SEPARATE OPINIONS
national interest. The subject contracts pertain to the construction and the operation of the country's premiere
VITUG, J.:
This Court is bereft of jurisdiction to hear the petitions at bar. The Constitution provides that the Supreme Court
shall exercise original jurisdiction over, among other actual controversies, petitions for certiorari, prohibition,
mandamus, quo warranto, and habeas corpus.1 The cases in question, although denominated to be petitions
for prohibition, actually pray for the nullification of the PIATCO contracts and to restrain respondents from
implementing said agreements for being illegal and unconstitutional.
Section 2, Rule 65 of the Rules of Court states:
"When the proceedings of any tribunal, corporation, board, officer or person, whether exercising judicial, quasi-
judicial or ministerial functions, are without or in excess of its or his jurisdiction, or with grave abuse of discretion
amounting to lack or excess of jurisdiction, and there is no appeal or any other plain, speedy and adequate
remedy in the ordinary course of law, a person aggrieved thereby may file a verified petition in the proper court,
alleging the facts with certainty and praying that judgment be rendered commanding the respondent to desist
from further proceedings in the action or matter specified therein, or otherwise granting such incidental reliefs
as law and justice may require."
The rule is explicit. A petition for prohibition may be filed against a tribunal, corporation, board, officer or person,
exercising judicial, quasi-judicial or ministerial functions. What the petitions seek from respondents do not
involve judicial, quasi-judicial or ministerial functions. In prohibition, only legal issues affecting the jurisdiction of
the tribunal, board or officer involved may be resolved on the basis of undisputed facts.2 The parties allege,
respectively, contentious evidentiary facts. It would be difficult, if not anomalous, to decide the jurisdictional
issue on the basis of the contradictory factual submissions made by the parties. 3 As the Court has so often
exhorted, it is not a trier of facts.
The petitions, in effect, are in the nature of actions for declaratory relief under Rule 63 of the Rules of Court.
The Rules provide that any person interested under a contract may, before breach or violation thereof, bring an
action in the appropriate Regional Trial Court to determine any question of construction or validity arising, and
for a declaration of his rights or duties thereunder.4 The Supreme Court assumes no jurisdiction over petitions
for declaratory relief which are cognizable by regional trial courts.5
As I have so expressed in Tolentino vs. Secretary of Finance,6 reiterated in Santiago vs. Guingona, Jr.7 , the
Supreme Court should not be thought of as having been tasked with the awesome responsibility of overseeing
the entire bureaucracy. Pervasive and limitless, such as it may seem to be under the 1987 Constitution, judicial
power still succumbs to the paramount doctrine of separation of powers. The Court may not at good liberty
intrude, in the guise of sovereign imprimatur, into every affair of government. What significance can still then
remain of the time-honored and widely acclaimed principle of separation of powers if, at every turn, the Court
allows itself to pass upon at will the disposition of a co-equal, independent and coordinate branch in our system
of government. I dread to think of the so varied uncertainties that such an undue interference can lead to.
Accordingly, I vote for the dismissal of the petition.
Quisumbing, and Azcuna, JJ., concur.
PANGANIBAN, J.:
The five contracts for the construction and the operation of Ninoy Aquino International Airport (NAIA) Terminal
III, the subject of the consolidated Petitions before the Court, are replete with outright violations of law, public
policy and the Constitution. The only proper thing to do is declare them all null and void ab initio and let the chips
fall where they may. Fiat iustitia ruat coelum.
The facts leading to this controversy are already well presented in the ponencia. I shall not burden the readers
with a retelling thereof. Instead, I will cut to the chase and directly address the two sets of gut issues:
1. The first issue is procedural: Does the Supreme Court have original jurisdiction to hear and decide the
Petitions? Corollarily, do petitioners have locus standi and should this Court decide the cases without any
mandatory referral to arbitration?
2. The second one is substantive in character: Did the subject contracts violate the Constitution, the laws, and
public policy to such an extent as to render all of them void and inexistent?
My answer to all the above questions is a firm "Yes."
The Procedural Issue:
Jurisdiction, Standing and Arbitration
Definitely and surely, the issues involved in these Petitions are clearly of transcendental importance and of
international airport terminal - an ultramodern world-class public utility that will play a major role in the country's
economic development and serve to project a positive image of our country abroad. The five build-operate-&-
transfer (BOT) contracts, while entailing the investment of billions of pesos in capital and the availment of several
hundred millions of dollars in loans, contain provisions that tend to establish a monopoly, require the
disbursements of public funds sans appropriations, and provide government guarantees in violation of statutory
prohibitions, as well as other provisions equally offensive to law, public policy and the Constitution. Public
interest will inevitably be affected thereby.
Thus, objections to these Petitions, grounded upon (a) the hierarchy of courts, (b) the need for arbitration prior
to court action, and (c) the alleged lack of sufficient personality, standing or interest, being in the main procedural
matters, must now be set aside, as they have been in past cases. This Court must be permitted to perform its
constitutional duty of determining whether the other agencies of government have acted within the limits of the
Constitution and the laws, or if they have gravely abused the discretion entrusted to them.1
Hierarchy of Courts
The Court has, in the past, held that questions relating to gargantuan government contracts ought to be settled
without delay.2 This holding applies with greater force to the instant cases. Respondent Piatco is partly correct
in averring that petitioners can obtain relief from the regional trial courts via an action to annul the contracts.
Nevertheless, the unavoidable consequence of having to await the rendition and the finality of any such
judgment would be a prolonged state of uncertainty that would be prejudicial to the nation, the parties and the
general public. And, in light of the feared loss of jobs of the petitioning workers, consequent to the inevitable
pretermination of contracts of the petitioning service providers that will follow upon the heels of the impending
opening of NAIA Terminal III, the need for relief is patently urgent, and therefore, direct resort to this Court
through the special civil action of prohibition is thus justified.3
Contrary to Piatco's argument that the resolution of the issues raised in the Petitions will require delving into
factual questions,4 I submit that their disposition ultimately turns on questions of law.5 Further, many of the
significant and relevant factual questions can be easily addressed by an examination of the documents
submitted by the parties. In any event, the Petitions raise some novel questions involving the application of the
amended BOT Law, which this Court has seen fit to tackle.
Arbitration
Should the dispute be referred to arbitration prior to judicial recourse? Respondent Piatco claims that Section
10.02 of the Amended and Restated Concession Agreement (ARCA) provides for arbitration under the auspices
of the International Chamber of Commerce to settle any dispute or controversy or claim arising in connection
with the Concession Agreement, its amendments and supplements. The government disagrees, however,
insisting that there can be no arbitration based on Section 10.02 of the ARCA, since all the Piatco contracts are
void ab initio. Therefore, all contractual provisions, including Section 10.02 of the ARCA, are likewise void,
inexistent and inoperative. To support its stand, the government cites Chavez v. Presidential Commission on
Good Government:6"The void agreement will not be rendered operative by the parties' alleged performance
(partial or full) of their respective prestations. A contract that violates the Constitution and the law is null and
void ab initio and vests no rights and creates no obligations. It produces no legal effect at all."
As will be discussed at length later, the Piatco contracts are indeed void in their entirety; thus, a resort to the
aforesaid provision on arbitration is unavailing. Besides, petitioners and petitioners-in-intervention have pointed
out that, even granting arguendo that the arbitration clause remained a valid provision, it still cannot bind them
inasmuch as they are not parties to the Piatco contracts. And in the final analysis, it is unarguable that the
arbitration process provided for under Section 10.02 of the ARCA, to be undertaken by a panel of three (3)
arbitrators appointed in accordance with the Rules of Arbitration of the International Chamber of Commerce, will
not be able to address, determine and definitively resolve the constitutional and legal questions that have been
raised in the Petitions before us.
