G.R. No.

114222 April 6, 1995

FRANCISCO S. TATAD, JOHN H. OSMENA and RODOLFO G. BIAZON, Petitioners, v. HON.

JESUS B. GARCIA, JR., in his capacity as the Secretary of the Department of
Transportation and Communications, and EDSA LRT CORPORATION, LTD., Respondents. library
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QUIASON, J.:

This is a petition under Rule 65 of the Revised Rules of Court to prohibit respondents from further
implementing and enforcing the "Revised and Restated Agreement to Build, Lease and Transfer a
Light Rail Transit System for EDSA" dated April 22, 1992, and the "Supplemental Agreement to
the 22 April 1992 Revised and Restated Agreement To Build, Lease and Transfer a Light Rail
Transit System for EDSA" dated May 6, 1993. chanroblesvirtualawlibrary chanrobles virtual law library

Petitioners Francisco S. Tatad, John H. Osmena and Rodolfo G. Biazon are members of the
Philippine Senate and are suing in their capacities as Senators and as taxpayers. Respondent
Jesus B. Garcia, Jr. is the incumbent Secretary of the Department of Transportation and
Communications (DOTC), while private respondent EDSA LRT Corporation, Ltd. is a private
corporation organized under the laws of Hongkong.

I chanrobles virtual law library

In 1989, DOTC planned to construct a light railway transit line along EDSA, a major thoroughfare
in Metropolitan Manila, which shall traverse the cities of Pasay, Quezon, Mandaluyong and Makati.
The plan, referred to as EDSA Light Rail Transit III (EDSA LRT III), was intended to provide a
mass transit system along EDSA and alleviate the congestion and growing transportation problem
in the metropolis. chanroblesvirtualawlibrary chanrobles virtual law library

On March 3, 1990, a letter of intent was sent by the Eli Levin Enterprises, Inc., represented by
Elijahu Levin to DOTC Secretary Oscar Orbos, proposing to construct the EDSA LRT III on a Build-
Operate-Transfer (BOT) basis. chanroblesvirtualawlibrary chanrobles virtual law library

On March 15, 1990, Secretary Orbos invited Levin to send a technical team to discuss the project
with DOTC. chanroblesvirtualawlibrary chanrobles virtual law library

On July 9, 1990, Republic Act No. 6957 entitled "An Act Authorizing the Financing, Construction,
Operation and Maintenance of Infrastructure Projects by the Private Sector, and For Other
Purposes," was signed by President Corazon C. Aquino. Referred to as the Build-Operate-Transfer
(BOT) Law, it took effect on October 9, 1990. chanroblesvirtualawlibrary chanrobles virtual law library

Republic Act No. 6957 provides for two schemes for the financing, construction and operation of
government projects through private initiative and investment: Build-Operate-Transfer (BOT) or
Build-Transfer (BT). chanroblesvirtualawlibrary chanrobles virtual law library

In accordance with the provisions of R.A. No. 6957 and to set the EDSA LRT III project underway,
DOTC, on January 22, 1991 and March 14, 1991, issued Department Orders Nos. 91-494 and 91-
496, respectively creating the Prequalification Bids and Awards Committee (PBAC) and the
Technical Committee. chanroblesvirtualawlibrary chanrobles virtual law library

After its constitution, the PBAC issued guidelines for the prequalification of contractors for the
financing and implementation of the project The notice, advertising the prequalification of bidders,
was published in three newspapers of general circulation once a week for three consecutive weeks
starting February 21, 1991. chanroblesvirtualawlibrary chanrobles virtual law library

The deadline set for submission of prequalification documents was March 21, 1991, later extended
to April 1, 1991. Five groups responded to the invitation namely, ABB Trazione of Italy, Hopewell
Holdings Ltd. of Hongkong, Mansteel International of Mandaue, Cebu, Mitsui & Co., Ltd. of Japan,
and EDSA LRT Consortium, composed of ten foreign and domestic corporations: namely, Kaiser
Engineers International, Inc., ACER Consultants (Far East) Ltd. and Freeman Fox,
Tradeinvest/CKD Tatra of the Czech and Slovak Federal Republics, TCGI Engineering All Asia
Capital and Leasing Corporation, The Salim Group of Jakarta, E. L. Enterprises, Inc., A.M. Oreta &
Co. Capitol Industrial Construction Group, Inc, and F. F. Cruz & co., Inc. chanroblesvirtualawlibrary chanrobles virtual law library

On the last day for submission of prequalification documents, the prequalification criteria proposed
by the Technical Committee were adopted by the PBAC. The criteria totalling 100 percent, are as
follows: (a) Legal aspects - 10 percent; (b) Management/Organizational capability - 30 percent;
and (c) Financial capability - 30 percent; and (d) Technical capability - 30 percent (Rollo, p.
122).chanroblesvirtualawlibrary chanrobles virtual law library

On April 3, 1991, the Committee, charged under the BOT Law with the formulation of the
Implementation Rules and Regulations thereof, approved the same. chanroblesvirtualawlibrary chanrobles virtual law library

After evaluating the prequalification, bids, the PBAC issued a Resolution on May 9, 1991 declaring
that of the five applicants, only the EDSA LRT Consortium "met the requirements of garnering at
least 21 points per criteria [sic], except for Legal Aspects, and obtaining an over-all passing mark
of at least 82 points" (Rollo, p. 146). The Legal Aspects referred to provided that the BOT/BT
contractor-applicant meet the requirements specified in the Constitution and other pertinent laws
(Rollo, p. 114). chanroblesvirtualawlibrary chanrobles virtual law library

Subsequently, Secretary Orbos was appointed Executive Secretary to the President of the
Philippines and was replaced by Secretary Pete Nicomedes Prado. The latter sent to President
Aquino two letters dated May 31, 1991 and June 14, 1991, respectively recommending the award
of the EDSA LRT III project to the sole complying bidder, the EDSA LRT Consortium, and
requesting for authority to negotiate with the said firm for the contract pursuant to paragraph
14(b) of the Implementing Rules and Regulations of the BOT Law (Rollo, pp. 298-302). chanroblesvirtualawlibrary chanrobles virtual law library

In July 1991, Executive Secretary Orbos, acting on instructions of the President, issued a directive
to the DOTC to proceed with the negotiations. On July 16, 1991, the EDSA LRT Consortium
submitted its bid proposal to DOTC. chanroblesvirtualawlibrary chanrobles virtual law library

Finding this proposal to be in compliance with the bid requirements, DOTC and respondent EDSA
LRT Corporation, Ltd., in substitution of the EDSA LRT Consortium, entered into an "Agreement to
Build, Lease and Transfer a Light Rail Transit System for EDSA" under the terms of the BOT Law
(Rollo, pp. 147-177). chanroblesvirtualawlibrary chanrobles virtual law library

Secretary Prado, thereafter, requested presidential approval of the contract. chanroblesvirtualawlibrary chanrobles virtual law library

In a letter dated March 13, 1992, Executive Secretary Franklin Drilon, who replaced Executive
Secretary Orbos, informed Secretary Prado that the President could not grant the requested
approval for the following reasons: (1) that DOTC failed to conduct actual public bidding in
compliance with Section 5 of the BOT Law; (2) that the law authorized public bidding as the only
mode to award BOT projects, and the prequalification proceedings was not the public bidding
contemplated under the law; (3) that Item 14 of the Implementing Rules and Regulations of the
BOT Law which authorized negotiated award of contract in addition to public bidding was of
doubtful legality; and (4) that congressional approval of the list of priority projects under the BOT
or BT Scheme provided in the law had not yet been granted at the time the contract was awarded
(Rollo, pp. 178-179). chanroblesvirtualawlibrary chanrobles virtual law library

In view of the comments of Executive Secretary Drilon, the DOTC and private respondents re-
negotiated the agreement. On April 22, 1992, the parties entered into a "Revised and Restated
Agreement to Build, Lease and Transfer a Light Rail Transit System for EDSA" (Rollo, pp. 47-78)
inasmuch as "the parties [are] cognizant of the fact the DOTC has full authority to sign the
Agreement without need of approval by the President pursuant to the provisions of Executive
Order No. 380 and that certain events [had] supervened since November 7, 1991 which
necessitate[d] the revision of the Agreement" (Rollo, p. 51). On May 6, 1992, DOTC, represented
by Secretary Jesus Garcia vice  Secretary Prado, and private respondent entered into a
"Supplemental Agreement to the 22 April 1992 Revised and Restated Agreement to Build, Lease
and Transfer a Light Rail Transit System for EDSA" so as to "clarify their respective rights and
responsibilities" and to submit [the] Supplemental Agreement to the President, of the Philippines
for his approval" (Rollo, pp. 79-80). chanroblesvirtualawlibrary chanrobles virtual law library

Secretary Garcia submitted the two Agreements to President Fidel V. Ramos for his consideration
and approval. In a Memorandum to Secretary Garcia on May 6, 1993, approved the said
Agreements, (Rollo, p. 194). chanroblesvirtualawlibrary chanrobles virtual law library

According to the agreements, the EDSA LRT III will use light rail vehicles from the Czech and
Slovak Federal Republics and will have a maximum carrying capacity of 450,000 passengers a
day, or 150 million a year to be achieved-through 54 such vehicles operating simultaneously. The
EDSA LRT III will run at grade, or street level, on the mid-section of EDSA for a distance of 17.8
kilometers from F.B. Harrison, Pasay City to North Avenue, Quezon City. The system will have its
own power facility (Revised and Restated Agreement, Sec. 2.3 (ii); Rollo p. 55). It will also have
thirteen (13) passenger stations and one depot in 16-hectare government property at North
Avenue (Supplemental Agreement, Sec. 11; Rollo, pp. 91-92). chanroblesvirtualawlibrary chanrobles virtual law library

Private respondents shall undertake and finance the entire project required for a complete
operational light rail transit system (Revised and Restated Agreement, Sec. 4.1; Rollo, p. 58).
Target completion date is 1,080 days or approximately three years from the implementation date
of the contract inclusive of mobilization, site works, initial and final testing of the system
(Supplemental Agreement, Sec. 5; Rollo, p. 83). Upon full or partial completion and viability
thereof, private respondent shall deliver the use and possession of the completed portion to DOTC
which shall operate the same (Supplemental Agreement, Sec. 5; Revised and Restated
Agreement, Sec. 5.1; Rollo, pp. 61-62, 84). DOTC shall pay private respondent rentals on a
monthly basis through an Irrevocable Letter of Credit. The rentals shall be determined by an
independent and internationally accredited inspection firm to be appointed by the parties
(Supplemental Agreement, Sec. 6; Rollo, pp. 85-86) As agreed upon, private respondent's capital
shall be recovered from the rentals to be paid by the DOTC which, in turn, shall come from the
earnings of the EDSA LRT III (Revised and Restated Agreement, Sec. 1, p. 5; Rollo, p. 54). After
25 years and DOTC shall have completed payment of the rentals, ownership of the project shall
be transferred to the latter for a consideration of only U.S. $1.00 (Revised and Restated
Agreement, Sec. 11.1; Rollo, p. 67). chanroblesvirtualawlibrary chanrobles virtual law library

On May 5, 1994, R.A. No. 7718, an "Act Amending Certain Sections of Republic Act No. 6957,
Entitled "An Act Authorizing the Financing, Construction, Operation and Maintenance of
Infrastructure Projects by the Private Sector, and for Other Purposes" was signed into law by the
President. The law was published in two newspapers of general circulation on May 12, 1994, and
took effect 15 days thereafter or on May 28, 1994. The law expressly recognizes BLT scheme and
allows direct negotiation of BLT contracts.

