Philippine Contractors Adjudication Board v. Manila Water Company, Inc. GR 217590, 10 March 2020
TOPIC: The Doctrine of Supremacy of the Constitution
FACTS:
In this Petition for Review on Certiorari1 under Rule 45 of the Rules of Court, the Philippine Contractors Accreditation Board (PCAB; hereinafter referred to as petitioner) seeks the reversal of the February 24, 2014 Resolution2 and the February 10, 2015 Order3 of the Regional Trial Court, Quezon City, Branch 83 (RTC) which granted the petition for declaratory relief filed by Manila Water Company, Inc. (respondent) and declared Section 3.1, Rule 3 of the Revised Rules and Regulations Governing Licensing and Accreditation of Constructors in the Philippines or the Implementing Rules and Regulations (IRR) of Republic Act (R.A.) No. 45664 void.
The Court is asked to determine the validity of Section 3.1, Rule 3 of the IRR which provides:
Rule 3 CONTRACTOR’S LICENSE
Section 3.1 License Types
Two types of licenses are hereby instituted and designated as follows:
- a) The Regular License
“Regular License” means a license of the type issued to a domestic construction firm which shall authorize the licensee to engage in construction contracting within the field and scope of his license classification(s) for as long as the license validity is maintained through annual renewal; unless renewal is denied or the license is suspended, cancelled or revoked for cause(s).
The Regular License shall be reserved for and issued only to constructor-firms of Filipino sole proprietorship, or partnership/corporation with at least seventy percent (70)* Filipino equity participation and duly organized and existing under and by virtue of the laws of the Philippines.
* Adjusted to 60% under Art. 48 of Chapter III, Book II of the Omnibus Investment Code of 1987.
- b) The Special License
“Special License” means a license of the type issued to a joint venture, a consortium, a foreign constructor or a project owner which shall authorize the licensee to engage only in the construction of a single specific undertaking/project. In case the licensee is a foreign firm, the license authorization shall be further subject to condition(s) as may have been imposed by the proper Philippine government authority in the grant of the privilege for him to so engage in construction contracting in the Philippines. Annual renewal shall be required for as long as the undertaking/project is in progress, but shall be restricted to only as many times as necessary for completion of the same.
The following can qualify only for the Special License:
- ba) A joint venture, consortium or any such similar association organized for a single specific undertaking/project;
- bb) A foreign firm legally allowed by the proper Philippine government authority to undertake construction activities in the Philippines.
- bc) A project owner undertaking by himself, sans the service of a constructor, the construction of a project intended for sale, lease, commercial/industrial use or any other income generating purpose.
The RTC ruled in favor of respondent and declared Section 3.1, Rule 3 of the IRR void. It held that the same does not merely interpret or implement the law but creates an entirely new restriction that is not found in the law. While Section 17 of R.A. No. 4566 allows the board to effect classifications, the same provision requires the qualification to be reasonable. The trial court believed that the classification effected by the IRR is unreasonable as it imposes additional burdens on foreign entities which are not found in the law or the Constitution.
Petitioner contends that it is within its duty and authority to issue the assailed IRR. Section 5 of R.A. No. 4566 expressly confers upon petitioner the duty and power to issue the IRR of the same act. Section 17 of the same law also empowers petitioner to adopt the necessary rules and regulations to effect the classification of contractors. Considering also that the construction business is a highly technical industry, R.A. No. 4566 cannot, by itself, thoroughly address all issues and factors in the issuance of licenses in such industry. Thus, the same can only be effectively regulated by petitioner pursuant to its powers and functions under R.A. No. 4566, which includes the authority to issue the assailed IRR.
Respondent avers that petitioner exceeded its jurisdiction by issuing Section 3.1, Rule 3 of the IRR, as the power to impose nationality requirements in areas of investment is exclusively vested on Congress under Section 10, Article XII of the Constitution and not to a mere administrative agency. The assailed provision of the IRR contradicts and pre-empts statutory provisions as nowhere in R.A. No. 4566 does the legislature authorize petitioner to impose nationality qualifications in order for an entity to obtain a license in the construction business.
The Philippine Competition Commission (PCC) moved to intervene as amicus curiae in this case, asserting that under the Philippine Competition Act (PCA) otherwise known as R.A. No. 10667, from which it owes its existence, it is mandated to issue advisory opinions and guidelines on competition matters and to advocate pro-competitive policies of the government.
The PCC had a different view with the OSG and mainly argues that: 1) the nationality-based restriction imposed by the assailed regulation is a “barrier to entry,” and 2) barriers to entry violate the constitutional state policy against unfair competition.
The PCC also points out that the stricter and broader language of Section 19, Article XII of the Constitution provides the legal impetus for nullifying governmental acts that restrain competition. Such acts can range from laws passed by Congress, to rules and regulations issued by administrative agencies, and even contracts entered into by the government with a private party. A more comprehensive competition policy embodied in the present Constitution empowers the Court to nullify both public and private acts that restrain competition.
ISSUES:
WON THE REGIONAL TRIAL COURT GRAVELY ERRED IN DECLARING AS VOID RULE 3, SECTION 3.1 OF THE REVISED RULES AND REGULATIONS GOVERNING LICENSING AND ACCREDITATION OF CONSTRUCTORS IN THE PHILIPPINES BECAUSE:
- The issuance of the assailed Rule is within the duty and authority of respondent PCAB.
