Agan Jr. v Philippine International Air Terminals Co. Inc

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612 SUPREME COURT REPORTS ANNOTATED

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

Inc.

G.R. No. 155001. May 5, 2003.*

DEMOSTHENES P. AGAN, JR., JOSEPH B. CATAHAN,JOSE MARI B. REUNILLA, MANUEL ANTONIO B.BOE, MAMERTO S. CLARA, REUEL E. DIMALANTA,MORY V. DOMALAON, CONRADO G. DIMAANO,LOLITA R. HIZON, REMEDIOS P. ADOLFO,BIENVENIDO C. HILARIO, MIASCOR WORKERSUNION-NATIONAL LABOR UNION (MWU-NLU), andPHILIPPINE AIRLINES EMPLOYEES ASSOCIATION(PALEA), petitioners, vs.PHILIPPINE INTERNATIONALAIR TERMINALS CO., INC., MANILA INTERNATIONALAIRPORT AUTHORITY, DEPARTMENT OFTRANSPORTATION AND COMMUNICATIONS andSECRETARY LEANDRO M. MENDOZA, in his capacity as

Head of the Department of Transportation andCommunications, respondents.

MIASCOR GROUNDHANDLING CORPORATION,DNATAWINGS AVIATION SYSTEMS CORPORATION,MACROASIAEUREST SERVICES, INC., MACROASIA-MENZIES AIRPORT SERVICES CORPORATION,MIASCOR CATERING SERVICES CORPORATION,MIASCOR AIRCRAFT MAINTENANCE

CORPORATION, and MIASCOR LOGISTICSCORPORATION, petitioners-in-intervention.

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

SALACNIB F. BATERINA, CLAVEL A. MARTINEZ andCONSTANTINO G. JARAULA, petitioners, vs.PHILIPPINE INTERNATIONAL AIR TERMINALS CO.,INC., MANILA INTERNATIONAL AIRPORT


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AUTHORITY, DEPARTMENT OF TRANSPORTATIONAND COMMUNICATIONS, DEPARTMENT OF PUBLICWORKS AND HIGHWAYS, SECRETARY LEANDRO M.MENDOZA, in his capacity as Head of the Department ofTransportation and Communications, and SECRETARYSIMEON A. DATUMANONG, in his capacity as Head of theDepartment of Public Works and Highways, respondents.

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

_______________

*EN BANC.

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Inc.

LES, PROSPERO A. PICHAY, JR., HARLIN CASTABAYON, and BENASING O. MACARANBON,respondents-intervenors.

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

CEFERINO C. LOPEZ, RAMON M. SALES, ALFREDO B.VALENCIA, MA. TERESA V. GAERLAN, LEONARDODE LA ROSA, DINA C. DE LEON, VIRGIE CATAMINRONALD SCHLOBOM, ANGELITO SANTOS, MA. LUISAM. PALCON and SAMAHANG MANGGAGAWA SA

PALIPARAN NG PILIPINAS (SMPP), petitioners, vs.PHILIPPINE INTERNATIONAL AIR TERMINALS CO.,INC., MANILA INTERNATIONAL AIRPORTAUTHORITY, DEPARTMENT OF TRANSPORTATIONAND COMMUNICATIONS, SECRETARY LEANDRO M.MENDOZA, in his capacity as Head of the Department ofTransportation and Communications, respondents.

Judicial Review; Parties; Locus Standi; The question on legal


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standing is whether such parties have alleged such a personal stake

in the outcome of the controversy as to assure that concrete

adverseness which sharpens the presentation of issues upon which

the court so largely depends for illumination of difficult

constitutional questions.The question on legal standing iswhether such parties have alleged such a personal stake in theoutcome of the controversy as to assure that concrete adverseness

which sharpens the presentation of issues upon which the court solargely depends for illumination of difficult constitutionalquestions. Accordingly, it has been held that the interest of aperson assailing the constitutionality of a statute must be direct andpersonal. He must be able to show, not only that the law or anygovernment act is invalid, but also that he sustained or is inimminent danger of sustaining some direct injury as a result of itsenforcement, and not merely that he suffers thereby in someindefinite way. It must appear that the person complaining hasbeen or is about to be denied some right or privilege to which he is

lawfully entitled or that he is about to be subjected to some burdensor penalties by reason of the statute or act complained of.

Same; Same; Same; Petitioners who stand to lose their sources

of livelihood, a property right which is zealously protected by the

Constitution, have a direct and substantial interest in a controversy

which confers on them the requisite standing.We hold thatpetitioners have the requisite standing. In the above-mentionedcases, petitioners have a direct and substantial interest to protect byreason of the implementation of the PIATCO Contracts. They stand

to lose their source of livelihood, a property right which is zealouslyprotected by the Constitution. Moreover,

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

subsisting concession agreements between MIAA and petitioners-intervenors and service contracts between international airlines andpetitioners-intervenors stand to be nullified or terminated by theoperation of the NAIA IPT III under the PIATCO Contracts. Thefinancial prejudice brought about by the PIATCO Contracts onpetitioners and petitioners-intervenors in these cases are legitimateinterests sufficient to confer on them the requisite standing to filethe instant petitions.


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Same; Same; Same; Standing is a peculiar concept in

constitutional law because in some cases, suits are not brought by

parties who have been personally injured by the operation of a law

or any other government act but by concerned citizens, taxpayers or

voters who actually sue in the public interest; In view of the serious

legal questions involved and their impact on public interest, the

Court resolves to grant standing to the petitioners. Standing is a

peculiar concept in constitutional law because in some cases, suitsare not brought by parties who have been personally injured by theoperation of a law or any other government act but by concernedcitizens, taxpayers or voters who actually sue in the public interest.

Although we are not unmindful of the cases of Imus Electric Co. v.Municipality of Imusand Gonzales v. Raquizawherein this Courtheld that appropriation must be made only on amounts immediatelydemandable, public interest demands that we take a more liberalview in determining whether the petitioners suing as legislators,

taxpayers and citizens have locus standi to file the instant petition.

InKilosbayan, Inc. v. Guingona,this Court held [i]n line with theliberal policy of this Court on locus standi, ordinary taxpayers,members of Congress, and even association of planters, and non-

profit civic organizations were allowed to initiate and prosecuteactions before this Court to question the constitutionality or validityof laws, acts, decisions, rulings, or orders of various governmentagencies or instrumentalities. Further, insofar as taxpayers suitsare concerned . . . (this Court) is not devoid of discretion as towhether or not it should be entertained. As such . . . even if,

strictly speaking, they [the petitioners] are not covered by thedefinition, it is still within the wide discretion of the Court to waivethe requirement and so remove the impediment to its addressingand resolving the serious constitutional questions raised. In view ofthe serious legal questions involved and their impact on publicinterest, we resolve to grant standing to the petitioners.

Courts; Supreme Court; Hierarchy of Courts; Where a

controversy involves significant legal questions and the facts

necessary to resolve such legal questions are well established and,

hence, need not be determined by a trial court, the Supreme Courtmay assume jurisdiction over such controversy.RespondentPIATCO further alleges that this Court is without jurisdiction toreview the instant cases as factual issues are involved which thisCourt is ill-equipped to resolve. Moreover, PIATCO alleges thatsubmission of this controversy to this Court at the first instance is aviola-

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VOL. 402, MAY 5, 2003 615


tion of the rule on hierarchy of courts. They contend that trialcourts have concurrent jurisdiction with this Court with respect to a

special civil action for prohibition and hence, following the rule onhierarchy of courts, resort must first be had before the trial courts.

After a thorough study and careful evaluation of the issuesinvolved, this Court is of the view that the crux of the instantcontroversy involves significant legal questions.The facts necessaryto resolve these legal questions are well established and, hence,need not be determined by a trial court.

