G.R. No. 203834 - Heirs of Mendoza vs. Department of Public Works and Highways

Diosdado M. Mendoza, doing business as Da Superior Builders (hereafter “Superior Builders”), was the winning bidder for two packages under the Highland Agriculture Development Project (HADP):

Package VI: Construction of a 15‐kilometer road (Madaymen Masala Amsuling Road in Benguet), engineers’ quarters, and a laboratory with a bid amount of P16,176,878.58.
Package IX: Construction of three barangay roads in Benguet with a bid amount of P10,527,192.14.

The Department of Public Works and Highways (DPWH) engaged United Technologies, Inc. (UTI) as consultant for both packages, with Project Manager Pedro Templo and Project Manager Rodante Samonte directly in charge of the projects.
Superior Builders received the Notice to Proceed for Package VI on 2 March 1989, which initiated the contractual period subject to specific deadlines for mobilization and performance.

During a pre-construction survey, Superior Builders identified a right-of-way problem affecting the entire 15‐kilometer stretch, alleging that the site lacked proper right-of-way as required under Ministry Order No. 65.
Superior Builders claimed that the DPWH and certain representatives (excluding DPWH Secretary Fiorello R. Estuar) conspired to create a false impression of negative slippage (29% as alleged in early claims), recommending contract forfeiture.
For Package IX, although Superior Builders complied with post-evaluation requirements, the DPWH did not execute the respective contract and instead recommended a re-bid.

On 2 August 1990, the Regional Trial Court of Manila, Branch 36, issued a Temporary Restraining Order (TRO) enjoining the DPWH from rebidding Package VI and awarding Package IX to another contractor, and ordering the release of Superior Builders’ construction equipment.
In its 29 October 2001 decision, the trial court reversed the DPWH’s decision to terminate Superior Builders’ contract for Package VI and cancel Package IX, ruling that Superior Builders was not at fault for the delays, which were caused by the DPWH’s failure to secure the necessary right-of-way.
The DPWH, along with its key officials, appealed the trial court’s decision.

The project records showed a series of negative slippages incurred by Superior Builders:

Under DPWH Circular No. 102 (series of 1988) and Presidential Decree No. 1870, series of 1983, a negative slippage exceeding 15% was deemed “terminal” and justified termination or rescission of the contract.
Superior Builders was repeatedly warned by UTI (via letters and meetings) from as early as May 1989 to accelerate work and mobilize additional manpower, equipment, and other construction resources.
Despite explanations regarding a right-of-way problem affecting up to 3.2 kilometers, it was noted that the remaining portions of the project were accessible and that Superior Builders had failed to mobilize sufficient resources, with instances such as equipment breakdowns compounding the delays.
The local government (the Sangguniang Panlalawigan of Benguet) passed Resolution No. 1176 on 20 November 1989 recommending termination of the contract for Package VI, which further led to the cancellation of Package IX.

On 20 June 2012, the Court of Appeals set aside the trial court’s decision, ruling that the termination of Package VI and the cancellation/rebidding of Package IX were justified due to the excessive negative slippage.
The Court of Appeals noted that the right-of-way issue affected only the first 3.2 kilometers and could not justify the overall 31.852% negative slippage.
A motion for reconsideration and substitution (due to Mendoza’s death on 25 April 2005) was filed by his heirs, which on 15 October 2012 was partially granted by substituting Mendoza with his heirs, while the reconsideration for merit was denied.

The forfeit of the contract for Package VI and the consequential non-payment for materials, labor, and rental value of equipment were justified by the excessive negative slippages incurred by Superior Builders.
The DPWH, having entered into the contract in its governmental function, maintains its immunity from suit, thereby classifying the case as one against the State and not a waiver of immunity by merely entering into a contract.

Whether the right-of-way issues raised by Superior Builders could justify its delayed performance and corresponding negative slippages.