G.R. No. 173219-20 - ALC Industries, Inc. vs. Department of Public Works and Highways

On May 29, 1996, the Department of Public Works and Highways (DPWH) awarded ALC Industries, Inc. (ALC) a contract for the construction of a 105-kilometer section of the Davao-Bukidnon Road.
The contract, known as Contract Package 09B, was signed on January 28, 1997, and ALC commenced work on March 3, 1997, after receiving the notice to proceed.
Issues arose when the original design plans did not accurately reflect actual ground levels, necessitating a full-scale redesign of the project.
ALC fell behind schedule and, on July 17, 1998, entered into a Reduction in Scope Agreement (RISA) with DPWH, reducing the project length to 46.2 kilometers and the contract price to P194,802,386.89.
Despite the reduction, ALC continued to experience delays, prompting multiple warnings from DPWH.

In March 1999, DPWH proposed a Supplemental Agreement requiring ALC to pay approximately P30 million to recoup advances based on the original project scope, which ALC rejected.
On April 19, 1999, DPWH rescinded the contract, citing ALC's negative slippage exceeding the 15% threshold set by Presidential Decree 1870.
ALC contested the rescission, attributing delays to errors in the original design and other factors, including weather conditions.
ALC sought arbitration from the Construction Industry Arbitration Commission (CIAC) after DPWH failed to respond to its reconsideration request.

DPWH did not adequately participate in the arbitration process, failing to file necessary documents or present witnesses.
ALC claimed a negative slippage of 8.72%, while CIAC calculated it at 22.06% but adjusted it to 12.85% after considering weather-related delays.
CIAC found ALC in breach of contract but also noted DPWH's failure to provide ALC an opportunity to contest the negative slippage finding.
The CIAC modified the rescission to a mutual termination and awarded ALC P125,623,284.09 after offsets for prior payments.

Both parties appealed the CIAC decision to the Court of Appeals (CA), which upheld CIAC's finding that ALC's negative slippage did not exceed the 15% threshold.
However, the CA affirmed DPWH's rescission order based on other breaches of contract by ALC.
The CA reduced ALC's monetary award to P45,687,595.25 and ordered ALC to return P19,044,941.50 to DPWH.

Whether the CA erred in not dismissing DPWH's appeal as filed beyond the reglementary period.
Whether the CA erred in upholding DPWH's rescission of its contract with ALC.
Whether the CA erred in denying ALC's claim for standby costs for equipment and manpower.

First Issue: The CA found that DPWH's appeal was timely, as the Office of the Solicitor General received the CIAC decision on December 2, 2002, and DPWH filed for extensions within the allowed timeframe.
Second Issue: The CA upheld DPWH's rescission, noting that the rescission was based on ALC's failure to comply with the RISA an...continue reading