Agan Jr.

, v PIATCO
May 5, 2003 | Puno | State Operation of Private Enterprises
Prohibition (Special Civil Action in SC)
SUMMARY: After following a bidding process, The Govt, through
MIAA and DOTC entered into a BOT Concession Agreement for the NAIA
Terminal III Project with PIATCO, which is assailed for violating the
Constitution, public policy, the BOT Law, and its IRR. Court held it void.
DOCTRINE: An essential element and requisite of a valid public bidding
is fair competition among bidders. Government contracts may also not
contravene the Constitutional rule on the governments power of takeover
without the requirement of giving compensation thereafter.
Facts:
1. In 1989, The DOTC conducted studies on NAIAs capability to cope with
the traffic development up to 2010. In 1993, business tycoons
Gokongwei, Gotianun, Sy, Tan, Ty, and Yuchengco formed the Asias
Emerging Dragon Group (AEDC) and submitted an unsolicited proposal
to the Government through the DOTC/MIAA for the development of
NAIA Terminal III under a Build-Operate-Transfer Agreement (BOT)
under BOT Law (RA6957, amended by RA 7718).
2. DOTC began the bidding process for the NAIA Terminal III project by
forming the PBAC (Prequalification Bids and Awards Committee).
AEDCs primary competitor was the PAIRCARGO consortium
(composed of PairCargo, PAGS, and Security Bank) filed their bid, which
AEDC questioned since the former allegedly lacked financial capability.
3. PAIRCARGO Consortium was awarded the Contract because it offered a
higher guaranteed payment to the government. Later on, PAIRCARGO
changed its name to PIATCO (Phil. Intl Airport Terminals Co. Inc. Postbidding, the government and PIATCO signed the 1997 Concession
Agreement for the NAIA Terminal III project, and a subsequent
Amended & Revised Concession Agreement + supplements of the said
1997 Concession Agreement were entered into.
4. Several petitions of prohibition filed by NAIA Terminal I & IIs intl
service providers, their employees, and congressmen alleging that the
1997 Concession Agreement, the ARCA, & its supplements are contrary
to the Constitution, BOT Law, & its IRR.
Issues:
1. WON the petitioners have standing to sue YES.
2. WON PAIRCARGO Consortium was a qualified bidder NO.

3. WON the contract between the government and PIATCO is valid NO.
Ruling: PIATCO unqualified, Agreement unconstitutional.
1. The ISPs, employees, and labor unions have a direct and substantial
interest once NAIA III is opened NAIA I & IIs international airlines
and passengers will be diverted there, and their services will not be
carried over to NAIA III. The ISPs will then be forced to contract with
PIATCO without respect to their subsisting contracts, and employees
stand to lose employment. Congressmen have adequate standing since
government obligations to be incurred in the Agreement would compel
government expenditure w/o appropriation, which curtails their
legislative prerogative & violative of Article VI Sec 29 (1).
2. PAIRCARGO Consortium is not a qualified bidder since it fails the
financial capability requirement, which is P2.76B (30% of the project
cost). Security Bank may only invest P529M (and not its P3.52B total
net worth) under the General Banking Act which only allows up to
15% and forbids the investing of a banks entire net worth in a single
undertaking. Hence, PAIRCARGO Consortium can only validly invest
P558k (merely 6% of the project cost).
3. The 1997 Concesssion Agreement is void for contravening public
policy. Competitive public bidding aims to protect public interest by
giving the public the best possible advantages through open
competition. 3 principles: (1) offer to the public, (2) opportunity for
competition, and (3) a basis for the exact comparison of bids. An
essential element is fair competition - that all bidders must be on equal
footing by bidding on the same thing. Hence, any subsequent
amendments should not materially alter the basic parameters of the
contract. In this case, the amendments are material and clearly gives
PIATCO more favorable terms than what was available to other bidders
at the time the contract was bidded out, which is a) relaxed regulation
on the Public and Non-Public Utility Revenues PIATCO may collect +
govt revenues in Peso while PIATCO revenues are in dollars and
b)govt assumes PIATCOs liabilities upon the latters default.
4. The amendment stating that government assumes PIATCOs liabilities
in case of default, as a direct government guarantee, is clearly
prohibited by the BOT Law. It mocks BOTs goal of lessening govt
exposure to risk & tapping into private sector for unaffordable ventures.
5. Article XII, Section 17 refers to the States right in times of national
emergency (threat from external aggression, calamities, national
disasters, x strikes unless itd paralyzes govt service) to temporarily

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take over the operation of any business affected w/ public interest

without any need to compensate the private owner since there is no
transfer of ownership. PIATCO cannot, by contractual stipulation,
contravene this provision and obligate govt to pay reasonable cost for
the terminal.
Article XII, Section 19 are not per se prohibited but may be permitted
to exist to aid the govt in carrying on an enterprise or to aid in the
performance of various services and functions for public interest.
PIATCO cannot by law or by contract render a valid and binding
contract between the government and an international airport service
provider ineffective. It cannot require the government to break its
contractual obligations to service providers, since it would unduly
prejudice not just the parties involved but also third parties.