G.R. No. 79138 - People vs. Loveria y Santos

R-II Builders, Inc. (R-II) entered into a construction agreement with the Bases Conversion Development Authority (BCDA) on September 3, 1997, for the Philippine Army Officer’s Quarters Project covering a 7-hectare area in Fort Bonifacio, Taguig, Metro Manila.
The contract, priced at P788,973,413.00 (inclusive of taxes and fees), tasked R-II with site planning, development, and the design/construction of twenty-eight 4-storey medium-rise buildings.
Techpil, Inc. (TECHPIL) was appointed by BCDA as the project construction manager.

Even before the formal signing of the R-II–BCDA Agreement, R-II and Mivan conducted negotiations for a subcontracting relationship.
R-II provided Mivan with advance copies of drawing plans and, on August 25, 1997, issued contract drawings and specifications for preparation of Mivan’s tender estimate of P459,000,000.00.
On September 6, 1997, a “Notice to Proceed” was issued to Mivan, setting out a 180-day completion period, and the formal sub-contract agreement was executed on October 3, 1997.

Twenty “M120 Buildings” (4-storey buildings with four 120-square-meter apartments per floor).
Eight “M180 Buildings” (4-storey buildings with two 180-square-meter apartments per floor).

The agreement contained provisions for escalation/price adjustments and variations/alterations, incorporating by express reference the provisions of Presidential Decree No. 1594.
R-II later sub-contracted part of the work (supply and erection of formworks for selected buildings) to Rigid Systems, Inc. (RSI), whose defective performance compelled Mivan to either rework or complete the unfinished works.

Following mobilization and commencement of work (with formworks arriving in Manila by September 26, 1997), disruptions occurred due to:

RSI’s inability to perform satisfactorily.
The subsequent need to rework RSI’s defective accomplishments.
Additional workforce engagement and acceleration of turnover for five buildings under BCDA’s request.

These deviations from the original plans and specifications resulted in a delay of 49 days beyond the agreed completion date and incurred extra costs.

Variation Claims amounting to P58,477,320.27.
Escalation Claims of P11,027,204.00.
Disruption Claims of P48,273,305.22, with a grand total (including 10% VAT) of P129,522,612.44.

R-II admitted liability for variation costs only to the extent of P15,095,597.20 (as mutually quantified on December 2–4, 1998) plus a minimal escalation cost.
TECHPIL’s report dated December 14, 1998, determined that Mivan’s valid variation claim amounted to P40,719,802.41.
Unable to resolve the impasse, Mivan pursued its claims under the Construction Industry Arbitration Commission (CIAC) pursuant to a dispute resolution clause in the sub-contract agreement.
On November 12, 1999, CIAC Sole Arbitrator Alfredo F. Tadiar rendered an award ordering R-II to pay Mivan various sums for variation claims (P39,000,000.00), increased labor/material/equipment costs (P3,198,170.00), reimbursement for extra labor force (P3,099,089.76), escalation claims (P747,585.82), plus VAT and accruing interest.

R-II sought review of the CIAC award before the Court of Appeals in CA G.R. SP No. 56142, which affirmed the CIAC award in toto on October 26, 2001; R-II’s motion for reconsideration was denied on March 6, 2002.
Concurrently, Mivan sought execution of the CIAC decision; however, separate orders denying execution of the award were later annulled by the Court of Appeals in CA G.R. SP No. 68178 on June 14, 2004.
R-II then elevated the matter to the Supreme Court through further petitions (G.R. Nos. 152545 and 165687), challenging the factual findings (variation cost computation), the basis for additional monetary awards, and the imposition of VAT.
Developments regarding the issuance and counter-bonding of a writ of execution further complicated the proceedings, rendering some issues moot.

R-II asserted that the CIAC’s award for the variation claim, which was based on a factual record and corroborated by TECHPIL's report, should have been limited to its computation of P15,095,597.20.
It also contended that Mivan’s failure to timely advise the cost impact of delays and extra work should bar some of its monetary claims pursuant to specific contractual clauses (e.g., pars. 7.4 and 4.2).
R-II further objected to the inclusion of VAT in the award, arguing it was not within the agreed issues during arbitration.
Mivan maintained that the CIAC award was well-supported by evidence, that the contractual adjustments were implicitly agreed upon, and that estoppel prevented R-II from later disputing its admitted liabilities.

Whether the Court of Appeals erred in affirming the CIAC Sole Arbitrator’s factual determination concerning R-II’s liability for variation claims.
Whether R-II’s admitted computation (P15,095,597.20) should limit its liability to Mivan or whether the CIAC award (approximately P39,000,000.00) is justified given the evidence.

Whether Mivan’s claims for increased costs (accelerated schedule, additional labor force, etc.) are valid and not barred by the contractual provisions requiring timely notice (e.g., Clause 7.4) or written orders (Clause 4.2).
Whether R-II’s failure to timely object precludes its defense against additional cost claims.

Whether the imposition of 10% VAT on the CIAC award is legally permissible despite the VAT issue not being explicitly raised or described in the Terms of Reference during preliminary arbitration.

Whether the issue on the immediate executory nature of the CIAC award became moot due to subsequent actions (issuance of bonds and counter-bonds) and the stay on the writ of execution.