II
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In their petition, petitioners argued that:

(1) THE AGREEMENT OF APRIL 22, 1992, AS AMENDED BY THE SUPPLEMENTAL AGREEMENT OF
MAY 6, 1993, INSOFAR AS IT GRANTS EDSA LRT CORPORATION, LTD., A FOREIGN
CORPORATION, THE OWNERSHIP OF EDSA LRT III, A PUBLIC UTILITY, VIOLATES THE
CONSTITUTION AND, HENCE, IS UNCONSTITUTIONAL; chanrobles virtual law library

(2) THE BUILD-LEASE-TRANSFER SCHEME PROVIDED IN THE AGREEMENTS IS NOT DEFINED NOR
RECOGNIZED IN R.A. NO. 6957 OR ITS IMPLEMENTING RULES AND REGULATIONS AND, HENCE,
IS ILLEGAL; chanrobles virtual law library

(3) THE AWARD OF THE CONTRACT ON A NEGOTIATED BASIS VIOLATES R; A. NO. 6957 AND,
HENCE, IS UNLAWFUL; chanrobles virtual law library

(4) THE AWARD OF THE CONTRACT IN FAVOR OF RESPONDENT EDSA LRT CORPORATION, LTD.
VIOLATES THE REQUIREMENTS PROVIDED IN THE IMPLEMENTING RULES AND REGULATIONS OF
THE BOT LAW AND, HENCE, IS ILLEGAL; chanrobles virtual law library
(5) THE AGREEMENTS VIOLATE EXECUTIVE ORDER NO 380 FOR THEIR FAILURE TO BEAR
PRESIDENTIAL APPROVAL AND, HENCE, ARE ILLEGAL AND INEFFECTIVE; AND chanrobles virtual law library

(6) THE AGREEMENTS ARE GROSSLY DISADVANTAGEOUS TO THE GOVERNMENT (Rollo, pp. 15-
16).

Secretary Garcia and private respondent filed their comments separately and claimed that: chanrobles virtual law library

(1) Petitioners are not the real parties-in-interest and have no legal standing to institute the
present petition; chanrobles virtual law library

(2) The writ of prohibition is not the proper remedy and the petition requires ascertainment of
facts; chanrobles virtual law library

(3) The scheme adopted in the Agreements is actually a build-transfer scheme allowed by the BOT
Law; chanrobles virtual law library

(4) The nationality requirement for public utilities mandated by the Constitution does not apply to
private respondent; chanrobles virtual law library

(5) The Agreements executed by and between respondents have been approved by President
Ramos and are not disadvantageous to the government; chanrobles virtual law library

(6) The award of the contract to private respondent through negotiation and not public bidding is
allowed by the BOT Law; and chanrobles virtual law library

(7) Granting that the BOT Law requires public bidding, this has been amended by R.A No. 7718
passed by the Legislature On May 12, 1994, which provides for direct negotiation as a mode of
award of infrastructure projects.

III

Respondents claimed that petitioners had no legal standing to initiate the instant action.
Petitioners, however, countered that the action was filed by them in their capacity as Senators
and as taxpayers. chanroblesvirtualawlibrary chanrobles virtual law library

The prevailing doctrines in taxpayer's suits are to allow taxpayers to question contracts entered
into by the national government or government-owned or controlled corporations allegedly in
contravention of the law (Kilosbayan, Inc. v. Guingona, 232 SCRA 110 [1994]) and to disallow the
same when only municipal contracts are involved (Bugnay Construction and Development
Corporation v. Laron, 176 SCRA. 240 [1989]). chanroblesvirtualawlibrary chanrobles virtual law library

For as long as the ruling in Kilosbayan on locus standi is not reversed, we have no choice but to
follow it and uphold the legal standing of petitioners as taxpayers to institute the present action.

IV chanrobles virtual law library

In the main, petitioners asserted that the Revised and Restated Agreement of April 22, 1992 and
the Supplemental Agreement of May 6, 1993 are unconstitutional and invalid for the following
reasons:

(1) the EDSA LRT III is a public utility, and the ownership and operation thereof is limited by the
Constitution to Filipino citizens and domestic corporations, not foreign corporations like private
respondent; chanrobles virtual law library

(2) the Build-Lease-Transfer (BLT) scheme provided in the agreements is not the BOT or BT
Scheme under the law; chanrobles virtual law library
(3) the contract to construct the EDSA LRT III was awarded to private respondent not through
public bidding which is the only mode of awarding infrastructure projects under the BOT law; and
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(4) the agreements are grossly disadvantageous to the government.

1. Private respondent EDSA LRT Corporation, Ltd. to whom the contract to construct the EDSA
LRT III was awarded by public respondent, is admittedly a foreign corporation "duly incorporated
and existing under the laws of Hongkong" (Rollo, pp. 50, 79). There is also no dispute that once
the EDSA LRT III is constructed, private respondent, as lessor, will turn it over to DOTC, as
lessee, for the latter to operate the system and pay rentals for said use. chanroblesvirtualawlibrary chanrobles virtual law library

The question posed by petitioners is:

Can respondent EDSA LRT Corporation, Ltd., a foreign corporation own EDSA LRT III; a public
utility? (Rollo, p. 17).

The phrasing of the question is erroneous; it is loaded. What private respondent owns are the rail
tracks, rolling stocks like the coaches, rail stations, terminals and the power plant, not a public
utility. While a franchise is needed to operate these facilities to serve the public, they do not by
themselves constitute a public utility. What constitutes a public utility is not their ownership but
their use to serve the public (Iloilo Ice & Cold Storage Co. v. Public Service Board, 44 Phil. 551,
557 558 [1923]). chanroblesvirtualawlibrary chanrobles virtual law library

The Constitution, in no uncertain terms, requires a franchise for the operation of a public utility.
However, it does not require a franchise before one can own the facilities needed to operate a
public utility so long as it does not operate them to serve the public. chanroblesvirtualawlibrary chanrobles virtual law library

Section 11 of Article XII of the Constitution provides:

No franchise, certificate or any other form of authorization for the operation of a public utility  shall
be granted except to citizens of the Philippines or to corporations or associations organized under
the laws of the Philippines at least sixty  per centum of whose capital is owned by such citizens,
nor shall such franchise, certificate or authorization be exclusive character or for a longer period
than fifty years . . . (Emphasis supplied).

In law, there is a clear distinction between the "operation" of a public utility and the ownership of
the facilities and equipment used to serve the public. chanroblesvirtualawlibrary chanrobles virtual law library

Ownership is defined as a relation in law by virtue of which a thing pertaining to one person is
completely subjected to his will in everything not prohibited by law or the concurrence with the
rights of another (Tolentino, II Commentaries and Jurisprudence on the Civil Code of the
Philippines 45 [1992]). chanroblesvirtualawlibrary chanrobles virtual law library

The exercise of the rights encompassed in ownership is limited by law so that a property cannot
be operated and used to serve the public as a public utility unless the operator has a franchise.
The operation of a rail system as a public utility includes the transportation of passengers from
one point to another point, their loading and unloading at designated places and the movement of
the trains at pre-scheduled times (cf. Arizona Eastern R.R. Co. v. J.A.. Matthews, 20 Ariz 282, 180
P.159, 7 A.L.R. 1149 [1919] ;United States Fire Ins. Co. v. Northern P.R. Co., 30 Wash 2d. 722,
193 P. 2d 868, 2 A.L.R. 2d 1065 [1948]). chanroblesvirtualawlibrary chanrobles virtual law library

The right to operate a public utility may exist independently and separately from the ownership of
the facilities thereof. One can own said facilities without operating them as a public utility, or
conversely, one may operate a public utility without owning the facilities used to serve the public.
The devotion of property to serve the public may be done by the owner or by the person in control
thereof who may not necessarily be the owner thereof. chanroblesvirtualawlibrary chanrobles virtual law library

This dichotomy between the operation of a public utility and the ownership of the facilities used to
serve the public can be very well appreciated when we consider the transportation industry.
Enfranchised airline and shipping companies may lease their aircraft and vessels instead of
owning them themselves. chanroblesvirtualawlibrary chanrobles virtual law library

While private respondent is the owner of the facilities necessary to operate the EDSA. LRT III, it
admits that it is not enfranchised to operate a public utility (Revised and Restated Agreement,
Sec. 3.2; Rollo, p. 57). In view of this incapacity, private respondent and DOTC agreed that on
completion date, private respondent will immediately deliver possession of the LRT system by way
of lease for 25 years, during which period DOTC shall operate the same as a common carrier and
private respondent shall provide technical maintenance and repair services to DOTC (Revised and
Restated Agreement, Secs. 3.2, 5.1 and 5.2; Rollo, pp. 57-58, 61-62). Technical maintenance
consists of providing (1) repair and maintenance facilities for the depot and rail lines, services for
routine clearing and security; and (2) producing and distributing maintenance manuals and
drawings for the entire system (Revised and Restated Agreement, Annex F). chanroblesvirtualawlibrary chanrobles virtual law library

Private respondent shall also train DOTC personnel for familiarization with the operation, use,
maintenance and repair of the rolling stock, power plant, substations, electrical, signaling,
communications and all other equipment as supplied in the agreement (Revised and Restated
Agreement, Sec. 10; Rollo, pp. 66-67). Training consists of theoretical and live training of DOTC
operational personnel which includes actual driving of light rail vehicles under simulated operating
conditions, control of operations, dealing with emergencies, collection, counting and securing cash
from the fare collection system (Revised and Restated Agreement, Annex E, Secs. 2-3). Personnel
of DOTC will work under the direction and control of private respondent only during training
(Revised and Restated Agreement, Annex E, Sec. 3.1). The training objectives, however, shall be
such that upon completion of the EDSA LRT III and upon opening of normal revenue operation,
DOTC shall have in their employ personnel capable of undertaking training of all new and
replacement personnel (Revised and Restated Agreement, Annex E Sec. 5.1). In other words, by
the end of the three-year construction period and upon commencement of normal revenue
operation, DOTC shall be able to operate the EDSA LRT III on its own and train all new personnel
by itself. chanroblesvirtualawlibrary chanrobles virtual law library

Fees for private respondent' s services shall be included in the rent, which likewise includes the
project cost, cost of replacement of plant equipment and spare parts, investment and financing
cost, plus a reasonable rate of return thereon (Revised and Restated Agreement, Sec. 1; Rollo, p.
54).chanroblesvirtualawlibrary chanrobles virtual law library

