIA IPT III
will do so within the bounds of the law and with due regard to the rights of third parties
and above all, the interest of the public.
VI
CONCLUSION
In sum, this Court rules that in view of the absence of the requisite nancial 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
Supplements, being accessory contracts to the ARCA, are likewise null and void. TcEaAS
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 and Azcuna, JJ., concur with separate (dissenting) opinion of J. Vitug.
Callejo, Sr., J., concurs with separate opinion of J. Panganiban.
Carpio, J., took no part.
Separate Opinions
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 nulli cation 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, o cer 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 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 le a veri ed 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 speci ed
therein, or otherwise granting such incidental reliefs as law and justice may
require."
The rule is explicit. A petition for prohibition may be led against a tribunal,
corporation, board, o cer 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 o cer involved may be resolved on the basis of undisputed facts. 2 The
parties allege, respectively, contentious evidentiary facts. It would be di cult, 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 of powers. The Court may not at good liberty
intrude, in the guise of sovereign imprimatur, into every affair of government. What
signi cance 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. CSTDIE
Accordingly, I vote for the dismissal of the petition.
PANGANIBAN , J.:
The ve contracts for the construction and the operation of Ninoy Aquino
International Airport (NAIA) Terminal III, the subject of the consolidated Petitions before
the Court, are replete with outright violations of law, public policy and the Constitution. The
only proper thing to do is declare them all null and void ab initio and let the chips fall where
they may. Fiat iustitia ruat coelum.
The facts leading to this controversy are already well presented in the ponencia. I
shall not burden the readers with a retelling thereof. Instead, I will cut to the chase and
directly address the two sets of gut issues:
1. The rst issue is procedural: Does the Supreme Court have original jurisdiction to
hear and decide the Petitions? Corollarily, do petitioners have locus standi and should this
Court decide the cases without any mandatory referral to arbitration?
2. The second one is substantive in character: Did the subject contracts violate the
Constitution, the laws, and public policy to such an extent as to render all of them void and
inexistent?
My answer to all the above questions is a firm "Yes."
The Procedural Issue:
Jurisdiction, Standing and Arbitration
De nitely and surely, the issues involved in these Petitions are clearly of
transcendental importance and of national interest. The subject contracts pertain to the
construction and the operation of the country's premiere international airport terminal — an
ultramodern world-class public utility that will play a major role in the country's economic
development and serve to project a positive image of our country abroad. The ve 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 su cient
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
nality of any such judgment would be a prolonged state of uncertainty that would be
prejudicial to the nation, the parties and the general public. And, in light of the feared loss
of jobs of the petitioning workers, consequent to the inevitable pretermination of
contracts of the petitioning service providers that will follow upon the heels of the
impending opening of NAIA Terminal III, the need for relief is patently urgent, and therefore,
direct resort to this Court through the special civil action of prohibition is thus justified. 3
Contrary to Piatco's argument that the resolution of the issues raised in the
Petitions will require delving into factual questions, 4 I submit that their disposition
ultimately turns on questions of law. 5 Further, many of the signi cant 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 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 nal 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 de nitively
resolve the constitutional and legal questions that have been raised in the Petitions before
us.
Locus Standi
Given this Court's previous decisions in cases of similar import, no one will seriously
doubt that, being taxpayers and members of the House of Representatives, Petitioners
Baterina et al., have 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 su ciently clothed with standing to bring the suit
questioning the validity of the assailed contract. The Court cited the fact that public
interest was involved, in view of the important role of the Manila International Container
Terminal (MICT) in the country's economic development and the magnitude of the nancial
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 q u a legislators, since the contractual provisions
requiring the government to incur expenditures without appropriations also operate as
limitations upon the exclusive power and prerogative of Congress over the public purse.
As members of the House of Representatives, they are actually deprived of discretion
insofar as the inclusion of those items of expenditure in the budget is concerned. To
prevent such encroachment upon the legislative privilege and obviate injury to the
institution of which they are members, petitioners-legislators have locus standi to bring
suit.
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 su ciently 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 signi cance. Hence, I do not hesitate to adopt the same position as was
enunciated in Kilosbayan v. Guingona Jr. 8 that "in cases of transcendental importance, the
Court may relax the standing requirements and allow a suit to prosper even when there is
no direct injury to the party claiming the right of judicial review." 9
The Substantive Issue:
Violations of the Constitution and the Laws
From the Outset, the Bidding
Process Was Flawed and Tainted
After studying the documents submitted and arguments advanced by the parties, I
have no doubt that, right at the outset, Piatco was not qualified to participate in the bidding
process for the Terminal III project, but was nevertheless permitted to do so. It even won
the bidding and was helped along by what appears to be a series of collusive and
corrosive acts.
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. 1 0 The unsolicited proposal was originally submitted by the Asia's
Emerging Dragon Corporation (AEDC) to the Department of Transportation and
Communications (DOTC) and the Manila International Airport Authority (MIAA), which
reviewed and approved the proposal.
The draft of the concession agreement as negotiated between AEDC and
DOTC/MIAA was endorsed to the National Economic Development Authority (NEDA-ICC),
which in turn reviewed it on the basis of its scope, economic viability, nancial indicators
and risks; and thereafter approved it for bidding.
The DOTC/MIAA then prepared the Bid Documents, incorporating therein the
negotiated Draft Concession Agreement, and published invitations for public bidding, i.e.,
for the submission of comparative or competitive proposals. Piatco's predecessor-in-
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 satis ed the minimum requirements; and met the technical, nancial,
organizational and legal standards provided in the BOT Law. Section 5 of this statute
states:
"Sec. 5. Public bidding of projects. - . . .
"In the case of a build-operate-and-transfer arrangement, the contract shall
be awarded to the bidder who, having satis ed the minimum nancial, 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 xed term for the facility to be
constructed, rehabilitated, operated and maintained according to the prescribed
minimum design and performance standards, plans and speci cations. . . ."
(Italics supplied.)
The same provision requires that the price challenge via public bidding "must be
conducted under a two-envelope/two-stage system: the rst envelope to contain the
technical proposal and the second envelope to contain the nancial proposal ." Moreover,
the 1994 Implementing Rules and Regulations (IRR) provide that only those bidders that
have passed the prequali cation stage are permitted to have their two envelopes
reviewed.
In other words, prospective bidders must prequalify by submitting their
prequali cation documents for evaluation; and only the pre-quali ed bidders would be
entitled to have their bids opened, evaluated and appreciated. On the other hand,
disquali ed bidders are to be informed of the reason for their disquali cation. This
procedure was con rmed and reiterated in the Bid Documents, which I quote thus:
"Prequali ed proponents will be considered eligible to move to second stage technical
proposal evaluation. The second and third envelopes of pre-disquali ed proponents will be
returned." 1 1
Aside from complying with the legal and technical requirements (track record or
experience of the rm and its key personnel), a project proponent desiring to prequalify
must also demonstrate its nancial capacity to undertake the project. To establish such
capability, a proponent must prove that it is able to raise the minimum amount of equity
required for the project and to procure the loans or nancing needed for it. Section 5.4(c)
of the 1994 IRR provides:
"Sec. 5.4. Prequali cation 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 nancing requirements for the detailed engineering
design, construction, and/or operation and maintenance phases of the project, as
the case may be. For purposes of prequali cation, 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
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. . . .." (Italics supplied)
Since the minimum amount of equity for the project was set at 30 percent 1 2 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. 1 3 This amount was only slightly over 6 percent of the minimum
project cost and very much short of the required minimum equity, which was equivalent to
30 percent of the project cost. Such de ciency should have immediately caused the
disquali cation of the Paircargo consortium. This matter was brought to the attention of
the Prequalification and Bidding Committee (PBAC).
Notwithstanding the glaring de ciency, 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 re ected 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
su cient 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 prequali ed and thus permitted to proceed to the other stages of the bidding
process.
By virtue of the prequali ed status conferred upon the Paircargo, Undersecretary
Cal's ndings in effect relieved the consortium of the need to comply with the nancial
capability requirement imposed by the BOT Law and IRR. This position is unmistakably and
squarely at odds with the Supreme Court's consistent doctrine emphasizing the strict
application of pertinent rules, regulations and guidelines for the public bidding process, in
order to place each bidder — actual or potential — on the same footing. Thus, it is
unarguably irregular and contrary to the very concept of public bidding to permit a variance
between the conditions under which bids are invited and those under which proposals are
submitted and approved.
Republic v. Capulong 1 4 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. 1 5 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 prequali ed
or allowed to participate further in the bidding. The Prequali cation and Bidding
Committee (PBAC) should therefore not have opened the two envelopes of the consortium
containing its technical and nancial proposals; required AEDC to match the consortium's
bid; 1 6 or awarded the Concession Agreement to the consortium's successor-in-interest,
Piatco.
As there was effectively no public bidding to speak of, the entire bidding process
having been awed and tainted from the very outset, therefore, the award of the
concession to Paircargo's successor Piatco was void, and the Concession Agreement
executed with the latter was likewise void ab initio. For this reason, Piatco cannot and
should not be allowed to benefit from that Agreement. 1 7
AEDC Was Deprived of the
Right to Match PIATCO's
Price Challenge
In DOTC PBAC Bid Bulletin No. 4 (par. 3), Undersecretary Cal declared that, for
purposes of matching the price challenge of Piatco, AEDC as originator of the unsolicited
proposal would be permitted access only to the schedule of proposed Annual Guaranteed
Payments submitted by Piatco, and not to the latter's nancial and technical proposals
that constituted the basis for the price challenge in the rst 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 con dentiality, 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
quali es as an "unsolicited proposal" when it pertains to a project that involves " a new
concept or technology, " and/or a project that is not on the government's list of priority
projects.
To be considered as utilizing a new concept or technology, a project must involve