Same; Same; Same; The rule on hierarchy of courts may be

relaxed when the redress desired cannot be obtained in the

appropriate courts or where exceptional and compellingcircumstances justify availment of a remedy within and calling for

the exercise of the Supreme Courts primary jurisdiction.The ruleon hierarchy of courts will not also prevent this Court fromassuming jurisdiction over the cases at bar. The said rule may berelaxed when the redress desired cannot be obtained in theappropriate courts or where exceptional and compelling

circumstances justify availment of a remedy within and calling for

the exercise of this Courts primary jurisdiction.It is easy to discernthat exceptional circumstancesexist in the cases at bar that call for

the relaxation of the rule. Both petitioners and respondents agreethat these cases are of transcendental importance as they involvethe construction and operation of the countrys premierinternational airport. Moreover, the crucial issues submitted forresolution are of first impression and they entail the proper legalinterpretation of key provisions of the Constitution, the BOT Lawand its Implementing Rules and Regulations. Thus, considering thenature of the controversy before the Court, procedural bars may belowered to give way for the speedy disposition of the instant cases.

Actions; Alternative Dispute Resolution; Arbitration; Where

petitioners are not parties to a contract with an arbitration clause,

they cannot be compelled to submit to arbitration proceedings; A

speedy and decisive resolution of all the critical issues in the present

controversy, including those raised by petitioners, cannot be made

before an arbitral tribunal.It is established thatpetitioners in thepresent cases who have presented legitimate interests in theresolution of the controversy are not parties to the PIATCOContracts. Accordingly, they cannot be bound by the arbitration


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clause provided for in the ARCA and hence, cannot be compelled to

submit to arbitration proceedings.A speedy and decisive resolutionof all the critical issues in the present controversy, including those

raised by petitioners, cannot be made before an arbitral tribunal.

The object of arbitration is precisely to allow an expeditiousdetermination of a dispute. This objective would not be met if thisCourt were to allow the parties to settle the cases by arbitration as

there are certain issues involving non-parties to the PIATCOContracts which the arbitral tribunal will not be equipped toresolve.

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Bids and Bidding; The purpose of pre-qualification in any

public bidding is to determine, at the earliest opportunity, the

ability of the bidder to undertake the project, with the government

agency examining and determining the ability of the bidder to fund

the entire cost for the project by considering the maximum amounts

that each bidder may invest in the project at the time of pre-

qualification.The purpose of pre-qualification in any publicbidding is to determine, at the earliest opportunity, the ability of thebidder to undertake the project. Thus, with respect to the bidders

financial capacity at the pre-qualification stage, the law requiresthe government agency to examine and determine the ability of thebidder to fund the entire cost of the project by considering themaximum amounts that each bidder may invest in the project at the

time of pre-qualification. The PBAC has determined that anyprospective bidder for the construction, operation and maintenanceof the NAIA IPT III project should prove that it has the ability toprovide equity in the minimum amount of 30% of the project cost, inaccordance with the 70:30 debt-to-equity ratio prescribed in the Bid

Documents. Thus, in the case of Paircargo Consortium, the PBACshould determine the maximum amounts that each member of theconsortium may commit for the construction, operation andmaintenance of the NAIA IPT III project at the time of pre-qualification.With respect to Security Bank, the maximum amountwhich may be invested by it would only be 15% of its net worth inview of the restrictions imposed by the General Banking Act.Disregarding the investment ceilings provided by applicable lawwould not result in a proper evaluation of whether or not a bidder ispre-qualified to undertake the project as for all intents and


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purposes, such ceiling or legal restriction determines the true

maximum amountwhich a bidder may invest in the project.

Same; The determination of whether or not a bidder is pre-

qualified to undertake the project requires an evaluation of the

financial capacity of the said bidder at the time the bid is

submitted based on the required documents by the bidder and the

Pre-Qualification, Bid and Awards Committee (PBAC) should not

be allowed to speculate on the future financial ability of the bidderto undertake the project on the basis of the documents submitted;

Strict observance for the rules, regulations, and guidelines of the

bidding process is the only safeguard to a fair, honest and

competitive public bidding.The determination of whether or not abidder is prequalified to undertake the project requires anevaluation of the financial capacity of the said bidder at the time thebid is submittedbased on the required documents presented by thebidder. The PBAC should not be allowed to speculate on thefuture

financial abilityof the bidder to undertake the project on the basisof documents submitted. This would open doors to abuse and defeatthe very purpose of a public bidding. This is especially true in thecase at bar which involves the investment of billions of pesos by the

project proponent. The relevant government authority is duty-bound to ensure that the awardee of the contract possesses the

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minimum required financial capability to complete the project. Toallow the PBAC to estimate the bidders future financial capabilitywould not secure the viability and integrity of the project. Arestrictive and conservative application of the rules and proceduresof public bidding is necessary not only to protect the impartiality

and regularity of the proceedings but also to ensure the financialand technical reliability of the project. It has been held that: Thebasic rule in public bidding is that bids should be evaluated basedon the required documents submitted before and not after theopening of bids. Otherwise, the foundation of a fair and competitivepublic bidding would be defeated. Strict observance of the rules,regulations, and guidelines of the bidding process is the only

safeguard to a fair, honest and competitive public bidding.

Same; Considering that at the pre-qualification stage, the


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maximum amounts which the Paircargo Consortium may invest in

the project fell short of the minimum amounts prescribed by the

PBAC, the Court holds that Paircargo Consortium was not a

qualified bidder.If the maximum amount of equitythat a biddermay invest in the project at the time the bids are submitted fallsshort of the minimum amounts required to be put up by the bidder,said bidder should be properly disqualified. Considering that at the

pre-qualification stage, the maximum amounts which the PaircargoConsortium may invest in the project fell short of the minimumamounts prescribed by the PBAC, we hold that PaircargoConsortium was not a qualified bidder. Thus the award of thecontract by the PBAC to the Paircargo Consortium, a disqualifiedbidder, is null and void. While it would be proper at this juncture toend the resolution of the instant controversy, as the legal effects ofthe disqualification of respondent PIATCOs predecessor would comeinto play and necessarily result in the nullity of all the subsequentcontracts entered by it in pursuance of the project, the Court feels

that it is necessary to discuss in full the pressing issues of thepresent controversy for a complete resolution thereof.

Same; By its very nature, public bidding aims to protect the

public interest by giving the public the best possible advantages

through open competition.By its very nature, public bidding aimsto protect the public interest by giving the public the best possibleadvantages through open competition. Thus: Competition must belegitimate, fair and honest. In the field of government contract law,competition requires, not only bidding upon a common standard, a

common basis, upon the same thing, the same subject matter, thesame undertaking, but also that it be legitimate, fair and honest;and not designed to injure or defraud the government.

Same; An essential element of a publicly bidded contract is that

all bidders must be on equal footing, not simply in terms of

application of the procedural rules and regulations imposed by the

relevant government agency, but more importantly, on the contract

bidded uponif the winning

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bidder is allowed to later include or modify certain provisions in

the contract awarded such that the contract is altered in any


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material respect, then the essence of fair competition in the public

bidding is destroyed.An essential element of a publicly biddedcontract is that all bidders must be on equal footing. Not simply in

terms of application of the procedural rules and regulations imposedby the relevant government agency, but more importantly, on thecontract bidded upon. Each bidder must be able to bid on the same

thing.The rationale is obvious. If the winning bidder is allowed to

later include or modify certain provisions in the contract awardedsuch that the contract is altered in any material respect, then theessence of fair competition in the public bidding is destroyed. Apublic bidding would indeed be a farce if after the contract isawarded, the winning bidder may modify the contract and includeprovisions which are favorable to it that were not previously madeavailable to the other bidders. Thus: It is inherent in public biddingsthat there shall be a fair competition among the bidders. Thespecifications in such biddings provide the common ground or basis

for the bidders. The specifications should, accordingly, operate

equally or indiscriminately upon all bidders.

