By: Miguel Rico E. de Guzman

The country’s construction industry and the Government’s Build, Build, Build Program may have just received a boost to the growing demand for competent and well resourced contractors. In a recently released Decision, the Supreme Court, in the case of Philippine Contractors Accreditation Board (PCAB) v. Manila Water Company, Inc., penned by Justice Gesmundo, held as invalid a regulatory rule issued by PCAB, limiting the participation of foreign firms as contractors in local construction projects. Under Section 3.1, Rule 3 of the Implementing Rules and Regulations (IRR) of R.A. No. 4566, otherwise known as the Contractors’ License Law, foreign firms may only be granted a special license for their engagement as contractor in a specific construction project. Thus, for a long time until now, only Filipino owned construction companies could qualify for a Regular PCAB License.

This Supreme Court case arose in 2012, when PCAB denied Manila Water Company, Inc.’s (Manila Water) request for the accreditation of its foreign contractors to undertake the construction of necessary facilities concerning its waterworks and sewerage system. PCAB cited the contested rule in the IRR, asserting that regular licenses are reserved for, and issued only to, contractor-firms of Filipino sole proprietorship or partnership/corporation with at least 60% Filipino equity participation and duly organized and existing, under and by virtue of the laws of the Philippines.

Manila Water filed a Petition for Declaratory Relief before the trial court which sought the determination of the cited rule’s validity. PCAB, represented by the Office of the Solicitor General (OSG), asserted that the regulation was crafted consistent with Section 14, Article XII of the 1987 Constitution, which mandates the practice of all professions in the Philippines to be limited to Filipino citizens.

The RTC ruled in favor of Manila Water and declared Section 3.1, Rule 3 of the IRR void.

PCAB filed a petition for review before the Supreme Court, seeking the reversal of the RTC’s finding.

The Philippine Competition Commission (PCC) was allowed to intervene as amicus curiae and joined Manila Water in arguing that the supposed government interest in limiting the practice of a profession to Filipino citizens is inapplicable considering that contracting for purposes of engaging in construction activities is not a profession, as it is not one regulated by the Professional Regulation Commission (PRC) and the term “professional” refers to an individual, not a corporation or firm.

The Supreme Court affirmed the RTC decision and ruled that PCAB exceeded the confines of the delegating statute as the power to impose nationality requirements in areas of investment is exclusively vested in Congress under Section 10, Article XII of the Constitution and not a mere administrative agency. It was also ruled that PCAB acted beyond its authority when it created the nationality-based license types under Section 3.1 of the IRR of R.A. No. 4566. The Court found that nowher in the Contractors License Law does the legislature authorize petitioner to impose nationality qualifications in order for an entity to obtain a license in the construction business. PCAB’s duty to effect the classification of contractors under Section 17 must be read in relation to Section 16 of R.A. No. 4566, which enumerated the statutorily-mandated classification for the contracting business. Nothing in Section 16 creates nationality-based license types as found under Section 3.1 of the IRR. The clear letter of the law is thus controlling and cannot be amended by a mere administrative rule issued for its implementation.

The Court also held that the Congress could have well placed the citizenship or equity requirement to qualify for a contractor’s license had it really intended to do so. The Court noted that it is Congress which has the power to determine certain areas of investments which must be reserved to Filipinos, upon recommendation of the National Economic Development Authority (NEDA) and when national interest requires.

Moreover, the Court held that Section 14, Article XII of the Constitution, limiting the practice of all professions to Filipino citizens, does not apply. The provision refers to the privilege of a natural person to exercise his profession in the Philippines. On the other hand, under Article IV of R.A. No. 4566, even partnerships, corporations and organizations can qualify for a contractor’s license through its responsible officer. A corporation or juridical person, in this case a construction firm, cannot therefore be considered a “professional” that is being exclusively restricted by the Constitution and our laws to Filipino citizens. The licensing of contractors is not to engage in the practice of a specific profession, but rather to engage in the business of contracting/construction. Professionalizing the construction business is different from the exercise of profession which the Constitution exclusively restricts to Filipino citizens.

The Decision also clarified that if the Contractors License Law viewed the construction industry as a profession and contractors as professionals whose practice may be limited to Filipino citizens, then the challenged provision runs contrary to such policy, as it would allow foreigners to operate with a regular license through a construction firm as long as their equity therein does not exceed 40%.

Accordingly, the Supreme Court found that the construction industry is not one which the Constitution has reserved exclusively for Filipinos. Neither do the laws enacted by Congress show any indication that foreigners are proscribed from entering into the same projects as Filipinos in the field of construction. Thus, setting the equity limit for a certain type of contractor’s license has no basis.

With this Decision, one may expect that highly qualified foreign construction companies would flock to the country and get licensed in order to support the country’s Build, Build, Build program. This might be viewed positively if the Filipino contractors would now realize the competition that they have which might push them to show their mettle and be at par with foreign contractors.




23rd Floor, Multinational Bancorporation Centre,
6805 Ayala Avenue, Makati City 1226 Philippines
Mailing Address : MCPO Box 2697 Makati City 1200 Philippines

E-mail Address: [email protected]
Telephone No.: (632) 8812-8670 (connecting all departments)
Telefacsimile: (632) 8812-7199, (632) 8812-4251

Website Policy Statement

© 2019 Fortun Narvasa & Salazar.