Since DOTC shall operate the EDSA LRT III, it shall assume all the obligations and liabilities of a
common carrier. For this purpose, DOTC shall indemnify and hold harmless private respondent
from any losses, damages, injuries or death which may be claimed in the operation or
implementation of the system, except losses, damages, injury or death due to defects in the EDSA
LRT III on account of the defective condition of equipment or facilities or the defective
maintenance of such equipment facilities (Revised and Restated Agreement, Secs. 12.1 and
12.2; Rollo, p. 68). chanroblesvirtualawlibrary chanrobles virtual law library

In sum, private respondent will not run the light rail vehicles and collect fees from the riding
public. It will have no dealings with the public and the public will have no right to demand any
services from it. chanroblesvirtualawlibrary chanrobles virtual law library

It is well to point out that the role of private respondent as lessor during the lease period must be
distinguished from the role of the Philippine Gaming Management Corporation (PGMC) in the case
of Kilosbayan Inc. v. Guingona, 232 SCRA 110 (1994). Therein, the Contract of Lease between
PGMC and the Philippine Charity Sweepstakes Office (PCSO) was actually a collaboration or joint
venture agreement prescribed under the charter of the PCSO. In the Contract of Lease; PGMC, the
lessor obligated itself to build, at its own expense, all the facilities necessary to operate and
maintain a nationwide on-line lottery system from whom PCSO was to lease the facilities and
operate the same. Upon due examination of the contract, the Court found that PGMC's
participation was not confined to the construction and setting up of the on-line lottery system. It
spilled over to the actual operation thereof, becoming indispensable to the pursuit, conduct,
administration and control of the highly technical and sophisticated lottery system. In effect, the
PCSO leased out its franchise to PGMC which actually operated and managed the same. chanroblesvirtualawlibrary chanrobles virtual law library
Indeed, a mere owner and lessor of the facilities used by a public utility is not a public utility
(Providence and W.R. Co. v. United States, 46 F. 2d 149, 152 [1930]; Chippewa Power Co. v.
Railroad Commission of Wisconsin, 205 N.W. 900, 903, 188 Wis. 246 [1925]; Ellis v. Interstate
Commerce Commission, Ill 35 S. Ct. 645, 646, 237 U.S. 434, 59 L. Ed. 1036 [1914]). Neither are
owners of tank, refrigerator, wine, poultry and beer cars who supply cars under contract to
railroad companies considered as public utilities (Crystal Car Line v. State Tax Commission, 174 p.
2d 984, 987 [1946]). chanroblesvirtualawlibrary chanrobles virtual law library

Even the mere formation of a public utility corporation does not ipso facto characterize the
corporation as one operating a public utility. The moment for determining the requisite Filipino
nationality is when the entity applies for a franchise, certificate or any other form of authorization
for that purpose (People v. Quasha, 93 Phil. 333 [1953]). chanroblesvirtualawlibrary chanrobles virtual law library

2. Petitioners further assert that the BLT scheme under the Agreements in question is not
recognized in the BOT Law and its Implementing Rules and Regulations. chanroblesvirtualawlibrary chanrobles virtual law library

Section 2 of the BOT Law defines the BOT and BT schemes as follows:

(a) Build-operate-and-transfer scheme - A contractual arrangement whereby the contractor

undertakes the construction including financing, of a given infrastructure facility, and the
operation and maintenance thereof. The contractor operates the facility over a fixed term during
which it is allowed to charge facility users appropriate tolls, fees, rentals and charges sufficient to
enable the contractor to recover its operating and maintenance expenses and its investment in
the project plus a reasonable rate of return thereon. The contractor transfers the facility to the
government agency or local government unit concerned at the end of the fixed term which shall
not exceed fifty (50) years. For the construction stage, the contractor may obtain financing from
foreign and/or domestic sources and/or engage the services of a foreign and/or Filipino
constructor [sic]: Provided, That the ownership structure of the contractor of an infrastructure
facility whose operation requires a public utility franchise must be in accordance with the
Constitution: Provided, however, That in the case of corporate investors in the build-operate-and-
transfer corporation, the citizenship of each stockholder in the corporate investors shall be the
basis for the computation of Filipino equity in the said corporation: Provided, further, That, in the
case of foreign constructors [sic], Filipino labor shall be employed or hired in the different phases
of the construction where Filipino skills are available: Provided, furthermore, that the financing of
a foreign or foreign-controlled contractor from Philippine government financing institutions shall
not exceed twenty percent (20%) of the total cost of the infrastructure facility or project:
Provided, finally, That financing from foreign sources shall not require a guarantee by the
Government or by government-owned or controlled corporations. The build-operate-and-transfer
scheme shall include a supply-and-operate situation which is a contractual agreement whereby
the supplier of equipment and machinery for a given infrastructure facility, if the interest of the
Government so requires, operates the facility providing in the process technology transfer and
training to Filipino nationals. chanroblesvirtualawlibrary chanrobles virtual law library

(b) Build-and-transfer scheme - "A contractual arrangement whereby the contractor undertakes
the construction including financing, of a given infrastructure facility, and its turnover after
completion to the government agency or local government unit concerned which shall pay the
contractor its total investment expended on the project, plus a reasonable rate of return thereon.
This arrangement may be employed in the construction of any infrastructure project including
critical facilities which for security or strategic reasons, must be operated directly by the
government (Emphasis supplied).

The BOT scheme is expressly defined as one where the contractor undertakes the construction
and financing in infrastructure facility, and operates and maintains the same. The contractor
operates the facility for a fixed period during which it may recover its expenses and investment in
the project plus a reasonable rate of return thereon. After the expiration of the agreed term, the
contractor transfers the ownership and operation of the project to the government. chanroblesvirtualawlibrary chanrobles virtual law library

In the BT scheme, the contractor undertakes the construction and financing of the facility, but
after completion, the ownership and operation thereof are turned over to the government. The
government, in turn, shall pay the contractor its total investment on the project in addition to a
reasonable rate of return. If payment is to be effected through amortization payments by the
government infrastructure agency or local government unit concerned, this shall be made in
accordance with a scheme proposed in the bid and incorporated in the contract (R.A. No. 6957,
Sec. 6). chanroblesvirtualawlibrary chanrobles virtual law library

Emphasis must be made that under the BOT scheme, the owner of the infrastructure facility must
comply with the citizenship requirement of the Constitution on the operation of a public utility. No
such a requirement is imposed in the BT scheme. chanroblesvirtualawlibrary chanrobles virtual law library

There is no mention in the BOT Law that the BOT and BT schemes bar any other arrangement for
the payment by the government of the project cost. The law must not be read in such a way as to
rule out or unduly restrict any variation within the context of the two schemes. Indeed, no statute
can be enacted to anticipate and provide all the fine points and details for the multifarious and
complex situations that may be encountered in enforcing the law (Director of Forestry v. Munoz,
23 SCRA 1183 [1968]; People v. Exconde, 101 Phil. 1125 [1957]; United States v. Tupasi Molina,
29 Phil. 119 [1914]). chanroblesvirtualawlibrary chanrobles virtual law library

The BLT scheme in the challenged agreements is but a variation of the BT scheme under the
law.chanroblesvirtualawlibrary chanrobles virtual law library

As a matter of fact, the burden on the government in raising funds to pay for the project is made
lighter by allowing it to amortize payments out of the income from the operation of the LRT
System. chanroblesvirtualawlibrary chanrobles virtual law library

In form and substance, the challenged agreements provide that rentals are to be paid on a
monthly basis according to a schedule of rates through and under the terms of a confirmed
Irrevocable Revolving Letter of Credit (Supplemental Agreement, Sec. 6; Rollo, p. 85). At the end
of 25 years and when full payment shall have been made to and received by private respondent,
it shall transfer to DOTC, free from any lien or encumbrances, all its title to, rights and interest in,
the project for only U.S. $1.00 (Revised and Restated Agreement, Sec. 11.1; Supplemental
Agreement, Sec; 7; Rollo, pp. 67, .87). chanroblesvirtualawlibrary chanrobles virtual law library

A lease is a contract where one of the parties binds himself to give to another the enjoyment or
use of a thing for a certain price and for a period which may be definite or indefinite but not
longer than 99 years (Civil Code of the Philippines, Art. 1643). There is no transfer of ownership
at the end of the lease period. But if the parties stipulate that title to the leased premises shall be
transferred to the lessee at the end of the lease period upon the payment of an agreed sum, the
lease becomes a lease-purchase agreement. chanroblesvirtualawlibrary chanrobles virtual law library

Furthermore, it is of no significance that the rents shall be paid in United States currency, not
Philippine pesos. The EDSA LRT III Project is a high priority project certified by Congress and the
National Economic and Development Authority as falling under the Investment Priorities Plan of
Government (Rollo, pp. 310-311). It is, therefore, outside the application of the Uniform Currency
Act (R.A. No. 529), which reads as follows:

Sec. 1. - Every provision contained in, or made with respect to, any domestic obligation to wit,
any obligation contracted in the Philippines which provisions purports to give the obligee the right
to require payment in gold or in a particular kind of coin or currency other than Philippine
currency or in an amount of money of the Philippines measured thereby, be as it is hereby
declared against public policy, and null, void, and of no effect, and no such provision shall be
contained in, or made with respect to, any obligation hereafter incurred. The above prohibition
shall not apply to (a) . . .; (b) transactions affecting high-priority economic projects for
agricultural, industrial and power development as may be determined by
the National Economic Council which are financed by or through foreign funds; . . . .

3. The fact that the contract for the construction of the EDSA LRT III was awarded through
negotiation and before congressional approval on January 22 and 23, 1992 of the List of National
Projects to be undertaken by the private sector pursuant to the BOT Law (Rollo, pp. 309-312)
does not suffice to invalidate the award. chanroblesvirtualawlibrary chanrobles virtual law library

Subsequent congressional approval of the list including "rail-based projects packaged with
commercial development opportunities" (Rollo, p. 310) under which the EDSA LRT III projects
falls, amounts to a ratification of the prior award of the EDSA LRT III contract under the BOT
Law.chanroblesvirtualawlibrary chanrobles virtual law library

Petitioners insist that the prequalifications process which led to the negotiated award of the
contract appears to have been rigged from the very beginning to do away with the usual open
international public bidding where qualified internationally known applicants could fairly
participate. chanroblesvirtualawlibrary chanrobles virtual law library

The records show that only one applicant passed the prequalification process. Since only one was
left, to conduct a public bidding in accordance with Section 5 of the BOT Law for that lone
participant will be an absurb and pointless exercise (cf. Deloso v. Sandiganbayan, 217 SCRA 49,
61 [1993]). chanroblesvirtualawlibrary chanrobles virtual law library

Contrary to the comments of the Executive Secretary Drilon, Section 5 of the BOT Law in relation
to Presidential Decree No. 1594 allows the negotiated award of government infrastructure
projects. chanroblesvirtualawlibrary chanrobles virtual law library

Presidential Decree No. 1594, "Prescribing Policies, Guidelines, Rules and Regulations for
Government Infrastructure Contracts," allows the negotiated award of government projects in
exceptional cases. Sections 4 of the said law reads as follows:

