G.R. No. 167022 & G.R. No. 169678, April 4, 2011
LICOMCEN INCORPORATED, Petitioner, vs. FOUNDATION SPECIALISTS, INC., Respondent. / FOUNDATION SPECIALISTS, INC., Petitioner, vs. LICOMCEN INCORPORATED, Respondent.

FACTS

LICOMCEN Incorporated (LICOMCEN) was awarded a lease contract by the City Government of Legaspi to construct and operate the LCC Citimall. For this project, LICOMCEN hired E.S. de Castro and Associates (ESCA) as its engineering consultant and contracted Foundation Specialists, Inc. (FSI) to construct the bored piles foundation. They signed a Construction Agreement, Bid Documents, and General Conditions of Contract (GCC) on September 1, 1997. FSI mobilized and began work to meet the 90-day deadline.
On December 16, 1997, LICOMCEN informed FSI it was considering major design revisions and a suspension of work. FSI expressed concern and demanded payment for accomplished work. On January 6, 1998, ESCA informed FSI that the revised design would substantially reduce the number of piles and proposed that only 50% of the ordered steel bars be delivered. Despite this, all steel bars arrived on January 14, 1998. On January 15, 1998, LICOMCEN instructed FSI to hold all construction activities due to a pending administrative case before the Ombudsman. ESCA formalized the suspension on January 19, 1998.
FSI demanded payment for costs incurred due to the suspension. ESCA, replying for LICOMCEN, objected to some claims, including the cost of the delivered steel bars, arguing the delivery disregarded its instructions and that the suspension was not due to LICOMCEN’s fault. After a final demand in 2001 went unheeded, FSI filed a petition for arbitration with the Construction Industry Arbitration Commission (CIAC) on October 2, 2002, demanding payment for unpaid billings, material costs, standby costs, unrealized profit, attorney’s fees, and interest.
LICOMCEN denied liability, justifying the suspension due to the pending cases, and assailed the CIAC’s jurisdiction. It argued that under GCC Clause 61, only disputes “in connection with, or arising out of the execution of the Works” were arbitrable, and that FSI’s monetary claims should be litigated in the regular courts of Legaspi City per GCC Clause 05. The CIAC denied LICOMCEN’s motion to dismiss, finding the jurisdictional issue dependent on factual conditions yet to be established. The arbitration proceeded with both parties participating.
The CIAC ruled in favor of FSI on July 7, 2003, awarding amounts for unpaid work billings, material costs at site, equipment and labor standby costs, and unrealized gross profit. LICOMCEN appealed to the Court of Appeals (CA). The CA, on November 23, 2004, modified the CIAC decision by reducing the award for material costs and deleting the awards for standby costs and unrealized profit, affirming the rest. Both parties’ motions for reconsideration were denied. Hence, both parties filed petitions for review before the Supreme Court.

ISSUE

The principal issue is whether the CIAC validly exercised jurisdiction over FSI’s claims. Subsidiary issues involve the correctness of the awarded amounts, particularly for material costs and unrealized profit.

RULING

The Supreme Court ruled that the CIAC validly acquired jurisdiction over the dispute.
1. On Jurisdiction: The Court held that FSI’s claims for payment arising from the suspension of the construction project fall within the scope of disputes arbitrable by the CIAC under Executive Order No. 1008 (Construction Industry Arbitration Law). The claims are intrinsically related to or connected with the execution of the works under the construction contract. The phrase “arising out of the Works” is broad enough to encompass disputes that are a direct consequence of the execution or non-execution of the works, including claims for payment due to work suspension. The Court rejected LICOMCEN’s restrictive interpretation that limited arbitrable disputes only to those occurring during physical construction activities. Furthermore, LICOMCEN actively participated in the arbitration proceedings after its motion on jurisdiction was denied, which constituted voluntary submission to the CIAC’s authority.
2. On the Award for Material Costs (Steel Bars): The Court reinstated the CIAC’s original award of P14,643,638.51, reversing the CA’s reduction. The Court found that FSI’s delivery of all steel bars, despite ESCA’s instruction to ship back half, was reasonable under the circumstances. The project had a short 90-day deadline, the suspension was initially presented as temporary, and the materials were shipped from a distant location (Cagayan de Oro). FSI could not be faulted for ensuring materials were available to meet the tight schedule upon a potential quick resumption of work.
3. On the Award for Unrealized Gross Profit: The Court reinstated the CIAC’s award of P5,120,000.00. The Court held that a contractor is entitled to recover profits that would have been earned had the contract not been breached. The suspension of the project constituted a breach of contract by LICOMCEN. The amount of unrealized profit was sufficiently established by FSI based on the contract value and the industry-standard profit margin, and this finding of fact by the CIAC is conclusive and not reviewable by the Supreme Court.
4. On the Award for Standby Costs: The Court did not reinstate the CIAC’s award for equipment and labor standby costs. The Court agreed with the CA’s deletion of this award, as FSI failed to sufficiently substantiate these specific claims with evidence.
Dispositive Portion: The Court PARTIALLY GRANTED and PARTIALLY DENIED the petitions. The CIAC’s award for material costs at site (P14,643,638.51) and unrealized gross profit (P5,120,000.00) was REINSTATED. The CA’s deletion of the award for standby costs was AFFIRMED. The CIAC’s award for unpaid accomplished work billings (P1,264,404.12) was likewise AFFIRMED.