Same; While a winning bidder is not precluded from modifying

or amending certain provisions of the contract bidded upon, such

changes must not constitute substantial or material amendments

that would alter the basic parameters of the contract and would

constitute a denial to the other bidders of the opportunity to bid on

the same terms; The determination of whether or not a modification

or amendment constitutes a substantial amendment rests on

whether the contract, when taken as a whole, would contain

substantially different terms and conditions that would have theeffect of altering the technical and/or financial proposals previously

submitted by other bidders.While we concede that a winningbidder is not precluded from modifying or amending certainprovisions of the contract bidded upon, such changes must notconstitute substantial or material amendments that would alter the

basic parameters of the contract and would constitute a denial to

the other bidders of the opportunity to bid on the same terms.Hence, the determination of whether or not a modification oramendment of a contract bidded out constitutes a substantialamendment rests on whether the contract, when taken as a whole,would contain substantially different terms and conditions thatwould have the effect of altering the technical and/or financialproposals previously submitted by other bidders. The alterationsand modifications in the contract executed between the governmentand the winning bidder must be such as to render such executedcontract to be an entirely different contract from the one that wasbidded upon.

Same; The 1997 Concession Agreement clearly gives PIATCO


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more favorable terms than what was available to other bidders at

the time the contract was bidded out.When taken as a whole, thechanges under the

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1997 Concession Agreement with respect to reduction in the types offees that are subject to MIAA regulation and the relaxation of suchregulation with respect to other fees are significant amendmentsthat substantially distinguish the draft Concession Agreement fromthe 1997 Concession Agreement. The 1997 Concession Agreement,

in this respect, clearly gives PIATCO more favorable terms thanwhat was available to other bidders at the time the contract was

bidded out. It is not very difficult to see that the changes in the1997 Concession Agreement translate to direct and concrete

financial advantages for PIATCOwhich were not available at thetime the contract was offered for bidding. It cannot be denied thatunder the 1997 Concession Agreement only Public UtilityRevenues are subject to MIAA regulation. Adjustments of all other

fees imposed and collected by PIATCO are entirely within its

control. Moreover, with respect to terminal fees, under the 1997

Concession Agreement, the same is further subject to InterimAdjustments not previously stipulated in the draft ConcessionAgreement. Finally, the change in the currency stipulated forPublic Utility Revenues under the 1997 Concession Agreement,except terminal fees, gives PIATCO an added benefit which was notavailable at the time of bidding.

Same; Section 4.04 of the 1997 Concession Agreement is an

important amendment because it grants PIATCO a financial

advantage or benefit which was not previously made available

during the bidding process. Without going into the validity of thisprovision at this juncture, suffice it to state that Section 4.04 of the1997 Concession Agreement may be considered a form of securityfor the loans PIATCO has obtained to finance the project, an optionthat was not made available in the draft Concession Agreement.Section 4.04 is an important amendment to the 1997 Concession

Agreement because it grants PIATCO a financial advantage or

benefit which was not previously made available during the

bidding process. This financial advantage is a significant


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modification that translates to better terms and conditions forPIATCO.

Same; It has been held that the three principles in public

bidding are (1) the offer to the public, (2) opportunity for

competition, and (3) a basis for the exact comparison of bids.Weagree that it is not inconsistent with the rationale and purpose ofthe BOT Law to allow the project proponent or the winning bidder

to obtain financing for the project, especially in this case whichinvolves the construction, operation and maintenance of the NAIAIPT III. Expectedly, compliance by the project proponent of itsundertakings therein would involve a substantial amount ofinvestment. It is therefore inevitable for the awardee of the contractto seek alternate sources of funds to support the project. Be that asit may, this Court maintains that amendments to the contractbidded upon should always conform to the general policy on publicbidding if such procedure is to be faithful to its real nature andpurpose. By its very nature and characteristic, com-

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petitive public bidding aims to protect the public interest by givingthe public the best possible advantages through open competition. Ithas been held that the three principles in public bidding are (1) theoffer to the public; (2) opportunity for competition; and (3) a basisfor the exact comparison of bids. A regulation of the matter whichexcludes any of these factors destroys the distinctive character ofthe system and thwarts the purpose of its adoption. These are thebasic parameters which every awardee of a contract bidded outmust conform to, requirements of financing and borrowingnotwithstanding. Thus, upon a concrete showing that, as in this

case, the contract signed by the government and the contract-awardee is an entirely different contract from the contract bidded,courts should not hesitate to strike down said contract in its entiretyfor violation of public policy on public bidding. A strict adherence onthe principles, rules and regulations on public bidding must besustained if only to preserve the integrity and the faith of thegeneral public on the procedure.

Same; Any government action which permits any substantial

variance between the conditions under which the bids are invited


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and the contract executed after the award thereof is a grave abuse of

discretion amounting to lack or excess of jurisdiction which

warrants proper judicial action.Public bidding is a standard

practice for procuring government contracts for public service andfor furnishing supplies and other materials. It aims to secure for thegovernment the lowest possible price under the most favorableterms and conditions, to curtail favoritism in the award of

government contracts and avoid suspicion of anomalies and it placesall bidders in equal footing. Any government action which permitsany substantial variance between the conditions under which the

bids are invited and the contract executed after the award thereof is

a grave abuse of discretion amounting to lack or excess of

jurisdiction which warrants proper judicial action.

Same; The fact that substantial amendments were made on the

1997 Concession Agreement renders the same null and void for

being contrary to public policy.In view of the above discussion,the fact that the foregoing substantial amendments were made onthe 1997 Concession Agreementrenders the same null and void forbeing contrary to public policy. These amendments convert the1997 Concession Agreement to an entirely different agreementfrom

the contract bidded out or the draft Concession Agreement. It is notdifficult to see that the amendments on (1) the types of fees orcharges that are subject to MIAA regulation or control and theextent thereof and (2) the assumption by the Government, undercertain conditions, of the liabilities of PIATCO directly translatesconcrete financial advantages to PIATCO that were previously not

available during the bidding process. These amendments cannot betaken as merely supplements to or implementing provisions of thosealready existing in the draft Concession Agreement. Theamendments discussed above present new

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terms and conditions which provide financial benefit to PIATCOwhich may have altered the technical and financial parameters ofother bidders had they known that such terms were available.

Same; Build-Operate-and-Transfer (BOT) Projects; Direct

government guarantee is prohibited by the law on BOT projects.It

is clear from the above-quoted provisions that Government, in the


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event that PIATCO defaults in its loan obligations, is obligated to

pay all amounts recorded and from time to time outstanding fromthe books of PIATCO which the latter owes to its creditors. These

amounts include all interests, penalties, associated fees, charges,surcharges, indemnities, reimbursements and other relatedexpenses. This obligation of the Government to pay PIATCOscreditors upon PIATCOs default would arise if the Government opts

to take over NAIA IPT III. It should be noted, however, that even ifthe Government chooses the second option, which is to allowPIATCOs unpaid creditors operate NAIA IPT III, the Governmentis still at a risk of being liable to PIATCOs creditors should thelatter be unable to designate a qualified operator within theprescribed period. In effect, whatever option the Government choosesto take in the event of PIATCOs failure to fulfill its loan

obligations, the Government is still at a risk of assuming PIATCOs

outstanding loans. This is due to the fact that the Governmentwould only be free from assuming PIATCOs debts if the unpaid

creditors would be able to designate a qualified operator within theperiod provided for in the contract. Thus, the Governments

assumption of liability is virtually out of its control. TheGovernment under the circumstances provided for in the 1997Concession Agreement is at the mercy of the existence, availabilityand willingness of a qualified operator. The above contractualprovisions constitute a direct government guarantee which isprohibited by law.

Same; Same; If the government would in the end still be at a

risk of paying the debts incurred by the private entity in the BOTproject, then the purpose of the law is subverted.One of the mainimpetus for the enactment of the BOT Law is the lack ofgovernment funds to construct the infrastructure and developmentprojects necessary for economic growth and development. This iswhy private sector resources are being tapped in order to financethese projects. The BOT law allows the private sector to participate,and is in fact encouraged to do so by way of incentives, such asminimizing the unstable flow of returns, provided that thegovernment would not have to unnecessarily expend scarcelyavailable funds for the project itself. As such, direct guarantee,subsidy and equity by the government in these projects are strictlyprohibited. This is but logical for if the government would in theend still be at a risk of paying the debts incurred by the private

entity in the BOT projects, then the purpose of the law is subverted.