Locus Standi
Given this Court's previous decisions in cases of similar import, no one will seriously doubt that, being taxpayers
and members of the House of Representatives, Petitioners Baterina et al. have locus standi to bring the Petition
in GR No. 155547. In Albano v. Reyes,7 this Court held that the petitioner therein, suing as a citizen, taxpayer
and member of the House of Representatives, was sufficiently clothed with standing to bring the suit questioning
the validity of the assailed contract. The Court cited the fact that public interest was involved, in view of the
important role of the Manila International Container Terminal (MICT) in the country's economic development
and the magnitude of the financial consideration. This, notwithstanding the fact that expenditure of public funds
was not required under the assailed contract.
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.
Messrs. Agan et al. and Lopez et al., are likewise taxpayers and thus possessed of standing to challenge the
illegal disbursement of public funds. Messrs. Agan et al., in particular, are employees (or representatives of
employees) of various service providers that have (1) existing concession agreements with the MIAA to provide
airport services necessary to the operation of the NAIA and (2) service agreements to furnish essential support
services to the international airlines operating at the NAIA.
On the other hand, Messrs. Lopez et al. are employees of the MIAA. These petitioners (Messrs. Agan et al. and
Messrs. Lopez et al.) are confronted with the prospect of being laid off from their jobs and losing their means of
livelihood when their employer-companies are forced to shut down or otherwise retrench and cut back on
manpower. Such development would result from the imminent implementation of certain provisions in the
contracts that tend toward the creation of a monopoly in favor of Piatco, its subsidiaries and related companies.
Petitioners-in-intervention are service providers in the business of furnishing airport-related services to
international airlines and passengers in the NAIA and are therefore competitors of Piatco as far as that line of
business is concerned. On account of provisions in the Piatco contracts, petitioners-in-intervention have to enter
into a written contract with Piatco so as not to be shut out of NAIA Terminal III and barred from doing business
there. Since there is no provision to ensure or safeguard free and fair competition, they are literally at its mercy.
They claim injury on account of their deprivation of property (business) and of the liberty to contract, without due
process of law.
And even if petitioners and petitioners-in-intervention were not sufficiently clothed with legal standing, I have at
the outset already established that, given its impact on the public and on national interest, this controversy is
laden with transcendental importance and constitutional significance. Hence, I do not hesitate to adopt the same
position as was enunciated in Kilosbayan v. 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.10 The unsolicited proposal was
originally submitted by the Asia's Emerging Dragon Corporation (AEDC) to the Department of Transportation
and Communications (DOTC) and the Manila International Airport Authority (MIAA), which reviewed and
approved the proposal.
The draft of the concession agreement as negotiated between AEDC and DOTC/MIAA was endorsed to the
National Economic Development Authority (NEDA-ICC), which in turn reviewed it on the basis of its scope,
economic viability, financial indicators and risks; and thereafter approved it for bidding.
The DOTC/MIAA then prepared the Bid Documents, incorporating therein the negotiated Draft Concession
Agreement, and published invitations for public bidding, i.e., for the submission of comparative or competitive
proposals. 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 satisfied
the minimum requirements; and met the technical, financial, organizational and legal standards provided in the
BOT Law. Section 5 of this statute states:
"Sec. 5. Public bidding of projects. - . . .
"In the case of a build-operate-and-transfer arrangement, the contract shall be awarded to the bidder
who, having satisfied the minimum financial, technical, organizational and legal standards required by
this Act, has submitted the lowest bid and most favorable terms for the project, based on the present value of
its proposed tolls, fees, rentals and charges over a fixed term for the facility to be constructed, rehabilitated,
operated and maintained according to the prescribed minimum design and performance standards, plans and
specifications. . . ." (Emphasis supplied.)
The same provision requires that the price challenge via public bidding "must be conducted under a two-
envelope/two-stage system: the first envelope to contain the technical proposal and the second envelope to
contain the financial proposal." Moreover, the 1994 Implementing Rules and Regulations (IRR) provide that only
those bidders that have passed the prequalification stage are permitted to have their two envelopes reviewed.
In other words, prospective bidders must prequalify by submitting their prequalification documents for evaluation;
and only the pre-qualified bidders would be entitled to have their bids opened, evaluated and appreciated. On
the other hand, disqualified bidders are to be informed of the reason for their disqualification. This procedure
was confirmed and reiterated in the Bid Documents, which I quote thus: "Prequalified proponents will be
considered eligible to move to second stage technical proposal evaluation. The second and third envelopes of
pre-disqualified proponents will be returned."11
Aside from complying with the legal and technical requirements (track record or experience of the firm and its
key personnel), a project proponent desiring to prequalify must also demonstrate its financial capacity to
undertake the project. To establish such capability, a proponent must prove that it is able to raise the minimum
amount of equity required for the project and to procure the loans or financing needed for it. Section 5.4(c) of
the 1994 IRR provides:
"Sec. 5.4. Prequalification Requirements. - To pre-qualify, a project proponent must comply with the following
requirements:
xxx xxx xxx
"c. Financial Capability. The project proponent must have adequate capability to sustain the financing
requirements for the detailed engineering design, construction, and/or operation and maintenance phases of
the project, as the case may be. For purposes of prequalification, this capability shall be measured in terms of:
(i) proof of the ability of the project proponent and/or the consortium to provide a minimum amount of equity to
the project, and (ii) a letter testimonial from reputable banks attesting that the project proponent and/or members
of the consortium are banking with them, that they are in good financial standing, and that they have adequate
resources. The government Agency/LGU concerned shall determine on a project-to-project basis, and before
prequalification, the minimum amount of equity needed. . . . ." (Italics supplied)
Since the minimum amount of equity for the project was set at 30 percent12 of the minimum project cost of
US$350 million, the minimum amount of equity required of any proponent stood at US$105 million. Converted
to pesos at the exchange rate then of P26.239 to US$1.00 (as quoted by the Bangko Sentral ng Pilipinas), the
peso equivalent of the minimum equity was P2,755,095,000.
However, the combined equity or net worth of the Paircargo consortium stood at only P558,384,871.55. 13 This
amount was only slightly over 6 percent of the minimum project cost and very much short of the required
minimum equity, which was equivalent to 30 percent of the project cost. Such deficiency should have
immediately caused the disqualification of the Paircargo consortium. This matter was brought to the attention of
the Prequalification and Bidding Committee (PBAC).
Notwithstanding the glaring deficiency, DOTC Undersecretary Primitivo C. Cal, concurrent chair of the PBAC,
declared in a Memorandum dated 14 October 1996 that "the Challenger (Paircargo consortium) was found to
have a combined net worth of P3,926,421,242.00 that could support a project costing approximately P13 billion."
To justify his conclusion, he asserted: "It is not a requirement that the networth must be `unrestricted'. To impose
this as a requirement now will be nothing less than unfair."
He further opined, "(T)he networth reflected in the Financial Statement should not be taken as the amount of
money to be used to answer the required thirty (30%) percent equity of the challenger but rather to be used in
establishing if there is enough basis to believe that the challenger can comply with the required 30% equity. In
fact, proof of sufficient equity is required as one of the conditions for award of contract (Sec. 12.1 of IRR of the
BOT Law) but not for prequalification (Sec. 5.4 of same document)."
On the basis of the foregoing dubious declaration, the Paircargo consortium was deemed prequalified and thus
permitted to proceed to the other stages of the bidding process.
By virtue of the prequalified status conferred upon the Paircargo, Undersecretary Cal's findings in effect relieved
the consortium of the need to comply with the financial capability requirement imposed by the BOT Law and
IRR. This position is unmistakably and squarely at odds with the Supreme Court's consistent doctrine
emphasizing the strict application of pertinent rules, regulations and guidelines for the public bidding process,
in order to place each bidder - actual or potential - on the same footing. Thus, it is unarguably irregular and
contrary to the very concept of public bidding to permit a variance between the conditions under which bids are
invited and those under which proposals are submitted and approved.
Republic v. Capulong,14 teaches that if one bidder is relieved from having to conform to the conditions that
impose some duty upon it, that bidder is not contracting in fair competition with those bidders that propose to be
bound by all conditions. The essence of public bidding is, after all, an opportunity for fair competition and a basis
for the precise comparison of bids.15 Thus, each bidder must bid under the same conditions; and be subject to
the same guidelines, requirements and limitations. The desired result is to be able to determine the best offer
or lowest bid, all things being equal.
