In a construction project, delays can lead to significant financial losses. This case clarifies that when a project is delayed due to the employer’s failure to provide a clear right-of-way, the contractor is entitled to compensation for the additional costs incurred. This ruling reinforces the principle that parties must fulfill their contractual obligations and bear the consequences of their failures, especially when these failures directly impact project timelines and costs.

Obstacles and Obligations: EDSA Interchange Project’s Delay Dilemma

This case arose from a contract between Foundation Specialists, Inc. (FSI) and the Department of Public Works and Highways (DPWH) for the EDSA/BONI PIONEER INTERCHANGE PROJECT. The project faced significant delays, primarily due to right-of-way issues and underground obstructions. FSI sought compensation for the additional expenses incurred due to these delays, arguing that DPWH failed to provide a work site free of obstructions. The central legal question was whether FSI was entitled to additional compensation for costs incurred due to delays caused by DPWH’s failure to provide the necessary right-of-way.

The initial contract, signed on December 22, 1992, stipulated a total project cost of P100,779,998.60. The project involved constructing a 60-meter tunnel connecting Pioneer Street and Boni Avenue, with a completion timeline of 120 calendar days. Subsequently, on March 4, 1993, the contract underwent renegotiation to accommodate a major redesign, expanding the scope of work to a 282-meter “cut and cover tunnel.” This amendment increased the contract price to P146,344,932.91 and extended the completion date to December 2, 1993. Despite these adjustments, FSI encountered significant delays, leading to five separate requests for extension, all of which were approved. The new completion date was moved to November 19, 1995, although the project was substantially completed by November 1, 1995. DPWH also approved three variation orders, increasing the contract price to P153,447,899.82, which was fully paid to FSI. However, the issue of additional expenses due to delays remained unresolved, leading to the present legal dispute.

FSI’s claims included standby rental costs for rotary equipment, overhead costs during the periods of delay, and extended rental costs for various equipment, totaling millions of pesos. According to FSI, these delays were caused by construction problems beyond its control, such as right-of-way issues, underground obstructions not shown in the plan, and utilities that the contract prohibited them from touching. This was detailed in the Judicial Affidavit of Dr. Armando Cazzola, FSI’s witness. To support its claim, FSI presented Sub-Clause 42.2 from the Conditions of Contract for Works of Civil Engineering Construction, which states:

“If the Contractor suffers delay and/or incurs costs from failures on the part of the employer to give possession in accordance with the terms of Sub-Clause 42.1. The Engineer shall, after due consultation with the Employer and the Contractor determine:

a) Any extension of time to which the Contractor is entitled under Clause 44, and [;]

b) The amount of such costs, which shall be added to the Contract Price, and shall notify the Contractor accordingly with a copy to the Employer.”

DPWH countered these claims by asserting that Sub-Clause 42.2 had been modified to preclude any claims for damages due to delay. They argued that FSI had agreed to this modification when it requested extensions. DPWH claimed the provision read:

“If the contractor suffers delay and/or incurs costs from failure on the part of the Employer to give possession in accordance with the terms of Sub-Clause 42.2, the Engineer, shall, after due consultation with the Employer and the Contractor, determine any extension of time to which the Contractor is entitled under Clause 44, and shall notify the Contractor accordingly, with a copy to the Employer. No amount of such costs shall be added to the contract price.”

However, DPWH failed to provide any documentary evidence to substantiate this claim. This lack of evidence proved detrimental to their case. The Construction Industry Arbitration Commission (CIAC) ruled in favor of FSI, holding that DPWH could not avoid liability without providing proof of the alleged modified clause. The CIAC awarded FSI its monetary claims, except for the Extended Rental Costs of Various Equipment, due to discrepancies in the submitted computations. Both parties appealed to the Court of Appeals (CA), which affirmed the CIAC’s findings but modified the ruling to include the Extended Rental Costs of Various Equipment. DPWH then filed a Petition for Review on Certiorari with the Supreme Court.

The Supreme Court denied the petition, emphasizing that it cannot delve into factual questions in a Rule 45 petition. The Court reiterated the principle that factual findings of quasi-judicial bodies like the CIAC, which have expertise in specific matters, are generally accorded respect and finality, especially when affirmed by the CA. The Court referenced Section 19 of Executive Order (E.O.) No. 1008, which states that arbitral awards are final and inappealable except on questions of law. The Court clarified that it will not review factual findings of an arbitral tribunal under the guise of “misapprehended facts” or issues that are essentially factual, no matter how cleverly disguised as legal questions. Citing Shinryo (Phils.) Company, Inc. v. RRN, Inc., the Court noted exceptions where factual findings of construction arbitrators may be reviewed, such as cases involving corruption, fraud, partiality, misconduct, disqualification of arbitrators, or exceeding their powers. However, none of these exceptions were found to apply in this case.