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Same; Same; The proscription against government guarantee in

any form is one of the policy considerations behind the BOT Law.

The proscription against government guarantee in any form isone of the policy considerations behind the BOT Law. Clearly, in

the present case, the ARCA obligates the Government to pay for allloans, advances and obligations arising out of financial facilitiesextended to PIATCO for the implementation of the NAIA IPT IIIproject should PIATCO default in its loan obligations to its SeniorLenders and the latter fails to appoint a qualified nominee ortransferee. This in effect would make the Government liable forPIATCOs loans should the conditions as set forth in the ARCAarise. This is a form of direct government guarantee.

Same; Same; The BOT Law clearly and strictly prohibits direct

government guarantee, subsidy and equity in unsolicited proposalsthat the mere inclusion of a provision to that effect is fatal and is

sufficient to deny the proposal; It stands to reason that if a proposal

can be denied by reason of the existence of direct government

guarantee, then its inclusion in the contract executed after the said

proposal has been accepted is likewise sufficient to invalidate the

contract itself.The BOT Law and its implementing rules providethat in order for an unsolicited proposal for a BOT project may beaccepted, the following conditions must first be met: (1) the projectinvolves a new concept in technology and/or is not part of the list of

priority projects, (2) no direct government guarantee, subsidy orequity is required, and (3) the government agency or localgovernment unit has invited by publication other interested partiesto a public bidding and conducted the same. The failure to meet anyof the above conditions will result in the denial of the proposal. It isfurther provided that the presence of direct government guarantee,subsidy or equity will necessarily disqualify a proposal from beingtreated and accepted as an unsolicited proposal. The BOT Lawclearly and strictly prohibits direct government guarantee, subsidyand equity in unsolicited proposals that the mere inclusion of aprovision to that effect is fatal and is sufficient to deny the proposal.It stands to reason therefore that if a proposal can be denied byreason of the existence of direct government guarantee, then itsinclusion in the contract executed after the said proposal has beenaccepted is likewise sufficient to invalidate the contract itself. Aprohibited provision, the inclusion of which would result in thedenial of a proposal cannot, and should not, be allowed to later onbe inserted in the contract resulting from the said proposal. Thebasic rules of justice and fair play alone militate against such an


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occurrence and must not, therefore, be countenanced particularly in

this instance where the government is exposed to the risk ofshouldering hundreds of million of dollars in debt.

Same; Same; The Supreme Court has long and consistently

adhered to the legal maxim that those that cannot be done directly

cannot be done indirectly.This Court has long and consistentlyadhered to the legal

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maxim that those that cannot be done directly cannot be done

indirectly. To declare the PIATCO contracts valid despite the clearstatutory prohibition against a direct government guarantee would

not only make a mockery of what the BOT Law seeks to prevent

which is to expose the government to the risk of incurring a

monetary obligation resulting from a contract of loan between the

project proponent and its lenders and to which the Government is

not a party tobut would also render the BOT Law useless for what

it seeks to achieveto make use of the resources of the private sector

in the financing, operation and maintenance of infrastructure and

development projects which are necessary for national growth anddevelopment but which the government, unfortunately, could ill-

afford to finance at this point in time.

Public Utilities; Police Power; Temporary Takeover of Business

Affected with Public Interest; When the government temporarily

takes over a business affected with public interest pursuant to

Article XII, Section 17 of the Constitution, it is not required to

compensate the private entity-owner of the said business as there is

no transfer of ownership, whether permanent or temporary, and the

private entity-owner affected by the temporary takeover cannot,

likewise, claim just compensation for the use of the said business

and its properties as the temporary takeover by the government is in

exercise of its police power and not of its power of eminent domain.

The above provision pertains to the right of the State in times ofnational emergency, and in the exercise of its police power, totemporarily take over the operation of any business affected withpublic interest. In the 1986 Constitutional Commission, the termnational emergency was defined to include threat from external

aggression, calamities or national disasters, but not strikes unless it


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is of such proportion that would paralyze government service. Theduration of the emergency itself is the determining factor as to howlong the temporary takeover by the government would last. The

temporary takeover by the government extends only to theoperation of the business and not to the ownership thereof. As suchthe government is not required to compensate the private entity-owner of the said business as there is no transfer of ownership,

whether permanent or temporary. The private entity-owner affectedby the temporary takeover cannot, likewise, claim just compensationfor the use of the said business and its properties as the temporarytakeover by the government is in exercise of itspolice powerand notof its power of eminent domain.

Same; Same; Same; Article XII, Section 17 of the 1987

Constitution envisions a situation wherein the exigencies of the

times necessitate the government to temporarily take over or direct

the operation of any privately owned public utility or business

affected with public interest; Clearly, the State in effecting the

temporary takeover is exercising its police power and its exercise

therefore must not be unreasonably hampered nor its exercise be a

source of obligation by the government in the absence of dam-

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age due to arbitrariness of its exercise, and requiring the

government to pay reasonable compensation for the reasonable use

of the property pursuant to the operation of the business contravenes

the Constitution.PIATCO cannot, by mere contractual stipulation,contravene the Constitutional provision on temporary governmenttakeover and obligate the government to pay reasonable cost forthe use of the Terminal and/or Terminal Complex. Article XII,

section 17 of the 1987 Constitution envisions a situation whereinthe exigencies of the times necessitate the government totemporarily take over or direct the operation of any privatelyowned public utility or business affected with public interest. It isthe welfare and interest of the public which is the paramountconsideration in determining whether or not to temporarily takeover a particular business. Clearly, the State in effecting thetemporary takeover is exercising its police power. Police power is themost essential, insistent, and illimitable of powers. Its exercise


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therefore must not be unreasonably hampered nor its exercise be asource of obligation by the government in the absence of damagedue to arbitrariness of its exercise. Thus, requiring the government

to pay reasonable compensation for the reasonable use of theproperty pursuant to the operation of the business contravenes theConstitution.

Same; Monopolies; Words and Phrases; A monopoly is a

privilege or peculiar advantage vested in one or more persons orcompanies, consisting in the exclusive right (or power) to carry on a

particular business or trade, manufacture a particular article, or

control the sale of a particular commodity; Monopolies are not per se

prohibited by the Constitution but may be permitted to exist to aid

the government in carrying on an enterprise or to aid in the

performance of various services and functions in the interest of the

public; As monopolies are subject to abuses that can inflict severe

prejudice to the public, they are subject to a higher level of State

regulation than an ordinary business undertaking.A monopoly isa privilege or peculiar advantage vested in one or more persons orcompanies, consisting in the exclusive right (or power) to carry on aparticular business or trade, manufacture a particular article, or

control the sale of a particular commodity. The 1987 Constitutionstrictly regulates monopolies, whether private or public, and evenprovides for their prohibition if public interest so requires. ArticleXII, Section 19 of the 1987 Constitution states: Sec. 19. The stateshall regulate or prohibit monopolies when the public interest sorequires. No combinations in restraint of trade or unfair competition

shall be allowed. Clearly, monopolies are notper seprohibited by theConstitution but may be permitted to exist to aid the government incarrying on an enterprise or to aid in the performance of variousservices and functions in the interest of the public. Nonetheless, adetermination must first be made as to whether public interestrequires a monopoly. As monopolies are subject to abuses that caninflict severe prejudice to the public, they are subject to a higherlevel of State regulation than an ordinary business undertaking.

