G.R. No. 191591 - Department of Public Works and Highways vs. Foundation Specialists, Inc.

Case Digest (G.R. No. 191591)
Expanded Legal Reasoning Model

Facts:

Background of the Contract and Project

Parties Involved

The Department of Public Works and Highways (DPWH) is the petitioner.
Foundation Specialists, Inc. (FSI), a private corporation, is the respondent.

Formation of the Contract

FSI was the winning bidder for the DPWH’s EDSA/BONI PIONEER INTERCHANGE PROJECT.
The original contract was signed on December 22, 1992, for the construction of a 60-meter tunnel connecting Pioneer Street and Boni Avenue, to be completed in 120 calendar days.

Renegotiation and Modification

On March 4, 1993, the contract was renegotiated to accommodate a major redesign.
The project scope increased to a 282-meter “cut and cover tunnel” with an amended contract price and a revised completion period of nine (9) months.

Project Implementation and Delays

Extension Requests and Variation Orders

FSI failed to complete the project on the newly set completion date (December 2, 1993) and subsequently requested extensions on five separate occasions.
DPWH approved the extensions, moving the new completion date to November 19, 1995, even though the project was substantially completed by November 1, 1995.
Three variation orders were approved, which increased the contract price further and were fully paid to FSI.
A Certificate of Acceptance was issued by DPWH on November 9, 2001.

Emergence of the Dispute

On July 27, 2004, FSI filed a Request for Arbitration before the Construction Industry Arbitration Commission (CIAC).
FSI sought reimbursement for delays, including:

Standby rental cost for rotary equipment.
Overhead costs incurred during periods of delay.
Extended rental costs for various equipment.

FSI additionally claimed interest charges, attorney’s fees, and reimbursement of arbitration costs.

FSI’s Justifications for Delay

FSI asserted that delays were due to construction problems beyond its control.
Claimants cited right-of-way issues, underground obstructions, and other impediments (e.g., utility lines, existing structures, and obstructions) that hampered work progress.
Witness testimony and documentary evidence, including the contractual provision (Sub-Clause 42.2 from the Conditions of Contract), were submitted to bolster its claim.

DPWH’s Position and Defense

Denial of Liability

DPWH denied liability for the delay-related claims.
It alleged that FSI was responsible for the delays due to its own operational deficiencies:

An equipment breakdown lasting ten (10) months.
Insufficient manpower or labor problems for thirteen (13) months.
Insufficient financial support for seven (7) months.
Inadequate supply of materials for eight (8) months.
Insufficient fuel supply for two (2) months.

Out of 39 monthly evaluations of FSI’s performance from January 1993 to March 1996, 28 were unsatisfactory.

Reliance on a Modified Contractual Provision

DPWH argued that FSI had bound itself not to claim damages for delays by accepting a modified version of Sub-Clause 42.2.
It contended that no additional costs should be added to the contract price, despite granting extensions.
Such modifications, however, were not supported by any documentary evidence.

Proceedings in the Arbitral, Appellate, and Supreme Courts

CIAC Decision (September 1, 2005)

The CIAC ruled in favor of FSI, awarding monetary claims except for the extended rental costs—initially due to discrepancies in the computations.
FSI’s entitlement was based on the undisputed Sub-Clause 42.2 found in its copy of the contract.

Court of Appeals (CA) Decision (October 30, 2009)

Both FSI and DPWH appealed the CIAC decision.
While FSI sought to re-adjudicate the extended rental costs claim, DPWH contended that delays were entirely FSI’s fault.
The CA upheld most of the CIAC findings and modified the decision by awarding extended rental costs but only for the days when equipment was idle.
The CA also affirmed the interest rate rulings and the award of attorney’s fees.

Petition for Review and Supreme Court Ruling (June 17, 2015)

DPWH filed a petition for review on certiorari challenging CA’s findings.
The Supreme Court denied the petition, emphasizing that factual issues are not reviewable under Rule 45.
The court affirmed the CIAC and CA decisions, with modifications regarding the computation of extended rental costs and the applicable interest rates.

Issues:

Contractual Basis for Delay Claims

Whether FSI was entitled to recover additional costs related to delays based on Sub-Clause 42.2.
Whether the alleged modified version of Sub-Clause 42.2, as argued by DPWH, existed and could relieve it of liability.

Attribution of the Delays

Whether the delays were primarily attributable to DPWH’s failure to remove obstructions and secure a clear work site.
Whether FSI’s operational deficiencies (equipment breakdown, manpower, fuel, materials) contributed significantly to the delays.

Computation of Extended Rental Costs

Whether FSI was correct in claiming payment for extended rental costs for the days equipment was idle.
The proper method to determine the idle days, distinguishing them from operating days, in the computation of extended costs.

Appropriateness of Awarding Interest and Attorney’s Fees

Whether the interest rates applied (6% from the arbitration filing date and 12% post decision, later adjusted) were proper.
Whether the award of attorney’s fees was justified based on DPWH’s conduct.

Scope of Judicial Review

Whether the Supreme Court could review factual findings made by the CIAC and the CA, given that these pertain to technical and factual issues in construction arbitration.
The limits imposed by Rule 45 on reviewing questions of fact versus questions of law.

Ruling:

(Subscriber-Only)

Ratio:

(Subscriber-Only)

Doctrine:

(Subscriber-Only)

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Case Digest (G.R. No. 191591) Core Legal Reasoning Model Expanded

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Case Digest (G.R. No. 191591) Expanded Legal Reasoning Model

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Case Digest (G.R. No. 191591)
Core Legal Reasoning Model

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Case Digest (G.R. No. 191591)
Expanded Legal Reasoning Model