Inasmuch as the Paircargo consortium did not possess the minimum equity equivalent to 30 percent of the
minimum project cost, it should not have been prequalified or allowed to participate further in the bidding. The
Prequalification and Bidding Committee (PBAC) should therefore not have opened the two envelopes of the
consortium containing its technical and financial proposals; required AEDC to match the consortium's bid; 16 or
awarded the Concession Agreement to the consortium's successor-in-interest, Piatco.
As there was effectively no public bidding to speak of, the entire bidding process having been flawed and tainted
from the very outset, therefore, the award of the concession to Paircargo's successor Piatco was void, and the
Concession Agreement executed with the latter was likewise void ab initio. For this reason, Piatco cannot and
should not be allowed to benefit from that Agreement.17
AEDC Was Deprived of the Right to Match PIATCO's Price Challenge
In DOTC PBAC Bid Bulletin No. 4 (par. 3), Undersecretary Cal declared that, for purposes of matching the price
challenge of Piatco, AEDC as originator of the unsolicited proposal would be permitted access only to the
schedule of proposed Annual Guaranteed Payments submitted by Piatco, and not to the latter's financial and
technical proposals that constituted the basis for the price challenge in the first place. This was supposedly in
keeping with Section 11.6 of the 1994 IRR, which provides that proprietary information is to be respected,
protected and treated with utmost confidentiality, and is therefore not to form part of the bidding/tender and
related documents.
This pronouncement, I believe, was a grievous misapplication of the mentioned provision. The "proprietary
information" referred to in Section 11.6 of the IRR pertains only to the proprietary information of the originator of
an unsolicited proposal, and not to those belonging to a challenger. The reason for the protection accorded
proprietary information at all is the fact that, according to Section 4-A of the BOT Law as amended, a proposal
qualifies as an "unsolicited proposal" when it pertains to a project that involves "a new concept or technology",
and/or a project that is not on the government's list of priority projects.
To be considered as utilizing a new concept or technology, a project must involve the possession of exclusive
rights (worldwide or regional) over a process; or possession of intellectual property rights over a design,
methodology or engineering concept.18 Patently, the intent of the BOT Law is to encourage individuals and
groups to come up with creative innovations, fresh ideas and new technology. Hence, the significance and
necessity of protecting proprietary information in connection with unsolicited proposals. And to make the
encouragement real, the law also extends to such individuals and groups what amounts to a "right of first refusal"
to undertake the project they conceptualized, involving the use of new technology or concepts, through the
mechanism of matching a price challenge.
A competing bid is never just any figure conjured from out of the blue; it is arrived at after studying economic,
financial, technical and other, factors; it is likewise based on certain assumptions as to the nature of the
business, the market potentials, the probable demand for the product or service, the future behavior of cost
items, political and other risks, and so on. It is thus self-evident that in order to be able to intelligently match a
bid or price challenge, a bidder must be given access to the assumptions and the calculations that went into
crafting the competing bid.
In this instance, the financial and technical proposals of Piatco would have provided AEDC with the necessary
information to enable it to make a reasonably informed matching bid. To put it more simply, a bidder unable to
access the competitor's assumptions will never figure out how the competing bid came about; requiring him to
"counter-propose" is like having him shoot at a target in the dark while blindfolded.
By withholding from AEDC the challenger's financial and technical proposals containing the critical information
it needed, Undersecretary Cal actually and effectively deprived AEDC of the ability to match the price challenge.
One could say that AEDC did not have the benefit of a "level playing field." It seems to me, though, that AEDC
was actually shut out of the game altogether.
At the end of the day, the bottom line is that the validity and the propriety of the award to Piatco had been
irreparably impaired.
Delayed Issuance of the Notice of Award Violated the BOT Law and the IRR
Section 9.5 of the IRR requires that the Notice of Award must indicate the time frame within which the winner of
the bidding (and therefore the prospective awardee) shall submit the prescribed performance security, proof of
commitment of equity contributions, and indications of sources of financing (loans); and, in the case of joint
ventures, an agreement showing that the members are jointly and severally responsible for the obligations of
the project proponent under the contract.
The purpose of having a definite and firm timetable for the submission of the aforementioned requirements is
not only to prevent delays in the project implementation, but also to expose and weed out unqualified
proponents, who might have unceremoniously slipped through the earlier prequalification process, by
compelling them to put their money where their mouths are, so to speak.
Nevertheless, this provision can be easily circumvented by merely postponing the actual issuance of the Notice
of Award, in order to give the favored proponent sufficient time to comply with the requirements. Hence, to avert
or minimize the manipulation of the post-bidding process, the IRR not only set out the precise sequence of
events occurring between the completion of the evaluation of the technical bids and the issuance of the Notice
of Award, but also specified the timetables for each such event. Definite allowable extensions of time were
provided for, as were the consequences of a failure to meet a particular deadline.
In particular, Section 9.1 of the 1994 IRR prescribed that within 30 calendar days from the time the second-
stage evaluation shall have been completed, the Committee must come to a decision whether or not to award
the contract and, within 7 days therefrom, the Notice of Award must be approved by the head of agency or local
government unit (LGU) concerned, and its issuance must follow within another 7 days thereafter.
Section 9.2 of the IRR set the procedure applicable to projects involving substantial government undertakings
as follows: Within 7 days after the decision to award is made, the draft contract shall be submitted to the ICC
for clearance on a no-objection basis. If the draft contract includes government undertakings already previously
approved, then the submission shall be for information only.
However, should there be additional or new provisions different from the original government undertakings, the
draft shall have to be reviewed and approved. The ICC has 15 working days to act thereon, and unless otherwise
specified, its failure to act on the contract within the specified time frame signifies that the agency or LGU may
proceed with the award. The head of agency or LGU shall approve the Notice of Award within seven days of the
clearance by the ICC on a no-objection basis, and the Notice itself has to be issued within seven days thereafter.
The highly regulated time-frames within which the agents of government were to act evinced the intent to impose
upon them the duty to act expeditiously throughout the process, to the end that the project be prosecuted and
implemented without delay. This regulated scenario was likewise intended to discourage collusion and
substantially reduce the opportunity for agents of government to abuse their discretion in the course of the award
process.
Despite the clear timetables set out in the IRR, several lengthy and still-unexplained delays occurred in the
award process, as can be observed from the presentation made by the counsel for public respondents,19 quoted
hereinbelow:
"11 Dec. 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 final draft of the Concession Agreement be submitted to
the NEDA for clearance on a no-objection basis. This resolution came more than 3 months too late as it should
have been made on the 20th of December 1996 at the latest.
"16 April 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 fifteen 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 flies in the face of this Court's solemn
pronouncement in Republic v. Capulong,20 that "strict observance of the rules, regulations and guidelines of the
bidding process is the only safeguard to a fair, honest and competitive public bidding."
From the foregoing, the only conclusion that can possibly be drawn is that the BOT law and its IRR were
repeatedly violated with unmitigated impunity - and by agents of government, no less! On account of such
violation, the award of the contract to Piatco, which undoubtedly gained time and benefited from the delays,
must be deemed null and void from the beginning.
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.21
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.22
3. The CA provided that in case of termination of the contract due to the fault of government, government shall
pay all expenses that Piatco incurred for the project plus the appraised value of the Terminal.23
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 specifications; and assistance to Piatco in securing site utilities, as well
as all necessary permits, licenses and authorizations.24
5. Where Section 3.02 of the DCA requires government to refrain from competing with the contractor with
respect to the operation of NAIA Terminal III, Section 3.02(b) of the CA excludes and prohibits everyone,
including government, from directly or indirectly competing with Piatco, with respect to the operation of, as well
as operations in, NAIA Terminal III. Operations in is sufficiently broad to encompass all retail and other
commercial business enterprises operating within Terminal III, inclusive of the businesses of providing various
airport-related services to international airlines, within the scope of the prohibition.