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Same; Same; Air Transportation; Airport Terminals; The

operation of an international passenger airport terminal is no doubt

an undertaking imbued with public interest; While it is the


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declared policy of the BOT Law to encourage private sector

participation by providing a climate of minimum government

regulations, the same does not mean that Government must

completely surrender its sovereign power to protect public interest in

the operation of a public utility as a monopolythe right granted to

the public utility may be exclusive but the exercise of the right

cannot run riot; The privilege granted to PIATCO is subject to

reasonable regulation and supervision by the Government throughthe MIAA, which is the government agency authorized to operate the

NAIA complex, as well as DOTC, the department to which MIAA is

attached.The operation of an international passenger airportterminal is no doubt an undertaking imbued with public interest. Inentering into a Build-Operate-and-Transfer contract for theconstruction, operation and maintenance of NAIA IPT III, thegovernment has determined that public interest would be servedbetter if private sector resources were used in its construction andan exclusive right to operate be granted to the private entity

undertaking the said project, in this case PIATCO. Nonetheless, theprivilege given to PIATCO is subject to reasonable regulation andsupervision by the Government through the MIAA, which is thegovernment agency authorized to operate the NAIA complex, aswell as DOTC, the department to which MIAA is attached. This is inaccord with the Constitutional mandate that a monopoly which isnot prohibited must be regulated. While it is the declared policy ofthe BOT Law to encourage private sector participation by providinga climate of minimum government regulations, the same does not

mean that Government must completely surrender its sovereignpower to protect public interest in the operation of a public utility asa monopoly. The operation of said public utility can not be done inan arbitrary manner to the detriment of the public which it seeks toserve. The right granted to the public utility may be exclusive butthe exercise of the right cannot run riot. Thus, while PIATCO maybe authorized to exclusively operate NAIA IPT III as aninternational passenger terminal, the Government, through theMIAA, has the right and the duty to ensure that it is done in accordwith public interest. PIATCOs right to operate NAIA IPT III cannot

also violate the rights of third parties.

Same; Same; Same; Same; Contracts; While the service

providers presently operating at NAIA Terminal I do not have an

absolute right for the renewal or the extension of their respective

contracts, those contracts whose duration extends beyond NAIA IPT

IIIs In-Service-Date should not be unduly prejudicedPIATCO

cannot, by law and certainly not by contract, render a valid and

binding contract nugatory.We hold that while the service

providers presently operating at NAIA Terminal I do not have an


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absolute right for the renewal or the extension of their respective

contracts, those contracts whose duration extends beyond NAIA IPTIIIs In-

626



Service-Date should not be unduly prejudiced. These contracts mustbe respected not just by the parties thereto but also by third parties.PIATCO cannot, by law and certainly not by contract, render avalid and binding contract nugatory. PIATCO, by the mereexpedient of claiming an exclusive right to operate, cannot require

the Government to break its contractual obligations to the serviceproviders. In contrast to the arrastre and stevedoring serviceproviders in the case of Anglo-Fil Trading Corporation v. Lazarowhose contracts consist of temporary hold-over permits, the affectedservice providers in the cases at bar, have a valid and bindingcontract with the Government, through MIAA, whose period ofeffectivity, as well as the other terms and conditions thereof cannotbe violated.

Same; Same; Same; Same; The provisions of the 1997

Concession Agreement and the Amended and Restated ConcessionAgreement (ARCA) did not strip government, thru the MIAA, of its

right to supervise the operation of the whole NAIA complex,

including NAIA IPT III.In fine, the efficient functioning of NAIAIPT III is imbued with public interest. The provisions of the 1997Concession Agreement and the ARCA did not strip government,thru the MIAA, of its right to supervise the operation of the wholeNAIA complex, including NAIA IPT III. As the primary governmentagency tasked with the job, it is MIAAs responsibility to ensure thatwhoever by contract is given the right to operate NAIA IPT III will

do so within the bounds of the law and with due regard to the rightsof third parties and above all, the interest of the public.

VITUG, J., Separate Opinion:

Supreme Court; Jurisdiction; The Supreme Court is bereft of

jurisdiction to hear the petition at bar.This Court is bereft ofjurisdiction to hear the petitions at bar. The Constitution providesthat the Supreme Court shall exercise original jurisdiction over,


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among other actual controversies, petitions for certiorari,

prohibition, mandamus, quo warranto, and habeas corpus. Thecases in question, although denominated to be petitions for

prohibition, actually pray for the nullification of the PIATCOcontracts and to restrain respondents from implementing saidagreements for being illegal and unconstitutional.

Same; Same; Declaratory Relief; The petitions, in effect, are in

the nature of actions for declaratory relief which are cognizable byregional trial courts.The petitions, in effect, are in the nature ofactions 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 ofconstruction or validity arising, and for a declaration of his rights orduties thereunder. The Supreme Court assumes no jurisdiction

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VOL. 402, MAY 5, 2003 627


over petitions for declaratory relief which are cognizable by regionaltrial courts.

Same; Same; Separation of Powers; The Supreme Court shouldnot be thought of as having been tasked with the awesome

responsibility of overseeing the entire bureaucracythe Court may

not at good liberty intrude, in the guise of sovereign imprimatur,

into every affair of government.As I have so expressed inTolentino vs. Secretary of Finance, reiterated in Santiago vs.Guingona, Jr., the Supreme Court should not be thought of ashaving been tasked with the awesome responsibility of overseeingthe entire bureaucracy. Pervasive and limitless, such as it may seemto be under the 1987 Constitution, judicial power still succumbs tothe paramount doctrine of separation of powers. The Court may notat good liberty intrude, in the guise of sovereign imprimatur, intoevery affair of government. What significance can still then remainof the time-honored and widely acclaimed principle of separation ofpowers if, at every turn, the Court allows itself to pass upon at willthe disposition of a co-equal, independent and coordinate branch inour system of government. I dread to think of the so varieduncertainties that such an undue interference can lead to.


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PANGANIBAN, J., Separate Opinion:

Courts; Judicial Review; The Court has, in the past, held that

questions relating to gargantuan government contracts ought to be

settled without delay.The Court has, in the past, held thatquestions relating to gargantuan government contracts ought to besettled without delay. This holding applies with greater force to the

instant cases. Respondent Piatco is partly correct in averring thatpetitioners can obtain relief from the regional trial courts via anaction to annul the contracts.

Same; Same; Alternative Dispute Resolution; Arbitration;

Public Utilities; Build-Operate-and-Transfer (BOT) Projects;

International Airport Terminal; The Piatco contracts are void in

their entiretyresort to arbitration is unavailing.As will bediscussed at length later, the Piatco contracts are indeed void intheir entirety; thus, a resort to the aforesaid provision on arbitration

is unavailing. Besides, petitioners and petitioners-in-interventionhave pointed out that, even granting arguendothat the arbitrationclause remained a valid provision, it still cannot bind theminasmuch as they are not parties to the Piatco contracts. And in thefinal analysis, it is unarguable that the arbitration process providedfor under Section 10.02 of the ARCA, to be undertaken by a panelof three (3) arbitrators appointed in accordance with the Rules of

Arbitration of the International Chamber of Commerce, will not beable to address, determine and

628



definitively resolve the constitutional and legal questions that havebeen raised in the Petitions before us.

Same; Same; Parties; Locus Standi; In cases of transcendental

importance, the Court may relax the standing requirements and

allow a suit to prosper even when there is no direct injury to the

party claiming the right of judicial review.And even if petitionersand petitioners-in-intervention were not sufficiently clothed withlegal standing, I have at the outset already established that, givenits impact on the public and on national interest, this controversy isladen with transcendental importance and constitutionalsignificance. Hence, I do not hesitate to adopt the same position as


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was enunciated in Kilosbayan v. Guingona, Jr. that in cases of

transcendental importance, the Court may relax the standing

requirements and allow a suit to prosper even when there is no

direct injury to the party claiming the right of judicial review.

Bids and Bidding; It is unarguably and contrary to the very

concept of public bidding to permit a variance between the

conditions under which bids are invited and those under which

proposals are submitted and approved.By virtue of theprequalified status conferred upon the Paircargo, UndersecretaryCals findings in effect relieved the consortium of the need to complywith the financial capability requirement imposed by the BOT Lawand IRR. This position is unmistakably and squarely at odds withthe Supreme Courts consistent doctrine emphasizing the strictapplication of pertinent rules, regulations and guidelines for thepublic bidding process, in order to place each bidderactual orpotentialon the same footing. Thus, it is unarguably irregular andcontrary to the very concept of public bidding to permit a variancebetween the conditions under which bids are invited and thoseunder which proposals are submitted and approved.