Bidding. - Construction projects shall generally be undertaken by contract after competitive public
bidding. Projects may be undertaken by administration or force account or by negotiated contract
only in exceptional cases where time is of the essence, or where there is lack of qualified bidders
or contractors, or where there is conclusive evidence that greater economy and efficiency would
be achieved through this arrangement, and in accordance with provision of laws and acts on the
matter, subject to the approval of the Minister of Public Works and Transportation and
Communications, the Minister of Public Highways, or the Minister of Energy, as the case may be, if
the project cost is less than P1 Million, and the President of the Philippines, upon recommendation
of the Minister, if the project cost is P1 Million or more (Emphasis supplied).

xxx xxx xxx

Indeed, where there is a lack of qualified bidders or contractors, the award of government
infrastructure contracts may he made by negotiation. Presidential Decree No. 1594 is the general
law on government infrastructure contracts while the BOT Law governs particular arrangements or
schemes aimed at encouraging private sector participation in government infrastructure projects.
The two laws are not inconsistent with each other but are in pari materia  and should be read
together accordingly. chanroblesvirtualawlibrary chanrobles virtual law library

In the instant case, if the prequalification process was actually tainted by foul play, one wonders
why none of the competing firms ever brought the matter before the PBAC, or intervened in this
case before us (cf. Malayan Integrated Industries Corp. v. Court of Appeals, 213 SCRA 640
[1992]; Bureau Veritas v. Office of the President, 205 SCRA 705 [1992]). chanroblesvirtualawlibrary chanrobles virtual law library

The challenged agreements have been approved by President Ramos himself. Although then
Executive Secretary Drilon may have disapproved the "Agreement to Build, Lease and Transfer a
Light Rail Transit System for EDSA," there is nothing in our laws that prohibits parties to a
contract from renegotiating and modifying in good faith the terms and conditions thereof so as to
meet legal, statutory and constitutional requirements. Under the circumstances, to require the
parties to go back to step one of the prequalification process would just be an idle ceremony.
Useless bureaucratic "red tape" should be eschewed because it discourages private sector
participation, the "main engine" for national growth and development (R.A. No. 6957, Sec. 1), and
renders the BOT Law nugatory. chanroblesvirtualawlibrary chanrobles virtual law library
Republic Act No. 7718 recognizes and defines a BLT scheme in Section 2 thereof as:

(e) Build-lease-and-transfer - A contractual arrangement whereby a project proponent is

authorized to finance and construct an infrastructure or development facility and upon its
completion turns it over to the government agency or local government unit concerned on a lease
arrangement for a fixed period after which ownership of the facility is automatically transferred to
the government unit concerned.

Section 5-A of the law, which expressly allows direct negotiation of contracts, provides:

Direct Negotiation of Contracts. - Direct negotiation shall be resorted to when there is only one
complying bidder left as defined hereunder. chanroblesvirtualawlibrary chanrobles virtual law library

(a) If, after advertisement, only one contractor applies for prequalification and it meets the
prequalification requirements, after which it is required to submit a bid proposal which is
subsequently found by the agency/local government unit (LGU) to be complying. chanroblesvirtualawlibrary chanrobles virtual law library

(b) If, after advertisement, more than one contractor applied for prequalification but only one
meets the prequalification requirements, after which it submits bid/proposal which is found by the
agency/local government unit (LGU) to be complying. chanroblesvirtualawlibrary chanrobles virtual law library

(c) If, after prequalification of more than one contractor only one submits a bid which is found by
the agency/LGU to be complying. chanroblesvirtualawlibrary chanrobles virtual law library

(d) If, after prequalification, more than one contractor submit bids but only one is found by the
agency/LGU to be complying. Provided, That, any of the disqualified prospective bidder [sic] may
appeal the decision of the implementing agency, agency/LGUs prequalification bids and awards
committee within fifteen (15) working days to the head of the agency, in case of national projects
or to the Department of the Interior and Local Government, in case of local projects from the date
the disqualification was made known to the disqualified bidder: Provided, furthermore, That the
implementing agency/LGUs concerned should act on the appeal within forty-five (45) working
days from receipt thereof.

Petitioners' claim that the BLT scheme and direct negotiation of contracts are not contemplated by
the BOT Law has now been rendered moot and academic by R.A. No. 7718. Section 3 of this law
authorizes all government infrastructure agencies, government-owned and controlled corporations
and local government units to enter into contract with any duly prequalified proponent for the
financing, construction, operation and maintenance of any financially viable infrastructure or
development facility through a BOT, BT, BLT, BOO (Build-own-and-operate), CAO (Contract-add-
operate), DOT (Develop-operate-and-transfer), ROT (Rehabilitate-operate-and-transfer), and ROO
(Rehabilitate-own-operate) (R.A. No. 7718, Sec. 2 [b-j]). chanroblesvirtualawlibrary chanrobles virtual law library

From the law itself, once and applicant has prequalified, it can enter into any of the schemes
enumerated in Section 2 thereof, including a BLT arrangement, enumerated and defined therein
(Sec. 3). chanroblesvirtualawlibrary chanrobles virtual law library

Republic Act No. 7718 is a curative statute. It is intended to provide financial incentives and "a
climate of minimum government regulations and procedures and specific government
undertakings in support of the private sector" (Sec. 1). A curative statute makes valid that which
before enactment of the statute was invalid. Thus, whatever doubts and alleged procedural lapses
private respondent and DOTC may have engendered and committed in entering into the
questioned contracts, these have now been cured by R.A. No. 7718 (cf. Development Bank of the
Philippines v. Court of Appeals, 96 SCRA 342 [1980]; Santos V. Duata, 14 SCRA 1041 [1965];
Adong V. Cheong Seng Gee, 43 Phil. 43 [1922]. chanroblesvirtualawlibrary chanrobles virtual law library

4. Lastly, petitioners claim that the agreements are grossly disadvantageous to the government
because the rental rates are excessive and private respondent's development rights over the 13
stations and the depot will rob DOTC of the best terms during the most productive years of the
project.
chanroblesvirtualawlibrary chanrobles virtual law library
It must be noted that as part of the EDSA LRT III project, private respondent has been granted,
for a period of 25 years, exclusive rights over the depot and the air space above the stations for
development into commercial premises for lease, sublease, transfer, or advertising (Supplemental
Agreement, Sec. 11; Rollo, pp. 91-92). For and in consideration of these development rights,
private respondent shall pay DOTC in Philippine currency guaranteed revenues generated
therefrom in the amounts set forth in the Supplemental Agreement (Sec. 11; Rollo, p. 93). In the
event that DOTC shall be unable to collect the guaranteed revenues, DOTC shall be allowed to
deduct any shortfalls from the monthly rent due private respondent for the construction of the
EDSA LRT III (Supplemental Agreement, Sec. 11; Rollo, pp. 93-94). All rights, titles, interests and
income over all contracts on the commercial spaces shall revert to DOTC upon expiration of the
25-year period. (Supplemental Agreement, Sec. 11; Rollo, pp. 91-92). chanroblesvirtualawlibrary chanrobles virtual law library

The terms of the agreements were arrived at after a painstaking study by DOTC. The
determination by the proper administrative agencies and officials who have acquired expertise,
specialized skills and knowledge in the performance of their functions should be accorded respect
absent any showing of grave abuse of discretion (Felipe Ysmael, Jr. & Co. v. Deputy Executive
Secretary, 190 SCRA 673 [1990]; Board of Medical Education v. Alfonso, 176 SCRA 304
[1989]). chanroblesvirtualawlibrary chanrobles virtual law library

Government officials are presumed to perform their functions with regularity and strong evidence
is necessary to rebut this presumption. Petitioners have not presented evidence on the reasonable
rentals to be paid by the parties to each other. The matter of valuation is an esoteric field which is
better left to the experts and which this Court is not eager to undertake. chanroblesvirtualawlibrary chanrobles virtual law library

That the grantee of a government contract will profit therefrom and to that extent the government
is deprived of the profits if it engages in the business itself, is not worthy of being raised as an
issue. In all cases where a party enters into a contract with the government, he does so, not out
of charity and not to lose money, but to gain pecuniarily. chanroblesvirtualawlibrary chanrobles virtual law library

5. Definitely, the agreements in question have been entered into by DOTC in the exercise of its
governmental function. DOTC is the primary policy, planning, programming, regulating and
administrative entity of the Executive branch of government in the promotion, development and
regulation of dependable and coordinated networks of transportation and communications
systems as well as in the fast, safe, efficient and reliable postal, transportation and
communications services (Administrative Code of 1987, Book IV, Title XV, Sec. 2). It is the
Executive department, DOTC in particular that has the power, authority and technical expertise
determine whether or not a specific transportation or communication project is necessary, viable
and beneficial to the people. The discretion to award a contract is vested in the government
agencies entrusted with that function (Bureau Veritas v. Office of the President, 205 SCRA 705
[1992]). chanroblesvirtualawlibrary chanrobles virtual law library

WHEREFORE, the petition is DISMISSED. chanroblesvirtualawlibrary chanrobles virtual law library

SO ORDERED

Bellosillo and Kapunan, JJ., concur. chanroblesvirtualawlibrary chanrobles virtual law library

Padilla and Regalado, JJ., concurs in the result. chanroblesvirtualawlibrary chanrobles virtual law library

Romero, J., is on leave.

  chanrobles virtual law library

  chanrobles virtual law library

Separate Opinions

MENDOZA, J., concurring: chanrobles virtual law library

I concur in all but Part III of the majority opinion. Because I hold that petitioners do not have
standing to sue, I join to dismiss the petition in this case. I write only to set forth what I
understand the grounds for our decisions on the doctrine of standing are and, why in accordance
with these decisions, petitioners do not have the rights to sue, whether as legislators, taxpayers
or citizens. As members of Congress, because they allege no infringement of prerogative as
legislators. 1As taxpayers because petitioners allege neither an unconstitutional exercise of the
taxing or spending powers of Congress (Art VI, ��24-25 and 29) 2 nor an illegal disbursement of
public money. 3As this Court pointed out in Bugnay Const. and Dev. Corp. v. Laron, 4 a party suing
as taxpayer "must specifically prove that he has sufficient interest in preventing the illegal
expenditure of money raised by taxation and that he will sustain a direct injury as a result of the
enforcement of the questioned statute or contract. It is not sufficient that he has merely a general
interest common to all members of the public." In that case, it was held that a contract, whereby
a local government leased property to a private party with the understanding that the latter would
build a market building and at the end of the lease would transfer the building of the lessor, did
not involve a disbursement of public funds so as to give taxpayer standing to question the legality
of the contract. I see no substantial difference, as far as the standing is of taxpayers to question
public contracts is concerned, between the contract there and the build-lease-transfer (BLT)
contract being questioned by petitioners in this case. chanroblesvirtualawlibrary chanrobles virtual law library

