View full case

PHILIPPINE CONTRACTORS ACCREDITATION BOARD v. MANILA WATER COMPANY

FACTS:

This case involves a Petition for Review on Certiorari filed by the Philippine Contractors Accreditation Board (PCAB) seeking the reversal of the Resolution and Order of the Regional Trial Court in favor of Manila Water Company, Inc. The issue at hand is the validity of Section 3.1, Rule 3 of the Revised Rules and Regulations Governing Licensing and Accreditation of Constructors in the Philippines or the Implementing Rules and Regulations (IRR) of Republic Act (R.A.) No. 4566. The provision classifies licenses for constructor-firms and limits the issuance of regular licenses to Filipino firms, while foreign firms are required to obtain a special license. Manila Water argues that this provision is unconstitutional as it restricts foreign investments. PCAB, however, argues that R.A. No. 4566 does not authorize the issuance of licenses to foreign firms for the contracts mentioned by Manila Water.

The trial court ruled in favor of Manila Water and declared the provision void. The court held that it creates a new restriction not found in the law and imposes additional burdens on foreign entities. The petitioner's motion for reconsideration was denied, prompting them to file this petition.

The petitioner argues that it has the authority to issue the IRR under R.A. No. 4566, as the construction industry is highly technical and cannot be thoroughly addressed by the law alone. They claim that the provision in question is consistent with the constitution and existing laws, as it only regulates the issuance of licenses to foreign contractors. On the other hand, the respondent argues that the petitioner exceeded its jurisdiction by imposing nationality requirements, which should be the prerogative of Congress. They also cite memorandums and policies advocating for the removal of restrictions in the construction industry to align with the state's policy of liberalizing investments.

In another case, the constitutionality of Section 5.5 of the implementing rules and regulations (IRR) of Republic Act No. 9184 is questioned. This provision requires that in government contracts for construction projects, Filipino citizens or corporations that are at least 75% Filipino-owned must comprise the joint-venture entity or consortium. The petitioner argues that this provision violates other laws and the principle against unfair competition. The Philippine Competition Commission (PCC) intervenes in the case, asserting that the nationality-based restriction is a barrier to entry and violates the constitutional state policy against unfair competition. The PCC argues that the provision hampers fair competition in the construction industry and deters foreign investment.

In the final case, a foreign corporation challenges the requirement of the Philippine Contractors Accreditation Board (PCAB) that contractors for public projects should be at least 75% owned by Filipino citizens. The petitioner argues that this requirement violates the anti-trust principle of the Constitution. The Philippine Competition Commission (PCC) argues that the petitioner failed to show that the nationality requirement fulfills an important state interest that cannot be achieved through less restrictive means. The PCC contends that the government's interest in regulating foreign contractors can be addressed without denying them the same benefits given to domestic firms, and policies should ensure a level playing field for all industry players.

ISSUES:

  1. Whether Rule 3, Section 3.1 of the Revised Rules and Regulations (IRR) governing licensing and accreditation of constructors in the Philippines is valid and consistent with the Constitution and existing laws, rules, regulations, and policies.

  2. Whether the assailed provision constitutes unfair competition.

  3. Whether the Philippine Contractors Accreditation Board (PCAB) exceeded its authority in creating nationality-based license types for contractors.

  4. Whether the classification of contractors as professionals, as argued by the petitioner, is in line with the Constitution and the laws.

  5. Whether the construction industry is exclusively reserved for Filipinos under the Constitution.

  6. Whether the petitioner has the authority to set an equity limit for a contractor's license.

  7. Whether the regulation restricting the issuance of special licenses to foreign construction companies is consistent with the intent of the Constitution.

  8. Whether the restriction on foreign contractors deters the entry of foreign investments in the construction industry.

  9. Whether Section 3 of the Implementing Rules and Regulations (IRR) of Republic Act No. 4566, which requires that only Filipino constructors and firms with at least 70% Filipino equity participation can obtain a regular license, is valid.

  10. Whether Rule 12, Section 12.7 of the IRR, which invalidates a regular license if there is a foreign equity of 30% or more, is valid.

RULING:

  1. The Supreme Court ruled that the petition is without merit and that the assailed provision is valid.

  2. The Court pointed out that while the intention behind the assailed provision is to protect the interests of the Filipino construction industry, its manner of implementation raises constitutional issues. The Constitution provides safeguards to protect the Filipino industry against domination by foreigners, which is why laws were enacted to secure this state policy. However, there is no restriction found in R.A. No. 4566 that discriminates against foreign contractors.

  3. The Court emphasized that the authority of the petitioner to issue the IRR is derived from Section 17 of R.A. No. 4566, which allows the adoption of rules to effect the classification of contractors. However, this authority must be interpreted in relation to the entire law. The phrase "to effect the classification of contractors" must be read in conjunction with Section 16, which contains no restriction on foreign contractors.