Same; Public Utilities; Build-Operate-and-Transfer (BOT)

Projects;The propriety information referred to in Section 11.6 ofthe IRR pertains only to the proprietary information of the

originator of an unsolicited proposal, and not to those belonging to

a challenger; Patently, the intent of the BOT Law is to encourage

individuals and groups to come up with creative innovations, fresh

ideas and new technologyhence, the significance and necessity of

protecting propriety information in connection with unsolicited

proposals.The proprietary information referred to in Section11.6 of the IRR pertains only to the proprietary information of the

originatorof an unsolicited proposal, and not to those belonging to a

challenger. The reason for the protection accorded proprietaryinformation at all is the fact that, according to Section 4-A of theBOT Law as amended, a proposal qualifies as an unsolicitedproposal when it pertains to a project that involves a new conceptor technology,and/or a project that is not on the governments list

of priority projects. To be considered as utilizing a new concept ortechnology, a project must involve the possession of exclusive

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rights (worldwide or regional) over a process; or possession ofintellectual property rights over a design, methodology orengineering concept. Patently, the intent of the BOT Law is toencourage individuals and groups to come up with creativeinnovations, fresh ideas and new technology. Hence, thesignificance and necessity of protecting proprietary information inconnection with unsolicited proposals. And to make the

encouragement real, the law also extends to such individuals andgroups what amounts to a right of first refusal to undertake theproject they conceptualized, involving the use of new technology orconcepts, through the mechanism of matching a price challenge.

Same; Same; Same; Allowing the winning bidder to renegotiate

the contract for which the bidding process has ended is tantamount

to permitting it to put in anything it wants.The aforementionedcase dealt with the unauthorized amendment of a contract executedafter public bidding; in the situation before us, the amendments

were made also after the bidding, but prior to execution. Be that asit may, the same rationale underlyingCaltex applies to the presentsituation with equal force. Allowing the winning bidder torenegotiate the contract for which the bidding process has ended istantamount to permitting it to put in anything it wants. Here, thewinning bidder (Piatco) did not even bother to wait until afteractual execution of the contract before rushing to amend it. Perhapsit believed that if the changes were made to a contract already wonthrough bidding (DCA) instead of waiting until it is executed, theamendments would not be noticed or discovered by the public.

Same; Same; Same; Franchises;The constitutional prohibition

against the exclusivity of a franchise applies to the franchise for the

operation of NAIA Terminal III.While Section 2.02 of the ARCA

spoke of granting to Piatco a franchise to operate and maintain theTerminal Complex, Section 3.02(a) of the same ARCA granted toPiatco, for the entire term of the concession agreement, theexclusive right to operate a commercial international passenger

terminal within the Island of Luzon with the exception of thosethree terminals already existing at the time of execution of the

ARCA. Section 11 of Article XII of the Constitution prohibits thegrant of a franchise, certificate, or any other form of authorizationfor the operation of a public utility that is exclusive in character.In its Opinion No. 078, Series of 1995, the Department of Justiceheld that the NAIA Terminal III which x x x is a terminal forpublic use is a public utility. Consequently, the constitutionalprohibition against the exclusivity of a franchise applies to thefranchise for the operation of NAIA Terminal III as well.

Same; Same; Same; Unjust Enrichment; The government


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should pay for reasonable expenses incurred in the construction of

the NAIA Terminal III, otherwise it will be unjustly enriching itself

at the expense of Piatco

630



and, in particular, its finders, contractors and investorsboth local

and foreign.Should government pay at all for reasonableexpenses incurred in the construction of the Terminal? Indeed itshould, otherwise it will be unjustly enriching itself at the expenseof Piatco and, in particular, its funders, contractors and investors

both local and foreign. After all, there is no question that the Stateneeds and will make use of Terminal III, it being part and parcel ofthe critical infrastructure and transportationrelated programs ofgovernment. In Melchor v. Commission on Audit, this Court heldthat even if the contract therein was void, the principle of paymentby quantum meruitwas found applicable, and the contractor wasallowed to recover the reasonable value of the thing or servicesrendered (regardless of any agreement as to the supposedvalue), inorder to avoid unjust enrichment on the part of government. Theprinciple of quantum meruit was likewise applied in Eslao v.Commission on Audit, because to deny payment for a buildingalmost completed and already occupied would be to permitgovernment to unjustly enrich itself at the expense of thecontractor. The same principle was applied in Republic v. Court of

Appeals.

SPECIAL CIVIL ACTION in the Supreme Court.Prohibition.

The facts are stated in the opinion of the Court. Salonga, Hernandez & Mendozafor petitioners in G.R.

No. 155001. Jose A. Bernasfor petitioners in G.R. No. 155547. Erwin P. Erfefor petitioners in G.R. No. 155661. Jose Espinasfor MWU-NLU. Jose E. Marigondonfor PALEA. Angara, Abello, Concepcion, Regala & Cruz for

petitioners-in-intervention. Arthur D. Lim Law Officefor Asias Emerging Dragon,


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etc. Romulo, Mabanta, Buenaventura, Sayoc & Delos

Angeles; Chavez & Laureta & Associates; and MoisesTolentino, Jr.for PIATCO.

Office of the Government Corporate Counselfor MIAA. Mario E. Ongkiko, Fernando F. Manas, Jr., Raymund

C. De Castro and Angelito S. Lazaro, Jr. for respondents-

intervenors.631

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Inc.

PUNO, J.:

Petitioners and petitioners-in-intervention filed the instantpetitions for prohibition under Rule 65 of the Revised Rulesof Court seeking to prohibit the Manila InternationalAirport Authority (MIAA) and the Department ofTransportation and Communications (DOTC) and itsSecretary from implementing the following agreementsexecuted by the Philippine Government through the DOTCand the MIAA and the Philippine International AirTerminals Co., Inc. (PIATCO): (1) the Concession

Agreement signed on July 12, 1997, (2) the Amended andRestated Concession Agreement dated November 26, 1999,(3) the First Supplement to the Amended and RestatedConcession Agreement dated August 27, 1999, (4) theSecond Supplement to the Amended and RestatedConcession Agreement dated September 4, 2000, and (5) theThird Supplement to the Amended and Restated ConcessionAgreement dated June 22, 2001 (collectively, the PIATCOContracts).

The facts are as follows:In August 1989, the DOTC engaged the services ofAeroport de Paris (ADP) to conduct a comprehensive studyof the Ninoy Aquino International Airport (NAIA) anddetermine whether the present airport can cope with thetraffic development up to the year 2010. The study consistedof two parts: first, traffic forecasts, capacity of existingfacilities, NAIA future requirements, proposed master plansand development plans; and second, presentation of thepreliminary design of the passenger terminal building. The


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ADP submitted a Draft Final Report to the DOTC inDecember 1989.

Some time in 1993, six business leaders consisting ofJohn Gokongwei, Andrew Gotianun, Henry Sy, Sr., LucioTan, George Ty and Alfonso Yuchengco met with thenPresident Fidel V. Ramos to explore the possibility ofinvesting in the construction and operation of a new

international airport terminal. To signify their commitmentto pursue the project, they formed the Asias EmergingDragon Corp. (AEDC) which was registered with theSecurities and Exchange Commission (SEC) on September15, 1993.

On October 5, 1994, AEDC submitted an unsolicitedproposal to the Government through the DOTC/MIAA forthe development of NAIA International PassengerTerminal III (NAIA IPT III) under

632



Inc.

a build-operate-and-transfer arrangement pursuant to RA6957 as amended by RA 7718 (BOT Law).

1

On December 2, 1994, the DOTC issued Dept. Order No.94-832 constituting the Prequalification Bids and AwardsCommittee (PBAC) for the implementation of the NAIA IPTIII project.