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.25
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 qualified 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 first satisfy the claims of its secured creditors,
per Section 8.04(d) of the CA.
It goes without saying that the amendment of the Contract bidded out (the DCA or draft concession agreement)
- in such substantial manner, without any public bidding, and after the bidding process had been concluded on
December 11, 1996 - is violative of public policy on public biddings, as well as the spirit and intent of the BOT
Law. The whole point of going through the public bidding exercise was completely lost. Its very rationale was
totally subverted by permitting Piatco to amend the contract for which public bidding had already been
concluded. Competitive bidding aims to obtain the best deal possible by fostering transparency and preventing
favoritism, collusion and fraud in the awarding of contracts. That is the reason why procedural rules pertaining
to public bidding demand strict observance.26
In a relatively early case, Caltex v. Delgado Brothers,27 this Court made it clear that substantive amendments to
a contract for which a public bidding has already been finished should only be awarded after another public
bidding:
"The due execution of a contract after public bidding is a limitation upon the right of the contracting parties to
alter or amend it without another public bidding, for otherwise what would a public bidding be good for if after
the execution of a contract after public bidding, the contracting parties may alter or amend the contract, or even
cancel it, at their will? Public biddings are held for the protection of the public, and to give the public the best
possible advantages by means of open competition between the bidders. He who bids or offers the best terms
is awarded the contract subject of the bid, and it is obvious that such protection and best possible advantages
to the public will disappear if the parties to a contract executed after public bidding may alter or amend it without
another previous public bidding."28
The aforementioned case dealt with the unauthorized amendment of a contract executed after public bidding;
in the situation before us, the amendments were made also after the bidding, but prior to execution. Be that as
it may, the same rationale underlying Caltex applies to the present situation with equal force. Allowing the
winning bidder to renegotiate the contract for which the bidding process has ended is tantamount to permitting
it to put in anything it wants. Here, the winning bidder (Piatco) did not even bother to wait until after actual
execution of the contract before rushing to amend it. Perhaps it believed that if the changes were made to a
contract already won through bidding (DCA) instead of waiting until it is executed, the amendments would not
be noticed or discovered by the public.
In a later case, Mata v. San Diego,29 this Court reiterated its ruling as follows:
"It is true that modification of government contracts, after the same had been awarded after a public bidding, is
not allowed because such modification serves to nullify the effects of the bidding and whatever advantages the
Government had secured thereby and may also result in manifest injustice to the other bidders. This prohibition,
however, refers to a change in vital and essential particulars of the agreement which results in a substantially
new contract."
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 specifically refers to a "lower price proposal" by a competing bidder; and to the right
of the original proponent "to match the price" of the challenger. Thus, only the price proposals are in play.
The terms, conditions and stipulations in the contract for which public bidding has been concluded are
understood to remain intact and not be subject to further negotiation. Otherwise, the very essence of public
bidding will be destroyed - there will be no basis for an exact comparison between bids.
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 satisfied with the Concession Agreement, Piatco - once more without bothering with public bidding -
negotiated with government for still more substantial changes. The result was the Amended and Restated
Concession Agreement (ARCA) executed on November 26, 1998. The following changes were introduced:
1. The definition of Attendant Liabilities was further amended with the result that the unpaid loans of Piatco, for
which government may be required to answer, are no longer limited to only those loans recorded in Piatco's
books or loans whose proceeds were actually used in the Terminal III project.30
2. Although the contract may be terminated due to breach by Piatco, it will not be liable to pay the government
any Liquidated Damages if a new operator is designated to take over the operation of the terminal.31
3. The Liquidated Damages which government becomes liable for in case of its breach of contract were
substantially increased.32
4. Government's right to appoint a comptroller for Piatco in case the latter encounters liquidity problems was
deleted.33
5. Government is made liable for Incremental and Consequential Costs and Losses in case it fails to comply or
cause any third party under its direct or indirect control to comply with the special obligations imposed on
government.34
6. The insurance policies obtained by Piatco covering the terminal are now required to be assigned to the Senior
Lenders as security for the loans; previously, their proceeds were to be used to repair and rehabilitate the facility
in case of damage.35
7. Government bound itself to set the initial rate of the terminal fee, to be charged when Terminal III begins
operations, at an amount higher than US$20.36
8. Government waived its defense of the illegality of the contract and even agreed to be liable to pay damages
to Piatco in the event the contract was declared illegal.37
9. Even though government may be entitled to terminate the ARCA on account of breach by Piatco, government
is still liable to pay Piatco the appraised value of Terminal III or the Attendant Liabilities, if the termination occurs
before the In-Service Date.38 This condition contravenes the BOT Law provision on termination compensation.
10. Government is obligated to take the administrative action required for Piatco's imposition, collection and
application of all Public Utility Revenues.39 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.40 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.41
13. The illegality and unenforceability of the ARCA or any of its material provisions was made an event of
default on the part of government only, thus constituting a ground for Piatco to terminate the ARCA.42
14. Amounts due from and payable by government under the contract were made payable on demand - net of
taxes, levies, imposts, duties, charges or fees of any kind except as required by law.43
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 Certificate of Completion simply deleted the successful performance-testing of the terminal facility in
accordance with defined performance standards as a pre-condition for government's acceptance of the terminal
facility.44
In sum, the foregoing revisions and amendments as embodied in the ARCA constitute very material
alterations of the terms and conditions of the CA, and give further manifestly undue advantage to Piatco at the
expense of government. Piatco claims that the changes to the CA were necessitated by the demands of its
foreign lenders. However, no proof whatsoever has been adduced to buttress this claim.
In any event, it is quite patent that the sum total of the aforementioned changes resulted in drastically
weakening the position of government to a degree that seems quite excessive, even from the standpoint of a
businessperson who regularly transacts with banks and foreign lenders, is familiar with their mind-set, and
understands what motivates them. On the other hand, whatever it was that impelled government officials
concerned to accede to those grossly disadvantageous changes, I can only hazard a guess.
There is no question in my mind that the ARCA was unauthorized and illegal for lack of public bidding and for
being patently disadvantageous to government.
The Three Supplements Imposed New Obligations on Government, Also Without Prior Public Bidding
After Piatco had managed to breach the protective rampart of public bidding, it recklessly went on a rampage of
further assaults on the ARCA.
The First Supplement Is as Void as the ARCA
In the First Supplement ("FS") executed on August 27, 1999, the following changes were made to the ARCA:
1. The amounts payable by Piatco to government were reduced by allowing additional exceptions to the Gross
Revenues in which government is supposed to participate.45
2. 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 .46
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.47
4. The FS also imposed on government ten (10) "Additional Special Obligations," including the following:
(a) Working for the removal of the general aviation traffic from the NAIA airport complex48
(b) Providing through MIAA the land required by Piatco for the taxilane and one taxiway at no cost to Piatco 49
(c) Implementing the government's existing storm drainage master plan50
(d) Coordinating with DPWH the financing, the implementation and the completion of the following works before
the In-Service Date: three left-turning overpasses (EDSA to Tramo St., Tramo to Andrews Ave., and Manlunas
Road to Sales Ave.);51 and a road upgrade and improvement program involving widening, repair and resurfacing
of Sales Road, Andrews Avenue and Manlunas Road; improvement of Nichols Interchange; and removal of
squatters along Andrews Avenue.52
(e) Dealing directly with BCDA and the Phil. Air Force in acquiring additional land or right of way for the road
upgrade and improvement program.53
5. Government is required to work for the immediate reversion to MIAA of the Nayong Pilipino National Park.54
6. Government's share in the terminal fees collected was revised from a flat 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.55 This amendment enables Piatco to benefit from the further erosion
of the peso-dollar exchange rate, while preventing government from building up its foreign exchange reserves.
7. All payments from Piatco to government are now to be invoiced to MIAA, and payments are to accrue to the
latter's exclusive benefit.56 This move appears to be in support of the funds MIAA advanced to DPWH.
