ABAYA vs. EBDANE, G.R. No.

167919, February 14, 2007

Facts:

The Government of Japan and the Government of the Philippines, through their respective representatives,
namely, Mr. Yoshihisa Ara, Ambassador Extraordinary and Plenipotentiary of Japan to the Republic of the
Philippines, and then Secretary of Foreign Affairs Domingo L. Siazon, have reached an understanding
concerning Japanese loans to be extended to the Philippines. These loans were aimed at promoting our
country’s economic stabilization and development efforts.

The assailed resolution recommended the award to private respondent China Road & Bridge Corporation of the
contract for the implementation of civil works for Contract Package No. I (CP I), which consists of the
improvement/rehabilitation of the San Andres (Codon)-Virac-Jct. Bago-Viga road, with the length of 79.818
kilometers, in the island province of Catanduanes.The DPWH caused the publication of the “Invitation to
Prequalify and to Bid” for the implementation of the CP I project, in two leading national newspapers, namely,
the Manila Times and Manila Standard on November 22 and 29, and December 5, 2002.

A total of twenty-three (23) foreign and local contractors responded to the invitation by submitting their
accomplished prequalification documents on January 23, 2003. In accordance with the established
prequalification criteria, eight contractors were evaluated or considered eligible to bid as concurred by the JBIC.
Prior to the opening of the respective bid proposals, it was announced that the Approved Budget for the Contract
(ABC) was in the amount of P738,710,563.67.

The bid goes to private respondent China Road & Bridge Corporation was corrected from the original
P993,183,904.98 (with variance of 34.45% from the ABC) to P952,564,821.71 (with variance of 28.95% from the
ABC) based on their letter clarification dated April 21, 2004.

Petitioners’ Contentions

1.The petitioners anchor the instant petition on the contention that the award of the contract to private
respondent China Road & Bridge Corporation violates RA 9184, particularly Section 31 thereof which reads:

SEC. 31. Ceiling for Bid Prices. – The ABC shall be the upper limit or ceiling for the Bid prices. Bid
prices that exceed this ceiling shall be disqualified outright from further participating in the bidding. There
shall be no lower limit to the amount of the award.

The petitioners insist on the applicability of RA 9184 contending that while it took effect on January 26, 2003 and
Loan Agreement No. PH-P204 was executed prior thereto or on December 28, 1999, the actual procurement or
award of the contract to private respondent China Road & Bridge Corporation was done after the effectivity of
RA 9184.

2.The petitioners insist that Loan Agreement is neither an international nor an executive agreement that would
bar the application of RA 9184. They point out that to be considered a treaty, an international or an executive
agreement, the parties must be two sovereigns or States whereas in the case of Loan Agreement No. PH-P204,
the parties are the Philippine Government and the JBIC, a banking agency of Japan, which has a separate
juridical personality from the Japanese Government.

Respondents’ Contentions

1. Public respondents maintain that the imposition of ceilings or upper limits on bid prices in RA 9184 does not
apply because the CP I project and the entire Catanduanes Circumferential Road Improvement Project, financed
by Loan Agreement No. PH-P204 executed between the Philippine Government and the JBIC, is governed by
the latter’s Procurement Guidelines which precludes the imposition of ceilings on bid prices. Section 5.06 of the
JBIC Procurement Guidelines reads:

Section 5.06. Evaluation and Comparison of Bids.

(e) Any procedure under which bids above or below a predetermined bid value assessment are
automatically disqualified is not permitted.

The public respondents further argue against the applicability of RA 9184 stating that it was signed into law
on January 10, 2003. On the other hand, Loan Agreement No. PH-P204 was executed on December 28, 1999,
where the laws then in force on government procurements were PD 1594 and EO 40. The latter law (EO 40), in
particular, excluded from its application any existing and future government commitments with respect to the
bidding and award of contracts financed partly or wholly with funds from international financing institutions as
well as from bilateral and other similar foreign sources.