On March 27, 1995, then DOTC Secretary Jose Garciaendorsed the proposal of AEDC to the National Economicand Development Authority (NEDA). A revised proposal,however, was forwarded by the DOTC to NEDA onDecember 13, 1995. On January 5, 1996, the NEDAInvestment Coordinating Council (NEDA ICC)-Technical

Board favorably endorsed the project to the ICC-CabinetCommittee which approved the same, subject to certainconditions, on January 19, 1996. On February 13, 1996, theNEDA passed Board Resolution No. 2 which approved theNAIA IPT III project.

On June 7, 14, and 21, 1996, DOTC/MIAA caused thepublication in two daily newspapers of an invitation forcompetitive or comparative proposals on AEDCs unsolicitedproposal, in accordance with Sec. 4-A of RA 6957, asamended. The alternative bidders were required to submit


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a.

i.

ii.

three (3) sealed envelopes on or before 5:00 p.m. ofSeptember 20, 1996. The first envelope should contain thePrequalification Documents, the second envelope theTechnical Proposal, and the third envelope the FinancialProposal of the proponent.

On June 20, 1996, PBAC Bulletin No. 1 was issued,postponing the availment of the Bid Documents and the

submission of the comparative bid proposals. Interestedfirms were permitted to obtain the Request for ProposalDocuments beginning June 28, 1996, upon submission of awritten application and payment of a non-refundable fee ofP50,000.00 (US$2,000).

The Bid Documents issued by the PBAC provided amongothers that the proponent must have adequate capability tosustain the financing requirement for the detailedengineering, design, construction, operation, andmaintenance phases of the project. The proponent would be

evaluated based on its ability to provide a minimum amountof equity to the project, and its capacity to secure externalfinancing for the project.

_______________

1 An Act Authorizing the Financing, Construction, Operation and

Maintenance of Infrastructure Projects by the Private Sector.

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Inc.

On July 23, 1996, the PBAC issued PBAC Bulletin No. 2inviting all bidders to a pre-bid conference on July 29, 1996.

On August 16, 1996, the PBAC issued PBAC Bulletin

No. 3 amending the Bid Documents. The followingamendments were made on the Bid Documents:

Aside from the fixed Annual Guaranteed Payment,the proponent shall include in its financial proposalan additional percentage of gross revenue share ofthe Government, as follows:

First 5 years 5.0%

Next 10 years 7.5%


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iii.

b.

c.

i.

ii.

d.

e.

Next 10 years 10.0%

The amount of the fixed Annual GuaranteedPayment shall be subject of the price challenge.Proponent may offer an Annual GuaranteedPayment which need not be of equal amount, butpayment of which shall start upon site possession.

The project proponent must have adequatecapability to sustain the financing requirement forthe detailed engineering, design, construction,and/or operation and maintenance phases of theproject as the case may be. For purposes of pre-qualification, this capability shall be measured interms of:

Proof of the availability of the project proponentand/or the consortium to provide the minimumamount of equity for the project; and

a letter testimonial from reputable banks attestingthat the project proponent and/or the members ofthe consortium are banking with them, that theproject proponent and/or the members are of goodfinancial standing, and have adequate resources.

The basis for the prequalification shall be theproponents compliance with the minimum technical

and financial requirements provided in the BidDocuments and the IRR of the BOT Law. Theminimum amount of equity shall be 30% of theProject Cost.

Amendments to the draft Concession Agreementshall be issued from time to time. Said amendmentsshall only cover items that would not materiallyaffect the preparation of the proponents proposal.

On August 29, 1996, the Second Pre-Bid Conference washeld where certain clarifications were made. Upon therequest of prospective bidder Peoples Air Cargo &Warehousing Co., Inc (Paircargo), the PBAC warrantedthat based on Sec. 11.6, Rule 11 of the Implementing Rulesand Regulations of the BOT Law, only the

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1.


Inc.

proposed Annual Guaranteed Payment submitted by thechallengers would be revealed to AEDC, and that thechallengers technical and financial proposals would remainconfidential. The PBAC also clarified that the list of

revenue sources contained in Annex 4.2a of the BidDocuments was merely indicative and that other revenuesources may be included by the proponent, subject toapproval by DOTC/MIAA. Furthermore, the PBAC clarifiedthat only those fees and charges denominated as PublicUtility Fees would be subject to regulation, and thosecharges which would be actually deemed Public Utility Feescould still be revised, depending on the outcome of PBACsquery on the matter with the Department of Justice.

In September 1996, the PBAC issued Bid Bulletin No. 5,entitled Answers to the Queries of PAIRCARGO as PerLetter Dated September 3 and 10, 1996. Paircargos queriesand the PBACs responses were as follows:

It is difficult for Paircargo and Associates to meet the

required minimum equity requirement as prescribed

in Section 8.3.4 of the Bid Documents considering

that the capitalization of each member company is so

structured to meet the requirements and needs of

their current respective businessundertaking/activities. In order to comply with this

equity requirement, Paircargo is requesting PBAC to

just allow each member of (sic) corporation of the

Joint Venture to just execute an agreement that

embodies a commitment to infuse the required

capital in case the project is awarded to the Joint

Venture instead of increasing each corporations

current authorized capital stock just for

prequalification purposes.In prequalification, the agency is interested in onesfinancial capability at the time of prequalification,not future or potential capability.A commitment to put up equity once awarded theproject is not enough to establish that presentfinancial capability. However, total financialcapability of all member companies of theConsortium, to be established by submitting therespective companies audited financial statements,


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2.

a.

b.

shall be acceptable.

At present, Paircargo is negotiating with banks and

other institutions for the extension of a Performance

Security to the joint venture in the event that the

Concessions Agreement (sic) is awarded to them.

However, Paircargo is being required to submit a

copy of the draft concession as one of the

documentary requirements. Therefore, Paircargo isrequesting that theyd (sic) be furnished copy of the

approved negotiated agreement between the PBAC

and the AEDC at the soonest possible time.

A copy of the draft Concession Agreement is included in the BidDocuments. Any material changes would be made known toprospective

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VOL. 402, MAY 5, 2003 635


challengers through bid bulletins. However, a final version will beissued before the award of contract.

The PBAC also stated that it would require AEDC to signSupplement C of the Bid Documents (Acceptance of Criteria

and Waiver of Rights to Enjoin Project) and to submit thesame with the required Bid Security.

On September 20, 1996, the consortium composed ofPeoples Air Cargo and Warehousing Co., Inc. (Paircargo),Phil. Air and Grounds Services, Inc. (PAGS) and SecurityBank Corp. (Security Bank) (collectively, PaircargoConsortium) submitted their competitive proposal to thePBAC. On September 23, 1996, the PBAC opened the firstenvelope containing the prequalification documents of thePaircargo Consortium. On the following day, September 24,1996, the PBAC prequalified the Paircargo Consortium.

On September 26, 1996, AEDC informed the PBAC inwriting of its reservations as regards the PaircargoConsortium, which include:

The lack of corporate approvals and financialcapability of PAIRCARGO;

The lack of corporate approvals and financialcapability of PAGS;


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c.

d.

e.

The prohibition imposed by RA 337, as amended(the General Banking Act) on the amount thatSecurity Bank could legally invest in the project;

The inclusion of Siemens as a contractor of thePAIRCARGO Joint Venture, for prequalificationpurposes; and

The appointment of Lufthansa as the facility

operator, in view of the Philippine requirement inthe operation of a public utility.

The PBAC gave its reply on October 2, 1996, informingAEDC that it had considered the issues raised by the latter,and that based on the documents submitted by Paircargoand the established prequalification criteria, the PBAC hadfound that the challenger, Paircargo, had prequalified toundertake the project. The Secretary of the DOTC approved

the finding of the PBAC.The PBAC then proceeded with the opening of the secondenvelope of the Paircargo Consortium which contained itsTechnical Proposal.

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Inc.

On October 3, 1996, AEDC reiterated its objections,particularly with respect to Paircargos financial capability,in view of the restrictions imposed by Section 21-B of theGeneral Banking Act and Sections 1380 and 1381 of theManual Regulations for Banks and Other FinancialIntermediaries. On October 7, 1996, AEDC againmanifested its objections and requested that it be furnishedwith excerpts of the PBAC meeting and the accompanying

technical evaluation report where each of the issues theyraised were addressed.

