Tatad v.

Garcia
G.R. No. 114222, April 6, 1995
J. Quiason

Digest Author: June Vincent Ferrer III

Topic: Power of Administrative Agencies – Power Presumed. Presumption of Regularity of

Performance of Functions

Case Summary: DOTC planned to construct EDSA LRT III. EDSA LRT Corp., being the sole
bidder, was awarded the project through direct negotiation. Both parties entered into agreements
for the project. Hence, this petition by petitioners to prohibit its implementation.

The Supreme Court ruled that Agreements are valid. The Agreements were entered into by DOTC
in the exercise of its governmental function. Absent a showing of grave abuse of discretion, they
accorded the presumption of regularity.

Doctrine: The determination by the proper administrative agencies and officials who have
acquired expertise, specialized skills and knowledge in the performance of their functions should
be accorded respect, absent any showing of grave abuse of discretion.

FACTS

• In 1989, DOTC planned to construct a light railway transit along EDSA

o To traverse the cities of Pasay, Quezon, Mandaluying and Makati
o The plan was referred to as EDSA LRT III
o It was intended to provide a mass transit system along EDSA and alleviate the
congestion and growing transportation problem in the metropolis

• RA 6957 was signed into law

o Build-Operate-Transfer (BOT) Law
o It provides for 2 schemes for the financing, construction and operation of
government projects through private initiative and investment
(1) Build-Operate-Transfer (BOT)
(2) Build-Transfer (BT)

• Thus, DOTC created the Prequalification Bids and Awards Committee (PBAC) and the
Technical Committee

• The PBAC advertised for the submission of prequalification documents for interested
contractors

• After evaluating, PBAC declared that only the EDSA LRT Consortium was qualified

• DOTC Secretary Prado wrote to President Aquino

o Recommending the award of the project to EDSA LRT Consortium
o Requesting for authority to negotiate with the said firm for the contract

• Executive Secretary Orbos directed Prado to proceed with the negotiations

 • Thus, DOTC and the corporation entered into an “Agreement to Build, Lease and Transfer
(BLT) an LRT system for EDSA”

• Prado then requested presidential approval of the contract

• However, Executive Secretary Drilon, informed Prado that the President could not grant
the requested approval for the ff. reasons:
o DOTC failed to conduct an actual public bidding as required by Sec. 5, BOT Law
o Public bidding was the only mode authorized by law to award BOT projects
o Item 14 of the IRR of the BOT Law which authorized a negotiated award of contract
in addition to a public bidding was of doubtful legality
o Congressional approval of the list of priority projects under the BOT or BT scheme
had not yet been granted at the time the contract was awarded

• Thus, DOTC and EDSA LRT Consortium re-negotiated the agreement

o The parties entered into a “Revised and Restated Agreement to Build, Lease and
Transfer an LRT system for EDSA”
o Later, DOTC entered into a Supplemental Agreement to the above agreement

• DOTC Secretary submitted the two Agreements to President Ramos for approval
o Pres. Ramos approved the said Agreements

• On May 5, 1994, RA 7718 was signed into law

o It expressly recognizes a BLT scheme and allows direct negotiation of BLT
contracts

• Hence, this petition by petitioner senators

o To prohibit respondents from further implementing the Agreements

Petitioners contend:

• The Agreements are unconstitutional

o It grants EDSA LRT Corp., a foreign corporation, ownership of the EDSA LRT III,
a public utility
• The Build-Lease-Transfer scheme is illegal
o It is not defined nor recognized in RA 6957 or its IRR
• The award of the contract on a negotiated basis violates RA 6957
• The award of the contract to EDSA LRT Corp. violates the requirements provided in the
IRR of the BOT Law
• The Agreements violate EO 380 because they did not have presidential approval
• The Agreements are grossly disadvantageous to the government

Respondents counter:

• The Build-Lease-Transfer scheme is allowed by the BOT Law

• The nationality requirement for public utilities does not apply to EDSA LRT Corp.
• The Agreements have been approved by President Ramos
• The Agreements are not disadvantageous to the government
• The award of the contract through negotiation and not public bidding is allowed by the
BOT Law
 ISSUES AND HELD

1. W/N the Agreement is unconstitutional because EDSA LRT Corp. is a foreign corporation –
NO

RULE

• Sec. 11, Art. 12, 1987 Constitution

o No franchise, certificate or any other form of authorization for the operation of a
public utility shall be granted except to citizens of the Philippines or to corporations
or associations organized under the laws of the Philippines at least sixty per
centum of whose capital is owned by such citizens…

APPLICATION

• EDSA LRT Corp. is a foreign corporation duly incorporated and existing under the laws of
Hongkong

• Once the EDSA LRT III is constructed, the corporation, as a lessor, will turn it over to
DOTC, as lessee, so that DOTC may operate the system and pay rentals for its use

• Also, what the corporation owns are not a public utility

o Rail tracks, rolling stocks like the coaches, rail stations, terminals and the power
plant
o While a franchise is needed to operate these facilities to serve the public, they do
not by themselves constitute a public utility.
o What constitutes a public utility their use to serve the public, not their ownership

• Although the Constitution requires a franchise for the operation of a public utility, it does
not require a franchise before one can own the facilities needed to operate a public utility
o As long as it does not operate them to serve the public

• There is a distinction between the “operation” of a public utility and ownership of facilities
used to serve the public
o Ownership is defined as a relation in law by virtue of which a thing pertaining to
one person is completely subjected to his will

• The exercise of ownership rights is limited by law so that a property cannot be operated
and used to serve the public as a public utility unless the operator has a franchise.
o The operation of a rail system as a public utility includes the transportation of
passengers from one point to another point, their loading and unloading at
designated places and the movement of the trains at pre-scheduled times

