ACCESS Online MCLE Course

HOW TO HANDLE ARBITRATION

DISPUTES WITH GOVERNMENT

By ATTY. ARTHUR P. AUTEA

INTRODUCTION

It is an understatement to say that, of all contracting parties in the Philippines, the government is that one
contracting party which has entered into the largest number of contracts, bar none.

Under the Government Procurement Reform Act, government projects falling within its coverage are
required to include an arbitration clause in the contract.

This course will discuss the arbitration mechanism in settling disputes involving government contracts.

For a lawyer involved in disputes arising from government contracts, either because the lawyer works in
the government agency involved in the project, or the lawyer is tasked to represent the government in a
dispute arising from the government project, or the lawyer is a private lawyer whose services were
engaged by a private contracting party involved in a dispute with the government, this lecture present the
process of arbitration that is now required by the law for the settlement of disputes arising from
government projects under the Government Procurement Reform Act.

At the end of this course, you should be able to:

• Define arbitration
• Determine the legal basis of settling disputes involving certain government projects through
arbitration instead of courts
• Determine the jurisdiction of the Construction Industry Arbitration Commission
• Distinguish the available directions for the arbitration of disputes arising from government contracts
• Identify the steps for the arbitration of construction and non-construction related disputes
• Determine the exception to the general and exclusive jurisdiction of the Construction Industry
Arbitration Commission
• Differentiate enforcing an arbitral award against a private party and enforcing one against the
government

MODULE 1: The Arbitration Forum

Before getting involved in government projects, one is well advised to be familiar with the arbitral process
which is the mandated mode of settling disputes arising from contracts covered by the Government
Procurement Reform Act.

Instead of the conventional dispute resolution process of arguing the case in a courtroom, the Government
Procurement Reform Act has transferred the dispute resolution process to another forum. That forum is
arbitration. In order to be able to competently participate in that process, whether one is on the side of the
government or on the opposite side, this lecture will provide the basic knowledge required to work in that
practice area.

The law defines arbitration as a voluntary dispute resolution process in which one or more arbitrators,
appointed in accordance with the agreement of the parties, or rules promulgated pursuant to the Alternative
Dispute Resolution Act of 2004, resolve a dispute by rendering an award.

Stripped of legalese, arbitration means that the disputants present their evidence to prove their claims or
counterclaims before a private person known as an arbitrator who will sit in judgment by rendering what is
 known as an arbitral award. Depending upon the agreement of the parties, an arbitration may take place
before a sole arbitrator or before a panel of two or more arbitrators. The term arbitral tribunal may refer to a
sole arbitrator or a panel of two or more arbitrators.

If a dispute arises, the dispute will go to arbitration for settlement only if the contract out of which the dispute
arises provides that any dispute so arising shall be resolved by arbitration, instead of by court litigation.

MODULE 2: Legal Basis of Settling Disputes Involving Certain Government

Projects through Arbitration
What is the basis for the mandate that disputes involving certain government projects must be referred to
arbitration for settlement, instead of referring them to courts?

There is a legislative compulsion to use arbitration as the mechanism for resolving disputes covered by the
Government Procurement Reform Act. This part of the course intends to provide fundamental knowledge in
participating in the process of resolving those disputes by arbitration.

Time has come which requires a lawyer to be familiar, not only with the conventional method of resolving
contractual disputes in a courtroom, but also with the alternative dispute resolution process more commonly
known as arbitration.

The Government Procurement Reform Act provides that any and all disputes arising from the implementation
of a contract covered by this Act shall be submitted to arbitration in the Philippines according to the provisions
of the Arbitration Law and the Alternative Dispute Resolution Act of 2004.

It is further provided that disputes which are within the competence of the Construction Industry Arbitration
Commission to resolve shall be referred thereto. The process of arbitration shall be incorporated as a provision
in the contract that will be executed pursuant to the provisions of the Government Procurement Reform Act.

MODULE 3: Jurisdiction of the Construction Industry Arbitration Commission

It is important to know that arbitration is the only form of alternative dispute resolution which leads to a binding
award. It is equally important to be familiar with construction arbitration which is a special field of arbitration for
the resolution of construction disputes.