I must emphasize that the First Supplement is void in two respects. First, it is merely an amendment to the
ARCA, upon which it is wholly dependent; therefore, since the ARCA is void, inexistent and not capable of being
ratified or amended, it follows that the FS too is void, inexistent and inoperative. Second, even
assuming arguendo that the ARCA is somehow remotely valid, nonetheless the FS, in imposing significant new
obligations upon government, altered the fundamental terms and stipulations of the ARCA, thus necessitating a
public bidding all over again. That the FS was entered into sans public bidding renders it utterly void and
inoperative.
The Second Supplement Is Similarly Void and Inexistent
The Second Supplement ("SS") was executed between the government and Piatco on September 4, 2000. It
calls for Piatco, acting not as concessionaire of NAIA Terminal III but as a public works contractor, to undertake
- in the government's stead - the clearing, removal, demolition and disposal of improvements, subterranean
obstructions and waste materials at the project site.57
The scope of the works, the procedures involved, and the obligations of the contractor are provided for in Parts
II and III of the SS. Section 4.1 sets out the compensation to be paid, listing specific rates per cubic meter of
materials for each phase of the work - excavation, leveling, removal and disposal, backfilling and dewatering.
The amounts collectible by Piatco are to be offset against the Annual Guaranteed Payments it must pay
government.
Though denominated as Second Supplement, it was nothing less than an entirely new public works contract.
Yet it, too, did not undergo any public bidding, for which reason it is also void and inoperative.
Not surprisingly, Piatco had to subcontract the works to a certain Wintrack Builders, a firm reputedly owned by
a former high-ranking DOTC official. But that is another story altogether.
The Third Supplement Is Likewise Void and Inexistent
The Third Supplement ("TS"), executed between the government and Piatco on June 22, 2001, passed on to
the government certain obligations of Piatco as Terminal III concessionaire, with respect to the surface road
connecting Terminals II and III.
By way of background, at the inception of and forming part of the NAIA Terminal III project was the proposed
construction of an access tunnel crossing Runway 13/31, which. would connect Terminal III to Terminal II. The
Bid Documents in Section 4.1.2.3[B][i] declared that the said access tunnel was subject to further negotiation;
but for purposes of the bidding, the proponent should submit 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 confirming 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.58 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.59
3. MIAA will answer for the operation, maintenance and repair of the T2-T3 Road.60
The TS depends upon and is intended to supplement the ARCA as well as the First Supplement, both of which
are void and inexistent and not capable of being ratified or amended. It follows that the TS is likewise void,
inexistent and inoperative. And even if, hypothetically speaking, both ARCA and FS are valid, still, the Third
Supplement - imposing as it does significant new obligations upon government - would in effect alter the terms
and stipulations of the ARCA in material respects, thus necessitating another public bidding. Since the TS was
not subjected to public bidding, it is consequently utterly void as well. At any rate, the TS created new monetary
obligations on the part of government, for which there were no prior appropriations. Hence it follows that the
same is void ab initio.
In patiently tracing the progress of the Piatco contracts from their inception up to the present, I noted that the
whole process was riddled with significant lapses, if not outright irregularity and wholesale violations of law and
public policy. The rationale of beginning at the beginning, so to speak, will become evident when the question
of what to do with the five Piatco contracts is discussed later on.
In the meantime, I shall take up specific, provisions or changes in the contracts and highlight the more prominent
objectionable features.
Government Directly Guarantees Piatco Debts
Certainly the most discussed provision in the parties' arguments is the one creating an unauthorized, direct
government guarantee of 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 defines direct government guarantee as "an agreement whereby the government or any of its
agencies or local government units (will) assume responsibility for the repayment of debt directly incurred by the
project proponent in implementing the project in case of a loan default."
Both the CA and the ARCA have provisions that undeniably create such prohibited government guarantee.
Section 4.04 (c)(iv) to (vi) of the ARCA, which is similar to Section 4.04 of the CA, provides thus:
"(iv) that if Concessionaire is in default under a payment obligation owed to the Senior Lenders, and as a result
thereof the Senior Lenders have become entitled to accelerate the Senior Loans, the Senior Lenders shall have
the right to notify GRP of the same . . .;
(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 defined) of the Development Facility or the sum of the Attendant Liabilities, if greater. . . ."
In turn, the term Attendant Liabilities is defined in Section 1.06 of the ARCA as follows:
"Attendant Liabilities refer to all amounts in each case supported by verifiable evidence from time to time owed
or which may become, owing by Concessionaire to Senior Lenders or any other persons or entities who have
provided, loaned or advanced funds or provided financial facilities to Concessionaire for the Project, including,
without limitation, all principal, interest, associated fees, charges, reimbursements, and other related expenses
(including the fees, charges and expenses of any agents or trustees of such persons or entities), whether
payable at maturity, by acceleration or otherwise, and further including amounts owed by Concessionaire to its
professional consultants and advisers, suppliers, contractors and sub-contractors."
Government's agreement to pay becomes effective in the event of a default by Piatco on any of its loan
obligations to the Senior Lenders, and the amount to be paid by government is the greater of either the
Appraised Value of Terminal III or the aggregate amount of the moneys owed by Piatco - whether to the
Senior Lenders or to other entities, including its suppliers, contractors and subcontractors. In effect, therefore,
this agreement already constitutes the prohibited assumption by government of responsibility for repayment of
Piatco's debts in case of a loan default. In fine, a direct government guarantee.
It matters not that there is a roundabout procedure prescribed by Section 4.04(c)(iv), (v) and (vi) that would
require, first, an attempt (albeit unsuccessful) by the Senior Lenders to transfer Piatco's rights to a transferee of
their choice; and, second, an effort (equally unsuccessful) to "enter into any other arrangement" with the
government regarding the Terminal III facility, before government is required to make good on its guarantee.
What is abundantly clear is the fact that, in the devious labyrinthine process detailed in the aforesaid section, it
is entirely within the Senior Lenders' power, prerogative and control - exercisable via a mere refusal or inability to
agree upon "a transferee" or "any other arrangement" regarding the terminal facility - to push the process forward
to the ultimate contractual cul-de-sac, wherein government will be compelled to abjectly surrender and make
good on its guarantee of payment.
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, 61 the termination payment is to
be made to Piatco, not to the lenders; and there is no provision anywhere in the contract documents to prevent
it from diverting the proceeds to its own benefit and/or to ensure that it will necessarily use the same to pay off
the Senior Lenders and other creditors, in order to avert the foreclosure of the mortgage and other liens on the
terminal facility. Such deficiency puts the interests of government at great risk. Indeed, if the unthinkable were
to happen, government would be paying several hundreds of millions of dollars, but the mortgage liens on the
facility may still be foreclosed by the Senior Lenders just the same.
Consequently, the Piatco contracts are also objectionable for grievously failing to adequately protect
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 defining the term, the Piatco debts to be
assumed/paid by government were qualified by the phrases recorded and from time to time outstanding in the
books of the Concessionaire and actually used for the project. These phrases were eliminated from the ARCA's
definition of Attendant Liabilities.
Since no explanation has been forthcoming from Piatco as to the possible justification for such a drastic change,
the only conclusion, possible is that it intends to have all of its debts covered by the guarantee, regardless of
whether or not they are disclosed in its books. This has particular reference to those borrowings which were
obtained in violation of the loan covenants requiring Piatco to maintain a minimum 70:30 debt-to-equity ratio,
and even if the loan proceeds were not actually used for the project itself.
This point brings us back to the guarantee itself. In Section 4.04(c)(vi) of ARCA, the amount which government
has guaranteed to pay as termination payment is the greater of either (i) the Appraised Value of the terminal
facility or (ii) the aggregate of the Attendant Liabilities. Given that the Attendant Liabilities may include practically
any Piatco debt under the sun, it is highly conceivable that their sum may greatly exceed the appraised value of
the facility, and government may end up paying very much more than the real worth of Terminal III. (So why did
government have to bother with public bidding anyway?)