the possession of exclusive rights (worldwide or regional) over a process; or possession
of intellectual property rights over a design, methodology or engineering concept. 1 8
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 signi cance 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 rst refusal" to undertake the project they conceptualized,
involving the use of new technology or concepts, through the mechanism of matching a
price challenge.
A competing bid is never just any gure conjured from out of the blue; it is arrived at
after studying economic, nancial, 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 nancial and technical proposals of Piatco would have provided
AEDC with the necessary information to enable it to make a reasonably informed matching
bid. To put it more simply, a bidder unable to access the competitor's assumptions will
never gure out how the competing bid came about; requiring him to "counter-propose" is
like having him shoot at a target in the dark while blindfolded.
By withholding from AEDC the challenger's nancial 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 bene t of a "level playing eld." 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 nancing (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 de nite and rm timetable for the submission of the
aforementioned requirements is not only to prevent delays in the project implementation,
but also to expose and weed out unqualified proponents, who might have unceremoniously
slipped through the earlier prequalification process, by compelling them to put their money
where their mouths are, so to speak.
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 su cient
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 speci ed the timetables for each such event. De nite 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 speci ed, its failure to act on the
contract within the speci ed time frame signi es 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
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, 1 9 quoted hereinbelow:
"11 Dec. 1996 — The Paircargo Joint Venture was informed by the PBAC
that AEDC failed to match and that negotiations preparatory to Notice of Award
should be commenced. This was the decision to award that should have
commenced the running of the 7-day period to approve the Notice of Award, as
per Section 9.1 of the IRR, or to submit the draft contract to the ICC for approval
conformably with Section 9.2.
"01 April 1997 — The PBAC resolved that a copy of the nal 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 1997 — The PBAC resolved that the period of signing the
Concession Agreement be extended by 15 days.
"18 April 1997 — NEDA approved the Concession Agreement. Again this is
more than 3 months too late as the NEDA's decision should have been released
on the 16th of January 1997 or fteen days after it should have been submitted
to it for review.
"09 July 1997 — The Notice of Award was issued to PIATCO. Following the
provisions of the IRR, the Notice of Award should have been issued fourteen days
after NEDA's approval, or the 28th of January 1997. In any case, even if it were to
be assumed that the release of NEDA's approval on the 18th of April was timely,
the Notice of Award should have been issued on the 9th of May 1997. In both
cases, therefore, the release of the Notice of Award occurred in a decidedly less
than timely fashion."
This chronology of events bespeaks an unmistakable disregard, if not disdain, by the
persons in charge of the award process for the time limitations prescribed by the IRR.
Their attitude ies in the face of this Court's solemn pronouncement in Republic v.
Capulong 2 0 that "strict observance of the rules, regulations and guidelines of the bidding
process is the only safeguard to a fair, honest and competitive public bidding."
From the foregoing, the only conclusion that can possibly be drawn is that the BOT
law and its IRR were repeatedly violated with unmitigated impunity — and by agents of
government, no less! On account of such violation, the award of the contract to Piatco,
which undoubtedly gained time and bene ted from the delays, must be deemed null and
void from the beginning.
Further Amendments Resulted
in a Substantially Different
Contract, Awarded Without
Public Bidding
But the violations and desecrations did not stop there. After the PBAC made its
decision on December 11, 1996 to award the contract to Piatco, the latter negotiated
changes to the Contract bidded out and ended up with what amounts to a substantially
new contract without any public bidding . This Contract was subsequently further amended
four more times through negotiation and without any bidding. Thus, the contract actually
executed between Piatco and DOTC/MIAA on July 12, 1997 (the Concession Agreement or
"CA") differed from the contract bidded out (the draft concession agreement or "DCA") in
the following very significant respects:
1. The CA inserted stipulations creating a monopoly in favor of Piatco in the
business of providing airport-related services for international airlines
and passengers. 2 1
2. The CA provided that government is to answer for Piatco's unpaid loans
and debts (lumped under the term Attendant Liabilities) in the event
Piatco fails to pay its senior lenders. 2 2
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. 2 3
4. The CA imposed new and special obligations on government, including
delivery of clean possession of the site for the terminal; acquisition of
additional land at the government's expense for construction of road
networks required by Piatco's approved plans and speci cations; and
assistance to Piatco in securing site utilities, as well as all necessary
permits, licenses and authorizations. 2 4
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 su ciently broad to encompass all
retail and other commercial business enterprises operating within
Terminal III, inclusive of the businesses of providing various airport-
related services to international airlines, within the scope of the
prohibition.
6. Under Section 6.01 of the DCA, the following fees are subject to the
written approval of MIAA: lease/rental charges, concession privilege
fees for passenger services, food services, transportation utility
concessions, groundhandling, catering and miscellaneous concession
fees, porterage fees, greeter/well-wisher fees, carpark fees,
advertising fees, VIP facilities fees and others. Moreover, adjustments
to the groundhandling fees, rentals and porterage fees are permitted
only once every two years and in accordance with a parametric
formula, per DCA Section 6.03. However, the CA as executed with
Piatco provides in Section 6.06 that all the aforesaid fees, rentals and
charges may be adjusted without MIAA's approval or intervention.
Neither are the adjustments to these fees and charges subject to or
limited by any parametric formula. 2 5
7. Section 1.29 of the DCA provides that the terminal fees, aircraft tacking
fees, aircraft parking fees, check-in counter fees and other fees are to
be quoted and paid in Philippine pesos. But per Section 1.33 of the
CA, all the aforesaid fees save the terminal fee are denominated in US
Dollars.
8. Under Section 8.07 of the DCA, the term attendant liabilities refers to
liabilities pertinent to NAIA Terminal III , such as payment of lease
rentals and performance of other obligations under the Land Lease
Agreement; the obligations under the Tenant Agreements; and
payment of all taxes, fees, charges and assessments of whatever kind
that may be imposed on NAIA Terminal III or parts thereof. But in
Section 1.06 of the CA, Attendant Liabilities refers to unpaid debts of
Piatco: "All amounts recorded and from time to time outstanding in
the books of (Piatco) as owing to Unpaid Creditors who have
provided, loaned or advanced funds actually used for the Project,
including all interests, penalties, associated fees, charges, surcharges,
indemnities, reimbursements and other related expenses, and further
including amounts owed by [Piatco] to its suppliers, contractors and
subcontractors."
9. Per Sections 8.04 and 8.06 of the DCA, government may, on account of
the 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 contractor's creditors to assign the Project to
another entity acceptable to DOTC/MIAA; (c) pay the contractor rent
for the facilities and equipment the DOTC may utilize; or (d) purchase
the terminal at a price established by independent appraisers.
Depending on the option selected, government may take immediate
possession and control of the terminal and its operations.
Government will be obligated to compensate the contractor for the
"equivalent or proportionate contract costs actually disbursed," but
only where government is the one in breach of the contract. But under
Section 8.06(a) of the CA, whether on account of Piatco's breach of
contract or its inability to pay its creditors, government is obliged to
either (a) take over Terminal III and assume all of Piatco's debts or (b)
permit the quali ed unpaid creditors to be substituted in place of
Piatco or to designate a new operator. And in the event of
government's breach of contract, Piatco may compel it to purchase
the terminal at fair market value, per Section 8.06(b) of the CA.
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 rst 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, 1996 — is violative of
public policy on public biddings, as well as the spirit and intent of the BOT Law. The whole
point of going through the public bidding exercise was completely lost. Its very rationale
was totally subverted by permitting Piatco to amend the contract for which public bidding
had already been concluded. Competitive bidding aims to obtain the best deal possible by
fostering transparency and preventing favoritism, collusion and fraud in the awarding of
contracts. That is the reason why procedural rules pertaining to public bidding demand
strict observance. 2 6
In a relatively early case, Caltex v. Delgado Brothers, 2 7 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." 2 8
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, 2 9 this Court reiterated its ruling as follows: IcaEDC
"It is true that modi cation of government contracts, after the same had
been awarded after a public bidding, is not allowed because such modi cation
serves to nullify the effects of the bidding and whatever advantages the
Government had secured thereby and may also result in manifest injustice to the
other bidders. This prohibition, however, refers to a change in vital and essential
particulars of the agreement which results in a substantially new contract."
Piatco's counter-argument may be summed up thus: There was nothing in the 1994
IRR that prohibited further negotiations and eventual amendments to the DCA even after
the bidding had been concluded. In fact, PBAC Bid Bulletin No. 3 states: "[A]mendments to
the Draft Concession Agreement shall be issued from time to time. Said amendments will
only cover items that would not materially affect the preparation of the proponent's
proposal."
I submit that accepting such warped argument will result in perverting the policy
underlying public bidding. The BOT Law cannot be said to allow the negotiation of
contractual stipulations resulting in a substantially new contract after the bidding process
and price challenge had been concluded. In fact, the BOT Law, in recognition of the time,
money and effort invested in an unsolicited proposal, accords its originator the privilege of
matching the challenger's bid.
Section 4-A of the BOT Law speci cally refers to a "lower price proposal" by a
competing bidder; and to the right of the original proponent "to match the price" of the
challenger. Thus, only the price proposals are in play. The terms, conditions and
stipulations in the contract for which public bidding has been concluded are understood to
remain intact and not be subject to further negotiation. Otherwise, the very essence of
public bidding will be destroyed — there will be no basis for an exact comparison between
bids.
Moreover, Piatco misinterpreted the meaning behind PBAC Bid Bulletin No. 3. The
phrase amendments . . . from time to time refers only to those amendments to the draft
concession agreement issued by the PBAC prior to the submission of the price challenge;
it certainly does not include or permit amendments negotiated for and introduced after the
bidding process, has been terminated.
Piatco's Concession
Agreement Was Further
Amended, (ARCA) Again
Without Public Bidding
Not satis ed with the Concession Agreement, Piatco — once more without
bothering with public bidding — negotiated with government for still more substantial
changes. The result was the Amended and Restated Concession Agreement (ARCA)
executed on November 26, 1998. The following changes were introduced:
1. The de nition of Attendant Liabilities was further amended with the result
that the unpaid loans of Piatco, for which government may be
required to answer, are no longer limited to only those loans recorded
in Piatco's books or loans whose proceeds were actually used in the
Terminal III project. 3 0
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. 3 1

