This Supreme Court decision clarifies that the Construction Industry Arbitration Commission (CIAC) has jurisdiction over disputes arising from government construction contracts, even if the arbitration clause isn’t explicitly incorporated into the main contract, as long as there’s an agreement to arbitrate in related documents. The ruling underscores that the existence of an arbitration clause in the construction contract, or a submission to arbitration, is enough for CIAC to have jurisdiction, promoting the expeditious resolution of construction disputes.

Boracay’s Roads and Rules: Can TIEZA Avoid Arbitration Over Construction Debts?

In the heart of this case lies a dispute between the Tourism Infrastructure and Enterprise Zone Authority (TIEZA) and Global-V Builders Co. over unpaid bills for several construction projects in Boracay and Banaue. The central legal question revolves around whether the CIAC has jurisdiction to hear these disputes, considering the absence of explicit arbitration agreements in some of the main contracts. This issue is crucial because it determines the proper venue for resolving construction disputes involving government entities.

The factual backdrop involves five Memoranda of Agreement (MOA) entered into between Global-V and the Philippine Tourism Authority (PTA), TIEZA’s predecessor. These MOAs covered various construction projects, including road widening, sidewalk construction, and drainage system improvements. Crucially, some of these projects were procured through negotiated procurement, a process allowed under specific conditions outlined in Republic Act (R.A.) No. 9184, the Government Procurement Reform Act. When TIEZA refused to pay Global-V for these projects, citing a lack of jurisdiction, Global-V sought arbitration before the CIAC. TIEZA, in turn, argued that CIAC lacked jurisdiction because the MOAs did not contain explicit arbitration agreements.

TIEZA anchored its argument on Section 4 of Executive Order (E.O.) No. 1008 and Sections 2.3 and 2.3.1 of the CIAC Revised Rules of Procedure, asserting that an explicit agreement to arbitrate is a prerequisite for CIAC’s jurisdiction. Global-V countered that R.A. No. 9184 vests CIAC with jurisdiction over disputes involving government infrastructure projects, and that the relevant provisions of R.A. No. 9184 are deemed part of the contracts. This position relied on the principle articulated in Guadines v. Sandiganbayan, which states that laws and regulations are read into and form an integral part of government contracts.

The CIAC constituted an Arbitral Tribunal, which dismissed TIEZA’s motion to dismiss for lack of merit, emphasizing that the provisions of R.A. No. 9184 are deemed incorporated in the MOAs. After TIEZA’s motion for reconsideration was denied, it filed an Answer Ex Abundanti Ad Cautelam, preserving its jurisdictional challenge. The Arbitral Tribunal eventually rendered a Final Award in favor of Global-V, prompting TIEZA to seek relief from the Court of Appeals. The Court of Appeals initially sided with TIEZA, but upon reconsideration, reversed its decision and upheld the CIAC’s jurisdiction. This reversal was grounded on the finding that the General Conditions of Contract, which accompanied the MOAs, contained an arbitration clause. The Court of Appeals emphasized that “the mere presence of an arbitration clause in their contract is sufficient to clothe CIAC [with] the authority to hear and decide the construction suit.”

The Supreme Court, in its analysis, affirmed the Court of Appeals’ amended decision. The Court’s reasoning centered on the interpretation of E.O. No. 1008 and the CIAC Rules. Section 4 of E.O. No. 1008 provides that the CIAC shall have original and exclusive jurisdiction over disputes arising from construction contracts, provided that the parties agree to submit the dispute to voluntary arbitration. The Supreme Court highlighted Section 4.1 of the CIAC Rules, which states that “[a]n arbitration clause in a construction contract or a submission to arbitration of a construction dispute shall be deemed an agreement to submit an existing or future controversy to CIAC jurisdiction.” This underscored that the existence of an arbitration clause is sufficient to confer jurisdiction, regardless of whether it’s explicitly incorporated into the main contract.

The Court also addressed TIEZA’s argument that the absence of an explicit arbitration agreement in the MOAs for the negotiated procurement projects deprived CIAC of jurisdiction. The Court emphasized that R.A. No. 9184, which authorized the negotiated procurement, also provides for arbitration of disputes arising from the contracts. Specifically, Section 59 of R.A. No. 9184 mandates that “[a]ny and all disputes arising from the implementation of a contract covered by this Act shall be submitted to arbitration in the Philippines…” The Court reasoned that since the MOAs were covered by R.A. No. 9184, the arbitration provision of the law became an integral part of the MOAs.