In the final analysis, Section 4.04(c)(iv) to (vi) of the ARCA is diametrically at odds with the spirit and the intent
of the BOT Law. The law meant to mobilize private resources (the private sector) to take on the burden and the
risks of financing the construction, operation and maintenance of relevant infrastructure and development
projects for the simple reason that government is not in a position to do so. By the same token, government
guarantee was prohibited, since it would merely defeat the purpose and raison 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 Office of the Insurance
Commissioner: Provided, finally, That the cost of the insurance coverage shall be included in the terms and
conditions of the bidding referred to above.
"In the event that the government defaults on certain major obligations in the contract and such failure is not
remediable or if remediable shall remain unremedied for an unreasonable length of time, the project
proponent/contractor may, by prior notice to the concerned national government agency or local government
unit specifying the turn-over date, terminate the contract. The project proponent/contractor shall be reasonably
compensated by the Government for equivalent or proportionate contract cost as defined in the contract."
The foregoing statutory provision in effect provides for the following limited instances when termination
compensation may be allowed:
1. 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 finish 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 . . ."62
As if that were not bad enough, the ARCA also inserted into Section 8.01 the phrase "Subject to Section 4.04."
The effect of this insertion is that in those instances where government may terminate the contract on account
of Piatco's breach, and it is nevertheless required under the ARCA to make termination compensation to Piatco
even though unauthorized by law, such compensation is to be equivalent to the payment amount guaranteed
by government - either a) the Appraised Value of the terminal facility or (b) the aggregate of the Attendant
Liabilities, whichever amount is greater!
Clearly, this condition is not in line with Section 7 of the BOT Law. That provision permits a project proponent to
recover the actual expenses it incurred in the prosecution of the project plus a reasonable rate of return not in
excess of that provided in the contract; or to be compensated for the equivalent or proportionate contract cost
as defined in the contract, in case the government is in default on certain major contractual obligations.
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 defines
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 first 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 five (5%) percent over the applicable 91-day Treasury Bill Rate shall be added
on the unpaid amount commencing on the expiry of the grace period up to the day of full payment. When the
temporary illiquidity of Concessionaire shall have been corrected and the cash position of Concessionaire should
indicate its ability to meet its maturing obligations, then the provisions set forth under this Section 8.01(d) shall
cease to apply. The foregoing remedial measures shall be applicable only while there remains unpaid and
outstanding amounts owed to the Senior Lenders." (Emphasis supplied)
By any manner of interpretation or application, Section 8.01(d) of the ARCA clearly mandates
the indefinitepostponement of payment of all of Piatco's obligations to the government, in order to ensure that
Piatco's obligations to the Senior Lenders are paid in full first. That is nothing more or less than the direct
government subsidy prohibited by the BOT Law and the IRR. The fact that Piatco will pay interest on the unpaid
amounts owed to government does not change the situation or render the prohibited subsidy any less
unacceptable.
But beyond the clear violations of law, there are larger issues involved in the ARCA. Earlier, I mentioned that
Section 8.01(d) of the ARCA completely eliminated the proviso in Section 8.04(d) of the CA which gave
government the right to appoint a financial controller to manage the cash position of Piatco during situations of
financial distress. Not only has government been deprived of any means of monitoring and managing the
situation; worse, as can be seen from Section 8.01(d) above-quoted, the Senior Lenders have effectively locked
in on the right to exercise financial controllership over Piatco and to allocate its cash resources to the payment
of all amounts owed to the Senior Lenders before allowing any payment to be made to government.
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 officials') docile submission and abject servitude and surrender to the imperious and
excessive demands of the foreign lenders, on the one hand; and vehement outrage at the affront to the
sovereignty of the Republic and to the national honor, on the other. It is indeed time to put an end to
such an unbearable, dishonorable situation.
The Piatco Contracts Unarguably Violate Constitutional Injunctions
I will now discuss the manner in which the Piatco Contracts offended the Constitution.
The Exclusive Right Granted to Piatco to Operate a Public Utility Is Prohibited by the Constitution
While Section 2.02 of the ARCA spoke of granting to Piatco "a franchise to operate and maintain the Terminal
Complex," Section 3.02(a) of the same ARCA granted to Piatco, for the entire term of the concession agreement,
"the exclusive right to operate a commercial international passenger terminal within the Island of Luzon" with
the exception of those three terminals already existing63 at the time of execution of the ARCA.
Section 11 of Article XII of the Constitution prohibits the grant of a "franchise, certificate, or any other form of
authorization for the operation of a public utility" that is "exclusive in character."
In its Opinion No. 078, Series of 1995, the Department of justice held that "the NAIA Terminal III which . . . 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." (Emphasis supplied)
While it cannot be gainsaid that an enterprise that is a public utility may happen to constitute a monopoly on
account of the very nature of its business and the absence of competition, such a situation does not however
constitute justification to violate the constitutional prohibition and grant an exclusive franchise or exclusive
right to operate a public utility.
Piatco's contention that the Constitution does not actually prohibit monopolies is beside the point. As correctly
argued,64 the existence of a monopoly by a public utility is a situation created by circumstances that do not
encourage competition. This situation is different from the grant of a franchise to operate a public utility, a
privilege granted by government. Of course, the grant of a franchise may result in a monopoly. But making such
franchise exclusive is what is expressly proscribed by the Constitution.
Actually, the aforementioned Section 3.02 of the ARCA more than just guaranteed exclusivity; it also guaranteed
that the government will not improve or expand the facilities at Clark - and in fact is required to put a cap on the
latter's operations - until after Terminal III shall have been operated at or beyond its peak capacity for
three consecutive years.65 As counsel for public respondents pointed out, in the real world where the rate of
influx of international passengers can fluctuate substantially from year to year, it may take many years before
Terminal III sees three consecutive years' operations at peak capacity. The Diosdado Macapagal International
Airport may thus end up stagnating for a long time. Indeed, in order to ensure greater profits for Piatco, the
economic progress of a region has had to be sacrificed.
The Piatco Contracts Violate the Time Limitation on Franchises
Section 11 of Article XII of the Constitution also provides that "no franchise, certificate or any other form of
authorization for the operation of a public utility shall be . . . 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) x x x xxx xxx
b) In the event the Agreement is terminated pursuant to Section 8.01 (b) hereof, Concessionaire shall be entitled
to collect the Liquidated Damages specified in Annex 'G'. The full payment by GRP to Concessionaire of the
Liquidated Damages shall be a condition precedent to the transfer by Concessionaire to GRP of the
Development Facility. Prior to the full payment of the Liquidated Damages, Concessionaire shall to the extent
practicable continue to operate the Terminal and the Terminal Complex and shall be entitled to retain and
withhold all payments to GRP for the purpose of offsetting the same against the Liquidated Damages. Upon full
payment of the Liquidated Damages, Concessionaire shall immediately transfer the Development Facility to
GRP on 'as-is-where-is' basis."
The aforesaid easy payment scheme is less beneficial than it first appears. Although it enables government to
avoid having to make outright payment of an obligation that will likely run into billions of pesos, this easy payment
plan will nevertheless cost government considerable loss of income, which it would earn if it were to operate
Terminal III by itself. Inasmuch as payments to the concessionaire (Piatco) will be on "installment basis," interest
charges on the remaining unpaid balance would undoubtedly cause the total outstanding balance to swell.
Piatco would thus be entitled to remain in the driver's seat and keep operating the terminal for an indefinite
length of time.
The Contracts Create Two Monopolies for Piatco
By way of background, two monopolies were actually created by the Piatco contracts. The first and more obvious
one refers to the business of operating an international passenger terminal in Luzon, the business end of which
involves providing international airlines with parking space for their aircraft, and airline passengers with the use
of departure and arrival areas, check-in counters, information systems, conveyor systems, security equipment
and paraphernalia, immigrations and customs processing areas; and amenities such as comfort rooms,
restaurants and shops.
