FACTS:

On March 15, 2002, the Department of Public Works and Highways (DPWH) and a joint venture consisting of Katahira & Engineers International (KEI), Pertconsult International, Techniks Group Corporation, Multi-Infra Konsult, Inc., and E.F.L. Sison Engineers Co. entered into a Consultancy Agreement for the engineering design and construction supervision of various road improvement projects under the Arterial Road Links Development Project (PH-217). The joint venture’s responsibilities included detailed engineering design, bidding assistance, construction supervision, monitoring Environmental Compliance Certificate (ECC) requirements, assisting DPWH in land acquisition and coordination with local government units, among other technical services. In 2003, the scope of work was expanded under Realignment No. 1 to include the Engineering Geological and Geohazard Assessment Report (EGGAR), which analyzed the geological characteristics and engineering properties of the project site. KEI initially designed the project with a specific sloping design but later, with DPWH's agreement, switched to an overhang design. Construction responsibilities for the various sections of the project's roads were awarded through separate biddings, with Italian-Thai Development Public Company, Ltd. (ITD) winning the bid for the Suyo-Cervantes Road Section. A contract agreement was executed on March 27, 2006, for P1,164,622,570.23, which increased to P1,184,169,948.20 following Variation Order No. 4. The contract consisted of general conditions (FIDIC standards) and conditions of particular application (COPA). ITD later submitted claims to DPWH for overrun earthwork quantities, which DPWH denied based on a technical evaluation report from KEI. As a result, ITD initiated arbitration before the Construction Industry Arbitration Commission (CIAC), claiming compensation for various overruns and legal expenses. DPWH and KEI counterclaimed for damages and litigation expenses. CIAC found DPWH liable to ITD for overrun earthwork quantities and other related claims amounting to P106,509,724.49, while denying the counterclaims of DPWH and KEI. The DPWH's subsequent petition for review to the Court of Appeals (CA) was dismissed, upholding CIAC's findings and ruling DPWH was liable for ITD's costs due to the project's design changes and subsequent overruns.

ISSUES:

1. Liability for Overrun Earthwork Quantities Due to Overhang Design

   • Whether the Department of Public Works and Highways (DPWH) is liable to pay Italian-Thai Development Public Company, Ltd. (ITD) for overrun earthwork quantities arising from the implementation of the overhang design.

2. Liability for Overrun Earthwork Quantities Due to Road Realignment

   • Whether DPWH is liable for overrun earthwork quantities resulting from the realignment of the road.

3. Liability for Overrun Earthwork Quantities Due to Road Improvements and Miscellaneous Works

   • Whether DPWH should pay ITD for additional costs due to road improvements and other miscellaneous works.

4. Procedure for Claims under FIDIC and COPA Provisions

   • Whether the Construction Industry Arbitration Commission’s (CIAC) ruling that the FIDIC and Conditions of Particular Application (COPA) provisions on the procedure for claims are moot and academic.

5. Assessment of ITD’s Varying Claims

   • Whether CIAC correctly ruled that ITD's varying claims did not cast doubt on its entitlement thereto.

6. DPWH’s Cross-Claims against KEI

   • Whether DPWH is entitled to its cross-claims against Katahira & Engineers International (KEI).

7. Awarding of Temperate Damages

   • Whether CIAC was correct in awarding temperate damages to ITD.

RULING:

1. Liability for Overrun Earthwork Quantities Due to Overhang Design

   • The Supreme Court upheld CIAC's and the Court of Appeals' (CA) findings that DPWH is liable for the overrun earthwork quantities due to the switch to an overhang design, which was inappropriate given the site's geological conditions.

2. Liability for Overrun Earthwork Quantities Due to Road Realignment

   • The Supreme Court affirmed CIAC's ruling that DPWH is liable for the overrun earthwork quantities caused by road realignment.

3. Liability for Overrun Earthwork Quantities Due to Road Improvements and Miscellaneous Works

   • The Supreme Court upheld the CIAC’s decision that DPWH must pay for additional costs due to road improvements and miscellaneous works.

4. Procedure for Claims under FIDIC and COPA Provisions

   • The Supreme Court affirmed CA’s ruling that DPWH had effectively waived the procedural requirements under FIDIC and COPA by engaging in direct negotiations and conducting joint surveys.

5. Assessment of ITD’s Varying Claims

   • The Court upheld CIAC's ruling that ITD's varying claims were valid and not barred by waiver, abandonment, or estoppel.

6. DPWH’s Cross-Claims against KEI

   • The Supreme Court upheld CIAC’s ruling denying DPWH’s cross-claims against KEI.

7. Awarding of Temperate Damages

   • The Supreme Court affirmed CIAC’s awarding of temperate damages to ITD.

PRINCIPLES:

1. Finality of Arbitral Awards

   • Arbitral awards by the CIAC are final and binding, primarily unappealable except on questions of law.

2. Deferential Treatment to CIAC's Factual Findings

   • The factual findings of CIAC, especially when affirmed by the CA, are accorded respect and finality by the Supreme Court.

3. Waiver of Procedural Requirements

   • Parties can implicitly waive procedural requirements through subsequent actions inconsistent with such requirements.

4. Reviewability of CIAC Awards

   • Review of CIAC awards on factual grounds by higher courts is limited and permitted only in exceptional circumstances evidencing grave abuse of discretion.

5. Arbitration Process Integrity

   • Appeals should not undermine the integrity of the arbitration process, and courts are duty-bound to ensure parties adhere to arbitration protocols they agreed upon voluntarily.