G.R. No. 240163 - Department of Fice vs. Asia United Bank

The petitioner, Philippine Economic Zone Authority (PEZA) – formerly known as the Export Processing Zone Authority (EPZA) – contracted with respondent Green Asia Construction & Development Corporation for a road network/storm drainage project.
The project was awarded on September 14, 1992, with a fixed contract price of P130,595,337.40, and the contract was signed on September 23, 1992, by Tagumpay R. Jardiniano (administrator of EPZA) and Renato P. Legaspi (President/CEO of Green Asia).

The contract included specific stipulations covering the fixed contract price, mode of payment (advance payment), and progress billing.
The fixed price provision, particularly enunciated in Article IV of the contract, was interpreted by PEZA as a waiver of any statutory right to price escalation under PD 1594.

On March 26, 1996, Green Asia submitted a letter invoking Presidential Decree (PD) No. 1594, claiming a price escalation amounting to P9,860,169.58 due to increases in costs.
PEZA denied the claim on the ground that Section 8 of PD 1594 required proof demonstrating that the increase in construction costs (labor, equipment, materials, and supplies) was due to the “direct acts of the government.”

Despite the initial denial, Green Asia persisted by following up with additional letters from 1997 to 2000, reiterating its claim for price escalation.
A "final demand" was made in November 2006, which even included an additional claim amount (P2,500,357.11) for another project component, along with legal interest and collection fees.
On August 2, 2007, Green Asia reiterated its position by issuing a final demand notice, emphasizing that the fixed price clause applied only when no variations occurred and contending that the original budget was insufficient for the realities of construction work.

Green Asia escalated its appeal by sending a letter to then-President Gloria Macapagal Arroyo on November 14, 2007, formally requesting intervention for the settlement of its unpaid claims.
The Office of the President treated the appeal with due process, docketing the case and eventually deciding in favor of Green Asia by granting the price escalation claim of P12,360,526.70, subject to verification using the parametric formula provided in Clause 12 of the IRR of PD 1594.
The OP decision also mandated the accrual of interest at 6% per annum from the final demand date until finality and 12% thereafter until full payment.

The CA sustained the Office of the President’s ruling, though it modified the awarded amount by requiring that the computation of the price escalation be determined using the parametric formula set out in paragraphs 6 and 7 of Clause 12.1 of the IRR of PD 1594.
The CA criticized PEZA’s outright denial of Green Asia’s claim, noting the lack of submission of proper computation by the contractor, and emphasized that verification by the parametric formula was the legally appropriate means to determine the adjustment.

PEZA argued that the statutory construct of PD 1594 necessitated proof that the increased costs were caused by the direct acts of the government before price escalation could be invoked.
Conversely, Green Asia maintained that its claim was founded on the price escalation mechanism under the IRR of PD 1594 which, when read in light of PD 454, negates the requirement to prove direct government action, emphasizing that increases in prices for crucial materials (like gasoline, fuel oil, and cement) are automatically considered as resulting from such direct actions.

Whether PD 1594, as interpreted alongside its Implementing Rules and Regulations (IRR) and in concert with PD 454, requires a contractor to prove that the increase in the cost of construction materials was due to the direct acts of the government before a price escalation may be applied.

Whether the fixed price clause within the contract constitutes a waiver of the statutory right to price escalation, or if the escalation provision remains applicable notwithstanding a fixed contract price.

The appropriate method for computing the price escalation, specifically, the application and interpretation of the parametric formula provided in Clause 12.1 of the IRR of PD 1594.