Title
Republic, DPWH vs. Sergio C. Pascual, doing business as SCP Construction
Case
G.R. No. 244214-15
Decision Date
Mar 29, 2023
DPWH terminated two construction contracts for defects; CIAC ruled contracts were completed and termination invalid, awarding unpaid balances; Court affirmed CIAC jurisdiction, invalidated 14-day arbitration rule, and upheld awards with modifications.
arbitration
construction contract
contract termination
A

Case Digest (G.R. No. 244214-15)

Facts:

  • Background and Contract Awards
    • The Department of Public Works and Highways (DPWH), representing the Republic of the Philippines, awarded two contract agreements to Sergio C. Pascual, doing business as SCP Construction.
    • The first contract (dated September 4, 2008) involved the construction of the Junction Sayre Highway-Aglayan-Alanib-Ticalaan Road (Ticalaan-Paganan Section) in Bukidnon, with a contract price of P95,329,847.68.
    • The second contract (dated March 23, 2010) was for upgrading the GingoogA-Claveria-Villanueva Road (gravel to paved) in Misamis Oriental, with a contract price of P24,513,428.59.
  • Performance and Inspection Reports
    • The first project received a final rating of 29.60% and described as "poor" in the Constructors' Performance Summary Report dated August 11, 2012.
    • The Final Inspection Report of January 30, 2013, noted the project to be "100% complete with defects and deficiencies."
    • Respondent was instructed to rectify noted defects through a Letter dated January 31, 2013.
    • Upon re-inspection, the Joint Final Re-Inspection Report (July 23, 2013) noted unrectified defects (items 1 to 7), with some rectification ongoing (item 9).
  • Notice and Decision to Terminate the First Contract
    • The Regional Director sent a Letter of Notice to Terminate dated September 5, 2013 due to failure to rectify defects despite notice and opportunity.
    • Respondent replied on September 18, 2013, denying abandonment and asserting ongoing rectification despite difficulties such as access roads deterioration.
    • On October 8, 2013, the Regional Director issued a Decision terminating the first contract, noting persistent failure and delay in rectifications even after contract expiration on September 20, 2009.
  • Second Project Inspection and Termination
    • The second project also received a "poor" rating at 25.50% (August 7, 2012) with numerous defects noted in the Final Inspection Report on January 21, 2013.
    • Respondent was similarly instructed to rectify defects on January 28, 2013.
    • A Joint Final Re-Inspection Report of July 24, 2013 found several defects unrectified.
    • The DPWH Regional Director issued a similar Letter of Notice to Terminate also on September 5, 2013.
    • Respondent sent a similar reply denying abandonment and highlighting ongoing rectification.
    • Contract termination was finalized on October 8, 2013, with directives to cease work and conduct joint inventory.
  • Blacklisting
    • Following the terminations, respondent was suspended and blacklisted from participating in DPWH bidding or contracts for one year under Department Order No. 19 (2014).
  • Arbitration Proceedings
    • On July 6, 2015, respondent filed a Request for Arbitration with the Construction Industry Arbitration Commission (CIAC) regarding the two projects.
    • Respondent asserted:
      • An arbitration clause exists by operation of law in the contracts.
      • The Request was filed timely within 10 years.
      • The actual accomplishment was 98.78% (first project) and 95.20% (second project) as of July 31, 2012.
      • Malicious blacklisting affected his participation in future contracts.
      • Petitioner had yet to pay the final billings (approx. P9.5M and P2.45M).
    • Petitioner filed a Motion to Dismiss asserting:
      • No arbitration agreement or clause existed.
      • The request was time-barred due to non-referral within 14 days as per procurement documents.
      • Failure to exhaust administrative remedies.
    • CIAC denied the Motion to Dismiss, affirming jurisdiction based on the incorporated arbitration clause by reference in the General Conditions of Contract and ruled that the 14-day referral period was not prescriptive.
    • CIAC found the projects were 100% complete but had defects requiring rectification, which did not justify contract termination.
    • CIAC ruled the terminations invalid and ordered payment of the remaining balances plus attorney's fees and arbitration costs.
  • Court of Appeals (CA) Decision
    • The CA affirmed the CIAC decision with modifications:
      • Affirmed CIAC's award of remaining balance for the first project.
      • Denied payment for the second project’s remaining balance due to lack of definitive final completion declaration.
      • Deleted attorney's fees and arbitration costs for lack of factual and legal basis.
    • CA dismissed the petition for certiorari.
  • Supreme Court (SC) Review and Decision
    • Petitioner elevated the case to the SC via Petition for Review on Certiorari.
    • Issues raised involved arbitration validity, jurisdiction, timeliness, exhaustion of administrative remedies, and entitlement to payments.
    • The SC ruled:
      • CIAC arbitration jurisdiction existed by incorporation of the arbitration clause in the contract via bidding documents.
      • CIAC's jurisdiction is exclusive over construction disputes once properly invoked, excluding COA money claim jurisdiction.
      • The 14-day referral period was unreasonably short and contrary to public policy; thus, the applicable prescriptive period was ten (10) years under Article 1144 of the Civil Code.
      • Exhaustion of administrative remedies was not applicable because termination decisions were final and unappealable; thus, respondent had no available administrative remedies to exhaust.
      • Respondent was entitled to the remaining payments under the first project, but not the second project due to insufficient proof of completion.
      • Respondent was not entitled to attorney's fees or arbitration costs against the Republic of the Philippines.
      • Factual findings of CIAC and CA regarding completion and termination validity were supported by substantial evidence and thus binding.

Issues:

  • Whether there was an agreement between the parties for CIAC arbitration.
  • Whether respondent’s proper recourse was a money claim cognizable before the Commission on Audit (COA).
  • Whether respondent’s Request for Arbitration filed before CIAC was time-barred.
  • Whether respondent failed to exhaust administrative remedies as a precondition to CIAC arbitration.
  • Whether respondent was entitled to the amounts prayed for (unpaid billings and damages).

Ruling:

  • (Subscriber-Only)

Ratio:

  • (Subscriber-Only)

Doctrine:

  • (Subscriber-Only)
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