Nor do petitioners have standing to bring this suit as citizens. In the cases 5 in which citizens were
authorized to sue, this Court found standing because it thought the constitutional claims pressed
for decision to be of "transcendental importance," as in fact it subsequently granted relief to
petitioners by invalidating the challenged statutes or governmental actions. Thus in the Lotto
case 6 relied upon by the majority for upholding petitioners standing, this Court took into account
the "paramount public interest" involved which "immeasurably affect[ed] the social, economic,
and moral well-being of the people . . . and the counter-productive and retrogressive effects of
the envisioned on-line lottery system:" 7 Accordingly, the Court invalidated the contract for the
operation of lottery.
chanroblesvirtualawlibrary chanrobles virtual law library

But in the case at bar, the Court precisely finds the opposite by finding petitioners' substantive
contentions to be without merit To the extent therefore that a party's standing is affected by a
determination of the substantive merit of the case or a preliminary estimate thereof, petitioners in
the case at bar must be held to be without standing. This is in line with our ruling in Lawyers
League for a Better Philippines v. Aquino 8 and In re Bermudez  9 where we dismissed citizens'
actions on the ground that petitioners had no personality to sue and their petitions did not state a
cause of action. The holding that petitioners did not have standing followed from the finding that
they did not have a cause of action. chanroblesvirtualawlibrary chanrobles virtual law library

In order that citizens' actions may be allowed a party must show that he personally has suffered
some actual or threatened injury as a result of the allegedly illegal conduct of the government;
the injury is fairly traceable to the challenged action; and the injury is likely to be redressed by a
favorable action. 10As the U.S. Supreme Court has held:

Typically, . . . the standing inquiry requires careful judicial examination of a complaint's allegation
to ascertain whether the particular plaintiff is entitled to an adjudication of the particular claims
asserted. Is the injury too abstract, or otherwise not appropriate, to be considered judicially
cognizable? Is the line of causation between the illegal conduct and injury too attenuated? Is the
prospect of obtaining relief from the injury as a result of a favorable ruling too speculative? These
questions and any others relevant to the standing inquiry must be answered by reference to the
Art III notion that federal courts may exercise power only "in the last resort, and as a necessity,
Chicago & Grand Trunk R. Co. v. Wellman, 143 US 339, 345, 36 L Ed 176,12 S Ct 400 (1892),
and only when adjudication is "consistent with a system of separated powers and [the dispute is
one] traditionally thought to be capable of resolution through the judicial process," Flast v Cohen,
392 US 83, 97, 20 L Ed 2d 947, 88 S Ct 1942 (1968). See  Valley Forge, 454 US, at 472-473, 70 L
Ed 2d 700, 102 S Ct 752. 11 chanrobles virtual law library

Today's holding that a citizen, qua citizen, has standing to question a government contract unduly
expands the scope of public actions and sweeps away the case and controversy requirement so
carefully embodied in Art. VIII, �5 in defining the jurisdiction of this Court. The result is to
convert the Court into an office of ombudsman for the ventilation of generalized grievances.
Consistent with the view that this case has no merit I submit with respect that petitioners, as
representatives of the public interest, have no standing.

Narvasa, C.J., Bidin, Melo, Puno, Vitug and Francisco,  JJ., concur.

DAVIDE, JR., J., dissenting: chanrobles virtual law library

After wading through the record of the vicissitudes of the challenged contract and evaluating the
issues raised and the arguments adduced by the parties, I find myself unable to joint majority in
the well-written ponencia  of Mr. Justice Camilo P. Quiason. chanroblesvirtualawlibrary chanrobles virtual law library

I most respectfully submit that the challenged contract is void for at least two reasons: (a) it is
an-ultra-vires act of the Department of Transportation and Communications (DOTC) since under
R.A. 6957 the DOTC has no authority to enter into a Build-Lease-and-Transfer (BLT) contract; and
(b) even assuming arguendo that it has, the contract was entered into without complying with the
mandatory requirement of public bidding.

I
chanrobles virtual law library

Respondents admit that the assailed contract was entered into under R.A. 6957. This law, fittingly
entitled "An Act Authorizing the Financing, Construction, Operation and Maintenance of
Infrastructure Projects by the Private Sector, and For Other Purposes," recognizes only two (2)
kinds of contractual arrangements between the private sector and government infrastructure
agencies: (a) the Build-Operate-and-Transfer (BOT) scheme and (b) the Build-and-Transfer (BT)
scheme. This conclusion finds support in Section 2 thereof which defines only the BOT and BT
schemes, in Section 3 which explicitly provides for said schemes thus:

Sec. 3 Private Initiative in Infrastructure. - All government infrastructure agencies, including

government-owned and controlled corporations and local government units, are hereby authorized
to enter into contract with any duly prequalified private contractor for the financing, construction,
operation and maintenance of any financially viable infrastructure facilities through the build-
operate-and transfer or build-and-transfer scheme, subject to the terms and conditions
hereinafter set forth; (Emphasis supplied).

and in Section 5 which requires public bidding of projects under both schemes. chanroblesvirtualawlibrary chanrobles virtual law library

All prior acts and negotiations leading to the perfection of the challenged contract were clearly
intended and pursued for such schemes. chanroblesvirtualawlibrary chanrobles virtual law library

A Build-Lease-and-Transfer (BLT) scheme is not authorized under the said law, and none of the
aforesaid prior acts and negotiations were designed for such unauthorized scheme. Hence, the
DOTC is without any power or authority to enter into the BLT contract in question. chanroblesvirtualawlibrary chanrobles virtual law library

The majority opinion maintains, however, that since "[t]here is no mention in the BOT Law that
the BOT and the BT schemes bar any other arrangement for the payment by the government of
the project cost," then "[t]he law must not be read in such a way as to rule outer unduly restrict
any variation within the context of the two schemes." This interpretation would be correct if the
law itself provides a room for flexibility. We find no such provisions in R.A. No. 6957 if it intended
to include a BLT scheme, then it should have so stated, for contracts of lease are not unknown in
our jurisdiction, and Congress has enacted several laws relating to leases. That the BLT scheme
was never intended as a permissible variation "within the context" of the BOT and BT schemes is
conclusively established by the passage of R.A. No. 7718 which amends:

a. Section 2 by adding to the original BOT and BT schemes the following schemes:

(1) Build-own-and-operate (BOO)

(2) Build-Lease-and-transfer (BLT)
(3) Build-transfer-and-operate (BTO)
(4) Contract-add-and-operate (CAO)
(5) Develop-operate-and-transfer (DOT)
(6) Rehabilitate-operate-and-transfer (ROT)
(7) Rehabilitate-own-and-operate (ROO).

b) Section 3 of R.A. No. 6957 by deleting therefrom the phrase "through the build-operate-and-
transfer or build-and-transfer scheme."

IIchanrobles virtual law library

Public bidding is mandatory in R.A. No. 6957. Section 5 thereof reads as follows:

Sec. 5 Public Bidding of Projects. - Upon approval of the projects mentioned in Section 4 of this
Act, the concerned head of the infrastructure agency or local government unit shall forthwith
cause to be published, once every week for three (3) consecutive weeks, in at least two (2)
newspapers of general circulation and in at least one (1) local newspaper which is circulated in the
region, province, city or municipality in which the project is to be constructed a notice inviting all
duly prequalified infrastructure contractors to participate in the public bidding for the projects so
approved. In the case of a build-operate-and-transfer arrangement, the contract shall be awarded
to the lowest complying bidder based on the present value of its proposed tolls, fees, rentals, and
charges over a fixed term for the facility to be constructed, operated, and maintained according to
the prescribed minimum design and performance standards plans, and specifications. For this
purpose, the winning contractor shall be automatically granted by the infrastructure agency or
local government unit the franchise to operate and maintain the facility, including the collection of
tolls, fees, rentals; and charges in accordance with Section 6 hereof. chanroblesvirtualawlibrary chanrobles virtual law library

In the case of a build-and-transfer arrangement, the contract shall be awarded to the lowest
complying bidder based on the present value of its proposed, schedule of amortization payments
for the facility to be constructed according to the prescribed minimum design and performance
standards, plans and specifications: Provided, however, That a Filipino constructor who submits an
equally advantageous bid shall be given preference. chanroblesvirtualawlibrary chanrobles virtual law library

A copy of each build-operate-and-transfer or build-and-transfer contract shall forthwith be

submitted to Congress for its information.

The requirement of public bidding is not an idle ceremony. It has been aptly said that in our
jurisdiction "public bidding is the policy and medium adhered to in Government procurement and
construction contracts under existing laws and regulations. It is the accepted method for arriving
at a fair and reasonable price and ensures that overpricing, favoritism, and other anomalous
practices are eliminated or minimized. And any Government contract entered into without the
required bidding is null and void and cannot adversely affect the rights of third parties."
(Bartolome C. Fernandez, Jr., A TREATISE ON GOVERNMENT CONTRACTS UNDER PHILIPPINE
LAW 25 [rev. ed. 1991], citing Caltex vs.  Delgado Bros., 96 Phil. 368 [1954]). chanroblesvirtualawlibrary chanrobles virtual law library

The Office of the President, through then Executive Secretary Franklin Drilon Correctly
disapproved the contract because no public bidding is strict compliance with Section 5 of R.A. No.
6957 was conducted. Secretary Drilon Further bluntly stated that the provision of the
Implementing Rules of said law authorizing negotiated contracts was of doubtful legality. Indeed,
it is null and void because the law itself does not recognize or allow negotiated contracts. chanroblesvirtualawlibrary chanrobles virtual law library

However the majority opinion posits the view that since only private respondent EDSA LRT was
prequalified, then a public bidding would be "an absurd and pointless exercise." I submit that the
mandatory requirement of public bidding cannot be legally dispensed with simply because only
one was qualified to bid during the prequalification proceedings. Section 5 mandates that the BOT
or BT contract should be awarded "to the lowest complying bidder," which logically means that
there must at least be two (2) bidders. If this minimum requirement is not met, then the
proposed bidding should be deferred and a new prequalification proceeding be scheduled. Even
those who were earlier disqualified may by then have qualified because they may have, in the
meantime, exerted efforts to meet all the qualifications. chanroblesvirtualawlibrary chanrobles virtual law library

This view of the majority would open the floodgates to the rigging of prequalification proceedings
or to unholy conspiracies among prospective bidders, which would even include dishonest
government officials. They could just agree, for a certain consideration, that only one of them
qualify in order that the latter would automatically corner the contract and obtain the award. chanroblesvirtualawlibrary chanrobles virtual law library

That section 5 admits of no exception and that no bidding could be validly had with only one
bidder is likewise conclusively shown by the amendments introduced by R.A. No. 7718 Per section
7 thereof, a new section denominated as Section 5-A was introduced in R.A. No. 6957 to allow
direct negotiation contracts. This new section reads:

Sec. 5-A. Direct Negotiation Of Contracts - Direct negotiation, shall be resorted to when there is
only one complying bidder left as defined hereunder.