The Construction Industry Arbitration Commission has jurisdiction over arbitrable construction disputes.

The Construction Industry Arbitration Commission shall have original and exclusive jurisdiction over disputes
arising from, or connected with, contracts entered into by parties involved in construction in the Philippines,
whether the dispute arises before or after the completion of the contract, or after the abandonment or breach
thereof. These disputes may involve government or private contracts. For the CIAC to acquire jurisdiction, the
parties to a dispute must agree to submit the same to voluntary arbitration.
There are two requisites for the CIAC to exercise its original and exclusive jurisdiction. The first requisite is that
the dispute must arise from a construction contract in the Philippines. The second requisite is that the
construction contract must contain an arbitration clause.

MODULE 4: Available Directions for the Arbitration of Disputes Arising from

Government Contracts
When does a dispute arising from a government contract go to the Construction Industry Arbitration
Commission and when does it go elsewhere for arbitration?

It is helpful to distinguish the available directions for the arbitration of disputes arising from government
contracts.

A dispute arising from a government contract will go to the Construction Industry Arbitration Commission if the
contract involves a government construction project and the contract includes an arbitration clause.

The Government Procurement Reform Act makes a distinction between an arbitrable non-construction dispute
and an arbitrable construction dispute.

The common denominator is that the dispute is arbitrable. That means that the government contract involved
calls for the arbitration of any dispute arising out of that contract.

If the contract is not related to a construction project, a dispute arising out of that contract will be referred to
arbitration under The Arbitration Law and the Alternative Dispute Resolution Act of 2004.

On the other hand, if the contract is related to a construction project, a dispute arising out of that construction
contract will be referred to the Construction Industry Arbitration Commission for arbitration.

MODULE 5: Steps for the Arbitration of Construction and Non-Construction

Related Disputes
A non-construction related dispute from a government contract presents more than one option for arbitration.

Meanwhile, a construction-related dispute from a government contract presents more than one option for
arbitration, but there is a general rule that one is well-advised to learn.

A non-construction related dispute arising from a government contract will be referred to either institutional
arbitration or ad hoc arbitration.

If the government contract does not involve a construction project, any dispute arising therefrom will be
referred to institutional arbitration if the arbitration clause mentions an arbitration institution for the arbitration of
the dispute.

For example, if the contract involves the computerization of a government agency and the arbitration clause
states that any dispute shall be referred to arbitration under the Arbitration Rules of the Philippine Dispute
Resolution Center, Inc., then it is an institutional arbitration which shall follow the Arbitration Rules of the
Philippine Dispute Resolution Center, Inc.

The constitution of the arbitral tribunal will follow the Arbitration Rules of the Philippine Dispute Resolution
Center, Inc. Once the arbitral tribunal has been constituted, the conduct of the arbitration proceedings will
follow the Rules of the Philippine Dispute Resolution Center, Inc. – including the preparation of written
submissions, the examination of witnesses, the rendition of the arbitral award and the computation of the
arbitration costs, among other things.

On the other hand, if the arbitration clause does not mention an arbitration institution, any dispute arising from
the contract for the computerization of the government agency in our example will be arbitrated following the
steps in The Arbitration Law or The Alternative Dispute Resolution Act of 2004 or the Implementing Rules and
Regulations of the Alternative Dispute Resolution Act of 2004. These will be the applicable rules for the
constitution of the arbitral tribunal, the preparation of written submissions, the examination of witnesses and
the rendition of the arbitral award. In all likelihood, the arbitration costs will be the subject of consultation and
agreement between the arbitral tribunal and the disputing parties.

In a construction related dispute from a government contract, the general rule is that the dispute will be
arbitrated under the rules of the Construction Industry Arbitration Commission.

It is important to recall that the Construction Industry Arbitration Commission has original and exclusive
jurisdiction over all construction disputes where the construction contract has an arbitration clause, or where
the over-all construction agreement includes an arbitration agreement, regardless of whether the construction
is a government project or a private project.

Since our topic is Arbitration Involving the Government, we will focus on disputes arising from government
construction projects referable to arbitration.