On October 16, 1996, the PBAC opened the thirdenvelope submitted by AEDC and the PaircargoConsortium containing their respective financial proposals.Both proponents offered to build the NAIA PassengerTerminal III for at least $350 million at no cost to thegovernment and to pay the government: 5% share in grossrevenues for the first five years of operation, 7.5% share in


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gross revenues for the next ten years of operation, and 10%share in gross revenues for the last ten years of operation, inaccordance with the Bid Documents. However, in addition tothe foregoing, AEDC offered to pay the government a totalof P135 million as guaranteed payment for 27 years whilePaircargo Consortium offered to pay the government a totalof P17.75 billion for the same period.

Thus, the PBAC formally informed AEDC that it hadaccepted the price proposal submitted by the PaircargoConsortium, and gave AEDC 30 working days or untilNovember 28, 1996 within which to match the said bid,otherwise, the project would be awarded to Paircargo.

As AEDC failed to match the proposal within the 30-dayperiod, then DOTC Secretary Amado Lagdameo, onDecember 11, 1996, issued a notice to Paircargo Consortiumregarding AEDCs failure to match the proposal.

On February 27, 1997, Paircargo Consortium

incorporated into Philippine International AirportTerminals Co., Inc. (PIATCO).

AEDC subsequently protested the alleged unduepreference given to PIATCO and reiterated its objections asregards the prequalification of PIATCO.

On April 11, 1997, the DOTC submitted the concessionagreement for the second-pass approval of the NEDA-ICC.

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Inc.

On April 16, 1997, AEDC filed with the Regional TrialCourt of Pasig a Petition for Declaration of Nullity of theProceedings, Mandamus and Injunction against theSecretary of the DOTC, the Chairman of the PBAC, the

voting members of the PBAC and Pantaleon D. Alvarez, inhis capacity as Chairman of the PBAC TechnicalCommittee.

On April 17, 1997, the NEDA-ICC conducted an adreferendum to facilitate the approval, on a no-objectionbasis, of the BOT agreement between the DOTC andPIATCO. As the ad referendumgathered only four (4) of therequired six (6) signatures, the NEDA merely noted theagreement.

On July 9, 1997, the DOTC issued the notice of award for


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the project to PIATCO.On July 12, 1997, the Government, through then DOTC

Secretary Arturo T. Enrile, and PIATCO, through itsPresident, Henry T. Go, signed the Concession Agreementfor the Build-Operate-and-Transfer Arrangement of theNinoy Aquino International Airport Passenger TerminalIII (1997 Concession Agreement). The Government

granted PIATCO the franchise to operate and maintain thesaid terminal during the concession period and to collect thefees, rentals and other charges in accordance with the ratesor schedules stipulated in the 1997 Concession Agreement.The Agreement provided that the concession period shall befor twenty-five (25) years commencing from the in-servicedate, and may be renewed at the option of the Governmentfor a period not exceeding twenty-five (25) years. At the endof the concession period, PIATCO shall transfer thedevelopment facility to MIAA.

On November 26, 1998, the Government and PIATCOsigned an Amended and Restated Concession Agreement(ARCA). Among the provisions of the 1997 ConcessionAgreement that were amended by the ARCA were: Sec. 1.11pertaining to the definition of certificate of completion;Sec. 2.05 pertaining to the Special Obligations of GRP; Sec.3.02 (a) dealing with the exclusivity of the franchise given tothe Concessionaire; Sec. 4.04 concerning the assignment byConcessionaire of its interest in the Development Facility;

Sec. 5.08 (c) dealing with the proceeds of Concessionairesinsurance; Sec. 5.10 with respect to the temporary take-overof operations by GRP; Sec. 5.16 pertaining to the taxes,duties and other imposts that may be levied on theConcessionaire; Sec. 6.03 as regards the periodic adjustmentof public utility fees and charges; the entire

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Article VIII concerning the provisions on the termination ofthe contract; and Sec. 10.02 providing for the venue of thearbitration proceedings in case a dispute or controversyarises between the parties to the agreement.

Subsequently, the Government and PIATCO signedthree Supplements to the ARCA. The First Supplement was


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signed on August 27, 1999; the Second Supplement onSeptember 4, 2000; and the Third Supplement on June 22,2001 (collectively, Supplements).

The First Supplement to the ARCA amended Sec. 1.36 ofthe ARCA defining Revenues or Gross Revenues; Sec.2.05 (d) of the ARCA referring to the obligation of MIAA toprovide sufficient funds for the upkeep, maintenance, repair

and/or replacement of all airport facilities and equipmentwhich are owned or operated by MIAA; and furtherproviding additional special obligations on the part of GRPaside from those already enumerated in Sec. 2.05 of theARCA. The First Supplement also provided a stipulation asregards the construction of a surface road to connect NAIATerminal II and Terminal III in lieu of the proposed accesstunnel crossing Runway 13/31; the swapping of obligationsbetween GRP and PIATCO regarding the improvement ofSales Road; and the changes in the timetable. It also

amended Sec. 6.01 (c) of the ARCA pertaining to theDisposition of Terminal Fees; Sec. 6.02 of the ARCA byinserting an introductory paragraph; and Sec. 6.02 (a) (iii) ofthe ARCA referring to the Payments of Percentage Share inGross Revenues.

The Second Supplement to the ARCA containedprovisions concerning the clearing, removal, demolition ordisposal of subterranean structures uncovered or discoveredat the site of the construction of the terminal by the

Concessionaire. It defined the scope of works; it provided forthe procedure for the demolition of the said structures andthe consideration for the same which the GRP shall payPIATCO; it provided for time extensions, incremental andconsequential costs and losses consequent to the existence ofsuch structures; and it provided for some additionalobligations on the part of PIATCO as regards the saidstructures.

Finally, the Third Supplement provided for theobligations of the Concessionaire as regards the

construction of the surface road connecting Terminals IIand III.

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Meanwhile, the MIAA which is charged with themaintenance and operation of the NAIA Terminals I and II,had existing concession contracts with various serviceproviders to offer international airline airport services, suchas in-flight catering, passenger handling, ramp and groundsupport, aircraft maintenance and provisions, cargohandling and warehousing, and other services, to several

international airlines at the NAIA. Some of these serviceproviders are the Miascor Group, DNATA-Wings AviationSystems Corp., and the MacroAsia Group. Miascor, DNATAand Macro-Asia, together with Philippine Airlines (PAL),are the dominant players in the industry with an aggregatemarket share of 70%.

On September 17, 2002, the workers of the internationalairline service providers, claiming that they stand to losetheir employment upon the implementation of thequestioned agreements, filed before this Court a petition for

prohibition to enjoin the enforcement of said agreements.2

On October 15, 2002, the service providers, joining thecause of the petitioning workers, filed a motion forintervention and a petition-in-intervention.

On October 24, 2002, Congressmen Salacnib Baterina,Clavel Martinez and Constantino Jaraula filed a similarpetition with this Court.

3

On November 6, 2002, several employees of the MIAAlikewise filed a petition assailing the legality of the various

agreements.

4

On December 11, 2002, another group ofCongressmen, Hon. Jacinto V. Paras, Rafael P. Nantes,Eduardo C. Zialcita, Willie B. Villarama, Prospero C.Nograles, Prospero A. Pichay, Jr., Harlin Cast Abayon andBenasing O. Macaranbon, moved to intervene in the case asRespondents-Intervenors. They filed their Comment-In-Intervention defending the validity of the assailedagreements and praying for the dismissal of the petitions.

During the pendency of the case before this Court,President Gloria Macapagal Arroyo, on November 29, 2002,

in her speech at the 2002 Golden Shell Export Awards atMalacaang Palace,

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2G.R. No. 155001.

3G.R. No. 155547.

4G.R. No. 155661.

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Agan, Jr.