(a) If, after advertisement, only one contractor applies for prequalification requirements, after
which it is required to submit a bid/proposal which subsequently found by the agency/local
government unit (LGU) to be complying. chanroblesvirtualawlibrary chanrobles virtual law library

(b) If, after advertisement, more than one contractor applied for prequalification but only one
meets the prequalification requirements, after which it submits bid/proposal which is found by the
agency/local government unit (LGU) to be complying, chanrobles virtual law library

(c) If after prequalification of more than one contractor only one submits a bid which is found by
the agency/LGU to be complying. chanroblesvirtualawlibrary chanrobles virtual law library

(d) If, after prequalification, more than one contractor, only one submit bids but only one is found
by the agency/LGU to be complying: Provided, That, any of the disqualified prospective bidder
may appeal the decision contractor of the implementing agency/LGUs prequalification bids an
award committee within fifteen (15) working days to the head of the agency, in case of national
projects or to the Department of the Interior and Local Government, in case of local projects from
the date the disqualification was made known to the disqualified bidder Provided,  That the
implementing agency/LGUs concerned should act on the appeal within forty-five (45) working
days from receipt thereof.

Can this amendment be given retroactive effect to the challenged contract so that it may now be
considered a permissible negotiated contract? I submit that it cannot be R.A. No. 7718 does not
provide that it should be given retroactive effect to pre-existing contracts. Section 18 thereof says
that it "shall take effect fifteen (15) days after its publication in at least two (2) newspapers of
general circulation." If it were the intention of Congress to give said act retroactive effect then it
would have so expressly provided. Article 4 of the Civil Code provides that "[l]aws shall have no
retroactive effect, unless the contrary is provided." chanrobles virtual law library

The presumption is that all laws operate prospectively, unless the contrary clearly appears or is
clearly, plainly, and unequivocally expressed or necessarily implied. In every case of doubt, the
doubt will be resolved against the retroactive application of laws. (Ruben E Agpalo, STATUTORY
CONSTRUCTION 225 [2d ed. 1990]). As to amendatory acts, or acts which change an existing
statute, Sutherland states:

In accordance with the rule applicable to original acts, it is presumed that provisions added by the
amendment affecting substantive rights are intended to operate prospectively. Provisions added
by the amendment that affect substantive rights will not be construed to apply to transactions and
events completed prior to its enactment unless the legislature has expressed its intent to that
effect or such intent is clearly implied by the language of the amendment or by the circumstances
surrounding its enactment. (1 Frank E. Horack, Jr., SUTHERLAND'S STATUTES AND STATUTORY
CONSTRUCTION 434-436 [1943 ed.]).
I vote then to grant the instant petition and to declare void the challenged contract and its
supplement.

FELICIANO, J.,  dissenting: chanrobles virtual law library

After considerable study and effort, and with much reluctance, I find I must dissent in the instant
case. I agree with many of the things set out in the majority opinion written by my distinguished
brother in the Court Quiason, J. At the end of the day, however, I find myself unable to join in the
result reached by the majority. chanroblesvirtualawlibrary chanrobles virtual law library

I join in the dissenting opinion written by Mr. Justice. Davide, Jr; which is appropriately drawn on
fairly narrow grounds. At the same time; I wish to address briefly one of the points made by
Justice Quiason in the majority opinion in his effort to meet the difficulties posed by Davide
Jr., J.
chanroblesvirtualawlibrary chanrobles virtual law library

I refer to the invocation of the provisions of presidential Decree No. 1594 dated 11 June 1978
entitled: "Prescribing policies, Guidelines, Rules and Regulations for Government Infrastructure
Contracts�" More specifically, the majority opinion invokes paragraph 1 of Section 4 of this
Degree which reads as follows:

Sec. 4. Bidding. - Construction projects shall, generally be undertaken by contract after

competitive public bidding. Projects may be undertaken by administration or force account or by
negotiated contract only in exceptional cases where time is of the essence, or where there is lack
of qualified bidders or contractors, or where there is a conclusive evidence that greater economy
and efficiency would be achieved through this arrangement, and in accordance with provisions of
laws and acts on the matter, subject to the approval of the Ministry of public Works,
Transportation and Communications, the Minister of Public Highways, or the Minister of Energy, as
the case may be, if the project cost is less than P1 Million, and of the President of the Philippines,
upon the recommendation of the Minister, if the project cost is P1 Million or more.

xxx xxx xxx

I understand the unspoken theory in the majority opinion to be that above Section 4 and
presumably the rest of Presidential Decree No. 1594 continue to exist and to run parallel to the
provisions of Republic Act No. 6957, whether in its original form or as amended by Republic Act
No. 7718. chanroblesvirtualawlibrary chanrobles virtual law library

A principal difficulty with this approach is that Presidential Decree No. 1594 purports to apply
to all "government contracts for infrastructure and other  construction projects." But Republic Act
No. 6957 as amended by Republic Act No. 7718, relates only to "infrastructure projects"
which are financed, constructed, operated and maintained "by the private sector"  "through
the build/operate-and-transfer or build-and-transfer scheme" under Republic Act No. 6597 and
under a series of other comparable schemes under Republic Act No. 7718. In other words,
Republic Act No. 6957 and Republic Act. No. 7718 must be held, in my view, to be special
statutes applicable to a more limited field of "infrastructure projects" than the wide-ranging scope
of application of the  general statute i.e., Presidential Decree No. 1594. Thus, the high relevance
of the point made by Mr. Justice Davide that Republic Act No. 6957 in specific connection with
BCT- and BLT type and BLT type of contracts imposed an unqualified requirement of public
bidding set out in Section 5 thereof. chanroblesvirtualawlibrary chanrobles virtual law library

It should also be pointed out that under Presidential Decree No. 1594, projects may be
undertaken "by administration or force account or by negotiated contract only"

(1) in exceptional cases where time is of the essence; or chanrobles virtual law library

(2) where there is lack of bidders or contractors; or chanrobles virtual law library

(3) where there is a conclusive evidence that greater economy and efficiency would be achieved
through these arrangements, and in accordance with provision[s] of laws and acts on the matter.
It must, upon the one hand, be noted that the special law Republic Act No. 6957 made
absolutely no mention of negotiated contracts being permitted to displace the requirement of
public bidding. Upon the other hand, Section 5-a, inserted in Republic Act No. 6957 by the
amending statute Republic Act No. 7718, does not purport to authorize direct negotiation of
contracts situations where there is a lack of pre-qualified contractors or, complying bidders. Thus,
even under the amended special statute, entering into contracts by negotiation
is not permissible in the other (2) categories of cases referred to in Section 4 of Presidential
Decree No. 1594, i.e., "in exceptional cases where time is of the essence" and "when there is
conclusive evidence that greater economy and efficiency would be achieved through these
arrangements, etc." chanrobles virtual law library

The result I reach is that insofar as BOT, etc.-types of contracts are concerned, the applicable
public bidding requirement is that set out in Republic Act No. 6957 and, with respect to such type
of contracts opened for pre-qualification and bidding after the date of effectivity of Republic Act
No. 7718, The provision of Republic Act No. 7718. The assailed contract was entered into before
Republic Act. No. 7718 was enacted. chanroblesvirtualawlibrary chanrobles virtual law library

The difficulties. of applying the provisions of Presidential Degree No. 1594 to the Edsa LRT-type of
contracts are aggravated when one considers the detailed "Implementing Rules and Regulations
as amended April 1988" issued under that Presidential Decree. 1 For instance:

IB [2.5.2] 2.4.2 By Negotiated Contract

xxx xxx xxx

a. In times of emergencies arising from natural calamities where immediate action is necessary to
prevent imminent loss of life and/or property. chanroblesvirtualawlibrary chanrobles virtual law library

b. Failure to award the contract after competitive public bidding for valid cause or causes [such as
where the prices obtained through public bidding are all above the AAE and the bidders refuse to
reduce their prices to the AAE].

In these cases, bidding may be undertaken through sealed canvass of at least three (3) qualified
contractors. Authority to negotiate contracts for projects under these exceptional cases shall be
subject to prior approval by heads of agencies within their limits of approving authority.

c. Where the subject project is adjacent or contiguous to an on-going project and it could be
economically prosecuted by the same contractor provided that he has no negative slippage and
has demonstrated a satisfactory performance. (Emphasis supplied).

Note that there is no reference at all in these Presidential Decree No. 1594 Implementing Rules
and Regulations to absence of pre-qualified applicants and bidders as justifying negotiation of
contracts as distinguished from requiring public bidding or a second public bidding. chanroblesvirtualawlibrary chanrobles virtual law library

Note also the following provision of the same Implementing Rules and Regulations:

IB 1 Prequalification

The following may be become contractors for government projects: chanrobles virtual law library

1  Filipino

a. Citizens (single proprietorship) chanrobles virtual law library

b. Partnership of corporation duly organized under the laws of the Philippines, and at least
seventy five percent (75%) of the capital stock of which belongs to Filipino citizens. chanroblesvirtualawlibrary chanrobles virtual law library
2. Contractors forming themselves into a joint venture, i.e., a group of two or more contractors
that intend to be jointly and severally responsible for a particular contract, shall for purposes of
bidding/tendering comply with LOI 630, and, aside from being currently and properly accredited
by the Philippine Contractors Accreditation Board, shall comply with the provisions of R.A. 4566,
provided that joint ventures in which Filipino ownership is less than seventy five percent ( 75%)
may be prequalified where the structures to be built require the  application of techniques and/or
technologies  which are not adequately possessed by a Filipino entity as defined above. chanroblesvirtualawlibrary chanrobles virtual law library

[The foregoing shall not negate any existing and future commitments with respect to the bidding
and aware of contracts financed partly or wholly with funds from international lending institutions
like the Asian Development Bank and the Worlds Bank as well as from bilateral and other similar
sources.(Emphases supplied)

The record of this case is entirely silent on the extent of Philippine equity in the Edsa LRT
Corporation; there is no suggestion that this corporation is organized under Philippine law and is
at least seventy-five (75%) percent owned by Philippine citizens. chanroblesvirtualawlibrary chanrobles virtual law library

Public bidding is the normal method by which a government keeps contractors honest and is able
to assure itself that it would be getting the best possible value for its money in any construction or
similar project. It is not for nothing that multilateral financial organizations like the World Bank
and the Asian Development Bank uniformly require projects financed by them to be implemented
and carried out by public bidding. Public bidding is much too important a requirement casually to
loosen by a latitudinarian exercise in statutory construction. chanroblesvirtualawlibrary chanrobles virtual law library

The instant petition should be granted and the challenged contract and its supplement should be
nullified and set aside. A true public bidding, complete with a new prequalification proceeding,
should be required for the Edsa LRT Project.