  4. Yes. The PCAB exceeded its authority in creating nationality-based license types for contractors. The classification of contractors under Section 17 of RA No. 4566 should be read in relation to the classifications provided in Section 16 of the same law. The PCAB went beyond the prescribed classifications and created nationality-based license types, which is beyond its delegated power.

  5. No. The argument that construction is considered a profession and therefore subject to the limitation of Filipino citizens is misplaced. The privilege to exercise a profession mentioned in Section 14, Article XII of the Constitution refers to natural persons and not to corporations or juridical entities. The license required under RA No. 4566 is for the purpose of engaging in the business of contracting and not for practicing a particular profession.

  6. The construction industry is not exclusively reserved for Filipinos under the Constitution. The laws enacted by Congress do not indicate any prohibition on foreigners entering the construction industry in the Philippines.

  7. The petitioner does not have the authority to set an equity limit for a contractor's license. Only Congress has the power to determine certain areas of investment that must be reserved for Filipinos.

  8. The Court finds that the regulation is inconsistent with the intent of the Constitution. While the Constitution mandates a bias in favor of Filipino goods, services, labor, and enterprises, it also recognizes the need for business exchange with the rest of the world on the basis of equality and reciprocity. The key is to strike a balance between protecting local businesses and allowing the entry of foreign investments and services. In this case, Congress has decided to open certain areas of the retail trade business to foreign investments instead of reserving them exclusively to Filipino citizens. The regulation restricting the issuance of special licenses to foreign construction companies goes beyond the constitutional intent and hinders economic growth in the construction industry.

  9. The restriction on foreign contractors deters the entry of foreign investments in the construction industry. The statistics show a significant disparity between the licenses granted to Filipinos and foreigners. The additional burden and expenses of securing a special license discourage foreign investors from participating in the construction industry. Opening the industry to foreign players would encourage healthy competition among local and foreign contractors, providing alternative options and opportunities for development and innovation.

  10. The Supreme Court held that Section 3 of the IRR of Republic Act No. 4566 is void. The Court recognized that the restriction on foreign investments in private construction contracts was lifted in 1998, and it is necessary for the IRR to conform to the current state policy. However, the court clarified that only specific portions of Section 3.1, Rule 3 of the IRR are declared void – namely, Rule III, Section 3.1 (a) paragraph 2 (requiring Filipino sole proprietorship or partnership/corporation with at least 70% Filipino equity participation) and Section 3.1 (b) subparagraph (bb) (limiting the Special License to a foreign firm legally allowed by the Philippine government to undertake construction activities in the Philippines).

  11. Furthermore, the Court declared Rule 12, Section 12.7 of the IRR as void, as it invalidates a regular license if there is a foreign equity of 30% or more.

PRINCIPLES:

  • Safeguards are provided in the Constitution to protect the Filipino industry against domination by foreigners.

  • Laws can be enacted to secure state policies, particularly in areas where national economy and patrimony must be protected.

  • Every part of a statute must be interpreted with reference to the context and the general intent of the whole enactment.

  • The authority to issue rules and regulations must be interpreted in relation to the entire law and any restrictions or lack thereof found therein.

  • The clear letter of the law is controlling and cannot be amended by a mere administrative rule issued for its implementation.

  • The classification of contractors under RA No. 4566 should be in accordance with the classifications provided in the law.

  • The privilege to exercise a profession under the Constitution refers to natural persons and not to corporations or juridical entities.

  • The license required for contractors is for the purpose of engaging in the business of contracting and not for practicing a specific profession.

  • The constitutional policy of a "self-reliant and independent national economy" does not prohibit foreign investments, goods, and services in the Philippines. The Constitution allows for an exchange on the basis of equality and reciprocity, while frowning upon unfair foreign competition. (Tañada v. Angara)

  • The Constitution expresses a preference for qualified Filipinos in the national economy but does not impose a policy of Filipino monopoly. The objective is to prohibit foreign powers or interests from manipulating economic policies and to give preference to Filipinos in all areas of development. (Espina v. Zamora Jr.)

  • The Constitution mandates a bias in favor of Filipino goods, services, labor, and enterprises, but it also recognizes the need for business exchange with the rest of the world on the basis of equality and reciprocity.

  • Congress has the discretion to determine what policy to pass and when to pass it, depending on economic exigencies.

  • Regulations should be consistent with the intent of the Constitution and should not hinder economic growth and advancement in industries.

  • Opening certain industries to foreign investments promotes healthy competition and provides opportunities for development and innovation.

  • The restriction on foreign investments in private construction contracts has been lifted.

  • Implementing laws must adapt to the demands of the industry and economy.

  • The IRR must conform to the current state policy.