FACTS:

LICOMCEN Incorporated (LICOMCEN), a domestic corporation operating shopping malls in the Philippines, entered into a lease contract with the City Government of Legaspi for a lot in the city's central business district. The contract required LICOMCEN to finance the construction of a commercial complex known as LCC Citimall. LICOMCEN hired E.S. de Castro and Associates (ESCA) as its engineering consultant and Foundation Specialists, Inc. (FSI) for the initial construction works.

After FSI had started work on the project, LICOMCEN informed FSI of major design revisions and suspended construction due to a pending administrative case before the Ombudsman. FSI requested payment for work already accomplished, but LICOMCEN instructed FSI to hold all construction activities. FSI filed a petition for arbitration with the Construction Industry Arbitration Commission (CIAC) seeking payment for various amounts.

LICOMCEN denied liability and challenged the CIAC's jurisdiction, stating that the claims should have been filed in regular courts. Despite LICOMCEN's objections, the arbitration proceedings continued, and the CIAC ruled in favor of FSI, awarding various amounts and requiring LICOMCEN to bear the costs of arbitration. LICOMCEN appealed the CIAC's decision.

In the Court of Appeals (CA), LICOMCEN argued that FSI's claims should be litigated in the courts and that FSI failed to comply with the condition precedent for arbitration. LICOMCEN also disputed its liability for material costs and the CA's ruling on reinforcing steel bars. The case is now pending before the Supreme Court for resolution.

In another aspect of the case, LICOMCEN disputed its liability for the costs of steel bars delivered to FSI. LICOMCEN claimed that the delivery did not meet the contract requirements and that FSI incurred no actual damage as some of the bars were sold to a third party at a low price. FSI argued that LICOMCEN should be liable for the material costs, asserting that the bars were ordered and paid for by FSI and that LICOMCEN failed to provide evidence to support its claim. FSI also alleged that LICOMCEN maliciously suspended the project with the intent to terminate the contract.

According to FSI, the case involved a stipulation in a contract that was lawfully and properly terminated. FSI sought to recover unrealized profits under Articles 1170 and 2201 of the Civil Code.

ISSUES:

1. Whether the Construction Industry Arbitration Commission (CIAC) has jurisdiction over disputes arising from or connected with construction contracts.

2. Whether the type of dispute is limited to those involving the physical construction activities.

3. Whether FSI's failure to give proper and timely notice to contest LICOMCEN's decision precludes resort to CIAC arbitration.

4. Whether the indefinite suspension of works on the Citimall project by LICOMCEN is valid.

5. Whether or not LICOMCEN's suspension of the works is justified.

6. Whether or not LICOMCEN's rebidding of the Citimall project is proper.

7. Whether or not FSI is entitled to payment for the cost of materials ordered for the project.

8. Whether LICOMCEN was liable for the costs of the steel bars delivered.

9. Whether FSI was entitled to claims for equipment and labor standby costs.

10. Whether FSI was entitled to recover unrealized profit.

11. Whether FSI was entitled to nominal damages.

12. Which party should bear the costs of arbitration.

13. Whether LICOMCEN should bear the costs of arbitration.

14. Whether LICOMCEN is liable to pay the unpaid balance on FOUNDATION SPECIALISTS' billings.

15. Whether LICOMCEN is liable to pay material costs at the site.

16. Whether LICOMCEN is liable to pay nominal damages.

17. Whether the Court of Appeals' decision should be modified.

RULING:

1. The CIAC has jurisdiction over disputes arising from or connected with construction contracts. The jurisdiction of the CIAC is established under Executive Order No. 1008 (E.O. 1008) and covers disputes arising from, or connected with, contracts entered into by parties involved in construction in the Philippines. The CIAC's jurisdiction may include, but is not limited to, violation of specifications for materials and workmanship, violation of the terms of agreement, interpretation and/or application of contractual time and delays, maintenance and defects, payment, default of employer or contractor, and changes in contract cost. Disputes arising from employer-employee relationships are excluded from the coverage of E.O. 1008.

2. The CIAC's jurisdiction is not limited to disputes involving the physical construction activities. The intention behind E.O. 1008 and the broad language adopted in the law indicate that the CIAC's jurisdiction cannot be limited by the parties' stipulation. All that is required for the CIAC to acquire jurisdiction is for the parties to a construction contract to agree to submit their dispute to arbitration. The arbitration clause in a construction contract ipso facto vests the CIAC with jurisdiction over any construction controversy or claim between the parties. The intent of the law is to interpret the arbitration clause at its widest signification, covering any dispute arising out of or in connection with the construction activities.