3. The Liquidated Damages which government becomes liable for in case of
its breach of contract were substantially increased. 3 2
4. Government's right to appoint a comptroller for Piatco in case the latter
encounters liquidity problems was deleted. 3 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. 3 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. 3 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. 3 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. 3 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. 3 8 This condition
contravenes the BOT Law provision on termination compensation.
10. Government is obligated to take the administrative action required for
Piatco's imposition, collection and application of all Public Utility
Revenues. 3 9 No such obligation existed previously.
11. Government is now also obligated to perform and cause other persons
and entities under its direct or indirect control to perform all acts
necessary to perfect the security interests to be created in favor of
Piatco's Senior Lenders. 4 0 No such obligation existed previously.
12. DOTC/MIAA's right of intervention in instances where Piatco's Non-
Public Utility Revenues become exorbitant or excessive has been
removed. 4 1
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. 4 2
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. 4 3
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, check-in counter fee and terminal fee), was
revised to permit Piatco to input its more costly short-term borrowing
rates instead of the longer-terms rates in the computations for
adjustments, with the end result that the changes will redound to its
greater financial benefit.
16. The Certi cate of Completion simply deleted the successful
performance-testing of the terminal facility in accordance with
de ned performance standards as a pre-condition for government's
acceptance of the terminal facility. 4 4
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 o cials 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. The amounts payable by Piatco to government were reduced by allowing
additional exceptions to the Gross Revenues in which government is
supposed to participate. 4 5
2. Made part of the properties which government is obliged to construct
and/or maintain and keep in good repair are (a) the access road
connecting Terminals II and III — the construction of this access road
is the obligation of Piatco, in lieu of its obligation to construct an
Access Tunnel connecting Terminals II and III; and (b) the taxilane and
taxiway — these are likewise part of Piatco's obligations, since they
are part and parcel of the project as described in Clause 1.3 of the Bid
Documents. 4 6
3. The MIAA is obligated to provide funding for the maintenance and repair
of the airports and facilities owned or operated by it and by third
persons under its control. It will also be liable to Piatco for the latter's
losses, expenses and damages as well as liability to third persons, in
case MIAA fails to perform such obligations. In addition, MIAA will
also be liable for the incremental and consequential costs of the
remedial work done by Piatco on account of the former's default. 4 7
4. The FS also imposed on government ten (10) "Additional Special
Obligations," including the following:
(a) Working for the removal of the general aviation tra c from the
NAIA airport complex 4 8
(b) Providing through MIAA the land required by Piatco for the
taxilane and one taxiway at no cost to Piatco 4 9
(c) Implementing the government's existing storm drainage master
plan 5 0
(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.); 5 1 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. 5 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. 5 3
5. Government is required to work for the immediate reversion to MIAA of
the Nayong Pilipino National Park. 5 4
6. Government's share in the terminal fees collected was revised from a at
rate of P180 to 36 percent thereof; together with government's
percentage share in the gross revenues of Piatco, the amount will be
remitted to government in pesos instead of US dollars. 5 5 This
amendment enables Piatco to bene t from the further erosion of the
peso-dollar exchange rate, while preventing government from building
up its foreign exchange reserves.
7. All payments from Piatco to government are now to be invoiced to MIAA,
and payments are to accrue to the latter's exclusive bene t. 5 6 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 rati ed 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 signi cant new obligations upon
government, altered the fundamental terms and stipulations of the ARCA, thus
necessitating a public bidding all over again. That the FS was entered into sans public
bidding renders it utterly void and inoperative.
The Second Supplement Is
Similarly Void and Inexistent
The Second Supplement ("SS") was executed between the government and Piatco
on September 4, 2000. It calls for Piatco, acting not as concessionaire of NAIA Terminal III
but as a public works contractor, to undertake — in the government's stead — the clearing,
removal, demolition and disposal of improvements, subterranean obstructions and waste
materials at the project site. 5 7
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 speci c rates per cubic meter of materials for each phase
of the work — excavation, leveling, removal and disposal, back lling 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 rm reputedly owned by a former high-ranking DOTC o cial. 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 a bid for it as well. Therefore, the tunnel was
supposed to be part and parcel of the Terminal III project.
However, in Section 5 of the First Supplement, the parties declared that the access
tunnel was not economically viable at that time. In lieu thereof, the parties agreed that a
surface access road (now called the T2-T3 Road) was to be constructed by Piatco to
connect the two terminals. Since it was plainly in substitution of the tunnel, the surface
road construction should likewise be considered part and parcel of the same project, and
therefore part of Piatco's obligation as well. While the access tunnel was estimated to
cost about P800 million, the surface road would have a price tag in the vicinity of about
P100 million, thus producing significant savings for Piatco.
Yet, the Third Supplement, while con rming that Piatco would construct the T2-T3
Road, nevertheless shifted to government some of the obligations pertaining to the
former, as follows:
1. Government is now obliged to remove at its own expense all tenants,
squatters, improvements and/or waste materials on the site where
the T2-T3 road is to be constructed. 5 8 There was no similar
obligation on the part of government insofar as the access tunnel was
concerned.
2. Should government fail to carry out its obligation as above described,
Piatco may undertake it on government's behalf, subject to the terms
and conditions (including compensation payments) contained in the
Second Supplement. 5 9
3. MIAA will answer for the operation, maintenance and repair of the T2-T3
Road. 6 0
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 rati ed or
amended. It follows that the TS is likewise void, inexistent and inoperative. And even if,
hypothetically speaking, both ARCA and FS are valid, still, the Third Supplement — imposing
as it does signi cant new obligations upon government — would in effect alter the terms
and stipulations of the ARCA in material respects, thus necessitating another public
bidding. Since the TS was not subjected to public bidding, it is consequently utterly void as
well. At any rate, the TS created new monetary obligations on the part of government, for
which there were no prior appropriations. Hence it follows that the same is void ab initio.
In patiently tracing the progress of the Piatco contracts from their inception up to
the present, I noted that the whole process was riddled with signi cant 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 speci c, provisions or changes in the contracts and
highlight the more prominent objectionable features.
Government Directly
Guarantees Piatco Debts
Certainly the most discussed provision in the parties' arguments is the one creating
an unauthorized, direct government guarantee of Piatco's obligations in favor of the
lenders.
Section 4-A of the BOT Law as amended states that unsolicited proposals, such as
the NAIA Terminal III Project, may be accepted by government provided inter alia that no
direct government guarantee, subsidy or equity is required. In short, such guarantee is
prohibited in unsolicited proposals. Section 2(n) of the same legislation de nes 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 . . .;
(v) . . . the Senior Lenders may after written notification to GRP, transfer the
Concessionaire's rights and obligations to a transferee . . .;
(vi) if the Senior Lenders . . . are unable to . . . effect a transfer . . ., then
GRP and the Senior Lenders shall endeavor . . . to enter into any other
arrangement relating to the Development Facility. . . . 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 de ned) of the Development Facility or the sum of the Attendant
Liabilities, if greater . . . ."
In turn, the term Attendant Liabilities is de ned in Section 1.06 of the ARCA as
follows:
"Attendant Liabilities refer to all amounts in each case supported by
veri able 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 nancial facilities to
Concessionaire for the Project, including, without limitation, all principal, interest,
associated fees, charges, reimbursements, and other related expenses (including
the fees, charges and expenses of any agents or trustees of such persons or
entities), whether payable at maturity, by acceleration or otherwise, and further
including amounts owed by Concessionaire to its professional consultants and
advisers, suppliers, contractors and sub-contractors."
Government's agreement to pay becomes effective in the event of a default by