Building on this principle, the Supreme Court addressed TIEZA’s contention that the claims were money claims falling under the primary jurisdiction of the Commission on Audit (COA). The Court cited LICOMCEN, Inc. v. Foundation Specialists, Inc., clarifying that CIAC’s jurisdiction extends to any dispute arising from construction contracts, even those involving contractual money claims. Only disputes arising from employer-employee relationships are excluded from CIAC’s jurisdiction. The Court also noted that the Arbitral Tribunal had found that Global-V had substantially complied with the requirement of exhausting administrative remedies.

Regarding the validity of the negotiated procurement, the Court upheld the Court of Appeals’ finding that the MOAs complied with the requirements of Section 53 of R.A. No. 9184. The Widening of Boracay Road along Willy’s Place Project was justified under Section 53(b) as an immediate action necessary to prevent damage or loss of life or property, given Boracay’s status as a tourist destination. The Additional Sidewalk, Streetlighting and Drainage System (Main Road) Project complied with Section 53(d) as it was considered similar or related to the scope of work of the original project. In line with this, the Court cited Section 48 of R.A. No. 9184, allowing alternative procurement methods to promote economy and efficiency.

Finally, the Court addressed the imposition of 6% legal interest, attorney’s fees, and the cost of arbitration against TIEZA. The Court affirmed the imposition of 6% legal interest, citing Nacar v. Gallery Frames, et al., which held that the rate of legal interest shall be 6% per annum from the finality of the judgment until its satisfaction. It also upheld the award of attorney’s fees and the cost of arbitration, finding that TIEZA acted in gross and evident bad faith in refusing to pay Global-V’s valid claims, as supported by Article 2208 of the Civil Code.

FAQs

What was the key issue in this case?	The key issue was whether the CIAC had jurisdiction over construction disputes when some contracts lacked explicit arbitration agreements but were related to projects covered by R.A. No. 9184. The Supreme Court clarified that the presence of an arbitration clause in related documents, like the General Conditions of Contract, is sufficient for CIAC jurisdiction.
What is the significance of R.A. No. 9184 in this case?	R.A. No. 9184, the Government Procurement Reform Act, is significant because it mandates arbitration for disputes arising from contracts covered by the Act. The Supreme Court ruled that this mandate is deemed incorporated into contracts procured under the Act, even if the contracts themselves lack explicit arbitration clauses.
Does CIAC have jurisdiction over money claims against government entities?	Yes, the Supreme Court reiterated that CIAC’s jurisdiction extends to disputes involving contractual money claims against government entities. The only disputes excluded from CIAC’s jurisdiction are those arising from employer-employee relationships.
What are the requirements for negotiated procurement under R.A. No. 9184?	Negotiated procurement is allowed in specific instances outlined in Section 53 of R.A. No. 9184, such as imminent danger to life or property, or when the contract is adjacent to an ongoing infrastructure project. The procuring entity must justify the use of negotiated procurement based on these conditions.
Can attorney’s fees and costs of arbitration be awarded against a government entity?	Yes, attorney’s fees and costs of arbitration can be awarded against a government entity if it acted in gross and evident bad faith in refusing to satisfy a valid claim. The Supreme Court upheld the award of these fees against TIEZA due to its bad faith refusal to pay Global-V’s claims.
What is the legal interest rate imposed on monetary awards?	The legal interest rate imposed on monetary awards is 6% per annum from the finality of the judgment until its satisfaction. This rate is applied to ensure that the winning party is compensated for the delay in receiving the awarded amount.
What happens if the parties don’t incorporate the arbitration process in the contract?	The Supreme Court said that the absence of an explicit incorporation of the arbitration process into the contracts is not fatal to CIAC’s jurisdiction. As long as there is a general arbitration clause or a submission to arbitration, CIAC has jurisdiction over the dispute.
What if COA is auditing a project? Does it affect the CIAC’s jurisdiction?	The Supreme Court ruled that COA’s special audit does not automatically strip CIAC of its jurisdiction. TIEZA requested COA to conduct a special audit. The Arbitral Tribunal affirmed it’s ruling that CIAC has jurisdiction over this case. It stated that to rule otherwise would open a ground for CIAC to lose its jurisdiction merely by COA’s act of conducting a special audit.

This case provides essential guidance on the scope of CIAC’s jurisdiction over government construction contracts and reinforces the policy of encouraging the early and expeditious settlement of disputes in the construction industry. The ruling underscores that the presence of an arbitration clause in related documents, coupled with the provisions of R.A. No. 9184, is sufficient to confer jurisdiction upon CIAC.

For inquiries regarding the application of this ruling to specific circumstances, please contact ASG Law through contact or via email at frontdesk@asglawpartners.com.

Disclaimer: This analysis is provided for informational purposes only and does not constitute legal advice. For specific legal guidance tailored to your situation, please consult with a qualified attorney.
Source: Tourism Infrastructure and Enterprise Zone Authority vs. Global-V Builders Co., G.R. No. 219708, October 03, 2018