The simplest arbitration clause here may state that “any dispute arising out of this [government] contract shall
be resolved by arbitration under the Rules of the Construction Industry Arbitration Commission.”

This means that the selection of the arbitrator or arbitrators, the submission of written submissions, the
examination of witnesses, the rendition of the arbitral award and the arbitration costs will be computed
according to the Rules of the Construction Industry Arbitration Commission.

If the arbitration clause in a government construction contract is silent about the Construction Industry
Arbitration Commission or any arbitration center, since the government contract involves a construction project,
the general rule is that the arbitration may still be referred to the Construction Industry Arbitration Commission
even if it was not mentioned in the arbitration clause.

The source of this rule is the case of China Chang Jiang Energy Corp. (Phils.) v. Rosal Infrastructure Builders,
a land mark decision in 1996.

Click this button to learn more about this case.

The general rule, therefore, is that in a construction related dispute from a government contract, the general
rule is that the dispute will be arbitrated under the rules of the Construction Industry Arbitration Commission
because either (1) the arbitration clause specifies the Construction Industry Arbitration Commission or (2) the
arbitration clause is silent.
MODULE 6: Exception to the General and Exclusive Jurisdiction of the
Construction Industry Arbitration Commission
Knowing the exception to the general and exclusive jurisdiction of the Construction Industry Arbitration
Commission confirms a recognition of the principle of party autonomy in construction arbitration.

While the Construction Industry Arbitration Commission has general and exclusive jurisdiction over
construction arbitration disputes, the China Chang case respects the parties’ stipulation if they choose to
arbitrate an arbitrable construction dispute under the rules of another arbitration institution.

One might ask if it is still possible for the parties to a construction contract to stipulate that they would like to
arbitrate a dispute under the rules of another institution other than the Construction Industry Arbitration
Commission.

The China Chang case has an answer to this question. The Supreme Court explains that it should not be
understood to mean that the parties may no longer stipulate to submit their disputes to a different forum or
arbitral body. Parties may continue to stipulate as regards their preferred forum in case of voluntary arbitration,
but in so doing, they may not divest the Construction Industry Arbitration Commission as provided by law.

The Supreme Court further explains that under the principle on the law on contracts that laws obtaining in a
jurisdiction form part of all agreements, when the law provides that the Construction Industry Arbitration
Commission acquires jurisdiction when the parties to the contract agree to submit the same to voluntary
arbitration, the law, in effect, automatically gives the parties an alternative forum before whom they may submit
their disputes. That alternative forum is the Construction Industry Arbitration Commission.

MODULE 7: Enforcing Arbitral Awards

In view of the possibility of a private party winning a claim against the government through arbitration, does the
Commission on Audit have any involvement in the enforcement of favorable award obtained by the private
party through arbitration?

One must be aware of a significant difference between enforcing an arbitral award against a private party and
enforcing an arbitral award against the government.

An arbitral award in favor of a private party against a government agency has to pass through the Commission
on Audit.

If a private party prevails against another private party in the arbitration of a dispute arising from a construction
contract, the prevailing party may immediately proceed to the enforcement procedure to obtain a writ of
execution against the losing private party. If the arbitral award was rendered by the Construction Industry
Arbitration Commission, the prevailing party may apply for the issuance of a writ of execution from the
Commission.

On the other hand, if the arbitral award was rendered by a different arbitral tribunal other than the Construction
Industry Arbitration Commission, the prevailing party may apply for the issuance of a writ of execution from the
Regional Trial Court.
However, since our focus is Arbitration Involving the Government, and the thrust is to zero in on disputes
arising from government construction projects referable to arbitration, one must be aware that an arbitral award
against a government agency must pass through the Commission on Audit before the claim may finally be
enforced.

The source of this rule is Section 26 of Presidential Decree No. 1445. The authority and powers of the
Commission on Audit shall extend to and comprehend the settlement of all debts and claims of any sort due
from or owing to the Government or any of its subdivisions, agencies and instrumentalities.

This statutory provision has been interpreted by the Supreme Court to mean that the settlement of a money
claim against the governments is still subject to the jurisdiction of the Commission on Audit despite the finality
of a confirmed arbitral award in favour of a private party.