In furtherance of the first monopoly, the Piatco Contracts stipulate that the NAIA Terminal III will be the only
facility to be operated as an international passenger terminal;66 that NAIA Terminals I and II will no longer be
operated as such;67 and that no one (including the government) will be allowed to compete with Piatco in the
operation of an international passenger terminal in the NAIA Complex.68 Given that, at this time, the government
and Piatco are the only ones engaged in the business of operating an international passenger terminal, I am not
acutely concerned with this particular monopolistic situation.
There was however another monopoly within the NAIA created by the subject contracts for Piatco - in the
business of providing international airlines with the following: groundhandling, in-flight catering, cargo handling,
and aircraft repair and maintenance services. These are lines of business activity in which are engaged many
service providers (including the petitioners-in-intervention), who will be adversely affected upon full
implementation of the Piatco Contracts, particularly Sections 3.01(d)69 and (e)70 of both the ARCA and the CA.
On the one hand, Section 3.02(a) of the ARCA makes Terminal III the only international passenger terminal at
the NAIA, and therefore the only place within the NAIA Complex where the business of providing airport-related
services to international airlines may be conducted. On the other hand, Section 3.01(d) of the ARCA requires
government, through the MIAA, not to allow service providers with expired MIAA contracts to renew or extend
their contracts to render airport-related services to airlines. Meanwhile, Section 3.01(e) of the ARCA requires
government, through the DOTC and MIAA, not to allow service providers - those with subsisting concession
agreements for services and operations being conducted at Terminal I - to carry over their concession
agreements, services and operations to Terminal III, unless they first enter into a separate agreement with
Piatco.
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 fit in any contract it enters into with a service provider. In brief, there is no safeguard whatsoever to ensure
free and fair competition in the service-provider sector.
In the meantime, and not surprisingly, Piatco is first in line, ready to exploit the unique business opportunity. It
announced72 that it has accredited three groundhandlers for Terminal III. Aside from the Philippine Airlines, the
other accredited entities are the Philippine Airport and Ground Services Globeground, Inc.
("PAGSGlobeground") and the Orbit Air Systems, Inc. ("Orbit"). PAGSGlobeground is a wholly-owned subsidiary
of the Philippine Airport and Ground Services, Inc. or PAGS,73 while Orbit is a wholly-owned subsidiary of
Friendship Holdings, Inc.,74 which is in turn owned 80 percent by PAGS.75 PAGS is a service provider owned
60 percent by the Cheng Family;76 it is a stockholder of 35 percent of Piatco77 and is the latter's designated
contractor-operator for NAIA Terminal III.78
Such entry into and domination of the airport-related services sector appear to be very much in line with the
following provisions contained in the First Addendum to the Piatco Shareholders Agreement,79 executed on July
6, 1999, which appear to constitute a sort of master plan to create a monopoly and combinations in restraint of
trade:
"11. The Shareholders shall ensure:
a. x x x xxx x x x.;
b. That (Phil. Airport and Ground Services, Inc.) PAGS and/or its designated Affiliates shall, at all times during
the Concession Period, be exclusively authorized by (PIATCO) to engage in the provision of ground-handling,
catering and fueling services within the Terminal Complex.
c. That PAIRCARGO and/or its designated Affiliate shall, during the Concession Period, be the only entities
authorized to construct and operate a warehouse for all cargo handling and related services within the Site."
Precisely, proscribed by our Constitution are the monopoly and the restraint of trade being fostered by the Piatco
Contracts through the erection of barriers to the entry of other service providers into Terminal III. In Tatad v.
Secretary of the Department of Energy,80 the Court ruled:
". . . [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
firms dominate the total sales of a product or service. On the other hand, a combination in restraint of trade is
an agreement or understanding between two or more persons, in the form of a contract, trust, pool, holding
company, or other form of association, for the purpose of unduly restricting competition, monopolizing trade and
commerce in a certain commodity, controlling its production, distribution and price, or otherwise interfering with
freedom of trade without statutory authority. Combination in restraint of trade refers to the means while monopoly
refers to the end.
"x x x xxx xxx
"Section 19, Article XII of our Constitution is anti-trust in history and in spirit. It espouses competition. The
desirability of competition is the reason for the prohibition against restraint of trade, the reason for the interdiction
of unfair competition, and the reason for regulation of unmitigated monopolies. Competition is thus the
underlying principle of [S]ection 19, Article XII of our Constitution, . . ."81
Gokongwei Jr. v. Securities and Exchange Commission82 elucidates the criteria to be employed: "A 'monopoly'
embraces any combination the tendency of which is to prevent competition in the broad and general sense, or
to control prices to the detriment of the public. In short, it is the concentration of business in the hands of a
few. The material consideration in determining its existence is not that prices are raised and competition actually
excluded, but that power exists to raise prices or exclude competition when desired."83 (Emphasis supplied)
The Contracts Encourage Monopolistic Pricing, Too
Aside from creating a monopoly, the Piatco contracts also give the concessionaire virtually limitless power over
the charging of fees, rentals and so forth. What little "oversight function" the government might be able and
minded to exercise is less than sufficient to protect the public interest, as can be gleaned from the following
provisions:
"Sec. 6.06. Adjustment of Non-Public Utility Fees and Charges
"For fees, rentals and charges constituting Non-Public Utility Revenues, Concessionaire may make any
adjustments it deems appropriate without need for the consent of GRP or any government agency subject to
Sec. 6.03(c)."
Section 6.03(c) in turn provides:
"(c) Concessionaire shall at all times be judicious in fixing fees and charges constituting Non-Public Utility
Revenues in order to ensure that End Users are not unreasonably deprived of services. While the vehicular
parking fee, porterage fee and greeter/wellwisher fee constitute Non-Public Utility Revenues of Concessionaire,
GRP may require Concessionaire to explain and justify the fee it may set from time to time, if in the reasonable
opinion of GRP the said fees have become exorbitant resulting in the unreasonable deprivation of End Users of
such services."
It will be noted that the above-quoted provision has no teeth, so the concessionaire can defy the government
without fear of any sanction. Moreover, Section 6.06 - taken together with Section 6.03(c) of the ARCA - falls
short of the standard set by the BOT Law as amended, which expressly requires in Section 2(b) that the project
proponent is "allowed to charge facility users appropriate tolls, fees, rentals and charges not exceeding those
proposed in its bid or as negotiated and incorporated in the contract x x x."
The Piatco Contracts Violate Constitutional Prohibitions Against
Impairment of Contracts and Deprivation of Property Without Due Process
Earlier, I discussed how Section 3.01(e)84 of both the CA and the ARCA requires government, through
DOTC/MIAA, not to permit the carry-over to Terminal III of the services and operations of certain service
providers currently operating at Terminal I with subsisting contracts.
By the In-Service Date, Terminal III shall be the only facility to be operated as an international passenger terminal
at the NAIA;85 thus, Terminals I and II shall no longer operate as such,86 and no one shall be allowed to compete
with Piatco in the operation of an international passenger terminal in the NAIA. 87 The bottom line is that, as of
the In-Service Date, Terminal III will be the only terminal where the business of providing airport-related services
to international airlines and passengers may be conducted at all.
Consequently, government through the DOTC/MIAA will be compelled to cease honoring existing contracts with
service providers after the In-Service Date, as they cannot be allowed to operate in Terminal III.
In short, the CA and the ARCA obligate and constrain government to break its existing contracts with these
service providers.
Notably, government is not in a position to require Piatco to accommodate the displaced service providers, and
it would be unrealistic to think that these service providers can perform their service contracts in some other
international airport outside Luzon. Obviously, then, these displaced service providers 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.88
Moreover, since the displaced service providers, being unable to operate, will be forced to close shop, their
respective employees - among them Messrs. Agan and Lopez et al. - have very grave cause for concern, as
they will find themselves out of employment and bereft of their means of livelihood. This situation comprises still
another violation of the constitution prohibition against deprivation of property without due process.