Piatco on any of its loan obligations to the Senior Lenders, and the amount to be paid by
government is the greater of either the Appraised Value of Terminal III or the aggregate
amount of the moneys owed by Piatco — whether to the Senior Lenders or to other
entities, including its suppliers, contractors and subcontractors. In effect, therefore, this
agreement already constitutes the prohibited assumption by government of responsibility
for repayment of Piatco's debts in case of a loan default. In ne, 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, rst , an attempt (albeit unsuccessful) by the Senior
Lenders to transfer Piatco's rights to a transferee of their choice; and, second, an effort
(equally unsuccessful) to "enter into any other arrangement" with the government
regarding the Terminal III facility, before government is required to make good on its
guarantee. What is abundantly clear is the fact that, in the devious labyrinthine process
detailed in the aforesaid section, it is entirely within the Senior Lenders' power, prerogative
and control — exercisable via a mere refusal or inability to agree upon "a transferee" or "any
other arrangement" regarding the terminal facility — to push the process forward to the
ultimate contractual cul-de-sac, wherein government will be compelled to abjectly
surrender and make good on its guarantee of payment.
Piatco also argues that there is no proviso requiring government to pay the Senior
Lenders in the event of Piatco's default. This is literally true, in the sense that Section
4.04(c)(vi) of ARCA speaks of government making the termination payment to Piatco, not
to the lenders. However, it is almost a certainty that the Senior Lenders will already have
made Piatco sign over to them, ahead of time, its right to receive such payments from
government; and/or they may already have had themselves appointed its attorneys-in-fact
for the purpose of collecting and receiving such payments.
Nevertheless, as petitioners-in-intervention pointed out in their Memorandum, 6 1 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
bene t 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 de ciency puts the interests of government at great risk. Indeed, if
the unthinkable were to happen, government would be paying several hundreds of millions
of dollars, but the mortgage liens on the facility may still be foreclosed by the Senior
Lenders just the same.
Consequently, the Piatco contracts are also objectionable for grievously failing to
adequately protect government's interests. More accurately, the contracts would
consistently weaken and do away with protection of government interests. As such, they
are therefore grossly lopsided in favor of Piatco and/or its Senior Lenders.
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
de ning the term, the Piatco debts to be assumed/paid by government were quali ed by
the phrases recorded and from time to time outstanding in the books of the
Concessionaire and actually used for the project. These phrases were eliminated from the
ARCA's definition of Attendant Liabilities.
Since no explanation has been forthcoming from Piatco as to the possible
justi cation 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 nal 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 nancing the construction,
operation and maintenance of relevant infrastructure and development projects for the
simple reason that government is not in a position to do so. By the same token,
government guarantee was prohibited, since it would merely defeat the purpose and
raison d'être of a build-operate-and-transfer project to be undertaken by the private sector.
To the extent that the project proponent is able to obtain loans to fund the project,
those risks are shared between the project proponent on the one hand, and its banks and
other lenders on the other. But where the proponent or its lenders manage to cajol or
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
O ce of the Insurance Commissioner: Provided, nally , 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. Termination by the government through no fault of the project proponent
2. Termination upon the parties' mutual agreement
3. Termination by the proponent due to government's default on certain
major contractual obligations
To emphasize, the law does not permit compensation for the project proponent
when contract termination is due to the proponent's own fault or breach of contract.
This principle was clearly violated in the Piatco Contracts. The ARCA stipulates that
government is to pay termination compensation to Piatco even when termination is
initiated by government for the following causes:
"(i) Failure of Concessionaire to nish the Works in all material respects in
accordance with the Tender Design and the Timetable;
(ii) Commission by Concessionaire of a material breach of this Agreement .

