This case clarifies the extent of a project manager’s authority to bind a project owner in construction contracts, particularly concerning change orders and time extensions. The Supreme Court ruled that a project manager, authorized by the owner, can approve changes and time extensions, which are binding on the owner, even without express written consent for each modification. This decision emphasizes the importance of clearly defining the scope of authority in construction agreements and holds owners accountable for the actions of their authorized representatives.

Whose Call Is It Anyway? Decoding Authority in Construction Contracts

Filipinas (Pre-Fab Bldg.) Systems, Inc. (FSI) entered into a contract with MRT Development Corporation (MRTDC) for the construction of a podium structure. During the project, several changes were ordered, leading to disputes over time extensions and additional costs. The Construction Industry Arbitration Commission (CIAC) partially ruled in favor of FSI, awarding an early completion bonus based on a 200-day technical time extension approved by the Project Manager, David Sampson. However, the Court of Appeals (CA) reversed this decision, stating that MRTDC’s consent was necessary for such modifications. The Supreme Court then took up the case to determine the extent to which a project manager could bind the owner to changes without explicit consent for each modification.

The central legal question revolved around whether David Sampson, as the Project Manager, had the authority to approve change orders and time extensions that would bind MRTDC. MRTDC argued that while the Project Manager could order changes, these changes required the owner’s consent to modify the contract. The Supreme Court disagreed, emphasizing that a plain reading of the contract documents showed that the authority to order changes inherently included the power to make adjustments to the contract, especially concerning time extensions. The Court highlighted that requiring explicit consent for every change would defeat the purpose of having a Project Manager in the first place, whose role is to oversee day-to-day operations and exercise professional judgment.

The Court referenced Article 1317 of the Civil Code, which states that “No one may contract in the name of another without being authorized by the latter, or unless he has by law a right to represent him.” Here, David Sampson was authorized to issue change orders, and MRTDC was therefore bound by his actions. The Court noted that the relationship between MRTDC, the Project Management Team (PMT), and the Project Manager was defined in Sections 1.02, 1.03, and 1.05 of the General Conditions of the Bid Documents.

Article 1317. No one may contract in the name of another without being authorized by the latter, or unless he has by law a right to represent him.

The Court recognized that, in the construction industry, project managers often exercise discretion on technical matters, and it is the reason owners hire project managers, given the owners are often not technically suited to oversee the construction work. The authority to issue field instructions could not be divorced from the authority to cause the appropriate adjustment in price and time, and a failure to do so would lead to delays. The Supreme Court further explained that the written consent was embodied in the General Conditions of the Bid Documents issued by MRTDC, particularly Arts. 20.07 and 21.04, which authorized the Project Manager to issue change orders and time extensions, respectively.

Moreover, the Supreme Court pointed out that MRTDC had previously approved Certificates of Payment for progress billings covering Change Orders, signed by David Sampson, further demonstrating his authority and MRTDC’s ratification of his actions. By paying for the change orders, MRTDC was estopped from questioning the Project Manager’s authority. The Court also harmonized Articles 20.07 and 21.04 of the General Conditions of the Bid Documents, explaining that Article 20.07 deals with changes in the Work, such as change orders and who may issue them, while Article 21.04 deals with the circumstances that could allow for extension of time for completion of the work.

The Court found no basis for FSI to be paid early completion bonus based on financial time extension. The Court examined the relevant contractual provisions and determined financial time extension should not be considered in the computation of early accomplishment bonus. MRTDC’s consistent position has been that time extensions, to be considered for the early completion bonus, must actually delay the construction project or cause the stoppage of construction work. Delays in payment of progress billings were sufficiently addressed by the imposition of interest at 2% per month.

Regarding FSI’s claim for extended overhead cost, the Supreme Court affirmed the CIAC’s factual findings that FSI failed to adduce admissible evidence to support its claim. The evidence presented were summaries, not actual receipts, invoices, contracts, and similar documents. The Court classified FSI’s claim as a claim for actual damages, which must be duly proven with a reasonable degree of certainty. Citing the case of Security Bank and Trust Company v. Gan, the Supreme Court reiterated that it is not a trier of facts, and findings of fact made by the trial court must be given great respect if not considered as final.

As to the costs due to change in construction methodology, the Supreme Court reiterated that findings of fact of the CA are binding upon this Court. Thus, increases in the cost of the Project unless authorized by the owner will not make the latter liable for its cost. Here, no evidence supports the proposition that the owner authorized the change in construction methodology. The Supreme Court, in its decision, emphasized the importance of adhering to contractual provisions and the necessity of proper authorization in construction projects. It balanced the interests of the parties involved, ensuring that the contractor was compensated for authorized changes and time extensions, while also holding the contractor accountable for proving additional costs.

FAQs

What was the key issue in this case?	The key issue was whether the Project Manager had the authority to bind the project owner to change orders and time extensions without explicit written consent for each modification.
Who was the Project Manager in this case?	David Sampson was the Project Manager, authorized by Parsons Interpro JV (PIJV), which was engaged by MRT Development Corporation (MRTDC) to oversee the construction project.
What is a change order?	A change order is a written order issued by the project owner or their representative, directing the contractor to make changes to the original plans and specifications of the construction project.
What is a technical time extension?	A technical time extension is an extension of the completion date of a construction project, granted due to delays caused by factors such as change orders, design modifications, or other issues arising during construction.
What is financial time extension?	Financial time extension is an automatic time extension granted to the contractor for delays in payment of progress billings by the project owner.
What was the basis for the Supreme Court’s decision?	The Supreme Court based its decision on the interpretation of the contract documents, specifically the General Conditions of the Bid Documents, which authorized the Project Manager to issue change orders and time extensions.
What is the principle of estoppel?	Estoppel prevents a party from denying or disproving an admission or representation that they have made, especially if another party has relied on that admission to their detriment.
Why did the Court deny the claim for extended overhead cost?	The Court denied the claim because the contractor failed to provide admissible evidence, such as receipts and invoices, to support the claim.
How were the arbitration costs handled in this case?	The Supreme Court ruled that both parties should equally share the arbitration costs since both parties’ prayers were only partially granted.

The Filipinas (Pre-Fab Bldg.) Systems, Inc. v. MRT Development Corporation case provides valuable guidance on the scope of authority granted to project managers in construction contracts. The decision emphasizes the importance of clear contractual language and the need for project owners to honor the actions of their authorized representatives. This case underscores the principle that parties to a contract are bound by the terms they agree upon, and the courts will enforce those terms to ensure fairness and predictability in commercial transactions.

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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: Filipinas (Pre-Fab Bldg.) Systems, Inc. vs. MRT Development Corporation, G.R. Nos. 167829-30, November 13, 2007