G.R. No. 155001 , G.R. No. 155547, G.R. No. 155661 May 5, 2003
DEMOSTHENES P. AGAN, JR., et al., and other consolidated petitioners, vs. PHILIPPINE INTERNATIONAL AIR TERMINALS CO., INC. (PIATCO), et al., respondents.

FACTS

The petitions assail the Concession Agreement and its subsequent supplements (collectively, the PIATCO Contracts) executed by the government, through the DOTC and MIAA, with PIATCO for the construction and operation of the NAIA International Passenger Terminal III (NAIA IPT III) under a Build-Operate-Transfer (BOT) scheme. The project originated from an unsolicited proposal by Asia’s Emerging Dragon Corp. (AEDC). Following the procedure under the BOT Law (R.A. 6957, as amended), the government published an invitation for comparative proposals. PairCargo and Consortium, which later incorporated into PIATCO, submitted a bid and was eventually awarded the project after AEDC failed to match its proposal.
Petitioners, comprising legislators, employees, and their unions, filed petitions for prohibition. They argued the contracts were void for violating constitutional and statutory provisions, particularly regarding public bidding, award criteria, and the grant of franchise. They contended the bidding process was flawed, the award was based on parameters not disclosed to other bidders, and the contracts contained onerous provisions detrimental to the government and the public interest.

ISSUE

The principal issue is whether the PIATCO Contracts are null and void for being contrary to law, public policy, and the Constitution.

RULING

The Supreme Court declared the PIATCO Contracts null and void. The legal logic proceeds from fundamental principles governing public contracts. First, the award violated the BOT Law and its implementing rules. The law mandates a transparent and competitive bidding process. The Court found the bidding process fatally defective. The parameters and procedures for the award were materially amended after the bidding had closed, through PBAC Bulletin Nos. 3 and 4, which changed the financial capacity requirements and the calculation of the project cost. These amendments were not published and effectively precluded a fair and honest bidding, violating the requirement of competitive bidding.
Second, the contracts contained provisions that are grossly disadvantageous to the government, rendering them contrary to public policy. For instance, the government assumed excessive liabilities, such as guaranteeing a minimum volume of international passenger traffic and indemnifying PIATCO for any “adverse government action,” which could include judicial pronouncements nullifying the contracts. Such provisions essentially placed the government in a position where it would be compelled to uphold the contracts even if illegal, undermining state sovereignty and the legal system.
Third, the operation of a public utility, which an international passenger terminal is, requires a franchise from Congress. The Concession Agreement, being merely a contract, cannot substitute for a legislative franchise. PIATCO was granted the right to operate the terminal for 25 years without the requisite congressional franchise, which is a direct violation of the Constitution. Consequently, the contracts were void ab initio for lack of the requisite authority and for contravening mandatory legal and constitutional requirements.