. .;
(iii) . . . a change in control of Concessionaire arising from the sale,
assignment, transfer or other disposition of capital stock which results in an
ownership structure violative of statutory or constitutional limitations;
(iv) A pattern of continuing or repeated non-compliance, willful violation, or
non-performance of other terms and conditions hereof which is hereby deemed a
material breach of this Agreement . . ." 6 2
As if that were not bad enough, the ARCA also inserted into Section 8.01 the phrase
"Subject to Section 4.04." The effect of this insertion is that in those instances where
government may terminate the contract on account of Piatco's breach, and it is
nevertheless required under the ARCA to make termination compensation to Piatco even
though unauthorized by law, such compensation is to be equivalent to the payment amount
guaranteed by government — either a) the Appraised Value of the terminal facility or (b) the
aggregate of the Attendant Liabilities, whichever amount is greater!
Clearly, this condition is not in line with Section 7 of the BOT Law. That provision
permits a project proponent to recover the actual expenses it incurred in the prosecution
of the project plus a reasonable rate of return not in excess of that provided in the
contract; or to be compensated for the equivalent or proportionate contract cost as
de ned 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 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 de nes a direct government subsidy as
encompassing "an agreement whereby the Government . . . will . . . 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 rst be used and applied to meet all payment obligations owed to the Senior
Lenders. Any excess 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 ve (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 inde nite postponement of payment of all of Piatco's obligations to the
government, in order to ensure that Piatco's obligations to the Senior Lenders are paid in
full rst. 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 nancial controller
to manage the cash position of Piatco during situations of nancial 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 nancial 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 grantor of the franchise) may be allowed to receive from Piatco.
In that situation, government will be at the mercy of the foreign lenders. This is a situation
completely contrary to the rationale of the BOT Law and to public policy.
The aforesaid provision rouses mixed emotions — shame and disgust at the parties'
(especially the government o cials') 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 existing 6 3 at the time of execution of the ARCA.
Section 11 of Article XII of the Constitution prohibits the grant of a "franchise,
certi cate, 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 . . . 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.
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 justi cation to violate the
constitutional prohibition and grant an exclusive franchise o r exclusive right to operate a
public utility.
Piatco's contention that the Constitution does not actually prohibit monopolies is
beside the point. As correctly argued, 6 4 the existence of a monopoly by a public utility is a
situation created by circumstances that do not encourage competition. This situation is
different from the grant of a franchise to operate a public utility, a privilege granted by
government. Of course, the grant of a franchise may result in a monopoly. But making such
franchise exclusive is what is expressly proscribed by the Constitution.
Actually, the aforementioned Section 3.02 of the ARCA more than just guaranteed
exclusivity; it also guaranteed that the government will not improve or expand the facilities
at Clark — and in fact is required to put a cap on the latter's operations — until after
Terminal III shall have been operated at or beyond its peak capacity for three consecutive
years. 6 5 As counsel for public respondents pointed out, in the real world where the rate of
in ux of international passengers can uctuate 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,
certi cate or any other form of authorization for the operation of a public utility shall be . . .
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.
The Piatco Contracts have come up with an innovative way to circumvent the
prohibition and obtain an extension. This fact can be gleaned from Section 8.03(b) of the
ARCA, which I quote thus:
"Sec. 8.03. Termination Procedure and Consequences of Termination. —
a) . . .
b) In the event the Agreement is terminated pursuant to Section 8.01 (b)
hereof, Concessionaire shall be entitled to collect the Liquidated Damages
speci ed 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 bene cial than it rst appears. Although
it enables government to avoid having to make outright payment of an obligation that will
likely run into billions of pesos, this easy payment plan will nevertheless cost government
considerable loss of income, which it would earn if it were to operate Terminal III by itself.
Inasmuch as payments to the concessionaire (Piatco) will be on "installment basis,"
interest charges on the remaining unpaid balance would undoubtedly cause the total
outstanding balance to swell. Piatco would thus be entitled to remain in the driver's seat
and keep operating the terminal for an indefinite length of time.
The Contracts Create Two
Monopolies for Piatco
By way of background, two monopolies were actually created by the Piatco
contracts. The rst and more obvious one refers to the business of operating an
international passenger terminal in Luzon, the business end of which involves providing
international airlines with parking space for their aircraft, and airline passengers with the
use of departure and arrival areas, check-in counters, information systems, conveyor
systems, security equipment and paraphernalia, immigrations and customs processing
areas; and amenities such as comfort rooms, restaurants and shops.
In furtherance of the rst monopoly, the Piatco Contracts stipulate that the NAIA
Terminal III will be the only facility to be operated as an international passenger terminal;
6 6 that NAIA Terminals I and II will no longer be operated as such; 6 7 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. 6 8 Given that, at this time, the
government and Piatco are the only ones engaged in the business of operating an
international passenger terminal, I am not acutely concerned with this particular
monopolistic situation.
There was however another monopoly within the NAIA created by the subject
contracts for Piatco — in the business of providing international airlines with the following:
groundhandling, in- ight catering, cargo handling, and aircraft repair and maintenance
services. These are lines of business activity in which are engaged many service providers
(including the petitioners-in-intervention), who will be adversely affected upon full
implementation of the Piatco Contracts, particularly Sections 3.01(d) 6 9 and (e) 7 0 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 requires government,
through the MIAA, not to allow service providers with expired MIAA contracts to renew or
extend their contracts to render airport-related services to airlines. Meanwhile, Section
3.01(e) of the ARCA requires government, through the DOTC and MIAA, not to allow
service providers — those with subsisting concession agreements for services and
operations being conducted at Terminal I — to carry over their concession agreements,
services and operations to Terminal III, unless they rst enter into a separate agreement
with Piatco. ACaTIc
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 concessionaire's discretion and power to reject any service
provider and/or impose any term or condition it may see t 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 rst in line, ready to exploit the
unique business opportunity. It announced 7 2 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, 7 3 while Orbit is a wholly-owned
subsidiary of Friendship Holdings, Inc., 7 4 which is in turn owned 80 percent by PAGS. 7 5
PAGS is a service provider owned 60 percent by the Cheng Family; 7 6 it is a stockholder of
35 percent of Piatco 7 7 and is the latter's designated contractor-operator for NAIA
Terminal III. 7 8
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, 7 9 executed on July 6, 1999, which appear to constitute a
sort of master plan to create a monopoly and combinations in restraint of trade:
"11. The Shareholders shall ensure:
a. . . .
b. That (Phil. Airport and Ground Services, Inc.) PAGS and/or its
designated A liates shall, at all times during the Concession Period, be
exclusively authorized by (PIATCO) to engage in the provision of ground-
handling, catering and fueling services within the Terminal Complex.
c. That PAIRCARGO and/or its designated A liate 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,
8 0 the Court ruled:
". . . [S]ection 19 of Article XII of the Constitution . . . 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 rms 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.
"xxx 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, . . ." 8 1
Gokongwei Jr. v. Securities and Exchange Commission 8 2 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." 8 3 (Italics supplied)
The Contracts Encourage Monopolistic Pricing, Too
Aside from creating a monopoly, the Piatco contracts also give the concessionaire
virtually limitless power over the charging of fees, rentals and so forth. What little
"oversight function" the government might be able and minded to exercise is less than
sufficient to protect the public interest, as can be gleaned from the following provisions:
"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 xing fees and
charges constituting Non-Public Utility Revenues in order to ensure that End Users
are not unreasonably deprived of services. While the vehicular parking fee,
porterage fee and greeter/wellwisher fee constitute Non-Public Utility Revenues of
Concessionaire, GRP may require Concessionaire to explain and justify the fee it
may set from time to time, if in the reasonable opinion of GRP the said fees have
become exorbitant resulting in the unreasonable deprivation of End Users of such
services."
It will be noted that the above-quoted provision has no teeth, so the concessionaire
can defy the government without fear of any sanction. Moreover, Section 6.06 — taken
together with Section 6.03(c) of the ARCA — falls short of the standard set by the BOT Law
as amended, which expressly requires in Section 2(b) that the project proponent is
"allowed to charge facility users appropriate tolls, fees, rentals and charges not exceeding
those proposed in its bid or as negotiated and incorporated in the contract . . . ."
Constitutional Prohibitions
Against Impairment of Contracts
and Deprivation of Property Without
Due Process
Earlier, I discussed how Section 3.01(e) 8 4 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; 8 5 thus, Terminals I and II shall no longer
operate as such, 8 6 and no one shall be allowed to compete with Piatco in the operation of
an international passenger terminal in the NAIA. 8 7 The bottom line is that, as of the In-
Service Date, Terminal III will be the only terminal where the business of providing airport-
related services to international airlines and passengers may be conducted at all.
Consequently, government through the DOTC/MIAA will be compelled to cease
honoring existing contracts with service providers after the In-Service Date, as they cannot
be allowed to operate in Terminal III.
In short, the CA and the ARCA obligate and constrain government to break its
existing contracts with these service providers.
Notably, government is not in a position to require Piatco to accommodate the
displaced service providers, and it would be unrealistic to think that these service
providers can perform their service contracts in some other international airport outside
Luzon. Obviously, then, these displaced service providers are — to borrow a quaint
expression — up the river without a paddle. In plainer terms, they will have lost their
businesses entirely, in the blink of an eye.
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. 8 8
Moreover, since the displaced service providers, being unable to operate, will be
forced to close shop, their respective employees — among them Messrs. Agan and Lopez
et al. — have very grave cause for concern, as they will nd 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. 8 9 We held therein that a privilege enjoyed for seven years "evolved into
some form of property right which should not be removed . . . 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.
Constitutional Prohibition Against