The Court affirmed that the delays were primarily due to DPWH’s failure to acquire the road right-of-way and eliminate obstructions, as confirmed by the Project Manager’s Final Report. The Final Report detailed the uncooperative attitude of affected landowners, stringent requirements for demolition, and time-consuming processes for transferring utility posts and cables. The Court noted that while the Final Report also cited delays caused by FSI, these were insubstantial and did not warrant the imposition of liquidated damages. The absence of any counterclaim for liquidated damages by DPWH further supported the conclusion that the delays were not primarily FSI’s fault. The Court emphasized that FSI had presented competent evidence of Sub-Clause 42.2, which entitled it to compensation for delays caused by DPWH’s failure to provide possession of the work site free from obstructions. In contrast, DPWH failed to provide any documentary evidence to support its claim of a modified version of Sub-Clause 42.2. The Court referenced the principle that “he who alleges the affirmative of the issue has the burden of proof.” The failure of DPWH to present such proof was fatal to its denial of liability.

The Supreme Court upheld the awards for Standby Rental Cost and Overhead Costs, as affirmed by the CA. However, it modified the award for Extended Rental Costs of Various Equipment, limiting it to the number of days the equipment was rendered idle due to the delay. The Court also adjusted the interest rates, applying a twelve percent (12%) interest rate per annum until June 30, 2013, and a six percent (6%) interest rate per annum thereafter, until the judgment award is fully satisfied. The Court affirmed the award of attorney’s fees, noting that DPWH unreasonably denied FSI’s claims and acted in bad faith by fabricating a non-existent contractual provision.

FAQs

What was the key issue in this case?	The key issue was whether the contractor, FSI, was entitled to compensation for additional costs incurred due to delays caused by the DPWH’s failure to provide a clear right-of-way. This centered on interpreting contractual obligations regarding site possession and delay responsibilities.
What did the contract say about delays?	The contract contained a clause (Sub-Clause 42.2) addressing delays caused by the employer’s failure to give possession. It stipulated that the contractor was entitled to an extension of time and payment for costs incurred due to such delays.
Did the DPWH provide evidence of their claims?	No, the DPWH failed to provide any documentary evidence to support its claim of a modified version of Sub-Clause 42.2 that absolved them of liability for the delays. This lack of evidence was a significant factor in the Court’s decision.
What was the role of the CIAC in this case?	The Construction Industry Arbitration Commission (CIAC) initially heard the case and ruled in favor of FSI. The Supreme Court gave deference to the CIAC’s findings due to its expertise in construction disputes.
What type of evidence did FSI present?	FSI presented a copy of the contract reflecting Sub-Clause 42.2, as well as a judicial affidavit detailing the obstructions and delays encountered during the project. They also submitted the Final Report of the Project Manager as evidence.
How did the Supreme Court justify awarding attorney’s fees?	The Supreme Court justified the award of attorney’s fees because the DPWH unreasonably denied FSI’s claims and attempted to resist a valid claim by fabricating a non-existent contractual provision, forcing FSI to pursue arbitration.
What was the impact of the Project Manager’s Final Report?	The Project Manager’s Final Report confirmed that the delays were primarily due to the DPWH’s failure to acquire the road right-of-way and eliminate obstructions, which supported FSI’s claim for compensation.
What interest rate applies to the monetary awards?	A twelve percent (12%) interest rate per annum was applied until June 30, 2013, and a six percent (6%) interest rate per annum thereafter, until the judgment award is fully satisfied.

This case underscores the importance of clear contractual terms and the need for employers to fulfill their obligations to provide unobstructed work sites. It reaffirms that contractors are entitled to compensation for delays caused by the employer’s failure to secure necessary rights-of-way and remove obstructions. The Supreme Court’s decision provides a clear framework for resolving disputes related to construction delays and ensures that parties are held accountable for their contractual responsibilities.

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: DEPARTMENT OF PUBLIC WORKS AND HIGHWAYS VS. FOUNDATION SPECIALISTS, INC., G.R. No. 191591, June 17, 2015