The applicability of EO 40, not RA 9184, is allegedly bolstered by the fact that the Invitation to Prequalify and to
Bid for the implementation of the CP I project was published in two leading national newspapers, namely, the
Manila Times and Manila Standard on November 22, 29 and December 5, 2002, or before the signing into law of
RA 9184 on January 10, 2003. In this connection, the public respondents point to Section 77 of IRR-A, which
reads:
SEC. 77. Transitory Clause.

In all procurement activities, if the advertisement or invitation for bids was issued prior to the
effectivity of the Act, the provisions of EO 40 and its IRR, PD 1594 and its IRR, RA 7160 and its
IRR, or other applicable laws as the case may be, shall govern.

In cases where the advertisements or invitations for bids were issued after the effectivity of the
Act but before the effectivity of this IRR-A, procuring entities may continue adopting the
procurement procedures, rules and regulations provided in EO 40 and its IRR, or other
applicable laws, as the case may be.

Section 4 of RA 9184 is also invoked by the public respondents as it provides:

SEC. 4. Scope and Applications. This Act shall apply to the Procurement of Infrastructure
Projects, Goods and Consulting Services, regardless of source of funds, whether local or foreign,
by all branches and instrumentalities of government, its departments, offices and agencies,
including government-owned and/or controlled corporations and local government units, subject
to the provisions of Commonwealth Act No. 138. Any treaty or international or executive
agreement affecting the subject matter of this Act to which the Philippine government is a
signatory shall be observed.

It is also the position of the public respondents that even granting arguendo that Loan Agreement No. PH-P204
were an ordinary loan contract, still, RA 9184 is inapplicable under the non-impairment clause of the
Constitution. The said loan agreement expressly provided that the procurement of goods and services for the
project financed by the same shall be governed by the Guidelines for Procurement under OECF Loans dated
December 1997. Further, Section 5.06 of the JBIC Procurement Guidelines categorically provides that [a]ny
procedure under which bids above or below a predetermined bid value assessment are automatically
disqualified is not permitted.

The public respondents explain that since the contract is the law between the parties and Loan Agreement No.
PH-P204 states that the JBIC Procurement Guidelines shall govern the parties relationship and further dictates
that there be no ceiling price for the bidding, it naturally follows that any subsequent law passed contrary to the
letters of the said contract would have no effect with respect to the parties rights and obligations arising
therefrom.

To insist on the application of RA 9184 on the bidding for the CP I project would, notwithstanding the terms and
conditions of Loan Agreement No. PH-P204, allegedly violate the constitutional provision on non-impairment of
obligations and contracts, and destroy vested rights duly acquired under the said loan agreement.

2.The respondents however contend that foreign loan agreements, including Loan Agreement No. PH P204, as
executive agreements and, as such, should be observed pursuant to the fundamental principle in international
law of pacta sunt servanda. The Constitution, the public respondents emphasize, recognizes the enforceability of
executive agreements in the same way that it recognizes generally accepted principles of international law as
forming part of the law of the land. This recognition allegedly buttresses the binding effect of executive
agreements to which the Philippine Government is a signatory. It is pointed out by the public respondents that
executive agreements are essentially contracts governing the rights and obligations of the parties. A contract,
being the law between the parties, must be faithfully adhered to by them. Guided by the fundamental rule of
pacta sunt servanda, the Philippine Government bound itself to perform in good faith its duties and obligations
under Loan Agreement.
Issue :

1. Whether or not RA 9184 may be given retroactive effect

2. Whether or not the the loan agreement violates RA 9184.

Ruling:

Issue #1:

EO 40, not RA 9184, is applicable to the procurement process undertaken for the CP I project. RA 9184 cannot
be given retroactive application.

It is not disputed that with respect to the CP I project, the Invitation to Prequalify and to Bid for its implementation
was published in two leading national newspapers, namely, the Manila Times and Manila Standard on
November 22, 29 and December 5, 2002. At the time, the law in effect was EO 40. On the other hand, RA 9184
took effect two months later or on January 26, 2003.