Deprivation of Liberty Without
Due Process
The Piatco Contracts by locking out existing service providers from entry into
Terminal III and restricting entry of future service providers, thereby infringed upon the
freedom — guaranteed to and heretofore enjoyed by international airlines — to contract
with local service providers of their choice, and vice versa.
Both the service providers and their client airlines will be deprived of the right to
liberty, which includes the right to enter into all contracts, 9 0 and/or the right to make a
contract in relation to one's business. 9 1
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. 9 2 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 scal year; and to
carefully count their cash before taking on contractual commitments. Giving esh 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 . . .
"Sec. 47. Certi cate Showing Appropriation to Meet Contract . — Except 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 o cial of the
agency concerned shall have certi ed to the o cer 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 veri cation by the auditor
concerned. The certi cate signed by the proper accounting o cial and the
auditor who veri ed it, shall be attached to and become an integral part of the
proposed contract, and the sum so certi ed 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." 9 3
Notwithstanding the constitutional ban, statutory mandates and Jurisprudential
precedents, the three Supplements to the ARCA, which were not approved by NEDA,
imposed on government the additional burden of spending public moneys without prior
appropriation.
In the First Supplement ("FS") dated August 27, 1999, the following requirements
were imposed on the government:
• To construct, maintain and keep in good repair and operating condition all
airport support services, facilities, equipment and infrastructure
owned and/or operated by MIAA, which are not part of the Project or
which are located outside the Site, even though constructed by
Concessionaire — including the access road connecting Terminals II
and III and the taxilane, taxiways and runways
• To obligate the MIAA to provide funding for the upkeep, maintenance and
repair of the airports and facilities owned or operated by it and by
third persons under its control in order to ensure compliance with
international standards; and holding MIAA liable to Piatco for the
latter's losses, expenses and damages as well as for the latter's
liability to third persons, in case MIAA fails to perform such
obligations; in addition, MIAA will also be liable for the incremental
and consequential costs of the remedial work done by Piatco on
account of the former's default.
• Section 4 of the FS imposed on government ten (10) "Additional Special
Obligations," including the following:
Ø Providing thru MIAA the land required by Piatco for the taxilane and
one taxiway, at no cost to Piatco
Ø Implementing the government's existing storm drainage master
plan
Ø Coordinating with DPWH the nancing, implementation and
completion of the following works before the In-Service Date:
three left-turning overpasses (Edsa to Tramo St., Tramo to
Andrews Ave., and Manlunas Road to Sales Ave.) and a road
upgrade and improvement program involving widening, repair
and resurfacing of Sales Road, Andrews Avenue and Manlunas
Road; improvement of Nichols Interchange; and removal of
squatters along Andrews Avenue
Ø Dealing directly with BCDA and the Philippine Air Force in acquiring
additional land or right of way for the road upgrade and
improvement program
Ø Requiring government to work for the immediate reversion to MIAA
of the Nayong Pilipino National Park, in order to permit the
building of the second west parallel taxiway
• Section 5 of the FS also provides that in lieu of the access tunnel, a surface
access road (T2-T3) will be constructed. This provision requires
government to expend funds to purchase additional land from
Nayong Pilipino and to clear the same in order to be able to deliver
clean possession of the site to Piatco, as required in Section 5(c) of
the FS.
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 the additional obligations under the Supplements may really
be undertaken on a best-efforts basis only, the nature of each of these obligations must be
examined in the context of its relevance and signi cance to the Terminal III Project, as well
as of any adverse impact that may result if such obligation is not performed or undertaken
on time. In short, the criteria for determining whether the best-efforts basis will apply is
whether the obligations are critical to the success of the Project and, accordingly, whether
failure to perform them (or to perform them on time) could result in a material breach of
the contract.
Viewed in this light, the "Additional Special Obligations" set out in Section 4 of the FS
take on a different aspect. In particular, each of the following may all be deemed to play a
major role in the successful and timely prosecution of the Terminal III Project: the
obtention of land required by PIATCO for the taxilane and taxiway; the implementation of
government's existing storm drainage master plan; and coordination with DPWH for the
completion of the three left-turning overpasses before the In-Service Date, as well as
acquisition and delivery of additional land for the construction of the T2-T3 access road.
Conversely, failure to deliver on any of these obligations may conceivably result in
substantial prejudice to the concessionaire, to such an extent as to constitute a material
breach of the Piatco Contracts. Whereupon, the concessionaire may outrightly terminate
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. 9 4 The logical conclusion then is that the
obligations in the Supplements are not to be performed on a best-efforts basis only, but
are unarguably mandatory in character.
Regarding MIAA's obligation to coordinate with the DPWH for the complete
implementation of the road upgrading and improvement program for Sales, Andrews and
Manlunas Roads (which provide access to the Terminal III site) prior to the In-Service Date,
it is essential to take note of the fact that there was a pressing need to complete the
program before the opening of Terminal III. 9 5 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.
They also Infringe on the Legislative
Prerogative and Power Over the Public Purse
But the particularly sad thing about this transaction between MIAA and DPWH is the
fact that both agencies were maneuvered into (or allowed themselves to be maneuvered
into) an agreement that would ensure delivery of upgraded roads for Piatco's bene t,
using funds not allocated for that purpose. The agreement would then be presented to
Congress as a done deal. Congress would thus be obliged to uphold the agreement and
support it with the necessary allocations and appropriations for three years, in order to
enable DPWH to deliver on its committed repayments to MIAA. The net result is an
infringement on the legislative power over the public purse and a diminution of Congress'
control over expenditures of public funds — a development that would not have come
about, were it not for the Supplements. Very clever but very illegal!
EPILOGUE
What Do We Do Now?
In the nal 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 ? 9 6 (Feeding directly into the resolution of the decisive question is the other
nagging issue: Why should we bother with determining the legality and validity of these
contracts, when the Terminal itself has already been built and is practically complete?)
Prescinding from all the foregoing disquisition, I nd that all the Piatco contracts,
without exception, are void ab initio, and therefore inoperative. Even the very process by
which the contracts came into being — the bidding and the award — has been riddled with
irregularities galore and blatant violations of law and public policy, far too many to ignore.
There is thus no conceivable way, as proposed by some, of saving one (the original
Concession Agreement) while junking all the rest.
Neither is it possible to argue for the retention of the Draft Concession Agreement
(referred to in the various pleadings as the Contract Bidded Out) as the contract that
should be kept in force and effect to govern the situation, inasmuch as it was never
executed by the parties. What Piatco and the government executed was the Concession
Agreement which is entirely different from the Draft Concession Agreement.
Ultimately, though, it would be tantamount to an outrageous, grievous and
unforgivable mutilation of public policy and an insult to ourselves if we opt to keep in place
a contract — any contract — for to do so would assume that we agree to having Piatco
continue as the concessionaire for Terminal III.
Despite all the insidious contraventions of the Constitution, law and public policy
Piatco perpetrated, keeping Piatco on as concessionaire and even rewarding it by allowing
it to operate and pro t from Terminal III — instead of imposing upon it the stiffest
sanctions permissible under the laws — is unconscionable.
It is no exaggeration to say that Piatco may not really mind which contract we
decide to keep in place. For all it may care, we can do just as well without one, if we only let
it continue and operate the facility. After all, the real money will come not from building the
Terminal, but from actually operating it for fty or more years and charging whatever it
feels like, without any competition at all. This scenario must not be allowed to happen. aATESD
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?
Should government pay at all for reasonable expenses incurred in the construction
of the Terminal? Indeed it should, otherwise it will be unjustly enriching itself at the
expense of Piatco and, in particular, its funders, contractors and investors — both local and
foreign. After all, there is no question that the State needs and will make use of Terminal III,
it being part and parcel of the critical infrastructure and transportation-related programs
of government.
I n Melchor v. Commission on Audit, 9 7 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, 9 8 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. 9 9
One possible practical solution would be for government — in view of the nullity of
the Piatco contracts and of the fact that Terminal III has already been built and is almost
nished — to bid out the operation of the facility under the same or analogous principles
as build-operate-and-transfer projects. To be imposed, however, is the condition that the
winning bidder must pay the builder of the facility a price xed by government based on
quantum meruit; on the real, reasonable — not inflated — value of the built facility.
How the payment or series of payments to the builder, funders, investors and
contractors will be staggered and scheduled, will have to be built into the bids, along with
the annual guaranteed payments to government. In this manner, this whole sordid mess
could result in something truly beneficial for all, especially for the Filipino people.
WHEREFORE, I vote to grant the Petitions and to declare the subject contracts NULL
and VOID.
Footnotes
1. An Act Authorizing the Financing, Construction, Operation and Maintenance of Infrastructure
Projects by the Private Sector.
2. G.R. No. 155001.
3. G.R. No. 155547.
4. G.R. No. 155661.
5. An international airport is any nation's gateway to the world, the rst contact of foreigners
with the Philippine Republic, especially those foreigners who have not been in contact
with the wonderful exports of the Philippine economy, those foreigners who have not
had the bene t of enjoying Philippine export products. Because for them, when they see
your products, that is the face of the Philippines they see. But if they are not exposed to
your products, then it's the airport that's the rst face of the Philippines they see.
Therefore, it's not only a matter of opening yet, but making sure that it is a world class
airport that operates without any hitches at all and without the slightest risk to travelers.
But it's also emerging as a test case of my administration's commitment to ght
corruption to rid our state from the hold of any vested interest, the Solicitor General, and
the Justice Department have determined that all ve agreements covering the NAIA
Terminal 3, most of which were contracted in the previous administration, are null and
void, I cannot honor contracts which the Executive Branch's legal o ces 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,
italics supplied)
6. Art. VIII, Sec. 1, Philippine Constitution.
7. MIASCOR, MACROASIA-EUREST, MACROASIA OGDEN and Philippine Airlines.
8. Sections 3.01 (a) and 3.02, 1997 Concession Agreement; Sections 3.01 (d) and (e) and 3.02,
ARCA.
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.