Separate Opinions

MENDOZA, J., concurring: chanrobles virtual law library

I concur in all but Part III of the majority opinion. Because I hold that petitioners do not have
standing to sue, I join to dismiss the petition in this case. I write only to set forth what I
understand the grounds for our decisions petitioners do not have the rights to sue, whether as
legislators, taxpayers or citizens. As members of Congress, because they allege no infringement
of prerogative as legislators. 1As taxpayers because petitioners allege neither an unconstitutional
exercise of the taxing or spending powers of Congress (Art VI, ��24-25 and 29) 2nor an illegal
disbursement of public money. 3As this Court pointed out in Bugnay Const. and
Dev.  Corp. v. Laron, 4 a party suing as taxpayer "must specifically prove that he has sufficient
interest in preventing the illegal expenditure of money raised by taxation and that he will sustain
a direct injury as a result of the enforcement of the questioned statute or contract, It is not
sufficient that has merely a general interest common to all members of the public." In that case, it
was held that a contract, whereby a local government leased property to a private party with the
understanding that the latter would build a market building and at the end of the lease would
transfer the building of the lessor, did not involve a disbursement of public funds so as to give
taxpayer standing to question the legality of the contract contracts I see no substantial difference,
as far as the standing is of taxpayers is concerned, between the contract there and the build-
lease-transfer (BLT) contract being questioned by petitioners in this case. chanroblesvirtualawlibrary chanrobles virtual law library

Nor do petitioners have standing to bring this suit as citizens. In the cases 5 in which citizens were
authorized to sue, this Court found standing because it thought the constitutional claims pressed
for decision to be of "transcendental importance," as in fact it subsequently granted relief to
petitioners by invalidating the challenged statutes or governmental actions. Thus in the Lotto
case 6 relied upon by the majority for upholding petitioners standing, this Court took into account
the "paramount public interest" involved which "immeasurably affect[ed] the social, economic,
and moral well-being of the people . . . and the counter-productive and retrogressive effects of
the envisioned on-line lottery system:" 7 Accordingly, the Court invalidated the contract for the
operation of lottery.
chanroblesvirtualawlibrary chanrobles virtual law library
But in the case at bar, the Court precisely finds the opposite by finding petitioners' substantive
contentions to be without merit To the extent therefore that a party's standing is affected by a
determination of the substantive merit of the case or a preliminary estimate thereof, petitioners in
the case at bar must be held to be without standing. This is in line with our ruling in Lawyers
League for a Better Philippines v. Aquino 8 and In re Bermudez 9 where we dismissed citizens'
actions on the ground that petitioners had no personality to sue and their petitions did not state a
cause of action. The holding that petitioners did not have standing followed from the finding that
they did not have a cause of action. chanroblesvirtualawlibrary chanrobles virtual law library

In order that citizens' actions may be allowed a party must show that he personally has suffered
some actual or threatened injury as a result of the allegedly illegal conduct of the government;
the injury is fairly traceable to the challenged action; and the injury is likely to be redressed by a
favorable action. 10As the U.S. Supreme Court has held:

Typically, . . . the standing inquiry requires careful judicial examination of a complaint's allegation
to ascertain whether the particular plaintiff is entitled to an adjudication of the particular claims
asserted. Is the injury too abstract, or otherwise not appropriate, to be considered judicially
cognizable? Is the line of causation between the illegal conduct and injury too attenuated? Is the
prospect of obtaining relief from the injury as a result of a favorable ruling too speculative? These
questions and any others relevant to the standing inquiry must be answered by reference to the
Art III notion that federal courts may exercise power only "in the last resort, and as a necessity,
Chicago & Grand Trunk R. Co. v. Wellman, 143 US 339, 345, 36 L Ed 176,12 S Ct 400 (1892),
and only when adjudication is "consistent with a system of separated powers and [the dispute is
one] traditionally thought to be capable of resolution through the judicial process," Flast v Cohen,
392 US 83, 97, 20 L Ed 2d 947, .88 S Ct 1942 (1968). See Valley Forge, 454 US, at 472-473, 70
L Ed 2d 700, 102 S Ct 752. 11 chanrobles virtual law library

Today's holding that a citizen, qua citizen, has standing to question a government contract unduly
expands the scope of public actions and sweeps away the case and controversy requirement so
carefully embodied in Art. VIII, �5 in defining the jurisdiction of this Court. The result is to
convert the Court into an office of ombudsman for the ventilation of generalized grievances.
Consistent with the view that this case has no merit I submit with respect that petitioners, as
representatives of the public interest, have no standing.

Narvasa, C.J., Bidin, Melo, Puno, Vitug and Francisco,  JJ., concur.

DAVIDE, JR., J., dissenting: chanrobles virtual law library

After wading through the record of the vicissitudes of the challenged contract and evaluating the
issues raised and the arguments adduced by the parties, I find myself unable to joint majority in
the well-written ponencia  of Mr. Justice Camilo P. Quiason. chanroblesvirtualawlibrary chanrobles virtual law library

I most respectfully submit that the challenged contract is void for at least two reasons: (a) it is
an-ultra-vires act of the Department of Transportation and Communications (DOTC) since under
R.A. 6957 the DOTC has no authority to enter into a Build-Lease-and-Transfer (BLT) contract; and
(b) even assuming arguendo that it has, the contract was entered into without complying with the
mandatory requirement of public bidding.

I
chanrobles virtual law library

Respondents admit that the assailed contract was entered into under R.A. 6957. This law, fittingly
entitled "An Act Authorizing the Financing, Construction, Operation and Maintenance of
Infrastructure Projects by the Private Sector, and For Other Purposes," recognizes only two (2)
kinds of contractual arrangements between the private sector and government infrastructure
agencies: (a) the Build-Operate-and-Transfer (BOT) scheme and (b) the Build-and-Transfer (BT)
scheme. This conclusion finds support in Section 2 thereof which defines only the BOT and BT
schemes, in Section 3 which explicitly provides for said schemes thus:
Sec. 3 Private Initiative in Infrastructure. - All government infrastructure agencies, including
government-owned and controlled corporations and local government units, are hereby authorized
to enter into contract with any duly prequalified private contractor for the financing, construction,
operation and maintenance of any financially viable infrastructure facilities through the build-
operate-and transfer or build-and-transfer scheme, subject to the terms and conditions
hereinafter set forth; (Emphasis supplied).

and in Section 5 which requires public bidding of projects under both schemes. chanroblesvirtualawlibrary chanrobles virtual law library

All prior acts and negotiations leading to the perfection of the challenged contract were clearly
intended and pursued for such schemes. chanroblesvirtualawlibrary chanrobles virtual law library

A Build-Lease-and-Transfer (BLT) scheme is not authorized under the said law, and none of the
aforesaid prior acts and negotiations were designed for such unauthorized scheme. Hence, the
DOTC is without any power or authority to enter into the BLT contract in question. chanroblesvirtualawlibrary chanrobles virtual law library

The majority opinion maintains, however, that since "[t]here is no mention in the BOT Law that
the BOT and the BT schemes bar any other arrangement for the payment by the government of
the project cost," then "[t]he law must not be read in such a way as to rule outer unduly restrict
any variation within the context of the two schemes." This interpretation would be correct if the
law itself provides a room for flexibility. We find no such provisions in R.A. No. 6957 if it intended
to include a BLT scheme, then it should have so stated, for contracts of lease are not unknown in
our jurisdiction, and Congress has enacted several laws relating to leases. That the BLT scheme
was never intended as a permissible variation "within the context" of the BOT and BT schemes is
conclusively established by the passage of R.A. No. 7718 which amends:

a. Section. 2 by adding to the original BOT and BT schemes the following schemes:

1) Build-own-and-operate (BOO)
2) Build-Lease-and-transfer (BLT)
3) Build-transfer-and-operate (BTO)
4) Contract-add-and-operate (CAO)
5) Develop-operate-and-transfer (DOT)
6) Rehabilitate-operate-and-transfer (ROT)
7) Rehabilitate-own-and-operate (ROO).

b) Section 3 of R.A. No. 6957 by deleting therefrom the phrase "through the build-operate-and-
transfer or build-and-transfer scheme.

II
chanrobles virtual law library

Public bidding is mandatory in R.A. No. 6957. Section 5 thereof reads as follows:

Sec. 5 Public Bidding of Projects. - Upon approval of the projects mentioned in Section 4 of this
Act, the concerned head of the infrastructure agency or local government unit shall forthwith
cause to be published, once every week for three (3) consecutive weeks, in at least two (2)
newspapers of general circulation and in at least one (1) local newspaper which is circulated in the
region, province, city or municipality in which the project is to be constructed a notice inviting all
duly prequalified infrastructure contractors to participate in the public bidding for the projects so
approved. In the case of a build-operate-and-transfer arrangement, the contract shall be awarded
to the lowest complying bidder based on the present value of its proposed tolls, fees, rentals, and
charges over a fixed term for the facility to be constructed, operated, and maintained according to
the prescribed minimum design and performance standards plans, and specifications. For this
purpose, the winning contractor shall be automatically granted by the infrastructure agency or
local government unit the franchise to operate and maintain the facility, including the collection of
tolls, fees, rentals; and charges in accordance with Section 6 hereof. chanroblesvirtualawlibrary chanrobles virtual law library
In the case of a build-and-transfer arrangement, the contract shall be awarded to the lowest
complying bidder based on the present value of its proposed, schedule of amortization payments
for the facility to be constructed according to the prescribed minimum design and performance
standards, plans and specifications: Provided, however, That a Filipino constructor who submits an
equally advantageous bid shall be given preference. chanroblesvirtualawlibrary chanrobles virtual law library

A copy of each build-operate-and-transfer or build-and-transfer contract shall forthwith be

submitted to Congress for its information.

The requirement of public bidding is not an idle ceremony. It has been aptly said that in our
jurisdiction "public bidding is the policy and medium adhered to in Government procurement and
construction contracts under existing laws and regulations. It is the accepted method for arriving
at a fair and reasonable price and ensures that overpricing, favoritism, and other anomalous
practices are eliminated or minimized. And any Government contract entered into without the
required bidding is null and void and cannot adversely affect the rights of third parties."
(Bartolome C. Fernandez, Jr., A TREATISE ON GOVERNMENT CONTRACTS UNDER PHILIPPINE
LAW 25 [rev. ed. 1991], citing Caltex vs.  Delgado Bros., 96 Phil. 368 [1954]). chanroblesvirtualawlibrary chanrobles virtual law library

The Office of the president secretary through then Executive Secretary Franklin Drilon Correctly
disapproved the contract because no public bidding is strict compliance with Section 5 of R.A. No.
6957 was conducted. Secretary Drilon Further bluntly stated that the provision of the
Implementing Rules of said law authorizing negotiated contracts was of doubtful legality. Indeed,
it is null and void because the law itself does not recognize or allow negotiated contracts. chanroblesvirtualawlibrary chanrobles virtual law library

However the majority opinion posits the view that since only private respondent EDSA LRT was
prequalified, then a public bidding would be "an absurd and pointless exercise." I submit that the
mandatory requirement of public bidding cannot be legally dispensed with simply because only
one was qualified to bid during the prequalification proceedings. Section 5 mandates that the BOT
or BT contract should be awarded "to the lowest complying bidder," which logically means that
there must at least be two (2) bidders. If this minimum requirement is not met, then the
proposed bidding should be deferred and a new prequalification proceeding be scheduled. Even
those who were earlier disqualified may by then have qualified because they may have, in the
meantime, exerted efforts to meet all the qualifications. chanroblesvirtualawlibrary chanrobles virtual law library

This view of the majority would open the floodgates to the rigging of prequalification proceedings
or to unholy conspiracies among prospective bidders, which would even include dishonest
government officials. They could just agree, for a certain consideration, that only one of them
qualify in order that the latter would automatically corner the contract and obtain the award. chanroblesvirtualawlibrary chanrobles virtual law library

That section 5 admits of no exception and that no bidding could be validly had with only one
bidder is likewise conclusively shown by the amendments introduced by R.A. No. 7718 Per section
7 thereof, a new section denominated as Section 5-A was introduced in R.A. No. 6957 to allow
direct negotiation contracts. This new section reads:

Sec. 5-A. Direct Negotiation Of Contracts - Direct negotiation, shall be resorted to when there is
only one complying bidder left as defined hereunder.