3. FSI's failure to give proper and timely notice to contest LICOMCEN's decision does not preclude resort to CIAC arbitration. The arbitration clause in the construction contract is considered an agreement by the parties to submit disputes to CIAC jurisdiction without any qualification or condition precedent. As long as both parties agree to submit their dispute to voluntary arbitration, the CIAC has jurisdiction. LICOMCEN's decision cannot become final and binding to preclude CIAC arbitration, even if FSI failed to give proper notice.

4. The initial suspension of works on the Citimall project by LICOMCEN is valid. The contract authorizes LICOMCEN to suspend works for factors or causes that are necessary in the interests of the works and LICOMCEN. LICOMCEN had sufficient discretion to determine whether the existence of a particular situation or condition necessitated the suspension of works. However, LICOMCEN wrongfully prolonged the suspension by failing to issue an order lifting the suspension when conditions to resume work became favorable or the reasons for the suspension were duly corrected.

5. LICOMCEN's suspension of the works is not justified. The pendency of other cases and the revised designs for the Citimall project do not warrant an "indefinite suspension" of the works, but should have been valid grounds for outright termination of the contract.

6. LICOMCEN's rebidding of the Citimall project is improper. Conducting a rebidding solely to gather cost estimates for the redesigned project, without the intention of awarding the project to the lowest and qualified bidder, is considered irresponsible, unprofessional, and fraudulent.

7. FSI is entitled to payment for the cost of materials ordered for the project. The requisites for LICOMCEN's liability, as provided in GC-42 of the General Conditions of Contracts (GCC), have been met, and LICOMCEN's liability is limited to 50% of the cost of the steel bars.

8. LICOMCEN was held liable for only 50% of the costs of the steel bars delivered.

9. FSI's claim for equipment and labor standby costs was denied due to lack of sufficient evidence.

10. FSI was not entitled to recover unrealized profit as the contract provision prohibits such claim.

11. FSI was awarded nominal damages in the amount of P100,000.00.

12. The costs of arbitration were to be equally divided between the parties, with LICOMCEN being ultimately responsible for the amount due to being at fault.

13. LICOMCEN should bear the costs of arbitration.

14. LICOMCEN is liable to pay the unpaid balance on FOUNDATION SPECIALISTS' billings.

15. LICOMCEN is liable to pay material costs at the site.

16. LICOMCEN is liable to pay nominal damages.

17. The Court of Appeals' decision should be modified to include the award of nominal damages in favor of FOUNDATION SPECIALISTS, INC.

PRINCIPLES:

• The jurisdiction of the CIAC is established under E.O. 1008 and covers disputes arising from or connected with construction contracts.

• The CIAC's jurisdiction cannot be limited by the parties' stipulation or agreement.

• An arbitration clause in a construction contract is sufficient to vest the CIAC with jurisdiction over any construction controversy or claim between the parties.

• The CIAC's jurisdiction is not limited to disputes involving the physical construction activities but covers any dispute arising out of or in connection with the construction activities.

• The CIAC's jurisdiction cannot be enlarged or diminished by the parties and is determined by the law.

• The existence of an arbitration clause in a construction contract is considered an agreement by the parties to submit disputes to CIAC jurisdiction without qualification or condition precedent.

• The CIAC has original and exclusive jurisdiction over disputes arising from or connected with contracts entered into by parties involved in construction in the Philippines.

• Stipulations in a construction contract cannot alter the jurisdiction of the CIAC.

• The suspension of works on a construction project can be valid if it is necessary in the interests of the works and the party authorized to suspend the works has sufficient discretion to determine the existence of a situation or condition that necessitates the suspension.

• When a suspension of works is lifted, it should be done when conditions to resume work become favorable or when the reasons for the suspension have been duly corrected.

• A contractor's suspension of the works must be justified and in compliance with the terms and conditions of the contract.

• Rebidding of a project should be conducted in good faith and with the intention to award to the lowest and qualified bidder. Fraudulent rebidding practices are unacceptable.

• Contractors may be held liable for the cost of materials ordered for the project if the requisites for such liability, as provided in the contract, have been met.

• The elapsed time between the effective order for suspending work and the order to resume work shall be allowed to the contractor if the cause of suspension is not due to its fault.

• The burden of proof rests upon the party asserting a fact or facts in issue. One who would rely on a judgment must establish its factual basis.

• To establish a claim, it is necessary to present sufficient evidence to prove the fact alleged.

• Contracts must be interpreted from the language of the contract itself according to its plain and ordinary meaning.

• Nominal damages may be awarded to vindicate or recognize a right that has been violated, even if the violation is only technical.

• The party at fault should bear the costs of arbitration.

• A party is liable to pay the unpaid balance on billings if it is found to be at fault.

• A party may be liable to pay material costs at the site if it is found to be at fault.

• Nominal damages may be awarded to compensate for a violation of rights even if there is no actual loss or injury suffered.

• The Court of Appeals' decision may be modified to correct errors or include additional awards.