12. Article VI, Section 29 (1).
13. G.R. No. 39842, March 28, 1934, 159 Phil. 823.
14. G.R. No. 29627, December 19, 1989; 180 SCRA 254, 260–261.
15. G.R. No. 113375, May 5, 1994.
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].
19. Santiago v. Vasquez, G.R. Nos. 99289–90, January 27, 1993; 217 SCRA 633, 652.
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.
23. Rollo, G.R. No. 155001, pp. 2487–2488.
24. Section 5, R.A. No. 7718.
25. At the United States Dollar-Philippine Peso exchange rate of US$1:P26.239 quoted by the
Bangko Sentral ng Pilipinas at that time.

26. Rollo, G.R. No. 155001, pp. 2471–2474.
27. Id. at 2475–2477. Derived from the gures on the authorized capital stock and the shares
of stock that are subscribed and paid-up.
28. Id. at 2478–2484.
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
30. Republic of the Philippines vs. Hon. Ignacio C. Capulong, G.R. No. 93359, July 12, 1991; 199
SCRA 134, 146–147. Italics supplied.
31. Danville Maritime, Inc. v. Commission on Audit, G.R. No. 85285, July 28, 1989, 175 SCRA
701, 713. Citations omitted.
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.

34. G.R. No. L-5439, December 29, 1954; 96 Phil 368.
35. Id., at 375.
36. Section 6.03, draft Concession Agreement.
37. Sections 1.33 and 6.03(b), 1997 Concession Agreement.
38. Sections 1.27 and 6.06, 1997 Concession Agreement.
39. Italics supplied.
41. Referred to as "Passenger Service Fee" under the draft Concession Agreement.
42. Section 6.05 Interim Adjustment
(a) Concessionaire may apply for and, if warranted, may be granted an interim adjustment of
the fees and charges constituting Public Utility Revenues upon the occurrence of
extraordinary events resulting from any of the following:
i. a depreciation since the last adjustment by at least fteen percent (15%) of the value of the
Philippine Peso relative to the US Dollar using the exchange rates published by the
Philippine Dealing System as reference;
ii. an increase since the last adjustment by at least fteen percent (15%) in the Metro Manila
Consumer Price Index based on National Census and Statistics Office publications;
iii. an increase since the last adjustment in MERALCO power rates billing by at least fteen
percent (15%);
iv. an increase since the last adjustment in the 180-day Treasury Bill interest rates by at least
thirty (30%).
xxx xxx xxx
43. Section 6.05, draft Concession Agreement.
44. Section 1.33, 1997 Concession Agreement.
45. Supra note 31,
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).
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).
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.
54. Italics and caption supplied.
55. Sec. 1.06, ARCA.
56. Republic Act No. 7718, as amended, Sec. 4-A, May 5, 1994; Implementing Rules and
Regulations, Rule 10, Sec. 10.1.
57. Implementing Rules and Regulations, Rule 10, Sec. 10.4.
58. North Negros Sugar Co., Inc. v. Hidalgo, G.R. No. 42334, October 31, 1936; Intestate estate
of the deceased Florentino San Gil. Josefa R. Oppus v. Bonifacio San Gil, G.R. No.
48115, October 12, 1942; San Diego v. Municipality of Naujan, G.R. No. L-9920, February
29, 1960; Favis vs. Municipality of Sabañgan, G.R. No. L-26522, 27 February 1969; City
of Manila vs. Tarlac Development Corporation , L-24557, L-24469 & L-24481, 31 July
1968; 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; Fornilda v. The Branch 164, Regional Trial Court IVth Judicial
Region, Pasig, G.R. No. L-72306, October 5, 1988; Laurel v. Civil Service Commission,
G.R. No. 71562, October 28, 1991; Davac v. Court of Appeals, G.R. No. 106105, April 21,
1994.
59. Republic Act No. 7718, Sec. 1.
60. III Record of the Constitutional Commission, pp. 266–267 (1986).
61. Id.
62. Except for providing for the suspension of all payments due to the Government for the
duration of the takeover, Article V, Section 5.10(b) of the ARCA contains the same
provision. Italics and caption supplied.
63. Id.
64. Bataan Shipyard and Engineering Co., Inc. v. Presidential Commission on Good
Government, G.R. No. 75885, May 27, 1987 citing Freund, The Police Power (Chicago,
1904).
65. Genuino v. Court of Agrarian Relations, G.R. No. L-25035, February 26, 1968.
66. Black's Law Dictionary, 4th Ed., p. 1158.
67. 36 Am Jur 480 citing Slaughter-House Cases, 16 Wall. (US) 36, 21 L ed 394.
68. Concession Agreement ("CA") dated July 12, 1997, Art. III, Sec. 3.02(a); Amended and
Restated Concession Agreement ("ARCA") dated November 26, 1998, Art. III, Sec. 3.02(a).
69. Ibid.
70. Id. at CA, Art. III, Sec. 3.02(b); ARCA, Art. III, Sec. 3.02(b).
71. The day immediately following the day on which the Certi cate 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).
73. Id. at CA, Art. III, 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.
77. Transcript of Oral Arguments, p. 157, December 10, 2002.
78. G.R. No. L-54958, September 2, 1983; 09 Phil. 400.

79. Executive Order No. 903, July 21, 1983, provides:
Section 5. Functions, Powers, and Duties. — The Authority shall have the following functions,
powers and duties:
xxx xxx xxx
(b) To control, supervise, construct, maintain, operate and provide such facilities or services as
shall be necessary for the efficient functioning of the Airport;
(c) To promulgate rules and regulations governing the planning, development, maintenance,
operation and improvement of the Airport and to control and/or supervise as may be
necessary the construction of any structure or the rendition of any service within the
Airport;
VITUG, J.:
1. Article VIII, Section 5(1), 1987 Constitution.
2. Matuguina Integrated Products, Inc. vs. CA, 263 SCRA 490; Ma nco Trading Corporation vs .
Ople, 70 SCRA 139.
3. Mafinco Trading Corporation vs. Ople, supra.
4. Section 1, Rule 63, Rules of Court.
5. In re: Bermudez, 145 SCRA 160.
6. 235 SCRA 630, 720.
7. 298 SCRA 795.
PANGANIBAN, J.:
1. S ee Kilosbayan, Inc. v. Guingona Jr., 232 SCRA 110, May 5, 1994; and Basco v. Phil.
Amusements and Gaming Corporation, 197 SCRA 52, May 14, 1991.
2. COMELEC v. Quijano-Padilla, GR No. 151992, September 18, 2002.
3. Vide: ABS-CBN Broadcasting Corp. v. Commission on Elections, 323 SCRA 811, January 28,
2000; likewise, COMELEC v. Quijano-Padilla, supra.
4. See Respondent PIATCO's Memorandum, pp. 25–26.
5. See public respondents' Memorandum, p. 24.
6. 307 SCRA 394, 399, May 19, 1999, per Panganiban, J.
7. 175 SCRA 264, July 11, 1989.
8. Supra, Paras, J.
9. As reiterated in Bayan (Bagong Alyansang Makabayan) v. Zamora, 342 SCRA 449, 480–481,
October 10, 2000.
10. RA No. 6957 as amended by RA No. 7718.
11. Par. 3.6.1 on page 8 of the Bid Documents.
12. Initially the minimum equity was set at 20%, per Sec. 3.6.4 of the Bid Documents. However,
this was later clari ed in Bid Bulletin No. 3(B)(6) to read 30% of Project Cost, to bring the
same in line with the draft concession agreement's Art. II Sec. 2.01(a), which speci cally
set the project's debt-to-equity ratio at 70:30, thereby requiring a minimum equity of 30%
of project cost.
13. The consortium was composed of Paircargo, PAGS and Security Bank. Paircargo's audited
nancial statements as of 1993 and 1994 showed a net worth of P2,783,592 and
P3,123,515 respectively. PAGS' audited nancial statements as of 1995 showed a paid-
up capital of P5,000,000 and deposits on future subscriptions of P21,735,700, or an
aggregate of P26,735,700 of equity available to invest in the project. Security Bank's
audited statements for 1995 showed a net worth of P3,523,504,377. However, the bank's
entire net worth was not available for investment in the project since Sec. 21-B of the
General Banking Act provides inter alia that a commercial bank's equity investment in
any one enterprise, whether allied or non-allied, should not exceed 15% of the net worth
of the investing bank. This limitation is reiterated in Sec. 1381.1.a. of the Manual for
Banks and Other Financial Intermediaries. Thus, the maximum amount which Security
Bank could have legally invested in the project was only P528,525,656.55. And
consequently, the maximum amount of equity which the consortium could have put up
was only P558,384,871.55.
14. 199 SCRA 134, July 12, 1991.
15. Malaga v. Penachos Jr., 213 SCRA 516, September 3, 1992.
16. Part of the bid process under the BOT Law is the right of the originator of an unsolicited
proposal to match a price challenge. Pursuant to Sec. 4-A, "in the event another
proponent submits a lower price proposal, the original proponent shall have the right to
match that price within thirty (30) working days."
17. Cf. Malaga v. Penachos, Jr., supra.
18. §11.2, 1994 IRR.
19. Public respondents' Memorandum, pp. 86–87; prepared jointly by the solicitor general, the
acting government corporate counsel, and their respective deputies and assistants.
20. Supra, note 14, per Medialdea, J.
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.
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.
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.

29. 63 SCRA 170, 177–178, March 21, 1975, per Antonio, J.
30. Cf . §1.06 of the ARCA vis-à-vis § 1.06 of the CA.
31. §4.04 and 8.01 of the ARCA vis-à-vis §8.04 of the CA.
32. As cf. Annex "G" of the ARCA vis-à-vis Annex "G" of the CA.
33. Cf. §8.04(d) of the ARCA vis-à-vis §9.01(d) of the CA.
34. Cf. §2.05 of the ARCA vis-à-vis §2.05 of the CA.
35. Cf. §5.08(a) of the ARCA vis-à-vis §5.08(a) of the CA.
36. Cf. § 6.03(a)(i) of the ARCA vis-à-vis §6.03(a) of the CA.
37. Cf. §8.01(b) and §12.09 of the ARCA vis-à-vis §8.04(b) and 12.09 of the CA.
38. Cf. §8.03(a)(i) of the ARCA vis-à-vis §8.06(a)(i) of the CA.
39. §2.05(g) of the ARCA.
40. §4.04(b) of the ARCA.
41. §6.03(c) of the ARCA vis-à-vis §6.03(c) of the CA.

42. Cf. §8.01(b) of the ARCA vis-à-vis § 8.04(b) of the CA.
43. §12.14 of the ARCA.
44. Cf. §§1.11(b) and 5.06 of the ARCA vis-à-vis §§1.11(b) and 5.06 of the CA.
45. §2 of the FS, amending §1.36 of the ARCA.
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.
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.
57. §Sec. 21 of the SS.
58. Per §3.1 of the TS.
59. Vide §3.4 of the TS.
60. §4.2 of the TS.
61. Page 37.

62. §8.01 (a) of the ARCA.
63. Namely, the airports at the Subic Bay Freeport Special Economic Zone, the Clark Special
Economic Zone, and Laoag City.
64. Memorandum, pp. 5-7, of the petitioners-in-intervention.

