Facts:

On May 29, 1996, the Department of Public Works and Highways (DPWH) awarded a contract to ALC Industries, Inc. (ALC) for the construction of a 105-kilometer section of the Davao-Bukidnon Road, specifically from Calinan to Maramag. The contract, known as Contract Package 09B, was signed on January 28, 1997, and ALC commenced work after receiving the notice to proceed on March 3, 1997. However, issues arose when it was discovered that the original design plans did not accurately reflect the actual ground levels, necessitating a full-scale redesign of the project. Due to delays, ALC and DPWH executed a Reduction in Scope Agreement (RISA) on July 17, 1998, which reduced the project scope from 105 kilometers to 46.2 kilometers and the contract price from approximately P396 million to P194 million. Despite this reduction, ALC continued to experience delays, prompting DPWH to issue multiple warnings regarding ALC's performance. In March 1999, DPWH proposed a Supplemental Agreeme...

Facts:

Background of the Project and Contract Award

• On May 29, 1996, the Department of Public Works and Highways (DPWH) awarded ALC Industries, Inc. (ALC) the contract for constructing a 105‑kilometer section of the Davao-Bukidnon Road from Calinan to Maramag.
• The parties executed the covering contract, Contract Package 09B, on January 28, 1997, and ALC commenced work after receiving the notice to proceed on March 3, 1997.

Discovery of Design Issues and the Redesign Process

• It was later discovered that the original design plans and drawings did not accurately reflect the actual ground levels.
• As a result, the DPWH and ALC undertook a full-scale redesign of the project, which contributed to delays in the project’s progress.

Reduction in Scope Agreement (RISA)

• Due to the delays already incurred and ALC falling behind schedule, the parties executed a Reduction in Scope Agreement (RISA) on July 17, 1998.
• Under the RISA, the project was scaled down from 105 kilometers to 46.2 kilometers and the contract price was reduced from ₱396,336,381.48 to ₱194,802,386.89.

Continued Delays and DPWH’s Warnings

• Despite the reduction in scope, ALC continued to lag behind the revised schedule.
• Between August 7, 1998 and September 3, 1998, ALC received multiple warnings from the DPWH and the project consultant regarding the delay.
• In March 1999, the DPWH proposed a Supplemental Agreement requiring ALC to pay approximately ₱30 million to recoup advanced funds based on the original scope. ALC rejected this proposal.

Issuance of the Rescission Order

• On April 19, 1999, DPWH rescinded its contract with ALC, alleging that ALC had incurred a negative slippage well in excess of the 15% threshold prescribed under Presidential Decree 1870.
• ALC contended that the delays were primarily due to design errors and delays in approval of redesigned plans, as well as inclement weather conditions.
• ALC’s request for reconsideration went unanswered by the DPWH.

Arbitration Before the Construction Industry Arbitration Commission (CIAC)

• ALC submitted its dispute to arbitration after the DPWH’s rescission order and its failure to respond to the request for reconsideration.
• The CIAC’s computation initially revealed a negative slippage of 22.06% based on scheduled progress but, after accounting for weather delays, adjusted the slippage to 12.85%.
• The CIAC found that while ALC was in breach of contract, the DPWH was not free of fault as it failed to allow ALC to respond to the negative slippage findings and inconsistently applied the 15% threshold to other contractors.
• Consequently, the CIAC voided the rescission order and modified it to a mutual termination, awarding ALC a net amount of ₱125,623,284.09 after offsetting prior payments.

Court of Appeals (CA) Review and Subsequent Rulings

• Both parties appealed the CIAC decision to the Court of Appeals.
• The CA held that despite the negative slippage being below the 15% threshold, the rescission was justified on the basis of other contractual breaches by ALC.
• In revising the monetary award, the CA reduced the amount from ₱190,355,820.84 to ₱45,687,595.25 and required ALC to return ₱19,044,941.50 to the DPWH.
• The CA also denied ALC’s claims for stand by costs related to delays caused by the issuance of the notice to proceed, redesign works, and inclement weather.

Petition for Review

• Following the denial of its motion for reconsideration by the CA, ALC filed the present petition for review on certiorari, raising multiple issues regarding the procedural and substantive aspects of the lower court’s decision.

Issue:

Timeliness of the DPWH’s Appeal

• Whether the Court of Appeals erred in failing to dismiss the DPWH’s appeal on the ground that it was filed beyond the reglementary period.

Validity of DPWH’s Rescission of the Contract

• Whether the CA erred in upholding the DPWH’s rescission of its contract with ALC, given that both the CIAC and the CA had found that ALC’s negative slippage was below the 15% threshold set by law.

Recovery of Stand By Costs

• Whether the CA erred in not allowing ALC to recover stand by costs for equipment and manpower incurred due to alleged delays caused by:
• Late issuance of the notice to proceed.
• Delays in the submission and approval of the redesign works.
• Inclement weather conditions at the project site.

Ruling:

• (Subscriber-Only)

Ratio:

• (Subscriber-Only)

Doctrine:

• (Subscriber-Only)