Clearly then, when the Invitation to Prequalify and to Bid for the implementation of the CP I project was
published on November 22, 29 and December 5, 2002, the procurement process thereof had already
commenced and the application of EO 40 to the procurement process for the CP I project had already attached.

RA 9184 cannot be applied retroactively to govern the procurement process relative to the CP I project because
it is well settled that a law or regulation has no retroactive application unless it expressly provides for
retroactivity.[60] Indeed, Article 4 of the Civil Code is clear on the matter: [l]aws shall have no retroactive effect,
unless the contrary is provided. In the absence of such categorical provision, RA 9184 will not be applied
retroactively to the CP I project whose procurement process commenced even before the said law took effect.

This intention of the legislators is clearly expressed in RA 9184, to wit:

SEC. 77. Transitory Clause

In all procurement activities, if the advertisement or invitation for bids was issued prior to
the effectivity of the Act, the provisions of E.O. 40 and its IRR, P.D. 1594 and its IRR, R.A.
7160 and its IRR, or other applicable laws, as the case may be, shall govern.

In other words, under IRR-A, if the advertisement of the invitation for bids was issued prior to the effectivity of RA
9184, such as in the case of the CP I project, the provisions of EO 40 and its IRR, and PD 1594 and its IRR in
the case of national government agencies, and RA 7160 and its IRR in the case of local government units, shall
govern.

And under EO 40, the award of the contract to private respondent China Road & Bridge Corporation is valid.

Although Section 25 of EO 40 provides that [t]he approved budget of the contract shall be the upper limit or
ceiling of the bid price. Bid prices which exceed this ceiling shall be disqualified outright from further participating
in the bidding, it expressly recognizes as an exception to its scope and application those government
commitments with respect to bidding and award of contracts financed partly or wholly with funds from
international financing institutions as well as from bilateral and other similar foreign sources. The pertinent
portion of Section 1 of EO 40 is quoted anew:

SEC. 1. Scope and Application. x x x

Nothing in this Order shall negate any existing and future government commitments with
respect to the bidding and award of contracts financed partly or wholly with funds from
international financing institutions as well as from bilateral and similar foreign sources.

Consequently, in accordance with these applicable laws, the procurement of goods and services for the CP I
project is governed by the corresponding loan agreement entered into by the government and the JBIC, i.e.,
Loan Agreement No. PH-P204. The said loan agreement stipulated that the procurement of goods and services
for the Arterial Road Links Development Project (Phase IV), of which CP I is a component, is to be governed by
the JBIC Procurement Guidelines. Section 5.06, Part II (International Competitive Bidding) thereof quoted earlier
reads:
 Section 5.06. Evaluation and Comparison of Bids
xxx

(e) Any procedure under which bids above or below a predetermined bid value assessment are
automatically disqualified is not permitted.[62]

It is clear that the JBIC Procurement Guidelines proscribe the imposition of ceilings on bid prices. On the other
hand, it enjoins the award of the contract to the bidder whose bid has been determined to be the lowest
evaluated bid.

Issue #2:

The court ruled in favor of the respondents.

Significantly, an exchange of notes is considered a form of an executive agreement, which becomes binding
through executive action without the need of a vote by the Senate or Congress. executive agreements, They
sometimes take the form of exchange of notes and at other times that of more formal documents denominated
“agreements” or “protocols”.

The fundamental principle of international law of pacta sunt servanda, which is, in fact, embodied in Section 4 of
RA 9184 as it provides that “[a]ny treaty or international or executive agreement affecting the subject matter of
this Act to which the Philippine government is a signatory shall be observed,” the DPWH, as the executing
agency of the projects financed by Loan Agreement No. PH-P204, rightfully awarded the contract for the
implementation of civil works for the CP I project to private respondent China Road & Bridge Corporation.