- The assailed Rule is consistent with the 1987 Constitution and existing laws, rules, regulations and policies.
RULINGS:
The crux of the controversy is the validity of Section 3.1, Rule 3 of the IRR of R.A. No. 4566. To resolve this issue, the Court must answer whether the assailed provision is contrary to the Constitution and if the same constitutes unfair competition.
We find the petition without merit.
It can easily be discerned that the intention of petitioner in imposing the assailed section of the IRR is to protect the interests of the Filipino construction industry. However, the manner in which it was done raises constitutional issues on the validity of the IRR.
The Constitution provides safeguards to protect the Filipino industry against domination of foreigners; thus, laws were enacted to secure this state policy, particularly in areas where national economy and patrimony must be protected in our own jurisdiction.
Section 9. Definition of terms. As used in this Act:
(a) “Persons” include an individual, firm, partnership, corporation, association or other organization, or any combination of any thereof
(b) “Contractor” is deemed synonymous with the term “builder” and, hence, any person who undertakes or offers to undertake or purports to have the capacity to undertake or submits a bid to, or does himself or by or through others, construct, alter, repair, add to, subtract from, improve, move, wreck or demolish any building, highway, road, railroad, excavation or other structure, project, development or improvement, or to do any part thereof, including the erection of scaffolding or other structures or works in connection therewith. The term contractor includes subcontractor and specialty contractor.
Suffice it to say that a corporation or juridical person, in this case a construction firm, cannot be considered a “professional” that is being exclusively restricted by the Constitution and our laws to Filipino citizens. The licensing of contractors is not to engage in the practice of a specific profession, but rather to engage in the business of contracting/construction.
The basis for petitioner’s argument, that construction is considered a profession, is also out of context. We emphasize that R.A. No. 6511 is an act which standardizes the examination and registration fees charged by the National Examining Board; thus, the list contains individual applicants for any of the licensure examinations conducted by any of the boards, under the Office of the Boards of Examiners, who shall pay examination fees. It covers applicants of any licensure examinations, but is not limited to licensing of professionals. In other words, licensed contractors are listed therein as they are required by law to undergo a licensure examination, which fee is regulated. It does not follow that just because a license is required under R.A. No. 4566, a licensed contractor is already considered a professional under the Constitution.
Professionalizing the construction business is different from the exercise of profession which the Constitution exclusively restricts to Filipino citizens. To reiterate, the license required under R.A. No. 4566 is for purposes of engaging in the business of contracting under the terms of the said act for a fiscal year or a certain period/project, and not for the purpose of practicing a particular profession. The responsible officer who secures a license for contracting, for his own business or for the company, may already be a professional in his own field (i.e., engineer, architect). Then again, the license acquired under R.A. No. 4566 does not make the licensed contractor a “professional” within the meaning contemplated under Section 14, Article XII of the 1987 Constitution.
Accordingly, this Court finds that the construction industry is not one which the Constitution has reserved exclusively for Filipinos. Neither do the laws enacted by Congress show any indication that foreigners are proscribed from entering into the same projects as Filipinos in the field of construction. Thus, we find that setting the equity limit for a certain type of contractor’s license has no basis.
Indeed, the 1987 Constitution takes into account the realities of the outside world as it requires the pursuit of a trade policy that serves the general welfare and utilizes all forms and arrangements of exchange on the basis of equality and reciprocity; and speaks of industries which are competitive in both domestic and foreign markets as well as of the protection of Filipino enterprises against unfair foreign competition and trade practices. Thus, while the Constitution mandates a bias in favor of Filipino goods, services, labor and enterprises, it also recognizes the need for business exchange with the rest of the world on the bases of equality and reciprocity and limits protection of Filipino enterprises only against foreign competition and trade practices that are unfair.
In other words, the 1987 Constitution does not rule out the entry of foreign investments, goods, and services. While it does not encourage their unlimited entry into the country, it does not prohibit them either. In fact, it allows an exchange on the basis of equality and reciprocity, frowning only on foreign competition that is unfair. The key, as in all economies in the world, is to strike a balance between protecting local businesses and allowing the entry of foreign investments and services.
More importantly, Section 10, Article XII of the 1987 Constitution gives Congress the discretion to reserve to Filipinos certain areas of investments upon the recommendation of the NEDA and when the national interest requires. Thus, Congress can determine what policy to pass and when to pass it depending on the economic exigencies. It can enact laws allowing the entry of foreigners into certain industries not reserved by the Constitution to Filipino citizens. In this case, Congress has decided to open certain areas of the retail trade business to foreign investments instead of reserving them exclusively to Filipino citizens. The NEDA has not opposed such policy.
As a consequence, this Court finds the assailed regulation inconsistent with the intent of the Constitution in no less than one aspect. The Constitution mandates this Court to be the guardian not only of the people’s political rights but their economic rights as well.55 The evil sought to be prevented by petitioner, that a contractor’s warranty cannot be imposed as foreign contractors are beyond reach of the government and the genuine intent of protecting the Filipino consumers by ensuring continuous and updated monitoring and regulation of foreign contractors, may be addressed with some form of regulation other than restricting the contractor’s license which leads to deprivation of economic growth and advancement of the construction industry.
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