• The right to operate a public utility may exist independently and separately from the
ownership of the facilities
o One can own said facilities without operating them as a public utility
o One may operate a public utility without owning the facilities used to serve the
public
 • In this case, although EDSA LRT Corp. owns the facilities, it admits that it is not
enfranchised to operate a public utility
o Hence, DOTC and the corporation agreed that upon completion, the corporation
will deliver possession of the LRT system through lease for 25 years
§ During that time, DOTC shall operate it as a common carrier
§ In return, the corporation will provide technical assistance, training, and
repair services
§ The fees for the corporation’s services are considered included in the rent

• In sum, EDSA LRT Corp. will not run the LRT and collect fees from the riding public

• A mere owner and lessor of the facilities used by a public utility is not a public utility

• The mere formation of a public utility corporation does not ipso facto characterize the
corporation as one operating a public utility
o The moment for determining the requisite Filipino nationality is when the entity
applies for a franchise, certificate or any other form of authorization for that
purpose

2. W/N the BLT scheme is recognized in the BOT Law and its IRR – YES

RULE

• Sec. 2, BOT Law

o Build-Operate-Transfer (BOT) scheme
§ Defined as one where the contractor undertakes the construction and
financing of an infrastructure facility, and operates and maintains the same.
§ The contractor operates the facility for a fixed period during which it may
recover its expenses and investment in the project plus a reasonable rate
of return thereon.
§ After the expiration of the agreed term, the contractor transfers the
ownership and operation of the project to the government
o Build-and-Transfer (BT) scheme
§ The contractor undertakes the construction and financing of the facility, but
after completion, the ownership and operation thereof are turned over to
the government.
§ The government, in turn, shall pay the contractor its total investment on the
project in addition to a reasonable rate of return.

APPLICATION

• There is nothing in the BOT Law that provides that other arrangements for the payment
by the government of the project cost are prohibited

• The law must not be read in such a way as to rule out or unduly restrict any variation within
the context of the two schemes.
o No statute can be enacted to anticipate and provide all the details for the many
and complex situations that may be encountered in enforcing the law
 • The BLT scheme is simply a variation of the BT scheme

• In fact, the burden on the government in raising funds to pay for the project is made lighter
o By allowing it to amortize payments out of the income from the operation of the
LRT System

• The Agreements provide that:

o Rentals are to be paid on a monthly basis
o At the end of 25 years and when full payment shall have been made, the
corporation shall transfer to DOTC all its title to, rights and interest in the project

• Therefore, the BLT scheme is valid

3. W/N the contract is invalid because it was not awarded through public bidding – NO

RULE

• Sec. 4, PD 1594
o Construction projects shall generally be undertaken by contract after competitive
public bidding. Projects may be undertaken by administration or force account or
by negotiated contract only in exceptional cases where time is of the essence, or
where there is lack of qualified bidders or contractors, or where there is conclusive
evidence that greater economy and efficiency would be achieved through this
arrangement

APPLICATION

• The fact that the contract was awarded through negotiation and before congressional
approval does not invalidate it

• The subsequent congressional approval of the EDSA LRT III project amounts to a
ratification of the award of the contract under the BOT Law

• In fact, only one applicant passed the prequalification process

o Since only one was left, to conduct a public bidding for one participant is absurd
and pointless

• Sec. 4, PD 1594 expressly allows the negotiated award of government projects in

exceptional cases
o e.g. only one bidder

• Hence, where there is a lack of qualified bidders or contractors, the award of government
infrastructure contracts may be made by negotiation.
o PD 1594 is the general law on government infrastructure contracts while the BOT
Law governs particular arrangements or schemes aimed at encouraging private
sector participation in government infrastructure projects.
o The two laws are not inconsistent with each other but are in pari materia and should
be read together.
4. W/N the Agreements are grossly disadvantageous to the government – NO

• Terms of the Agreements

o As part of the project, EDSA LRT Corp. has been granted exclusive rights over the
depot and the air space above the stations for development into commercial
premises for lease, sublease, transfer, or advertising for a period of 25 years
o In return, EDSA LRT Corp. shall pay DOTC guaranteed revenues generated from
it in the amounts set forth in the Supplemental Agreement
o In the event that DOTC shall be unable to collect the guaranteed revenues, DOTC
shall be allowed to deduct any shortfalls from the monthly rent due
o All rights, titles, interests and income over all contracts on the commercial spaces
shall revert to DOTC upon the expiration of the 25-year period

• Presumption of Regularity
o These terms were arrived at after a painstaking study by DOTC.
o The determination by the proper administrative agencies and officials who have
acquired expertise, specialized skills and knowledge in the performance of their
functions should be accorded respect
§ Absent any showing of grave abuse of discretion

• Government officials are presumed to perform their functions with regularity and strong
evidence is necessary to rebut this presumption.

• In this case, petitioners have not presented evidence on the reasonable rentals to be paid
by the parties to each other.
o The matter of valuation of the rentals is better left to the experts which the Supreme
Court is not eager to undertake

• The Agreements were entered into by DOTC in the exercise of its governmental function
o DOTC is the primary administrative entity of the Executive branch in the promotion,
development and regulation of dependable and coordinated networks of
transportation and communications systems

• It is the Executive department, DOTC in particular, that has the power, authority and
technical expertise to determine whether or not a specific transportation or
communications project is necessary, viable, and beneficial to the people

• Therefore, the discretion to award a contract is vested in the government agencies

entrusted with that function

RULING

Petition DISMISSED.