G.R. No. 191591 - Department of Public Works and Highways vs. Foundation Specialists, Inc.

Case Summary (G.R. No. 191591)

Applicable Law

The governing law for this case is the 1987 Philippine Constitution and the relevant contractual provisions concerning construction arbitration and monetary claims.

Contract Overview

On December 22, 1992, a contract was executed between FSI and DPWH for the construction of a tunnel for an initial project cost of P100,779,998.60, with a completion period of 120 calendar days. Due to a major redesign, the scope increased to a 282-meter cut-and-cover tunnel, and the total project cost was renegotiated to P146,344,932.91 with an extended completion period of nine months.

Delays and Extensions

FSI failed to complete the project by the new deadline of December 2, 1993. Subsequently, FSI sought multiple extensions, which DPWH granted, moving the completion date to November 19, 1995. The project was substantially completed by November 1, 1995, and multiple variation orders were approved, increasing the contract price to P153,447,899.82.

Arbitration Request

On July 27, 2004, FSI filed a Request for Arbitration with the Construction Industry Arbitration Commission (CIAC) claiming additional expenses and damages related to delays. These claims included rents for idle equipment and overhead costs caused by obstructions and right-of-way issues brought about by factors beyond its control.

DPWH's Defense

DPWH denied liability, arguing that FSI's claims were invalid based on the alleged modified Sub-Clause 42.2 of the Conditions of Contract, which stipulated that costs incurred due to delays attributed to the client could not be added to the contract price. Furthermore, DPWH cited FSI's equipment breakdowns and staffing issues as significant reasons for delays.

CIAC's Ruling

In its September 1, 2005 decision, CIAC favored FSI, stating that DPWH’s modification of Sub-Clause 42.2 was not substantiated with evidence. CIAC granted FSI several claims, excluding the Extended Rental Costs for Various Equipment due to insufficient computation.

Court of Appeals Decision

Both parties appealed to the Court of Appeals (CA). The CA upheld the CIAC's decision but awarded FSI the claim for Extended Rental Costs upon finding no material discrepancy in evidence. The CA’s ruling mandated DPWH to compensate FSI for all valid claims and imposed interest on the awarded amounts.

Supreme Court’s Resolution

DPWH subsequently petitioned the Supreme Court, claiming errors in the CA's affirmation of the CIAC's awards. The Supreme Court upheld the CA’s ruling, emphasizing that the factual determinations made by the CIAC are final and not subject to review. The court highlighted the absence of substantial evidence supporting DPWH's claims regarding responsibility for delays.

Factual Findings

The Court agreed with the CA’s determination that delay primarily stemmed from DPWH's failure to eliminate obstructions and ensure right-of-way, which was confirmed by project oversight reports. The burde