True, doing business at the NAIA may be viewed more as a privilege than as a right. Nonetheless, where that
privilege has been availed of by the petitioners-in-intervention service providers for years on end, a situation
arises, similar to that in American Inter-fashion v. GTEB.89 We held therein that a privilege enjoyed for seven
years "evolved into some form of property right which should not be removed x x x arbitrarily and without due
process." Said pronouncement is particularly relevant and applicable to the situation at bar because the
livelihood of the employees of petitioners-intervenors are at stake.
The Piatco Contracts Violate Constitutional Prohibition
Against Deprivation of Liberty Without Due Process
The Piatco Contracts by locking out existing service providers from entry into Terminal III and restricting entry
of future service providers, thereby infringed upon the 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,90 and/or the right to make a contract in relation to one's business.91
By Creating New Financial Obligations for Government,
Supplements to the ARCA Violate the Constitutional
Ban on Disbursement of Public Funds Without Valid Appropriation
Clearly prohibited by the Constitution is the disbursement of public funds out of the treasury, except in pursuance
of an appropriation made by law.92 The immediate effect of this constitutional ban is that all the various agencies
of government are constrained to limit their expenditures to the amounts appropriated by law for each fiscal
year; and to carefully count their cash before taking on contractual commitments. Giving flesh and form to the
injunction of the fundamental law, Sections 46 and 47 of Executive Order 292, otherwise known as the
Administrative Code of 1987, provide as follows:
"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. Certificate 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 official of the agency concerned shall have certified to the officer entering into the obligation that
funds have been duly appropriated for the purpose and that the amount necessary to cover the proposed
contract for the current calendar year is available for expenditure on account thereof, subject to verification by
the auditor concerned. The certificate signed by the proper accounting official and the auditor who verified it,
shall be attached to and become an integral part of the proposed contract, and the sum so certified shall not
thereafter be available for expenditure for any other purpose until the obligation of the government agency
concerned under the contract is fully extinguished."
Referring to the aforequoted provisions, this Court has held that "(I)t is quite evident from the tenor of the
language of the law that the existence of appropriations and the availability of funds are indispensable pre-
requisites to or conditions sine qua non for the execution of government contracts. The obvious intent is to
impose such conditions as a priori requisites to the validity of the proposed contract."93
Notwithstanding the constitutional ban, statutory mandates and Jurisprudential precedents, the three
Supplements to the ARCA, which were not approved by NEDA, imposed on government the additional burden
of spending public moneys without prior appropriation.
In the First Supplement ("FS") dated August 27, 1999, the following requirements were imposed on the
government:
• To construct, maintain and keep in good repair and operating condition all airport support services, facilities,
equipment and infrastructure owned and/or operated by MIAA, which are not part of the Project or which are
located outside the Site, even though constructed by 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:
o Providing thru MIAA the land required by Piatco for the taxilane and one taxiway, at no
cost to Piatco
o Implementing the government's existing storm drainage master plan
o Coordinating with DPWH the financing, implementation and completion of the following
works before the In-Service Date: three left-turning overpasses (Edsa to Tramo St.,
Tramo to Andrews Ave., and Manlunas Road to Sales Ave.) and a road upgrade and
improvement program involving widening, repair and resurfacing of Sales Road,
Andrews Avenue and Manlunas Road; improvement of Nichols Interchange; and
removal of squatters along Andrews Avenue
o Dealing directly with BCDA and the Philippine Air Force in acquiring additional land or
right of way for the road upgrade and improvement program
o 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
significance to the Terminal III Project, as well as of any adverse impact that may result if such obligation is not
performed or undertaken on time. In short, the criteria for determining whether the best-efforts basis will apply
is whether the obligations are critical to the success of the Project and, accordingly, whether failure to perform
them (or to perform them on time) could result in a material breach of the contract.
Viewed in this light, the "Additional Special Obligations" set out in Section 4 of the FS take on a different aspect.
In particular, each of the following may all be deemed to play a major role in the successful and timely
prosecution of the Terminal III Project: the obtention of land required by PIATCO for the taxilane and taxiway;
the implementation of 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.94The 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.95 For that reason, the MIAA was compelled to
enter into a memorandum of agreement with the DPWH in order to ensure the timely completion of the road
widening and improvement program. MIAA agreed to advance the total amount of P410.11 million to DPWH for
the works, while the latter was committed to do the following:
"2.2.8. Reimburse all advance payments to MIAA including but not limited to interest, fees, plus other costs of
money within the periods CY2004 and CY2006 with payment of no less than One Hundred Million Pesos
(PhP100M) every year.
"2.2.9. Perform all acts necessary to include in its CY2004 to CY2006 budget allocation the repayments for the
advances made by MIAA, to ensure that the advances are fully repaid by CY2006. For this purpose, DPWH
shall include the amounts to be appropriated for reimbursement to MIAA in the "Not Needing Clearance" column
of their Agency Budget Matrix (ABM) submitted to the Department of Budget and Management."
It can be easily inferred, then, that DPWH did not set aside enough funds to be able to complete the upgrading
program for the crucially situated access roads prior to the targeted opening date of Terminal III; and that, had
MIAA not agreed to lend the P410 Million, DPWH would not have been able to complete the program on time.
As a consequence, government would have been in breach of a material obligation. Hence, this particular
undertaking of government may likewise not be construed as being for best-efforts compliance only.
They also Infringe on the Legislative Prerogative and Power Over the Public Purse
But the particularly sad thing about this transaction between MIAA and DPWH is the fact that both agencies
were maneuvered into (or allowed themselves to be maneuvered into) an agreement that would ensure delivery
of upgraded roads for Piatco's benefit, using funds not allocated for that purpose. The agreement would then be
presented to Congress as a done deal. Congress would thus be obliged to uphold the agreement and support
it with the necessary allocations and appropriations for three years, in order to enable DPWH to deliver on its
committed repayments to MIAA. The net result is an infringement on the legislative power over the public purse
and a diminution of Congress' control over expenditures of public funds - a development that would not have
come about, were it not for the Supplements. Very clever but very illegal!
EPILOGUE
What Do We Do Now?

In the final analysis, there remains but one ultimate question, which I raised during the Oral Argument on
December 10, 2002: What do we do with the Piatco Contracts and Terminal III?96 (Feeding directly into the
resolution of the decisive question is the other nagging issue: Why should we bother with determining the legality
and validity of these contracts, when the Terminal itself has already been built and is practically complete?)

Prescinding from all the foregoing disquisition, I find that all the Piatco contracts, without exception, are void ab
initio, and therefore inoperative. Even the very process by which the contracts came into being - the bidding and
the award - has been riddled with irregularities galore and blatant violations of law and public policy, far too
many to ignore. There is thus no conceivable way, as proposed by some, of saving one (the original Concession
Agreement) while junking all the rest.

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 profit 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 fifty or more years and charging
whatever it feels like, without any competition at all. This scenario must not be allowed to happen.

If the Piatco contracts are junked altogether as I think they should be, should not AEDC automatically be
considered the winning bidder and therefore allowed to operate the facility? My answer is a stone-cold 'No'.
AEDC never won the bidding, never signed any contract, and never built any facility. Why should it be allowed
to automatically step in and benefit from the greed of another?

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,97 this Court held that even if the contract therein was void, the principle of
payment by quantum meruit was found applicable, and the contractor was allowed to recover
the reasonable value of the thing or services rendered (regardless of any agreement as to the supposed value),
in order to avoid unjust enrichment on the part of government. The principle of quantum meruit was likewise
applied in Eslao v. Commission on Audit,98 because to deny payment for a building almost completed and
already occupied would be to permit government to unjustly enrich itself at the expense of the contractor. The
same principle was applied in Republic v. Court of Appeals.99

One possible practical solution would be for government - in view of the nullity of the Piatco contracts and of the
fact that Terminal III has already been built and is almost finished - to bid out the operation of the facility under
the same or analogous principles as build-operate-and-transfer projects. To be imposed, however, is the
condition that the winning bidder must pay the builder of the facility a price fixed by government based
on quantum meruit; on the real, reasonable - not inflated - value of the built facility.

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.