(a) If, after advertisement, only one contractor applies for prequalification requirements submit a
bid/proposal which subsequently found by the agency/local government unit (LGU) to be
complying. chanroblesvirtualawlibrary chanrobles virtual law library

(b) If, after advertisement, more than one contractor applied for prequalification but only one
meets the prequalification .requirements, after which it submits bid/proposal which is found by
the agency/local government unit (LGU) to be complying, chanrobles virtual law library

(c) If after prequalification of more than one contractor only one submits a bid which is found by
the agency/LGU to be complying. chanroblesvirtualawlibrary chanrobles virtual law library
(d) If, after prequalification, more than one contractor, only one submit bids but only one is found
by the agency/LGU to be complying: Provided, That, any of the disqualified prospective bidder
may appeal the decision contractor of the implementing agency/LGUs prequalification bids an
award committee within fifteen (15) working days to the head of the agency of national projects
or to the Department of the Interior and Local Government, in case of local projects from the date
the disqualification was made known to the disqualified bidder Provided, That the implementing
agency/LGUs concerned should act on the appeal within forty-five (45) working days from receipt
thereof.

Can this amendment be given retroactive effect to the challenged contract so that it may now be
considered a permissible negotiated contract? I submit that it cannot be R.A. No. 7718 does not
provide that it should be given retroactive effect to pre-existing contracts. Section 18 thereof says
that it "shall take effect fifteen (15) after its publication in at least two (2) newspapers of general
circulation." If it were the intention of Congress to give said act retroactive effect then it would
have so expressly provided. Article 4 of the Civil Code provides that "[l]aws shall have no
retroactive effect, unless the contrary is provided." chanrobles virtual law library

The presumption is that all laws operate prospectively, unless the contrary clearly appears or is
clearly, plainly, and unequivocally expressed or necessarily implied. In every case of doubt, the
doubt will be resolved against the retroactive application of laws. (Ruben E Agpalo, STATUTORY
CONSTRUCTION 225 [2d ed. 1990]). As to amendatory acts, or acts which change an existing
statute, Sutherland states:

In accordance with the rule applicable to original acts, it is presumed that provisions added by the
amendment affecting substantive rights are intended to operate prospectively. Provisions added
by the amendment that affect substantive rights will not be construed to apply to transactions and
events completed prior to its enactment unless the legislature has expressed its intent to that
effect or such intent is clearly implied by the language of the amendment or by the circumstances
surrounding its enactment. (1 Frank E. Horack, Jr., SUTHERLAND'S STATUTES AND STATUTORY
CONSTRUCTION 434-436 [1943 ed.]).

I vote then to grant the instant petition and to declare void the challenged contract and its
supplement.

FELICIANO, J.,  dissenting: chanrobles virtual law library

After considerable study and effort, and with much reluctance, I find I must dissent in the instant
case. I agree with many of the things set out in the majority opinion written by my distinguished
brother in the Court Quiason, J. At the end of the day, however, I find myself unable to join in the
result reached by the majority. chanroblesvirtualawlibrary chanrobles virtual law library

I join in the dissenting opinion written by Mr. Justice. Davide, Jr; which is appropriately drawn on
fairly narrow grounds. At the same time; I wish to address briefly one of Justice Quiason in the
majority opinion in his effort to meet the difficulties posed by Davide Jr., J. chanroblesvirtualawlibrary chanrobles virtual law library

I refer to the invocation of the provisions of presidential Decree No. 1594 dated 11 June 1978
entitled: "Prescribing policies, Guidelines, Rules and Regulations for Government Infrastructure
Contracts�" More specifically, the majority opinion invokes paragraph 1 of Section 4 of this
Degree which reads as follows:

Sec. 4. Bidding. - Construction projects shall, generally be undertaken by contract after

competitive public bidding. Projects may be undertaken by administration or force account or by
negotiated contract only in exceptional cases where time is of the essence, or where there is lack
of qualified bidders or contractors, or where there is a conclusive evidence that greater economy
and efficiency would be achieved through this arrangement, and in accordance with provisions of
laws and acts on the matter, subject to the approval of the Ministry of public Works,
Transportation and Communications, the Minister of Public Highways, or the Minister of Energy, as
the case may be, if the project cost is less than P1 Million, and of the president of the Philippines,
upon the recommendation of the Minister, if the project cost is P1 Million or more.
 xxx xxx xxx

I understand the unspoken theory in the majority opinion utility and the ownership of the facilities
used to serve the public can be very w1594 continue to exist and to run parallel to the provisions
of Republic Act No. 6957, whether in its original form or as amended by Republic Act No.
7718.chanroblesvirtualawlibrary chanrobles virtual law library

A principal difficulty with this approach is that Presidential Decree No. 1594 purports to apply to
all "government contracts for infrastructure and other construction projects" But Republic Act No.
6957 as amended by Republic Act No. 7718, relates on to "infrastructure projects" which are
financed, constructed, operated and maintained "by the private sector" "through
the build/operate-and-transfer or build-and-transfer scheme" under Republic Act No. 6597 and
under a series of other comparable schemes under Republic Act No. 7718. In other words,
Republic Act No. 6957 and Republic Act. No: 7718 must be held, in my view, to be special
statutes applicable to a more limited field of "infrastructure projects" than the wide-ranging scope
of application of the  general statute i.e., Presidential Decree No. 1594. Thus, the high relevance
of the point made by Mr. Justice Davide that Republic Act No. 6957 in specific connection with
BCT- and BLT type and BLT type of contracts imposed an unqualified requirement of public
bidding set out in Section 5 thereof. chanroblesvirtualawlibrary chanrobles virtual law library

It should also be pointed out that under Presidential Decree No. 1594, projects may be
undertaken "by administration or force account or by negotiated contract only "

(1) in exceptional cases where time is of the essence; or chanrobles virtual law library

(2) where there is lack of bidders or contractors; or chanrobles virtual law library

(3) where there is a conclusive evidence that greater economy and efficiency would be achieved
through these arrangements, and in accordance with provision[s] of laws and acts on the matter.

It must, upon the one hand, be noted that the special law Republic Act- No. 6957 made
absolutely no mention of negotiated contracts being permitted to displace the requirement of
public bidding. Upon the other hand, Section 5-a, inserted in Republic Act No. 6957 by the
amending statute Republic Act No. 7718, does not purport to authorize direct negotiation of
contracts situations where there is a lack of pre-qualified contractors or, complying bidders. Thus,
even under the amended special statute, entering into contracts by negotiation
is not permissible in the other (2) categories of cases referred to in Section 4 of Presidential
Decree No. 1594, i.e., "in exceptional cases where time is of the essence" and "when there is
conclusive evidence that greater economy and efficiency would be achieved through these
arrangements, etc." chanrobles virtual law library

The result I reach is that insofar as BOT, etc.-types of contracts are concerned, the applicable
public bidding requirement is that set out in Republic Act No. 6957 and, with respect to such type
of contracts opened for pre-qualification and bidding after the date of effectivity of Republic Act
No. 7718. The provision of Republic Act No. 7718. The assailed contract was entered into before
Republic Act. No. 7718 was enacted. chanroblesvirtualawlibrary chanrobles virtual law library

The difficulties. of applying the provisions of presidential Degree No. 1594 to the Edsa LRT-type of
contracts are aggravated when one considers the detailed" Implementing Rules and Regulations
as amended April 1988" issued under that Presidential Decree. 1 For instance:

IB [2.5.2] 2.4.2 By Negotiated Contract

xxx xxx xxx

a. In times of emergencies arising from natural calamities where immediate action is necessary to
prevent imminent loss of life and/or property. chanroblesvirtualawlibrary chanrobles virtual law library
b. Failure to award the contract after competitive public bidding for valid cause or causes [such as
where the prices obtained through public bidding are all above the AAE and the bidders refuse to
reduce their prices to the AAE].

In these cases, bidding may be undertaken through sealed canvass of at least three (3) qualified
contractors. Authority to negotiate contracts for projects under these exceptional cases shall be
subject to prior approval by heads of agencies within their limits of approving authority.

c. Where the subject project is adjacent or contiguous to an on-going project and it could be
economically prosecuted by the same contractor provided that he has no negative slippage and
has demonstrated a satisfactory performance. (Emphasis supplied).

Note that there is no reference at all in these presidential Decree No. 1594 Implementing Rules
and Regulations to absence of pre-qualified applicants and bidders as justifying negotiation of
contracts as distinguished from requiring public bidding or a second public bidding. chanroblesvirtualawlibrary chanrobles virtual law library

Note also the following provision of the same Implementing Rules and Regulations:

IB 1 Prequalification

The following may be become contractors for government projects: chanrobles virtual law library

1  Filipino

a. Citizens (single proprietorship) chanrobles virtual law library

b. Partnership of corporation duly organized under the laws of the Philippines, and at least
seventy five percent (75%) of the capital stock of which belongs to Filipino citizens. chanroblesvirtualawlibrary chanrobles virtual law library

2. Contractors forming themselves into a joint venture, i.e., a group of two or more contractors
that intend to be jointly and severally responsible for a particular contract, shall for purposes of
bidding/tendering comply with LOI 630, and, aside from being currently and properly accredited
by the Philippine Contractors Accreditation Board, shall comply with the provisions of R.A. 4566,
provided that joint ventures in which Filipino ownership is less than seventy five percent ( 75%)
may be prequalified where the structures to be built require the  application of techniques and/or
technologies  which are not adequately possessed by a Filipino entity as defined above. chanroblesvirtualawlibrary chanrobles virtual law library

[The foregoing shall not negate any existing and future commitments with respect to the bidding
and aware of contracts financed partly or wholly with funds from international lending institutions
like the Asian Development Bank and the Worlds Bank as well as from bilateral and other similar
sources.(Emphases supplied)

The record of this case is entirely silent on the extent of Philippine equity in the Edsa LRT
Corporation; there is no suggestion that this corporation is organized under Philippine law and is
at least seventy-five (75%) percent owned by Philippine citizens. chanroblesvirtualawlibrary chanrobles virtual law library

Public bidding is the normal method by which a government keeps contractors honest and is able
to assure itself that it would be getting the best possible value for its money in any construction or
similar project. It is not for nothing that multilateral financial organizations like the World Bank
and the Asian Development Bank uniformly require projects financed by them to be implemented
and carried out by public bidding. Public bidding is much too important a requirement casually to
loosen by a latitudinarian exercise in statutory construction. chanroblesvirtualawlibrary chanrobles virtual law library

The instant petition should be granted and the challenged contract and its supplement should be
nullified and set aside. A true public bidding, complete with a new prequalification proceeding,
should be required for the Edsa LRT Project.