65. §3.02 a): ". . . With regard to CSEZ, GRP shall ensure that, until such time as the
Development Facility Capacity shall have been consistently reached or exceeded for
three (3) consecutive years during the Concession Period, (i) Clark International Airport
shall not be operated beyond its design capacity of Eight Hundred Fifty Thousand
(850,000) passengers per annum and (ii) no new terminal facilities shall be operated
therein. "Development Facility Capacity" refers to the ten million (10,000,000) passenger
capacity per year of the Development Facility."
66. §3.02(a) of the ARCA and §3.02(a) of the CA.
67. §3.02(b) and (c) of the ARCA, and §3.02(b) of the CA.
68. §3.02(b) and (c) of the ARCA and §3.02(b) of the CA. Pertinent portions of §3.02(b) of the
ARCA are quoted hereinbelow:
"(b) On the In-Service Date, GRP shall cause the closure of the Ninoy Aquino
International Airport Passenger Terminals I and II as international passenger
terminals in order to allow Concessionaire, during the entire Concession Period,
to exclusively operate a commercial international passenger terminal within the
island of Luzon; provided that the aforesaid exclusive right to operate a
commercial international passenger terminal shall be without prejudice to the
international passenger terminal operations already existing on the date of this
Agreement in SBFSEZ, CSEZ and Laoag City (but subject to the limitation with
regard to CSEZ referred to in Section 3.02[a]). Neither shall GRP, DOTC or MIAA
use or permit the use of Terminals I and/or II under any arrangement or scheme,
for compensation or otherwise, with any party which would directly or indirectly
compete with Concessionaire in the latter's 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 tra c; 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."
69. Sec. 3.01(d) of the ARCA and the CA reads as follows:
"(d) For the purpose of an orderly transition, MIAA shall not renew any expired concession
agreement relative to any service or operation currently being undertaken at the Ninoy
Aquino International Airport Passenger Terminal I, or extend any concession agreement
which may expire subsequent hereto, except to the extent that the continuation of
existing services and operations shall lapse on or before the In-Service Date. Nothing
herein shall be construed to prohibit MIAA from maintaining arrangements for the
uninterrupted provision of essential services at the Ninoy Aquino International Airport
Passenger Terminal I until the Terminal shall have commenced operations on the In-
Service Date, and thereafter, from making such arrangements as are necessary for the
utilization of NAIA Passenger Terminal I as a domestic passenger terminal or as a
facility other than an international passenger terminal.
70. Sec. 3.01(e) of the ARCA and the CA reads as follows:
"(e) GRP confirms that certain concession agreements relative to certain services or operations
currently being undertaken at the Ninoy Aquino International Airport Passenger Terminal
I have a validity period extending beyond the In-Service Date. GRP, through DOTC/MIAA,
con rms that these services and operations shall not be carried over to the Terminal and
that Concessionaire is under no legal obligation to permit such carry-over except through
a separate agreement duly entered into with Concessionaire. In the event Concessionaire
becomes involved in any litigation initiated by any such concessionaire or operator, GRP
undertakes and hereby holds Concessionaire free and harmless on a full indemnity basis
from and against any loss and/or liability resulting from any such litigation, including
the cost of litigation and the reasonable fees paid or payable to Concessionaire's
counsel of choice, all such amounts being fully deductible by way of an offset from any
amount which Concessionaire is bound to pay GRP under this Agreement."
71. PIATCO Comment, par. 9, on p. 6.
72. PIATCO letter dated October 14, 2002 addressed to the Board of Airline Representatives,
copy attached as Annex "OO-Service Providers".
73. Based on the PAGSGlobeground GIS as of July 2000, attached as Annex "LL-Service
Providers" to the Memorandum of petitioners-in-intervention.
74. Based on the Orbit GIS as of August 2000, attached as Annex "MM-Service Providers" to the
Memorandum of petitioners-in-intervention.
75. Based on the Friendship Holdings, Inc. GIS as of December 2001, attached as Annex "NN-
Service Providers" to the Memorandum of petitioners-in-intervention.
76. Per the Articles of Incorporation of PAGS, attached as Annex "Y-Service 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.
81. Id., pp. 355-358, per Puno, J.

82. 89 SCRA 336, April 11, 1979.
83. Id., p. 376, per Antonio, J.
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.
88. §1, Art. III, Constitution.
89. 197 SCRA 409, May 23, 1991, per Gutierrez Jr., J.
90. See Rubi v. Provincial Board of Mindoro, 39 Phil. 660, March 7, 1919.
91. Davao Stevedores Mutual Benefit Association v. Compañia Maritima, 90 Phil. 847, February
29, 1952.
92. §29(1), Article VI, 1987 Constitution.
93. Commission on Elections v. Quijano-Padilla, GR No. 151992, September 18, 2002, p. 20, per
Sandoval-Gutierrez, J.
94. §1.23 of the ARCA de nes 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
nancing) 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. . . ."
95. Memorandum of Agreement between the Manila International Airport Authority and the
Department of Public Works and Highways, p. 2.
96. When I asked this question, Atty. Jose A. Bernas replied that if Piatco is deemed a builder in
good faith then it may be entitled to some form of compensation under the principle
barring unjust enrichment. But if it is found to be a builder in bad faith then it may not be
entitled to compensation. (See TSN, December 10, 2002, pp. 58–71.) Faced with the
same question, Solicitor General Alfredo L. Benipayo responded that the facility will not
be torn down but taken over by government by virtue of police power or eminent domain.
(Id., pp. 94–99.) When asked the same question, Atty. Eduardo delos Angeles explained
that under the provision on Step in Rights, the senior lenders can designate a quali ed
operator to operate the facility. ( Id., pp. 225–226.) This solution, however, assumes that
this contractual provision is valid.
97. 200 SCRA 704, August 16, 1991.
98. 195 SCRA 730, April 8, 1991.
99. 299 SCRA 199, November 25, 1998.

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EN BANC

[G.R. No. 155001. May 5, 2003.]

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

MIASCOR GROUNDHANDLING CORPORATION, DNATA-WINGS

[G.R. No. 155547. May 5, 2003.]

SALACNIB F. BATERINA, CLAVEL A. MARTINEZ and CONSTANTINO

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

[G.R. No. 155661. May 5, 2003.]

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

Salonga Hernandez & Mendoza for petitioners in G.R. No. 155001.

On October 5, 1994, Asia's Emerging Dragon Corp. (AEDC) submitted an unsolicited

CD Technologies Asia, Inc. 2018 cdasiaonline.com

1. REMEDIAL LAW; CIVIL PROCEDURE; PARTIES; INTEREST OF PERSON ASSAILING

9. ID.; ID.; PUBLIC BIDDING; PRE-QUALIFICATION STAGE; GOVERNMENT AGENCY

PANGANIBAN , J., separate opinion:

CD Technologies Asia, Inc. 2018 cdasiaonline.com

CD Technologies Asia, Inc. 2018 cdasiaonline.com

16. ID.; ID.; ID.; ID.; PROTECTION OF THE PROPRIETARY INFORMATION IS

Petitioners and petitioners-in-intervention led the instant petitions for prohibition

On October 5, 1994, AEDC submitted an unsolicited proposal to the Government

b. The amount of the xed Annual Guaranteed Payment shall be subject of

e. Amendments to the draft Concession Agreement shall be issued from

In their consolidated Memorandum, the O ce of the Solicitor General and the O ce

b. G.R. No. 155547

It is not a requirement that the net worth must be "unrestricted." To impose

Under the BOT Law, in case of a build-operate-and-transfer arrangement, the

xxx xxx xxx

Further, the 1993 Manual of Regulations for Banks provides:

CD Technologies Asia, Inc. 2018 cdasiaonline.com

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

(3) groundhandling fees;

xxx xxx xxx

CD Technologies Asia, Inc. 2018 cdasiaonline.com

xxx xxx xxx

xxx xxx xxx

Section 1.06. Attendant Liabilities

PIATCO cannot, by mere contractual stipulation, contravene the Constitutional

WHEREFORE, the 1997 Concession Agreement, the Amended and Restated

Accordingly, I vote for the dismissal of the petition.

CD Technologies Asia, Inc. 2018 cdasiaonline.com

The aforementioned case dealt with the unauthorized amendment of a contract

CD Technologies Asia, Inc. 2018 cdasiaonline.com

Government's agreement to pay becomes effective in the event of a default by

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

By any manner of interpretation or application, Section 8.01(d) of the ARCA clearly

"This provision gives to PIATCO (the Concessionaire) the exclusive right to

". . . [S]ection 19 of Article XII of the Constitution . . . mandates: 'The State

"xxx xxx xxx

Gokongwei Jr. v. Securities and Exchange Commission 8 2 elucidates the criteria to

Section 6.03(c) in turn provides:

"2.2.9. Perform all acts necessary to include in its CY2004 to CY2006

11. Rollo, G.R. No. 155547, p. 12.

CD Technologies Asia, Inc. 2018 cdasiaonline.com

33. Diamond v. City of Mankato, et al., 93 N.W. 912.

78. G.R. No. L-54958, September 2, 1983; 09 Phil. 400.

24. §2.05 of the CA.

28. Id., p. 375, per Paras, CJ.

41. §6.03(c) of the ARCA vis-à-vis §6.03(c) of the CA.

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

48. §4 of the FS, adding §2.05(h) to ARCA.

61. Page 37.

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

78. Per §5.15 of both the CA and the ARCA.