G.R. No. 204423 - Philippine Science High School-Cagayan Valley Campus vs. PIRRA Construction Enterprises

PIRRA Construction Enterprises (PIRRA) is a general contractor and licensed contractor registered with the Philippine Domestic Construction Board.
Philippine Science High School-Cagayan Valley Campus (PSHS) is a government academic institution under the Department of Science and Technology (DOST).
Key representatives include Artemio R. Perez, owner of PIRRA, and Director Salvador Romo, the Campus Director of PSHS.

PIRRA won the bidding for Project A (covering Academic Building I – Phases IV and V, and Girls’ Dormitory Building I – Phase IV) on October 27, 2008, for a total contract price of ₱24,290,854.10.
PSHS issued a Notice of Award on December 8, 2008; the parties subsequently entered into a Contract Agreement and a Notice to Proceed was issued.
The project duration was fixed for 180 days starting December 20, 2008, with an approved 65-day extension until August 22, 2009.
As a mobilization fee, PSHS paid 15% of the contract price, followed by four partial billings amounting to ₱23,194,020.95.

On July 29, 2009, PIRRA requested payment for its Partial Billing (PB) No. 5.
On August 6, 2009, PIRRA sent a letter seeking substantial acceptance and completion, coupled with its Summary of Accomplishment Report indicating a 94.09% completion.
PSHS, while noting that the due date was August 22, 2009, pointed out incomplete aspects (e.g., power distribution installation) and subsequently ordered the formation of an Inspectorate Team.
The Inspectorate Team conducted punch listing on various parts of Project A between August 25, 2009, and September 1, 2009.
Additional communications and a Joint Inspection Agreement were entered into on October 2, 2009, with the involvement of COA, DOST, and a Consultant, although coordination issues persisted.
PSHS eventually put PB No. 5 on hold pending the COA Report, which was submitted on October 7, 2009, and later reinforced by a second Joint Agreement on November 20, 2009.

On January 6, 2010, PSHS informed PIRRA of its intent to take over Project A for government occupancy and repair of defective items, with deductions for issues identified in the COA Report.
PIRRA challenged the takeover, arguing that the re-inspection process agreed by the parties and the COA’s shortcomings invalidated PSHS’ unilateral action.

PIRRA won the bidding for Project C on December 2, 2008, with a contract price of ₱9,945,361.85.
PSHS issued a Notice of Award on January 29, 2009, followed by the execution of a Contract Agreement on June 22, 2009, and the notice to proceed on July 9, 2009.
The project was scheduled for 150 days, running from July 20, 2009 until December 17, 2009, with a mobilization fee of 15% of the contract price.

On July 24, 2009, PIRRA requested the suspension of construction for the canteen when PSHS decided to relocate the site, which PSHS approved.
On August 3, 2009, PIRRA further requested a time suspension due to impacts on structural elements; however, PSHS directed PIRRA to file a Variation Order (VO) instead.
On October 12, 2009, PIRRA sent a letter alleging delay caused by lack of response from PSHS and sought a total time suspension, which PSHS later countered by stating that work was suspended without its approval.
A subsequent Joint Agreement on November 20, 2009 attempted to establish new coordination but eventually, PSHS terminated the Project C contract via an Order of Termination on February 23, 2010.

PIRRA filed a Supplemental Complaint claiming that PSHS’ failure to issue revised drawings and the VO led to a delay of 75.99% on Project C.
PSHS argued that it had already paid the value of the work done on Project C and that PIRRA’s suspension of work constituted abandonment and default.

On January 26, 2011, the Construction Industry Arbitration Commission (CIAC) rendered a Final Award in favor of PIRRA.
The Award held PSHS liable for delay in paying PB No. 5, improper project takeover, and contractual breaches on Project C; it awarded residual values, damages (including moral and exemplary), attorney’s fees, and directed PIRRA to deliver fabricated items.
The CIAC declared that the COA Report was not a condition precedent for payment and that the substantial performance by PIRRA required proper compensation.

On January 20, 2012, the CA partially granted PSHS’ petition for review by modifying the CIAC Award.
Modifications included: payment of a net residual value for PB No. 5 at ₱706,077.28 (after deductions), affirmation of the liability concerning the value of fabricated steel bars, awning windows, and railings, affirmation of attorney’s fees, deletion of awards for rental income and moral/exemplary damages, and a sharing of the costs for arbitration fees.
PSHS’ Motion for Reconsideration was denied on July 23, 2012.

PSHS filed a Petition for Review arguing that the CA based its decision on a misapprehension of facts, particularly contesting the treatment of Project A as substantially completed and the liability for residual PB No. 5.
Additional issues raised by PSHS included the alleged wrongful termination of Project C, liability for the fabricated items, the awarding of attorney’s fees, and the argument that government funds are exempt from execution.
PIRRA countered by stressing that PSHS’ actions (formation of an Inspectorate Team and reference to PB No. 5 as final) indicated acceptance of substantial completion and that PSHS’ termination of Project C was invalid due to its failure to issue the required VO and revised drawings.

Whether PSHS treated Project A as substantially completed such that it became liable to pay the residual value of Partial Billing No. 5.
Whether PSHS validly terminated the contract for Project C, considering the suspension of work and resultant delays.
Whether PSHS is liable to pay the value of the fabricated steel bars, steel awning windows with security grills, and steel railings, as determined by the CIAC and affirmed by the CA in relation to Project C.
Whether the awarding of attorney’s fees in favor of PIRRA was proper.
Whether the contention that government funds are exempt from execution is tenable given the acceptance of services by the State through PSHS.